The Antitrust Revolution in Europe

The Antitrust Revolution in Europe
The Antitrust
Revolution in Europe
Exploring the European Commission’s Cartel
Policy
Lee McGowan
Senior Lecturer in European Studies, Queen’s University
Belfast, UK
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© Lee McGowan 2010
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02
Contents
Preface vii
Abbreviations ix
1. The origins and scope of European competition policy:

themes and purpose 1
2. Uncovering cartels: understanding the approaches and
complexities of collusive agreements 23
3. The rise of the cartel: toleration, encouragement and the
control of cartels in Europe, 1871–1945 44
4. The dawn of the competition principle in Western Europe,
1945–1957 69
5. Establishing the architecture of EU cartel governance,
1958–1962 93
6. European cartel policy: deployment and combat, 1963–1998 121
7. The decussis mirabilis and the antitrust revolution in Europe,
1999 to the present 150
8. The internationalisation of cartel policy and the challenges
ahead 176
Appendix: The numbering and renumbering of the rules on

competition under the treaties 198
Bibliography 199
Index 219
v
Preface
Interest in European competition policy has never been higher and the lit-
erature has never been richer. In the last decade the European Commission
has initiated a thorough review of all areas of its activities stretching from
cartels and mergers to state aids and abusive monopolies. Competition
policy can certainly be said to have ‘come of age’, and its recognition in the
Lisbon Treaty as one of the few exclusive EU competences has enhanced
its prestige and significance for students and researchers outside the two
disciplines that have overwhelmingly dominated this policy area, namely
economics and law. Yet beyond these disciplines, competition policy is
little understood or often appreciated. Political scientists rarely study this
area; even those working in the field of European Studies have also tended
to underplay or overlook its importance as a European policy in the inte-
gration process. The absence of politics has long represented a major gap
in the competition literature, and especially when the evolution of compe-
tition policy provides us with a great example of the European integration
process. Over the last fifteen years, however, a small but growing band of
historians and political scientists have finally begun to explore competi-
tion policy, stress its significance in the European integration process and
shed new light onto the origins and actors as well as analysing the impact
of competing economic philosophies and the appropriateness of rival
theoretical approaches to understanding developments in this field.
This particular work comes at competition policy from a politics/public
policy perspective and its focus on actors, ideas and policy developments
aims both to complement and add to the existing economics and legal
based literatures. This book explores the European Commission’s cartel
policy. Cartels have very rarely attracted the attention of political science,
and yet cartel-busting has always been one of the foremost activities of
the Commission and one that has consumed much of this regulator’s
time and resources. Cartel policy provides for a truly fascinating account
of supranational governance in action as the Commission looks for ever
more imaginative means to detect, unearth and penalise cartel offenders.
The recent reform of the Commission’s anti-trust provisions (through
Regulation 1/2003) forms part of this modernisation agenda. It was a
significant move and marked the first major overhaul of the Commission’s
cartel-busting activities since its inception nearly fifty years ago.
vii
viii The antitrust revolution in Europe
Some commentators claim the recent reform package constitutes a ‘rev-

olution’ (Wilks, 2005), while others have opted to regard it instead as the
latest development in a regime that has been continually marked by the
neo-liberal turn of the 1980s (Wigger, 2008). Whichever reflects better
the recent transformation of the policy, there is no doubt that for those of
us interested in the area of competition policy (and cartel policy) we are
living in interesting times and especially as we wait to see how the credit
crunch and worst recession since the 1930s impacts on the competition
arena.
Before commencing, however, there are a few stylistic points that need
to be addressed at the outset. First, with regard to the numbering of treaty
articles, this book uses the post-Amsterdam (post-1999) numbering only.
Thus, Article 81 is referred to when cartel/restrictive practices policy is dis-
cussed (rather than its former incarnation as Article 85). This book avoids
using both to prevent any unnecessary confusion although technically
it should refer to Article 85 from 1958–1999. Another word of caution
is needed on the numbering of treaty articles: at the time of writing the
Treaty of Lisbon had still not been ratified by all 27 EU member states,
with the Czech Republic, Germany and Poland still to approve the docu-
ment. The treaty was ratified by Ireland at the second referendum attempt
in October 2009 and approval came shortly thereafter from both Poland
and the Czech Republic. The treaty finally came into force on 1 December
2009 and renumbered the treaty provisions. Under the Lisbon Treaty the
competition articles now run from Articles 101–110.
The Lisbon Treaty will also adopt the term European Union through-
out the entire treaty base. This book uses EU when referring to com-
petition policy although it is currently technically correct to speak of
European Community (EC) competition law. On a similar point it should
be noted that in 1999, DGIV (Directorate-General Four) of the European
Commission became DG Competition (or DG COMP). DGIV may be
mentioned in Chapters 4 and 5 as the historical evolution of the policy is
explored, but otherwise, DG Competition is used throughout.
Finally, I would like thank friends and colleagues for their support as
this work was completed. I would like to express my gratitude to all the
relevant staff at Edward Elgar for their patience and assistance, to all those
people who kindly expressed their views on the draft chapters and the final
text and those officials who provided insights into the workings and evolu-
tion of EU cartel policy. And finally, I wish to thank my immediate family
for their support.
Lee McGowan, May 2009

Abbreviations
ABA American Bar Association
AMCHAM-EU American Chamber of Commerce – EU Division
BDI Bundesverband deutscher Industrie (Confederation
of German Industry)
BEUC European Bureau of Consumers’ Unions
BKartA German Cartel Office
CBI Confederation of British Industry
CDU Christian Democratic Union (of Germany)
CEECs Central and East European Countries
CET Common External Tariff
CFI Court of First Instance
CLP Competition Law and Policy Committee
CMLR Common Market Law Reports
CMLRev Common Market Law Review
CSU Christian Social Union (Germany)
DG Directorate-General (of the Commission)
DG Competition Directorate-General for Competition (European
Commission)
DGIV Directorate-General for Competition (prior to 1999)
DTI Department of Trade and Industry
EC European Community
ECJ European Court of Justice
ECLR European Competition Law Review
ECN European Competition Network
ECR European Court Reports
ECSC European Coal and Steel Community
ECSC6 Original six founding members of the ECSC
EEA European Economic Area
EEC European Economic Community
EESC European Economic and Social Committee
EFTA European Free Trade Association
EP European Parliament
ERT European Roundtable of Industrialists
EU European Union
EUMR European Union Merger Regulation
ix
x The antitrust revolution in Europe
EURATOM European Atomic Energy Community

FDP The Free Democratic Party (Germany)
FTC Federal Trade Commission (US)
GATT General Agreement on Tariffs and Trade
GNP Gross National Product
GWB Gesetz gegen Wettbewerbsbeschränkungen (German
Law against Restraints on Competition)
G8 Group of Eight (industrialised countries)
ICI Imperial Chemical Industries
ICN International Competition Network
IT Information Technology
ITO International Trade Organization
MEP Member of the European Parliament
MTF Merger Task Force
NAFTA North Atlantic Free Trade Association
NCAs National Competition Authorities
NTBs Non-Tariff Barriers
OECD Organization for Economic Cooperation and
Development
OEEC Organization for European Economic Co-operation
OFT Office of Fair Trading
OJ Official Journal (of the European Union)
R&D Research and Development
SEA Single European Act 1986
SEM Single European Market
SME Small and Medium-sized Enterprises
SPD Social Democratic Party of Germany
TEC Treaty Establishing the European Community
TENs Trans-European Networks
TEU Treaty on European Union (Maastricht Treaty) 1992
TFEU Treaty on the Functioning of the European Union
2009
ToA Treaty of Amsterdam 1997
ToN Treaty of Nice 2001
UNCTAD United Nations Conference on Trade and
Development
UNICE European Employers’ Association (now Business
Europe)
WTO World Trade Organisation
1. The origins and scope of European
competition policy: themes and
purpose
Some 53 years after the signing of the Treaty of Rome there is ample scope
to debate the achievements, near misses and failures of the European
Union (EU). One aspect of European governance, however, is undeniable,
namely the priority and centrality of the competition principle throughout
the history of the European integration process. As an issue of low politics,
and one that is particularly complex, competition policy was arguably an
ideal sector for initial functionalist co-operation towards the creation of a
common (and later) single market. Even so it must be stressed that compe-
tition policy as an idea and logic was controversial in its own right among
the states of Western Europe. It was a new departure and consequently,
any plans to delegate powers to the supranational level not only were
problematic but raised controversies about at which level power should be
exerted, how it should be exercised and who should enforce it.
Nevertheless and with hindsight it is clear that these problems were
overcome and that the development of competition policy within the EU
represents one of the success stories of the entire European integration
process and offers one of the first and best examples of supranational
governance in action. Indeed, the EU competition policy regime gradu-
ally stamped its influence on the perceptions, structures and approaches
of the national competition regimes within the EU as the latter have either
opted to converge voluntarily with many aspects of the EU competition
model or have been coerced into doing so as a necessary part of the acces-
sion criteria for the states of Central and Eastern Europe after 2004. This
‘ever closer’ interaction between the European and national competition
authorities has been further boosted through the creation of the European
Competition Network, which enables the agencies to share and swap
information, and more importantly to develop their own set of norms and
values. How did this all happen? Why did competition policy emerge as
a suitable policy area for European integration and who are the drivers
and actors within the EU regime? This book is very much concerned with
unpacking the competition policy regime to provide answers to these
1
2 The antitrust revolution in Europe
questions and explores the actors, their powers and strategies at establish-
ing European competition governance. Rather than providing a general
overview of the full remit of EU competition policy this book focuses its
attention primarily on the EU cartel regime and aims to illustrate how the
European Commission has pursued cartels and to what extent its battles
to uncover, dissolve and penalise cartellisation has been effective.
1. WRITING ABOUT COMPETITION POLICY
Although fewer areas of European public policy may seem to have been as
widely researched, debated and analysed than European Union (EU) com-
petition policy, a degree of caution is immediately required, for a closer
inspection reveals that interest in this particular policy area has stemmed
mainly from the disciplines of economics (including Bishop, 1993; Clarke
and Morgan, 2006; Estrin and Holmes, 1998; Motta, 2004) and law (includ-
ing Goyder, 2003; Jones and Sufrin, 2008; Whish, 2009). In stark contrast,
few political scientists have opted to explore competition policy in terms of
both research and teaching. Indeed, even most EU scholars (albeit with a
handful of exceptions such as Cini and McGowan, 2009; Eyre and Lodge,
2000; McGowan and Wilks, 1995; Doern and Wilks, 1996; Wilks, 2007)
have tended to overlook this field of enquiry, simply just acknowledge
its significance on passing or dismiss its relevance altogether. This reality
holds true for studies of the EU regime as well as studies of the individual
national competition regimes. Few undergraduate modules on the EU
include competition policy. The complexity and seemingly impenetrable
labyrinth of the legal case law and the economic analyses of competition
regulation may in part explain this seeming reticence to explore competi-
tion, and there can also be a tendency among economists, legal scholars
and practitioners to reject a political dimension in the making of competi-
tion policy. Mario Monti, a former EU Competition Commissioner, pro-
vided an apt illustration when he declared that EC competition policy ‘is a
matter of law and economics, not politics’ (Levy, 2005). Politics certainly
plays a role in the regulation of competition and its exclusion (whether
self-imposed or not) is simply no longer defensible.
EU competition policy has long represented one of the few areas where
the Commission not only is responsible for direct policy implementation
but also possesses wide discretionary powers as both a regulator and
an enforcer of policy. Fortunately there are now strong signs that these
knowledge barriers are finally being broken down as a new generation of
political science/public policy researchers (Buch-Hansen, 2008; Büthe and
Swank, 2007; Damro, 2006; Doleys, 2007; Lehmkuhl, 2008; Leucht, 2008;
The origins and scope of European competition policy 3
Seidel, 2007; Warzoulet, 2007; Uydin, 2009; Wigger, 2008) shed greater
and welcome light on the origins, institutions and workings of EU com-
petition policy.
Politics matters in competition regulation and surfaces in relation to
institutional design and powers, issues of transparency, degrees of politi-
cisation, discretionary abilities and questions of legitimacy in the decision
making process. Those regulators engaged in cartel enforcement may be
surprised to find political scientists mulling over competition policy, but
a closer examination of the intense debates surrounding the inclusion of
competition in the ECSC Treaty and the shaping of the anti-cartel drive in
the EEC Treaty clearly reveal examples of the political sensitivities at play.
There can of course be little doubt that competition policy is a matter of
economics, just as it is a matter of the law. As Cini and McGowan (2009)
state:
What is often forgotten, however, is that the reasons for having a competition
policy, the form that policy takes – both substantively and procedurally – and
how the policy is implemented and enforced are all at the core questions of
politics. A political dimension demands that we stand back from the micro- and
meso-analyses of the competition economists and lawyers to address broader
questions of state, economy and indeed society.
Competition policy may not immediately catch the imagination of many

political science students. At first glance it seems too arcane and complex,
but its less than apt coverage is not so unremarkable. Indeed, let us go
further and argue that the paucity of material from political science is part
of a wider malaise in EU studies. There is an imbalance, and many of the
main economic policy areas (with the exception of the euro) have been
overshadowed by a huge interest in the ‘high politics’ arenas of security
and immigration, the politics of enlargement and treaty reform. Although
both topical and significant these areas should not be allowed to overlook
the core areas where integration has proceeded the furthest. This imbal-
ance has arisen owing to the unwillingness or degrees of uncomfortability
for many about engaging with other disciplines, but in part it also occurs
because such policy studies do not lend themselves easily to the leading
debates within International Relations and Comparative Politics theories
and approaches.
It is important for students of politics to engage with competition policy.
It is one of only six exclusive core competences of the EU (Treaty of Lisbon),
and students should recognise its significance in the creation of suprana-
tional governance, and need to question the politics behind its operationali-
sation and appreciate the growing relevance it will have for a new phase of
government/industry relations in face of the current economic crisis.
This book has been written with the politics and public policy reader
in mind, and aims to complement the numerous existing materials on this
subject area from the disciplines of economics and law. As such it should
be stressed from the outset that this work is primarily concerned neither
with analysing the economic theories of competition behind cartel forma-
tion and practices (Bishop and Walker, 2002; Morgan, 2009) nor with
the legal analysis of collusive agreements and a substantial case law that
already exists (Korah, 2007; Sufrin and Jones, 2008; Whish, 2003). Its
attention concentrates rather on the institutional structures and decision-
making processes of the EU supranational cartel regime, and specifically
the role and activities of the European Commission and the evolution of
cartel policy. In adopting this approach it recognises the contributions
from both economics and law. Indeed, this book should prove invaluable
and informative for students of both law and economics as each discipline
brings its own distinct slant and focus.
Still, from a political science perspective, if there has been little work
done on EU competition policy as a whole there has been substantially
nothing that has been done on the two core aspects of anti-trust, namely
cartels and monopolies. This book begins to redress this omission by
examining cartel policy. It focuses on the one aspect of its competition
brief which has occupied much of the European Commission’s limited
resources from the very outset, namely restrictive practices (under Article
81), which includes the pursuit, identification and termination of cartel
arrangements. The European Commission takes the lead in shaping and
setting the policy, and in establishing the parameters within which it is
applied in practice. Even though certain aspects of policy enforcement
have been decentralised since regulation changes in 2004, and despite the
fact that the Commission now works within a network of competition
actors and institutions to which it has delegated some of its earlier respon-
sibilities, it remains the dominant player in the European competition
policy game.
This book addresses a paradox. Although the anti-cartel drive repre-
sents the oldest aspect of the EU competition regime and has been the one
which has consumed most of the European Commission’s Competition
Directorate General’s (DG Competition) human resources and time, the
area of cartels has been under-researched in favour of the other aspects
such as merger control and more politically sensitive areas such as the lib-
eralisation of the public utilities (especially in the energy sector) and state
aid (Doleys, 2007; Thomas and Wishlade, 2009). The paucity of political
science literature in this area is unfortunate, for the pursuit of cartels opens
up a truly fascinating world of ‘dawn raids’ and intrigue where secretive
agreements are concocted in smoke filled rooms, in luxury holiday resorts
and have even been subject to covert taping (see Connor, 2001) by the FBI
in the USA.1
In the first half of 2008 alone the European Commission raided the
offices of a very prestigious list of companies (such as Unilever, Procter
and Gamble, Lufthansa, and Lloyd’s Register, to name but a few) in their
search for cartels (Financial Times, 30 June 2008; Irish Times, 21 June
2008). The study of cartels has, according to two competition law special-
ists (Harding and Joshua, 2003), received little distinct exploration even in
the legal literature, and the highly probable explanation for this situation
rests with competition law’s focus on market structures rather than inves-
tigating the moral and ethical issues of anti-competitive activities. Cartels
are a reality of modern business life, but just how problematic are they and
what exactly is competition policy?
2. UNDERSTANDING THE COMPETITION

PRINCIPLE AND THE ENFORCEMENT OF
COMPETITION POLICY
It is an undisputed fact among neo-classical economists that competition

is a necessary prerequisite for a free market economy, although there may
indeed be a variety of different approaches to defining what competition
actually entails and means (Scherer and Ross, 1990). Being anchored in
the principles of free-market capitalism the origins and development of
competition policy across Europe after 1945 have always retained a degree
of controversy and policy evolution must be set against trends in wider
economic models and varieties of capitalism (Buch-Hansen, 2008; Wigger,
2008). A competition policy strives to secure the creation and maintenance
of genuinely competitive markets. As one commentator has described
it, ‘central to the classical definition is the notion of perfect competition
which provided a benchmark against which all other forms of competition
should be judged’ (Gavin, 2001: 108). Thus, the commitment to com-
petitive markets is rarely questioned. Cini and McGowan (2009) note that
‘Competition’ has been defined as the ‘struggle or contention for superior-
ity, [which] in the commercial world . . . means a striving for the custom
and business of people in the market place’ (see also Bishop and Walker,
2002; van den Bergh and Camasasca, 2006). Wilks identifies the reality
that ‘there are both economic and political rationales for competition
policy’ (Wilks, 2005: 115). The political aspect centres on the readiness of
individual governments to allow business actors the freedom to compete
in the market in order to protect the consumer from any potential exploi-
tation from the power of big business. Although the economic rationale
raises more points of controversy it is very much steeped in ‘neo-classical’

economic approaches which highlight the advantages and desirability of
both productive and allocative efficiencies. Ultimately, efficiencies will be
greater where the health of the economy is subject to strong competition
rules and they are very much linked to the competitiveness agenda which
arose in the mid-1990s and continued as a central aspect of the Lisbon
Agreement. A sizeable literature on the economic theory of competition
policy has developed from Smith and Mill to the Chicago and Austrian
Schools. It is not the intention to deal with this here and readers are
strongly encouraged to consult the above-referenced works.
The pursuit of perfect competition has long been a cherished concept
of neo-classical economics and the market has been regarded as the
most effective instrument to allocate resources and determine prices.
Accordingly, competition between firms is to be welcomed as it unleashes
dynamic effects which can be transformed into greater efficiencies, inno-
vation and, ultimately, lower prices for the consumer. Economic theory
illustrates the argument through two ideal types. The first type refers to
a world of perfect competition where the existence of numerous suppliers
prevented any likelihood or possibility of collusive agreements to control
price. This ideal model remains largely utopian in nature as the realities of
many actual markets are typified more by models of imperfect competition
(type 2), where considerably fewer players exist and can (determine price)
and do deliberately set out to thwart competition through the pursuit
of anti-competitive agreements. Even Adam Smith, with his talk of the
‘invisible hand’ of the market, recognised that competition was an abstract
notion which could not exist in its purest form in the real world.
Instead of pursuing some abstract notion of perfect competition, com-
petition authorities have preferred to opt for the looser concept of ‘work-
able competition’ (Clark, 1940; Sosnick, 1958). On the one hand such
an approach is, in terms of theory, a much vaguer concept, but on the
other hand it reflects developments on the ground. Either way a state of
actual competition cannot simply be taken for granted even if there are be
ethical and social objections to the absence of competition. Markets can
be manipulated by firms deliberately to distort the benefits and efficiencies
of competition. Some firms strongly resist any such calls for competition
and seek to undermine such objectives by engaging in a number of anti-
competitive practices which include dividing up markets and fixing prices
in order to increase or maintain their profit margins.
A state of firm to firm competition is often resisted and fought because
it generates uncertainty. In contrast engagement in anti-competitive prac-
tices is deemed to provide greater predictability. By acting collusively or
by abusing a dominant market position, cartel members may be able to
charge higher prices and reap substantial gains. Given this context compe-
tition policies are designed and drafted to prevent, deter or threaten firms
from acting in such a fashion. In the lack of strict competition applica-
tion and enforcement such incentives are easily lost, and without it, as
the former command-led economies of the former communist states in
Eastern Europe readily illustrated, prosperity and growth suffer.
Competition requires regulation because, as Doern and Wilks (1996: 1)
have affirmed, ‘[n]either competition nor the market is inevitable or natural.
Markets have to be created through processes of social change and public
regulation . . .’, and while there is indeed some consensus that competition
is a good thing, there is little agreement about what ‘workable competition’
implies in concrete policy terms. In other words, and in order to safeguard
and ensure the benefits arising from the competitive process, the market
has to be ‘policed’, and this in turn requires the establishment of a regula-
tory framework which requires strict enforcement. In practice, competition
policy needs to strike a balance between the imposition, by legislation, of
necessary restrictions upon unbridled economic competition and the elimi-
nation of harmful restrictive practices which prevent a coherent integration
of markets. Competition policies are constructed around what practices are
not allowed, and in this sense are negative policies as they seek to prevent
rather than to promote certain activities. However, caution should be
applied because competition policy may not always be driven by the desire
to promote competition and thus enhance consumer welfare (in terms of
both prices and protection). There can be other factors at play which can
centre on the distribution of wealth and concerns about economic power
residing in the hands of the few. There has always been a concern about the
extent of economic power and the degree to which cartels and monopolies
are undemocratic. Competition policy can also be advanced to defend
the position of small and medium-sized enterprises, which provide both
potential competitors to their larger neighbours and supply most jobs in
the economy. Competitiveness is another objective of competition policy.
In the EU context competition policy has been advanced as a means of
furthering economic and political integration by breaking down privately
constructed barriers to trade between the EU member states, thus realising
a fully functioning Single European Market (SEM).
EU competition policy constitutes one of the largest, if often unher-
alded, success stories of European integration and has two main objec-
tives: firstly, to create and sustain a single market that fosters intra-EU
trade and competitiveness; secondly, to promote economic and political
integration. It has achieved both. The most distinguishing feature of EU
competition policy is that it represents a clear example of European gov-
ernance in action, but what issues does it deal with, who are the principal
actors behind competition policy and to what extent has the policy become
Europeanised?
3. INTRODUCING THE EUROPEAN UNION

COMPETITION REGIME
From a European perspective the development of a competition policy
framework has been a gradual process which commenced after 1945.
The first steps towards the first coherent regimes occurred in the United
Kingdom (from 1948) and West Germany (from 1957).2 From the outset
the adoption of these domestic policies reflected new thoughts on indus-
trial structures and competitiveness and were influenced indirectly and
directly by the well-established US competition model (initiated under the
Sherman and Clayton Acts in 1890 and 1914 respectively which sought
to ensure that economic power (in the shape of banks, oil, and railroad
companies) was not concentrated in the hands of a few powerful trusts).
At its core competition law essentially was seeking to balance the per-
ceived benefits of economic collaboration against the potential economic
and political problems that could ensue. Although the UK, West German
and the later domestic competition regimes in Europe all differed slightly
in terms of structure, institutional design and decision-making processes,
they all shared the same objective of promoting competitive market struc-
tures and breaking up anti-competitive behaviour such as market-rigging,
price-fixing cartels and abusive monopolies, which had been an endemic
feature of the European business environment for the first half of the twen-
tieth century.3 These anti-competitive pursuits still remain very much a
threat in the early twenty-first century. The realities that many of these acts
occurred on a cross-border scale effectively left the national authorities ill-
equipped to tackle and investigate them, and consequently led to greater
pressure for both greater inter-regime co-operation and new modes of
international competition governance. Competition policy, for example,
therefore assumed central importance in the European regional integration
process, and found reflection in the objectives of both the European Coal
and Steel Community of 1951 and the European Economic Community
Treaty of 1957 (Cini and McGowan, 2009; Leucht, 2008), and both are dis-
cussed in greater detail in subsequent chapters. Article 3(g) TEC explicitly
declared that competition should not be distorted in the common market
while the substantive law is spelt out in Articles 81–90 (TEU).4
However, the treaty articles simply outlined the objectives and did not
spell out how such objectives were to be realised. A state of competition
between companies could not be taken for granted or assumed to occur
without some form of regulation, and thus it necessitated the creation

of a government agency effectively to police the market place. Set within
the context and ambitions of a customs union it would have been simply
counter-productive to dismantle trade barriers between the member states
if private industry had been allowed to remain free to engage in cartel-like
restrictions on competition and undermine the advantages of opening up
the markets in the first place (Von der Groeben, 1961). In short, the realisa-
tion of a truly integrated market and flourishing intra-EU trade could be
ensured only if the market place were actually policed. In the West German
case, for example, the Christian Democratic-led government under Konrad
Adenauer had established the Bundeskartellamt (BKartA) or Federal
Cartel Office in Berlin in 1957 (McGowan, 1993; Sturm, 1996) to protect
competition. The same logic of regulation and the need for some form of
institutionalised control at the supranational level to secure and maintain
competition discipline within the common market was also recognised.
Consequently, the six original member state governments established the
European Commission’s legal competence through Regulation 17/62 (and
simultaneously sidelined both the Council of Ministers and the European
Parliament) to operate as an autonomous and quasi-judicial competition
policy-making institution. The regulation equipped DG Competition with
exclusive powers of investigation (including the infamous ‘dawn raids’)
into suspected violations of the EU’s competition rules and enabled DG
Competition to codify, exempt and impose fines on offending firms.5
In effect, and in terms of governance, Regulation 17 identified the
Commission as the principal actor in the administration and implementa-
tion of competition policy decision making and assigned it the roles of
judge, jury and executioner. Only the European Court of Justice (and
after 1989 the Court of First Instance) was granted the power to over-
turn Commission decisions. In short, the Commission’s role in competi-
tion policy places it in an altogether different position from its work in
most other EU policy areas, because in the competition policy arena
the Commission is the decision maker. Further elaboration is required.
Responsibility for the day to day investigations lies with DG Competition
which is obliged to consult one of the two Advisory Committees (one for
restrictive practices and the other for mergers) before its reaches a decision
which has to be endorsed by the College of Commissioners.
In hindsight the member states had created a powerful supranational
agent (Seidel, 2007) which has continually advanced its power through the
adoption of guidelines and notices, and in so doing has altered the terms
of the principle/agent relationship (Lehmkuhl, 2008). The decision to
initiate an EU competition regime heralded the advance of a Community
legal order which would in time ensure strong degrees of convergence on
the realisation of a European cartel policy.6 This nascent European regime

laid the basis for the development of a competition policy which was con-
structed on increasingly shared norms and gradually helped to disseminate
a competition culture throughout the Community and beyond.
The fledgling EU regime developed slowly. We should not under-
estimate the challenges that faced the new supranational European
Commission and not least in terms of recognising its powers. As such the
historical narrative of EU competition policy is one of incremental growth
but also one that simply failed for the most part to show up on the radar
screen of political science for most of the 1960s and 1970s, albeit with some
exceptions (Allen, 1977).
A sudden metamorphosis in the mid to late 1980s brought competi-
tion to the fore, and this transformation finds explanation in a number
of factors. Firstly, timing was certainly crucial and changing economic
philosophies (boosted by a neo-liberal agenda) pushed competition as a
means to encourage innovation and efforts to restore European competi-
tiveness, especially in the United Kingdom and West Germany. Secondly,
the Commission had matured sufficiently by this stage to assert its own
analyses and powers and, thirdly, was assisted by the rulings of the Court
of Justice (and after 1989 also the Court of First Instance) in Luxembourg
and the accumulation of a considerable amount of competition case law.
Personalities, as a fourth explanatory factor, also played a substantial part
at the European level as a series of dynamic and forceful Competition
Commissioners (including Peter Sutherland, Leon Brittan, Karel van
Miert, Mario Monti and Neelie Kroes) all propelled competition forward
as the only credible solution to European economic dynamism as vocif-
erously as they challenged state intervention in the economy. Finally, it
should be emphasised that although competition policy was not identi-
fied as a specific non-tariff barrier to be eradicated under the 1992 single
market programme, it rapidly became a central pillar to its very success.
In short, national government mindsets and strategies on competitiveness
(notably even in countries which had traditionally displayed a rather luke-
warm interest in competition policy like France) had changed significantly
enough during the 1980s to enable the competition principle to take hold
and have had an irrevocable impact on the domestic competition arena.
4. THE FIVE ASPECTS OF EU COMPETITION

POLICY
Today the EU rules themselves extend over five substantial areas (see
Table 1.1): these target firstly the endemic existence of cartels and
restrictive practices (such as price-fixing and market-sharing agreements)

under Article 81 (formerly Article 85 EEC). This article prohibits all agree-
ments ‘which may affect trade between member states and which have as
their object the prevention, restriction or distortion of competition within
the common market’. Cartel policy rapidly emerged as the core activity in
terms of staff, time and resources, is one of the most developed aspects of
policy and will be returned to in greater detail from chapter 2 onwards.
The second aspect of EU competition policy centres on merger control.
Merger policy (which had originally been deliberately omitted from the
Treaty of Rome, although it had appeared in the Treaty of Paris estab-
lishing the ECSC ) was added as a belated weapon to the Commission’s
arsenal in 1990 (through Regulation 4064/89) after the member states
bowed to the wishes of the Commission and growing demands from
the business community (most notably the European Round Table of
Industrialists (ERT) and the European Employers Association (UNICE))
for a level playing field and a one stop shop for assessing EU mergers
which exceeded specified thresholds.7 Mergers and joint ventures may have
anti-competitive implications because they could lead to a situation where
a monopoly or oligopoly is formed (i.e. a process of concentration). EU
merger policy has been well received by the business community, and the
Commission has generally won praise for its efficient handling of mergers
even if some of the member states (such as Germany) have now and again
expressed their concern over the possibility of politicised decision making
within the College of Commissioners.
The third and fourth key aspects of EU competition policy focus on
monopolies which are abusing their dominant position in the market place
under Article 82 (formerly Article 86 EEC) and efforts to inject greater
competition and liberalisation into the public utility sectors which had
traditionally been exempted from the competition provisions such as tel-
ecommunications and energy under Article 86 (formerly Article 90 EEC).
In the case of the latter the Commission can point to developments in the
airline, energy and telecommunications sectors to highlight the significant
advances of creating a single and competitive market over the last twenty
years although progress has been more limited in the services sector.
EU monopoly policy (i.e. where one firm holds a monopoly position) is
designed to catch and penalise those companies which deliberately set
out to abuse their dominant position within the market and as such these
actions can have a detrimental effect on competition. The Commission has
been involved with a long drawn out tussle with Microsoft, and in 2004
imposed a fine of €497 million on the company for refusing to provide
rival suppliers with the necessary interoperability information to chal-
lenge it. This ongoing case illustrates the Commission’s resolve to stoke
Table 1.1 Tracing the expansive development of EU competition policy*
1957 1960s 1970s 1980s 1990s 2000+

Restrictive practices/ 0 1 2 3 4 4
cartels
Abusive monopolies 0 1 1 2 2 3
Mergers 0 0 0 0 4 4
Liberalised utilities 0 0 1 2 4 4
(telecoms, energy,
postal services)
State aids 0 1 2 2 3 3
Notes: *This table excludes the coal and steel industries which fell under the ECSC
Treaty. The table has been developed from Schmitter, 1996.
Scale Coding
0 = No EU Competence
1 = EU Competence but largely dormant
2 = EU Competence and slowly developing
3 = EU Competence and active
4 = EU Competence and very active
controversy. Abusive dominance assumes the form of using market power

to cut prices and drive out competitors (predatory pricing) or to charge
high prices where consumers have little alternative but to pay up. Assessing
dominance has proven problematic for DG Competition officials, as it has
required specific definitions of relevant, product and temporal markets.
Such economic analyses are often queried and to date monopoly policy
has constituted the least active of the Commission’s competition policy
activities (Cini and McGowan, 2009).
All the above four areas bring the Commission into dealings with the
business world, but uniquely the fifth area, which centres on the granting
of state subsidies under Articles 88–90 (formerly, Articles 92–94) involves
direct contact with member state governments and has proven arguably
the most contentious and politically sensitive aspect of the EU competi-
tion brief. State aid policy is of a different order and deals with the poten-
tially anti-competitive effects of national grants of subsidy to industry
within the context of the EU’s single market. State aid has featured as an
aspect of government/industry relations to varying degrees across Western
Europe since 1945. The use of such subsidies have often been justified as
an essential aspect of government driven industrial policy and are designed
as ways to secure employment particularly in peripheral and economically
depressed regions, as issues of national prestige such as Air France and
Olympic Airways (Featherstone and Papadimitriou, 2006), or attempts to
create European champions (for example, Bull, to compete directly with

US and other international companies). Trying to control levels of state
aid has been a particularly difficult task for the Commission. Although
DG Competition adopted an increasingly aggressive stance towards state
aids from the mid-1980s onwards many member states appeared reluctant
to abandon the granting of subsidies. In many ways national reaction to
state aid reflected different models of capitalism in play. To assist its efforts
the Commission even launched its own scoreboard in 2001 to embar-
rass and cajole member states into granting less aid. In the period from
2000 to 2006 most state aid cases were recorded (see Commission, 2007)
in Germany (some 148), closely followed by Italy (105), Spain (70) and
France (63).
This short overview of EU competition policy has highlighted several
factors to note: firstly, the willingness of the member state governments
to delegate powers in the competition arena to the supranational level
(see McGowan and Wilks, 1995); secondly, the expansion over time of
the policy base as the Commission has gained in confidence and expertise;
thirdly, a gradual policy convergence of rules across the entire EU; and,
lastly, the exporting of the same EU rules to third (for example, potential
accession) states as part of the acquis communautaire. In the course of the
last two decades the EU competition policy regime has changed out of all
recognition. This metamorphosis from a sleepy backwater to the forefront
of Commission activity owed as much to changed economic thinking
with the ascendancy of neo-liberalism and the accumulation of an ever
expanding case law as well as growing confidence within DG Competition
(formerly pre-1999 DG IV) and its ability to attract very high calibre
recruits. These developments facilitated the pro-competition drive of a
succession of very capable competition commissioners who have all driven
competition policy forward.
By the end of the 1990s a puissant and prestigious supranational compe-
tition regime had exerted its force and power on both business undertak-
ings and companies and member state governments. The supranational
competition order was not however problem free by any means. It has
always had its detractors who have pointed to the so-called faults or weak-
nesses within this system, such as, for example, the length of time taken to
settle cases, a lack of transparency, weak analyses of the facts that have
settled cases, too much room for politicisation, and at times Commission
officials have been charged with being too dogmatic in promoting the
competition principle over other factors. The Commission has noted the
criticisms and has endeavoured to respond to its critics, and to this end has
on regular occasions moved to overhaul the competition machinery and its
own practices. How well it has done so remains open for debate.
The Commission has regularly sought to modernise its practices and

update its procedures across all five areas of activity, and usually as a
means to facilitate speedier and more consistent decision making. It initi-
ated, for example, the most far reaching changes in its handling of cartels
(McGowan, 2005) for over forty years in 2004 when it replaced Regulation
17 with a new regulation (Regulation 1/2003) which also coincided with
internal restructuring within DG Competition and the creation of a new
cartel unit. This latter regulation simply reinforced the realities of supra-
national governance and effectively created something akin to a ‘federal’
regime, with the Commission located like a ringmaster at the very centre
determining which cases it will investigate and which it will pass to the
national authorities (Wilks, 2005).
On reflection various trends have been recognisable in competition reg-
ulation within the European Commission since the late 1980s. These can
be labelled ‘modernisation’, and ‘Europeanisation’ (Cini and McGowan,
2009), and both have made their presence felt in terms of both competi-
tion policy and specifically cartel regulation. Modernisation was the
label given to the Commission’s competition policy reform programme
which commenced in the late 1990s. The pressures for updating the EU
cartel rulebook in 2004 were driven by calls for changes in the substantive
analysis which constituted competition decision making and to reduce
the administrative burden placed on the Commission before the two most
recent waves of EU enlargement in 2004 and 2007 respectively occurred.
Notions of Europeanisation emerged as a highly fashionable concept
in the field of European Studies in the late 1990s. Its definition may be
contested (Harmsen and Wilson, 2000; Featherstone and Radaelli, 2003;
Risse et al., 2001) but essentially it refers to the impact of the European
Union governance structures on the politics, polities and policies of its
member states. In the context of this book the process of Europeanisation
was most aptly displayed through the convergence of all national anti-
cartel legislation in line with the rules under Article 81 TEC (McGowan,
2005). In trying to assess how far these changes have bought benefits to
the wars against the cartels it is necessary to turn towards the theme of this
book and to highlight the dangers of cartellisation.
5. THE SECRET LIFE OF CARTELS
Cartels have long represented an established aspect of commercial activ-

ity. They were particularly pronounced as an essential, accepted and
even government-orchestrated feature of business activity in German-
speaking Europe throughout the first half of the twentieth century
(Gerber, 1998). The existence of such activities and practices can be

traced as far back as Ancient Egypt (Herlitzka, 1963: 121). When and
wherever cartels emerge they impact on the operation of markets and
the positions of other actors and traders. Whether such impact may be
termed negative or positive is open for debate. Any comparative and
historical examination reveals that perceptions (ranging from toleration,
agnosticism to outright hostility) have differed from state to state over
time. The propensity towards cartels today may often be driven as much
by cultural norms and historical tradition as by economic benefits. Yet,
perceptions changed dramatically after 1945 when cartels were generally
perceived as undesirable.
The origins of EU cartel policy have to be understood in the context
of three factors: the imperative of the drive for the realisation of a single
market, the historical context which shaped policy after 1945 and the
influence and leading role of the US experience on the European regimes
(Leucht, 2008; Schulze and Hoeren, 2000). Cartels were identified as
an immediate target from the outset when Article 85 of the European
Economic Community (EEC) Treaty specifically prohibited all agree-
ments ‘which may affect trade between member states and which have as
their object the prevention, restriction or distortion of competition within
the common market’.8 In retrospect, the decision by the six founding EEC
member states to commit themselves to competition discipline and simul-
taneously recognise the logic of a supranational dimension is significant,
given the unfamiliarity of the majority with anti-trust. It is also worth
recalling that member state positions on the competition policy rules cer-
tainly varied, and there was a tussle between France, the Netherlands and
West Germany over both the meaning of competition policy and differing
approaches on policy management.
Although cartels were identified over fifty years ago by the EEC Treaty
as the first and primary target of the EU’s competition policy order, the
EU cartel regime took time to form, and its enforcement until the 1980s
has been described as hesitant, patchy and largely ineffectual. It is never a
straightforward task to pinpoint specific chronological turning points or
periods in any policy’s development, but this book suggests four periods
of development (see chapter 6) for EU cartel policy. In each the position
of DG Competition and cartel policy developments can be examined with
reference to both the substantive and the procedural regimes. Accounting
for internal changes is one aspect of competition policy which is generally
well covered (Wilks and McGowan, 1996), whereas there has been con-
siderably less attention paid to the external variables. Any examination
into the evolution of EU cartel policy cannot be completely separated
from developments at member state level. This allows recognition of
the varieties of capitalism literature (Albert, 1993) which emphasises the

spectrum of capitalist models across Europe and the variable impact of
competition policy (see Wigger, 2008) on liberal, co-ordinated, state and
transitional economies. Policy development must be considered against
changes and events in the wider economic and societal spheres. Wigger
does this in an innovative manner by adopting a critical economy perspec-
tive to the development of EU competition policy in which she traces the
impact of Ordo-liberalism, embedded liberalism and neo-liberalism on the
evolution of the competition regime, and especially on Commission think-
ing (Wigger and Nölke, 2007). It is not the intention here to retrace this
particular wider narrative, but readers are strongly urged to consult such
emerging literature. How far can the Commission really operate a single
cartel policy when so many different cartel traditions have prevailed and
continue to exist at member state level?
Cartels are generally held today to represent the most pernicious form
of anti-competitive behaviour, and condemnation of cartel agreements
has become the norm. Cartels are an endemic aspect of global business
activity and recourse to them has been labelled as akin to cancers in
the market place, and even theft.9 They arise when companies partici-
pate in ‘deliberate, highly organised and covert collaborative’ (Harding
and Joshua, 2003: 1) practices which have been agreed by a number of
independent firms from the same or similar sphere of economic activity.
Cartels are effectively safe havens to escape and prevent competition. For
the most part hard core cartel policy can be described as a combative
struggle between those large corporate interests which seek to create anti-
competitive agreements and the antitrust regulators who are determined
to catch and penalise such activity.
Cartels are now universally ‘recognised as the most aggressive viola-
tion of competition law’ (OECD, 1998). Cartels have been prioritised as
the key element of the Commission’s entire competition policy brief over
the course of the last two decades, and particularly under the last three
competition Commissioners, Karel van Miert 1993–9), Mario Monti,
1999–2004) and Neelie Kroes, 2004–10).10 All three have stressed the
importance of battling cartels as a means of defending consumers (Kroes,
2008). This book explores the Commission’s role and strategies in its
pursuit, identification and termination of cartel arrangements.
Secret horizontal agreements which divide markets, fix prices and
prevent newcomers from entering the market embody the classic shape
of a collusive agreement. Cartels in the contemporary world are generally
recognised as problematic because they have been primarily designed to
serve and work in the interests of their members and not the consumer or
the overall health of the economy. Kroes (2006a) summed this up neatly:
‘cartels strike a killer blow at the heart of economic activity. This makes
it harder for us to deliver the Lisbon goals of high growth, job creation
and innovation’. They work to the detriment of the consumer through the
imposition of higher prices.11
In the short term recourse to cartellisation may indeed prove beneficial,
but in the longer term and in today’s environment such hard-core cartel
arrangements are certain to have detrimental repercussions. As a means to
extract higher rents from their customers such covert operations prevent
competition and innovation. Secret agreements which divide markets,
fix prices and prevent newcomers from entering the market represent the
classic shape of collusive agreement and the most harmful for the competi-
tive process. It is interesting to note that certain economic sectors (such as
the pharmaceutical, paper, cement and glass markets) seem more prone to
cartellisation than others. The world of cartels is inherently unstable. The
formation of cartels proves immensely intricate, incites many jealousies
among the parties and ultimately the strain leads many to collapse. Still,
cartels thrive in the modern world and cartellisation continues to remain
a strategic option for many companies on a short term, and for some on a
much longer term, basis.
In the medium to longer term cartels will always enjoy higher (illegal)
profits than otherwise would be the case in the face of open competition.12
The profit maximisation incentive ensures that cartels remain very much
an endemic reality in the modern world. Concerns have also been raised
about the connections between economic power and political power.13
Condemnation of cartel agreements has become the norm. In the last
decade competition regulators in both the EU and the US have intensified
their determination to hunt and break up as many cartel agreements as
possible that can be unearthed. The difficulties of such a task should not
be underestimated and the regulators are constantly engaged in battling
a seeming propensity on the part of the business world for cartellisa-
tion. Indeed, viewed from a longer term perspective this book depicts the
Commission’s struggle as a series of battles that can be interpreted as an
ongoing cartel war.
Attitudes globally towards cartels are changing fast and pressure is
growing against the growing number of international cartel arrangements.
We are now living in the ‘Age’ of the international cartel. Indeed, cartels
are not just more prevalent today but have become much more sophisti-
cated in their design and ways of concealment. In the past often the classic
type of cartels occurred in sectors of the economy where market shares
were relatively stable and where brands could not successfully differentiate
between products. Importantly, there tended to be fewer players in such
cartels and each member was easily able to check for anyone breaking
ranks. Recent events in the UK reflect the reinvigorated determination of

the Office of Fair Trading (OFT) to crack down on cartels. As an example,
in its investigations into the country’s four largest supermarkets it alleges
(and in theory this seems difficult to co-ordinate and the charge is clearly
rejected by the supermarkets) that the supermarkets have used the largest
consumer companies, ‘as a switchboard to swap information that enables
the supermarkets to co-ordinate the prices of thousands of products from
soap to cola’ (Economist, 3 May 2008: 18). This particular case illustrates
the real difficulties in proving actual deliberate collusion but it also sug-
gests that the current probe is much more than just a sweep by the compe-
tition regulator, and indicates that the authorities perhaps know what they
are looking for, and this raises the issue of whistleblowers.
Arguments in favour of permitting cartels to operate legally are usually
predicated on notions that such agreements can protect employment and
can assist sectors of the economy which are under threat and especially ‘if
they can lead to technical improvements and enable firms to adjust to a
harsher economic climate and growing international competition’. There
has to be exceptional justification because, as cartels are designed to work
in the interests of their members, their wider impact on the economy and
consumers has to be considered. The degree of conflict can be observed
on two fronts, which can be identified as institutional and procedural.
Organisational changes within DG Competition, and a more aggressive
determination to tackle cartellisation within DG Competition, typify the
former, while amendments to the EC restrictive practices regime under
Regulation 1/2003, the reform of the leniency programme (in 1996) and
even tougher notices on fining infringements reflect developments in the
latter.
The stakes and costs in this war have been raised. For example, the
sixteen highest fines in EU cartel history occur after 2001. The goal of
eradicating cartels may be a laudable aim, but the task is an onerous one
which continually challenges the energies and resources of all anti-trust
regulators. How the regulators respond and pursue cartellisation ulti-
mately determines the scale, intensity and number of such anti-competitive
practices. It is too naïve to expect a sudden increase in the number of
competition policy researchers, and this book is not advocating such an
objective. There should be, however, greater recognition and realisation
of this core policy arena among those studying the EU. How can this be
achieved? There are two paths to traverse. The first sets out to make the
theme more exciting to non-specialists, and the second seeks to reach out
and place discussions of competition policy more in the mainstream by
engaging in theoretical discussions.
EU cartel policy has developed in an incremental fashion and
has become over time increasingly proactive and combative. The

Commission’s current resolve is displayed in a number of strategies
and reforms since 2000 which include internal organisational changes
within DG Competition, the adoption of new administrative rules under
Regulation 1/2003, refinements to the leniency programme, a new and
tougher notice (June 2006) on fining infringements and efforts to foster
greater international co-operation, as well as a number of more innovative
mechanisms and tools such as its 2008 White Paper on Private Actions.
The stakes and costs in these cartel wars have been raised. It is not just
coincidence that the highest fines in EU cartel history have all occurred
in the last decade, though whether high is high enough remains an issue.
The Commission possesses considerable discretion in setting the fines and
has opted to shed more transparency on how and why it calculates the
actual fine. Fines form a part of a deliberate strategy to deter cartel forma-
tion. Yet, no matter how laudable the goal of eradicating cartels may be
it remains an onerous task which continually challenges the energies and
resources of all anti-trust regulators.
How the regulators respond and pursue cartellisation ultimately deter-
mines the scale, intensity and number of such anti-competitive practices,
at least in theory. Can they in practice create sufficient deterrents ever to
overcome the attraction of cartellisation?14 Judging just how successful an
enforcement agency the Commission is depends on a number of factors
which include how many cartels it unearths, how many fines it imposes
and how many potential arrangements it deters. Although statistics are
available for the first two we will never be in a position to provide an
answer on the EU rules as a deterrent. It is practically impossible to speak
with the firms concerned, and thus all reference points relate to cartels
which have been unearthed. As onlookers we will simply never be in a
position to know enough information about the scale and scope of cartel-
lisation or the strategies of the firms involved, but we can make general
assumptions about the nature and degree of such anti-competitive activi-
ties from cartels which have already been detected. That said researchers
should also avoid the danger of relying on the Commission’s own assess-
ment of its strategies.
6. ORGANISATION OF THE BOOK
The chapters which follow provide an analysis of the origins, evolution and
workings of European Union cartel policy. Chapter 2 provides an intro-
duction for the political scientist reader to the world of cartels. It offers a
definition of the term cartel, explains the rationale and characteristics of
cartel practices, before moving on to highlight some of the dangers that

cartels pose and exploring the fragile nature of these collusive agreements.
Chapter 3 provides a historical narrative of the acceptance and encourage-
ment of cartels, especially in Germany in the period from the later 1890s
until the end of the Second World War and identifies the absence of any
substantive regulations at all.
The following five chapters centre on the European supranational
regime. EU cartel policy provides a number of avenues for exploration
and chapters 4 to 7 explore the Commission’s role and response to cartel-
lisation over the last five decades. They demonstrate how the Commission
has constantly expanded its competences, adapted its approaches and
continually sought to refine its strategies to combat cartel proliferation.
In short, these chapters provide a historical overview of the four phases of
EU cartel policy and illustrate how the Commission has steadily become
more active in its pursuit of cartels through new Notices and Guidelines.
Chapter 4 outlines the major shift in governments’ attitudes towards
cartels in Western Europe which developed immediately after 1945.
Special attention is given to the ECSC Treaty. This chapter shows how this
fledgling European policy came to be influenced by the antitrust tradition
in the United States.
Chapter 5 centres on the provisions of the EEC Treaty until the signing
of the Treaty of Rome in 1957. Both chapters 4 and 5 focus on the posi-
tions of the West European states in the negotiations of both treaties with
reference to competition issues. They explore the institutional framework
which governs the EU competition regime and touch on key elements in
competition decision-making. They also account for the administrative
framework which was agreed and put in place under Regulation 17 to
deal with restrictive practices. Chapter 6 examines the development of
EU cartel policy from 1962 until the end of the 1990s, which it divides
into four key chronological phases of activity. Chapter 7 deals with the
European Commission’s plans to modernise its anti-cartel strategies in the
twenty-first century. It explores how far the latest reforms, administrative
developments and internal restructuring have placed the Commission in
a position effectively to combat or at least control cartellisation. In each
of these last two chapters policy substance will be explored by means of
using specific case examples to illustrate developments. The final chapter
casts an eye to the future of policy development and raises questions about
the likelihood of growing international co-operation and the search for
international rules. It also ponders how far the recession and economic dif-
ficulties facing the Western industrialised nations will impact on and alter
the Commission’s anti-cartel drive in an era when certain leaders such
as Nicholas Sarkozy, the French president, have openly questioned the
neo-liberal competition mantra and pondered what competition has ever

done for Europe (Financial Times, 22 June 2007). Before embarking on the
history of European cartel policy it may be helpful to turn our attention
towards defining what constitutes cartellisation and to explain why cartels
are deemed to be problematic.
NOTES
1. The lysine cartel is a US antitrust case and is one that provides a fascinating example
of cartel organisation and activity. This particular cartel comprised the world’s five
leading lysine producers and was constructed round price-fixing agreements. Lysine
itself is an amino acid and is essential for human nutrition and development, but as
it cannot be manufactured by the body, it is normally obtained from food. The meet-
ings of the cartel were carefully staged to avoid rousing any suspicion especially as one
of the cartel’s main customers (the poultry industry) was holding its own conference
simultaneously in the same town as the cartel met. To this end cartel members started
in separate hotels and arrived at the meeting at different times. This meant there were
a few empty seats at the start of the meeting, and some of the participants joked that
these seats had been reserved especially for their customers, and one even said they
were for the US Federal Bureau of Investigation (FBI). Little did the cartel participants
know that as the meeting took place, FBI agents posed as hotel employees and recorded
everything that occurred. The material collected by the FBI provided ample evidence of
the cartel’s ambitions and objectives.
2. The framework for both these evolving competition regimes was laid down in the 1948
Monopolies Act and the 1956 Restrictive Trade Practices Act in the United Kingdom
and the Gesetz gegen Wettbewerbsbeschränkungen (Law against restraints on competi-
tion) in West Germany. For overview of the historical evolution of both see S. Wilks,
1996, ‘The Prolonged Reform of United Kingdom Competition Policy’ and R. Sturm
‘The German Cartel Office in a Hostile Environment’ in G.B. Doern and S. Wilks (eds)
Comparative Competition Policy: National Institutions in a Global Market, Clarendon
Press, Oxford, pp. 139–184, pp.185–224.
3. The main characteristic of the UK system (see Wilks, 1999) is its institutional and
statutory complexity. Considerable room was built into the process for substantial min-
isterial discretion. In contrast, the German system, which was centred on the Federal
Cartel Office, was largely a bureaucratic and judicial model with some possibility for
ministerial control.
4. In the EEC Treaty (TEC) this general objective was originally to be found under Art.
3(f) and the articles pertaining to competition ran from 85 to 94. Under the Treaty on
European Union it became Art. 3(g). The numbering of the competition articles was
amended under the 1997 Treaty of Amsterdam and is to be altered again when the
Treaty of Lisbon comes into force.
5. The amounts of the fines have been steadily increasing over the last two decades. For
example, in 2001 the European Commission imposed fines of €462m on Hoffmann-La
Roche (vitamins cartel); €296m on BASF (vitamins cartel); and €184m on Arjo Wiggins
(paper cartel). In 2002 €250m was levied on Lafarge (plasterboard cartel) and €149m on
Nintendo (for price-fixing), while in 2003 Hoechst was fined €99m (food preservative
cartel). The ‘hitlist’ will continue to grow, but so too do the determination and resolve
of many companies to conceal their anti-competitive activities by all means possible.
6. See recital 1, Council Regulation (EC) No 1/2003 on the Implementation of the
Rules laid down in Articles 81 and 82 of the Treaty, Official Journal of the European
Communities, OJ 2003 LI/1.
7. The Commission automatically became the one stop shop for processing merger
applications where the firms involved had an aggregate worldwide turnover of more
than ECU 5 million; where at least two of the firms involved had an aggregate EU-wide
turnover of more than ECU 250 million or where at least two of the companies involved
held more than two-thirds of their aggregate EU-wide turnover within one and the
same member state.
8. It should be noted that some types of agreement (and this to some extent reflects earlier
more sympathetic perceptions) were entitled to exemptions from the EU competition
rules where agreements contributed to improving the production or distribution of
goods, promoted technical and economic progress or ensured that consumers reaped
considerable benefits. Prior to 1 May 2004 such exemptions under Art. 81(3) were
solely at the Commission’s discretion to bestow if an agreement’s beneficial effects were
judged to outweigh any detrimental impact on competition.
9. US antitrust has always displayed an aversion towards the concentration of economic
power and questioned its actual impact on notions and concepts of democracy if eco-
nomic power is in the hands of a few powerful players.
10. Monti described cartels as a ‘cancer’ on the European economy in the XXXI Report on
Competition Policy 2001, European Commission, 2002, p.4.
11. In its 2005 report on hard-core cartels the OECD noted that collusion resulted in signifi-
cant percentage increases in prices. In Japan it was estimated that cartels raised prices
by on average 16.5 per cent, in Sweden and Finland by around 20 per cent and in the
United States there were examples of price increases of the magnitude of some 60–70
per cent.
12. The economic gains are difficult to quantify and vary from case to case.
13. US antitrust has always displayed an aversion towards the concentration of economic
power and questioned its actual impact on notions and concepts of democracy if eco-
nomic power is in the hands of a few powerful players.
14. In exploring EU cartel policy the academic researcher relies very much for primary
material on a number of official publications (such as the Commission’s annual com-
petition policy report, DG Competition’s Competition Policy Newsletter and informa-
tion rich web-site as well as Court rulings) and on interviews with officials from DG
Competition. Commission information provides statistics on the formal decisions, the
number of firms involved in each case, the level of the fines and information on where
and to whom leniency notices have been issued. The researcher also needs to be able
to digest the existing range of secondary sources which extend across the disciplines of
economics, history, law and politics.
2. Uncovering cartels: understanding
the approaches and complexities of
collusive agreements
Agreements between private companies have long constituted a regular
aspect of business life. Such agreements have been designed to provide
benefits for the undertakings concerned and to offer them new opportu-
nities. There are occasions, however, when certain forms of agreements,
although they may indeed be advantageous for the parties concerned,
have adverse and negative effects on rival competitors, work to the detri-
ment of consumers and undermine the competiveness of the economy in
general. The issue centres on how far such arrangements impinge on the
competitive process and the creation of competitive markets. Attitudes
and views have differed over time, but in today’s economic and political
climate one particular form of agreement, namely the cartel, is now con-
sidered to be the most particularly damaging form of all anti-competitive
behaviour. Cartels provide an excellent illustration of covert agreements
which have usually been constructed to secure profit maximisation, and
by their nature deliberately set out to thwart the competitive process.1
Two essential facts about cartellisation and collusive activities should
always be borne in mind. Firstly, recourse to cartellisation is not a new
development, and for some commentators cartel formation stretched as
far back as Ancient Egypt (Herlitzka, 1963: 121). Cartels have impacted
ever since on the operation of markets and the positions of other actors
and traders. Whether such impact may be termed negative or positive is
open for debate. Any comparative and historical examination reveals that
perceptions (ranging from toleration, agnosticism to outright hostility)
have differed from state to state over time.
Secondly, cartels are not rare episodic creations but constant endemic
realities of business life, past, present and future. The propensity towards
cartels may not be as prevalent as during the interwar period, when it has
been estimated that some 40 per cent of world trade was co-ordinated by
international cartels (Nussbaum, 1986: 134), but they continue to thrive
and today can often be driven as much by cultural norms and historical
tradition as much as by economic benefits. Since the early 1990s hard-core
23
cartellisation agreements have emerged again as a global phenomenon

which proliferate in a wide range of economic sectors from vitamins and
escalators to glass making and bitumen. The growing number of interna-
tional cartels being uncovered from the mid 1990s onwards reflects a hard-
ening of attitudes from the competition authorities (Whish, 2009). This
priority response has led to more resources being dedicated to cartelbust-
ing, more cartels being unearthed and the imposition of higher fines on
cartel members. All in all cartels have also begun to attract more sustained
and substantial media coverage in recent years. But what is a cartel, what
sort of a threat does it pose, how do we measure the success or failure of
a cartel arrangement, why has their presence suddenly become so prob-
lematic and who is charged with detecting and penalising such agreements
and how well can this be done? These questions have informed academic
research and publications on cartel policy from scholars from economic,
legal and business backgrounds.
Indeed, the history of specific cartels, the degrees to which economic
sectors have been prone to cartellisation and a substantial literature
(Levenstein and Salant, 2007; Harding and Joshua, 2003) on why cartels
are formed and how they operate already exists.2 It is not the inten-
tion of this chapter to replicate these debates and issues owing to space
constraints, but also because they justify lengthy debate and could form
several books in their own right, especially as so much disagreement and
dissent exists between many of the leading cartel researchers, both past
and present. There are differing views over the stability of cartels, the
actual duration of the anti-competitive activity and degree of profitability
of cartel arrangements (Evenett, Levenstein and Suzlow, 2001; Levenstein
and Suslow, 2006). Much of this stems directly from the difficulty of con-
ducting research on cartels, which by their very nature are clandestine and
covert agreements, and there is considerable room for ‘measurement error,
unobservable variables and sample bias’ (Levenstein and Suslow, 2001:
2). It becomes difficult to make generalisations, but not impossible, as this
chapter aims to show.
From a politics perspective this work is concerned with reviewing neither
the economic theory nor the considerable legal case law, but instead keeps
the focus on the development of the EU regime and its pursuit of cartels.
It cannot, however, ignore the economic and legal contributions and does
not intend to. Indeed before accounting for the powers and practices of
this supranational regime it is necessary to provide an overview of the
complexities of cartel studies and to introduce the cartel. This chapter is
divided into five sections which cover a series of key themes that permeate
all discussions about cartels. It begins with a short overview of human-
kind’s propensity towards secret agreements in business and to alert
Uncovering cartels 25
readers that the practice has an established history and reflects a cultural
disposition which remains as strong as ever. The second and third sections
both provide a definition of the term cartel and isolate the characteristics
of such collusive agreements. The following section considers what varia-
bles lead to cartels. It begins to address some of the assumptions about the
nature and purpose of a cartel agreement and the issue of cartel stability.
1. RESTRICTIVE AGREEMENTS AS HISTORICAL

TRADITION
The cartel represents one of the oldest forms of anti-competitive practice

and has featured in commercial life in the Western business environment
for well over a century. Its origins are much older. Writing at the end of the
eighteenth century in 1776 Adam Smith correctly identified how ‘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’ (Smith, 1976). Smith’s infamous supposition
really marks a turning point and gives recognition to the dangers posed by
cartels and other anti-competitive creations which work against the inter-
ests of consumers. Different terms and concepts have been deployed ever
since to explain the emergence of anti-competitive practices. Restrictive
practices, the law of monopolies, and restraints of trade are just some. The
proliferation of notions and changing perceptions about the degrees of
severity of such activities have rendered some degree of confusion among
non-economists and non-lawyers. One of the central aims of this work
is to shed greater light and clarity onto the world of the cartel for the
non-specialist.
Agreements between companies represent one of the five main areas
of modern European competition policy as identified in chapter 1, and
by their nature and scope consume much of the time and energies of the
modern competition authorities. Not all agreements between companies,
however, are illegal. There is ongoing debate about where the borders lie
between an agreement and a concerted practice but these discussions are
mostly linguistic in nature and have little bearing on legal definitions. For
the antitrust regulator the real distinction centres on collusive and non-
collusive activity. Agreements are unlawful when they have been designed
to fix prices, share markets and restrict output (the so-called horizon-
tal agreements) and are punishable by fines, and in some jurisdictions
(UK and USA) also come with the threat of imprisonment for the chief
executives concerned. Vertical agreements involving firms at different
levels of the market (i.e. manufacturer and distributor) are also covered
by restrictive agreements legislation in most states and certainly in the

EU context. Vertical agreements prove to be far less problematic to the
competition regulators than the horizontal variety of cartels.
To appreciate the cultural dynamics of business cartels fully it is neces-
sary to recognise the reality that what we now regard as the classic form
of anti-competitive practices have a long history and tradition which do
not begin at the end of the eighteenth century but are considerably older
and originates much further back in time. It is possible to identify laws
governing what in effect amounts in our modern day understanding to
types of competition law that have been promulgated over the course
of the last two thousand years of human history. It is not the intention
here to provide a chronological survey of such practices and legislation
but simply to underscore the reality and age-old pedigree of restrictive
agreements. Whether Egyptian Pharaohs, Roman Emperors or whether
medieval monarchs and feudal Lords, evidence can be unearthed of
numerous anti-competitive agreements. One of the earliest recorded
examples of competition law is generally held to have been enacted (Lex
Julia de Annona) under the rule of Julius Caesar by the Roman Republic
around 50 BC (Palatzke, 2008) to protect the corn trade. In this case heavy
fines were imposed against anyone directly, deliberately and insidiously
stopping supply ships to maintain high prices. The Constitution of Zeno
was passed in the early Byzantine Empire (AD 483) to punish any trader
involved in the fixing of prices for clothes, fishes and urchins (Whish, 2009:
497). In the Middle Ages evidence of cartel activity was recognised with
the passing of legislation (constitutiones juris metallici) in late thirteenth
century Bohemia under Wenceslas II. Early Modern Europe also dem-
onstrated an increasing interest in the power of monopolies and cartels
(Braithwaite and Drahos, 2000: 185–186), and one of the examples of an
anti-cartel statute can be found in legislation enacted under Charles V,
Holy Roman Emperor, in the early sixteenth century to prevent losses
resulting from monopolies and improper contracts which many merchants
had established in the Spanish controlled Netherlands.3
By the start of the seventeenth century the notion of a restraint of trade
was slowly being developed in English law. It centred on agreements
between independent companies and their impact. England’s approach
was based on prohibiting agreements which ran counter to public policy,
and this concept became the early forerunner of modern competition law
that commenced with the passing of the Sherman and Clayton Acts in the
United States of America in 1890 and 1914 respectively. These laws were
directed primarily against the huge American trusts which had become
identified as synonymous with monopolies and had led to questions and
public debate about the compatibility of economic power in the hands
of a few and concerns over a perceived threat to democracy and the free
market (chapter 4). The giant oil and railroad companies were the first
major monopolies broken up under United States antitrust laws.
US antitrust law simply codified past American and English common
law notions of restraints of trade. Indeed, the very first section of the
Sherman Act states that ‘every contract, combination in the form of trust
or otherwise, or conspiracy, in restraint of trade or commerce among
the several States, or with foreign nations, is declared to be illegal. Every
person who shall make any contract or engage in any combination or
conspiracy hereby declared to be illegal shall be deemed guilty of a mis-
demeanor, and, on conviction thereof, shall be punished by fine . . . or by
imprisonment not exceeding one year, or by both said punishments, at the
discretion of the Court’ (US Department of Justice, 2009).4
By the start of the twentieth century some European states had opted
to introduce moral codes on competition and laws to regulate monopolies
and cartels as in Germany in 1909 (see chapter 3), before deciding on more
stringent and enforceable antitrust codes. Other states rejected such course
of action. The US codification of the common law position (Peritz, 1996)
on restraint of trade was to have a widespread effect, in both coercive and
voluntary forms, on subsequent competition law development beyond
its own borders. In post-1945 Japan, for example (Sanekata and Wilks,
1996), the US practically imposed the competition statutes, whereas in the
European context US experience and US trained European lawyers came
to shape debates (see chapter 4) as cartels became a central tenet of both
the founding ECSC and EEC Treaties.
Its inclusion in these treaties reflected a gradual acceptance of the
desirability of competitive markets which came to be associated with
lower prices, better quality goods, more innovation and greater efficien-
cies (see Asch, 1983; Bishop and Walker, 2002; Motta, 2004), at least in
terms of perfect competition. This belief was further reinforced by both
moves towards demonopolisation, liberalisation and privatisation and
the growing globalisation of trade, markets and companies in the final
decades of the twentieth century.
However, some caution should be applied because there is not always
any correlation between having a rigorous regime on paper and the
enforcement of its rule. This reality became too evident in the Japanese
case where the strict rules were more or less overlooked. In contrast, the
fledging EU regime strove hard to develop a coherent competition policy.
The majority of the European Commission’s competition brief from the
very outset from the signing of the 1957 Treaty of Rome was to focus on
restrictive practices which include the pursuit, identification and termina-
tion of cartel arrangements. Article 81 was to spell out the objectives, and
the regulatory procedure was agreed by the six member states and laid
out in Regulation 17 from 1962 (and discussed in chapter 5). The study of
European Union (EU) cartel policy makes for a fascinating case study in
terms of the European integration project. Competition policy represents
one of the few areas where the Commission not only is responsible for
direct policy implementation but also possesses wide discretionary powers
as both a regulator and an enforcer of policy. For the most part cartel
policy amounts to a combative struggle between large corporate interests
to maximise profits and to conceal their price fixing and market sharing
activities and the regulator, but the overall picture is larger. The explo-
ration of cartel policy (be it national, regional or supranational) neces-
sitates both the recognition of the motives of and the interplay between
a set of four key interlocked actors (Harding and Joshua, 2003). This
includes – see figure 2.1 – the cartel members (who constitute the offenders
Cartel Member
Cartel Third
Regulator Parties
Consumers
Figure 2.1 Mapping cartels: a complex relationship between actors,

victims and regulators
or aggressors), the cartel regulators (in their guise as referees or police

service), third parties (rival competitors who are not part of the cartel
arrangement) and other victims of the cartel (consumers and the wider
public). All four constituencies (see Figure 2.1) feature as integral players
of any cartel regime though their roles and impact vary enormously. This
work focuses primarily on the first two groups. Before proceeding to con-
sider EU cartel policy and the institutions of cartel governance attention
needs to turn to providing a definition of what a cartel is before we can
consider whether it is both disruptive and damaging.
2. THE DEFINITION OF A CARTEL
The word cartel has a very complex etymology (Harding and Joshua,
2003: 12), and the origins of the word derive from the Medieval Latin
word cartellus (little card) and has translated very easily into English and
most other main languages to become Kartell in German, cartel in French
and cartello (letter of defiance) in Italian. Within the existing literature on
cartels it is possible to identify at least three different contexts in which the
term cartel is utilised. The first and oldest references to the cartel possess
military connotations, as the term cartel was applied to an official agree-
ment between governments at war to cease conflict temporarily in order,
for example, to allow the exchange of prisoners. In this context cartels
are equated very much with the notion of a truce. This book deliberately
recognises this military tradition in its adoption of the concept of the
European Commission’s cartel wars.
This idea of ‘ending hostilities’ through an agreement also found reflec-
tion in the world of politics with specific reference to a group of political
parties, factions, or nations which united in an agreement for a common
cause. In this instance a cartel becomes synonymous with a political
alliance between a block or a group of parties. This took the form, for
example, of references to the Cartel Parties in the German government
which essentially comprised a temporary coalition of the competing
parties under Otto von Bismarck, the German Chancellor in the 1880s
(von Strandmann, 1969) which was deliberately designed to resist the
rise of Social Democracy. Ideas of a truce and an agreement tie in with
the third and most familiar usage which identifies a cartel as a group of
companies, countries or other entities which agree to work together. In
the business context a cartel is a group of legally independent producers
(usually in the same industry) who formally agree to co-operate together
to influence and fix market prices, to limit supply, to restrict competition
and even to divide profits.
Over time the word cartel in the English language has developed more
negative overtones and today suggests a degree of undesirability, though
this was not always the case, particularly in the period between the two
World Wars. The existence of cartels runs counter to classic theories of
open competition and the free market and the inherent dangers posed by
cartellisation (see Kronstein, 1973) have ensured that the formation of
cartels is illegal in many Western countries including Australia, Canada,
the United States and throughout the European Union. Three of the
most infamous contemporary examples to illustrate the current and more
negative connotations of the term cartel are to be found with reference to
the De Beers Diamond Cartel, the Organisation of Petroleum Exporting
Countries (OPEC, and see Mason and Polasky, 2005) and the Colombian
drugs cartels in Latin America.5
3. ISOLATING CARTEL CHARACTERISTICS
A business cartel is a formal agreement between independent firms which

are active in the same or very similar areas of economic activity and which
deliberately concoct an arrangement among themselves to stifle direct
competition. Rather than engaging in open competition with one another,
cartel members instead opt to reach agreement (see Box 2.1) on issues
such as the fixing of prices, the determination of total industry output, the
allocation of customers and market shares, bid rigging and the division of
profits (see Jephcott and Lübbig, 2003). Understanding why certain firms
opt to create such agreements necessitates an awareness of specific market
conditions. Cartels usually emerge in a market or economic sector where
there are a small number of manufacturers (i.e. oligopolistic markets) who
are producing similar products. In such markets rival firms usually rely on
heavy product differentiation through advertising (as in the brewing and
glass sectors) and other marketing ploys to distinguish themselves from
rival brands. This costs in terms of both advertising and, ultimately, lower
profits as the goods have to be competitively priced.
Entry into collusive agreements is regarded as an avenue to escape the
degree of uncertainty of oligopolistic markets and to profit maximisation
as if the market was itself a pure monopoly. In short, the undertakings
concerned engage in collusive activity as a means of exerting market power
which they would not otherwise have and by doing so restrict competition
(Motta, 2007). However, the central aim of maximising profits works very
much against the interests of the consumer. Caution is needed here because
economic insights into the conditions for successful conclusion are irrel-
evant for the most part in the mindsets of competition authorities (Monti,
BOX 2.1 ESTABLISHING BASIC CARTEL

CHARACTERISTICS
iii) Cartels are a combination to divide up markets and fix

prices (generally higher to maximise profit) amongst them-
selves;
iii) Cartels can restrict cartel members – when fixing produc-
tion and sales targets, the more efficient members are
not often allowed to increase output. Indeed, price fixing
arrangements are often designed to suit the least efficient
member – quotas must therefore be depicted as a hin-
drance;
iii) Cartels seek to prevent new firms entering the market; in
practice goods retailing at high prices always attract com-
panies. Cartel arrangements will aim to frustrate such new
competition. Cartels frequently operate to the detriment of
consumers in terms of both product quality and price.
2007: 324), which are more keen to distinguish between express and tacit
collusion, and the focus is very much fixed on the former. It is these hard-
core cartels which should always be the focus (Motta, 2007) of any com-
petition authority, because if unchecked and successful, they can cause
considerable damage to the competitive environment and the consumer.
When investigating cartel activity it is important to differentiate between
horizontal co-operation and vertical co-operation. The former represents
the most prolific form of cartel and ranges from hard-core cartel activity to
joint ventures and efforts to promote research and development and takes
place between firms operating on exactly the same level of production.
Horizontally (those manufacturing similar products) based cartels nearly
always fall foul of the competition rules. Concerted practices on the other
hand represent a much more subtle form of collusion than the hard-core
cartel, and the onus rests firmly on the competition regulator to prove the
existence of any such anti-competitive agreement. Evidence, and usually
in the form of an economic analysis, is needed. This gives rise to one of the
most difficult problems for any competition authority when it commences
its investigations and especially in oligopolistic markets. What might look
initially as if it is collusive activity (e.g. similar price rises) may in fact be
nothing more than straightforward parallel behaviour and a response to
a rival competitor’s move. Prices that are set under this scenario are nor-
mally determined by ‘dominant firm price leadership’ than any collusive
agreements. Indeed, firms in such markets are highly interdependent, and

each is very much concerned with and monitors the actions and reactions
of its rival competitors.
The European Commission’s 1984 Woodpulp decision provides an
excellent illustration of the difficulties that confronted the regulator. In the
Commission’s decision it had uncovered a cartel comprising Scandinavian
and North American exporters of Woodpulp, and its decision was
explained through its analysis of parallel pricing within the specific market
which the Commission traced back to the mid 1970s. On appeal, however,
the Court of Justice (ECJ) rejected the Commission’s interpretation in 1993
largely on the grounds of insufficient evidence. This case outcome shocked
DG Competition staff, as the ECJ had supported a similar line of argu-
ment in the Dyestuffs case in 1973 where strong co-operation and seeming
evidence of parallel pricing were deemed sufficient by the Commission
to declare the existence of a concerted practice. The oligopoly problem
confronts all competition regulators. It is in issue where experience and
the development of case law have facilitated the roles of the competition
regulators and compelled staff in DG Competition to identify more fool-
proof and concrete evidence of illegal activity. But while cartelbusters
search for harder evidence, the cartel members are working to ensure that
such evidence is either limited or non-existent. In other words, firms have
taken to not leaving any paper trails, any electronic records and have even
held meetings outside the EU to determine the nature of their cartel (see
chapter 7). A financial levy may prove high enough to prevent collusion,
but there is a second issue which has been highlighted by some commen-
tators (Martin, 2004), where firms operating in oligopolistic markets do
not really need to worry about too much competition as they can reach
a stage of ‘equilibrium market performance’ without collusion. Under
such a scenario firms can edge much closer to the position of a monopoly
than is often realised (Chamberlain, 1947). There is nothing a competition
authority can do about it.
Cartels can also centre on firms involved in vertical co-operation, which
occurs between firms operating at different levels of the production chain
(see, for example, Grundig–Consten).6 Such agreements may be in the
form of exclusive markets (where only one distributor is allowed to sell
a particular product) or in the form of exclusive purchasing agreements
where a distributor will agree to source all of its supplies from one par-
ticular supplier. The Nintendo case represents a more recent example.7
Vertical agreements have never quite attracted the same attention from the
regulator as have horizontal agreements and are generally not deemed to
possess the same degree of danger. Consequently, they are not considered
in this work.
4. UNDERSTANDING CARTEL ARRANGEMENTS

AS PRIVATE AND COLLUSIVE TREATIES
The reality that a firm will opt for a cartel agreement rather than openly
compete with its rival competitors should not be so surprising. The crucial
aspect in any oligopolistic market revolves around the behaviour of an
individual firm towards its rivals and the assumptions that it makes about
its competitors and their reactions to any of its own price moves. Gauging
responses is always going to prove problematic. Much depends on the
nature of the specific market in question, and firms involved in the sector
will always be alert to the risks of potential retaliation. Both considera-
tions present business concerns with strategic choices and have duly given
rise to a series of competing economic approaches and theories. A sub-
stantial economics based literature on this issue has emerged over the last
thirty years and has postulated a variety of suggestions as to why and how
firms opt to set prices.8
The crucial core of all such collusive agreements for the regulator is
whether the agreement is a covert arrangement which deliberately aims to
lessen competition. In economics collusion is a situation where firms’ prices
are higher than some competitive benchmark (Levenstein, 1995; Motta,
2007: 2). Economic theory is not so concerned about how these prices were
secured, it does not offer any explanation of how to differentiate between
collusive and non-collusive behaviour but does provide some suggestions
(Gavin, 2001: 114). Exclusive collision is said to emerge through the form
of an organised cartel which is constructed around shared information
and constant communication between its members.
The analysis of collusion in modern industrial economics is based on
the so-called concept of incentive constraint (Motta, 2007: 5) where firms
weigh up their commercial and strategic situation to determine whether
profit can be maximised furthest through engaging in collusive agree-
ments or not. The calculation has been labelled by economists as devia-
tion. Basically, if a firm makes more from collusive activity, and firms
always calculate the possible impact of any fines if a cartel arrangement
is unearthed, then this is the course of action a firm will stand to take.
Much of the existing literature explores this theme. It is important to know
what reasons facilitate collusion and important for anti-trust regulators to
know. But what constitutes explicit collusion, what forms does it take and
how is it detected and punished? There are different types and degrees of
collusion and to do them all justice and ‘to describe them all would require
an entire book’ (De Jong, 1973: 99). Hard-core cartels can be sub-divided
into two basic types that can broadly be identified as either a price fixing
cartel and/or a market sharing cartel.
4.1 The Price-fixing Cartel
Price-fixing agreements typify the best illustration and most undesirable

aspect of cartel activity. Price-fixing arrangements are always caught
under the EU anti-trust rules, but so are other agreements which directly
or indirectly suppress price competition (Whish, 2009: 507).9 At its sim-
plest, if rival competitors display rather similar list-prices and have a
range of uniform discounts, or prices that change in tandem, cartel activity
may be expected. Cartel members go to great lengths to avoid detection
and to conceal the evidence. A price-fixing cartel, however, may become
more visible and more vulnerable to detection when it raises prices. The
more frequently or regularly prices change, the greater the chance that
purchasers will realise that prices are moving together or changing by the
same amount or percentage. The regulators are also continually monitor-
ing markets. Buyers are well placed to notice when prices rise by identical
amounts at similar times. Caution should always be applied here because
even where prices are identical or even where they have seemingly aligned
simultaneously there still may be no definite evidence of cartel activity.
Moreover, actual apparent price differences can equally conceal collusion.
Analysing price movements over a certain period of time may prove fruit-
ful in uncovering price-fixing cartels and the possibility of an agreement
to restrict competition. Still, further documentary proof is needed and
usually in the form of emails, letters and, in the US case, phone tapping to
confirm the existence of an agreement.10
The formation of a price-fixing arrangement is never that straightfor-
ward. Questions such as how long the offence should last, who should be
allowed to join the arrangement, let alone determining the actual prices,
often make it difficult to secure. It will be easier the fewer the differences
between the firms in terms of both their products and their production
costs. The firms will find it harder to agree on a common price if the differ-
ences in their products are substantial, for example in terms of quality. This
explains why economists tend to think that cartels are generally formed in
markets with similar type products rather than those which differ. If firms
operate at different levels of cost, then they will have different prices at
which they maximise profits, making it harder to agree on the common
price. For any cartel to work effectively the firms involved must be in a
position to control supply to maintain an artificially high price. Collusion
is easier to achieve when there are a relatively small number of firms in the
market and a large number of customers, but the problems of engaging in
cartellisation should not be underestimated. There are downsides for any
prospective cartel member, as some are always going to be more efficient
than others and some are going to be more susceptible to price changes
than others. Cartels affect their participating companies in different ways

and this helps explain why some cartels are short-lived. The incentives for
firms to cheat can be considerable and it has been customary for cartels to
monitor their members. In efforts to deter any cheating, cartels have been
known to threaten penalties for cartel members who break free from the
arrangement and to exclude these same companies from any future activi-
ties, both legal and illegal. In an effort to avoid the break-up of an existing
agreement, members often seek to strengthen the benefits of sustained
co-operation and create other incentives and inducements.
4.2 The Market-sharing Cartel
In addition to the price-fixing route firms can also opt for a second classic
means to maximise profits and maintain their proportion of the market
through specific territorial sharing arrangements. Such agreements are
often designed to discourage members from cheating (Slade, 1990) and
tend to divide up a country (such as the USA) or a regional grouping of
countries such as the EU between the members of the cartel. Such exclu-
sive market creation has its advantages, as it ensures that a cartel member
is safe in the knowledge that another member will not encroach on its cus-
tomers. In such market-sharing agreements firms will determine and agree
their share of the market in advance. The cartel members will normally
also meet at regular intervals to determine how well the cartel is operating,
whether its terms should be renewed and how to share the most lucrative
contracts (bid-rigging). Such meetings increasingly occur in other jurisdic-
tions and as far from the gaze of the national competition regulator as
possible and aim to make it appear that actual competition is occurring in
the market. Collusive tendering (which takes the form of bid suppression,
complementary tendering and bid rotation) is one of the most difficult
forms of anti-competitive activities to uncover and the regulators often
hope to collect their information and evidence from whistleblowers.11 If
cartels are difficult creations to monitor and detect from the outside they
are also difficult to maintain even from within. This reality is positive news
for the cartel regulators, who can focus their energies and attention on
those markets where such collusion is potentially most profitable (Posner,
2002).
5. STABILITY AND FRAGILITY
Doubts have always existed about the actual stability of cartel agree-
ments. Often such doubts have been linked directly to a cartel’s duration,
as most break up (Suslow, 1991). This may seems a plausible conclusion,

but any such analysis is much more problematic than it may first appear
because the secret world of cartels is one of ever changing cartel patterns
(Ellison, 1994). The fact that cartels come and go, that members tem-
porarily withdraw, that actual membership can change and that cartels
often merge, demerge and remerge on a regular basis suggests instability,
but the picture is actually much more complex than it initially appears.
It certainly provides the regulators with something of a severe headache
and a real challenge as they try to establish if a cartel exists and to find
sufficient evidence to prove it. The European Commission has to tread
cautiously (Whish, 2009: 104) and always ensure that it has identified col-
lusive activity, as opposed to some form of parallel behaviour where firms
are simply responding to market conditions and not party to any agree-
ment. It can also be difficult to pinpoint the exact creation and cessation
of a cartel agreement because they can alter in shape, membership and
objectives over the duration of the arrangement. What may look like three
or four cartels over a thirty-year period, for example, could in fact be just
one cartel. For example, Eckbo (1976) and Griffin (1989) may have both
studied the sugar cartel but both disagree in their respective analyses over
the timing of its actual duration.
Most cartels do not last for anything more than the immediate short
term, and empirical studies of cartel activities during the course of the
twentieth century reveal that the mean existence of a cartel lasts generally
from somewhere in the region of between just over three to nearly eight
years (Levenstein and Suslow, 2001: 5). Some cartels, of course, last for a
considerably shorter period and some for as little as one year, while others
have endured for a much longer time. Some economists believe that nearly
all price-fixing cartels are inherently unstable (Stigler, 1964). Indeed, the
pressures and internal rivalries often lead to the collapse of many cartel
arrangements. The European Commission’s experience of cartelbusting
to date seems to suggest this may be the correct assumption. However,
caution is required because not every collusive agreement is so fragile.
Some are much stronger and endure for much longer (Whish, 2009: 99).
The sustainability of any cartel agreement depends heavily on the ability
of its members to coordinate their activities successfully and maintain a
strong allegiance to the benefits of the cartel. It has generally been assumed
that the more firms that exist within any given market, the more difficult it
actually may be to establish and coordinate a cartel. In contrast, the fewer
the number of firms in the industry the easier it becomes for other members
of the cartel to set up and to monitor each other’s behaviour. However, the
evidence is decidedly mixed (Levenstein and Suslow, 2001: 8) on whether
a larger number of members actually creates greater cartel instability or
stability. Some authors have presented contrary evidence. In his study of

989 cases which came before the US Department of Justice Posner (1970)
found that 52 per cent of collusive agreements which possessed ten or
fewer members managed to last on average for six years or more, but that
64 per cent of cartels with ten plus members lasted for the same period or
more. Even where there are only a handful of companies within a cartel the
existence of just one cheating firm is sufficient to undermine the collusive
behaviour of the entire cartel.
Again it is assumed that cartels tend not to last for very long in indus-
tries with low barriers to entry, because the threat of potential rivals
entering the market generally reduces the gains to be had from collusive
behaviour. Although new producers may join a cartel, when membership
levels increase this often makes communication, negotiation, and enforce-
ment more difficult. Cartels are also deemed to be most effective when
the demand for their product is not very price sensitive. Circumstances
sometimes dictate that firms will seek to break their deal or not meet the
full terms of the collusive agreement. The incentive for cartel members to
cheat on their agreements is relatively high and undermines the stability of
the cartel. If they all cheat the cartel collapses fairly quickly. Interestingly,
evidence strongly indicates that demand stability is often a core factor in
the duration of cartel agreements. The weaker the demand for a given
product, so the weaker the cartel turns out to be and the more likely to
dissolve.
Whether cartel members opt to cheat depends on whether the short-term
returns for cheating outweigh the medium and long-term losses which
result from the possible breakdown of the cartel. For example, a cartel
member may cheat on any previously agreed prices or production quotas
and thereby sell more of a particular product at higher prices (than oper-
ated by the cartel) or opt to lower prices. Indeed, an undetected price cut
will help a company to attract customers who are buying from the other
members, as well as customers who are not buying the product at all. Some
of these price adjustments may be subtle, including better credit terms,
faster delivery, or related free services. For this reason cartel members
closely monitor each other’s moves and often appoint one member to act
as policeman to an agreement.
The longer the time firms in the cartel can cheat without detection,
the greater the gains from doing so. Therefore, if monitoring is difficult
then there is a higher probability that some parties to the agreement will
cheat and make the agreement increasingly unsustainable. There are a
number of factors which potentially make a firm’s ability to monitor a
cartel problematic. These include the number of firms in the industry;
the characteristics of the products sold by the firms; the production costs
of each member, the behaviour of demand and, finally, the frequency of

sales and their characteristics. Homogeneous (similar) product markets
lend themselves to facilitating an agreement on prices and/or quantities,
but they are also easier to monitor and detect. Indeed, firms are all too
aware that a change in their market share is probably due to a price cut
(or quantity increase) by another member. In contrast, where products are
differentiated, changes in quantity sold by a member may simply be due to
changes in consumer preferences. The first case provides a clear example
of collusive activity, whereas the second may just be explained by a switch
in consumer demand and does not entail any form of anti-competitive
activity.
Cartel arrangements are not static creations, but are constantly adapt-
ing and changing to both reflect and meet altered economic circumstances.
This makes them difficult for the regulators to detect. The potential insta-
bility of price-fixing cartel arrangements is usually heightened by one
or more of the following factors; an economic downturn; the arrival of
non-cartel members into the industry and the subsequent pressure on the
cartel’s agreed price regime; over-production by the cartel members which
breaks the price fixing agreement. The prisoner’s dilemma has been often
used (Whish, 2009) to explain why cartels have not lasted, and argues that
all collusive agreements tend to fall eventually because, although price
fixing is in the joint interests of all members of a cartel, it is not a profit
maximising equilibrium for each individual firm and, thus, the correct
incentives will entice whistleblowers willingly to break ranks (see chapter
7).12 In short, to what extent members of a cartel will choose to cheat on
the agreement depends on whether the short-term returns on cheating
outweigh the medium and long term losses which result from the possible
breakdown of the cartel.
The world of collusive agreements is amazingly complex and is a dif-
ficult one for researchers to traverse, given that we are dealing with
formally closed cases only. Nevertheless, some general observations can
be made about the nature, duration and stability of cartels. Firstly, anti-
competitive agreements between private undertakings in specialised and
highly concentrated sectors seem more able to endure and over a longer
time frame than in those sectors where firms have a much reduced share
of the market. Secondly, homogeneous markets seem to possess a greater
propensity towards price fixing and thus, may also be easier to establish
and manage. Thirdly, it is interesting to observe how certain sectors (e.g.
steel, paper and cement) are more attracted to being involved in cartel
arrangements than others, but fourthly, how many firms have a history of
cartel activity and are in effect repeat offenders. Finally, cheating appears
to represent another key characteristic of many cartel agreements and one
that provides greater instability and encourages other members to cheat.

Once armed with such knowledge the cartel regulator is placed in a much
better position to confront and tackle cartels and can adapt its procedures
and modernise its weapons accordingly, but how successful have the
regulators been in anti-trust enforcement? This has been exactly the trajec-
tory pursued by the European Commission and especially since the 1990s
(chapter 7).
Most national jurisdictions in Western Europe started to develop their
own domestic anti-cartel legislation in the latter half of the twentieth
century. It aimed to halt and deter any agreements that seek to fix prices,
engage in bid rigging, place restrictions on output and share markets. The
adoption of anti-cartel rules has thrown up three core questions: firstly,
are all cartels to be viewed in such negative terms or are there times when
collusive agreements can be defended; secondly, whose interests should
take priority (the consumer’s or the producer’s) and, thirdly, who are the
regulators and what criteria do they use to identify cartel activity? Such
pertinent questions have dogged researchers and commentators for the
last fifty years. For Friedman the main problem for all regulators centred
on the definition of the public policy criteria and getting the balance
between the values of co-operation against the benefits of competition
(Friedman, 1972: 308). Attitudes towards cartellisation have depended,
of course, on changing circumstances and shifts in economic philosophies
and approaches between different cultures and among different economic
and political regimes.
There are, it should be stressed, occasions when co-operation between
firms actually finds justification (Harding and Joshua, 2003). These mostly
relate to special markets or sectors of the economy that require a degree
of protection. For example, arguments can be and are made supporting
greater advances in defence related industries or cases can be made for
certain sectors to be excluded from the reach of the competition regula-
tor altogether, as occurred with the development of the EU’s Common
Agricultural Policy. A distinction in cartel activity needs to be drawn
between public and private cartels. In the case of public cartels, the gov-
ernment may establish and enforce the rules relating to prices, output and
other such matters. Export cartels and shipping conferences are examples
of public cartels. In many countries, crisis cartels (as in Europe in the
1970s) have been permitted by national governments in industries deemed
to be requiring price and production stability and/or to permit rationalisa-
tion of industry structure in order to fix prices and ration production and
distribution in periods of acute shortages. Examples of such activity have
occurred in Japan in the steel, aluminium, shipbuilding industries. Such
cartels were also allowed in the USA during the 1930s in the coal mining
and oil industries. Cartels came to feature as part of German government

policy between 1933 and 1945 (see chapter 3). Such examples might be
considered now of historical interest only, but this would be an error.
Cartel agreements covering products such as coffee, sugar, tin and, more
controversially, crude oil are examples of international cartels which have
publicly entailed agreements between different national governments.
Western European governments allowed the formation of ‘crisis cartels’
(in the steel industry) in the 1970s (chapter 5).
In contrast, private cartels entail an agreement on terms and condi-
tions from which the members derive mutual advantage but which are not
known or likely to be detected by outside parties. Private cartels in most
jurisdictions are viewed as being illegal and in violation of antitrust laws.
A factor facilitating the formation of cartels and influencing their dura-
tion certainly centres on the actual risk of being detected by the authori-
ties. Is it strong or weak? The second key question which arises from any
prospective cartel member’s perspective is how potentially damaging are
the sanctions which could be imposed, if any collusive comes to light.
Sanctions are a crucial aspect of any successful cartel enforcement regime.
The available sanctions vary from regime to regime. Whereas the EU
antitrust system allows for the imposition of substantial fines for serious
infringements (and these are set ever higher for habitual cartel oftenders)
the US regime also makes use of criminal sanctions (i.e. prison sentences)
alongside its fining arrangements.
6. CONCLUSIONS
Cartels are generally held today to represent the most pernicious form of
anti-competitive behaviour and arise when companies participate in an
agreement as a means of deliberately escaping from the costly realities
of competition. In other words cartels can be visualised as a safe haven,
and as such are effectively the outcome of ‘deliberate, highly organised
and covert collaborative’ (Harding and Joshua, 2003: 1) practices which
have been agreed by a number of independent firms from the same or
similar sphere of economic activity. Experience seems to suggest that col-
lusive activity often occurs in those sectors with few players, easy access
markets and/or in those operating on small profit margins and facing
lower rates of growth. Much, however, still remains unknown about why
and where cartellisation occurs and the available evidence can often be
contradictory.
In the short term recourse to cartellisation may indeed prove beneficial,
but in the longer term and in today’s environment what are being deemed
hard-core cartel arrangements are certain to have serious and detrimental

repercussions because, starved of the dynamic and innovative effects of
competition, they often become uncompetitive in the real market. Such
secret agreements which divide markets, fix prices and prevent newcomers
from entering the market represent the classic shape of collusive agree-
ment and the most harmful for the competitive process. Indeed, it is inter-
esting to note that certain economic sectors (such as the pharmaceutical,
paper, cement and glass markets) seem more prone to cartellisation than
others. Condemnation of cartel agreements has become the norm and
recourse to them has been labelled as akin to cancers in the market place
and even theft.13 The world of cartels is inherently unstable. The formation
of cartels proves immensely intricate, incites many jealousies among the
parties, and ultimately the strain leads many to collapse.
The war against cartels is an enduring and timeless conflict which pits
the regulator against the interests of the firms involved. We should recog-
nise cartel formation and its pursuit as a form of economic based warfare.
Cartels have no respect for national borders, and as international trade has
become more global in nature so cartels have moved their activities onto
the international stage. In providing the reader with a general introduction
into the world of the cartels this chapter has attempted to identify some
of the commonly held perceptions and assumptions about the nature of
cartels and collusive market behaviour or what has been described by two
authors as cartel delinquency (Harding and Joshua, 2003). This book now
turns to explore the evolution of the European Union’s cartel regime.
NOTES
1. Experience and existing case studies (see Eichner, 1969; Genesove and Mullin, 1998;
2001) illustrate how this goal is not always achieved, as in a number of short-lived sugar
cartels.
2. Levenstein and Salant have pulled together an excellent collection of 61 essays and
seminal articles (from an economics perspective) from the 1890s to the present century
on various aspects of cartels and cartellisation. This edited two volume collection
covers a variety of themes which include, amongst others, the historical overview of
cartels; identifies the problems that cartels create within markets; explores the issues of
enforcement; investigates the particular challenges brought by natural resource cartels;
considers the issues of collusion; and also explores the internationalisation of cartel
activities.
3. An example of one of the leading entrepreneurs from one of the richest family businesses
(Fugger) in Europe and one that was heavily involved in cartel activity is provided by
Strieder et al., although the original work dates from 1931. Jakob Fugger II (or Jacob
the Rich who lived from 1459 to 1525) built up an extensive empire and practically held a
monopoly in the mining and trading of copper, silver and mercury throughout Europe.
He is alleged to have secured the election of Charles V as Holy Roman Emperor in 1519
by bribing the electors and was rewarded with money, land and monopoly rights.
4. A full copy of the amended Sherman Act can be found on the US Department of
Justice’s web page at www.usdoj.gov/atr/public/divisionmanual/index.htm.
5. The De Beers Diamond Cartel is one of the most written about cartels and centres on
one of the most desirable items. The cartel was in operation for over 100 years (Farrelly,
2001). De Beers was originally founded in the late 1880s by Cecil Rhodes, though his
actual involvement in the diamond ‘rush’ dates back to the late 1860s. De Beers rapidly
emerged as the main owner of all the diamond mining operations in Southern Africa,
and the company grew and developed throughout the twentieth century. Concerns had
often been expressed that De Beers was operating a cartel the origins of which can be
traced back to 1889 when Rhodes had skilfully negotiated an agreement with a diamond
syndicate based in London. This arrangement centred on the export of a fixed quantity
of diamonds and an agreed price for those diamonds (see Epstein, 1982). Several court
actions were filed against De Beers in the US in 2001 for infringing the antitrust rules
and fixing prices. In 2004 the De Beers group admitted to some price fixing agreements
before a US court and agreed to pay $10 million and in so doing has allowed De Beers’
executives to enter the US, which is one of the world’s largest diamond markets. More
recently De Beers has reached a settlement of a number of civil actions that were within
the US. (See also Spar, 1994.)
6. This case centred on the relationship between two companies, Grundig and Consten.
The West German company, Grundig, had appointed the French company Consten,
as its sole distributor of its (Grundig’s) electrical appliances throughout France. The
details of this arrangement, however, were upset when a third party (UNEF) opted
to buy Grundig’s products in West Germany before exporting them onto the French
market. Grundig objected to UNEF’s actions in France but the ECJ ruled against
Grundig’s attempt to provide Consten with exclusive rights which deliberately infringed
Article 81 (restrictive practices) under the EEC Treaty and was illegal (see Whish, 2009:
115–116).
7. This case centred on an anti-competitive agreement between Nintendo and seven of
its official distributors in Europe which deliberately sought to maintain high prices for
video and computer games across the EU. The arrangement lasted from 1991 until 1998
and it compelled each distributor to prevent exports from one territory (EU member
state) to any other territory (EU member state) through any unofficial distribution
channels. Any of the distributors party to this agreement who ignored the provisions
risked being boycotted by Nintendo or being supplied with smaller consignments.
Consequently prices varied enormously across the EU and were highest in Germany
and the Netherlands. The Commission imposed a fine of €168 million on Nintendo and
its distributors.
8. Readers are directed to the following authors as excellent examples: Abreu, D., Pearce,
D., and Stachetti, E. (1986) ‘Optimal Cartel Equilibria with Imperfect Monitoring’,
Journal of Economic Theory, 39(1), 251–69; Ellison, G. (1994) ‘Theories of Cartel
Stability and the Joint Executive Committee’, Rand Journal of Economics, 25(1), 37–57;
Jacquemin, A., and Slade, M.E. (1989) ‘Cartels, Collusion and Horizontal Merger’
in Schmalensee and Willig (eds), Handbook of Industrial Organisation, Vol. 2, New
York, Elsevier Science Publishers, 415–73; Lanning, S.G. (1987) ‘Costs of Maintaining
a Cartel’, The Journal of Industrial Economics, 36(2), 157–74; Porter, R.H. (1983)
‘Optimal Cartel Trigger Price Strategies’, Journal of Economic Theory, 29(2), 387–400;
Ross, T.W. (1992) ‘Cartel Stability and Producer Differentiation’, International Journal
of Industrial Organisation, 10(1), 1–13 and Sluewaegen, L. (1986) ‘On the Nature
and Significance of Collusive Price Leadership’, International Journal of Industrial
Organisation, 4(2), 177–88.
9. The formation and operation of cartel agreements are usually constructed around
higher prices (and often some 20 to 40 per cent higher than what they would have been),
lower output, reduced product quality and less innovation.
10. Companies have become more adept at concealing such relevant information and
usually dispose of faxes, e-mails and all other correspondence between the members. In
response, the regulator is left to consider whether it is dealing with a concerted practice.
Concerted practices can also contravene the EU competition rules if such loose agree-
ments are designed to limit competition, but the onus rests with the competition author-
ity to prove that co-ordination has taken place.
11. In ‘bid suppression’ schemes, one or several competitors (who would otherwise be
expected to tender) opt not to submit a tender or withdraw a previously submitted
tender so that a competitor’s tender will be accepted. In ‘complementary bidding’ (also
known as ‘protective’ or ‘shadow’ bidding) some supposed rival competitors submit
tenders which are specifically intended to be too high to be accepted (or, if competitive
in price, then on special terms that will not be acceptable). Such tenders are deliber-
ately designed to give the appearance of a genuine tendering process. Finally, in ‘bid
rotation’, all cartel firms participating in the scheme submit tenders, but by agreement
each firm has secretly agreed a turn at being the lowest bidder. A strict bid rotation, of
course, defies the laws of chance and suggests collusive activity. Rotation schemes tend
to be fairly sophisticated to avoid detection.
12. Cartel members are normally better-off being party to the agreement than engaging in
actual competition. However, even a cartel member may seek to outwit its own ‘associ-
ates’. For example, a slight deviation (for example, in a reduction in prices) may capture
a larger share of the market demand and lead to greater profit margins. In other words,
the members of a cartel always have an incentive to ‘cheat’ on their agreement, which
explains why cartels are generally difficult to sustain in the long run.
13. US antitrust has displayed an aversion towards the concentration of economic power
in the hands of a few leading corporations or individuals, and also questioned the
compatibility of such economic power with notions of democracy.
3. The rise of the cartel: toleration,
encouragement and the control of
cartels in Europe, 1871–1945
Although it is certainly tempting – and it would have been a much
more straightforward exercise – to keep any study of EU cartel policy
completely focused on post-1945 developments, it would have been
short-sighted. European cartel policy may essentially be a post-1945 phe-
nomenon, but in order to appreciate its developments and the decisive
break in continuity from practices in the first half of the twentieth century
that it represents it is necessary to push further back, and at least to the
last quarter of the nineteenth century. Only then can we understand the
wider context, stages and drivers shaping the history and development of
anti-trust policy. This longer time frame also allows for a brief discussion
of the adoption of the modern world’s first substantive cartel legislation
in the United States of America in 1890 which not only pre-dated the
European integration process by some sixty years, but initially challenged
European assumptions of the desirability of cartels. Opting for this longer
time-frame has its challenges and necessitates knowledge of a considerable
business and economics based literature on the period prior to 1945. This
chapter provides a brief overview and aims to draw out how, where and
why the number of cartels expanded and, more importantly, how states
responded to the process of intensifying cartellisation, both domestically
and internationally.
The period after 1870 to the end of the Second World War is gener-
ally held to epitomise the era and triumph of the cartel as an accepted
form of business activity, and one which was completely unregulated as
cartels became facts of daily life across many branches of industry. The
actual picture is somewhat more complicated. Business historians (Fear,
2006) have charted the rise and fall and repackaging of cartels over this
period. Closer inspection reveals a somewhat mixed history in so far as
cartellisation has displayed a stronger resonance in some states more than
others and for different reasons. Different regimes over the course of the
last one hundred and forty years have at times tolerated, even encouraged
and combated cartels. The changing variable in the equation has centred
44
The rise of the cartel 45
on each individual state’s response towards the desirability or urgency

of cartel regulation as the European states were at different stages of
economic and industrial development. Indeed, the picture becomes even
more complex because on occasions some aspects of collusive activity may
be deemed a legitimate course of action in different states and in different
time frames.
Still, within this era it is possible to identify a number of critical junctures
in the history of cartellisation which encapsulates the rise of the cartel.
Three general and introductory observations can be made in relation to,
firstly, pinpointing time lines (i.e. the origins and development of cartels);
secondly, identifying those countries which were more susceptible to cartels
than others; and, thirdly, locating those economic sectors which have proven
most prone to cartellisation. Cartels began to emerge across Europe as an
omnipresent form of business activity and, above all, in the German speak-
ing countries of Central Europe, and especially the newly unified German
state after 1871. They reached their apex during the interwar period when
they came to underpin the economic structures of both Nazi Germany and
Fascist Italy and other economies which either accepted and/or sought
protectionist measures to thwart unwanted competition from foreign rival
companies. Recorded evidence reveals that such forms of cartels were more
prone to emerge in those large scale and heavy industries that proved costly
to run and maintain in the face of open competition (Mirow and Maurer,
1982: 11–35). Some of the first and most established examples of cartel-
lisation in the period running up to 1914 occurred in the production of
aluminium, chemicals, cement, fertiliser, paper/cartonboard, salt and steel.
It is interesting to observe how these same sectors have continued to engage
in cartels even up to the present day.
Trying to explain why cartellisation impacted on some European states
more than others and why certain industries displayed a readiness to
engage in collusive activity in the period after 1870 is a complex task which
extends far beyond the confines of this particular book. Nevertheless, this
chapter highlights some of the explanations and issues that help explain
the cartellisation process and why it occurred where, how and when it did.
It is now divided into five sections. The first provides the background to
the rise of the cartels in Europe; the second traces the origins and spread
of cartellisation in Imperial Germany and questions why this state showed
most propensity towards this course of action, and the third introduces
the anti-cartel experience in the United States as a means of comparison.
The following section outlines the developments and trajectories of cartel-
lisation in the inter-war period and signals the emergence of the first anti-
cartel policies in Europe. The fifth and final section focuses attention on
the appearance of the international based cartel.
1. THE RISE OF THE CARTEL IN EUROPE

Nineteenth century Europe was relatively peaceful. A state of more or
less peaceful co-existence prevailed in Europe and lasted from 1815 until
1914 (with a few exceptions such as the Crimean War, sporadic internal
revolutions and the unification drives in Germany and Italy).1 This period
gave rise to a growing population, scientific inventions and discoveries,
a rapidly emerging rail network and growing international competition
as many businesses expanded. The significant appearance of cartels
towards the end of the nineteenth century cannot be properly understood
without recognising the economic and political context from which they
emerged. The three main European powers (France, Germany and the
United Kingdom) had rapidly industrialised, witnessed phenomenal
economic growth and found themselves locked in a competitive strug-
gle for markets with each other.2 The period after 1870 was marked by
the shift towards economic protectionism and steered away from earlier
mercantilist and freer trade position. Tensions between these powers for
markets, resources and labour fuelled the move for larger companies and
cartellisation. It was an age of ‘competitive imperialism’ (Beaud, 2000).
Many of these early cartels may have been created to meet expectations
in domestic markets, but as they matured they reinvented themselves and
adapted their strategies and alliances to build collective and collusive
international arrangements as they sought to escape the dangers of so-
called ruinous competition. Germany has most often been recognised as
the archetypal economy in Europe which was truly underpinned by a
higher degree of cartellisation. Although evidence of cartel-like activity
can be traced back to the second quarter of the nineteenth century in
several German states in the form, for example, of the steel-wire cartel
(Kastl and Metzner, 1963: 461), the Neckar Salt Union (established in
Wurttemberg in 1928), the Oberlahnstein Association to regulate the
price of pig iron in the late 1840s, and later tin plate cartels, cartels only
really begin to multiply and become an endemic aspect of the German
business environment in the five decades after the unification of Germany
in 1871.3 There was scant governmental interest in cartellisation during
this period. This reality was mirrored in other European states. Rather
than feeling any necessity of regulating business activity, successive
governments of Imperial Germany resisted state intervention and sup-
ported free markets where businesses, as private associations, were left
to make their own agreements. The new German polity required a strong
and powerful economy, and cartels had become a means of securing this
objective. ‘Without them, the state could not expand its own sphere of
economic power . . . cartels played the role of industrial organisations
to combat foreign competition and particularly the Americans trusts’

(Nörr, 1994: 29).
Cartels emerged first in the heavy industry sectors as a response both to
the economic uncertainties unleashed by overproduction and an ensuing
fall in prices and then spread almost contagion-like to most sectors of the
German economy by 1900. There was (Harding and Joshua, 2003: 71)
certainly a ‘formidable community of pro-cartel interests and actors in
Wilhelmine Germany (1888–1918)’ (heavy industry, big agriculture, the
government and many economists). Cartels simply emerged to represent
the accepted face of German business practices and statistics illustrate
how the number of cartels had gradually climbed slightly from a modest
4 in 1865 to 8 a decade later before jumping significantly to 90 by 1885
and further to 210 in 1890. Estimates (Vito as quoted in Pace, 2007: 5)
place the number of cartels past the 300 mark by the end of the 1890s.
The upward trend had been set, and by 1905 there were some 400 cartels
in operation (Henderson, 1967: 54) involving some 10,000 companies.
The figures continued to augment and had climbed to 700 by 1910 before
surpassing the 1,000 mark by the end of the First World War (Schröter,
1996: 132). It is necessary to distinguish the varying nature of cartel agree-
ments which can be assessed in terms of duration, power and effect. The
majority of cartels were clearly short-lived; some of the most potent, the
best known and most established were to be found in the basic industries
of coal, steel, iron, coke and potash. It could even be argued that, as
many cartels have a short life span, the need for any anti-trust policy was
obviated. This position has to be rejected, given the propensity of cartels
frequently to re-invent themselves and a small number did have lengthier
life spans. Whenever and wherever cartellisation is allowed to flourish
unhindered it does impact negatively on consumers. In short, German
business and moral traditions prior to 1914 were much more directed
by planning and issues of stability than any notions of competition and
competitive markets.
Cartels rapidly spread to many sectors of the German industrial
economy, so much so that there were even separate cartels in place in the
manufacture of both soft and hard toilet paper (Liefmann, 1930). This
upward trajectory in Germany was replicated, albeit in a less pronounced
fashion, in its bordering territories and most notably in Austro-Hungary,
where some 200 cartels were in existence in 1914. Again cartel activity was
most pronounced in the heavy industrial sectors such as coal and iron
(Resch, 2002). Other leading European states such as France, Italy, Spain
and the United Kingdom did not remain immune from the cartel drive,
but their individual experiences never reached the numbers or solidity of
their German counterparts.4
2. THE LAND OF THE CARTELS – GERMANY

How do we explain such developments and a propensity towards cartel-
lisation in the German speaking countries? A range of general assump-
tions have been made in the past which have sought to explain cartels, for
example as a response to economic difficulties, as a reaction to protection-
ist tariffs and as the vehicles for the banks to make greater profits, but are
these correct? They have also been deemed to reflect Germany’s form of
‘organised capitalism’ which centred on self regulation and a close rela-
tionship between business and the state. They have been presented as an
attempt to bolster German economic development in a world which was
increasingly being carved up by various powers into largely protection-
ist zones. In order to understand the cartellisation process it is first of
all necessary to appreciate the economic and political context of recent
German history. Germany had undergone a truly massive and fairly rapid
transformation from a largely agricultural based economy to an industr-
ialised economy (Pierenkemper and Tilly, 2004) during the course of the
nineteenth century. During this period Germany’s population rose from
22 million in 1800 to some 40 million by 1870 and 56 million by 1900 and
Germany became an increasingly urbanised society. Harding and Joshua
(2003: 64) put forward four very convincing variables for researchers
to consider when trying to explore and explain the rise of the cartel in
Germany. The four variables relate to broad economic trends (includ-
ing industrialisation, the economic downturn in the 1870s and over-
production), the type of market in question, the political context (nation
building and protectionism) and business and regulatory culture.
In part the economic changes were facilitated by the creation of the
German Zollverein (customs union with no internal barriers to trade
between its members), which came into existence in 1818 and greatly accel-
erated cross-border intra-German trade among the states in Germany.
The Zollverein was a Prussian creation to invigorate growth and had its
own parliament, currency. The economic benefits resulting were almost
immediately apparent as the Prussian state underwent a period of nearly
thirty years of economic growth from the late 1840s. The economic expan-
sion scaled new heights in the immediate period following the unification
of Germany in 1871.
Industry was flourishing and really beginning to challenge the domi-
nance of British manufacturers for the first time. Expectations were high,
and the economic boom period of the Gründerjahre (founding years of
the early 1870s) heralded the emergence of leading banks such as the
Deutsche Bank, which provided the capital for the expansion of German
business interests. Some forty-seven banks were established in 1872 alone.
However, the boom was short lived and the German economy unexpect-
edly descended into a rather lengthy period of depression from 1873
until 1896. Of course, there were some glimmers of prosperity within this
time frame (as occurred between 1879 and 1882), but for much of this
period the economy seemed to be in a state of crisis which impacted on
government aspirations, business confidence and the public. The Reich
government responded to these turbulent times through a variety of
mechanisms. It moved Germany away from being a free enterprise market
economy (based on Manchester liberalism) towards protectionism. The
re-appearance of tariffs was specifically designed for the agricultural sector
and to protect the interest of the large land owning aristocracy east of the
Elbe from cheaper foreign grain imports. Tariffs also came to feature in
industrial goods and especially in relation to iron, but how far did these
impinge on business and produce cartels?
On the one hand the recession led to the collapse of many smaller family
run firms, but it also gave rise through mergers and acquisitions to the
creation of larger business interests. This concentration process of eco-
nomic power was another hallmark of the age. The revival of protectionist
duties and technical barriers to trade in the 1880s was conducive towards
greater monopolistic tendencies. Business certainly found itself compelled
to respond to the deteriorating situation and challenging times. Above
all it wanted to limit competition where possible. Initially, the first wave
of cartels to emerge in the immediate years after German unification can
effectively be labelled as a ‘product of necessity’ in difficult times, but as
members came to realise the advantages of such private economic agree-
ments so cartels came to flourish, even in times of prosperity. Instead of
pursuing the competitive process, many German businesses adopted the
somewhat safer and more secure environs offered by cartel membership.
The creeping process of cartellisation was tolerated by the new fledgling
German state in an effort to enable German industry to rival its British
competitors. These aspirations culminated in the desire for territorial
expansion (which became typified in the Reich’s drive for colonial posses-
sions in the 1880s and the huge shipbuilding programme (which required
iron) after 1900.5 Against such a background any notion of competition
and competitive markets became a secondary concern. Most cartels of the
period were not the outcome of an alliance of small firms seeking some
form of a defence arrangement against a more dominant market player
(though that is how some of the first originated), but rather were designed
as part of an offensive strategy and usually included the largest market
players.
Consequently collective agreements were quickly recognised as a viable
and even desirable form of business activity. The coal mining industry
provides a good illustration of this deepening process of concentration.

In Rhine-Westphalia, for example, some 40 per cent of the mining com-
panies ceased to exist between 1873 and 1890 although production trebled
and the number of people working in the mines effectively doubled. This
industry also represented one of the most well known cartels at the time
in the form of the Rhenisch-Westphalian Coal Cartel (Gebhardt, 1957:
206). This cartel was established in 1893 and quickly limited production
and helped to bring greater stability through, among other things, higher
prices which finally reached their 1873 levels in 1913. This particular cartel
employed over 5000 people, consisted of 67 firms in 1912, had its own
headquarters, and managed about 1400 different prices for varying coal
qualities (Peters, 1989). The recession thesis seems entirely plausible and
fits well with certain collusive agreements. In this sense cartels came to be
classified as Kinder der Not (necessity’s children) and a form of protective
collectivism that arise in times of economic depression and falling prices,
failing firms and falling wages. But are these assumptions always correct?
Three examples provide useful illustration.
The rail/steel sector offers another prime example of collusion as a
defence strategy. The railways had expanded rapidly from the first line
between Nuremberg and Fürth in 1835 across the German states and
facilitated both trade and communications. Their expansion plays a
significant role in Germany’s industrialisation and greatly increased the
demand for steel. Initially most of this product had been imported from
Great Britain, but as the Germans developed, copied and honed the tech-
niques of their British rivals so they quickly became self-reliant. Germany
went from being a net importer to producing by 1863 some 85 per cent of
its needs. However, following the sharp fall in steel prices in the 1850s the
main producers sought refuge in a steel/rail cartel which was formed in
1859 and survived practically intact until the First World War (despite a
small cessation in the boom years of the early 1870s). It not only proved to
be one of the most enduring examples of cartellisation but was one which
remained highly profitable. There was a desire on behalf of the cartel
members to keep the activities of cartel arrangements hidden from the
public gaze. Interestingly, the rail/steel arrangement was one of the first
cartels to come to the wider attention of the general public when Eugen
Richter questioned its motives and practices in a speech in the Reichstag
on 5 May 1879 (Liefmann, 1930: 23), and in particular the cartel’s decision
to charge higher prices for steel on the domestic German market than it
did in international markets.
Another industrial sector which opted for the cartellisation route was
potash. This sector displayed some unique features. Low entrance set-up
costs meant that many companies were able to enter the market and sink
wells. However, this reality proved immensely problematic because it

led to too many players in the market place in the 1860s and 1870s. In a
normal competitive market the abundant supply of potash should have
pushed prices down for the consumers at the cost of the producer. To
avoid any such scenario the potash producers established a cartel which
simply maintained artificial prices and simply expanded to bring in new
members. In short, in the absence of competition over-inflated prices
prevailed within a highly inefficient sector. Often higher cartel member-
ship equates with greater instability, and this cartel ultimately collapsed
in 1909 only to be reinstated by the Reich government several years later.
Interestingly, this sector was further protected from competition when the
German government ruled out any possibility that foreign (non-German)
companies could buy into the German potash industry. The potash cartel
survived due to the absence of any competition, and the situation was rec-
tified only after the First World War when the number of cartel producers
fell from 228 to forty (Liefmann, 1930: 87).
The chemicals sector housed two main cartels. The first (the so-called
Dreibund or Union of Three) comprised BASF, Agfa and Bayer, while
the second (the so-called Dreiverband or Association of Three) included
Hoechst, Cassella and Kalle. Attempts at merging the two however
encountered resistance from suppliers and came to nothing. It is strik-
ing that cartels increased and flourished from the mid-1890s onwards in
times of economic growth and prosperity (Kleeberg, 2004) and began to
get more notice in some of the daily papers. Cartels can be depicted as
a response to Germany’s rapid industrialisation and in effect be deemed
defensive agreements for firms facing both economic downturn and
increasingly inefficient industrial sectors, but this angle is just one expla-
nation of the cartellisation process in Germany. The examples above cast
doubt on such arguments.
Another crucial dynamic which has been used to explain the rapid
industrialisation process throughout Germany centres on the growth and
role of the banks. The banks had certainly developed almost out of all rec-
ognition in the fifty years after 1840, but how strong a connection exists to
cartellisation? Gerschenkron (1962: 15) has argued that the rush towards
cartellisation in Germany reflected the wishes of the banks to protect their
investments, and undoubtedly there is sufficient evidence to connect the
banks with a spate of industrial and technological developments. Banks
clearly facilitated the development of such specific capital intensive indus-
tries as the electro-technical sector which often bred cartels, but trying to
correlate the two facts has often risked overstating the economic power
of the banks. The banks form just part of a story that must also recog-
nise other features of Germany’s form of so-called ‘organised capitalism’
which included the interlocking directorates, supervisory boards, collusive

agreements. It is still important not to over-exaggerate the power of the
banks (Feldenkirchen, 1991). Certainly the banks were represented on the
supervisory boards and possessed voting rights but they did not dominate
proceedings and developments. Their focus and presence in heavy indus-
try reflects the need of such sectors for substantial capital investment.
Cartels were simply as much a feature of business practices as were
the banks. It was generally assumed that the cartels themselves provided
the mechanisms to control any instability in the market place and to
prevent dangers of competition. In this time-frame anti-cartel measures
were extremely rare. The first tentative steps in the direction towards some
form of regulatory system and rules on collective market behaviour actu-
ally encouraged cartel activity, as the Reichsgericht’s (the supreme court
until 1945) judgment in the infamous Wood Pulp cartel demonstrated.
This case from 1897 centred on the existence of a wood producers’ cartel
in Saxony the avowed aim of which had been to prevent ‘ruinous compe-
tition with one another and to obtain an agreed price for the producers’
(Nörr, 1994). In order to do this they established a joint sales agency for
all parties to the arrangement whereby all members had agreed to pay a
fine if any opted to break the ‘contract’. One such company did, and by
challenging the nature of the agreement gave rise to the case. The anti-
competitive agreement was approved by the court which (in the absence
of any competition legislation) based its decision on the existing Civil and
Commercial Codes. This outcome paved the way for the rapid expansion
of the cartel industry in Germany. At closer inspection the judgment on
this cartel is significant for two main reasons. Firstly, it determined that
the freedom of contract took precedence over the freedom of competition.
Secondly, it maintained that cartels were not necessarily against overall
public policy. Indeed, it is important to stress in this context that most
observers did not favour an outright ban on cartels (and this may help to
explain the court’s decision). Rather this decision should be interpreted
as the Court’s determination to have cartel contracts brought before the
judges where they could be struck down.
It is also interesting to note that the original complaint arose from one
of the members of the cartel and not from the consumer. In this time
period the notion and realities of consumer interests were practically
non-existent (Gerber, 1998: 105), and this meant that demands for greater
cartel regulation were rather limited. Consumers were largely identified
as workers whose interests were represented by the growing trade union
movement and the SPD, but cartels were far removed from the main issues
of the party’s programme. In retrospect, the court had neither truly appre-
ciated the potential negative effects cartels had on economic growth nor
sufficiently grasped that the development of a free economy is based on

genuine competition in the market place.
The 1897 ruling marks a decisive stage in the history and evolution of
German competition policy, as it constitutes one of the first building blocks
of a regulatory framework and it also marks the realities of an emerging
competition community of lawyers and state officials. There is evidence
of a growing interest in the dangers presented by the absence of fair com-
petition from the late 1890s and public concerns led to some debate in
the Reichstag, for example, over a rise in coal prices in 1900, several draft
bills to combat cartels and even a government enquiry from 1902 to 1905
(Voigt, 1946: 174) on the extent of the cartel problem. The survey uncov-
ered 395 cartels (and identified 132 in the brick sector, sixty-two in iron,
forty-six in chemicals and some nineteen in coal). In retrospect, there was
a creeping recognition of the desirability of competitive markets and the
danger posed to their attainment through cartellisation. This growing
awareness found reflection among social scientists (essentially legal schol-
ars and economists) and also in the passing of the Gesetz gegen unlautern
Wettbewerb (law against unfair competition or the UWB) in 1896. This law
was not an attempt to secure genuine competition between companies, but
is best described as a moral code and was basically concerned with ensur-
ing that people in business operated according to ‘fair rules’ when compet-
ing with one another and in their relationship to the consumer. In other
words this law aimed to ensure that people did not conduct their business
activities in a manner which might offend good morals such as entrapping
customers through misinformation; obstructing customers through price
wars and selling below costs; and making unauthorised uses of another
name or trademark. Although the UWB was revised in 1909 there was
scant interest among successive pre-war Reich governments for some form
of regulatory control of cartellisation, even given the growing number and
transformation of the cartels themselves. Indeed, calls for the creation of a
cartel office in 1908 had fallen on deaf ears within government.
Towards the end of the nineteenth century it had become clear that many
of the original domestic cartel arrangements in Germany now dominated
many industrial markets. For example, by 1907 it has been estimated that
100 per cent of the potash industry, 90 per cent of the paper industry, 48
per cent of the cement industry, 36 per cent of glass production and 50 per
cent of raw steel production were subject to cartel agreements (Nipperdey,
1994: 248). Cartellisation did not always equate with stability, and some
agreements were highly unstable and dissolved quickly. These cartels
underwent a further metamorphosis and evolved into transnational agree-
ments. By 1914 there were some 110 such international cartels and nineteen
were located in the chemical sector, eighteen focused on transportation
(including liner shipping), and some twenty-six centred on coal and other
metals. Each had its own peculiarities and had been designed for either
national markets or international markets, and increasingly all strove to
restrict competition. Virtually all such collusive international agreements
at this point in time contained German companies, although partners from
Austria, Belgium, France and the UK were also strongly represented. One
of the issues arising from the outbreak of the First World War was that
it actually compelled states to industrialise further and thus anchored the
status of cartels in the war geared economies.
3. THE APPROACH TO CARTELS IN THE UNITED

STATES OF AMERICA
When accounting for the development of cartels and cartel policy in Europe
it is impossible not to contrast and compare with the response to the same
phenomenon in the United States. Indeed, the US model of anti-cartel
policy certainly differed in style, substance and approach and challenged
European perceptions until 1945. It is certainly tempting to assume that US
antitrust is the model upon which all later policies are based. While there
is some truth in this assumption, it is important to remember that compe-
tition policy is shaped as much by domestic considerations, as some (see
Cini and McGowan, 1998) argue, such as historical traditions which have
a bearing on the role of the state, and cultural attitudes towards industry,
as they are by external policy borrowing. Contrasting the American model
very briefly against the emergence of the main European models (i.e. the
larger and most significant) demonstrates this point.
The US possesses one of the first and strongest legal bases in terms of
antitrust and it is built on the 1890 Sherman Act and both the Clayton
and the Federal Trade Commission Acts from 1914.6 Together these acts
represent the bible of US antitrust policy. The American antitrust (or com-
petition) tradition embodied in these laws grew from a populist movement
in the late nineteenth century (McChesney and Shughart, 1995) which
centred on a suspicion of unchecked economic power, and the develop-
ment and expansion of large trusts brought increasing concerns about
notions of democracy and accountability. The United States had also
undergone a rapid wave of industrialisation which mirrored the country’s
rapid expansion westwards to the Pacific Ocean from the 1830s onwards.
The drive west was followed by the railroads and enhanced trade and eco-
nomic growth. In the second half of the nineteenth century the first cartels
emerged in such sectors as tobacco, oil, steel, and the railways (Beaud,
2000: 176).
By the late 1880s huge enterprises, especially the railroad companies,

were swallowing up small firms at a frightening rate. These large busi-
nesses raised concerns about potentially abusive monopolies. Pressure for
antitrust legislation was driven initially by the social, moral and political
effects of big business rather than being driven by economic theory. In
short, US antitrust began as an attempt to defend the individual entre-
preneur against large companies (or trusts). There were numerous pro-
tests about the dangers posed by cartellisation from both other business
undertakings which were affected by such illicit agreements and also the
wider public. Fears were expressed about the power of many capitalists
and the number of large companies and the near monopolies in such
economic sectors such as sugar, petroleum and steel.7 This discontent
fuelled the emergence of the first anti-cartel legislation at state level in
1887 (Hovenkamp, 1994) and preceded US Congress’s passing of the
Sherman Act in 1890. The US antitrust Acts are therefore not simply
legislative texts but also embodied the values on which America was built:
individualism, fairness and free enterprise (Whish, 1988: 16). As free and
fair competition was viewed as the economic embodiment of political
freedom and democracy, surrender to the unaccountable economic power
of the monopolist would have undermined the ideological foundations
of the American state (Neale and Goyder, 1980: 16). This does not mean
that the American approach to concentration was unquestioningly hostile.
Rather, it tended to focus on the need for balance, and on the fostering of
a positive pro-competition ethos.
The Sherman Act omitted the word competition completely and placed
its emphasis with concepts and positions of economic power rather than
market structures. The Act contained a definite prohibition against
‘monopolization of trade and commerce’, but also declared ‘every con-
tract, combination in form of trust or otherwise, or conspiracy, in restraint
of trade and commerce . . . to be illegal’. There were no provisions for
exceptions and those found guilty of such practices were to be subject to
financial and penal penalties. The seemingly clear objective and powers to
prosecute every trust disguise the reality that this was not a particularly
‘effective piece of legislation’ (Peters, 1996: 43) and was beset by a vague-
ness in terms of both style and the use of language, and consequently
the job of the courts was made more difficult when it came to assessing
what actually constituted clear abuses of power. Little distinction, for
example, was made between those restraints of trade which could be
deemed beneficial and those which were problematic. This particular Act
was also powerless to prevent the growing trend towards greater economic
concentration.
Accordingly, the later Clayton Act of 1914 should be recognised as
an attempt to tighten up the law, given the growing concerns about the
power of monopolies. It attempted to specify the different types of activ-
ity that could be deemed illegal restraints on trade. This Act, for example,
included price discrimination and also sought to tackle trade practices
(including tying and exclusive dealing arrangements as well as mergers)
which threatened to undermine competition. It went one step further and
cleverly forbade ‘all unfair methods of competition’ and identified the
newly created Federal Trade Commission as the primary institution to
undertake investigations of industry and to initiate proceedings against
companies which were engaged in unfair practices. These American anti-
trust laws had set the scene and direction of the US tradition, but would it
find reflection in Europe?
4. THE TRIUMPH OF THE CARTEL, 1919–45
The realities of prevalent cartellisation were to reach their ascendancy

in continental Europe during the interwar period from 1919 to 1939 and
assumed two general phases. The first phase, which covered the period
following the First World War until the Wall Street Crash in 1929, was
marked by a continuation of the cartel trend but also by a growing number
of embryonic rules on competition as governments slowly came to appre-
ciate and recognise the potential dangers from cartellisation. After a brief
lull in both cartel formulation and government intervention between 1929
and 1933 the history of the European cartel underwent a decisive change
in direction post depression, especially in both Germany and Italy, and
entered a second and more intense phase when the state authorities altered
direction and both encouraged and compelled cartellisation. It has been
estimated that cartels controlled approximately 40 per cent of world trade
between 1929 and 1937 (Nussbaum, 1986: 134).
Although agreements often involved German partners it is important to
stress that cartels were not just a German phenomenon. They had become
a reality in most industrialised nations and had existed prior to 1918 in all
four leading West European states (i.e. France, Germany, Great Britain
and Italy) and beyond. They covered a range of sectors such as chemicals,
electricity, glass production, iron and steel, metal and minerals, textiles
and cardboard (Pace, 2007: 8–10). Many cartels had become international
entities. In an excellent study of cartellisation Schröter (1994) divided
European states into four different groups. In the first and largest group he
identified those states that were strongly in favour of cartels, and included
within this category Austria, Belgium, Czechoslovakia, Finland, France,
Germany, the Netherlands, Norway, Sweden and Switzerland. In a second
group he listed those states that not only tolerated cartels but were also
laying the first foundations for some form of regulatory bodies, such as
Hungary, Italy, Poland and Spain. In a third cluster he placed those states
which were rather ambivalent towards cartels (Bulgaria, Denmark and
the UK), and in the final group those countries which were steadfastly
opposed to cartels such as Yugoslavia, Australia and New Zealand. It is
neither possible in this chapter to assess the correct classification of these
states nor is it the intention. Instead the remainder of this chapter focuses
particularly on events in Germany, which became the first state to intro-
duce a system of cartel control, although comparison with other states and
especially France and the United Kingdom will be made where appropri-
ate. These three states represented the main building blocks of the interwar
period despite their very different historical, cultural and legal traditions.
All were sympathetic towards cartels, but how did they respond to them?
In Germany the repercussions of losing the war and being declared
responsible for it (Article 261, Versailles Treaty) were immense, and the
country not only experienced substantial political turmoil as it moved
from an ultra conservative monarchial system to a new democratic and
republican order in the period after 1919, but was also confronted by a
huge reparations bill and a much changed economic climate. Although
much had changed in terms of the political and social landscape of the
new Weimar Republic, some practices, and in this case cartels, remained
undisturbed and intensified during the Weimar Republic. Many were the
product of agreements to tackle and manage the overproduction of goods
which still continued after the war and the drive for self-sufficiency. The
number of cartels rose dramatically and had reached some 2500 by 1931
(Feldenkirchen, 1988: 116–8), and the figure would have been consider-
ably higher if those cartels relating to banking, insurance and the free
professions (doctors, dentists and architects) had been included. How is
this increase to be explained? To understand why cartels flourished it is
necessary to appreciate the changed economic and trading circumstances
facing many German businesses after 1919. Much of Germany’s pre-1914
links, export markets and other international connections, and especially
those relating to the United States, had been severed by the First World
War. The early post-war years saw both Reich governments and German
business seeking to rebuild the economy and regain access to markets.
Apprehension abounded on several fronts. The German business com-
munity was wary about investing in other countries, partly amid con-
cerns about possible expropriation and partly on account of their lack of
finance. The realities of considerably larger US companies (see Berghahn,
1996: 37) also rocked business confidence about the perils of free market
competition, as did the possibilities of companies with hard currency
purchasing power acquiring German companies (given the falling value

of the German currency in the early 1920s). German companies needed
to locate and gain access to export markets and cartels were often the
chosen vehicle towards greater security and stability. Moreover, the inter-
war period was marked by the constant growth of trade barriers between
states. The pressure to maintain competitiveness in the latest technology
fields of chemicals and electrical engineering culminated, for example, in
agreements, and their creation followed a similar pattern that upon trans-
lation meant reaching an agreement with rival competitors in other states
as a means of allocating markets and fixing prices. Cartellisation became
an endemic feature of business activity (Barnikel, 1988: 13) in Germany,
and although it found reflection in many other European states it never
assumed the same velocity or depth as in Germany, which had become the
‘land of the cartels’.
Faced with a series of political crises and attempted coups in the
early 1920s the Weimar governments may have seemed ill-prepared
for tackling the cartel issue, but the first major steps towards regulat-
ing cartels in Germany can be traced back to this period in the form of
the Kartellverordnung (Cartel Regulation) of 1923.8 There had been a
growing degree of unease about cartel activity among sections of the
wider public and especially from the SPD since the turn of the century.
The real impetus for legislation at this particular moment owed much to
the dire economic position facing the German government in the wake
of an economic downturn which was exacerbated tremendously by the
Belgian and French decisions to occupy the Ruhr coalfields as a means of
extracting reparations and pushed the German economy to the brink of
collapse and hyperinflation. Against this backdrop the Reich government
under Chancellor Gustav Stresemann opted under emergency legislation
(Ermächtigungsgesetz as provided for under the constitution) to monitor
and control, where appropriate, the growing cartel industry. Two ques-
tions immediately arise. What was the purpose of this cartel regulation and
how effective did it prove to be in operation? The regulation was drawn
up by officials within the Reich Economics Ministry, and recognised the
legality of cartels and centred on regulating the abusive exploitation of
economic power (Liefmann, 1930: 207; Neumann, 1998: 44). The regula-
tion placed ultimate responsibility for ensuring adherence to the law with
two main actors, the Reich Economics Minister and a Cartel Court, and
was designed primarily as a mechanism to catch those cartel agreements
which threatened to damage the economy or public welfare through such
practices as keeping prices high, limiting production and/or distribution.9
Cartels which did so and thus threatened to undermine and endanger the
economy could be deemed by the Economics Minister (under Section 4)
to be null and void. In short, the regulation was constructed around the
‘abuse principle’ (Mißbrauchsprinzip) and provided legal protection for
most cartels, but simultaneously established special legal norms and con-
ditions beyond which cartels were not permissible. As such the basic aim
of such legislation placed responsibility on the cartel members in the form
of a self-regulation exercise to ensure their activities were within accepted
parameters of the law.
Such aspirations and models of self-regulation to secure optimal eco-
nomic behaviour may be laudable but were with hindsight simply too
optimistic. Many of the issues raised in the previous chapter surface again
here. Most cartels were created for immediate benefits, and the regulation
did not lead to a decline in the number of cartels but the reverse, and gave
further ammunition to the regime’s critics. Most cartels, however, proved
to be short-lived and as new entrants arrived in the market place so prices-
often fell and so cartels often collapsed and reformed. The emergence
and dissolution of cartel agreements provided a certain rhythm with the
German business environment. The most enduring and hard-core cartels
continued to prevail in the basic industries and deliberately sought to
undermine the market by reducing production and showing scant interest
in innovations and technological developments.
The cartel regulation certainly received attention in Germany but, as
Harding and Joshua comment (2003: 74), aroused considerable criticism
abroad and especially from American competition academics and prac-
titioners. The fault-line of this German model centred specifically on the
‘control’ model of regulation rather then the US prohibition model. Fears
expressed (Kronstein and Leighton, 1945) concerns about philosophical
approaches and the degrees of business control. It cannot be denied that
cartel members held the advantage from the start. Their power found
representation in the hiring of gifted cartel lawyers and economists who
helped to reinforce existing and positive perceptions of cartels and who
were better placed and resourced to counter any opposition, for example,
from consumer groups. There was a clear pro-cartel ethos at play, and
one which was both mostly tolerated and encouraged by government for
their own interests. Competition from foreign companies both pushed
greater economic concentration and facilitated the rationale for cartel-
lisation. IG Farben represents one of the most well known and largest of
the mergers at the time. It was formed in 1925 following a merger between
Badische Anilin und Sodafabriken, Bayer and Hoechst. It was, however,
still dwarfed by the US giant, Du Pont. In this case the Reich government
overlooked the company’s nitrogen cartel arrangements as it enabled IG
Farben to maximise profits and therefore to fund new research in oil and
rubber.
Views on this specific form of cartel regulation have been somewhat

mixed. On the one hand detractors might point to the growing number
of cartels in the latter half of the 1920s and thus question the regulation’s
impact. Any such conclusions are largely unfair because the institutional
arrangement needed time to bed down and develop. Unfortunately time
was the one variable, in retrospect, which the Weimar regime did not have
and the after shocks of the Wall Street Crash in October 1929 and the
recalling of US loans plunged Germany into recession, major unemploy-
ment and signalled both the Weimar Republic’s and the cartel regime’s
demise. For some critics (see Voigt, 1962: 180–1) the regime established
under the cartel decree was simply too rigid and inflexible to work and had
a limited impact on cartels. Positively it led some to terminate the agree-
ments but it was powerless to prevent the tendency toward concentration.
Some of the most spectacular mergers occurred, and these included IG
Farben, Vereinigte Stahlwerke and Daimler-Benz (Rutherford, 1974: 23)
in the 1920s. By the end of 1929 some 1800 cartels (Voigt, 181) existed in
Germany.
Nevertheless, the Cartel Regulation was an ambitious marker and sur-
passed anything close to it in either France or Britain. It also represented
an inspired move, as its framework of administrative supervision came to
influence the shape of the European legislation that emerged after 1945.
It was never truly, however, able to establish itself, given the onset of the
depression after 1929 which led the government to change its tactics on
the cartel front and pursue a policy akin to developments in the USA. As
prices collapsed only cartels were in a position to keep markets in some
order. The German authorities were pushed onto the defensive and issued
a number of decrees to combat inflation and the collapse of business
concerns. Compulsory cartels, which had prevailed in only a few selected
economic sectors such as potash, became the new vehicle to defend and
promote vulnerable industries such as milk, sugar and potato starch. The
attitude of the state was not always consistent, and this partially explains
a special cartel emergency decree to prevent ‘uneconomic price fixing’
(Voigt, 1946) in 1930. Cartels came to represent a form of economic and
competitive nationalism. It was at this point that the Reich government
obtained the power to outlaw price cartels completely when public welfare
was threatened. The Reich Economics Minister’s powers were enhanced
and this figure became the most important individual in the German cartel
policy when he replaced the Cartel Court and could both nullify cartel
agreements and prevent the formation of cartels in his own right. Another
decree ordered a drop in prices by 10 per cent where price agreements
existed, although to little real effect. By 1930 an emergency cartel decree
order (Zwangkartellgesetz) was put in place to assist declining industries
and enabled the Economics Minister to create compulsory cartels. The

prevalence of cartels just developed an extra dimension under National
Socialist rule after January 1933. The Nazi administration went from being
overtly hostile to cartels (under the original 25 Point party Programme of
1925) and abandoned practically all its original economic goals to actu-
ally encourage the formation of cartels (Gillingham, 1985). It went even
further and effectively jettisoned the Cartel Court. The sudden slump and
great depression after 1929 led to the implementation of a policy of forced
cartellisation which was largely at the behest of German business circles.
The new National Socialist administration responded to such calls with
the promulgation of a new law in July 1933 which encouraged cartel for-
mation (Feldenkirchen, 1985: 159). Some 2000 new cartels had appeared
by December 1936. Together these developments initiated a new phase
in cartel development in Germany. Whereas government had intervened
before to tackle abusive behaviour which threatened public welfare, cartel-
lisation now became a tool for government to pursue its own economic
strategy and serve the needs of economic planning. Responsibility for
creating and allowing cartels centred on the Reich Economics Minister. Of
course, this law was intended to be a transitory development in times of
economic difficulty, to be utilised only in special circumstances and with
discretion by government. It had not been the intention of its drafters that
the law would be used widely to change the nature of the economy itself.
By the late 1920s only Sweden and Norway had followed the German
example and adopted specific competition legislation in 1925 and 1926
respectively. Although considerably later than developments in the US the
idea of a cartel policy had been circulating in certain states (especially in
Scandinavia) from the turn of the century. The Norwegian Law marks a
significant step in the history of European competition policy in so far as
it constitutes the most advanced and closest thing to developments post
1945. It established an independent agency to control cartel activity and
centred on a Control Office which was headed by a senior judge (Gerber,
1998: 155–9). The Norwegian approach represented the first real juridi-
cal regime in Europe. It was, however, an exception, as most European
states adopted the much more administrative based German model which
was underpinned by ministerial discretion and overwhelmingly driven by
a cartel friendly ethos. The German approach held that cartel conduct
could be modified through cases of ‘negotiated’ control (Harding and
Joshua, 2003: 75). The notion of control and the possibilities of discretion
opened up room for considerable debates on the merits of individual cartel
agreements. It is interesting to note the emergence of a growing number
of specialist cartel lawyers who both welcomed and defended the control
approach when working for the companies concerned.
Although arrangements between competitors had also shaped business

practices in both France and the United Kingdom in the latter half of the
nineteenth century, they had tended to form much looser forms of col-
lusion such as gentlemen’s agreements, and both countries opted not to
pursue or seek any form of legal control. France, in particular, displayed a
real reluctance towards any specific competition legislation, and none was
enacted until after 1945. Although the French state had in 1926 introduced
an amendment to its 1810 Penal Code, which sought to criminalise agree-
ments which deliberately set out to boost business profits through price-
fixing arrangements, the amendment was phrased in such vague terms as
to be practically meaningless as a means of deterring cartellisation.
The British system was not shaped by any mass anti-trust movement,
and while restrictive practices were far from uncommon in the UK, the
prevailing view of the time was that cartels posed no particular cause for
concern. In the absence of any legislation the courts felt ill-prepared to
condemn, as the East Asian Shipping Agreement on 1890 demonstrated,
‘peaceful and honest combination of capital for the purpose of trade
competition’ (see Martin, 2006: 122). So in practice the courts were not
prepared to condemn cartels. Such attitudes quickly gave way to an explo-
sion in the number of agreements. These and demands for higher tariffs
were regarded as the best means to prevent any undesired collapse in
prices. The onset of the depression just solidified the cartel movement. The
tolerant British attitude towards cartels and concentration, particularly in
the interwar period, stemmed at least in part from the belief that British
industry was generally much more exposed to international competition
than the US, and as such had little need for US-style legislation. Unlike
the Americans, British public opinion was not preoccupied with notions
of concentrated power. Social protest, which was certainly a feature of the
times, rarely seemed to focus on the power wielded by big business. The
UK was driven primarily by export markets and there was scant interest
in competition related matters. However, as Germany began first to chal-
lenge the UK and then surpass the UK in the goods of the second indus-
trial revolution, many UK firms sought recourse to agreements to limit the
dangers of increased competition and entered cartel agreements.
Growing recognition of the problematic nature of cartels (and despite
repeated protestations from business circles that the cartellisation process
was helping to avert economic difficulties) led to the adoption of cartel
laws in many European states (including Hungary, Czechoslovakia,
Poland and Romania). Many were modelled on the German approach and
required compulsory registration, and some pursued strategies of state led
cartellisation as a means to regulate certain industries. Other states pre-
ferred other approaches to both protect and encourage other industries. In
both the UK (coal mining) and France (coal and silk) laws were passed to
prevent any newcomers coming into more sensitive markets by requiring
state approval which could be withheld for a variety of reasons. There was
an explosive expansion of British based cartels after 1920 (Freyer, 1992),
and many received governmental encouragement. Many European states
had come by the 1920s to appreciate the advantages of using cartels as an
instrument of public policy. Some openly tolerated and some demanded
greater cartellisation. In Mussolini’s Italy, for example, and as a sign
of things to come cartels were created as part of the state’s corporatist
economic structures. Cartels were very much encouraged, and espe-
cially in certain sectors such as silk and steel (Schröter, 1996: 136). Spain
demanded the creation of cartels in a wide number of industrial sectors
including wine, sugar, coal, lead and paper.
The different approaches across states reflected the very dissimilar start-
ing points for each regime. In retrospect, it is possible to trace a slow but
sure and growing recognition and concern from many European govern-
ments after 1919 about the nature and degree of cartellisation. The extent
of cartellisation in the global economy was such that it has been esti-
mated that somewhere between 40 and 50 per cent of international trade
was affected by industrial agreements which extended across all leading
European states. By way of example the Incandescent Lamp Cartel
(Osram) represents one of the most infamous of the international cartels
to emerge during the interwar period. Its origins lay in an agreement com-
prising only German manufacturers before this cartel was transformed
into a fully blown international arrangement which included partners
from Brazil, Canada, China, France, Italy, Hungary, Japan, Mexico and
the Netherlands in 1925.
5. THE TREND TOWARDS INTERNATIONAL

CARTELS
By the late 1920s there was an increasing recognition among politicians

and governments about the depth of international cartellisation. These
concerns were reflected by the League of Nations which sponsored a
World Economic Conference in Geneva in 1927 and the 27th Conference
of the Inter-Parliamentary Union in London in 1930. The Geneva meeting
provided an excellent opportunity to discuss the issue of industrial agree-
ments, and during the debates revealed the different perceptions and
attitudes among the delegates towards such activity. France, for example,
proposed the need for some form of regulation to control international
cartels, but this proposal was rejected by Germany, Norway and the
United Kingdom. Cartels had survived regulation. The Geneva meeting

concluded with a specific resolution on cartels which not only noted such
differences between the states on the subject but called on the League of
Nations to explore, analyse and make public ‘these forms of international
co-operation and their efforts upon technical progress, the development
of production, conditions of labour, the situation as regards supplies and
the movement of prices, seeking in this connection the collaboration of
the various governments’. The resolution maintained ‘that the publicity
given in regard to the nature and operations of agreements constitutes
one of the most effective means, on the one hand, of securing the support
of public opinion to agreements which conduce to the general interest,
and, on the other hand, of preventing the growth of abuses’. The confer-
ence was a missed opportunity, but it highlighted the dangers of cartel-
lisation, and this in itself was a step forward.10 The 27th Conference of
the Inter-Parliamentary Union meeting in London in 1930 represented a
more significant event and marks a more decisive watershed as it called for
regulatory supervision and control of cartels. Delegates passed a resolu-
tion which stated ‘that cartels, trusts and other analogous combines are
natural phenomena of economic life towards which it is impossible to
adopt an entirely negative attitude. Seeing, however, that those combines
may have a harmful effect both as regards public interests and those of the
state, it is necessary that they should be controlled’ by ‘the state’ (Boserup
and Schlichtkrull, 1946: 59). During the debates the different approaches
on either side of the Atlantic were clearly visible. Whereas the American
regime was based on the principle of prohibition and illegality, the general
European approach allowed and tolerated cartels and other combinations
so long as such agreements did not harm the wider public interest. Many
US firms looked longingly at the lighter touch of the European form of
cartel regulation, and even initiated a campaign (Levy, 1968) to remove
the Sherman Act’s prohibition clause.
The London resolution even referred to a special cartel commission
to examine any agreements that were detrimental to the public interest.
This commission was to ‘be independent of government’ and to include
representatives from both consumers and workers. This commission was
to investigate the facts and make recommendations to a central author-
ity, which was entitled to open legal proceeding through the law courts in
order to have certain agreements declared null and void. The model advo-
cated by the London conference was considerably closer to the Norwegian
system and reflected a more socialist-led thinking on cartels. In retrospect
both these conferences provided an interesting template for future genera-
tions to consider when formulating the competition provisions of the later
ECSC policy regime.
By the start of the Second World War it has been estimated that some
40 per cent of world trade was driven by cartels and the intensity of these
arrangements scaled new heights during the war. The cartel movement
had also witnessed the emergence of international cartels, especially in
the saltpetre, copper, aluminium, plate glass, paper and textiles markets.
Cartels certainly brought greater stability for the members of these cartels
in tough economic circumstances. Defence and security were usually the
principal driving factors behind cartellisation and proved a much easier
course of action than any attempts to push expansion through competi-
tion. Some (Fear, 2006) argue that these cartels actually prevented the
onset of trade wars which might have brought both greater instability and
damage. In this sense cartellisation can be read as a response to globalisa-
tion, and it is both revealing and interesting to see it against the backdrop
of a growing nationalism, both economic and political, within power
politics. While political tensions and distrust between the major European
powers intensified in the late 1930s the business communities from these
same states found co-operation mutually beneficial. It should also be
pointed out that both US and Japanese companies were also actively
involved in the creation of international cartels.
The shift to international agreements reflects producers’ objectives,
rivalry and even geo-political diplomacy. Many excellent studies have
been undertaken with regard to specific industries. The international steel
cartel was probably one of the most high-profile cartels to emerge during
the late 1920s.11 Its aims were simply to stabilise the coal and steel market
and to control prices. To understand the origins of this cartel it is first nec-
essary to grasp some of the peculiarities of both sectors. Some 80 per cent
of Europe’s coal and iron deposits were located in France and Germany,
with smaller amounts in Belgium and Luxembourg. Whereas Germany
held considerable reserves of both coal and iron, France had limited coal
reserves.12 France’s need for coal had led her temporarily to occupy the
Ruhr, Germany’s industrial heartland, in 1923 as a means of extracting
reparations from Germany as awarded to France under the Treaty of
Versailles. The situation facing both states was difficult. German com-
panies had overproduced and were looking for ways to sell their surplus
and cut production. The French companies were looking for more coke
supplies. An agreement between companies from both states could solve
the issues. Consequently the Rohstahlgmeinschaft (literally translated as
raw Steel Community) was founded in 1926. This was a cartel in all but
name and sought to limit production and set quotas for each company
party to the agreement. Its membership widened in 1927 to include com-
panies from Czechoslovakia, Austria and Hungary. Co-operation was not
always straightforward, given the prevailing jealousies and aspirations,
and it collapsed in 1931 before being re-established in 1933 with a new

and reworked quota and price system. Membership widened further to
incorporate the United Kingdom and many other European states, and
the cartel evolved into a full fledged international concern when American
companies became party to the agreement in 1938. The steel cartel provides
an apt illustration of the power of a cartel, which in this case commanded
control over 90 per cent of the world’s steel exports. The only industrial-
ised nation which was absent from the cartel’s membership was Japan, and
even Japanese companies might have joined had war not broken out in
1939 when the terms of the agreement were dissolved (Kiersch, 1963: 349).
There were numerous other examples of European cartel activity cover-
ing sectors such as tin, nitrogen and dyestuffs. Cartels had become a basic
staple part of business life and extended across the globe involving food-
stuffs (cocoa, coffee, sugar, wheat (Hexner, 1946)) A rubber cartel under-
lines how first world countries had set up established cartels in the colonies
and corporations (Stocking and Watkins, 1946: 56–117). By the late 1930s
the steel and coke (founded in 1936) cartels had become connected to the
appeasement policy pursued by both London and Paris in the hope that
economic deals with Nazi Germany might have been sufficient to prevent
the outbreak of a major European war.
6. CONCLUSIONS
This chapter has sought to display the history of the European cartel over
the time frame from the unification of Germany in 1871 until the end of the
Second World War some seventy years later. The task was certainly ambi-
tious, but it was necessary fully to comprehend the magnitude of develop-
ments after 1945. Two key elements can be distilled from this overview: In
the first period from 1871 to 1918 the advent of the cartel much fitted into
the realities of rapid industrialisation, the freeing of world trade and the
realities of greater international competition. Under these circumstances
cartels were generally deemed not to be so problematic, and in many cases
were recognised as almost natural forms of defence to secure the life span
of indigenous industries against foreign competition. Social and political
concerns about the side-effects of cartellisation were occasionally vented
in public but were never strong enough to challenge the ‘positive’ aspects
of cartel agreements.
In the second period from 1919 to 1945 the trend towards cartellisation
on both the national and international fronts gathered pace, but this period
also saw the emergence of the first domestic laws to regulate cartel activ-
ity. It was a beginning. Without the onset of war it might be interesting to
speculate how European policy might have evolved. Certainly the eclipse
of Europe by the two superpowers not only brought an end to 500 years of
European hegemony on the world stage, but also provided the basis and
influence of new economic thinking. It initiated a total transformation in
attitudes to cartels. ‘It took 60 years and two generations to thoroughly
cartelize Europe up to the 1930s, and another 60 years for a complete
change in policy in favour of intense de-cartellisation’. (Schröter, 1996:
153). As attitudes changed so cartels became identified as problematic for
business, unsuitable for consumers and incompatible with democracy.
How, who and in what manner they were to be regulated forms the core of
the following chapter.
NOTES
1. For a comprehensive and shorter political historical overview of this period see N.
Davies, Europe: A History, Pimlico, 1997 and especially chapter 10. Also see the now
classic works by D. Thomson, Europe since Napoleon, Penguin, 1957 and also J. Joll,
Europe since 1870, Penguin, 1973.
2. For further information on this period of industrialisation in Britain, France, Germany,
Italy and Russia see R. Sylla and G. Toniolo, Patterns of European Industrialization,
Routledge, 1992.
3. For centuries Germany had simply constituted a geographical expanse in the heart
of Europe which contained some 300 states and city states. After the Napoleonic
wars many of these smaller entities were merged to create 38 states. The leading
three were Austria, Bavaria and Prussia, and all sought control of Germany. The
battle for supremacy between the German states finally came to an end when Prussia
defeated Austria in a war in 1866 and excluded Austria from the German Federation.
Prussian dominance was further developed with its defeat of France and her allies
(including Bavaria) in 1870 which enabled Prussia to unify all the German states
(and excluded Austro-Hungary) into one federal political structure which was con-
trolled by the largest and most economically powerful of the German states, Prussia
(D. Blackbourn, The Fontana History of Germany, 1780–1918, Fontana, 1997; W.
Carr, The Origins of the Wars of German Unification, Longman, 1991; and also G.A.
Craig, Germany 1866–1945, OUP, 1981. The Prussian King in turn became German
emperor. The emergence of Germany as a new and rapidly industrialised state upset
the balance of power in Europe and led to a series of alliances and ententes between
the major powers and ultimately bred rivalries and distrust and culminated in war in
1914.
4. For one example in the British contest see F. Scott Morton, ‘Entry and Predation:
British Shipping Cartels, 1879–1929’ in Journal of Economics and Management Strategy,
Vol. 6(4) (2004), 679–724.
5. See R.K. Massie, Dreadnought: Britain, Germany and the Coming of the Great War,
Random House, 1991.
6. The creation of Canadian competition policy narrowly predates the onset of the
American legislation by one year, but the former was rather symbolic and was quickly
surpassed in terms of activity and depth by the US model. For further information on
the Canadian model see Bruce G. Doern, ‘Canadian Competition Policy: Institutions
and Decision Processes’ in Doern and Wilks (eds), Comparative Competition Policy,
Clarendon Press, 1996.
7. See R.C. McGrath, American Populism: A social History, 1877–1898, Hill and Wang,
1993.
8. The full title of this legislation was the Verordnung gegen Mißbrauch wirtschaftli-
cher Machtstellung (Regulation against the Abuse of economic Market Power) of 2
November 1923.
9. This specialised cartel court or Kartellgericht was put in place to enforce the law (see
Blum, 1933) but its impact is debatable as the number of cartels continued to increase
from some 1,500 to 2,010 by 1930.
10. France remained committed to some form of regulation of the European economy and
Aristide Briand, the French Foreign Minister, proposed the idea of a ‘European Union’
in 1929. Subsequent discussions considered the positive role that international cartels
could play in a new and regulated economic system. The Briand Plan, which involved
political as well as economic structures, was rejected by the League of Nations in 1932,
but represented an attempt at a form of closer European co-operation and was a pre-
cursor of sorts to the later European integration process.
11. For further information see D. Barbezat, ‘Competition and Rivalry in the International
Steel Cartel, 1926–32’, Journal of Economic History, 1989, 49(2), 435–447.
12. After Napoleon Bonaparte’s final defeat at Waterloo in 1815 the Treaty of Vienna
passed large parts of the Rhineland and the Ruhr area to Prussia and helped establish
this state as the economic powerhouse of Germany.
4. The dawn of the competition
principle in Western Europe,
1945–1957
The unconditional surrender of Nazi Germany on 8 May 1945 brought
the Second World War in Europe to an end. The final two years had
been waged at considerable economic and physical cost to Germany and
the outcome radically changed the political map of Europe and heralded
the slow demise of the former great West European empires as economic
bankruptcy took its toll. Military might and power now transferred to the
two new superpowers in the form of the United States of America (USA)
and the Soviet Union (USSR). During the war both powers and their allies
(primarily France and the United Kingdom) had shared a common goal
in securing the defeat of Hitler’s Germany, but little united these powers
beyond this objective and little was said about what form the post-Hitler
order would take. Indeed, different visions and approaches, given the
incompatibility between capitalism and communism on the part of both
new superpowers, ensured that the wartime coalition not only disinte-
grated very quickly but led to the onset of the Cold War and the division
of Europe between East and West for over forty years.
The difficulties and tensions between the superpowers became pretty
visible in their handling of policy towards Germany. Both Moscow and
Washington may have sought the means to remould Germany into a
democratic and peaceful state and agreement had been reached to divide
Germany (shorn of its eastern territories of East Prussia, Silesia and East
Pomerania) into four separate control zones of occupation prior to its
re-unification. Definitions of democracy, however, differed tremendously
and disagreements between primarily the Soviets on the one side and
France, the United Kingdom and the United States on the other became
all too evident in policy developments within their respective zones,
and ultimately led to the creation of two states in Germany, namely the
Federal Republic of Germany (West Germany with the fusing together
of the American, British and French zones) and the German Democratic
Republic (East Germany) in May 1949.
The aftermath of the world war also created a vacuum for new ideas
69
about how the European economy, politics and society should be rebuilt.
Although competition policy would surface as one of the new drivers, its
future role and centrality were not immediately apparent. Surveying the
European scene in 1945 what was striking according to Hofstadter (1964)
was the complete absence of any commitment to the competition princi-
ple. Historical experience had demonstrated there was a clear distinction
between the attitudes on both sides of the Atlantic over the issue of cartels.
Indeed, any suggestions that the German cartellisation experience had
proved detrimental to the growth of the German economy before 1939
must be open to real question and, had Germany won the war, then it is
very unlikely that the competition principle, as we understand it today,
would ever have emerged in Europe. Germany’s military defeat and the
ensuing Allied occupation brought new circumstances, a new context in
which to frame economic and political developments and specific victor
preferences which in retrospect enabled the development of anti-trust
policy.
Western Europe was to follow a different path, and it is to this region
that attention now turns. In retrospect, the American belief in competi-
tive markets, the German pursuit of a social market economy and French
preferences and planning were to help steer Europe towards the endorse-
ment and adoption of European integration, and within it moves towards
anti-trust policy, albeit initially for different reasons and objectives. Under
the Soviet system and in the East German state cartel policy simply did not
rise as an issue at all as the means of production had been brought under
state control (Childs, 1986). Competition policy was regarded by the East
German leadership as an element of the capitalist model to control and
monitor abusive business activity which was not needed in the ‘socialist’
system of the Soviet Union and its satellites. The economy in these states
was not constructed under any notion of competitive markets, but effec-
tively managed by an inefficient and ultimately highly unpopular bartering
system.
This chapter charts the emergence of the competition principle in
Western Europe after 1945 up to the signing of the EEC Treaty in 1957.
It is divided into four sections. The first continues the German experience
and focuses on the Allied de-cartellisation plans for Germany and how
the new economic order (or Pax Americana) which emerged after 1945
brought US influence to bear on the anti-trust arena. The second and third
sections explore the ideas behind the Schuman Plan and the negotiations
leading to the Treaty of Paris which established the European Coal and
Steel Community respectively. Both sections also focus on the anti-cartel
provisions. The final part explores the origins of the West German anti-
trust experience and briefly refers to developments in other ECSC states.
The dawn of the competition principle in Western Europe 71
1. ZERO HOUR IN GERMANY: FROM

DE-CARTELLISATION TO THE FOUNDING OF
THE WEST GERMAN STATE, 1945–1949
The surrender of Germany on 8 May 1945 brought the Second World
War in Europe to an end. Unlike the situation in 1918, the Allies opted
to occupy and administer Germany (albeit temporarily) in an effort to
democratise the people and overcome any possible renewed Nazi resist-
ance. From the American perspective in particular there was a determina-
tion from Washington to avoid reverting to her isolationist position as
had occurred after 1918, and to involve herself directly and indirectly in
restoring peace and stability. Allied intentions towards Germany were laid
out in the report on the Tripartite Conference of Berlin and aimed that ‘at
the earliest practicable date, the German economy shall be decentralised
for the purpose of eliminating the present excessive concentration of eco-
nomic concerns as exemplified in particular by cartels, syndicates, trusts
and other monopolistic arrangements (Eyre, 1999: 97).
This objective was far from surprising. After all, in America ‘cartel
policy had constituted more than just a theory and had ‘practically
become a way of life and creed’ (Hofstadter, 195). The pursuit of a com-
petition policy was deemed to bring benefits both to the overall economy
through innovation and to society at large. Accordingly, the US authori-
ties sought to export their vision of anti-trust legislation overseas, and it
surfaced as much in their negotiations with the Japanese as it did with
the West Europeans.1 Towards the end of the war US president Franklin
D. Roosevelt had expressed his desire that cartel practices which restrict
the free flow of goods in foreign commerce would have to be curbed. He
had envisaged the newly established United Nations as possible means to
advance the arguments (Harding and Joshua, 2002: 89), but success was
extremely limited. The US was well placed to shape European mentalities
vis-à-vis cartel policy (Leucht, 2007) as the leading economic and political
power in the Western hemisphere, but could it do so?
American policy towards Germany altered rapidly in the space of
five years. Although initial plans, such as the infamous and punitive
Morgenthau Plan which had sought effectively to transform Germany
into an agricultural state as a means to prevent any possibility of the
outbreak of World War III, were quickly discarded once the war had
been won, US policy in the immediate period from 1945 to 1947 was still
constructed negatively. De-cartellisation, for example, represented one
of the major economic thrusts of US policy and had been outlined as an
objective alongside de-nazification, re-education and democratisation in
the Potsdam Agreement of August 1945.
Although Germany is often portrayed as the European state with the

greatest predisposition towards cartellisation it would be foolish to deny
similar, if less pronounced, moves before and after the Second World
War in specific industrial sectors in other countries including the United
Kingdom and France (Edwards, 1967). Cartels were conceived among the
American administration in purely negative terms. The de-cartellisation
agenda has often been underplayed in the literature of the immediate
post-war history of West Germany and Europe, but in retrospect marks
a hugely significant event.2 The US document JCS 1067, Directive to
the Commander-in-Chief of the US Forces of Occupation Regarding the
Military Government of Germany of April 1945, epitomised the attitude
of the immediate post-war period and explicitly forbade the Americans
to maintain or strengthen the German economy and to ‘prohibit all
cartels and other private arrangements’.3 The de-cartellisation agenda
was often viewed in German business circles as a punishment and another
example of the thinking that had created the Morgenthau Plan but it
also represented an ideal opportunity (Gillingham, 2006) for the Allies
to weaken the potential power of the German state. Initially, the aim
of de-cartellisation in the period from 1945 to 1947 had little to do with
creating a competitive environment, but was pursued solely as a means
of weakening the German economy and hindering any German revival,
both economic and military. The means of attaining these targets were
to be realised through the Level of Industry Plan of March 1946, which
sought to limit German industrial capacity to about 50 per cent of that
of 1936, with the greatest reductions occurring in the chemicals, steel and
heavy engineering sectors while other sectors of economic activity, such
as armaments, aluminium, ammonia and ball bearings, were banned
altogether. The outcome of such policies was felt rather quickly because
the goods were used to produce a wide range of household items from
bicycles to agricultural equipment.
Cartels were identified as problematic, and the US even endeavoured
to make a direct link between the rise of the heavy industry cartels in the
interwar period with the politics and aspirations of right-wing extremist
parties. Indeed, the International Steel Cartel is often cited as an example
(Gillingham, 1991: 1–44). De-cartellisation was to be targeted specifically
in the coal, steel, iron, chemicals, plastics, heavy engineering and banking
sectors. Some of the most noted examples included the dismembering of
some of Germany’s famous internationally renowned banks (the so-called
Großbanken) to create thirty-three new banks (Djelic, 1998: 165) and the
breaking up of companies such as IG Farben (Goyder, 1993: 17) into the
three main successor companies of Bayer, Hoechst and BASF. How effec-
tive the policy would be in the longer term is often disputed, as the banking
industry, for example, would quickly re-concentrate itself in the late 1950s
(Van der Pijl, 1984: 164).
The de-cartellisation agenda never quite fully materialised as had been
planned, and in order to understand why it is necessary to appreciate
the economic, political and social background of the late 1940s. Firstly,
western Allied economic policy had been running counter to the steps
needed to ensure a German economic recovery, and this started to become
problematic, for by the spring of 1947 Western Germany had edged ever
closer to a state of economic collapse. The war had brought Germany
to zero-hour (Stunde Null) and the economy rapidly collapsed and GDP
levels fell back to pre-1936 levels. The perilous state of the economy was
reflected also in France, Italy and Belgium. Food had become even scarcer
in Western Germany than during the war. The situation was exacerbated
by the severe winter of 1946–1947 and led to a practically worthless
Reichsmark within a thriving black market economy. The conditions for
serious political unrest were growing as relations with the Soviet Union
were deteriorating. The American public became increasingly sympathetic
to the media’s images of the daily plight and hardships facing ordinary
Germans. The American government became increasingly concerned that
continuing economic hardship might propel Western Germany towards
Communism, advance both Soviet interests and Moscow’s sphere of influ-
ence and destabilise the political future of Western Europe, which was
dependent on the vitality of Europe’s industrial heartland, Germany. This
market alone, it was recalled, had been a major American export market
prior to 1939.
The US changed track and realised that recovery had to take precedence
over reform. Consequently, the twin economic targets of de-concentration
and de-cartellisation became of secondary importance. According to
Giersch (1994) the essential steps necessary to avoid economic collapse
included ‘an incentive system for channelling manpower and physical
resources into the most productive activities and for converting arma-
ments production to the best civilian ones, an opportunity to expand
industrial production and to export manufacture in exchange for food
in line with the comparative advantages of Western Germany and lastly,
a chance, to import capital, which . . . has become relatively scarce.’ US
foreign policy towards Germany altered almost overnight and trans-
formed from a policy which sought the elimination of German war poten-
tial and the termination of the dominance of a few powerful entrepreneurs
to one which pursued the restoration of a sound and democratic economy
and was to be characterised by competition and fostering economic and
political democracy (Diegmann,1993).
The heavy degree of cartellisation within German industry in the period
up to 1945 cannot be underestimated, but just how deeply embedded were

such ideas within German business circles and was it possible to eradicate
such anti-competitive thinking and practices by injecting a pro-competition
ethos? This was one of the core issues confronting the western Allies after
May 1945. In retrospect, the American military administration adopted
a tougher approach towards cartels and de-concentration than either
France or the United Kingdom (which both had broadly similar decrees)
in their zones of occupation. According to Harding and Joshua (2003) the
US pro-actively pursued cartels and brought an end to over 1,000 cartel
agreements in one year. The French approach did not prohibit cartels
outright, but instead preferred to undertake an examination of any anti-
competitive effect which arose from agreements, while the decartellisation
agenda was never seriously pursued in the British zone although evidence
reveals that the Vereinigte Stakhlwerke (United Steelworks) was broken
up and reorganised. Strangely, industry really operated in much the same
way as it had done before the war as cartels became a feature of Allied
administration and allocated raw materials and established markets.
It should be noted in passing that the Soviet Union adopted a rather
unique approach and opted physically to dismantle much of the existing
and undamaged German industrial plants and shipped them back to the
USSR for reconstruction as a means of reparations. Yet, the US found
another and more persuasive means to advance its competition policy
agenda which took the form of financial aid through its Marshall Plan
(or European Recovery Programme) which served as the turning point in
German recovery. In short, the US released considerable funds to western
European states, but only where states were prepared to formulate an eco-
nomic programme based on the free market economy. Anti-trust policy
formed part of this mix and US officials were eager to disseminate their
knowledge and expertise and encouraged an open discourse and facili-
tated training sessions with their counterparts in both France and West
Germany.
For example, shortly after the creation of the Federal Republic of
Germany (FRG) a group of academic experts and officials from several of
the new West German ministries travelled to the US to learn more about
the practices and operations of American antitrust. The training involved,
for example, lectures from staff from the Fair Trade Commission and
included a meeting with Heinrich Kronstein, an eminent law professor
who had already established close links to a number of senior German
academics, who in turn became hugely influential within the emerging
European integration process and included, for example, both Walter
Hallstein and Herman Moseler.4 All three men were heavily involved in
the discussion of competition policy and instrumental in its development
within the FRG. In 1952 the Americans arranged a similar visit for French
officials. Such discussions were to prove pivotal in shaping mindsets fol-
lowing the publication of the Schuman Plan in May 1950.
2. THE SCHUMAN PLAN OF 1950

The Schuman Plan marks a decisive moment in modern European history
and politics and effectively launched the process of what is now known
as European integration. This Plan sought the creation of a common
market in coal, iron and steel, but the uniqueness of this project lay in
the pooling of sovereignty over these economic sectors to a new suprana-
tional institution known as the High Authority. The seeds of the world’s
first supranational competition regime were contained in the negotiations
which stemmed directly from the Schuman Plan and came to form a core
aspect of the ECSC treaty, but how, why and when they did require some
elaboration.
Coal and steel may not have seemed the most obvious choices to pursue
integration but they were symbolically important as the means to make
weapons of war. They were deliberately selected as an attempt to ‘solve’
the Ruhr question. The Ruhr region (and the ongoing sensitivities of
Ruhrpolitik) had served as the industrial heartland of Germany. In the
immediate post-war period responsibility for this area had been taken
from Germany and placed under international control (International
Ruhr Authority). This step had been devised as a purely temporary solu-
tion, and by the end of the 1940s both the Americans and the British were
ready to hand control of this region back to the new West German gov-
ernment. Both states realised that the Ruhr was essential to Germany’s
longer term prosperity, but this recognition faced the French government
with a dilemma.5 France had ideally wanted to separate the Ruhr from
Germany (Gillingham, 2006: 40) altogether and feared that the industries
of any reinvigorated Ruhr area within Germany might again challenge
French competitors. There was little Paris could do, and to avoid the
potential dangers of a resurgent German coal and steel industry an alter-
native approach arose to tackle the issue of a German revival in the tra-
ditional war sectors and to keep the French with a degree of control over
both sectors. It was housed in the Schuman Plan of 1950 amid notions of
reconciliation and rapprochement between the two states.
The Schuman plan was actually the brainchild of Jean Monnet, a
French-born civil servant who had devoted much of his life’s work to
fostering better transatlantic trading relations and had been charged with
rebuilding the French economy after 1945. The latter remained one of
his main priorities, but another was reconciliation with Germany. His
American contacts which had been built up during the interwar years now
gave him direct access to the American government, and his influence
over developments cannot be underestimated in the period from 1945
to the announcement of the Schuman Plan on 9 May 1950. He sought
a new means of anchoring peace and stability while maintaining French
interests.
Monnet had been dismissive of both the Organisation of European
Economic Cooperation (OEEC) and the Council of Europe’s chances
for success at boosting European harmony and real closer integration,
given the various national interests at play. The OEEC had been estab-
lished in 1948 initially to co-ordinate the allocation of Marshall Aid to
Western Europe and to assist in the rebuilding of the western part of the
continent. Although discussions of a customs union did take place at this
point in time there was little political will for any form of supranational
integration process and the nation states preferred to maintain a confer-
ence of sovereign states. This same mentality ensured that the Council of
Europe, which was also constructed on an intergovernmental basis, was
not the best vehicle for many European minded individuals to push closer
European co-operation. Indeed, initial suggestions of a European legisla-
tive assembly to which some sovereign powers were to be transferred were
quickly dropped. It had been the opposition primarily from the UK that
effectively blocked any such possibility and the outcome of the meeting
in The Hague in May 1948 disappointed many federalists. The Council
became a forum for member state governments to exchange ideas and
develop common approaches. Although the Council came to pioneer the
issue of human rights it never really sought to involve itself with economic
and industrial issues, with some exceptions. Indeed, one of its very first
projects was a proposal to establish a European convention on the control
of cartels (Council of Europe, 1951). This draft (March 1951) offered
an ingenious, ambitious and new design of supranational regulation
(Harding and Joshua, 2003: 93) in the form of a commission to receive
complaints about cartel activity and to undertake investigations and nego-
tiate settlements. The draft document even proposed the establishment of
a European level court. Strong member state resistance and antagonism
rendered the plans redundant and mirrored the difficulties being experi-
enced on the wider international front at trying to reach agreement on
transnational competition rules (see chapter 8).
Monnet combined his priorities for economic co-operation, French
interests, better relations with Germany and recognising the American
desires for closer European integration within his alternative of inter-state
relationships. Monnet devised a plan which centred on the creation of a
common market for iron, steel and coal in Western Europe by removing
customs duties, tariffs and quotas. The project was innovative in itself at
the time as no other attempt had been made at pursuing sectoral integra-
tion. Interestingly it seems that the firms in the different states had come to
specialise in different types of steel (Adler, 1969). To today’s readers these
economic sectors may seem somewhat uninspiring and even dull, but the
plan was a truly revolutionary proposal. There were fewer areas of pure
symbolism and few as well suited to promote co-operation than coal, steel
and iron. These had served as main ingredients of the German armaments
industry, and the plan to internationalise these markets was an attempt to
secure peace. The innovative nature and uniqueness of this plan centred on
the pooling of the coal and steel industries of France and West Germany
under a supranational joint High Authority. Monnet presented his idea to
the French foreign minister, Robert Schuman, who seized the initiative,
took it forward and announced what has become known as the Schuman
Declaration on 9 May 1950. Although the Schuman Plan did not say any-
thing specifically about cartel regulation (Wells, 2001: 163), Monnet was
careful to point out to the national delegations that the project envisaged
the elimination of cartel practices. The announcement was ‘bold, simple,
imaginative and disarming’. It should be noted that the UK was kept very
much in the dark about these developments until after the French and
West German governments had effectively agreed the moves in a deliber-
ate effort to prevent any attempt by the UK to dilute this new European
project. The UK Labour government of Clement Attlee opted not to
participate in the venture.6
The project itself was as much about politics as it was about econom-
ics, and a reading of the short one-page document illustrates Monnet’s
drive to secure a rapprochement between France and Germany and was
‘designed to end an ancient rivalry, prevent war and build a better world’
(Gillingham, 1991: 231). It had originally been conceived as a bilateral
treaty between France and the new West German state using the tools of
co-operation and integration (Gillingham, 1991: 170), but was opened to
other states and attracted the interest of Belgium, Italy, Luxembourg and
the Netherlands. The addition of other states was welcomed but promised
to make the negotiations which began in June 1950 more cumbersome.
Negotiations on the text of the ECSC as a means to making war eco-
nomically impossible and politically unthinkable (Monnet, 1978) proved
both difficult and intense (for an excellent account see Gillingham, 1991:
228–98).
The proposal was not particularly generous to the Germans and did
not say anything about ending the occupation of the Ruhr, but promised
equality of treatment. The entire period from the announcement of the
plan to the final agreement some eleven months later (and eight months
longer than Monnet had originally deemed necessary) is marked by rivalry
and disagreements between the French (and their American supporters)
on the one side and the new West German government on the other.
From the French perspective the main driving force was to deal with the
Ruhr question and prevent the German Konzerne or cartels in the Ruhr
region from regaining total control again and determining output, finding
markets for lower grade French coal as France has substantially expanded
its steel sector after 1945. The French were to be persistent advocates of a
strong de-cartellisation agenda for West Germany.
From the West German perspective such French insistence could have
been interpreted as simple protectionism (Willis, 1968). Indeed, Ludwig
Erhard, who served as West Germany’s Economics Minister from 1949
to 1963 told Monnet, ‘We don’t understand why the Allies insist on
decartelising the industries of the Ruhr . . . it’s as if you were deliberately
trying to put German industry in an inferior competitive position vis-
à-vis its partners’ (Monnet, 1978: 351). What particularly incensed the
German representatives was the emphasis of the anti-trust measures on
West Germany and not on France. Whereas the Germans were prepared
to strike a deal as a means of being welcomed into the western fold again
they were not prepared to do so at any price and spent time trying to
water down Monnet’s original blueprint to reduce the powers of the High
Authority and to prevent a stringent de-cartellisation drive.
It is possible to identify a Franco-American alliance in the negotiations
leading up to the ECSC. The ideal solution for the French government
encompassed two preferences: The first pushed the case for adoption of a
de-cartellisation agenda for West German industry while the second opted
for the creation of some form of international control of the Ruhr region.
Both issues aroused both frustration and anger among the West German
government and the steel and coal industry and were particularly sensi-
tive. As the negotiations commenced the Korean War broke out in June
1950 and possessed all the potential to destroy any efforts at forging closer
co-operation as defence rose rapidly up the political agenda and raised
the particularly thorny issue of German rearmament. Monnet rushed to
produce the ambitious (and unsuccessful) Pleven Plan which envisaged
the forming of a European army that included a German contingent under
supranational control.7 The negotiations surrounding the ECSC must be
understood against the backdrop of the wider international context and
policy developments, and in this case the need to stabilise Western Europe
economically and politically.
Konrad Adenauer, the West German chancellor, had welcomed the
Schuman Plan enthusicastically and accepted Monnet’s leadership, but
had sufficient guile to realise that the political climate was changing in
West Germany’s favour and the longer the negotiations lasted the more
they would benefit the FRG. For these reasons Adenauer was even pre-
pared to give Monnet the right to approve of the key members of the
German delegation. Indeed, Monnet rejected the first two West German
government’s nominations and settled on a largely unknown Frankfurt law
professor, Walter Hallstein. Adenauer’s own domestic difficulties should
not be underestimated, but he managed to maintain control throughout
over other leading German politicians and elite business groups who, like
himself, all wanted an end of the occupation period and a return to normal
business conditions and were sceptical of the anti-trust agenda.
Battle lines very quickly became apparent between the French and West
German representatives. The Benelux delegations, and especially those
from Belgium and Luxembourg, were broadly supportive of the integra-
tionist ambitions of the treaty, though they did have some reservations
about the anti-trust provisions (Buch-Hansen, 2008: 93). Monnet was the
most senior French delegate and advocated a much more dirigiste direc-
tion from the start which clashed with Erhard’s more free market empha-
sis. The latter was strongly influenced by the Ordo-liberal school, and they
in turn had been influenced by Hayek’s belief in open and competitive
markets. The German representatives recognised the need to regulate
cartel activity rather than to be a forum to look after sectoral business
interests in the pending discussions. In order to secure successful comple-
tion and to avoid any unnecessary and undesirable outcome Adenauer
took a personal interest in developments. Monnet’s original document de
travail (blueprint) was full of inadequacies (Gillingham, 1991: 239) and
particularly with regard to the powers of the High Authority, which were
watered down as the German government sought a much less intrusive
institution with much more limited competences.
The French delegation was backed to an extent by the US adminis-
tration and, ultimately, the newly installed West German government
had little option but to accept the Franco-American drift towards de-
cartellisation which was contained within the treaty. Indeed, Adenauer
had written to Monnet with the intention of having a treaty text by the
summer recess in July 1950. This reality should not mask the negotiations,
arguments, mistrust and resentment that coloured every step of the way.
It is certainly easy to miss these, and even Monnet devotes scant attention
to the debates in his memoirs, but disagreements raged prior to the treaty
being accepted. Difficulties persisted throughout and often centred on
the competition provisions for the coal and steel industries and the two
specific articles on competition threatened to derail the entire process and
held up progress.
One of the main problems during the negotiations phase centred on

France’s determination to ensure that the old pre-war concentrations in
the coal and steel industries in the Ruhr did not simply re-materialise,
as indeed looked to be the case. The revival of the Konzerne or cartels
threatened to destabilise any equilibrium as it would enable the coal and
steel magnates to acquire their former commanding positions and usher
in uncertainty. The United States too showed a distinct sensitivity and
had sought to address this issue by insisting that the German Coal Sellers
Association (Deutscher Kohlenverkauf or DKV) should lose its monopoly
and arguing that the steel industries should no longer be allowed to own
coalmines.
Opposition also existed among the coal and steel producers throughout
the ECSC6 towards the dirigiste nature (read bureaucratic interference)
of the treaty and towards the idea that they might be prevented by the
new political institutions from undertaking a certain course of action.
Steel industries across all six states were generally opposed to the anti-
cartel provisions and much preferred a situation where they themselves
could determine the market structure. The West German steel industry
lobbied its government to oppose the anti-cartel aspects of the emerging
treaty, and in France the very nature of the anti-trust agenda grew ever
more contentious, especially the uncertainty that surrounded surrender-
ing control to supranational institutions. It is generally assumed that the
ECSC Treaty would have found more ready acceptance if the anti-trust
rules had not been included at all (Ehrmann, 1954: 460). The French
government was prepared to accept supranational control of the coal and
steel sectors, which were deemed to be economic areas in France’s devel-
opment, as a means of maintaining a degree of power and control over
German production.
Monnet was fully aware of such feelings and misapprehension, but
these interest groups were not formally part of the negotiations. Indeed,
Monnet even refused to consult with French steel interests. However, he
did seek to garner support from other key sectors of the French economy,
and especially the newly nationalised French coal and railway industries
which proved instrumental in advancing his case. In Italy too, varying
degrees of opposition from the steel companies (Assider and Ita) over
the anti-trust provisions was also in evidence, and centred primarily on
fears that the European rules would make the much needed concentra-
tion harder and led to an alliance of the coal and steel companies in an
effort to resist moves to supranational dirigiste control. The opposition
received their opportunity to give vent to their frustrations surrounding
the treaty during the ratification process. France’s Chambre Syndicale de
la Sidérurgie française (national steel association) led an assortment of
associations (from metal unions to small and medium sized concerns and
even the main employers’ union (Conseil National du Patronat Français)
against the treaty. This opposition reflected the instability within the steel
sector and the realisation of the actors involved that some form of restruc-
turing through greater concentration or even through cartel type activities
was going to be necessary to safeguard their economic viability.
Alongside these industry concerns degrees of scepticism and hostility
towards the Schuman Plan also prevailed in the political arena. In West
Germany the newly re-established Social Democratic Party ((SPD) and
the main opposition to the Christian Democratic Union (CDU) led gov-
ernment voiced its concerns about the entire European integration process
and opposed the treaty. Opposition also existed within sections of the
Free Democratic Party (FDP or the Liberals), though they would actually
endorse the treaty, while in France opposition to the ECSC project came
from both extreme wings of political life (Haas, 1958). Opposition also
found expression in Italy and the Benelux states.
In short, mistrust and hostility abounded on all sides. By 1950 German
industrialists thought that enough had already been done and many
sections of the Ruhr industries regarded the de-cartellisation as the last
whiffs of the Morgenthau agenda. For many the seemingly anti-German
direction and discriminatory demands were hard to reconcile with the new
climate of fairness and peace and fuelled a German desire on several occa-
sions to walk away from the talks. Erhard thought that some of the meas-
ures such as those which sought to limit production were absurd, and even
though these limits were subsequently raised following the outbreak of the
Korean War, they were still derided as being not only too low but a serious
obstacle to future German expansion. Agreement on the text remained
elusive, and by the start of December 1950 little concrete agreement had
been reached. Adenauer had even suggested to Monnet that the West
German government had considered the option of a partial nationalisa-
tion of the coal and steel industries. At this stage Monnet opted to place
the fate of the Schuman Plan in the hands of the Americans by bringing
them on board as an informal actor in the discussions. The French and
the US governments remained firmly committed to de-cartellisation and
especially in West Germany.
Even in the US doubts were expressed about the overall direction of the
project, and concerns were voiced in some quarters about the objectives of
the Schuman Plan, and even led the Secretary of State, Dean Acheson, to
wonder whether the ECSC was an ingenious attempt to reinvent a European
cartel (mirroring the form of the 1926 International Steel Cartel) masquer-
ading under Schuman’s cleverly articulated diplomatic language (Wigger,
2008). In a serious effort to dispel such notions Monnet sought support in
drafting the competition rules from an American diplomat, Robert Bowie,

who was serving as General Counsel to the US High Commissioner for
Germany, John McCloy, who in turn was a close associate of Monnet.
Bowie himself was a competition law specialist and Harvard professor,
and applied his knowledge of the workings of the US system which he
sought to extend to the ECSC. American coal and steel business interests
were generally in favour of the ECSC plan as a means of safeguarding
competition and fighting cartels and were well briefed about developments
and were not unknown to try to influence debates if such debates seemed to
be heading towards a more cartel tolerant position (Berghahn, 1986: 134).8
Ongoing discussions on competition policy between the French delegation
and the Americans were conducted also on an informal basis (see Leucht,
2008) as a means to provide advice and guidance.
However, Bowie effectively helped to draft the early versions of the ECSC
competition provisions (in what became Articles 65 and 66; see Ball, 1973:
88; Bowie, 1989; Monnet, 1978: 352–3) although his text was reworked and
worked into a more ‘European idiom’ by Maurice Lagrange (Gerber, 1998:
336–9) who was a member of the French Conseil d’Etat and later became
one of the first Advocates General to the Court of Justice. It is important to
stress that US influence was directly felt in the shaping of the ECSC’s anti-
trust provisions (Schulze and Hoeren, 2000), although the US authorities
were keen to ensure that this US involvement was concealed as much as
possible. The Americans were in reality much more than just casual ‘advis-
ers’ and kept close watch on proceedings and meetings. The first full draft
treaty introduced by the French delegation on 9 November 1950 contained
two articles (Articles 41 and 42) which specifically addressed the problem
of cartels, concentrations and market dominating companies.
Article 41 declared cartels invalid and, according to George Ball in a
memorandum to Monnet (Ball, 1973), stated that this specific article was
designed ‘to prevent the fixing of prices, the control of production and
the division of market by agreements’. The draft was in turn passed to
Hallstein who endorsed the logic of the competition provisions, as did the
US representatives at the Schuman Plan conference. Still, it was not too
difficult to distil the different mindsets at work. Hallstein argued, ‘free com-
petition – I venture to say this with assurance – is indeed the economic core
of the Schuman Plan. You should not compare its rules with American
rules; it may contain too many governmental competences. But measured
by European rules such as have prevailed up to now, it contains a drastic
reduction of governmental competences’ (Leucht, 2008). As negotiations
intensified Adenauer even threatened to pull the German delegation out
of the negotiations unless certain anti-trust measures contained in Law 27
were removed. Principally, this piece of Allied legislation was intended to
break up the six leading steel companies, to ensure a break between the
vertical integration of the coal and steel industries and, if enacted, would
create some fifty new companies. Some twenty-seven would be steel com-
panies and eleven would be allowed to run only coal mines. The German
government was incensed and presented an alternative programme but to
no avail, and the ‘bashing of the Ruhr’ (Gillingham, 2006: 71) commenced.
The German delegation, for example, had sought to protect the DKV by
suggesting in vain in the face of outright hostility from Paris that the
company could have been administered by the High Authority. Hallstein
responded to such French intransigence by bringing to an end the bilateral
coal discussions. Bowie’s negotiations with the West German representa-
tives over Law 27 got bogged down in disagreements between the various
parties over such issues as the calculation of total coal consumption, while
the latter kept seeking to revisit the negotiations on Articles 60 and 61 in
mid February 1951.
It was to be in the Ruhr area where most of the anti-trust measures
would be most keenly felt, and although Adenauer had the backing of these
companies to resist he was ultimately powerless. In the end the Americans
had simply threatened to introduce their own anti-trust measures unless
the German government co-operated. In one sense the Schuman Plan
might have been in difficulty but, as West Germany was still subject to
Allied rule and as the de-cartellisation agenda could still be implemented,
the German government was simply playing for time and concessions. It
was simply postponing the inevitable. There was little point in collaps-
ing everything, especially as the Adenauer government wanted to see the
restoration of full sovereignty to West Germany and the end of Allied
controls. In reality, there was no other way forward. In any case Monnet
had sent a letter to Hallstein basically saying that if the Germans did not
sign the treaty then the Schuman plan and all notions of supranationalism
in European sectors would be dead (quoted in Gillingham, 1991: 276).
Further pressure was brought to bear on Adenauer when the Americans
under McCloy intervened and dictated the terms of the settlement under
Law 27. This option proved rather straightforward, as the Germans del-
egation had conceded many of the main points already and had agreed
to anti-trust provisions being in the treaty. Moreover, it had accepted
the limitation of the coal–steel tie and the dissolution of the giant steel
Konzerne. The West German government was ready to accept the anti-
cartel provisions because they created a level playing field among the
ECSC6 and meant the end of the Allied de-cartellisation laws. Of course,
this is not to deny the tensions and the difficulties that had arisen over
specific definitions.
McCloy argued that there was much political capital riding on the
successful completion of the Schuman Plan, and that failure would impact
on the ongoing European Defence Community (EDC) discussions (see
Dinan, 2006) and the whole movement of Western integration. He even
hinted that in the absence of any agreement the Americans might seek an
‘Austrian’ style solution (that is a neutralised state under four power occu-
pation) as a model for the immediate future of Germany.
It may have taken some four months of bitter wrangling to settle the
difficulties on the competition policy front, but Adenauer finally approved
the Allied position on de-cartellisation on 14 March 1951 and the Paris
conference came to an end on 20 March 1951. The treaty was signed on
18 April 1951 by the six foreign ministers. Agreement ensured that the
DKV was to be dismantled by 1 October 1952 and to be replaced by
twenty-seven steel companies which were no larger than any others among
the ‘Six’ and allowed only eleven steel companies to maintain control of
two coal mines. The ECSC Treaty was duly ratified by the six founding
member states with degrees of relative ease. The parliamentary votes were
closest in France and West Germany. In the former 376 deputies within
the French National Assembly voted in favour (with 240 against), while
232 members of the German Bundestag approved the treaty (against
143 votes). In the other four states the outcome was far more decisively
in favour. The Italian Chamber of Deputies, for example, voted 275 to
ninety-eight votes in support of the ECSC Treaty, while the Benelux states
gave almost unanimous endorsement to the plan (Haas, 1958: 134–51).
Judging exactly why this treaty proved attractive leads us to consider a
number of factors, but two are certainly worthy of greater research else-
where. The first centres on the overwhelming support from the Christian
Democratic parties in all six states and the second concerns the role (direct
and indirect) played by the United States and how far it was a major
‘federator’ (Berghahn, 1986: 132). The UK government had declined par-
ticipation in 1950 and observed developments as the ‘Six’ established the
European Coal and Steel Community which came into effect in June 1952
(Gillingham, 1991: 293) and was scheduled to last for fifty years.9 The ‘Six’
had effectively created a new legal entity with status in international law
and attention now turns to what this treaty meant for cartels.
3. THE TREATY OF PARIS, 1951 AND THE FIRST

STEPS TOWARDS SUPRANATIONAL CARTEL
REGULATION
The most striking and revolutionary aspect of the ECSC Treaty lay with
the institutional structure, and especially the role and powers conferred
on the principal agent, the High Authority. The High Authority was
conceived as a supranational institution and represented the exclusive
source of executive power. The High Authority comprised nine members
who were to be completely independent from the national states.10 This
body became the sole vehicle for taking policy decisions which, on the
anti-trust front, were binding on the member states in relation to agree-
ments between undertakings, restrictive practices (including cartels) and
to control concentration. It also was equipped with the ability to impose
fines. The treaty also established the Council of Ministers as a forum
for the member state governments to have an input into the system, a
Common Assembly to inject a form of democratic credentials into the
institutional machinery and a Court of Justice to resolve any disputes
between the member states and the ECSC institutions.11 Jean Monnet was
appointed to serve as the first president of the High Authority.
The ECSC Treaty comprised 100 articles, but from its very inception
competition policy formed an integral aspect of its activity and created
a competition regime (Diebold, 1959). Anti-trust exerted a strong influ-
ence throughout and surfaced in various parts of the treaty text. Article 4
explicitly identified a number of more general practices which were incom-
patible with the new market, such as import and export duties, measures
which discriminated between producers and conditions which interfered
with the purchaser’s free choice of supplier; subsidies or aids granted
by states and restrictive practices which tended towards the sharing or
exploiting of markets.
Article 5 contained the reference to the safeguarding of competition
and placed a clear obligation on the ECSC to secure normal competitive
conditions. The High Authority was tasked with responsibility for car-
rying out its key objectives. It sought to ensure competition so long as
supplies of these products were in reasonable balance. Where problems
arose the High Authority was empowered to intervene directly within the
market place to bring the market under control. The High Authority pos-
sessed powers to deal with restraints of trade within an individual member
state and affected trade between member states. Article 58 enabled the
High Authority to impose production quotas in response to crisis condi-
tions and Article 61 allowed it to fix maximum and minimum prices if
necessary.
The initial references to competition were given much greater substance
in Articles 65 and 66 of the ECSC Treaty. Article 66 (see Buch-Hansen,
2008) dealt with mergers and the potential problems of concentration
on these economic sectors, and paragraph 7 dealt with the problem
of an undertaking, private or public, which held a dominant position
in the market place. Agreements between undertakings, decisions by
associations of undertakings, and concerted practices were prohibited if

they tended directly or indirectly to prevent, restrict or distort ‘normal’
competition within the common market. Although this applied to all
agreements and decisions the High Authority was particularly interested
in tackling those agreements that opted to fix prices, restrict control of
production, technical development or investment and sought to share
markets and customers.
The now familiar format of Article 65 was both new and really revolu-
tionary at the time, as it dealt with an issue where few member states had
any experience. It also represented a mix of different traditions. On the
one hand this particular article deployed a US style prohibition and penal
sanctions, and as such was a clear descendant of Article 1 of the Sherman
Act, which prohibits ‘agreements among enterprises, all decisions of
associations of enterprises, and all concerted practices which would tend,
directly or indirectly, to prevent, restrict or impeded the normal operation
of competition within the common market’. Paragraph 2, on the other
hand, was unique and differed completely from the US model in so far
as the EEC variant of anti-trust allowed for exemptions to the first para-
graph. Such exceptions were subject to specific rules and these included
the case of specialisation agreements where the arrangement provided for
substantial improvement in production or distribution, was necessary to
achieve results and was not liable to give undertakings power to determine
prices or restrict production. The High Authority was empowered to
exempt such agreements, but any such authorisation was intended to be of
both a conditional and temporary nature only. The High Authority was
also authorised to apply sanctions if agreements had not been approved
under Article 65(2) and was capable of fining companies (up to 10 per
cent of a company’s annual turnover) for cartel activity. The ECSC cartel
regime itself was constructed more on an administrative as opposed to a
legal basis. The ECSC came into effect in July 1952 and has been described
as a stalking horse of European integration (Martin, 2006: 135). Gerber
is correct to argue that the real significance of the ECSC regime is that
it served as a model and prototype for the later EEC competition regime
(Gerber, 1998: 341–2).
4. THE WEST GERMAN EXPERIENCE; ECONOMIC

MIRACLE AND THE ADOPTION OF CARTEL
LAWS, 1949–1957
Writing in the early 1950s Franz Boehm presented a picture of Allied

determination to deploy and enforce radical and consistent laws and a
scenario which the new Land (regional) governments were ill-equipped to

resist. He argued that the new competition ethos had made an impact and
dissuaded many companies from engaging in restrictive arrangements.
However, most authors now concede (Gerber, 1998) that these laws were
not widely enforced. Paradoxically, the new West German government
was intent on building an efficient cartel policy as a central element of
its new economic framework. Ludwig Erhard is credited with creating
the correct environment to launch the German economic miracle. His
economic philosophy stemmed directly from his contacts and links with
the Freiburg School of Ordo-liberalism and its ideas as advanced by
individuals such as Alfred Mueller-Armack, Alexander Boehm, Wilhelm
Roepke and Wilhelm Eucken (see Gerber, 1998 for a greater discus-
sion).12 All sought a new philosophy to secure the growth and stability
of post-war Germany and engineered what they deemed to constitute a
third way between Manchester ‘laissez-faire’ capitalism and the centrally
planned economy (Peacock and Willgerodt, 1989). The aspects of social
justice and individual freedom were built into Ordo-liberalism, but at the
heart of the ‘social market economy’ lay the conviction in the competitive
order, i.e. that the state was to be charged with bringing about competi-
tion through prohibition of cartels and a de-concentration policy (Eucken,
1952; Grosser, 1985). The Ordo-liberals were particularly concerned about
the dangers of economic concentration and economic power, and argued
that competition had to be fostered and especially to ensure the creation of
many smaller firms. In short, any efforts to establish a successful economy
required the adoption of a rigorous competition policy.
Erhard enthusiastically backed this economic philosophy and was
ready to ‘declare war against all efforts to form cartels and against those
aiming at a limitation of competition of whatever kind . . . I regard all
such attempts as a crime against the sanctity of life, whose inner meaning
is change, movement and progress, and therefore cannot respond to the
uncouth methods of planning regulation and stabilisation’ (Erhard, 1957).
His opposition was directed equally to all forms of industrial collusion and
state planning. Attitudes towards the competition principle were far from
universal and attempts to develop a West German anti-trust policy were
anything but harmonious and led to repeated scuffles.
The first serious though stillborn effort at enacting West German cartel
policy was contained within the Josten competition law draft of 1949, and
promised a radical departure from earlier practices to contained provision
for a total ban on cartels, the creation of a monopolies office and the intro-
duction of merger control. The draft legislation sparked off disagreements
between the Ordo-liberals and industrial and business groups. Erhard’s
preaching of the new faith of competition fell on deaf ears of large sections
of the German business world and many remained wedded to the old
orthodoxy. For example, vocal opposition was loudest from the German
business groups which maintained that any attempt at dissolving con-
centrations threatened to undermine economic development and impede
West Germany’s ability to compete with her European rivals.
Erhard’s crusade was also hampered from within the German cabinet
and in particular from both the agricultural and transport ministries, and
also significantly from a rather unenthusiastic Konrad Adenauer who
sided in a more diplomatic fashion with his close friend, Bundesverband
Deutscher Industrie (DBI or the German Employers’ Federation) presi-
dent Fritz Berg. In short, opposition to a German competition policy
was formidable, and both the Josten draft and thirteen other anti-trust
proposals were also unsuccessful. But eventually and after Erhard’s
threat to resign, American threats of imposing a competition regime and
much industrial lobbing, a watered down competition law was finally
agreed and passed. The outcome of the seven year cartel war (sieben-
jährige Kartellschlacht) culminated in the adoption of the Gesetz gegen
Wettbewerbsbeschränkungen (Law against Restraints on Competition
or GWB) in 1957 which came into force in 1958 (McGowan, 1993). The
GWB at one stroke replaced the Allied cartel laws, and as such was widely
accepted as a welcome achievement.
Judged positively the GWB’s passing marked a decisive landmark in
the evolution of German and European competition policy. It created the
Bundeskartellamt (Federal Cartel office or BKartA) which was authorised
to prohibit cartels, though there were grounds for possible exemption for
certain forms of restraint. The business community had been successful at
both delaying a German law and watering down its original and harsher
provisions and omitted all mention of the problems of economic concen-
tration and merger control. In terms of cartels the GWB laid the first real
basis for a substantive anti-cartel policy. The BKartA was empowered to
prohibit cartels, but the new law also provided for a number of exemptions
from the competition rules on prevailing grounds of the greater public
good. Certain sectors (such as agriculture, banking and finance) were
exempted from its reach. This institutional arrangement differed strikingly
from the truly independent standing of the Bundesbank and its role in
determining monetary policy (Marsh, 1992). Yet, cartel policy emerged as
one of the core pillars of the social market economy and reflected the real
dawn of the competition principle in continental Europe.
The development of cartel policy in West Germany and the EEC her-
alded a major sea change in governments’ approach to cartels after 1945.
These developments in the antitrust field were replicated by the adoption
of similar competition provisions across most Western European states
(although there were some notable omissions such as Italy and Portugal)
over the next thirty years. Isolating exactly which factors and what types
of thinking reinforced such change is relatively straightforward and have
been identified (Edwards, 1967) as a greater awareness of the potential
problems arising from cartellisation, particularly in relation to higher
prices and poorer choice products for consumers. Moreover, the existence
of cartels was increasingly being viewed as an obstacle to removing barri-
ers to international trade and forms of activity that often in practice actu-
ally discouraged greater economic efficiencies and higher productivity.
Economic thinking towards cartels had changed. How much is put down
to the US experience and American influence is a matter for conjecture,
but there can be little doubt that there was indeed a US factor at play in
the spread of the anti-trust idea in Europe after 1945, and certainly evident
in the cases of the EEC, West Germany and even the UK.
Cartel policy may have been making its appearance but it was emerg-
ing at different speeds and in different forms. Outside West Germany and
the EEC the antitrust policies of most other European states were more
influenced and built around the outcome of an agreement rather than its
conduct. In other words, most national authorities focused on control-
ling only those arrangements which were deemed to have harmful effects.
This is where toleration crept in and where national authorities recognised
that there could be economic and political advantages in cartellisation.
This attitude had echoes of the situation prior to 1939, and it continued
to linger with the result that some domestic competition laws (where they
emerged) were blurrier and of a softer style and substance than the US
version; many were more cautious and discretionary in design, and most
were usually administrative in form rather than judicial (Harding and
Joshua, 2003: 98).
France affords the best illustration, but even the French state was
not immune to cartel policy developments elsewhere and was slowly
being ushered in the direction of its own competition policy. The French
economy flourished from the second half of the 1950s but had been con-
structed and developed on a different model from that in neighbouring
West Germany. Whereas the government of the West German state was
trying to create the framework to ensure a successful economy, the French
approach favoured a much more interventionist stance and degree of state
planning. This dirigiste model had been pursued under the Commissariat
Général du Plan (Planning Board) which had been created by Monnet
after 1945. It certainly favoured greater economic concentration but also
overlooked cartellisation at home at any rate. On paper a government
decree from 1953 (53–704) enabled the state to control prices and ensure
the maintenance of free competition, but this was not pursued with any
real vigour and in any case there were a multitude of exemptions (Hall,
1986). Cartels would be tolerated even if not always in the public interest,
and this position did not change until the French government adopted its
anti-cartel legislation in 1977. The Benelux states had also lacked any anti-
trust tradition and what legislation existed, as in the form of, for example,
the Economic Competition Act (Wet economische mededeling) of 1956 in
the Netherlands was never really enforced (Goyder, 1993: 30). In time,
however, cartel legislation would not only be adopted across Western
Europe, but would ultimately converge on the European model. The seeds
of these future developments can be traced back to the 1950s.
5. CONCLUSIONS
Efforts at reconstructing the countries of Western Europe after 1945

ran directly in parallel with steps to foster greater European integration
through a myriad of new institutions. In terms of cartel policy European
regional co-operation would lead to the emergence of a highly developed
and sophisticated model of supranational regulation. It is important to
stress that a European cartel regime was far from a foregone conclu-
sion. Indeed, initial moves in European co-operation in the form of the
Organisation for European Economic Co-operation (OEEC) and the
Council of Europe were deeply disappointing for US competition policy
enthusiasts. The arrival and acceptance of European anti-trust initially
owes much to US influence and changing economic philosophies.
The adoption of the ECSC rules marks a quite radical departure in
approach, but the impact of the ECSC’s cartel policy was anything but
impressive. The anti-trust rules were not widely used and the 1950s her-
alded a new phase of greater economic concentration in the coal and steel
industries (Buch-Hansen, 2008: 98) and especially in West Germany, to
the frustration of the rival French industries. Progress was not much better
in relation to cartelbusting (Leucht and Seidel, 2007). The High Authority
only deployed its provisions to a very limited extent (Gerber, 1998: 342).
In retrospect, coal and steel were arguably not the best sectors in which
to seek integration from an economic perspective (Bebr, 1953; Martin,
2004), but the project was conceived and driven as a political vehicle and
towards political ends. Monnet was the architect and driver and had little
knowledge of either coal or steel (Milward, 1992). Both economic sectors
were largely unsuitable and economically very different, and the integra-
tion model threatened to produce greater disequilibrium and a number of
difficult problems. These involved such issues as freight costs which tended
to separate markets, structure of ownership, the history of concerted
practices, cases of strong governmental control and the labour intensive

(Lister, 1960: 403) nature of the coal, iron and steel industries. Adjustment
proved difficult and the coal industry started an almost terminal decline
from the mid 1950s, while steel followed the same downward trajectory
from the mid 1970s. The steel industry itself in Europe provides an apt
illustration of some of the problems facing the competition regulators and
became a recipient of state aids and even led to a number of crisis cartels.
Monnet had set out to solve the Ruhr problem by controlling German
industrial power and protecting French interests, but ultimately the cen-
trepiece of Monnet’s grand vision produced a regulatory code which was
influenced by US antitrust ideas. However, although a general consensus
was emerging in Europe for some form of legal regulation after 1945 it
developed differently and came initially to be built upon an administra-
tive process of scrutiny that took account of the public interest and stood
in somewhat marked contrast to the harsher US model of probation,
court orders and litigation (Harding and Joshua, 2003: 86). The Schuman
Plan introduced the competition principle. The ECSC may have become
increasingly irrelevant as the 1950s and 1960s passed by, but it had par-
tially solved the German problem and represents a stepping stone in the
integration project which leads to later European treaties and a truly
genuine system of supranational competition governance.
NOTES
1. For a fuller discussion of the Japanese system see Kenji Sanekata’s chapter in Bruce G.
Doern and Stephen Wilks (eds), Comparative Competition Policy: National Institutions
in a Global Market, Oxford: Clarendon Press, 1996.
2. For a solid discussion of the economic and political condition of immediate post
war West Germany see A. Grosser, Geschichte Deutschlands seit 1945: Eine Bilanz,
Deutscher Taschenbuch Verlag, 1974 and translated into English as Germany in Our
Time by Alfred Grosser and Paul Stephenson, Pall Mall Press, 1971.
3. The JCS 1067 Directive to the Commander in Chief of US Forces in Germany (from
April 1945) laid down the basic principles guiding the American occupation of
Germany and these tougher conditions and restrictions that lasted until July 1947.
These included denazification measures, aimed to ensure that renewed political activity
was only allowed with American permission, and sought to keep a firm grip on the reo-
pening of educational facilities. For further information see http://germanhistorydocs.
ghi-dc.org/sub_document.cfm.document_id=2297.
4. Kronstein left his mark on anti-trust thinking: see H. Kronstein and Gertrude Leighton,
‘Cartel Control: A Record of Failure’, 56 Yale Law Journal (1946), 297.
5. The French government also controlled the Saarland which Paris had annexed from
Germany after the war. This smaller region which bordered France represented the
other main coal and steel making region within western Germany. The French had long
sought control of this area and had also annexed it after World War I before it returned
to Germany after a plebiscite in 1935. The same area voted in a referendum to return to
(West) Germany in 1957. Both episodes illustrate the sensitivities of these sectors.
6. This episode marked the beginnings of the UK’s problematic relationship with the
European integration project. The problem lay not so much in the idea of a common
market, but rather in the creation of the supranational institutional structures. The
UK still perceived itself as a global power. It had won the Second World War, was the
leading economic power in Western Europe until the mid 1950s and still possessed on
accepted and unchallenged political system which dated back to 1066. Consequently,
the UK government of the late 1940s and 1950s did not feel the same attraction towards
European Integration. The troubled relationship is considered in depth in Stephen
George, An Awkward Partner, Britain in the European Community, OUP, 1998, 3rd
edition. See also Oliver Daddow, Britain and Europe since 1945: Historical perspectives
on Integration, Manchester University Press, 2004.
7. The Pleven Plan led to negotiations and Member State agreement among the ECSC6
for a European Defence Community. This project was overlooked by the British gov-
ernment and the treaty failed to be ratified in the French National Assembly in 1954
and was duly aborted.
8. According to Berghahn (1986: 144), ‘it is certain that Washington, represented by
McCloy and . . . Bowie . . . insisted more than once on a particular wording of indi-
vidual articles’.
9. The ECSC Treaty expired in 2002 and the issues of coal and steel were transferred to the
EC Treaty.
10. The nine members were appointed by the respective ECSC6 Member States and com-
prised two individuals from France, Italy and West Germany and one each from the
Benelux states. These individuals were not to take instruction from their national gov-
ernments. (See Nugent, 2006.)
11. The Council was established at the insistence of the Benelux States which wanted some
degree of supervisory monitoring of the High Authority in case it became too power-
ful. The Common Assembly was established as an advisory body only and comprised
delegates from the 6 national parliaments.
12. See also Franz Böhm, ‘Monopoly and Competition in Western Germany’ in Edward E.
Chamberlain (ed.), Monopoly and Competition and their Regulation, Macmillan, 1954.
5. Establishing the architecture of EU
cartel governance, 1958–1962
In retrospect, the place of competition policy in the history of EU inte-
gration seems a somewhat accepted fact. It is now generally recognised
as one of the central columns of European governance and some authors
have even identified the competition rules as the ‘economic constitution
of the EU’ (McGowan, 1997; Wilks, 2009). Strangely, few observers
could have predicted some fifty years ago the actual development and
success of the EU competition governance regime, given the divergent
positions on anti-trust among the original EEC member states. For
that matter, few could have predicted the trajectory, evolution and
expansion of the entire European integration project. For many ardent
‘integrationalists’ including Monnet (1978) the EEC Treaty seemed to
represent a much watered down and looser form of integration which
contained fewer supranational characteristics and even appeared to
signal the revival of more nationally determined policy preferences.
Yet, the overwhelming economics related provisions of the EEC Treaty
and the drive for a single market contained the seeds of significant later
policy developments from a European space with no barriers for busi-
ness to one which looks after its workers’ needs and from the promotion
of free movement of people to justice and home affairs (Church and
Phinnemore, 2002).
Competition policy played its part and was identified as one of the
few policy objectives in the EEC Treaty base from the outset, and would
gradually emerge as arguably the best example of a supranational policy
in operation and one which displayed ‘federal’ characteristics.1 The next
three chapters demonstrate this change and account for the evolution of
cartel policy. The first of these chapters sets out to provide an overview
of the key articles which came to serve as the foundation stones for the
emergence of the EU competition regime. This chapter traces the origins
of the EEC Treaty’s competition provisions and focuses specifically on
the content and objectives of Article 81 (on restrictive practices/cartels).
It explains how the Six came to reach agreement in spite of some major
differences between member states on the institutional design and struc-
tures of the European competition regime. It also explains how and why
93
agreement was reached on Regulation 17 to create the procedural mecha-

nisms to achieve their anti-cartel policy aspirations.
1. INTRODUCTION: DEEPENING EUROPEAN

INTEGRATION AT ROME
The euphoria surrounding the ECSC as a model of supranational inte-
gration proved short-lived and a severe reality check took hold once the
plans for a European Defence Community (EDC) were rejected in
the French National Assembly in 1954. Monnet’s disappointment at
the turn of events and defeat for deeper integration led to his resignation
as president of the High Authority, and his spirit was not lifted by the
idea of creating a general (as opposed to sector specific) customs union.
The idea for the latter emerged from Belgium and the so-called Benelux
memorandum which formed the launch pad for what became known as
the European Economic Community. The concept attracted the interest
of the Adenauer government, which welcomed such liberalisation and
placed emphasis on the necessity of the inclusion of competition rules in
order to establish normal market conditions. This initial support quickly
led to a meeting of the Foreign Ministers of the ‘Six’ in Messina in May
1955 to discuss the possibility of extending the principles of the ECSC
further. In the final conference resolution (Messina, 1955) the ministers
pledged their support for closer integration, the creation of a common
market which, amongst other things, would require rules to ensure undis-
torted competition and paved the way for the preparation of two ensuing
treaties, one on the common market and another on an atomic energy
community.
To make further progress on the common market treaty a committee
of representatives from the ECSC member state governments was created
under the chairmanship of Paul-Henri Spaak. Hans von der Groeben
and Pierre Uri were appointed as two of Spaak’s experts. Both men not
only represented the West German and French governments respectively
but took a particular interest in the competition clauses, and this issue
found reflection in the Spaak Report.2 Paragraph 55 provided the detailed
requirements for a competition policy and duly recognised the problem
of monopolists and their threat to the creation of a common market. It
deemed action necessary to prevent ‘a division of markets by agreement
between enterprises, since this would be tantamount to re-establishing the
compartmentalisation of the market; agreements to limit production or
limit progress because they would run counter to progress and productiv-
ity’. The Spaak Report was accepted without any major amendments by
Establishing the architecture of EU cartel governance 95
the Foreign Ministers of the Six in May 1956. The detailed negotiations
then commenced over the next ten months prior to the signature of the
Treaty of Rome on 27 March 1957.
The European Economic Community Treaty (EEC) came into force
on 1 January 1958 and its objectives of pursuing closer economic inte-
gration and creating a common market profoundly and positively have
further transformed relations between its member states in the years ever
since (Bomberg, Peterson and Stubb, 2008; Cini, 2007; Nugent, 2005)
and created the EU political system (Hix, 2005). Any critical dissection
of the EEC Treaty readily reveals that it is a product which reflected the
priorities and sensitivities of the member states. Real differences cer-
tainly existed among the ‘Six’ and especially between France and West
Germany over economic policy making. These differences epitomised
fundamental distinct approaches (Maes, 2004) to post-war economic
policy. Whereas France placed its emphasis on the sovereign state as
the source of legitimacy and saw the state as the director of economic
policy, the new Federal Republic of Germany stressed the advantages of
decentralised power and an ardent belief in the virtues of a social market
economy.3 It is interesting to note how the economic recovery in both
states in the 1950s, as represented by ‘Le Plan’ and the economic miracle
(Wirtschaftswunder) respectively fitted each state’s preferred model
and both worked.4 Such differences characterised the positions of both
states and made the negotiations about the EEC Treaty at times quite
problematic.
The German representatives had sought to create a new European
economic system on the direct structure and foundations of the newly
developed West German model, namely on the principles of a market
economy which included a liberal trade policy and strong competition
rules. Paris, on the other hand, had a preference for a much more active
involvement of the state in economic matters. This major distinction col-
oured much of the debate. Notably the French government was particu-
larly concerned about just how far French companies were in a position
to compete directly with their German rivals within a common market.
Consequently, competition policy emerged as one of the issues of conflict,
but it was one which was resolved as part of the wider negotiations on
European integration. Indeed, the only credible solution to the national
differences necessitated substantial ‘give and take’ between the states and
the ability to trade certain nationally based preferences off against those
of others. In the end compromise was agreed. Thus, the French govern-
ment was prepared to accept the German model of competition in return
for West German agreement on the creation (and funding) of the French
favoured European Atomic Energy Community Treaty or EURATOM
which also came into force on 1 January 1958 and formed the second
Treaty of Rome.5 French concerns were also placated with the inclusion
of agriculture in the EEC Treaty and, it is worth noting, this policy’s spe-
cific exemption from the competition rules. Both agriculture and energy
reflected strong French interests. In return the West German government
ensured that the common market was constructed on the free movement
of capital, goods, people and services and included a strong competition
policy.
The overall ‘settlement’ was reflected in the original Article 2 which
stated that ‘the Community shall have as its task, by establishing a
common market and progressively approximating the economic policies
of the member States, to promote throughout the Community, a har-
monious development of economic activities, a continuous and balanced
expansion, an increase in stability, an accelerated raising of the standard
of living and closer relations between the states belonging to it’. This
article set out the main objectives, which were given greater specificity in
Article 3. The original Article 3(f) sought the creation of a system ensuring
that competition in the common market was not ‘distorted’ and formed
the basis of the competition rules in the EEC Treaty.6
Understanding the origins of these rules and their distinct charac-
ter necessitates, according to Gerber (1998), the recognition of a long
European tradition in competition issues at national level. This is an
interesting interpretation and challenges the almost canonical vision
that the rules were largely the product of a process of Americanisation
after 1945. Europeans, as discussed in chapter 3, had certainly consid-
ered and dealt with competition issues from at least the end of the nine-
teenth century. The original domestic legislation enacted in the German
speaking states found replication to varying degrees across many states
in Europe, and at the very least had enabled and initiated a debate about
the purpose and characteristics of competition law. These ideas helped
shape the mindsets that looked at how the European economies could
be rebuilt after 1945, and especially in West Germany where a group
of Ordo-liberal reformers pursued a belief in a market economy which
afforded competition policy a special status as the economic constitu-
tion and also tie in notions of social justice. Although all are true, care
must be taken not to diminish the power and influence of the United
States. How was agreement reached on the EEC Treaty anti-trust provi-
sions and why and how were its institutional architecture and mechan-
ics created in the way that they were to establish supranational cartel
governance?
2. NEGOTIATING THE COMPETITION RULES

WITHIN THE EEC TREATY
Ultimately the EEC Treaty was to prove in time a much more successful
vehicle for deepening integration than its immediate forerunner, but at
the time it seemed as if the EEC was simply a lighter shade of integration
than the ECSC. Pursuing a customs union free of customs duties and
quotas, the removal of tariff barriers, the erection of a common external
tariff and the adoption of the competition principle proved more decisive.
The importance of the competition principle was clearly embedded in the
treaty from the outset. According to one senior Commission official, ‘It is
no exaggeration to state that economically, the Rome Treaty is basically
a Treaty for more competition . . . [competition] has been considered as
one of the principal pillars on which our building rests’ (Mussard, 1962).
Yet, caution should be applied because the inclusion of these same com-
petition provisions had been preceded by intense debate about the role,
purpose and enforcement of competition policy in the common market.7
Competition policy had not lost any of its controversy over the wording
and scope of the cartel clauses, as the discussions preceding agreement
on the provisions of the EEC Treaty revealed. Indeed it became more
controversial once its reach was going to be extended to cover many more
economic sectors.
It should be emphasised that the US was not as decisive an actor at the
time of the negotiations on the EEC Treaty, though it warmly endorsed
moves to include competition provisions. The two key really important
protagonists in the actual anti-trust debates were once again the French
and West German governments (Goyder, 2003: 23). Indeed, some observ-
ers have gone as far as to state that ‘once Guy Mollet [French Prime
Minister] and Adenauer had laid out the path for the rest of the negotia-
tions, the smaller countries simply had to take what was handed down to
them by the French and the Germans’ (Milward, 2000: 217–8). There is a
strong degree of truth in this. The French and German positions reflected
their own very different ideas on government/industry relations. Whereas
the French government leaned heavily towards state planning and dirigiste
intervention, the Bonn government held firm in ordered market capital-
ism. The issues of competition and cartel policy proved controversial and
cannot be divorced easily from geo-political considerations. Once again
the United Kingdom government absented itself from all discussions over
the EEC Treaty.8
The French and West German governments held divergent views on
what exactly the objectives of competition policy should be and on the
structure and powers of any European authority to apply and enforce
them. Interestingly, the positions of both states had somersaulted from

the stances adopted in the negotiations leading up to the ECSC. Whereas
the French government had been ready earlier to call for tougher prohibi-
tive rules on the breaking up of German coal, iron and steel companies,
France was growing resistant to the extension of such a system to cover
many other economic sectors. This position reflected the lack of any
French tradition in competition policy, but also the French state’s pref-
erences for working in close co-operation with French industries. The
West German government adopted a much more active position and its
delegation included two figures who later became prominent European
regulators in the form of Walther Hallstein and Hans von der Groeben
and welcomed the setting up of a prohibition system where all type of co-
operative agreements had to be notified to the supranational competition
authority.
This vision meant the creation of an authorisation system based on
ex ante notification and an independent competition authority to review
all the notifications. The optimum position for Paris was a much looser
system where a number of clearly defined abuses would be subject to legal
control. The French model envisaged an ex post abuse system which was
not built on a notification system and would apply only to the specifically
defined abuses. The French government was keen to resist moves towards
a fully fledged system based on law and sought a more lenient and malle-
able system where the national competition authorities held most power
and where any supranational competition authority’s powers were limited
and designed to facilitate co-ordination across the EEC (Warzoulet, 2005:
66). The Guy Mollet government in Paris (1955–1957) had been much
more eager to harmonise social regulations and to promote the integration
of industrial policy (Scharpf, 2002: 648) than pursue a competition policy.
Its position was supported by Monnet. Indeed, the French delegates
voiced their opposition to the idea of a law based market economy based
on stringent competition laws. In response the German delegates were not
receptive to the French vision as they feared it would enable more protec-
tionist minded states (i.e. France and Italy) to limit competition and work
to the detriment of German companies.
The West German government, and especially the Economics Minister,
Ludwig Erhard, strongly supported an Ordo-liberal inspired regime which
had strong constitutional status, was independent and able to take deci-
sions on its own. The German negotiators were supported by their Dutch
counterparts. The West German Bundeskartellamt (Federal Cartel Office)
or BKartA in Berlin (McGowan, 1994; Sturm, 1996) became an ideal pro-
totype (Gerber, 1998: 343) for a flexible system which could take various
issues into account when making decisions. This was important because
an economic upswing required a very different type of cartel policy from

a downturn. The German position was endorsed by the Benelux states
and left France with Italy to mount a degree of opposition to the others.
After prolonged debate and numerous drafts the final text reflected the
German approach which centred on an ex ante notification scheme with
the possibility of exemption.
Free trade may have been the target, but it could be only partially real-
ised with the lifting of customs duties and the removal of quotas. In them-
selves both could not guarantee success or the creation of a competitive
market. Logic may argue that as companies face greater competition the
least inefficient will have to adapt or die as well as reorganise and innovate
to enable greater specialisation and efficiency. This may be true, but were
companies going to respect the new-found belief in the powers of compe-
tition or would inefficient and equally efficient companies seek means to
resist and thwart any competition? According to Hallstein, ‘besides the
best known economic and social advantages, an economic order based
on competition has the decisive political advantage that it guarantees
personal freedom to an extent not attainable in any other economic order’
(Hallstein, 1962: 8). In other words in a free enterprise economy competi-
tion is deemed to epitomise the best guarantee of personal freedom, but
it depends on the willingness of business to compete. This assumption
cannot be taken for granted, as some firms will resist the competitive
process and seek to engage in cartellisation. Competitive markets cannot
be assumed to occur and require regulation.
The inclusion of competition rules within the EEC Treaty was a
demand which had originated within the West German delegation at the
Messina negotiations. The influence of Ordo-liberalism found voice in
both Hallstein and von der Groeben. Both figures were actively supported
by Ludwig Erhard and both were highly instrumental in shaping the EEC
competition regime and steering its direction until the late 1960s. The
French delegation was spearheaded by Pierre Uri (Ramirez, 2007: 3) and
its discussions on competition policy were influenced by a variety of facts
which included the ECSC rules, the French (and failed) attempts at intro-
ducing an anti-cartel law in 1949 and the lengthy struggles in Germany to
enact a national competition policy in 1957. It is important to stress that
outside West Germany and France none of the other four ECSC member
states represented at Messina had any great interest in competition, and
thus the subsequent discussions involved Bonn and Paris.
Another interesting aspect of the negotiations, and one which stands in
sharp contrast to the ECSC experience, was the very limited involvement
of business concerns in either trying to influence national government posi-
tions or actively running any campaign to attack the anti-trust elements
of the EEC Treaty. This somewhat surprising reality finds explanation

in three factors (McLachlan and Swann, 1967: 82). Firstly, the ardent
opposition to the ECSC provisions had reflected the propensity of the
coal and steel industries to engage in cartellisation, but this same hostility
did not seem to extend to other business sectors. This may have been the
case because, secondly, business had had time by this stage to observe the
High Authority in action and, as the regulator had never really enforced
the anti-trust rules, business had come to the conclusion that the extension
of similar anti-trust rules to other economic sectors would simply follow
the same pattern. Finally, the actual wording of the competition chapter
was rather vague, seemed relatively harmless and completely excluded any
reference to European merger control. Few at this point in time could have
predicted a different trajectory and the emergence of a puissant European
cartel regime!
The competition rules as established in the EEC Treaty covered four
main areas; restrictive practices including cartels (Article 85, and now 81);
abusive monopolies (Article 86, and now 82), state aids (Articles 92–94,
and now 87–89) and an aspiration to open publicly owned monopolies
to greater competition (Article 90, and now 86). All developed over time.
Merger control was deliberately omitted from the EEC provisions and
would not fall under Directorate General IV’s (DG for competition) remit
until 1990 (Büthe and Swank, 2007; Cini and McGowan, 2008; Buch-
Hansen, 2008).
The focus of DGIV’s activity came to centre on restrictive practices, and
this area, given its complexity and often lengthy investigative processes,
was to consume most of the competition directorate’s resources and time.
DGIV developed expertise in this core area and gradually emerged as one
of the most highly competent and focused parts of the entire Commission.
Cartel policy, although not immediately appreciated, came to encompass
a fascinating study of supranational regulation and represent an apt nar-
rative of the pulls and logic of the European integration process as DGIV
came to deploy ever more skilful and innovative methods in its ongoing
cartel wars. These are examined in chapters 6 and 7. The outcome of
Article 81 deliberations in the end lay closer to the German Ordo-liberal
position than the French one, but did not entirely reflect such values. All
the articles were rather vague in design, and for some commentators it was
‘difficult to see exactly what the objectives of competition policy were for
those who drafted the Treaty of Rome’ (Motta, 2004: 14). The vague lan-
guage of the articles reflected the differing standpoints of the authors and
in effect left the detailed rules to be established later. As such the articles
did not quite embrace Ordo-liberalism in their entirety because there was
not any mention of merger control, monopolies were subject to scrutiny
only if they were deemed to have abused their position and restrictive
agreements could be exempted. Some commentators suggest that these
articles look remarkably similar to the French model (Buch-Hansen, 2008:
102). Again there is an element of truth here and many observers were
looking to see just how these articles were going to be implemented and
enforced. Article 81 reflected an emerging European model of legal control
which was based on an administrative procedure of evaluation of cartels.
But would the anti-cartel measures be enforced? Much depended on the
institutional structure that was created. This chapter now turns to Article
81 which has formed the backbone of EC competition policy. It begins by
introducing the structure and personalities at the helm of the European
regime before providing the necessary background on the legal base and
the accompanying regulations which ushered in this puissant anti-cartel
regime.
3. THE EUROPEAN COMPETITION REGULATOR
The very first European Commission took office in January 1958. It com-
prised two distinct wings: a political executive wing and the much larger
administrative wing. The former comprised the nine European commis-
sioners (two each from France, Italy and West Germany and one each
from Belgium, Luxembourg and the Netherlands) and their cabinets (or
private offices). Each Commissioner was handed responsibility for a spe-
cific policy area which fell within the Commission’s competences under the
EEC Treaty. The treaty cast the Commission in the role of policy initia-
tor and not as the decision taker, as the High Authority had been under
the ECSC Treaty. Under the Rome disposition power was to reside with
the Council of Ministers which responded to Commission proposals and
consulted the Assembly (European Parliament).9 The division of responsi-
bilities within the Commission to a large degree reflected both the size and
economic power of the member state and its particular policy preferences
which they hoped to develop, shape and defend where necessary. This
initial style of sharing and carving up policy portfolios has often given
ammunition to critics that the European integration project has largely
been driven by a Franco-German hegemony. There is an element of truth
here. The very first president of the EAEC was the Frenchman, Louis
Armand, while the first president of the Commission of the EEC was the
German Walter Hallstein. The ‘sharing’ of the services followed a similar
pattern as member states sought to maintain a strong voice in certain
areas. The West German delegation took charge of the competition policy
portfolio under Hans von der Groeben and also external trade issues,
Table 5.1 The First College of Commissioners
Policy Portfolio Commissioner Director-General

President Walter Hallstein (D) Emile Noel (F)
Economic/Financial Robert Marjolin (F) Franco Bobba (I)
Affairs
Competition Hans Von der Groeben Verloren van Themaat
(D) (NL)
Internal Market Pierro Malvestiti (I) François-Xavier Ortoli (F)
Agriculture Sicco Mansholt (NL) Jacques Rabot (F)
Overseas Countries Robert Lemaignen (F) Eric Allardt (D)
External Affairs Jean Rey (Bel) Guenther Seeliger (D)
Social Affairs Giuseppi Petrilli (I) Jean De Muyinck (Bel)
Transport Michel Rasquin (Lux) Mario Renzetti (I)
while the French took the lead in macro-economic policy and agriculture
(see table 5.1).
The Commission’s first directorate general to handle competition policy
was established in 1960. It is interesting to note that the original DGIV was
handed responsibility for four sectors. In retrospect, two of these, namely
restrictive practices and monopoly policy and state aid policy, were not so
surprising, but it also possessed authority for another two areas, namely
taxation and the approximation of laws.
The relationship between the Commissioner and DG Competition has
not always been so easy to fathom. On the one hand, the Commissioner
and the cabinet may be viewed as the political-executive arm of the
DG, introducing a novel dimension into the legal-economic investiga-
tions of the competition officials. On the other hand, the Commissioner
and cabinet are more akin to a political cap, directing and controlling
the work of the DG from the top of the hierarchy. However, executive
and administrative functions can rarely be so easily separated. It would
certainly be naïve to imagine that political/ideological questions do
not enter into the decision making of the DG. Likewise, although the
Commissioner is clearly subject to external political (national, sectional
and ideological) pressures, the need to ensure legal certainty, consist-
ency and respect for the rules remains crucial at this stage in the decision
making process. The provisions of the EEC Treaty followed the conclu-
sions of the Spaak Report and also created two other bodies to assist and
work with the Commission in the competition policy arena. These were,
firstly, a consultative committee (to allow a member state input) and the
European Court of Justice (a specialised chamber of lawyers to review
Commission decisions).
4. UNPACKING ARTICLE 81
The drafters of the EEC rules were all too aware of differing approaches
(or even the complete lack of any domestic competition legislation in
Italy, Luxembourg and Belgium) between the states and sought in the
first instance to agree to a set of common goals that could be subsequently
fleshed out. France’s competition provisions at this time were skewed
heavily towards vertical agreements and preventing refusals to deal, while
the Netherlands had only a fledgling Economic Competition Act which
required registration of restrictive practices but granted exemptions on a
liberal basis. Only West Germany had anything comparable to a compre-
hensive competition regime in place, which incidentally came into force
on the same day as the EEC rules on 1 January 1958. German preferences
and debates had influenced and shaped, to a large extent though not com-
pletely, the European rules and would continue to do so. It is interesting
to speculate whether there would have been any competition rules at all in
the EEC Treaty if the West German delegation had not insisted upon it or
at best a much vaguer system.
Framed in very general terms Article 81 TEC (formerly Article 85
EEC) comprised three paragraphs and sets out to cover both those anti-
competitive agreements between direct competitors (horizontal restraints),
and those agreements between firms involved in different stages of the
production/distribution/marketing process within a particular market
(vertical restraints). The central question which arose for the regulator
centred on whether or not a particular agreement had been designed to
prevent, restrict or distort competition. The first paragraph of Article 81
established the type and characteristics of anti-competitive activities which
were not permissible, and to this end prohibited agreements which affected
trade between states, especially where such agreements aimed to effect the
prevention, restriction or distortion of competition within the common
(or single) market. The article declared that certain agreements were
simply incompatible with the common market, and these included: those
agreements that directly or indirectly fixed purchase or selling prices or
any other trading conditions; those agreements that limited or controlled
production, markets, technical development or investment; those agree-
ments that shared out markets or sources of supply; those agreements that
applied dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage; and those
agreements that made the conclusion of contracts subject to acceptance
by the other parties of supplementary obligations which by their nature
or according to commercial usage, had no connection with the subject of
such contracts.
Article 81(1) was ambitious in its scope and applied to both concerted
practices which were agreed informally, where little documentary evidence
existed to establish collusion, and to well-documented cases of concerted
parallelism.
The second paragraph (Article 81(2)) declared that agreements or deci-
sions that ran counter to Article 81(1) were prohibited and automatically
void. At first sight this looked very much like the system of per se rule
which has operated in the US anti-trust context and particularly since the
1960s, and where basically all named anti-competitive agreements were
categorised as illegal, with no exceptions to the rule. This reflected the US
regime’s aversion to the concentration of economic power. Arguments
in favour of the introduction of a US-style rule of reason approach had
certainly existed within European anti-trust circles. The principle of pro-
hibition reflected the US approach and the Ordo-liberal position but, it
should be stressed, was very much a new and at times alien concept for
many European states which had taken a more lenient position towards
cartellisation in the past. By forming hard core cartel agreements the firms
involved were deliberately attempting to keep their agreements as secret
as possible and away from the attention of the Commission. Yet in reality
EEC policy was not as strict as the US approach because this seemingly
per se prohibition of cartels and restrictive practices under Article 81(1)
was accompanied by an exemption clause, the third paragraph of Article
81.
Article 81(3) declared that Article 81(1) may be inapplicable where an
agreement ‘contributes to improving the production or distribution of
goods or [promotes] technical or economic progress, whilst allowing con-
sumers a fair share of the resulting benefit, and which does not (a) impose
on the undertakings concerned restrictions which are not indispensable to
the attainment of these objectives; [or] (b) afford such undertakings the
possibility of eliminating competition in respect of a substantial part of the
products in question’. Thus, four conditions were laid down if an agree-
ment were to be granted: the agreement had to benefit the EU as a whole
and its advantages had to outweigh its disadvantages; it had to produce a
fair share of the benefits to consumers; any restriction to competition had
to be indispensable in order to attain the objectives sought; and there had
to be no substantial elimination of competition (Sufrin and Jones, 2004).
In many ways contrasting the prohibitive rule in Article 81(1) against the
exemption clauses in Article 81(3) demonstrates aptly the flexibility of the
EU’s cartel provisions. Indeed, Article 81 introduced a complex balancing
process.
To ensure that the competition logic transpired into more than just
rhetoric it was no coincidence that the German government selected a pro-
competition individual to take responsibility for the competition policy

brief. The selection of Hans von der Groeben as the first EU Competition
Commissioner was a skilful move, given his background and experience,
and in part also reflected the ‘carving up’ of the Commission’s key port-
folios by the member states to secure their fellow nationals in those areas
of particular member state sensitivity. Von der Groeben’s task was further
aided by the selection of Walter Hallstein as president of the European
Commission. Both shared a similar vision and had been strongly influ-
enced by the Freiburg school.
The Ordo-liberal influence within this DG was further strengthened with
the appointments of Ernst Albrecht as Von der Groeben’s chef du cabinet
and Ernst-Joachim Mestmäcker’s arrival as principal legal advisor. In
short, von der Groeben was ideally placed to steer, develop and anchor
the competition policy logic, which he did for nearly a decade from 1958
to 1967. Von der Groeben’s team regarded a rule of reason approach as
a necessary component, and claimed that exemptions from the rule under
Article 81(3) provided enough of a safety valve for pro-competitive agree-
ments, such as those involving research and development and intellectual
property.
The von der Groeben ‘team’ were determined to establish the principle
of a Wettberwerbsordnung (competition principle), to ensure that competi-
tion policy was propelled as the foundation stone of the common market
and simultaneously to promote integration and realise the goals of the
EEC Treaty. As such competition policy was perceived as an economic
constitution. These individuals were not on a crusade to unleash a ‘bellum
omnium contra omnes’ (Hambloch, 2007) or a state of perfect competition,
but to secure a state of workable competition where free market access was
secured. Competition policy was not conceived as an end in itself, but a
means to achieve faster growth and accelerated integration of the six econ-
omies. Equipped with a team of officials (some 100 strong) who all agreed
on the need for fair and effective competition to create a common market
and who appreciated the necessity of preventing the restriction or distor-
tion of competition. According to von der Groeben, ‘we must therefore
endeavour to put into practice that degree of competition which is feasible
under the conditions of the market concerned’ (European parliamentary
debates, 19 October 1961). For the competition commissioner and DGIV
staff there was not any contradiction between innovation and competition
as they were inextricably linked.
The size of the task ahead of von der Groeben and his staff should not
be underestimated as there were many questions over whether and exactly
how the competition principle could be realised, let alone enforced. How
was Article 81 even going to be interpreted? Were the treaty provisions fully
fledged legal instruments or merely designed for administrative decision

making? From an Ordo-liberal perspective there was never any doubt that
they formed a quasi-economic constitution the principles of which would
be followed. For the Germans the answer was again in the positive, but
there were issues of how well other states (with historically weaker or no
experience of competition policy) might apply them. The French were less
convinced of such an approach and were more inclined to regard Article
81 not as an enforceable law but rather as policy statements that should
guide the Commission’s administrative behaviour. It should be borne in
mind that other policy priorities such as energy and transport (and despite
their treaty status) turned out to be major disappointments (Gillingham,
2003: 62) as member states deliberately obstructed Commission activities
in these areas. Anti-trust policy could have shared a similar fate had not
the institutional mechanics developed in a very different fashion though
this actual route was not set out in the Treaty of Rome.
The EEC Treaty had not provided specific answers as to how the new
competition regime would be realised and put into practice, what type of
powers it would possess and it left open the distribution of competences
between national authorities and the new EEC institutions. Article 211
EEC, however, did establish the Commission as the basic executive agency
for carrying out the implementation of the treaty. This was a starting point
and was reinforced by Article 89 EEC, which placed responsibility on the
Commission for investigating suspected infringements. Overall respon-
sibility for creating a fully functioning competition regime under Article
87 (EEC) fell ultimately onto the Council of Ministers, which was tasked
with agreeing upon regulations and directives to give effect to Article 81
(and 82), and within three years of the Treaty coming into force. Article
87(2) explicitly stated that the relationship between the Commission and
the national competition authorities would be established in regulations
and directives adopted by the Council acting unanimously on proposals
from the Commission and having consulted the Assembly (European
Parliament). It is interesting to note that total unanimity among the ‘Six’
states was deemed essential. To push matters forward and to prevent any
prevarication and vacillation on behalf of the ‘Six’ failure to agree by the
end of this time frame allowed the Council to determine procedural rules
by qualified majority vote. This certainly focused minds.
Responsibility for drawing up a draft proposal to resolve these issues thus
fell onto the Commission, and specifically the newly created Competition
Directorate (DGIV). Not surprisingly the minds of DGIV’s officials in the
early years were focused on adding flesh to the skeletal outline of the treaty
provisions and preparing a proposal which would provide answers as to
how the machinery would operate. To this end DGIV examined the few
existing national competition laws in place. There was constant interac-

tion between the staff from the Competition Directorate and senior offi-
cials from the member states and particularly in the early summer of 1961.
In terms of inter-institutional dialogue and as part of the wider external
consultation process discussions were held with delegates from both the
European Assembly (which had the right to be consulted) as well as the
views of the European Economic and Social Committee (EESC) and
representatives from the academic community, leading anti-trust experts
and also trade union and employers’ associations.10 The Commission
organised a number of conferences between senior officials from the EEC6
in Brussels to discuss, for example, on 30 June 1961 cartel issues, and
held others to work through a number of definitional issues such as what
constituted an undertaking.
Negotiations were intense and drawn out and encountered a number
of legal and political difficulties. The Commission recognised the amount
of work and welcomed member state co-operation, but it also recognised
the need to hold onto a monopoly of the exemption procedure for fear of
losing a grip of the system. Several positions were on display at the com-
mencement of discussions. These can be summarised as the Dutch, the
French and the German positions.
Whereas the Dutch suggested that all restrictive agreements should
require Commission authorisation as a necessary condition for their pre-
sumptive legality, the French government was more disposed to a system
where business would regulate itself and ensure that its agreements did
not breach the competition rules. This French position can certainly be
described as an even more lenient approach and envisaged a role for the
Commission to challenge any anti-competitive agreements which ran
counter to these rules but very much after the event. The final position
advanced by West Germany clung to the Ordo-liberal position and placed
its emphasis on a system with preventative controls (as under the ECSC
provisions), where pre-authorisation was necessary and where only the
Commission held the right both to approve agreements and also to exempt
those agreements that met the conditions laid down under Article 81(3).
An emerging coalition took shape which included West Germany, the
Netherlands and Italy favoured an authorisation system, while the other
three states preferred the route of a legal exemption system. France and
Luxembourg were particularly united in their vision of joint decisions
being made by the Commission with the relevant member state authority
as a means of preventing the Commission from ‘undermining industrial
policies’ (Buch-Hansen, 2008: 107).
It is important to stress the interest of multinational business in the
design of the then future administrative rules. One of the more powerful
voices from within this group belonged to the International Chamber of

Commerce. This organisation had been based in Paris since its creation
in 1919 and had its own committee on international business agreements
affecting competition. It is often tempting to overlook the role of both
the Assembly and the Economic and Social Committee (EESC) in com-
petition policy matters for most of the last fifty years, given their non-
involvement in actual decision making, but there have been times when
it has actually impacted on the shape of the fledgling European competi-
tion regime. These early days proved to constitute one such time, as the
Commission’s draft was reviewed by both institutions. The EESC was the
first to respond formally to the Commission’s draft proposal on 28 March
1961. The EESC had been deliberately created under the EEC Treaty as
a non-political body to enable interests in economic and social fields to
voice opinions on European policy formulation. It had a purely advisory
function. These so-called other interests fell under three general headings,
namely employers, employees and others (such as agricultural interests
and consumer interests).
Attitudes towards the notification of agreements were evenly divided
within the EESC. Forty-one opted for formal notification while forty-one
opted against such a move and preferred a system where the Commission
initiated its own investigations. There were ten abstentions. It is interesting
to note that the two main groups within the EESC divided by designation
because the employers overwhelmingly opposed the obligatory notifica-
tion system, whereas the employees openly supported it. The employers’
representatives argued that any moves towards a notification system
would effectively paralyse the Commission because it would be overbur-
dened with cases. This initial assessment was to prove correct (see chapter
6). Nevertheless, the EESC supported the competition principle within the
EEC Treaty with the proviso that all Commission decisions were subject
to an appeal process and that the member states were drawn into the
process through some form of formal consultative process.
Within the Assembly, the issue of competition policy fell under the
remit of its twenty-four strong internal market committee. The rapporteur
was Arved Deringer, a renowned German competition law specialist and
member of the Christian Democratic Union (CDU). The Assembly (as
the EP was known at the time) was composed of self-selected individuals
from the national parliaments, and the vast majority of these belonged to
parties of the centre right. The internal market committee contained four-
teen Christian Democrats, five Liberals (including Gaston Thorn, the later
Commission president, 1979–1984) and five Socialists (including Helmut
Schmidt, the later West German Chancellor, 1974–1982). The Deringer
report included a careful exploration of the three possible approaches for
the Commission to adopt in order to implement Article 81. In effect, the

Committee shared the Commission’s viewpoint that all restrictions on
competition were in principle incompatible with the common market and
did agree on the inclusion of possible exemptions. It supported the idea of
obligatory notification and a retroactive system, that is from the moment
a notification was lodged. The committee sought four main objectives.
These were to establish the simplest possible machinery and highly flex-
ible administrative practices; to ensure that no firm was left in any doubt
about who was affected by competition law; to signal its support for the
Commission to become the competition regulator and to advocate the
necessity of financial sanctions for breaches of European competition
law.
The Deringer report had added some more minor but significant
refinements to DGIV’s proposal. For example, it suggested that Article
82 (abusive monopolies) should also be brought within the terms of the
regulation. The committee also suggested the inclusion of a negative clear-
ance procedure (which interestingly did not exist under West German
law). This innovative suggestion would enable the Commission to state
that any agreement that did not fall within the scope of Article 81 did not
run counter to European law. The Internal Market committee approved
the Deringer report on 11 July 1961 and passed the issue for further dis-
cussion to the plenary session in October 1961. The EP formally debated
Deringer’s report on 19 October 1961 and produced the resolution which
the Council had requested on 8 December 1960. The EP had effectively
recognised the advantages of a co-ordinated competition policy and the
development of European law in this area.
Meanwhile Council/Commission deliberations had continued through-
out the autumn of 1961. These negotiations were ‘extremely tense’ (von
der Groeben, 1987: 108). A further conference, for example, between offi-
cials from both institutions had met on 14 September to clarify and discuss
ongoing different styles, concepts and approaches. Once again, differing
interpretations on issues such as ‘enterprise’ and ‘concerted practices’
illustrated the diverse approaches and views on anti-trust and business
activity. The major point of division at this time had centred on the differ-
ent form and type of regime preferred by both West Germany and France.
The former was set on a general cartel ban with prior authorisation for
exemptions. The German approach contrasted sharply with the French
position. The French ‘Commission Technique des Ententes’ on the other
hand wanted to screen cartels and only have those deemed to have been
bad to change their contracts to avoid sanctions. In the end, however, the
Council finally agreed on an authorisation system but on the condition
that any final interpretation or ruling would rest with the Court of Justice.
On the issue of exemptions it was decided that the Commission would

itself determine which agreements could be allowed, but again only upon
request (i.e. notification). German influence certainly found its stamp in
this regard and the German competition authority supported Commission
competence over Article 81, as did the EP’s committee on the common
market. France had given way in exchange for a more favourable deal in
the simultaneous discussions over the framing and operations and funding
of the CAP (Warzoulet, 2005: 67) and the exemption for certain economic
sectors (most noticeably agriculture) from the entire remit of the competi-
tion rules (Neven et al., 1998: 5). Not for the first time did the governments
in Bonn and Paris reach an accord when positions seemed diametrically
opposed. That the French government eventually agreed to the final form
of the regulation may be more surprising, but the answer to this seeming
conundrum owes much to the fact that Paris had assumed that competi-
tion policy would play very much a limited role at the EU level as the
policy did within the member states (Gerber, 1998: 348). It would be going
too far to point to French naïvety because in all reality few people at the
time seemed to appreciate the powers contained within the Regulation and
its implications and how they could transform the Commission.
5. EMPOWERING THE COMMISSION THROUGH

REGULATION 17
The draft proposal of a text on how to administer Articles 81 and 82 was

first approved by the full Commission (College). Agreement was reached
on a final text in Council by unanimity, after taking on board the positions
of both the EP and the EESC, on 6 February 1962 and it became effective
on 13 March 1962. The regulation was a triumph for the German nego-
tiators and expressed their views of how an efficient competition system
could be created. That it largely reflected the hallmark of a strong German
Ordo-liberal influence is not surprising. The German flavour reflected the
realities, the expertise and the time and effort the West German govern-
ment had spent since the late 1940s on their own domestic cartel law.
Agreement on Regulation 17 marks a very important milestone in the
historical development of European competition policy. The regulation
itself has been described as ‘one of the most important ever enacted’
(Wilks and Bartel, 2002: 164). Indeed, its enactment represents one of the
very few occasions when the member state governments were prepared to
restrict their own competence in favour of the Commission (Kon, 1980:
156). Regulation 17 laid down the administrative procedure for handling
all cases under Article 81 (and also Article 86). At first sight the anti-trust
provisions of the EEC Treaty looked very much like a replica of Article
65 ECSC, but the ECSC and EEC treaties were very different and dis-
tinct creations. Whereas the ECSC granted exclusive authority to the
High Authority the EEC Treaty provided for the sharing of jurisdiction
between the Commission and the member state authorities, with the latter
in control until the necessary regulations had been passed. This change in
emphasis reflected the broader, less supranational structure of the EEC
Treaty, where the main decision making powers were vested in the Council
of Ministers. Regulation 17 served as the ‘procedural bible’ of the EU
competition regime, provided a unique form of institutional framework
and remained in place (subject only to a few minor tweaks) for over forty
years until 2004 (see chapter 7). In terms of both institutional involvement
and the supranational enforcement of European cartel policy Regulation
17 demonstrated a highly radical shift in power dynamics and would be
reinforced some forty years later in Regulation 1/2003 (see chapter 7).
The most striking aspect of this later regulation in terms of day to day
decision making, and in contrast to most other policy areas (both past
and present), was the central position conferred upon the Commission. It
was handed far reaching powers and its decisions were subject to review
only by the Court of Justice (Article 9). In retrospect, Regulation 17 had
created the foundations of a puissant competition authority which was
going to be largely free from member state interference and provided the
business community with one institution. DGIV incorporated the roles of
investigator, judge, jury and executioner all in one. The Council and the
European Parliament were involved neither in the investigations nor with
the decision making. These two institutions were effectively confined to
the margins of competition policy, although the former had the power to
make changes to the administrative procedure through new regulations
and the latter had the ability to discuss and debate competition issues. The
Competition Directorate had been placed firmly in the driving seat and set
on a predestined route. How the European competition regulator would
utilise and expand its powers was unknown.
With the instruments of decision making almost exclusively in the
hands of the Commission, both of the legislating bodies are clearly on the
margins of competition policy making. European cartel policy is de facto
a Commission policy. It was the Commission which determined what
the policy was and how it was to be implemented on the ground. It was
the Commission which identified a breach of the rules, which undertook
any investigation and which decided whether to take a formal decision.
And it was the Commission which fined, and even established the level of
the penalty.
Regulation 17 had been constructed along the lines of the West German
enforcement system, and elaborated and spelt out the powers of the
Commission. Articles 1–9 of the regulation provided for the procedural
machinery under which agreements were to be notified and brought to the
attention of the Commission. The regulation (Articles 4 and 5) established
a framework for the notification of all agreements that might restrict
competition and it remained largely unchanged until 1999 (Regulation
1216/99). Companies were entitled (Article 2) to receive confirmation that
their agreement did not infringe competition rules through the possibil-
ity of negative clearance, while the Commission was empowered (under
Article 3) to dispose of complaints by means of informal negotiation.
Originally it had been intended under Article 81 to include a timetable
mechanism, as advocated in the Deringer report, to state that all agree-
ments notified which were not opposed by the Commission within a period
of six months from notification remained lawful. This so-called ‘opposi-
tion procedure’ reflected German practices and, although both attrac-
tive and convenient, was not adopted by the Commission. Regulation
17 empowered the Commission to grant negative clearances (an opinion
that a particular practice does not infringe Article 81 and, thus, there are
no grounds for Commission intervention) and also to decide whether an
exemption (Articles 6 and 8) should be granted under the terms of Article
81(3).
Articles 10–14 focused directly on the Commission’s substantial
powers. Article 14 equipped the Commission with powers to undertake
its investigations, empowering its officials to examine books and other
documentation, to take and make copies of such relevant materials, to
request oral interviews from the undertakings concerned and to enter
premises or vehicles or land belonging to the undertaking. These so-called
dawn raids have frequently made headlines. During the investigations
the Commission was compelled (Article 11) to liaise with and keep the
existing national competition authorities fully informed and to forward
copies of all necessary documentation relating to the case in ques-
tion. Member state support was needed when premises were searched.
However, there were no powers for the Commission to summon CEOs
to Brussels and, unlike in the American antitrust tradition, violations of
Article 81 were deemed to be administrative offences rather than criminal
offences. Finally, Articles 15–25 centred on administrative processes. The
Commission was authorised (Articles 15 and 16) to levy fines of up to 10
per cent of the company’s annual turnover for infringements and was also
requested under Article 19 to publish its decisions (be it formal decisions,
negative clearances or exemptions) in the EU’s Official Journal. In short,
Regulation 17 had established the rules for the EU competition regime
and actors.
6. LOCATING THE INSTITUTIONAL

ARCHITECTURE OF EUROPEAN CARTEL
POLICY
The Commission had been handed three main instruments with which to
detect the existence of anti-competitive agreements and behaviour. These
took the form of notifications from firms, complaints by third parties
and the Commission’s own powers to investigate specific cases on its own
(ex officio) initiative. Notification became the foundation stone of the
Commission’s restrictive practices policy. Under the competition rules,
firms were advised to register their agreements or practices on a voluntary
basis to ensure they did not breach the competition rules. The procedural
process is illustrated in Table 5.2. The benefits for firms following this
course of action included immunity from fines (at least from the date of
notification) and the possibility that the Commission would give its bless-
ing to, or at least state its lack of interest in, the case and allow agreement
to continue. Indeed the notification route also provided the only means
to allow an anti-competitive agreement to be exempted from the pull of
Article 81. The existence of an exemption route within the European rules
was a welcome addition, but it required resources (in terms of time, money
and staff) for any company which sought to follow this particular route.
For some firms cartel arrangements provided a much better, if much
riskier, course of action and one that depended just on the companies
concerned. Indeed, failure to notify an agreement became something of
a gamble for some firms because ultimately, if the practice were detected,
it could result in substantial fines. However, the unearthing of cartels was
never going to prove easy for the regulator, and feeling reasonably safe
in the knowledge that cartels had to be identified in the first place and
that the Competition Directorate was inundated with notifications, a
number of companies took the gamble and deliberately sought to escape
Commission detection altogether. The new European system of anti-trust
would certainly be tested by the realities of cartellisation and its impact,
Table 5.2 The five stages of administrative procedure in Article 81

proceedings as established under Regulation 17
Stage 1 Investigative Stage – request for information

Stage 2 Initiation of Proceedings – Statement of Objections sent to the parties
Stage 3 Access to file and Objections from Third Parties
Stage 4 Consultation of the Advisory Committee
Stage 5 Adoption of a Formal Decision in the form of a negative clearance,
an exemption or a prohibition with the possibility of a fine.
and success would depend very much on how well it was able to uncover
cartels. The Commission’s task was certainly ambitious, and to be suc-
cessful needed to overcome past business tradition and culture. For the
new European system to deliver it was going to prove essential to establish
an efficient institutional structure and an effective administrative process.
In retrospect, the system came to place too much emphasis on the noti-
fication system, which came to consume much of DGIV’s rather limited
resources. To understand why this occurred it is necessary to understand
the drawbacks in the form of substantial administrative bureaucracy and
paperwork which accompanied the notification system
It is understandable why the introduction of a compulsory notification
system was deemed desirable, and in practice it provided two possible
routes to escape the EEC rules: firstly, in the form of an application for
a negative clearance, and, secondly, in the form of an application for
an exemption.11 A negative clearance was granted if the Commission
judged that there was no competition case to answer. Exemptions were
also allowed under Article 81(3) so long as their pro-competitive effects
outweighed their anti-competitive effects. The notification system was,
however, time-consuming and would very quickly consume most of DG
Competition’s resources and manpower. The process commenced with the
opening of a file which was allocated to a specific unit and individual (the
rapporteur) within the DG who began an informal analysis of the case. At
this stage in the process, the Commission’s formal powers of investigation
were rarely used. More informal sources were tapped, such as records and
reports held in the DGIV library, all background information to hand, and
past cases involving the firms under scrutiny. Each notification received by
the Commission was acknowledged and copied as a matter of course to
all member state governments or national competition authorities. If the
rapporteur considered a negative clearance or an exemption appropriate,
a Notice was published in the EEC’s Official Journal. Cartel agreements
did not feature as part of either process, as they were not going to follow
either the clearance or the exemption routes. Cartels were deliberately con-
structed to conceal their activities and were often going to prove difficult
for the regulator to detect.
Complaints by third parties certainly came to be an essential aspect of
uncovering cartels. Making a complaint has always represented a rela-
tively cost-free route for firms which wished to involve themselves in the
Commission’s formal proceedings. If convinced of a case’s importance,
the Commission took up the matter on their behalf, carrying the burden
of any costs incurred. It was the responsibility of DGIV to decide whether
a case should be pursued or dropped. Complaints could be thrown out for
a wide variety of reasons such as non-application of the competition rules,
the lack of substantial evidence, limited investigatory resources available;

or, even where the rules were breached, agreements were not deemed
important enough to warrant a full investigation (Vesterdorf, 1994: 101).
Questions asked in the Assembly/European Parliament, newspaper
articles, information from member state representations, interest group
contacts and documentation in company reports all provided respect-
able routes through which the Commission could be informed about
possible breaches of the competition rules. ‘Own initiative’ investiga-
tions could also be launched. The Commission was also in a position to
conduct general enquiries into particular sectors of the economy when it
considered that a particularly harmful distortion of competition existed.
Once any case had been opened the operational unit and the rapporteur
possessed a significant degree of discretion. DGIV was equipped under
Regulation 17 with two distinct legal tools at its disposal (under Article
11) to extract further information. The first enabled competition officials
to request (and subsequently to demand) written documentation and
information about a particular case. Where the response was incomplete
the Commission was empowered to levy fines of up to ECU 5,000. Where
no response to the informal request for information was forthcoming, the
Commission was in a position to demand the information backed by the
threat of heavier fines.
The second weapon assigned to DGIV (under Article 14 of Regulation
17) allowed for on-the-spot investigations of firms’ offices. These could
take place without any prior notification if the Commission believed such
course of action to be justified. Such ‘raids’ were particularly best suited
to ‘obtain direct evidence of hard-core infringements such as cartels’
(Ritter et al., 1991: 632). These surprise visits, or ‘dawn raids’ as they
are often referred to by the media, were a particularly useful tool at the
investigators’ disposal, both as a ‘precaution’ and as a way of counter-
ing certain weaknesses in the Commission’s fact-finding procedures. This
was especially true where there was some suspicion that the firm might
try to hide evidence, or if there was some prior experience of unhelpful-
ness. Use of this ‘element of surprise’ (Joshua, 1986) was left entirely up
to the Commission. If the firm opted to agree to the investigation, the
Commission was empowered to take copies of ‘books and other business
records’ and ask for ‘oral explanations on the spot’. This was to be used
as an additional device, though it could give the firm’s representatives an
opportunity to put their case and enable DGIV staff to enter premises and
even search vehicles belonging to the company or companies in question
(Ritter et al., 1991: 637).
The national authorities had always to be kept informed (in advance)
of all investigations. National officials were usually present. As a matter
of procedure, the investigators identified themselves by their staff cards at

the reception and asked to see the most senior manager present, to whom
they presented the warrant or order. At this stage they could explain the
procedure to those present. In the case of a warrant, refusal to submit
to the investigation was recorded and the investigators withdrew. With
an order in hand, the situation was quite different, as a refusal to submit
could lead Commission officials to call upon their national counterparts to
force the firm (perhaps even with the help of the police, or at least with the
assistance of a court order) to open their doors. The Commission itself had
no means of direct enforcement and had to rely on co-operation from the
national authorities. A firm refusing access could be susceptible to larger
fines.
Once the informal preliminary investigation had ended the Commission
had to choose whether to issue a formal decision or not. Where it opted to
open formal proceedings the Commission sent the companies concerned a
Statement of Objections. This statement was effectively the charge made
against the firms accused of breaching the competition rules. It contained
a concise and preliminary assessment of the case, stating why DGIV
thought that there was a case to answer. Normally, it also provided further
information on the course of action that the Commission intended to take.
This was generally divided into two sections, dealing with the facts of the
case (as seen by the Commission) and legal assessment, demonstrating how
the agreement had allegedly breached Article 81 (or 82). Documents used
by the Commission in making this preliminary assessment were usually
attached to the statement, with a covering explanatory letter signed by the
Director-General for Competition.
The proceedings following the arrival of the Statement of Objections
were usually conducted in writing, with the submission of a written
defence and further documentation provided by the accused firms. The
Commission normally fixed a date for the submission of written evi-
dence, usually between six weeks and two months after the Statement of
Objections had been sent out, and it might even provisionally establish the
timing of the oral hearing, although the Commission was fairly flexible in
extending deadlines where there was good reason.
Once the written procedure had finished, an oral hearing could be held if
the firms involved so wished it (Kerse, 1988: 42). Officially this stage of the
process gave the defendants an opportunity to clarify matters which had
not already been settled. It was intended to be entirely administrative and
non-adversarial, although this may not always have been apparent from
the behaviour of parties. Matters raised in the Statement of Objections
were reviewed here, with oral representations made by senior representa-
tives of the firms involved, by their lawyers, and possibly also by economists
DG COMPETITION
selects cases and investigates
CONSULTS ADVISORY COMMITTEE

(its view is not binding)
EUROPEAN PARLIAMENT can debate

but NO FORMAL ROLE IN CASE
COUNCIL can debate/discuss BUT NO

FORMAL ROLE IN CASE
COLLEGE OF COMMISSIONERS
DETERMINES CASE OUTCOME
DECISIONS can be appealed to the

COURTS – FINAL DECISION
Figure 5.1 Actors and decision-making under Article 81 cases
and expert witnesses. The actual procedures for collecting oral evidence
were further facilitated with the creation of the post of Hearing Officer in
1982. This position within DGIV was designed to counter criticism of the
Competition Directorate’s administrative procedure. The Hearing Officer
supervised all aspects of the hearing, including the dates, location and
documentation, the chairing of the hearing, the orchestration of its struc-
ture and content, and also did a fair amount of the groundwork for each
case. In a sense the Hearing Officer’s role was to act as a sort of independ-
ent arbiter between the accused firms and the Commission. To this end
the Hearing Officer sought to ensure that the firms’ rights of defence were
protected, but also protected the position and rights of the Commission.
After the oral hearing, the Hearing Officer circulated the minutes and
transcript for comment and correction and drafted a report which was
passed on to the Director-General and to the cabinet of the Competition
Commissioner. At this point in the proceedings, the Commission had a
legal obligation to consult representatives of the member states’ compe-
tent authorities within the Advisory Committee on Restrictive Practices
and Monopolies (illustrated in table 5.1). This was intended as a final
safeguard and allowed the member states a check, if a limited one, on
DG Competition cases. The aim at this stage in the proceedings was to
ensure that the Commission’s decisions had been taken in a reasonable
and consistent way, and that the procedure had been fair. It is important
to stress that the Advisory Committee was created as a purely consultative
forum only and held no veto power as the French government had origi-
nally wanted. Indeed, there was no requirement that the Commission had
to take on board the recommendations of the Committee.
Comfort letters also came to form an essential aspect of the notifica-
tion scheme. They were administrative letters which were issued by DGIV
(and were usually signed by the Director-General) to the firms involved
in a potential breach of the competition rules and at an early stage of
the investigative process. The comfort letter notified the firm(s) in ques-
tion that their agreement did not fall under Article 81 and was allowed
to continue. Used as a way of speeding up decision-making in light of an
ever increasing backlog of cases and limited resources, the legal status of
the comfort letter remained ambiguous. In brief, comfort letters were not
legally binding and they failed to take into account the interests of third
parties. This was clearly a problem for lawyers and judges, as a letter of
this sort did not possess the status of a decision (Stevens, 1994: 82).
At the end of the formal proceedings a formal decision had to be taken.
This usually translated into a decision which either authorised the agree-
ment or one which forbade it. Into the former category came negative
clearance and exemption decisions. Decisions of this sort often included
time constraints, and were usually conditional. By contrast, negative deci-
sions, or those which condemned an agreement, were often labelled ‘cease-
and-desist orders’. In the harder cases, the draft decisions were often
considered first by the special chefs, which in this context is the meeting
of cabinet members responsible for competition matters, and then by the
chefs de cabinet. If the decision still lay unresolved, the matter was referred
to the College, although in more straightforward cases the Commissioners
merely rubber-stamped what had in effect already been informally decided.
When issues did come formally to the College then decisions were taken by
simple majority vote.
When substantive rules had been broken the Commission enjoyed
considerable discretionary powers and was able to impose fines which
ranged originally from one thousand to one million units of account, or a
sum in excess thereof but not exceeding 10 per cent of the turnover in the
preceding year for each of the undertakings participating in the infringe-
ment. There has always been some controversy about the extent to which
the Commission can use its discretion in setting fines, and, indeed, about
whether a prosecuting body should even have the authority to fine in the
first place. Regulation 17, Article 15(1) and (2) provides some (though
not a great deal of) assistance in stating at what level fines should be
set. Additional penalty payments (under Article 16) of between ECU
50 and 1000 per day could also be imposed on those companies, which
failed or refused to comply with an actual Commission antitrust decision.
By the middle of 1962 the actors and the rules were in place to attack
cartellisation.
7. CONCLUSIONS
In outlining the competition provisions within the EEC Treaty this chapter
has shown the controversial nature of the area as seen in the differing posi-
tions adopted and pursued by the EEC6 founding member states. The
decision by the six founding EEC member states to commit themselves to
competition discipline and simultaneously recognise the logic of a supra-
national dimension is significant, given the unfamiliarity of the majority
with antitrust. This chapter maintains that the agreement on a European
tier of competition governance, where power came to reside with the two
foremost supranational actors (the Commission and the Court of Justice),
marks a critical moment in the history of not only the European integra-
tion process but also the development of European antitrust. In retrospect
it is fairly straightforward to identify the adoption of Regulation 17 as a
major stepping stone, but at the time the actual trajectory of this unique
(sui generis) form of supranational antitrust regime was far from assured.
How would DG Competition work in practice? Would it attract compe-
tent and a sufficient number of high quality staff? How would it devise its
workload? How would the European regulator interpret the rules, and
was there any possibility of lingering state protectionism always going to
trump the competition principle? Would the business world be prepared
to co-operate? Only time and experience would tell, but the cartels wars
had begun.
NOTES
1. Apart from the emphasis on the free movement of people, goods, capital and services,
the creation of a customs union and a limited social policy, the EEC Treaty included
specific reference to only three policy areas; namely agriculture, transport and competi-
tion policy.
2. The Spaak Report of 21 April 1956 set the context post-Messina for the formal start
to the intergovernmental negotiations between the ECSC6 at Val Duchesse. The
document was over 150 pages long and can be read in full at http://www.ena.lukspaak_
report-020102534.html.
3. For further information see D. Grosser, T. Lange, A. Müller-Armack and B. Neuss,
Soziale Marktwirtschaft, Verlag BW. Kohlhammer, 1988. Also W. Eucken, Grundsätze
der Wirtschaftspolitik, Mohr/Siebeck, 1990, For a much shorter overview of the
German economy see R. Overy, ‘The Economy of the Federal Republic since 1949’ in
K Larres and P. Panayi (eds), The Federal Republic of Germany since 1945, Longman,
1996,
4. See J. Ardagh, France Today, Penguin, 1995, and especially chapter 2 ‘the Economy
modernised but menaced’.
5. The European Atomic Energy Community (EAEC) Treaty was also signed on the
same day as the EEC Treaty. It was designed to create another specialist market, this
time in nuclear power. The French government was the most vocal supporter of such
a Community as a means of sharing costs and funding research for the drive towards
cheaper nuclear power. This Euratom treaty was signed by the same six states which
had signed both the ECSC and the EEC Treaties. It has never been revised and its pro-
visions have been fully integrated into the structure of the European Union.
6. The Article became 3g under the 1992 Treaty on European Union.
7. Indeed the EEC treaty rules, as Buch-Hansen argues, were actually harder to establish
than those for the ECSC.
8. The United Kingdom was invited to take part in the discussions in Messina which ulti-
mately led to the EEC Treaty. The UK accepted the request to participate. However,
although the UK government welcomed moves towards freer trade it objected strongly
to the institutional model being created and specifically the supranational charac-
teristics of this particular project. As a consequence the British delegation withdrew
from the Messina talks and opted instead to take a leading role in the creation of the
European Free Trade Association (EFTA). For further reading begin with Unwin,
1992 or Dinan, 2006 for developments.
9. The Assembly had been created as one of the four main institutions within the EEC
Treaty. Its members renamed it the European Parliament in 1962 (see Judge and
Earnshaw, 2008). The original idea behind this Assembly was to provide parliamentar-
ians from the member states (and they selected themselves from the national parlia-
ments) with an opportunity to express their views on European developments. There
were no direct elections to the Assembly/EP and none would occur until 1979.
10. The Economic and Social Committee rebranded itself as the European Economic and
Social Committee at the turn of the millennium. Prior to this renaming it was usually
referred to under the acronym of the ESC or ECOSOC. For consistency this work refers
to the EESC throughout.
11. Notification later provided another means to secure exemption under one of the
Commission’s block exemptions which are discussed in the following chapter.
6. European cartel policy: deployment
and combat, 1963–1998
With the institutional and administrative machinery in place to deal with
restrictive practices (and also monopolies) the Commission found itself
embarking on a radical experiment in supranational governance, and one
which attracted the first generation of European integration researchers
(Haas, 1958; Lindberg, 1963). Many questions were posed at this time
about how regional integration would both function and develop and
how it could be explained in theoretical terms. Haas devised his theory of
neo-functionalism as an attempt to explain and account for the political
integration process which emerged in its unique form in Western Europe
in the 1950s. For Haas regional integration was the process of ‘how and
why states cease to be wholly sovereign, how and why they voluntarily
mingle, merge and mix with their neighbours so as to lose the factual
attributes of sovereignty while acquiring new techniques for resolving
conflict themselves’ (Haas, 1970: 610). For neo-functionalists the available
evidence as manifest in the European Coal and Steel Community (ECSC),
the European Economic Community (EEC) and the EURATOM trea-
ties seemed to suggest that the nation state was becoming redundant
as an authoritative source of governance. In this European laboratory
powers and sovereignty were being transfered from the nation states to
a set of new supranational institutions. Supranationalism appeared to
offer a new and definitive answer to resolving conflict through the pooling
of sovereignty and the beginnings of a new Europe, but could a model
explain what was happening in such advanced countries and what were the
dynamics pushing the process onward?
Neo-functionalism placed its emphasis on the principal agents of
change, which were identified primarily as technocratic elites, politicians,
supranational interest groups and other lobbies. It was assumed that these
actors pursued their own interests, and in doing so provided the dynam-
ics for further integration. According to Haas, ‘political integration is
the process whereby political actors in several distinct national settings
are persuaded to shift their loyalties, expectations and political activities
to a new centre, whose institutions possess or demand jurisdiction over
pre-existing national states. The end result is a new political community,
121
superimposed over the existing ones’ (Haas, 1958: 16). Neo-functionalism

came under increasing scrutiny and attack from the mid-1960s for down-
grading the role of the member state governments, and this theory’s overall
relevance has been severely tarnished ever since. However, it is interesting
to reflect on the degree to which it aptly explained developments in the
competition policy arena (McGowan, 2007), given that power resided with
the Commission and not the Council.
The Commission was very much an unknown quantity at the outset,
as much to its own staff as it was to the outside world. It was commenc-
ing from a position of ground zero and needed time to adjust to its role,
develop its relations with the other European institutions and identify its
priorities. The Commission needed time to identify the main obstacles
that threatened to undermine the creation of a common market and foster
market integration in line with the objectives of the EEC Treaty. The
Directorate General for Competition faced all these issues, and arguably
its position was even more difficult as its staff came from the six member
states where divergent views existed about the role of competition policy
and its place in the economy. Such difficulties and obstacles confronted
the European competition regulator as it sought to acclimatise to its new
surroundings and relationship with the member states before it could push
forward with the competition principle. The DG for Competition’s success
was always going to depend on a number of both internal and external
variables. It was going to be judged on and included issues such as lead-
ership from within the Commission and DG Competition, the ability to
recruit capable and well-resourced staff, the acceptance of the competition
principle and the correct economic philosophies, and a reliance on case
law and legal interpretations. With hindsight it was going to take time to
bring all these factors into some form of alignment, but from the position
of the early 1960s the future trajectory of policy was far from certain.
The history of EU cartel policy provides a fascinating narrative of
institutional development and how the Commission has become not only
increasingly proactive but increasingly combative. In terms of principal/
agency theory EU cartel policy presents an area where the Commission (as
the agent) has been able to push the boundaries of its power and activity
(and especially through a series of Notices and Guidelines) well beyond its
initial remit and the intention of the principal actors (the member states).
This chapter illustrates the development of EU cartel policy over the four
decades from the 1960s to the 1990s. It explains how DG Competition
emerged over this time from a relatively ‘sleepy administrative backwater’
(Wilks and McGowan, 1996) and matured into one of the main and most
influential DGs, takes account of the above variables and discusses how
competition policy developed as the policy area where integration has
European cartel policy 123
proceeded furthest and where a genuine supranational (read federal in all

but name) regime gradually emerged from the foundation stones of the
1950s.
1. INTRODUCTION: DECLARING ‘WAR’ ON THE

CARTELS
The origins of EU cartel policy have to be understood in the context of
three factors: the imperative of the drive for the realisation of a single
market, the historical context which shaped policy after 1945 and the
influence of the US experience on the European regimes (Leucht, 2008).
Cartels had been identified as an immediate target from the outset when
Article 85 (now 81) of the European Economic Community (EEC) Treaty
specifically prohibited all agreements ‘which may affect trade between
member states and which have as their object the prevention, restriction
or distortion of competition within the common market’.1 Nevertheless,
as Chapter 5 illustrated, political consensus was reached on the inclu-
sion of competition policy in the EEC Treaty, and further agreement in
the Council established DG Competition’s legal competence to operate
as an autonomous and quasi-judicial policy making institution under
Regulation 17. More significantly in terms of governance, Regulation 17
identified the Commission as the principal actor in the administration and
implementation of competition policy decision making and assigned it the
roles of judge, jury and executioner. In hindsight the member states had
created a powerful supranational agent (Seidel, 2007) which has continu-
ally advanced its power through the adoption of guidelines and notices,
and in so doing has altered the terms of the principal/agent relationship
(Lehmkuhl, 2008).
From the outset the EU regime was developed as a regulatory rather
than a confrontational model, and one which laid more emphasis on eco-
nomic analyses than moral considerations, in contrast to the older more
established (in 1890) US competition regime. However, ‘it is interesting
to note how a more adversarial and combative system of enforcement (in
some senses a quasi-criminal law model) has gradually been created and
grafted over time onto a seemingly “softer” more administrative culture of
regulation’ (Harding and Joshua, 2003: 3) and this issue will be explored in
this chapter. The decision to initiate an EU competition regime heralded
the advance of a Community legal order which would in time ensure strong
degrees of convergence on the realisation of a European cartel policy.2
Although cartels were identified over fifty years ago by the EEC Treaty
as the first and primary target of the EU’s competition policy order, the
EU cartel regime took time to form, and its enforcement until the 1980s
can be described as hesitant, patchy and largely ineffectual. The number
of cartels which were unearthed and penalised rarely surpassed more than
three at best a year during first decades of EU cartel policy. It is never a
straightforward task to pinpoint specific chronological turning points or
periods in any policy’s development, but these next two chapters suggest
four periods of development for EU cartel policy. In each the position of
DG Competition and cartel policy developments can be examined with
reference to both the substantive and the procedural regimes. Accounting
for internal changes is one aspect of competition policy which is generally
well covered (Wilks and McGowan, 1996), whereas there has been con-
siderably less attention paid to the external variables. Any examination
of the evolution of EU cartel policy cannot be completely separated from
developments at member state level. This allows recognition of the varie-
ties of capitalism literature (Albert, 1993) which emphasises the spectrum
of capitalist models across Europe and the variable impact of each on
the role of national competition policy (see Wigger, 2008) on liberal, co-
ordinated, state and transitional economies. This literature is not explored
here, but policy development needs to be considered against changes and
events in the wider economic and societal spheres. Wigger (2008) does this
in an innovative manner by adopting a critical economy perspective to the
development of EU competition policy, in which she traces the impact of
Ordo-liberalism, embedded liberalism and neo-liberalism on the evolution
of the competition regime and especially on Commission thinking (Wigger
and Nölke, 2007). Given the variety of approaches questions could indeed
be raised over whether the Commission really operates a single cartel
policy when so many different cartel traditions have prevailed and con-
tinue to exist at member state level. EU cartel policy can be divided into
four separate phases (table 6.1). The first phase of the Commission’s anti-
cartel activity can be located to the 1960s and early 1970s. This period was
largely exploratory in nature as the Commission sought to bed in, appreci-
ate its powers and gain experience. The second was on one level a continu-
ation of the first, but on another level required the Commission to readjust
its thinking in the face of the economic downturn and recession which
covered the years from 1973 until the mid 1980s. The third extends from
the ‘re-launch’ of the integration process through the Single European Act
of 1987 and specifically the single market project until the end of the 1990s.
The fourth and current phase focuses on developments in the period after
1999 when we see the first serious discussions about the reform, decentrali-
sation and modernisation of European Union cartel policy. These debates
led to the quiet revolution which was encapsulated within Regulation
1/2003 and reflected a new dynamism within DG Competition to combat
Table 6.1 The four incremental phases of the Commission’s anti-cartel

engagement
Period 1: 1962–1972, Surveying the Terrain and the ‘Phoney War’

(Reg17, move to own initiative investigations, first fines)
Commission style: Hesitant, patchy response but growing signs of activity
Period 2: 1973–1984, Forays and Stalemate
First use of dawn raids, further cartels discovered, crisis cartels
Commission style: still hesitant and some retrenchment
Period 3: 1985–1998, Seizing the Initiative
Fines increasing, Leniency Programme
Commission style: Leadership, comes of age, increasingly active
Period 4: 1999–present, Modernisation and Combat (Decussis Mirabilis)
Reg1/2003, Decentralisation, Modernisation, revised Guidelines for Setting
Fines, New Settlement Procedure, Green and White Papers on Private Actions,
Internal reorganisation
Commission style: Pro-active and increasingly innovative
cartels more effectively through, for example, the levying of higher fines
and a series of policy innovations. This fourth phase is arguably the most
important and becomes the exclusive subject of the next chapter. The
current chapter provides an overview of the first three periods.
Council agreement on Regulation 17 marked a critical juncture in the
overall history of EU competition policy. It not only placed the European
Commission very much centre stage in the day to day decision making
process, but ensured that the daily operation of competition policy affect-
ing trade between states had become a European competence. With power
delegated to the Commission, DG Competition was relatively in a free posi-
tion to begin carving out its role, delineating its responsibilities and build-
ing a solid identity. But could it meet expectations? DG Competition faced
a sizeable challenge. The Commission’s freedom proved all the greater as
the possibility of interference from both the Council and the EP dimin-
ished almost altogether, as the attention of both institutions switched from
such more minor technical policy areas in the case of the Council to con-
front a number of issues which threatened any further developments on the
integration project. These included the decision by the French president,
General Charles de Gaulle, to reject two UK applications to accede to the
EEC in 1963 and 1967 respectively and the French government’s decision
in 1965 to withdraw its nationals from the EU institutions (from June 1965
until January 1966) as a powerful means to express its protest against the
financing of the Common Agricultural Policy, the onset of majority voting
in the Council and any expansion to the Commission’s powers as sought

by Walther Hallstein. This so-called ‘empty chair’ crisis was resolved only
with the infamous Luxembourg Compromise, which allowed member
states to use a veto in Council to protect their national interests. The
European Parliament meanwhile became ever more embroiled in attempts
to persuade the member state governments to allow for direct elections.
The resistance of the French government towards further supranational
identity of the EU severely undermined Hallstein, who had remained
a committed federalist and had continued to advance the Ordo-liberal
agenda. These events, however, illustrated the power of the member states
to disrupt integration, and for political theorists reinforced the intergov-
ernmental aspect of integration (Hoffmann, 1966) to the detriment of the
neo-functionalist interpretation. To an extent the former were correct in
their assumptions, but in focusing on areas of ‘high politics’ (e.g. foreign
and defence policy), they completely missed and underplayed develop-
ments at the lower (technical) policy level, as the emergence of European
competition policy revealed. It is very striking from today’s perspective
how the Commission’s initiatives on the competition policy front were
simply largely overlooked by the member states.
Admittedly, the very early years of EU competition policy have been
described as a ‘calm period’ (Goyder, 2003: 522) as the Commission
adjusted to the new circumstances and practicalities of European integra-
tion. This should not be read as a negative, as this early period of institu-
tion building was vital to the future course of competition law enforcement
(Wigger, 2008: 155). DG Competition has been compared to a small and
unremarkable part of a supranational administration (Goyder, 2003: 31).
Yet, officials were in fact and largely unnoticed by many already sowing
the seeds for its future trajectory as DG Competition embarked on a steep
learning curve which came to shape the emerging European model of cartel
policy. It is certainly true that the first decade of EU competition policy
focused more on administrative reform than any substantive reform.
DG Competition’s evolution during its first decade in existence occurred
against a favourable economic and business backdrop with continuing
prosperity, a rising standard of living, greater economic growth and the
realisation of a customs union in 1968. During this period the Commission
extended its control of this policy area through a series of Notices and
Guidelines which became a hallmark of the daily functioning of competi-
tion governance. These measures were usually presented as administrative
tools and mechanisms to both simplify and facilitate the work of DG
Competition and the demands placed on business undertakings. How well
some of these worked is open for discussion, but they never quite managed
to tackle some of the more voiced and long-running criticisms of the EU
cartel regime over issues such as case delays and Commission overload.
These issues are explored below.
Article 81 (TEC) had identified policy priorities and presented the
Commission with considerable powers of interpretation to determine, for
example, when agreements affected trade between member states, when an
agreement restricted competition and what was a fair share for consumers
(Neven, Papandopoulos and Seabright, 1998: 5). The pursuit of Article
81 focused DG Competition’s energies on agreements which ‘directly or
indirectly fix purchase or selling prices or any other trading conditions’.
Although examples of such anti-competitive activity can be displayed in
vertical arrangements, most cases that primarily fall under part deal pri-
marily with agreements or concerted practices made between horizontally
related competitors, and usually centre on fixing prices, dividing markets
and conditions of sale (Goyder, 2003: 142).
DG Competition slowly set about fulfilling its remit under the competi-
tion provisions of the EEC Treaty, i.e. to protect and promote the compe-
tition principle within the marketplace. It was not seeking some model of
perfect competition but striving for a state of ‘workable competition’ and
free market access for all. Interestingly, the original structure and purpose
of DG Competition had a wider brief which incorporated regional policy
and in particular regional state subsidies, and was also tasked with har-
monising national regulations over excise taxes and VAT. Restrictive
practices took centre stage and the Commission was charged ‘to bring the
totality of restrictive practices affecting inter-member state trade within
the scope of administrative surveillance, to enable their economic evalu-
ation’ (Harding and Joshua, 2003:109). The Treaty had effectively cast a
very wide net to catch many anti-competitive arrangements. As discussed
above, many potentially anti-competitive agreeements had to be notified
to the Commission where it was hoped they would be cleared.
Cartels, of course, by their very nature were highly unlikely to notify.
Consequently any cartelbusting agenda required time, effort and expert
knowledge of each individual product market. DG Competition’s main
concern and priority in the early years of the 1960s centred on forms of
vertical integration/relationships rather than the horizontal variety. In
fact in trying to establish a common market the Commission became very
much concerned with the structure of this regional market and the extent
of trade flows across its internal (member state) borders. During its first
five years the Commission received almost 40 000 notifications, and the
vast majority of these (some 25 000) were of a vertical nature (Commission,
1980: 15). Many were structured around exclusive dealing arrangements
and were usually managed through national trading associations and very
much embedded in the national context (Harding and Joshua, 2003: 119).
From the Commission’s perspective such vertically based agreements seri-

ously affected trade between the member states, created barriers to trade
and distorted the realisation of a genuine common market. For this reason
DG Competition focused much of its resources on vertical restraints
in the distribution and licensing schemes. In Grundig-Consten ([1964]
CMLR 489), the Commission was concerned about the German company
Grundig and its trading relationship with its French distributor Consten.
The latter had been granted the exclusive right to sell Grundig’s products
in France (see Goyder, 2003; Whish, 2009). It had initially been thought
that Article 81 did not cover vertical restraints, but this view was contra-
dicted by the ECJ (Case 56/64 [1966] CMLR 418). This case represented
the very first infringement prosecution in the history of EU competition
law and accurately displayed the problem of vertical agreements and how
they damaged competition within the market. The case centred on the
German company Grundig and its trading relationship with its French
distributor Consten where the latter was granted the exclusive right to
sell Grundig’s products in France (see Goyder, 2003). The Commission
rejected the possibility of an exemption, whereupon its decision was
appealed, unsuccessfully from Grundig’s perspective, to the Court of
Justice. This example of a vertical arrangement represented a familiar, if
undesirable, aspect of business activity and the Commission took action
against a number of similarly styled arrangements in the mid 1960s. By
focusing on this type of agreement the Commission faced intense criticism
(especially from US observers) over its priorities and failing to tackle the
main form of anti-competitive activity. Such accusations of policy failure/
misdirection compelled the Commission to conceive ways of dealing with
the more pressing and contentious issue of carrels as opposed to the more
‘mundane’ vertical agreements.
Rather ironically DG Competition’s problems stemmed directly from
Regulation 17. It may have provided the tools but it also gave rise to some
problems, and foremost amongst these was the requirement to submit
notifications. No matter how desirable the notification was as a mecha-
nism, it severely stretched DG Competition and practically signalled the
collapse of the system. The types of agreement being notified in the hope
of an exemption can be classified under three headings: harmless, some
with minor but solvable problems, and harmful. The notification problem
was compounded by an insufficient number of staff in DG Competition
and a staff which was unfamiliar with the new rules. It needed time to bed
down and appreciate its roles and powers. It possessed a handful of ‘A’
grade officials at the outset, and by the end of 1964 had only seventy-eight
members in total (see table 6.2). Commission requests for further staff to
alleviate the difficulty were ignored by the Council. Although numbers
Table 6.2 Charting DG Competition staff levels, 1964–2009
Year Staff ‘A’ Grade

1964 78 25
1970s 300 140
1992 411 210
1998 450 225
2008 650 320
Sources: Cini and McGowan, 2009; Commission, 1992; Goyder, 1993; von der Groeben,
1965.
would increase over time they never rose sufficiently. Indeed, the issue of
inadequate staffing levels with DG Competition has long been one of the
constant criticisms of the EU regime as its staff have struggled to deal with
the expanding competition brief.
To compound matters even more nearly three quarters of these some
40 000 notifications related to exclusive dealing agreements. All these
issues hindered progress on cartel policy. To tackle the problem of being
overburdened with less serious cases the Commission opted to exclude
certain types of agreement from the EEC competition rules altogether
through the adoption of block exemptions and its addition of de minimis
thresholds. The block exemption was designed as a response by DG
Competition to the huge number of notifications. The Council enacted
the first block exemption in 1965, but it did not make any real inroad into
the accumulating backlog of cases and opted instead to delegate major
responsibility for future block exemptions to the Commission itself. In ret-
rospect, the Council’s decision reflected its unwillingness, given its range
of responsibilities, to become embroiled in such technical and mundane
areas and the Council did not fully appreciate the power it was passing to
the Commission. This decision marks another important milestone in the
early years of EU competition governance, and placed DG Competition in
the enviable position of being able to influence and steer competition issues
in a specific direction, to determine what could be exempted and where it
should focus its efforts. The block exemption instrument, which has since
become a distinctive feature of European-level competition enforcement,
allowed certain economic sectors to be exempted from the competition
rules for a period of time. Where block exemptions applied, there would
be no need for firms to obtain an individual Article 81(3) exemption. Block
exemptions provide some legal certainty for firms and have particularly
benefited small and medium-sized enterprises (SMEs). Block exemption
regulations are frequently renewed and updated to take on board the latest
data and to build upon DG Competition’s experience in specific areas.

The application of the block exemption regulations has not been entirely
problem-free, however. The relationship between national and European
competition law is only one of the areas which have been problematic. For
example, do national authorities have the right to override a block exemp-
tion if the agreement falls under the provisions of a national competition
rule? As yet the Commission has failed to tackle this question, although it
would be unwise for a national authority to intervene and apply its own
stricter standards should such a case arise. It is important to stress that
the EC rules apply in the first instance only to agreements which threaten
to have a detrimental impact on intra-European markets. In other words
agreements that are deemed to be of ‘minor importance’ and fall under
the so-called de minimis rule are automatically cleared. The de minimis
rule was established by the European Court of Justice (ECJ) in its Völk
v Vervaecke ruling in 1969 which stated that ‘an agreement falls outside
the prohibition in Article 81(1) where it has only an insignificant effect on
the market, taking into account the weak position which the persons con-
cerned have on the market of the product in question’ (Case 5/69, [1969]
ECR 295). This ruling was extremely important as it meant that small-
scale agreements would be excluded from the notification requirement. In
a sense, the de minimis rule marks the dividing line between agreements
that are to be dealt with at European level, that is, those that are likely to
have an impact on the common market, and those that remain the respon-
sibility of national authorities. Guidelines in the form of a Commission
Notice were produced in 1986 (OJ 1986 C231/2) and have been amended
on several occasions since. The purpose of the de minimis notice is to
enable the Commission to focus its activities on the more problematic
cases. The 2001 notice therefore applies only to firms which possess more
than 1.5 per cent of the market share Agreements which fall below these
new thresholds do not fall under Article 81. In short, such agreements that
fall below these new thresholds are judged not to possess even a minimum
degree of market power and do not fall under Article 81.3
These two additions proved valuable and the number of notifications
fell back sharply and consequently the Commission was able to re-focus
its activities and divert more resources to horizontal agreements and
cartelbusting by the end of the decade. By this time the Commission had
already investigated a small number of cartels in the mid-1960s. However,
these cases were largely the product of actual notifications and were
based largely on national players who were restricting intra-EU trade as
in detergents, natural sand, rubber, steel processing, pesticides, plaster,
cement and timber. At this time the Commission was not yet fully engaged
as a proactive regulator (Harding and Joshua, 2003). Indeed, the striking
aspect of these early cases was the Commission’s much softer approach
towards business actors and its strong preference for a negotiated admin-
istrative settlement (i.e. to amend problematic practices) between the
Commission and the firms involved, and a tendency to eschew the imposi-
tion of fines. Publicity about such cases was at best minimal and at worse
practically non-existent. This reality led one commentator to comment
rather negatively about the Commission’s practices and its vagueness over
either what the problems were or what remedies were suggested. At times
even the names of the companies concerned were not made public even in
the EEC bulletin (Edwards, 1967). Without outsiders/observers being able
to fathom the rationale behind developments it became practically impos-
sible for cases to set precedents and for onlookers to learn anything at all.
This initial reticence from the fledgling regulator (DG Competition) argu-
ably reflected a degree of doubt and uncertainty about its procedures and
forms of analysis, and it would take time to alter. However, by 1967 the
Commission had started to take its first more meaningful strides against
hard core cartels.
The Quinine cartel became the very first Commission ‘own initiative’
case. Quinine is extracted from the bark of the cinchoma tree, which grows
in a number of developing countries and is used to make medicinal com-
pounds that are used principally to make drugs to combat malaria. There
had been a long tradition of co-operative agreements between companies
based in France, Germany and the Netherlands in this particular sector
which can be traced back to the start of the twentieth century. The aim
of these agreements had largely been to ensure supplies and to stabilise
markets. However, after 1945 the situation for the main companies con-
cerned deteriorated, with a steep decline in prices as more of this product
was being produced. Supply was simply outstripping demand. The increas-
ing availability of cinchoma bark owed much to the new supply chains
from the plantations in the Congo and Indonesia, but it also arose after
the United States opted to throw much of its accumulated stocks of this
bark onto the world market. In response a series of European compa-
nies formed a defensive cartel in 1958 which involved sharing territorial
markets, fixing prices and establishing a series of quotas for sale on export
markets. This cartel, as in all cases, was internally policed by the leading
cartel member (the Dutch chemical giant, Nedchem) and was scheduled to
last for at least five years. It involved frequent meetings and the sharing of
information on prices among the cartel members. The cartel was formally
wound up in 1965.
However, during its operation prices for cinchoma bark had risen
throughout Western Europe while prices had been falling on the world
market. The Commission suspected collusion in this case and launched
a two year investigation in 1967. This decision post-dated an earlier

American move against the same cartel group after prices had risen, and
particularly as the bark was now needed to meet the growing demand for
malaria treatment at the full height of the Vietnam War. The US authori-
ties found the parties guilty of anti-competitive practices, forced the car-
tel’s dissolution in 1965 and imposed a financial penalty. The Commission
followed the American lead and imposed fines of some 210 000 units of
account and 190 000 units of account on the Dutch and German members
respectively.
Quinine represents the first major, landmark case in EU cartelbusting. It
was a success for the Commission. This case decision was supported by the
ECJ on appeal and provided a useful illustration of both business thinking
and strategy as the members had deliberately set out to avoid notification
and conceal their activities. The anti-cartel provisions in the EEC Treaty
had not in themselves acted as a deterrent to cartel formation. The fines
imposed seem insignificant by today’s standards, but the important thing
to note is that they established a benchmark against which all cartels
would be examined.
Quickly on Quinine’s heels followed a series of cartel cases (see table
6.3). One of the more notorious cases was situated again in the chemicals
sector but on this occasion focused specifically on dyes. Both cartel cases
were export cartels which had been pulled together to protect national
markets and both were based around price fixing arrangements. The
chemicals industry has displayed a long tradition of, and a seeming fasci-
nation for, engaging in co-operative and collusive arrangements. Dyestuffs
introduced the Commission to a number of actors who have since been
involved in further cartel activity. In Dyestuffs the actual evidence was on
the face of it much more circumstantial than it had been in Quinine and
it rested on the assertion that similar price changes were indicative of a
concerted practice. The Commission had been alerted to this particular
case by a number of third parties (such as business associations, consumer
groups and rival competitors) on account of a series of similar price rises
between 1964 and 1967. The actual agreement between ten companies
operated within an oligopolistic market, but in contrast to Quinine, which
had centred on a very small number of medicinal products, Dyestuffs
involved several thousand different dyes. This case was potentially more
complicated for DG Competition to tackle. The companies under suspi-
cion rejected the Commission’s price-fixing allegations and argued that
any similarity in prices merely reflected a hugely sensitive market where
all the other players followed the price leader. This defence was accepted
neither by the Commission nor by the Court on appeal. The Commission’s
final decision accused nine companies in Europe (including the UK and
Table 6.3 Other major Commission Cartel decisions by sector, 1964–1983
Year Specific Sector

1964 Belgian Tiles
1969 Belgian, Dutch and German Cement
1970 German Ceramic Tiles
1970 Belgium Perfumes Syndicate
1972 Belgian Central Heating
Dutch Sanitary Ware
Dutch Cement
1973 Dutch Gas Heaters
1974 Belgian Wallpapers
1975 Dutch Stove and Heaters
Dutch Toiletry
Glass Containers
Aluminium
1976 Dutch and Belgian Paper
1978 Dutch Bicycles
Belgian Tobacco
Belgian Spices
1979 Dutch Pharmaceuticals
1980 Dutch Plywood
German Natural Stone
Sulphuric Acid
Italian Cast Glass
1981 Italian Flat Glass
1982 Dutch and Belgian Publishers
1983 Belgian Newspaper Publishers
Tobacco Retailers
Switzerland) of anti-competitive practices and once again imposed fines

of some 50,000 units of account on the producers of aniline dyes.4 The
companies launched an appeal, but the Court of Justice confirmed the
Commission’s earlier decision and identification of a concerted practice in
a 1972 ruling. However, it also signalled some issues which would arise in
the future over degrees of proof and evidence to support the Commission’s
decisions.
Another example of the drive to restrict competition found illustration
in the European Sugar Cartel which represented the last of the three major
cartel cases during this initial phase of activity. The Commission had once
again been alerted to suspicious activity in this sector by consumer groups
and earlier enquiries on the part of the (West) German Federal Cartel
Office and had opened its own investigations in 1969. The European Sugar
Cartel case was somewhat more complicated than the previous two cases,
as the Commission had opted to open up a war on two different fronts
by pursuing the companies concerned under both Articles 81 and 82 (for
abusing their dominant position), but uncovered the existence of a market
where prices had been pre-determined by members of the cartel. The
Commission’s 1973 decision condemned the practices of some twenty-two
companies which had been involved with the cartel and levied a fine of
over nine million units of account on sixteen of them. The Commission’s
decision was immediately, though unsuccessfully, appealed to the Court
of Justice in 1975. The Court’s confirmation of the Commission’s deci-
sion instilled further confidence in DG Competition (Goyder, 1998:
162–163). It is extremely important to underscore not only the role of the
Commission but also the relationship between the Commission and the
Court of Justice (and after 1989 the Court of First Instance (CFI)), and in
particular the latter’s attitude towards the former’s analysis. This relation-
ship was going to prove vital and pivotal in the shaping of European cartel
policy. By this stage it became possible to identify a more confident DG
Competition and one which was developing a growing reputation that was
based on its analyses and relationship with the Court, but appreciating its
own role and wide discretion to define concerted practices, which in turn
fuelled the Commission to bring forward new cases.
Still, it is also possible to identify even at this early stage a harden-
ing of approach from the Court towards what was expected from the
Commission’s analysis in order to prove cartel activity. In Belgian
Wallpaper the Court sought greater economic analysis and more concrete
proof (Harding and Joshua, 2003: 127), and this less accommodating
attitude was the precursor to the next decade of cartel policy, the onset of
economic difficulties and a renewed interest among member state govern-
ments in the aims and directions of cartel policy.
2. FORAYS AND STALEMATE, 1973–1984
The 1970s began positively for the evolution of the EU as negotiations

were successfully concluded on its first enlargement and the subsequent
arrival of Denmark, Ireland and the UK as the newest member states
in January 1973.5 On the competition front the Commission published
its first annual competition policy report in 1972 in an effort to inject a
degree of greater transparency and provide publicly available information
on the issues facing the Commission and on the cases settled in the previ-
ous calendar year. The very first report clearly laid down the objectives.
Among these the Commission identified the ‘need to take action with
special rigour against restrictions on competition and practices jeopardis-

ing the unity of the Common Market, notably sharing markets, allocating
customers and collective exclusive dealing arrangements, and preventing
agreement which indirectly resulted in concentrating demand on par-
ticular producers’ (Commission, 1973). These reports have been written
by officials within DG Competition and have provided useful informa-
tion on DG Competition’s thinking. The reports also demonstrated a
growing self-assuredness on the part of the European regulator which it
was going to need as the competition principle came under attack. Even
as Denmark, Ireland and the UK acceded to the EU the warning signs of
economic downturn were already in the air. The collapse of the Bretton
Woods system in August 1971 brought to an end the financial order of
the convertibility of the US dollar to gold and floating exchange rates,
and ushered in major changes to the financial landscape. The decision by
OPEC in 1973 to raise the price of oil per barrel impacted directly on the
economies of the Western world as costs soared, unemployment returned
and inflation soared. If the 1950s and the 1960s had been the time of higher
economic growth and greater prosperity, the 1970s were hit by recession,
doubt and Eurosclerosis. In response member state governments scram-
bled to protect their national industries and thereby maintain employ-
ment. They did not do this in any co-ordinated or co-operative fashion,
but sought refuge and protectionism in the erection and maintenance of
a range of non-tariff barriers which included state subsidies to industry,
imposition of quotas, incomes policies and preferential treatment for
national companies. Where was competition policy situated in this trans-
formed economy? Was competition the problem or the solution and how
would DG Competition respond?
This second phase of cartel policy covers the period from 1973 to 1984
and is set against an unsuitable climate for any persistent offensive action.
Overall the entire Commission did not respond very well to the economic
downturn (Cini and McGowan, 2009). The story of EU cartel policy
during the 1970s presents a picture of some incremental growth, but also
displays a consideration for the plight of more sensitive economic sectors.
The Commission certainly maintained its anti-cartel drive and prosecuted
a number of important cartels during this period, but it demonstrated con-
siderable flexibility and adjusted to meet the changed economic circum-
stances (Commission, 1977: 9). It recognised that certain industries, such
as shipbuilding, were becoming more uncompetitive in the face of cheaper
competition from abroad while others, such as coal and steel, faced a future
of longer term decline. DG Competition remained wedded to its objectives
and emphasised the advantages of the competitive process, but it was not
the best or the correct time to pursue any dogmatic advancement of the
competition principle in the face of both external and internal opposition.

The former existed in the guise of the member state governments, whereas
the internal opposition found voice amongst other DGs, most notably
those dealing with industrial policy and regional policy. DG Competition
was one voice among many and had not won a majority over to support
the competition principle. As a result it advanced more slowly than many
of its officials would have liked.
For these reasons DG Competition opted to maintain a less interven-
tionist stance until economic conditions were more favourably disposed
towards competition. In adopting a more light handed approach (Wigger,
2008: 175) the Commission was willing to turn a blind eye to state aid, but
also showed its readiness to assist industries in decline and consider meas-
ures to alleviate unnecessary rises in unemployment, such as the support
for structural crisis cartel. These emergency cartels where firms engage in
reciprocal reductions in capacity and output were encouraged in the short
term in the hope that they would spur recovery and enhance technological
development. The Commission has been willing to sacrifice the competi-
tion principle ‘to avoid the social costs that industry restructuring left
to the market would cause’ (Motta, 2007: 14). This softer approach was
evident in the Commission’s support of, for example, the sulphuric acid
cartel. Few agreements were actually terminated and only a few of the
Commission’s decisions were appealed to the ECJ (Belgian Wallpaper,
Belgian Tobacco). Such crisis cartels were, however, very much envisaged
as temporary measures (European Commission, 1977), although in reality
many of these cartels lasted until the mid 1980s. It is tempting to label this
period of the 1970s and early 1980s as one of retrenchment in the case
of competition policy, but it would not be totally correct because DG
Competition was making progress, uncovering cartels and even conduct-
ing its first ‘dawn raids’ during this period. The story of EU cartel policy
during this second period presents a picture of incremental growth, and
one in which the Commission was becoming more assertive but also one
where simultaneously many cartels intensified their efforts to cover their
own tracks from the Commission’s gaze.
3. SEIZING THE INITIATIVE AND ADVANCING,

1985–1999
At the start of the 1980s few could have predicted how the appointment
of Jacques Delors and his Commission’s drive to achieve a genuine single
market programme would kick-start the European integration project,
and in doing so would very much anchor the competition rules as a core
policy. Concerns about global competitiveness had come increasingly

to the fore. Viewed from the position of the early 1980s the longer term
prospects seemed pretty bleak as European industries looked vulnerable
to the growing rise of high tech industries (such as telecommunications,
information technology and biotechnology) and fuelled fears that Western
Europe was largely dependent on manufacturing the goods of the Second
Industrial Revolution and, even worse, looked like becoming dependent
on Japanese and US exports. The Economist magazine used the oppor-
tunity of the twenty-fifth anniversary of the EEC to depict it on its front
cover with a headstone and the three letters RIP. Such concerns forced
a reappraisal of the state of European economic integration and led to
the recognition that too many non-tariff barriers (physical, technical and
fiscal) prevented the full benefits of a genuine single market. In response the
Commission drafted its now infamous White Paper (Commission, 1985)
on ‘Completing the Internal Market’ which specifically addressed the issue
of the Non Tariff Barriers (NTBs). The paper met with full scale agree-
ment of the then ten member state governments (and ushered in a period
of positive developments after the resolution of the lengthy saga of budg-
etary contributions and the UK rebate which had dominated European
Council summits since 1980).6 The actual content of the White Paper was
the brainchild of the senior British Commissioner, Lord Arthur Cockfield,
and identified 282 areas where progress was needed to secure the reality of
a genuine single market. These proposals were expected to provide econo-
mies of scale, boost employment, increase member state GDP and attract
foreign direct investment, and necessitated legislation which was to be put
in place by the end of December 1992 (Cecchini, 1988).
Timing and leadership were both going to prove pivotal in the devel-
opment of antitrust, and this was particularly the case with the growing
neo-liberal turn in policy focus which came to transform notions about the
role of competition in the market, and the application and enforcement of
antitrust rapidly emerged as a necessary tool in the Commission’s strategy
to realise the SEM. The actual timing from DG Competition’s perspec-
tive could not have been more fortuitous and coincided with the arrival
of the ultra-liberal and highly competent Leon Brittan as competition
Commissioner. Indeed, the changed economic circumstances enabled the
Commission to defrost Hallstein’s ideas which had been put on ice some
twenty years earlier and to continue the process which the Ordo-liberals
had commenced (Gehler and von der Groeben, 2002: 53). External devel-
opments on the economic philosophy front fused with internal ambitions,
and in the space of a few years had utterly transformed DG Competition’s
reputation. The Commission was finally emerging as a fully fledged
and powerful competition regulator. Positively, DG Competition’s remit
Table 6.4 Assessing the record and determination of all EU Competition

Commissioners against cartels, 1958–present
Commissioner National of Office Term Assessment

Hans von der Groeben West Germany 1958–66 passive
Emanuel Sassen Netherlands 1966–70 active
Albert Borchette Luxembourg 1970–76 passive
Raymond Vouel Luxembourg 1977–80 passive
Frans Andriessen Netherlands 1980–84 less passive
Peter Sutherland Ireland 1985–89 aware
Leon Brittan United Kingdom 1989–93 active
Karel Van Miert Belgium 1993–99 active
Mario Monti Italy 1999–2004 active
Neelie Kroes Netherlands 2004–09 active
extended to cover mergers in 1989 and led to its increasing activism on

the liberalisation of the former public utilities (energy, airlines and tel-
ecommunications). As DG Competition’s fortunes rose in the late 1980s
so it became more assertive on the cartel front as well and placed ever
greater priority on the need finally to combat cartels. This anti-cartel
agenda has fuelled the priorities, as so frequently stated in speeches, of
every Competition Commissioner from Leon Brittan to Neelie Kroes
(see Table 6.4) since. The role of personality in the transformation of DG
Competition cannot be underestimated. However, on the down side it
should be recognised that the more the single market took shape the more
DG Competition felt itself further constrained and pressured on the cartel
front, as it was compelled to shift some of its limited and much needed
resources away from cartel-busting. In short, aspirations and ambitions
did not necessarily correlate with a successful pursuit of policy.
The Commission’s desire to combat cartels was beset with difficul-
ties. Finding cartels was far from straightforward, and especially when
those companies engaged in such activity went to considerable lengths to
conceal such agreements. Even when they were unearthed the onus fell on
DG Competition to prove the existence of the cartel. Cartel arrangements
are often complex constructions, and those of a longer duration are more
awkward to regulate because they see considerable change over time as
some members, for example, take the lead while others may leave and
return, and in so doing be subject to certain aspects of the cartel agreement
at certain times only and not others, or party to different aspects through-
out. By the mid 1980s the Commission had responded to this real difficulty
through its identification of the ‘single overall agreement’ which placed
responsibility on all members of the cartel (Whish, 2003: 93).
Beyond the rhetoric, however, the Commission’s determination was

also often thwarted, not only by the readiness of many businesses to
engage in covert agreements, but also by the resistance or lack of inter-
est in some member states on the issue and its own limited powers for
manoeuvre. Regulation 17 had provided a valuable weapon in granting the
Commission the power to impose fines on companies which deliberately
opted to breach Article 81, but were the fines being set at a high enough
level and what exactly constituted a high fine? In order to deter cartel-
lisation the Commission first of all recognised the need to re-examine its
fining policy and to raise the bar towards ever higher fines. This realisation
reflected growing DG Competition confidence and determination, and
from the mid-1980s it is possible to detect (see table 6.5) an upward trend
in the severity of fines being imposed (McGowan, 2000). For example, the
Polypropylene (OJ 1986 L230/1) and PVC (OJ 1989 L74/1, 4 CMLR 345)
cases in 1986 and 1989 saw for the time the highest recorded fines of ECU
58 million and ECU 23.1 million respectively being imposed.7
The Commission’s growing conviction that restrictive practices in the
form of secret agreements were undoubtedly the most destructive form of
anti-competitive practice reinforced its anti-cartel activities in the 1990s.
Any doubt that van Miert was going to pursue a more tolerant approach to
competition policy in general, given his political background as a Flemish
socialist, on taking up the post of Competition Commissioner in 1993
were quickly dashed, and maybe it was this particular background that
propelled him on the contrary to intensify the cartel crusade (see table 6.6).
At the time, 1994 turned out to be a momentous year in antitrust policy.
It was marked by the Commission’s imposition of the highest ever annual
fines to that point in the history of EU competition policy. This year saw
fines totalling some ECU 535 million being levied against Steel Beams,8
Cartonboard 9 and Ciment10 cartels. Four years later the Commission
recorded another historic result when it imposed new record fines of ECU
560 million on inter alia the following four offending cartels:
i) In British Sugar (OJ 1999 L76/1) four sugar producers (British Sugar,
Tate & Lyle, Napier Brown and James Budgett) which together con-
trolled over 90 per cent of the granulated sugar market in the United
Kingdom were fined ECU 50.2 million. This collusive arrangement
had adopted a collaborative strategy of higher pricing for sugar on
both the industrial and retail markets.
ii) In Preinsulated Pipes (OJ 1999 L24/1) ten companies across the
European Union were fined ECU 92.21 million for engaging in a
series of anti-competitive activities. These included price fixing,
market sharing and bid rigging. This cartel particularly displeased
Table 6.5 The imposition of fines for cartel infringements: major cases
from the Sutherland and Brittan Years, 1985–921
Decision Date Reference Size of Fine No. of

in euros (m) under-
takings
Woodpulp 1984 OJ 1985 L85/1 4.125 36
AKZO 1985 OJ 1985 L374/1 10 1
Polypropylene2 1986 OJ 1986 L230/1 57.850 15
Meldoc 1986 OJ 1986 L348/50 6.565 4
Belgian Roofing Felt 1986 OJ 1986 L232/15 1 3
PVC3 1988 OJ 1989 L74/1 23.5 14
Italian Flatglass 1988 OJ 1989 L33/44 13.4 3
LdPE 1986 OJ 1989 L74/21 37 17
Welded Steel Mesh 1989 OJ 1989 L260/1 9.5 5
SodaAsh-Solvay4 1990 OJ 1991 L152/21 48 2
Eurocheque Helsinki 1992 OJ 1992 L95/20 6 3
Building and
Construction 1992 OJ 1992 L92/1 22.5 –
Industry NL
Notes:
1
One of the immediate difficulties for researchers of EU cartel policy has been the time
taken by the Commission to publish the decisions against major cartels in the Official
Journal. This issue arises because the Commission has to ensure that all business related
confidential information has been removed before publication. There is also the issue of
translating the decision into twenty-three languages.
2
This arrangement represented the classic form of a cartel and had endeavoured to distort
the market, restrict competition and set agreed prices.
3
This complex cartel was constructed around a series of artificially high prices and involved
a second Commission decision against the same companies in PVCII (OJ 1989 L74/1)
where DG Competition applied its concept of the ‘single overall agreement’. In this case
the Commission maintained that the members of the cartel had formed an agreement or
concerted practice. The companies involved appealed the case to the CFI but the Court
upheld the Commission’s earlier decision (OJ 1994 l239/14).
4
The Commission imposed a fine of €20 million on this cartel which had abused both
Articles 81 and 82. It had been in existence for decades, and although the original
written agreement ended with the UK’s accession to the EEC, the agreement continued
and effectively divided up the European market between the UK and Ireland (ICI) and
Continental Europe (Solvay).
Sources: Montag (1996), 430–32; and Whish (1993), 460–64.
the Commission as the anti-competitive agreement was sustained for

a further nine months after the Commission had become aware of its
existence.
iii) In Greek Ferries the Commission imposed a fine of ECU 9.12 million
Table 6.6 The imposition of ever higher fines against cartel agreements:
the major decisions during the van Miert years, 1993–1999
Decision Date Reference Size of Fine (ECU)

Euro beam producers 1994 OJ 1994 L116/1 104 million
Cartonboard 1994 OJ 1994 L243/1 132 million
Cement 1994 OJ 1994 L343/1 248 million
Far Eastern Freight 1994 OJ 1994 L378/17 130 000
Conference
Tretorn and others 1994 OJ 1997 L378/41 640 000
PVC* 1995 OJ 1994 L239/14 25 million
Dutch Mobile Cranes 1995 OJ 1995 L312/79 11.8 million
Ferry Operators 1996 OJ 1997 L26/23 645 000
Alloy Surcharge 1998 OJ 1998 L100/55 27.3 million
Brit Sugar/Tate & Lyle 1998 OJ 1999 L76/1 50.2 million
Preinsulated Pipes 1998 OJ 1999 L24/1 92.21 million
Greek Ferry Operators 1998 OJ 1999 L109/24 9.12 million
Dutch Electronic 1999 OJ 2000 L39/1 6.55 million
Equipment
Note: This particular decision was the re-adoption by the Commission of its earlier
December 1988 decision following a rejection by the Courts of the PVC appeal.
Sources: European Commission Annual Competition Policy Reports, 1993–99,

Luxembourg.
on seven Greek ferry operators and one Italian operator. All parties
to this agreement had regularly held meetings and exchanged corre-
spondence to determine the fixing of prices for passengers and vehi-
cles. Despite the seriousness of the charge and blatant anti-competitive
activities the fine was to all intents and purposes rather modest on
account of this cartel’s fairly limited impact on the market.
iv) Finally, in Alloy Surcharge (OJ 1998 L100/559), six stainless-steel flat
producers who accounted for over 80 per cent of European produc-
tion of stainless-steel finished products were fined ECU 27.3 million
for deliberately engaging in price fixing practices.11
Did such fines matter? The use of the seemingly powerful weapon
of financial penalties certainly proved to be contentious, because until
the 1990s published decisions in the Official Journal provided the only
source of guidance as to the Commission’s likely practice. Moreover the
fining regime was often accompanied by doubts over impartiality and the
way in which the Commission had handled the case, particularly where
the wording of the final decision to impose a fine largely resembled the
wording of the earlier Statement of Objections. In other words, for many
undertakings and their legal advisers it often seemed that DG Competition
was simply not interested in company defences and ignored their views
and any justifications of the arrangements in question. In practice, the
problem lay directly with the rules of procedure as dictated by Regulation
17, where certain individuals within DG Competition, acting in a series
of guises of prosecutor, judge and jury, are responsible for a case from its
inception to its conclusion (McGowan and Wilks, 1995).12 The use of fines
also proved problematic on two further counts: the first problem centred
on the Commission and its reluctance to provide any substantial reason-
ing for how it arrived at individual fining decisions. This position had led
to growing disenchantment and strong criticism from the Court of First
Instance. The second criticism concerned the absence of a fines tariff (to
enable companies to judge the financial penalties for certain activities),
as is the case with regard to the practice in national courts in criminal
proceedings.
It was increasingly argued that from a public policy viewpoint some
form of tarification system was required to inject greater transparency
into the Commission’s policy making process. Traditionally, however, the
Commission had displayed considerable reluctance to move in this direc-
tion and had argued ‘[t]hat the complexity of the factors to be weighed
means that the assessment of fines, rather than being a mathematical exer-
cise based on an abstract formula, involves a legal and economic appraisal
of each case’ (Commission, 1984). Some opponents of a tarification system
argued that the introduction of such a system would simply eliminate the
deterrent, for it would enable firms to engage in a cost-benefit analysis
of any anti-competitive action. In contrast such views were castigated by
others who countered that the basic assumption underlying all attempts to
deter infringements by imposing fines is that companies indeed operate a
cost-benefit analysis. If deterrence works, it does so by altering the poten-
tial offender’s balance of expected cost and benefit in such a way as to
induce him to refrain from the undesirable action. Tarification thus rather
served the deterrence argument, so long as the tariff is either sufficiently
detailed or sufficiently flexible (see Wils, 1998: 256–7). All in all, what this
actually meant in practice was that these doubts translated into a ‘low rate
of acceptance of Commission decisions and a correspondingly high rate of
court actions’ (Montag, 1996: 433) with regard the Commission’s fining
policy.
Such disaffection was only further fuelled by the unacceptable length of
infringement proceedings, and was further augmented by a growing number
of Court judgments which criticised the Commission’s interpretation as
flawed. Statistics indicate that by mid 1998 the Commission had issued
thirty-two decisions imposing fines of more than ECU 3 million on one
or more undertakings. The reaction to such fines is very revealing. Of the
twenty-nine such cases up to the end of 1996 only five were implemented
without being challenged. In other words, twenty-four of the twenty-
nine cases were appealed to the European Courts. Twelve actions for an
annulment of the Commission decision proved highly successful as the
fines were either lifted or quashed, and in a further two cases the levied
fines were reduced. The lessons for any undertakings seem clear. On
these statistics alone the Commission displayed a rather poor record in
reaching decisions that were generally accepted, but this should not be so
surprising. More alarmingly for the Commission the Courts had shown a
readinesss to strike down any Commission decisions which the judges in
Luxembourg held to lack sufficient evidence of alleged infringements, and
often the inability of DG Competition staff to respect the correct admin-
istrative procedure. Indeed, massive fines imposed on European chemical
companies by the Commission at the end of the 1980s had still not been
paid a decade later as the firms have opened appeals to the Court of
Justice. In ICI–Solvay (Case C–200/92 [1999] ECR I–4399), for example,
the undertakings successfully appealed to the CFI to have their fines of
ECU 27 million and ECU 27 million respectively overturned.
External criticism of DG Competition’s procedure has been a custom-
ary given, but when exerted from the European Courts it shook the foun-
dations of the Avenue de Cortenberg where the DG was based for most
of the 1990s. For example, in its first year of operation the CFI annulled
a Commission decision in the LdPE (low density polyethylene) cartel case
(OJ 1989 L74/21) and, even worse, compelled the Commission to pay the
legal costs for all seventeen legal teams. In its now infamous interpreta-
tion of the Wood Pulp cartel (both I and II), for example, the Court of
Justice (Case 89/85 [1988] ECR 5193) ruled that the system of quarterly
price announcements by producers identified by the Commission did not
amount to concertation. It maintained on the contrary that this particu-
lar situation had evolved because both buyers and sellers had wanted to
create a more stable environment, and this by necessity involved the need
to limit commercial risks. More seriously, however, the Commission was
condemned for its procedure and method of analysis. The Court went
further and exposed DG Competition’s reliance on material and on
evidence obtained after the statement of objections had been sent, and
a complete failure adequately to explain allegations in its statement of
objections. Wood Pulp has forced the Competition Directorate to produce
a ‘firm, precise and consistent body of evidence of concertation’ if it is to
succeed in establishing such practices. However, that said, in general both
the Court of Justice from the Pioneer decision in 1980 (OJ 1980 L60/1)
and even the more aggressive CFI displayed a great deal of reluctance
when it came to reducing by any large margins the Commission’s discre-
tion with respect to fines. Such cases severely tarnished DG Competition’s
credibility. Still, growing unease from the business community over the
Commission’s power to levy fines (Korah, 2007; van Bael, 1995; Gyselen,
1993), as well as increasing criticism of its own methods and procedures
from the European courts, finally compelled the Commission to re-
examine its procedures. This led to its January 1998 Notice (OJ 1998
C9/3) on its New Method for Calculating Fines in Antitrust Cases. In
short, this Notice (which applied to cases falling under Article 81) aimed
to increase the transparency and coherence of the Commission’s decisions
by setting out the different steps involved in the Commission’s determina-
tion of a specific fine and by providing the ranges of this fine. To this end
it abandoned the earlier practice of calculating fines as a percentage of the
relevant turnover (when there never had been any good reason for fines
to be proportional to turnover). Instead it opted in favour of a far more
straightforward approach, in terms of both Commission decision-making
and review by the Courts, by focusing more directly on the nature of the
infringement.
This move marked a significant development, and meant that from
this point onwards all reviews to be conducted by the CFI were not to
focus on the choice of the relevant turnover figure (as in the past), but
rather on the nature of the infringement. The 1998 Notice represented
an earnest attempt by the Commission to improve its handling of com-
petition cases and provided for a radically new four-stage procedure.13
Infringements were now to be classified as minor, serious or very serious.
In order to assess the gravity of the infringement, account had to be taken
of the nature of the infringement and its actual impact on the market.
DG Competition calculated the actual level of the fines within these
parameters, which naturally varied from case to case, and on the nature
of the particular infringement. In effect, it must be emphasised that this
Notice did not herald any change in the general level of fines and merely
reflected the Commission’s practice throughout the 1990s, though it does
not exclude possible future increases. Where more than one company was
concerned it was the responsibility of DG Competition to decide where
the level of blame lay and to differentiate between the participants’ actions
and involvement where necessary and fine accordingly.
A key element in any Commission decision under this Notice sur-
rounded the new emphasis on the duration of the specific agreement.14
Again these new rules made distinctions between ‘short duration’ (less than
one year), ‘medium duration’ (one to five years) and ‘long duration’ (more
Table 6.7 Understanding the origins of DG Competition’s workload under

Article 81
Year Notifications Complaints Own Initiative Total

1980 190 58 51 299
1985 213 66 25 304
1990 201 97 75 373
1991 282 83 23 388
1992 246 110 43 399
1993 264 110 26 401
1994 235 170 21 426
1995 360 114 47 521
1996 206 159 82 467
1997 221 177 101 499
1998 216 192 101 509
Source: Office for Official Publications of the European Communities, Annual

Community Competition Reports, 1988–1999, Luxembourg.
than five years). In the first instance the base amount for gravity remained
unchanged, but in cases of medium duration the Commission opted to be
in a position to increase the fine by up to 50 per cent, and in cases of long
duration by 10 per cent per year. Essentially, by adapting and redesign-
ing its approach the Commission hoped to provide a greater deterrent
by making an explicit link between the duration of an infringement and
the size of the fine. Once both the gravity and the duration of a particular
infringement had been established, the next step in DG Competition’s
calculation was the consideration of any aggravating or attenuating cir-
cumstances (as listed under the Notice). This was followed (according to
section 4 of the Notice) by consideration of the Commission’s 1996 Notice
on the Non-Imposition or Reduction of Fines in Cartel Cases (OJ 1996
C207/4).
The Commission’s caseload had certainly got more manageable,
but still remained somewhat problematic as notifications continued to
provide the majority of DG Competition’s workload under Article 81
(see table 6.7) and did not centre on hard-core cartels. Although a minor-
ity of third party complaints continued to draw Commission attention
to potential cartel activity the Commission required other measures to
assist its staff. The adoption of the ‘Leniency’ Notice in 1996 (discussed
in chapter 7) illustrated the onset of a more proactive Commission
response. Although novel as far as European competition experience
was concerned, the leniency initiative reflected practice which had been
Table 6.8 Number of cases closed under Article 81 by the Commission,

1988–1998
Year Formal Decisions Informal Total

1988 25 455 480
1989 11 567 578
1990 13 864 877
1991 21 814 835
1992 34 90 124
1993 14 792 806
1994 33 495 528
1995 14 403 417
1996 21 367 388
1997 27 490 517
1998 42 539 582
Source: Office for Official Publications of the European Communities, Annual

Community Competition Reports, 1988–99, Luxembourg.
established by the Antitrust division of the Department of Justice (DOJ)

in the United States in 1979.15 The programme was essentially designed
to de-stabilise cartels, which the Commission hoped to do though induce-
ments and sweeteners in the form of substantially reduced fines, and even
total immunity from fines if cartel members broke cover and informed
on their colleagues. This initiative recognised the unstable nature of
many cartels and deliberately sought to exploit this particular charac-
teristic. Complete immunity under the leniency programme was only
available for the first informant who provided sufficient information for
the Commission to launch an inspection of premises, and so long as it
continued to co-operate throughout the investigation. The Commission
wielded considerable discretion throughout, and any applications for
immunity which were deemed not to have provided sufficient information
could be denied. Leniency was a useful innovation in theory, but again
would it work in practice? The Commission publicly indicated that this
practice was proving a productive mechanism to ease its burdens and
cited the Sugar case of 1998 as an example (Commission, 1999). As a tool
it was a means of deterring cartels, but few saw it as a means of prevent-
ing cartellisation, and the Commission was forced to contemplate a series
of complementary measures to enhance its abilities both to focus on more
cartels and simultaneously further to dissuade the emergence of such
practices. Could it deliver?
4. CONCLUSIONS
Cartel agreements truly represent the most damaging forms of anti-
competitive activity. It may be somewhat surprising therefore to learn that
the Commission’s pursuit of cartels has often been overshadowed by other
policy commitments and has also been distracted by other notifications
which fell under Article 81. The majority of formal decisions under Article
81 concerned exemptions rather than cartels (see Table 6.8). The fight
against cartels took time to develop, though even by the end of the 1990s
fewer than ten were formally detected in any given year. The number for
most of these four decades was considerably lower than even this. In part
this reality reflected the difficulty of detecting and establishing the exist-
ence of cartels and in part reflected the limited resources and the expand-
ing brief of DG Competition. Progress, however, was being made as policy
was being shaped in an incremental fashion.
This chapter has shown how the Commission’s cartel wars developed
and intensified from the early 1960s. As the Commission gained both
experience and confidence it came to place greater emphasis on cartel
activity. The move towards a tougher fining policy brought consequences.
One of the most immediate repercussions was a rise in the number of
challenges against Commission decisions being brought by the busi-
nesses concerned before the European Courts. The symbiotic relationship
between the Commission and the European Courts has long represented
one of the most crucial dynamics behind individual EU cartel case out-
comes. The Commission’s credibility has always been tested by appeals to
the Courts. A degree of relative harmony had existed almost undisturbed
between the two supranational institutions in the promotion of integration
(from the earliest cases such as Aniline Dyes, European Sugar Cartel and
Quinine) until the Court of First Instance emerged in 1989 with an alto-
gether more independent and critical approach to the Commission’s degree
of analysis and argument. Relations between the Commission and the
Courts, however, grew fraught during the 1990s when the CFI overturned
a number of Commission decisions on the grounds of a supposedly flawed
analysis which often rested on the absence of clear proof and documentary
evidence that cartels were actually in existence. The Woodpulp case fully
illustrated the tensions and soured relations between the institutions. The
Commission was going to have to find a way to deal with the Courts and
to provide greater evidence of anti-competitive wrongdoing. Fighting
cartels was both stressful and very time-engaging and led the Commission
to consider new and more innovative measures and to design new strate-
gies to combat cartellisation, and set the backdrop to the fourth phase of
the Commission’s cartel wars which commenced in 1999 with the arrival of
a new Competition Commissioner and the first real effort to overhaul and
modernise the administrative mechanics behind the operationalisation of
Article 81. The new century was to usher in the decussis mirabilis (glorious
decade) of cartelbusting.
NOTES
1. It should be noted that some types of agreement (and this to some extent reflects earlier
more sympathetic perceptions) were entitled to exemptions from the EU competition
rules where they contributed to improving the production or distribution of goods,
promoted technical and economic progress or ensured that consumers reaped consider-
able benefits. Prior to 1 May 2004 such exemptions under Article 81(3) were solely at
the Commission’s discretion to bestow if an agreement’s beneficial effects were judged
to outweigh any detrimental impact on competition.
2. See recital 1, Council Regulation (EC) No 1/2003 on the Implementation of the Rules
laid down in Articles 81 and 82 of the Treaty, Official Journal 2003, L1/1.
3. In a sense, the de minimis rule marks the dividing line between agreements that are
to be dealt with at European level, that is, those that are likely to have an impact on
the common market, and those that remain the responsibility of national authorities.
The latest Notice, published in 2001 (OJ 2001 C 368), served part of the Commission’s
modernisation agenda (see Peeperkorn, 2001) and aimed to reduce the compliance
burden for smaller companies the agreements of which, by the nature of their size and
impact, did not restrict competition. This move also allowed DG Competition to focus
its energies on the much more problematic agreements. The amended Notice raised the
de minimis level to a 10 per cent market share for agreements between competitors and
to 15 per cent for agreements between non-competitors. In short, agreements which fall
below these new thresholds are judged not to possess even a minimum degree of market
power and do not fall under Article 81. The Notice states that agreements between
small and medium sized enterprises are rarely capable of affecting trade between the
member states and do not fall under EU scrutiny.
4. The European unit of account (EUA) was created through the Treaty of Rome for the
purpose of providing a unit of account for the EU institutions. It was a monetary unit
which was replaced in March 1979 by the ECU (European currency unit), which itself
was the immediate predecessor of the euro.
5. The United Kingdom acceded to the EEC under the premiership of Edward Heath in
January 1973 and some twenty-five years after the Treaty of Rome had come into force.
The existing competition policy provisions had not factored at all as part of the negotia-
tions as entry alone had become the utmost priority of successive UK governments (and
the business community) since the very early 1960s.
6. Greece joined the European Economic Community in January 1981 and the
Mediterranean push would be followed by the accession of both Portugal and Spain in
1986.
7. It is simply not possible, given space restraints, to provide background information
on all of the cases mentioned in the text, and readers are strongly encouraged to check
some of the leading legal texts as provided, for example, by Goyder, 2003; Sufrin and
Jones, 2008; Whish, 2003, and should also check the excellent European Competition
Law Review.
8. In February a group (from across the EU) of seventeen steel-beam suppliers were fined
ECU 104 million (£78.9 million) for operating a cartel in the production of steel beams
for use in the construction industry. In fixing the fine the Commission took account of
the length, gravity and accrued profits from the cartel. Interestingly, this agreement was
unearthed following a series of dawn raids by the Commission in 1991 on the premises
of the seventeen associated company members engaged in the manufacture and distri-
bution of the steel beams. The documentation seized revealed that the cartel had been
in operation since 1984 and that those involved had assumed the customary practices
of fixing quotas and prices and exchanging what would otherwise have been deemed
confidential information.
9. In July 1994, and once again as the result of the Commission initiating its own investi-
gation, nineteen carton board producers were fined ECU 132 million (£104.27 million)
for operating what was described by van Miert as Europe’s ‘most pernicious’ price
fixing cartel. This clandestine cartel extended across the entire European cartonboard
industry and implicitly entailed an agreement on prices and market shares. Within it ‘all
participants helped to develop a comprehensive system for . . . the monitoring of pro-
duction, sales volume and capacity utilisation’. In practice those involved raised prices
almost simultaneously. Such action prevented their customers taking advantage of
what should have been different prices within the European market, and thus thwarted
their customers’ efforts at securing alternative sources of supply. In short, competition
was duly impeded during the operation of this arrangement, and indeed the practice led
to a rise in profits of some 86 per cent in the period from 1986 to 1989.
10. In November 1994 the Commission levied a record fine of ECU 248 million (£193
million) on a group of thirty-three national cement producers and associations of the
European cement industry for co-ordinating anti-competitive activity since 1983. In
Europe’s most cartel ridden industry this specific agreement had led to the division of
the EU market into distinct national markets and widespread interchange of confiden-
tial information amongst all those party to the agreement.
11. This was deemed an infringement of Article 65 of the ECSC. See Competition Policy
Newsletter, No.2, June, 1998, p. 50.
12. In an analysis of those cases that culminate in the imposition of fines, Montag illus-
trates how investigations often exceed five years. On average it took almost four years
to adopt a decision. In practice, the more companies involved in an infringement, the
longer it takes to reach a decision.
13. These have included the De Minimis Notice of 1996, the Relevant Market Notice of
January 1997 and the 1993 Notice on Co-operation between the EU and the National
Authorities.
14. Under the previous system the duration of a cartel agreement was an issue which the
Commission examined, but in practice, it made little difference in the calculation of
setting of a fine.
15. The DOJ granted immunity from its criminal sanctions regime. The scheme was thor-
oughly revised in 1993 and has led to a growing number of firms applying for leniency
and providing evidence which has enabled the US competition authorities to unearth
cartels.
7. The decussis mirabilis and the
antitrust revolution in Europe, 1999
to the present
If the narrative of EU cartel policy from the 1960s to the 1990s represented
one of incremental development, it is one that reaches its pinnacle during
a fourth phase of activity which commenced at the turn of the twentieth
century and the start of a new millennium. By this point in time the dangers
of naked cartellisation within the neo-liberal hegemony were increasingly
being appreciated and understood (OECD, 2003). Cartels were held to be
costing society billions in dollars, euros and other currencies and seriously
thwarting the benefits of market globalisation. It was now generally taken
for granted that the existence of hard core cartels (price-fixing and market
sharing agreements which aim to restrict competition) damaged consum-
ers by raising prices and reducing output and had negative repercussions
on economic efficiency.1 This universal condemnation and recognition
provided the Commission with an apt opportunity to re-examine its own
cartel policy and to intensify its war against cartels. It was to culminate in
a radical overhaul and restructuring of the entire EU cartel regime. The
Commission’s anti-trust zeal was in clear evidence in a growing number
of decisions against cartel activity), refinements to its leniency initiative,
ever higher increasing fines and stricter fining policy (in 2006), an internal
restructuring of DG Competition to enable a more concerted and dedi-
cated approach to combat cartels, the publication of its Green (2005) and
White Papers (2008) on Private Actions and increased international co-
operation. Most of these innovative and imaginative changes proved fairly
straightforward for the Commission to introduce, as the refinements did
not require the approval of either the Council or the European Parliament.
However, the most comprehensive and significant development after 1999,
in the form of the new empowering Regulation 1/2003 (which replaced
Regulation 17) in 2004, did require and received Council approval.
Together all these changes, sought to modernise the Commission’s
approach to cartel agreements. In part, however, these changes, if viewed
from a positive viewpoint, reflected the Commission’s determination fully
to tackle cartels, but in part, and viewed from a more negative perspective,
150
The decussis mirabilis 151
bore witness to the long recognised difficulties of hunting cartels. The entire
reform package after 1999 represented nothing less than a real revolution
in the way cartel policy was now going to be enforced and implemented
(Monti, 2004). It was hailed as an essential step in the EU’s ongoing evo-
lution into a world-class competition regime (DTI, 2001) and sought to
update the existing EU administrative machinery in an effort to ensure
more efficient, predictable and legitimate outcomes. This chapter explores
this fourth and final phase of EU cartel policy which it categorises as the
decussis mirabilis. It analyses the nature and the significance of these latest
and most radical reforms to the EU cartel regime. Particular attention is
paid to the impact of Regulation 1/2003 throughout, but reference is also
made to the other notable changes and measures, such as the revision and
extension of the Leniency programme, higher fining possibilities, the reor-
ganisation of DG Competition and growing intra-European co-operation,
which were pursued by the Commission to make its handling of cartel
cases both easier and more effective. This chapter illustrates how these
alterations can be understood through the triple lenses of modernisation,
decentralisation and even federalisation.
1. THE MODERNISATION OF EU ANTI-CARTEL

STRATEGY, 1999–2004
Undoubtedly, the most significant development in this fourth phase of

EU cartel activity centres on the overhaul of the mechanics of EU cartel
policy which was enshrined in Regulation 1/2003 which came into opera-
tion on 1 May 2004. The new regulation has facilitated the Commission’s
determination to simplify and improve the administrative machinery
and modernised at a stroke the rules pertaining to the assessment and
handling of restrictive practices (and also firms abusing their dominant
position in the market place under Article 82). Although calls for reform
date back to the early 1990s, the formal process began in earnest only
in 1999 following a Commission White Paper (European Commission,
1999) on the modernisation of the implementing rules of Articles 81 and
82 of the EC Treaty.2 The significance of this White Paper should not be
underestimated. According to Claus-Dieter Ehlermann, a former Director
General of DG Competition, ‘the White Paper . . . is the most important
policy paper the Commission has ever published in more than 40 years
of EC Competition policy. It suggests a legal and cultural revolution in
proposing the fundamental reorganisation of the existing responsibili-
ties between the Commission national anti-trust authorities and national
courts’ (Ehlermann, 2000: 537).
The radical nature of this regulation has been echoed by other com-
mentators (McGowan, 2005: 987; and Wigger and Nölke, 2007: 487). The
White Paper found support from all member state governments (Wilks,
2005: 435) and rapidly evolved into a proposed draft regulation which
was submitted by the Commission to the Council in September 2000 and
was then duly approved by the Council, under the Danish presidency on
16 December 2002, and became Regulation 1/2003. It came into effect
on 1 May 2004, on the same day as the EU enlarged to take in ten new
states (eight from Central and Eastern Europe plus Cyprus and Malta)
and extended the EU competition rules across the full membership of
the EU25. The later date had been deliberately selected by the European
Council to provide this latest wave of member states with sufficient time
to make any necessary amendments to their own domestic competition
legislation.
Regulation 1/2003 emerged as the final product of extensive discus-
sions and circulation of ideas (see Radaelli and Schmidt, 2004) which had
taken place not only between the EU institutions but had also involved
the full epistemic competition policy community (Van Waarden and
Drahos, 2002) which, alongside competition officials from the European
Commission, included officials from the national competition authorities
(NCAs) and representatives from private business associations (e.g. the
European Round Table of Industrialists (ERT), the Union of Industrial
and Employers Confederations of Europe (Business Europe) and the
European Office of Consumers Associations (BEUC)).3 Reform, it must
be emphasised was far from being a necessarily automatic, let alone
a foregone, conclusion. Discussions and deliberations had revealed a
number of detractors early on, and particularly for example in Germany,
where repeated concerns were raised by the German Federal Cartel Office
(BKartA) over what it deemed to constitute the inherent weaknesses of the
suggested new regime. These reservations centred primarily on the degree
to which EU decisions were subject to the infusion of politicking in the
College of Commissioners. Although the BKartA vocally resisted changes
and tried to ensure that Article 81 should serve as a minimum standard,
with national competition law being allowed to offer stricter formulations,
it was unable to muster a blocking minority in the Council of Ministers,
and the German government was left with no other policy option but to
seek consensus and the proposals passed.
The key elements of the reform under the new regulation can be neatly
summarised under three key headings: the abolition of the notification
system; the decentralisation and the sharing of enforcement power with
the member states as a means of ensuring the uniformity of application
of rules; and lastly, enhanced powers for the Commission. Taking these
aspects together, this new regulation marks a sizeable shift in the admin-
istration of policy and has ushered in a marked change in approach for
all concerned.4 The reform agenda itself had been driven by two factors:
firstly, recognition which the existing practices which had been in place
for over forty years were becoming ever more problematic, and, secondly,
an expected augmented case load after EU enlargement into Central and
Eastern Europe. In short, the reworking sought was designed to facilitate
the Commission’s cartelbusting enforcement strategies; to create a more
level playing field and ensure a greater degree of consistency and certainty
for companies and to reduce the bureaucratic processes. Modernisation
and decentralisation were the two key hallmarks of this reform package,
and both were presented by the Commission as a means to secure better
enforcement through redesigning the rules that applied to the handling
of Article 81 and through the creation of a European family of competi-
tion regulators which brought together the Commission and the national
authorities within the European Competition Network (ECN). Did the
regulation achieve its authors’ ambitions?
2. UNPACKING REGULATION 1/2003
The former (pre-2004) system had placed responsibility for enforcing the
competition rules where intra-EU trade was concerned directly onto the
Commission. This may have made sense, but the requirement that all
agreements which potentially violated Article 81 had to be notified to
the Commission, and especially where either a clearance or an exemp-
tion was being sought, proved largely unsatisfactory and practically
unworkable from an efficiency perspective. This system had effectively
pushed DG Competition into a reactive mode from its inception, and
had diverted the Competition Directorate’s staff and energies away from
the more serous hard-core cartels towards the more routine and certainly
numerous notifications from companies which simply wished to ensure
that their specific agreements did not contravene the provisions of Article
81 or could be exempted from the EU rules if they did.5 In practice, DG
Competition had found itself swamped from the very outset under a
sea of notifications. This was problematic not so much in terms of the
resources dedicated to such notified agreements, but more in terms of
the fact that so few of these agreements, constituted anywhere near a
serious breach of the Competition rules (Monti, 2007: 397). Indeed, the
Commission prohibited only nine notified agreements in total between
1962 and 1999.
The Commission was only too aware of the surmountable hurdles it
faced. The creation of block exemptions, de minimis thresholds (which

have been regularly revised) and the issuing of comfort letters (as an
interim measure which allowed companies to operate safe in the knowl-
edge that they would be exempted from any future negative Commission
decision) certainly played a considerable role in easing the caseload, but it
did not eradicate the problem entirely and the Commission was never able
to digest its workload. Even by the early 1990s the Commission was still
facing a backlog of some one thousand cases. Dealing with notifications
meant that there was considerably less time to pursue its own proactive
investigations into specific economic sectors or individual cases. Indeed,
EU enlargement to twenty-seven may not have meant paralysis but it
certainly threatened severely to undermine the workings of the EU com-
petition regime. In short, the centralised system established by Regulation
17 hampered ‘the application of Community rules by the courts and com-
petition authorities of the member states, and the system . . . prevents the
Commission from concentrating its resources on curbing the most serious
infringements’.6
Regulation 1/2003 makes significant strides in the evolution of DG
Competition’s cartel wars. In the first instance the system of notifications
has been abolished and now follows the American ex post model. What
this means in practice for the business community is that firms are fully
expected to know the rules of the game and familiarise themselves with
the mechanics of the new regime as all ‘agreements, decisions and con-
certed practices caught by Article 81(1) of the Treaty which do not satisfy
the conditions of Article 81(3) of the Treaty shall be prohibited, no prior
decision to that effect being necessary’ (Article 1, Regulation 1/2003).
In other words ‘everything not permitted was forbidden’ (Wigger and
Nölke, 2007: 496). This alteration and self-assessment model ensures that
firms pay close attention to the activities of their competitors and creates
a system involving ‘a significant privatisation of EC competition law’
(Buch-Hansen, 2008: 212). For others (Wilks, 2005) the final version of
Regulation 1/2003 in effect created the particular French model of cartel
policy which had been advocated in the late 1950s.
In operation Regulation 1/2003 has been designed to enable DG
Competition to become much more proactive in protecting competition in
the internal market. The European competition regulator should now find
itself in a position to focus its resources on combating cartels and other
serious breaches of the competition rules, rather than simply processing
notifications, but it does raise queries about how far it provides the busi-
ness community with less security than the former notification system. The
varying degrees of potential insecurity in the business sector will certainly
secure a lucrative flow of money for the legal community as the former
seeks security. It is interesting to reflect that one of the winning groups

from the introduction of this new regulation is undoubtedly the legal firms
and prospective competition law specialists, who should certainly find
much improved career opportunities.
The freeing up of valuable resources from DG Competition’s perspec-
tive has also been accompanied by the ‘decentralisation’ of antitrust power
and responsibilities. Indeed the decision to decentralise enforcement
by enabling the national competition authorities and courts to be able
directly to apply Articles 81 and 82 to any agreement which may affect
trade between states marks another major development and a decisive
shift in the objectives of the new anti-cartel regime. It means that national
authorities are now equipped with the means for the first time of apply-
ing Article 81 in its entirety themselves. For the cartelbusters, the burden
of proving an infringement of Article 81(1) of the Treaty ‘rests on the
authority alleging the infringement while the firms claiming the benefit
of Article 81(3) shall bear the burden of proving that conditions of that
paragraph are met’ (see Article 2 of Regulation 1/2003). Notably in this
regard the European Commission has agreed to surrender its monopoly
over Article 81(3) and has allowed the member state authorities to rule on
exemptions. This so-called ‘deliberate sacrifice’ (Goyder, 2003: 551) was a
logical step, has been well calculated and brings specific advantages, most
notably greater uniformity and consistency. This affirmation of a system
of parallel competences and the creation of a flexible mechanism for case
allocation between the national and supranational levels is a radical inno-
vation. Put another way, the regulation effectively means that the national
competition bodies have been transformed into cartel-like agencies of the
European Commission.
Some have interpreted this reform package as an adept masterstroke
on the part of the Commission to anchor its pre-eminent position (Wilks,
2005) vis-à-vis the national authorities. Some observers were more critical
during the debates and argued that such alterations threatened a complete
Balkanisation of competition policy enforcement (Joshua, 2001). Doubts
were raised, for example by both the EP and the EESC, about the dangers
of inconsistent enforcement across the EU and a loss of legal certainty.7
These concerns were overridden, as for many any fears that divergent deci-
sion making will result from such intended decentralisation which would
then undermine both legal certainty and the unity of the system have been
overplayed. It is still too early to provide an accurate assessment of the
reform and how it will play, but the Commission has already conducted
its first survey (which remained open for public comment until the end
of September 2008) of how Regulation 1/2003 was working and being
greeted in practice. The results were promising.
3. ENHANCED POWERS AND PROACTIVE

LEADERSHIP
Sometimes in the history of European competition policy it has seemed
that cartels have been sidelined in the press by the more glamorous and
politically sensitive areas of the competition brief such as mergers, state
aids and the liberalisation of the public utilities. This has been at best
unfortunate and at worst a real failing. Let us be clear here, because not
only do cartels represent just as exciting an area as the others but they
remain the core element of any antitrust authority’s activities. Part of
the answer why cartels seem to have been downplayed owes much to
the nature of cartellisation and the reality that cartelbusting cases have
never been as straightforward to process as the handling, for example, of
potential mergers, and in part also from many of the legal complexities
and arguments surrounding the notion of an agreement and its activi-
ties. It is important that we do not let the legal labyrinth deter the greater
exploration of cartels. After all, the cartel has become an international
phenomenon and problem.
Despite the existence of extensive investigatory powers under regulation
1/2003 the task of detecting cartels has always been and is particularly dif-
ficult and the burden of proof has rested squarely with the Commission,
which has found itself confronting an onerous task. Experience has shown
that there has always been a number of long standing cartel arrangements.
In the Sorbates case (1P/03/1330) the Commission uncovered evidence
that took the formation of this cartel back to 1976. Experience has also
shown that certain sectors, such as cement, pharmaceuticals and steel,
seem to have more of a propensity towards cartellisation than others
(Monti, 2000).
Over the years firms engaged in such practices have become increasingly
adept at concealing their moves. For example, experience has shown that
there are numerous cases where business records have been stored at the
homes of directors or other employees, and to aid the cartelbusters the
new regulation grants the European Commission the power (McGowan,
2005: 994; Monti, 2007: 410) for the first time to interview individuals or
representatives from an undertaking (Article 19), enables the Commission
not only to search business premises where serious violations are sus-
pected (Article 20), but also under Article 21 equips the cartelbusters
with the power to search domestic premises (home raids).8 Complaints
from third parties and former cartel members represent a fundamental
means of detecting infringements, and from the Commission’s perspec-
tive it remains essential to establish a clear and efficient procedure for
handling complaints. Consequently, the Commission has devised a new
Table 7.1 Cartel cases decided by the European Commission since 1990
Period Number
1990–1994 11
1995–1999 10
2000–2004 33
2005–2008 24
Total 78
Source: European Commission website, http://ec.europa.eucompetition/index_en.html
official complaint form (Form C) for these parties to complete. Moreover,

DG Competition’s ability (under Article 17) to conduct its own enquiry
into a particular sector of the economy is again reinforced, and in both
theory and practice from now on should result in many more cases being
opened by the Commission. Although this power is far from new, being
provided for in Regulation 17, it does reinforce a genuine commitment
and it is expected that this rarely evoked Article (on three occasions in
the sugar, beer and telecommunications markets) will be deployed more
often. According to the Commission this step is already producing positive
results, and enabled it to launch a full enquiry and information gathering
exercise into the state of competition in the pharmaceutical sector for those
medicines related to human consumption in January 2008 (IP/08/49).
Organisational leadership is absolutely crucial in any anti-cartel strat-
egy and it has been an important feature of EU competition governance
over the last two decades. Positively DG Competition has been fortunate
in its receipt of its most recent Commissioners who have driven home time
and time again the dangers of cartellisation. Mario Monti (1999–2004)
emerged as another heavyweight and promoter of neo-liberal policies in
1999 and was always ready in public speeches to advance the need for
greater regulation and liberalisation. As a former professor of econom-
ics he held a particular interest in and grasp of competition policy and
showed a resilient hostility towards cartellisation.9 EU cartel policy clearly
moved further centre stage after 2004 with the appointment of Neelie
Kroes (2004–2009) as competition commissioner. An avowed opponent of
protectionist tendencies, she focused much of her attention on the cartel
problem and a greater need for the identification, targeting and pursuit of
cartels. Overall, some commentators have described developments after
1999 as representing a shift ‘from the Rhenish to the Anglo-Saxon variety
of capitalism’ (Wigger and Nölke, 2007: 505). Kroes has pledged to ‘be
steadfast in applying zero tolerance to those who operate cartels to the
disadvantage of customers . . . I have made it crystal clear that the fight
against cartels will be one of my top priorities. . . I intend to walk the walk
as well as talk the talk’.10 There is, of course, nothing particularly new
in rhetoric behind this anti-cartel drive. The rhetoric is good, but is the
Commission delivering?
Throughout the history of EU restrictive practices and cartel policy it is
clear that DG Competition’s activities have been hampered by too many
potential cases coming before it, and this weakness was exacerbated by an
insufficient number of staff to deal adequately (in terms of speedy decision
making) with all these cases. DG Competition and external commenta-
tors had long voiced their concern (and correctly) over insufficient staffing
levels, and a backlog arose which restricted DG Competition’s pursuit of
cartel agreements. Aware of this reality and the prevalence of cartels the
Commission has long sought a means to prioritise its fight against such
overt anti-competitive practices. This objective has been brought closer
with an increase in staff levels. A number of recent rises in overall person-
nel numbers to some 750 by the end of 2006 (as compared to 411 in 1992)
(Cini and McGowan, 2009: 53) is expected to facilitate the competition
regulator’s efforts to handle more cases (see table 7.2). An augmented pool
of staff may work but DG Competition will still be hard pressed, however,
as overall numbers are still fairly modest. Indeed, some 357 officials deal
with anti-trust, mergers and liberalisation as well as cartels. Yet, from
a more positive viewpoint the welcome additional staff numbers have
enabled a degree of strategic organisational restructuring and the creation
of a new dedicated (and seventy-strong) Cartels Directorate (Directorate
G).
Table 7.2 Commission Cartel decisions and annual fines since 2003
Year No. of Cartels detected Total Fines

2003 5 404.8 m
2004 6 390.2 m
2005 5 683 m
2006 7 1846 m
2007 8 3338 m
2008 7 2271
2009 (to March) 11 132
Total 39 9065 m
Note: 1 Marine Hoses became the first cartel decision of 2009 (IP/09/137) when 6
companies were handed a fine of €131 million.
Source: DG Competition website http://ec.europa.eu/competitionand sourced on 11

March 2009
Table 7.3 Fines imposed for Article 81 violations, 1990–2009
Year Amount in €
1990–1994 344 282 550
1995–1999 270 963 500
2000–2004 3 207 305 210
2005–2008 8 270 585 100
Total 12 093 136 360
Note: These fines have been corrected where appropriate to accommodate both CFI and
ECJ decisions.
Source: DG Competition website, http://ec.europa.eu/competition and sourced on 11

March 2009
It is a welcome development, but in reality more staff are required. The

number of decisions in cartel cases is getting better than in the past but still
remains somewhat low and is due to resource constraints and arguably a
degree of inefficiency within DG Competition, where there is considerable
staff rotation and the involvement of too many staff with pending cases
and cases before the Courts. The decision making process remains too
slow. Even without taking on any new cases it is generally assumed that
DG Competition would require several years to clear the existing backlog.
Not surprisingly the Commission has continued to seek further deterrents
and means to both break up cartels and deter them in the first place. To
this end the Commission pushed for the further efforts at modernising the
rules to allow its staff actively to hunt for cartels as opposed to spending
much of their time processing actual cases.
One of the most visible developments in this fourth period has undoubt-
edly centred on the Commission’s determination to penalise cartel activ-
ity with the imposition of ever higher amounts of fines. There have been
thirty-nine decisions against cartels (see table 7.2) since the start of 2003,
and the scale and scope of the fining arrangements today differ so much
from the situation just a decade ago, as table 7.3 shows. Indeed, the sev-
enteen highest fines in the history of EU cartel policy since 1969 (see table
7.4) were all levied after 2000 and eleven of these have occurred after 2005.
The Car Glass cartel from 2008 (see figure 7.1) and the Lifts and Escalators
cartel from 2007 embody the two largest fines ever in the history of EU
cartelbusting.11 The lesson being driven forward by the Commission is that
cartels are no longer to be tolerated.
These fines clearly reflect a steep upward trajectory, but there have
always been questions over whether such corporate fines which were
capped actually impacted sufficiently on the companies to hurt them or
deter them from further activity. How high is high enough has been an
issue which has divided commentators.12 There is agreement that deter-
rence requires a heavy financial sanction, but the fines imposed by the
Commission may simply fail to outweigh the illegal profits that have been
earned. For many commentators (Buiccirossi and Spagnolo, 2006; Motta,
2007) fines have traditionally been set at too low a level and have argued
that any real deterrent needs greatly to exceed the original 10 per cent
threshold established under Regulation 17. Few fines in the not too distant
past came anywhere close!
The Commission recognised such criticisms and finally responded by
introducing a new, and the strictest yet, framework notice for the setting
of fines in 2006 and one which significantly raises the bar when imposing
fines (IP/06/857). It sees a possible tenfold increase in the level of fine that
can be imposed and an even higher penalty for repeat offenders.13 The
Commission is making its intention robustly clear, and by stiffening the
deterrent is hoping to encourage more whistleblowers. The new fining
arrangements mark a major step forward, and it is increasingly difficult to
make a case for higher fines without entailing some degree of social costs
for the companies concerned. Fining arrangements may represent a useful
means to deter existing cartels, but how far do they prevent the formation
of new cartels? Under existing arrangements managers and chief execu-
tives rarely lose their jobs for cartel activity. Any future move towards
the introduction of criminal sanctions (as in the USA and in some EU
member states) which includes real and personal risk (prison sentences)
to such executives may arguably provide greater results. Indeed, the US
experience is illuminating in this regard. Posner (1976: 39) has argued that
‘the elimination of the formal cartel from . . . industries is an impressive
and remains the major, achievement of the American antitrust law’. The
US Department of Justice is convinced that huge fines and lengthy prison
sentences are the real keys to the successful pursuit and eradication of
cartel arrangements (Hammond, 2005). It is interesting to note how the
UK competition authorities have approached this idea (Hammond and
Penrose, 2001) and started earnestly to replicate this American model
(Cini, 2008), and the same US experience is gaining ground within the staff
of DG Competition. The issue of criminal sanctions would certainly prove
controversial in terms of wider discussions about EU competences under
the current Pillar 1, but such sanctions already apply in many member
states (though they are rarely used). Creeping steps towards some form of
‘harmonised criminal sanctions’ (Daly, 2007: 315) for cartel offences in the
EU are probably much closer than many commentators realise, though
there is scope to debate the origins and promoters of such developments.
Although criminal sanctions remain a distant objective the Commission
Table 7.4 The EU’s cartel wars: the seventeen largest fines in EU
antitrust history, 1969 to the present1
Case name and economic Year fine Number Amount of fine (in
sector imposed of cartel euros)
members
Car glass 2008 4 1383.8 million
Lift and escalators 2007 5 992.3 million
Vitamins 2001 4 855 million (on
appeal reduced to
790.5 million)
Gas insulated switchgear 2007 11 750.7 million
Candle waxes 2008 10 676.0 million
Synthetic rubber 2006 6 519 million
Flat glass 2007 4 486.9 million
Plasterboard 2002 – 458.5 million
Hydrogen peroxide 2006 9 388.1 million
Methacrylates (acrylic glass) 2006 5 344.5 million
Hard haberdashery/zip 2007 7 328.6 million
fasteners
Copper fittings producers 2006 11 314.7 million
Carbonless paper 2001 6 313.6 million
Plastic industrial bags 2005 16 290.7 million
Dutch brewers 2007 4 273.7 million
Bitumen Netherlands 2006 14 266.6 million
Chloroprene rubber 2007 6 247.6 million
Note: 1There were of course a number of smaller cases during this period. It is not the
intention to list all here but they included, among others, decisions against FETTCSA
(€6.9 million in 2000); Amino Acids (€109 million in 2000); Soda-Ash (€33 million in
2000); SAS/Maersk Air (€52.5 million in 2001); Sodium Gluconate (€57.7 million in 2001);
Belgian Brewers (€91 million in 2001); Luxembourg Brewers (€448 000 in 2001); Citric
Acid (€135.22 million in 2001); German Banks (€100.8 million in 2001); Austrian Banks
(€124.46 million in 2002); Dutch Industrial Gases (€25 million in 2002); Sothebys/Christies
(€20.4 million in 2002); Food Flavour Enhancers (€20.56 million in 2002); and Concrete
Reinforcing Bars (€85 million in 2002).
Source: European Commission website at http://ec.europa.eu/competition/cartels/

overview/faqs_en.html on 12 March 2009
has been eager to adopt a private action scheme which could see those
breeching the competition rules facing even higher fines.
For the moment, fines remain the Commission’s best weapon and table
7.4 illustrates the severity of the more recent ones. Still, are they severe
enough? Fines also impact in another way as evidence illustrates that
markets do react rather badly to Commission investigations of cartel
activity (as made public in dawn raids), infringement decisions and nega-
tive court judgments (Langer and Motta, 2006). In the short term a firm’s
value actually falls. How far and how damaging such falls may be is open
to further question. Positively, however, the fines impact on European
consumers in two ways. The first outcome is relatively straightforward and
relates to the benefits to consumers from a system of genuine competition
(better quality products at lower prices), but the second is equally signifi-
cant and relates directly to this attempt to mainstream competition policy
because these fines are paid directly to the EU and enter the miscellaneous
category of the EU budget. The incentives for pursuing and pushing the
war against cartels are considerable, but the road is often beset with dif-
ficulties as the Commission needs to collect the evidence which is usually
well concealed by the members of the cartel.14 One of the most curious
things to note is that many of the cartel offenders are and have been
members of the ERT, and this reality raises many issues of trust (especially
when co-operation may be more forthcoming over merger applications)
and underscores the intrinsic problems of pursuing cartels.
4. WEAPON UPGRADES, STRENGTHENED

CO-OPERATION AND COLLABORATION,
2005 TO THE PRESENT
This fourth period of activity also saw an overhauling of the Leniency ini-
tiative in 2002 (OJ 2002 C45/3) as a means of making it more straightfor-
ward to grant total immunity for the first firm which willingly co-operates
and provides DG Competition’s officials with substantial information on
the operations of the cartel infringement. More total immunity decisions
are being made.15 Leniency had promised to relieve DG Competition’s
resources and to provide hard evidence to present to the Courts, but did
not initially deliver the results as had been imagined. There was one major
distinction between the EU and the US leniency schemes. Whereas leni-
ency was automatic under the US regime it was at the Commission’s dis-
cretion to give and also to determine by how much under the EU system.
In its scheme the Commission had devised several categories to reflect the
level of reduction in the fine depending on the material and evidence sup-
plied by the firm in question. This form of the leniency initiative, however,
proved problematic as it left business unsure about the advantages of pur-
suing the leniency route and prompted the first overhaul of the Leniency
programme in 2002 to provide immediate immunity.
This refinement seems to have made a real and lasting difference.
Whereas experience of the first Leniency programme had displayed
Table 7.5 The ten largest fines imposed by the Commission on individual
companies for cartel membership
Company Fine (euros) Year

Saint Gobain 896 000 000 2008 (Car Glass)
ThyssenKrupp 479 669 850 2007 (Lifts and Escalators)
Hoffmann-La Roche 462 000 000 2001 (Vitamins)
Siemens 396 562 500 2007 (Gas Insulated Gear)
Pilkington 370 000 000 2008 (Car Glass)
Sasol Limited 318 200 000 2008 (Candle Wax)
ENI SpA 272 250 000 2006 (Synthetic Rubber)
Lafarge SA 249 600 000 2002 (Plasterboard)
BASF AG 236 845 000 2001 (Vitamins)
Otis 224 932 950 2007 (Lifts and Escalators)
Source: European Commission website at http://ec.europa.eu/competition/cartels/

overview/faqs_en.html on 12 March 2009
considerable reluctance towards this Commission initiative (Reynolds and

Anderson, 2006) from the business community the policy is now proving
very effective. Indeed, most of the recent cartel investigations conducted
by DG Competition commenced following a request for immunity from
any fine by whistleblowers under the terms of the Leniency programme.
Indeed, whereas the Commission received eighty applications (both for
total immunity and a reduction in fines) in the period from 1996 to 2002
it is interesting to note post the 2002 Notice the rise in such requests.
In the period from February 2002 until the end of December 2006 104
applications were made. Fifty-six of these were granted partial or com-
plete immunity. It is also significant to note that the introduction of
the Leniency programme has also directly led to a significant rise in the
number of dawn raids being conducted by the Commission. Nearly two-
thirds of all inspections, for example, in the period from 2001 to 2003
were based on leniency requests (Sufrin and Jones, 2008: 879). The system
appears to be working well and has ‘been an extremely effective device in
uncovering cartels and in facilitating the Commission’s task to prosecute
the companies involved in such cartels’ (Motta, 2007: 18). The fact that
more and more companies are approaching the Commission for leniency
is a sure sign of the programme’s impact (see Geradin and Henry, 2005),
and success has been enthusiastically welcomed by the Commission.
However, two more critical points should be made at this point. Firstly,
the Leniency programme has not substantially reduced the length of
time needed by DG Competition to handle the case and the competition
regulator has carefully to select its cases and prefers to focus on major
international cartels. The second issue is important because the Leniency
initiative does not provide complete immunity for the whistleblower if a
third party (who has been negatively affected by the activities of the cartel)
opts to initiate civil proceedings against the entire cartel membership.16
That said the Commission has continued to tweak the system. The pub-
lication of the most recent Leniency Notice in December 2006 (OJ 2006
C 2917; de Broca, 2006) has reinforced the fundamental shift in business’
approaches to, and growing acceptance of, the leniency initiative. This
revised Notice represents another step to both detect and terminate hard-
core cartel activity and reflects the reality that leniency styled programmes
are fast becoming the norm in many competition regimes. The 2006
Notice clarifies for companies the information the Commission requires
for an undertaking to benefit from immunity, as well as providing greater
guidance on how to obtain a reduction in fines.
Accordingly the Commission maintains that the Leniency programme
continues to play a crucial role in DG Competition’s detection efforts and
continues to entice more ‘whistleblowers’ to come forward. However, it
has been suggested that most of the cartels detected through the Leniency
programmes would probably have broken up within a couple of years in
any case (Lowe, 2007). The fortunes of the companies which have opted
to co-operate have been mixed to date. In the very first decision stemming
from the 2002 Notice in Raw Tobacco Italy the original whistleblower’s
hope of conditional immunity was dashed when it was discovered that it
(Deltafina) had actually pre-alerted its competitors/cartel members to the
pending Commission investigation. Nevertheless, Deltafina was deemed
to have provided sufficient information and warranted a 50 per cent
reduction. Industrial Bags began likewise with information from a cartel
member (British Polythene Industries) and in the final Commission deci-
sion represented an additional increase in the level of fine for one of the
companies involved, Bischof and Klein, for allegedly being caught trying
to destroy a document during the investigation.
In Dutch Bitumen (2006) British Petroleum came forward as a whistle-
blower and was granted immunity from a Commission fine for clear cartel
activity among oil producers. In this case the highest individual fine fell
on Shell (€80 million) and provided further evidence of the Commission’s
determination to punish such habitual cartel offenders (given Shell’s
earlier involvement in the PVS and Polypropylene cases) more severely. In
Chloroprene Rubber (IP-07/1855) Bayer’s decision to play whistleblower
and inform the Commission of a price fixing and market rigging cartel
in the production of rubber ensured that the company received complete
immunity from the overall fine, while its former partners (including ENI
and Tosoh) were punished for cartel activity that had lasted from 1993 to
2002.
As has been pointed out (Motta, 2008: 211) the Leniency initiative has
not reduced the overall length of investigation time. The length of indi-
vidual case investigation has compelled the Commission to consider the
adoption of a settlement procedures scheme which encapsulated a form of
plea bargaining as already exists in the United States. The settlement pro-
cedure for cartels was introduced in June 2008 (IP/08/1056) and enables
the Commission to settle cartel cases through a more simplified procedure.
Basically this scheme operates when firms which have been alerted to DG
Competition’s file and evidence agree to plead guilty to their (the com-
pany’s) participation in the specific infringement of Article 81. In return
the Commission can reduce the fine that it would have imposed by some
10 per cent. The attraction of this course of action is a speedier response
and a freeing up of resources and makes it more unlikely that the company
will appeal to the Courts. This process should save time and manpower.
The process is entirely voluntary, and where no settlement is reached the
usual procedure will apply.
In the meantime another and more recent Commission initiative
centres on the introduction of a direct actions scheme whereby both com-
panies and consumers could seek private damages from cartel activity.
According to Kroes, ‘businesses and consumers in Europe lose billions of
euros each and every year as a result of companies breaking EU antitrust
rules. These people have a right to compensation through an effective
system that complements public enforcement, whilst avoiding excessive
burdens and abuses’.17 Direct actions have been rare in EU competi-
tion law and in many of the member state jurisdictions, but they hold
considerable potential for the competition regulator. The Commission’s
Green Paper and a Staff Working Paper on Damages Actions for Breach
of the EC Antitrust Rules were published in December 2005. The Green
Paper’s purpose (see Pheasant, 2006) was to launch a debate from stake-
holders and to set out a number of possible options to facilitate private
damages actions where loss has been suffered as a result of a deliberate
infringement of the competition rules.18 The responses from the public
discussion fed directly into the Commission’s White Paper on Damages
in April 2008 which was once again up for discussion until mid July 2008.
If civil actions come into play in cartelbusting it will provide another
potential deterrent because, if successful, any private claim for damages
would come on top of the fines already imposed by the Commission. The
practice marks a new shift in the direction of European anti-trust and one
which again derives largely from US experiences and private litigation.
The beauty of this approach from the Commission’s perspective is the
fact that it is completely resource free and is being strongly encouraged.

In short, the White Paper embodies an ingenious move and, if approved
by the Council, amounts to another radical landmark in the development
of EU competition policy.
5. THE DECENTRALISATION OR
FEDERALISATION OF EU CARTEL POLICY?
Interestingly the ongoing strategies to eliminate cartels at the EU level

occurred practically almost at the same time as national cartel policies
had started to converge across the entire EU. Such ‘policy isomorphism’
(Radaelli, 2000) may not seem so surprising, given the reality that cartel
activity is increasingly cross-border and has propelled the necessity of
inter-agency dialogue, but its significance should not be underestimated.
This convergence marks another critical juncture in the development of
the European anti-trust tradition. Some sixty years ago, and as discussed
in chapter four, few Western European states contained any meaningful
anti-trust provisions on their statute books, the main exceptions being the
British and West German anti-cartel regimes. Admittedly, the UK legisla-
tion was not as developed until recently (Wilks, 1999) as the emerging EU
regime, and offenders usually received a mere regulatory slap on the wrist
and only repeat offenders were faced with penalties. However, over the
course of the last five decades and very much in line with the shift from
embedded liberalism to neo-liberalism (Wigger, 2008) cartel policies were
adopted gradually across all states and even arriving as late as the early
1990s in the Italian case. Some mirrored the EEC rules and some did not,
but these same cartel laws underwent a process of policy convergence with
the EU model during the latter half of the 1990s.
How can such developments be explained? The acceptance of common
cartel policy norms can be explored on both the internal and external
fronts. In terms of the former it must be realised that consistency of both
purpose and rules across all twenty-seven NCAs had to be ensured, and
this led to the voluntary adoption of regimes which largely replicated
the EU rules across the member states throughout the 1990s and most
remarkably in Germany and the United Kingdom. The convergence
process with the European model typifies the pull of the integration logic
(as neo-functionalism predicted) and very much fed into notions and
discussions of Europeanisation (Cini, 2008; McGowan, 2005). For the
countries of Central and Eastern Europe the process of convergence took
a much more coercive form as EU membership became conditional on
the successful negotiation and adoption of a series of thirty plus policy
chapters (Schimmelfennig, 2008) by the prospective states. One of these

chapters focused on the competition rules and compelled the candidate
states to adopt national competition regimes.
This development greatly facilitated the ever stronger dialogue between
DG Competition and the NCAs and allowed it to become an even closer
relationship and reality through the creation of the European Competition
Network (ECN). The ECN promises to foster an ever closer relation-
ship between the Commission and the national competition authorities
and should provide for a greater degree of both horizontal and vertical
exchanges of information, consultation and interaction between all the
members over policy in general and specifically over individual compe-
tition cases. It has been designed as a vehicle to lessen the risk that EU
competition law might be inconsistently interpreted and applied through-
out the entire single market. Regulation 1/2003 specifically states that
the NCAs ‘must inform the Commission at an early stage of cases that
they are investigating under Article 81, requires an exchange of informa-
tion on such cases and gives DG Competition a complete overview of all
cases being investigated throughout the EU’. From the Commission’s
point of view the provision of such information should supply greater
consistency, though it has been suggested that this change is a means
for the Commission to instruct the national authorities about what deci-
sion to make. This may amount to wishful thinking on the part of DG
Competition, but the possibility of such ‘pressure’ (Pijetlovic, 2004: 361)
being indirectly exerted cannot simply be ignored. All information which
is forwarded to DG Competition is as a matter of course also transmit-
ted to all members of the network. This is particularly useful as it should
avoid parallel proceedings in various states and further enhance the one
stop shop principle.
Where difficulties do occur, and are probably to be expected over paral-
lel proceedings, the Commission will intervene directly in the allocation of
cases. Even more significantly, the Commission is empowered to investi-
gate any case of its choosing particularly involving intra-state trade, and
when it does so the national competition authorities will cease (see Article
11(6)) any investigation already under way. It should also be noted that,
as part of its deliberations and discussions, the Commission is still obliged
‘to take the utmost account of the opinions delivered by the Advisory
Committee on Restrictive Practices and Dominant Positions’ (Article 14)
which has to be consulted by the Commission prior to any decisions being
reached on block exemptions or individual cases.
The establishment of the ECN can be read as an ingenious mechanism
to foster and develop a competition culture across the EU and super-
sedes earlier forms of interaction which Gerber (1999) labelled both the
BOX 7.1 THE CAR GLASS CARTEL
The Commission’s decision to levy fines of over €1383 million

on the members of the Car Glass cartel (IP/08/1685) marks yet
another milestone in the history of EU cartelbusting for two reasons.
This fine, which was based on the 2006 guidelines (IP/06/857),
represents the highest ever levy for an infringement of Article 81
and secondly, represents the highest ever fine against an individual
company (Saint Gobain) in its role as a repeat offender (see table
7.5). The cartel had been in operation from 1998 to 2003 and had
actively sought to restrict competition by fixing prices and allocat-
ing markets. Car glass itself is used in a variety of ways by the car
industry in the manufacture of windscreens, wing mirrors, windows
and sun-roofs. The cartel bore the familiar characteristics. Meetings
had been arranged to take place in airports and hotels in different
European cities where confidential information was exchanged by
the parties concerned. Neelie Kroes was scathing in her comments
about the objectives of this cartel, and argued that these compa-
nies had cheated the car industry and car buyers for five years in
a market which was estimated to be worth two billion euros in the
last year of the cartel. Given the size of the market the Commission
regarded this cartel as a ‘very serious infringement’ of the anti-
trust rules and was extremely critical of the activities of the cartel
members which comprised Asahi, Pilkington, Saint-Gobain and
Soliver. Together the four offenders controlled more than 90 per
cent of the EU market (including the EEA) for branded replacement
glass for cars. The case was also interesting in its own right as an
‘own initiative’ case to which DG Competition had been alerted by
an unknown third party and suggests that the recent reforms are
bearing fruit. Asahi was granted a 50 per cent reduction in its fine as
it supplied information under the Leniency Notice.
‘foundational model’ and the ‘solar model’. In operation it is hoped that

the ECN will potentially strengthen information symmetry and reduce
conflict. It will certainly strengthen the ‘federal’ relationship. Indeed, the
Commission remains very much the ‘ring master’ of EU cartel policy, and
this fact is in evidence in the allocation of cases. These are to be deter-
mined following discussions within the network, and in most instances
should not prove too problematic as it will be clear which authority is best
placed to handle the case. The key here is the strengthening of this ‘federal’
relationship which involves an exchange of information, including confi-

dential information, but for the purpose of applying Article 81.
According to the Commission, however, the ECN is already proving
effective as a forum for consultation and information exchange. So far,
disputes have not occurred. Indeed, one of the first positive outcomes of
such dialogue centres on the readiness of national competition authorities
to alert the Commission and other ECN members about potential cartel
infringements, and thereafter to embark on joint co-operation in the very
early stages of the investigations. Others (Riley, 2003; Wilks, 2007) remain
to be fully convinced and hold that the ultimate success of the ECN will
depend on the powers of enforcement and the reality that some of the
national authorities (e.g. the British, French and German) are unques-
tionably more significant players within the ECN in terms of budget and
case-load than many of the others.
Others have wondered whether the EU modernisation plan was ‘deeply
flawed’ (Joshua, 2001). Federalising competition policy with a system
of federal courts was a radical idea, but doubts were raised about the
challenge that the fragmentation of enforcement poses for legal predict-
ability and consistency in a multi-level governance system like the EU,
and especially in Central and Eastern Europe. It is one thing to enact
competition legislation and another to implement it. In order to prevent
any inconsistency in approach the Commission has moved to finance
training programmes to the value of €600 000 to train and retrain national
judges about the latest developments in competition law. Considerable co-
operation within the EU seems to be becoming a reality, but time will tell
how secure and pronounced this actually is.
Interpretations and enforcement remain important issues. Since the late
1990s fewer Commission decisions have been overturned by the Courts as
the Commission started to receive much more substantive evidence and
proof through the Leniency programme. However, although the Courts
have not rejected any of the more recent Commission decisions they
have usually opted to lower slightly many of the actual Commission fines
(Motta, 2008). Recourse to the Courts makes sense for firms which hope
at least for a reduction in the size of the overall fines. In order for cartel
policy to be effective there needs to be a general consensus on the part of
both the Commission and the Courts over facts and stances. Constant
friction and disagreements would seriously undermine policy effectiveness.
Both have come to realise this. In 2005, for example, the European Courts
reviewed eight cartel decisions (some four in 2004) and, significantly,
backed the Commission’s stance in each case (Table 7.6). The Commission
has also taken to welcoming Court judgments as in the CFI’s ruling on
Plasterboard when the Commission’s initial fines were reduced from €478
Table 7.6 Judgments from the courts in 2005
Sector Court Decision date Decision

Speciality graphite CFI June 2005 Supported Commission’s view
and reasoning
Preinsulated pipes ECJ June 2005 Confirmed Commission’s 1998
decision; dismissed appeal and
upheld CFI’s 2002 decision
Alloy surcharge ECJ July 2005 Rejected appeals against CFI
(Dec’01 judgment) which had
upheld earlier Commission
decision
SAS Maersk CFI July 2005 Upheld the Commission’s
2001 decision
Luxembourg CFI July 2005 Confirmed Commission
brewers decision
Belgian brewers CFI October and Confirmed Commission’s 2001
December 2005 decision
Vitamins CFI October 2005 Annulled Commission’s
2001 decision as far as two
companies concerned
Zinc Phosphate CFI November 2005 Fully endorsed the
Commission’s decision and
dismissed all applications for
annulment
Source: Compiled from the European Commission, Competition Policy Newsletter, June
2006, pp. 58–60.
million to €458 million (MEMO/08/489 Date: 08/07/2008). Advances are

being made in the Commission’s war against cartels, but let’s be clear; even
with the recent increases in staffing levels it is clear that DG Competition
is still under-resourced, and this is particularly true for the fight against
cartels. This explains why the Commission continually seeks new mecha-
nisms and means to aid its activities.
6. CONCLUSIONS
EU cartel policy in the period after 1999 provides a fascinating study of

supranational enforcement activity, and one where once the Commission
had accrued its powers, developed its arguments and bolstered its position
N
N N
N N
N N
N N
N N
N N
EU
N N
N N
N N
N N
N N
N N
Note: N = 27 National Competition Authorities

EU = European Commission
Figure 7.1 Visualising EU Cartel policy in operation after 2004
as a puissant and determined regulator, it was handed weapons to secure

its objectives but also devised and upgraded these tools (through, for
example, a higher fining policy) to tackle cartels. The Commission has
consistently displayed both imagination and drive in its efforts to combat
cartels through initiatives such as the decentralisation of its remit, the
leniency notices, the imposition of higher fines and moves towards direct
actions. Having been empowered by the member states the Commission
has been able to graft on new notices and guidelines itself to make cartel
policy more efficient. Building in mechanisms (such as the ECN) as a
means of securing greater co-operation and consistency with the national
competition authorities is one such route which hopes to enhance detec-
tion and foster a common competition culture. The changes post-1999
truly represent a revolution in the history of European anti-trust. Time
will tell how effective it will be but it appears for some to be working well
already (ABA, 2005).
Developments in European cartel governance in both the form of policy
convergence and the new. More significantly, the notions of a market led
economy had heralded nothing less than a real revolution for the former
Soviet satellite states of Central and Eastern Europe. Competition policy
had not featured at all as an aspect of the command economy approach
which had been pursued by these states since the late 1940s. Yet all
successfully adopted competition policies and established competition
authorities prior to joining the EU. We should readily dismiss neither
the different philosophies, approaches and national provisions which
existed and shaped cartel policy even in the states with competition laws
in Western Europe nor the lack of contact between the EU rules and the
national systems (Riley, 2003). Can these different experiences prevent the
arrival of a single European cartel policy?
The under-resourced Commission has shown degrees of flair and imagi-
nation. As DG Competition’s resolve intensifies so it appears does the deter-
mination of cartels not to be caught. Indeed, cartels are becoming ever more
sophisticated and better equipped to evade the cartel hunters. It is clear that
DG Competition has used its authority and powers to create norm inter-
preting administrative rules which take the form of guidelines, communica-
tions, notices and letters (see Hofmann, 2006). It was handed weapons to
secure its objectives, but also devised and upgraded its own means to tackle
cartels. It has developed and deployed simultaneously both carrot and stick
approaches to deter cartellisation. The new fining arrangements should
prove an invaluable upgrade and will lead neither to bankruptcies nor
higher prices for consumers as is so often claimed (see Motta, 2008). Indeed,
the Commission should publicise more widely to a general audience how
its anti-cartel strategies benefits consumers directly (the benefits of greater
competition) and indirectly (fines are paid into the EU budget). Ultimately
the fact that cartels still exist strongly suggests that fines at current levels do
not act as sufficient deterrents, but can they go much higher and further?
Moves towards the criminalisation of cartel activity – and some member
states including the UK now allow for such sanctions – may yet provide the
better deterrent, but the issue of criminal sanctions raises questions about
the nature and powers of the EU. Criminal sanctions for cartel offences
seem, however, inevitable in the longer term.
From a positive perspective DG Competition has correctly opted to
prioritise its cartelbusting activities and its record over the last decade
has been pretty impressive. This decussis mirabilis has built directly on the
work of the previous four decades and has seen horizontal price fixing and
market sharing agreements being attacked robustly. Yet, judging just how
successful European cartel policy actually is remains an arduous task, for
we get to learn only about the cartels which have been unearthed. Just
how many unknown agreements proliferate through the entire global
economy? Are the cartel authorities really making an impact on attitudes?
Officials are prepared to state that they are probably discovering only the
tip of the iceberg and that the challenge confronting all cartel-busting
regulators is immense. According to Phillip Lowe (2007), the current
Director General of DG Competition, the Commission will uncover only
about 10 per cent of cartel activity (Lowe, 2007). This confession not only
demonstrates just how wedded many firms are to cartel arrangements but
further reinforces the difficulty of detecting cartel activity and the shortage
of manpower within the Commission. Ultimately, cartels as an element
of the business world in all probability will never be vanquished. The
regulator’s task is an immense one, and each must create the best possible
conditions that deter cartellisation. It is fair to say that the Commission
is making progress. Detection is getting easier, but finding the right deter-
rent remains somewhat elusive for now within the EU context. In its
efforts to tackle cartels the Commission has increasingly pursued interna-
tional co-operation.
NOTES
1. Hard-core infringements (which divide markets, fix prices and/or apply conditions of
sale) are deemed under Article 81 to constitute infringements even where in theory
they might be able to, but in practice cannot, make a case for efficiency benefits.
Interestingly, agreements where there are no specific hard-core clauses can still fall foul
of the EU rules if they have the effect of restricting actual competition.
2. The reform was formally set in motion under Karel van Miert’s tenure though the
process fell to his successor Mario Monti to complete.
3. Large business groups have played a decisive role at times in pushing closer economic
integration, particularly since the mid 1980s. The ERT, for example, is one of the best
known and most powerful groups. It comprises the chief executives of Europe’s leading
private business companies and was an enthusiastic advocate of the single market pro-
gramme and rapidly engaged in a neoliberal ‘competitiveness discourse’ (Buch-Hansen,
2008: 199) and, more recently, in the pursuit of the Lisbon Agenda. For discussion of
the ERT see van Appeldoorn, 2002. There is an argument to be made about how the
Commission’s engagement with outside groups provides it with greater legitimacy.
4. This wider policy community plays a vital role in any future design of competition
policy. The Commission places considerable emphasis on hearing the views of business
and legal practitioners as to how policy could be improved. Be it regular competition
conferences (as run, for example, by AMCHAM EU) or comments on Green Papers
this input is valued and arguably necessary. The views on the latter are often extensive
and are disseminated on DG Competition’s web pages.
5. The Commission has always been keen to stress the degree to which it has been overbur-
dened by the notification system, though some (see Riley, 2003) question whether the
Commission actually overplayed this issue. The backlog of cases under Articles 81 and
82 had declined throughout the 1990s from some 1,500 to 473 in 2004 (see Monti, 2007:
400).
6. See recital 3 and recital 1, Council Regulation (EC) No 1/2003 on the Implementation
of the Rules laid down in Articles 81 and 82 of the Treaty, OJ 2003 L1/1.
7. See the EP’s report on the Commission’s 1999 White Paper, Final A5-0069/1999 of 30
November 1999 and also the Opinion of the Economic and Social Committee on the
Commission Proposal for a Council Regulation on the Implementation of the Rules on

Competition as down in Arts 81 and 82 of the Treaty, OJ 2003 C155/73.
8. See recital 26, Council Regulation (EC) No 1/2003 on the Implementation of the Rules
laid down in Articles 81 and 82 of the Treaty, OJ 2003 L1/1.
9. Monti had wanted to stay and serve a second term as competition commissioner but
the rules on the composition of the College of Commissioners were changed in 2004 to
accommodate the enlargement to an EU25. At this point the five largest states (France,
Germany, Italy, Spain and the United Kingdom) which had traditionally appointed
two of their nationals to the College were now allowed (under the Treaty of Nice) to
appoint only one to the incoming Barroso College. Rocco Buttiglione was the favoured
choice of the Italian government as the new Italian Commissioner and almost immedi-
ately plunged the Commission into a renewed crisis!
10. This was stated by EC Competition Commissioner, Neelie Kroes, ‘Introductory
remarks at a press conference on the chlorine chloride cartel and EDP/ENI/GDP
merger decision’, Brussels, 9 December 2004.
11. In February 2007 the Commission imposed its then highest fine to date of €990
million on bid rigging cartels which had deliberately been created to deal with the
installation and maintenance of lifts and escalators in hospitals, railway stations and
shopping centres throughout Belgium, Germany, Luxembourg and the Netherlands.
The Lifts and Escalators cartel comprised seventeen subsidiaries of the Otis, KONE,
Schindler and ThyssenKrupp companies and had been in operation between 1995
and 2004. This particular cartel had angered DG Competition not only on account of
both the wide geographical market that its instigators had covered (given the limited
number of lift manufacturers) and the maintenance contracts which would keep the
firms active for years to come, but also because this cartel arrangement had even
fitted out the refurbishments to the Berlaymont building and the European Courts
in Luxembourg. DG Competition’s investigation of this suspected cartel began with
a number of’ ‘dawn raids’ on the premises of the companies in question in January
2004. These inspections confirmed suspicions of cartel activity. In response the com-
panies immediately filed for immunity or at least a reduction in fines for providing
information on the cartel.
This particular Article 81 violation epitomises the archetypal and classic form of
a cartel, as its members had rigged the bids for procurement markets, fixed prices,
allocated projects to each other and not only shared markets but exchanged both com-
mercial and confidential information (on bidding practices and prices). The seriousness
of the infringement was never going to be in question. The Competition Commissioner,
Neelie Kroes, stated that ‘it is outrageous that the construction and maintenance costs
of buildings, including hospitals, have been artificially bloated by these cartels. The
national management of these companies knew what they were doing was wrong, but
they tried to conceal their action and went ahead anyway’. This was a serious accusa-
tion for the managers of each of the companies if true, and DG Competition collected
evidence that many of the meetings relating to the cartel’s operations were taken in bars
and restaurants and that the managers even used pre-paid mobile phone cards to avoid
detection and tracking.
The cartel represented one of the worst infringements of Article 81 in the EU’s
anti-trust history and the amount of the overall fine reflected the size of the market,
the duration of the agreement and the weight of the firms involved. It is significant to
note that they even tried to share their involvement within the Commission’s leniency
programme. The KONE subsidiaries were granted full immunity from the fines with
respect to the cartel’s operations relating specifically to Belgium and Luxembourg while
Otis received the same outcome for providing the first information on the cartel’s activi-
ties in the Netherlands. ThysssenKrupp was far less fortunate and given its role as a
repeat offender had its fines increased by some 50 per cent and faced a final bill of €480
million. It should be noted that the cartel’s impact extends far beyond the dissolution
of the agreement in question, as many of the purchasers of these lifts and escalators are
already tied to these companies for regular maintenance and repairs for the foreseeable
future.
12. See OECD, Report on Hard Core Cartels, 2002.
13. The actual level of fine is calculated to reflect both the length and seriousness of a par-
ticular infringement and also to punish those habitual offenders. New draft guidelines
were published in June 2006 (to update the 1998 Notice) and approved in the autumn
of 2006 and present a revised and tougher framework for the setting of fines. Under
the new rules companies will be fined a so-called ‘entry fee’ automatically, and this will
amount to somewhere in the region of 15–25 per cent of their specific annual turnover
from the infringement in question, while repeat offenders can expect even tougher
examples of how fines are set.
14. Monti (2000) has openly shared his frustration over the difficulties at unearthing cartels
as they destroy copies of documents and often meet outside the jurisdictional territory
of the states in question.
15. There is a growing list here which includes some of the most famous Commission cartel
decisions since 2000 such as Vitamins, Acrylic Glass, Industrial Bags, Sorbates, Rubber
Chemicals, Gas Insulated Switchgear, Road Bitumen and Lifts and Escalators.
16. This issue became a particular concern under the US system where civil cases gererally
increased the overall fine some threefold until the US antitrust system was amended
with the adoption of the Antitrust Criminal Penalty Enhancement and Reform Act of
2004. It is a means to ensure that ‘informers’ continue to come forward.
17. See the Commission’s Competition website at http://ec.europa.eu/comm/Competition/
antitrust/actionsdamages/index.html which was accessed on 11 August 2008.
18. The public consultation on this Green Paper was open until 21 April 2006. The
Commission received substantial comments from business and law firms across Europe
and beyond and has put all submissions on its website at http://ec.europa.eu/comm/
Competition/antitrust/others/actions_for_damages/gp_contributions.html.
8. The internationalisation of cartel
policy and the challenges ahead
Cartel policy and wider competition policy have played an integral role in
the European integration project. Over the course of the last five decades
the Commission has been able to carve out for itself a space from which
to expand its competition remit, but also one which gradually came to
encroach on and influence the shape, style and substance of domestic anti-
trust regimes throughout the entire European continent. This process of
policy convergence has been remarkable. The intensification of the war
on cartels over the last decade bears witness to the determination of the
European Commission to tackle such anti-competitive activity. It has
made significant strides, re-invested its institutional energies and resources
and conceived new means of combating cartellisation. Still, the regime is
increasingly facing a new and arguably its greatest challenge to date as
questions abound about how, where and if cartel enforcement should be
regulated at the international level. Pressure for some form of agreement
to deal with cartels has been growing since the early 1990s and determina-
tion, perseverance, innovative initiatives and higher fines have become the
hallmarks of serious anti-cartel regimes. Although major successes can
be reported it is fact that not only has cartel activity not been suppressed,
but those wishing to engage in such action are going to greater lengths to
conceal any such evidence of illegal activity through, for example, the use
of encryption software to protect e-mails and anonymous mailboxes. In
Industrial Bags evidence was unearthed by the Commission of a company
document which stated that any information and materials indicating
figures for ‘allocating markets and prices must be destroyed’ (see Whish,
2009: 498). Detecting cartels was proving to be a formidable challenge,
and even more so as cartel arrangements do not stop at European borders
and are not just European constructs. Many are international, and given
the global nature of many cartels there has followed a growing recogni-
tion that much greater co-operation between competition authorities in
Europe and beyond is required if cartels are going to be effectively pursued
and deterred.
This international dimension of cartel policy presents a new set of
challenges and opportunities for the Commission and the other anti-trust
176
The internationalisation of cartel policy 177
regulators about how much and what types of co-operation are envis-
aged and raises questions about the compatibility of the various regimes.
Cartel detection and enforcement have become a priority internation-
ally. The ideas of international cartel regulation have been an almost
omnipresent feature of trade discussions since the late 1940s, although
real progress is only being made now. The Commission has displayed
an eagerness to engage in the ongoing debate which began in earnest
in the early 1990s about some form of global competition rules (Baker,
Campbell, Reynolds and Rowley, 1997; Jacquemin, 1993; Sullivan and
Filion, 2004). Interestingly the Commission’s own anti-cartel strategy
has been echoed in other industrialised states, and its focus and energies
against cartels were being mirrored in other non-European jurisdictions
and especially in North America and Oceania. Just as DG Competition
reorganised itself to be in a better position to counter cartels, so other
agencies increased their own resources in this area.1 The pursuit of an
international competition policy is a relatively new departure (Aydin,
2009; Cini and McGowan, 1998; Damro, 2003), but one where a good
deal of co-operation (Woolcock, 2003) already exists and is rapidly devel-
oping, and where there is an augmenting literature on developments in
states from across the globe. It is not without its problems and difficulties,
notably that the EU rules are dealt with under a civil law regime, in con-
trast to the criminal law system in use in the United States and Canada.
This chapter cannot cover all the aspects but focuses on the European
Commission’s pro-active involvement in the international anti-cartel
arena and explores the degree to which cartel policy has been and can be
successfully internationalised.
This chapter comprises four sections. The first sets the scene and pro-
vides a short overview of the steps taken to internationalise competition
policy. It explores the extent to which the Commission has been able to
export its own EU competition rules across Europe, in relation to candi-
date states, potential candidate states and the few remaining other states
in Europe. The second provides a short narrative of efforts at international
co-operation on competition matters after 1945 and looks briefly at both
the OECD and the General Agreement on Tariffs and Trade (GATT)/
World Trade Organisation. Discussion is extended specifically in the
third section to illustrate how the war against cartels has become the
focus of competition regulators worldwide, and how efforts at fostering
co-operation have gathered pace since the late 1990s through the OECD,
the WTO and the International Competition Network (ICN). The final
section addresses the new challenges posed to this very regime by the onset
of global recession and the return of unemployment.
1. EXPORTING THE COMPETITION PRINCIPLE

THROUGHOUT EUROPE
Understanding the context in which EU competition policy operates is
essential, for it opens up discussions on a wider debate about the desir-
ability and attainability of some form of international competition code
or policy. In a world where not only goods and services, but also people,
capital and ideas have adopted trans-national characteristics, the absence
of international rules on private business practices has increasingly
become a source of concern for those governments, business undertakings
and international organisations that are working to promote open and
competitive markets. Anti-competitive practices are an intrinsic aspect of
transnational commerce. They surface as major issues for example, when
firms opt to fix prices and arrange markets of operation to the detriment
of the consumer, when firms opt to abuse their dominant position and
engage in abusive behaviour (such as predatory pricing to eliminate rivals)
and when firms opt to merge and thereby possibly threaten to undermine
competitors. All have ensured the salience and political dimension of
competition policy.
As we have seen, such issues surface at national, regional and suprana-
tional (i.e. EU) levels, and accordingly states have designed institutional
mechanisms to regulate against anti-competitive conduct, but when such
issues arise in the globalised market place who is best placed to fulfil the
task of regulator? These issues become particularly problematic, given the
distinct approaches to the operationalisation and implementation of com-
petition policy in different states and the reality that progress on common
rules has proved to be difficult and sensitive, given the degrees of incom-
patibility that prevail between the approaches of the different regimes.
Progress to date has been modest, but things are now changing very
rapidly as the international dangers posed by cartellisation are recognised.
The pressure to uncover and punish such collusive activities has forced
competition agencies to explore the possibilities for co-operation. To this
end there has been growing evidence (in terms of sharing information
and joint inspections) and increasing co-operation between competition
authorities and the Commission over cartels. Such cross-border collabora-
tion is to be welcomed, but just how much co-operation has there actually
been, how has it been structured and just how effective has it been in the
war against cartels? The European Commission has successfully exported
its model across Europe.
The evolution and expansion of the European Union (EU) have had
repercussions on its member states and especially on how they have
responded to this dimension of governance and its challenges. EU power
has also been felt by potential EU applicant states through the enlarge-
ment process also even by third states which do not have any intention of
joining the EU at all. EU competition policy provides an excellent example
of the actual pull of EU governance on non-member states and actually
represents one, if an often overlooked, form of the EU’s external relations
(Lavenex, 2004). The Commission’s efforts at exporting its own brand of
competition rules beyond its borders have met with mixed success. The
actual efforts can be examined by exploring both the pan European and
global contexts of policy development. The Commission has been par-
ticularly keen to encourage the adoption of its own brand of competition
rules, and particularly in the European context where the requirements of
the internal market have provided a sound rationale for this type of policy
convergence. The Commission’s efforts have been visible in agreement
on the European Economic Area (EEA) and also emerged as an integral
aspect of the EU enlargement process into Central and Eastern Europe.
Both are considered briefly.
2. EXTENSION 1: THE EUROPEAN ECONOMIC

AREA
The agreement establishing the EEA, which came into force in 1994,
effectively extended the size of the Single European Market to encompass
the EU member states and most EFTA members.2 The agreement clearly
demonstrated how the EU was able to extend its competition rules and
norms beyond its own borders.3 In signing the EEA Agreement, the EFTA
states agreed to apply and abide by internal market legislation even though
they had had no formal influence over making it. It is not surprising that,
under these circumstances, accession should become an extremely attrac-
tive proposition. This agreement contains specific competition provisions
which practically mirror the European Union’s competition regime.
Indeed, in substantive terms, the wording of the EEA competition provi-
sions (Articles 53 and 54 of the EEA Agreement) is identical to that of
Articles 81 and 82 and the procedural framework reflects the provisions of
Regulation 17.4 The Agreement (in Articles 56 and 57) also established an
institutional framework which included the EFTA Surveillance Authority
(ESA) as the EEA’s version of the Commission, and the EFTA Court, to
mirror the European Court of Justice.
With almost identical substantive, institutional and procedural charac-
teristics, the Agreement establishes a homogeneous system of competition
throughout the EEA. The only real novelty, then, involves the allocation
of cases between the two sets of institutions. Even this is achieved in a
fairly straightforward fashion, with responsibility resting with the ESA

in cases directly involving and concerning the EEA states or where firms
from the EEA states have a foothold of at least 30 per cent in the EU
market. In all other cases, DG Competition assumes the lead. In essence,
the EEA competition provisions operate on the basis of two principles:
the ‘two-pillar’ system, that is, ESA and the EU; and the ‘one-stop shop’
principle (with only one body being able to act on a case at any one time)
(Stragier, 1993: 30). The export of the EU’s competition rules to the EEA
marks the first step in the creation of a pan-European competition regime.
The novelty of the EEA project should not be understated, but a very dif-
ferent approach was adopted, although with similar outcomes in terms of
competition policy, for the countries of Central and Eastern Europe.
3. EXTENSION 2: CENTRAL AND EASTERN

EUROPE
The logic guiding the extension of the competition rules to the enlarged
single market within the EEA was present at the outset of discussions
surrounding the EU’s further expansion to the countries of Central
and Eastern Europe (CEECs). Indeed, the priority in this case was even
greater, as most of these states (apart from Cyprus and Malta) possessed
zero experience of the competition principle and were in the process of
being transformed from centrally planned economies into full functioning
market economies. The initial encouragement given to the CEECs on the
domestic competition policy front formed only one strand of the EU’s
broader strategy towards Eastern Europe, which had commenced with
the rather conventional trade and co-operation agreements of the late
1980s, and fed, for example, into the PHARE (Poland–Hungary Aid for
Economic Reconstruction) programme of technical and financial assist-
ance and the more detailed association (Europe) agreements in the early
1990s. The twin-track emphasis after 1992 on both market and democratic
reform saw the EU offering advice and support to the CEECs. In perform-
ing this role, ‘[it] was instinctive to advocate that the CEECs imitate west
European policy models and rules’ (Sedelmeier and Wallace, 1996: 356). It
soon became clear that this advocacy of West European rules was going to
be tied to the prospect of EU membership, and that the adoption of rules
compatible with the internal market was in effect a condition of EU mem-
bership. Encouragement had given way to direct pressure and expectation
(Schimmelfennig and Sedelmeier, 2004)!
The Europe Agreements became the means by which the EU imposed
specific requirements (in terms of policy design and implementation)
on the CEECs. These Agreements gave the CEECs associate status

and held out the prospect of eventual membership. The chapter dealing
with competition policy was included in part V of Title V on ‘Payments,
Capital, Competition and Other Economic Provisions, Approximation of
Laws’, where the rules on competition were identified as a priority area
(Van den Bossche, 1997: 52). By mid-1997, ten agreements (with Poland,
Hungary, the Czech Republic, Slovakia, Romania, Bulgaria, Estonia,
Latvia, Lithuania and Slovenia) had been signed. The competition provi-
sions represented a new approach and indeed innovation for the CEECs
because the former centrally planned economies were not based on com-
petition. The competition rules were fairly similar in style and substance in
all the Europe Agreements. The first paragraph of the competition provi-
sions identified practices and types of behaviour (such as restrictive agree-
ments between firms, abuses of a dominant position and public aid which
distorts or threatens to distort competition) which were incompatible with
the single market. The second paragraph stipulated that any assessment
of such anti-competitive behaviour was to be based on the criteria in
Articles 81, 82 and 88. The third paragraph compelled the signatories of
the Europe Agreements to adapt their national legislation in line with the
competition Articles and within three years of the respective agreements
coming into force. The importance of competition policy in the EU’s pre-
accession strategy was confirmed both at the Essen European Council in
December 1994 and in the Commission’s influential (though non-binding)
White Paper of June 1995 (COM(95)163 final). The White Paper defined
and prioritised both the legislation and the legal and administrative
frameworks needed for CEECs to adapt to the internal market.5
The campaign for policy convergence had begun and was a conscious
one on DG Competition’s part (see table 8.1). It is interesting to reflect
on the extent to which the Commission’s advocacy of competition align-
ment and harmonisation could be described as economic imperialism
on the part of DG Competition. The Commission certainly was keen to
encourage the emergence of national systems of competition regulation
throughout Europe, and with access to the single market held up as the
prize candidate, states saw the attractiveness of developing compatible
systems of competition. By the mid 1990s DG Competition was also pur-
suing closer links with the former Soviet states, most notably with Belarus,
Kazakhstan, Kyrgystan and Moldova. It also led into discussions with the
states of the southern Mediterranean, and compelled Turkey to harmonise
its domestic legislation in line with European competition law after the
setting up of the 1996 Customs Union as an ‘alternative’ to membership.
The extension of EU-style competition systems to the countries of
Central and Eastern Europe was evident in the two most recent enlargement
waves in 2004 and 2007 respectively, and the same impetus is driving the
current negotiations which involve the next seven potential future member
states in the Balkans (Albania, Bosnia-Herzegovina, Croatia, Macedonia,
Montenegro, Serbia and Turkey). EU membership is the incentive that
is often the persuasive factor (Lavenex and Schimmelfenning, 2008).
Moreover, the EU’s developing European Neighbourhood Policy (ENP),
which applies to all those states primarily in the territories of the former
Soviet Union (with the exception of Russia), is constructed around a series
of non-binding action plans which contain some competition provisions
(Aydin, 2009). The competition principle has also been built into the
Cotonou Agreement which regulates trade and development aid with the
former European colonies in the African, Caribbean and Pacific (ACP)
states.6 By 2009 states on the European continent had sought to operate
their economies within a common or a mutually compatible framework
of competition rules (see table 8.1). Could the same logic driving policy
convergence throughout Europe be exported to third and non-European
states?
Table 8.1 The expansion of the competition principle in Europe, 1990 to

the present1
Wave 1 Wave 2 Wave 3

Cyprus, 1990 Estonia, 1993 Bosnia-Herzegovina, 2001
Hungary, 1990 Iceland, 1993 Croatia, 2003
Poland, 1990 Norway, 1993 Macedonia, 2005
Czechoslovakia, 19912 Slovenia, 1993 Montenegro, 2005
Latvia, 1991 Ukraine, 1993
Russia, 1991 Malta, 1994
Belarus, 1992 Turkey, 1994
Bulgaria, 1992 Albania, 1995
Finland, 1992 Switzerland, 1995
Lithuania, 1992 Georgia, 1996
Moldova, 1992 Romania, 1996
Serbia, 1996
Notes:
1
It should be remembered that a successful competition policy rests very much on its
implementation. Having one on the statute books is a start, but is not sufficient in itself.
Negotiations between the EU and Croatia on competition had not yet begun by the start of
2009.
2
Although this territory split into the Czech Republic and Slovakia in 1994 the competition
rules from the unified state are extended into its two successor states.
4. THE COMMISSION’S STRATEGIC

ENGAGEMENT IN STRENGTHENING
INTERNATIONAL CO-OPERATION ON
COMPETITION POLICY
The objective of establishing some form of international competition code
may indeed seem logical, but attempts at securing any such agreement
have been both difficult and problematic. Moves in this direction have
often been hindered and by a clash of cultures and ways of handling the
economy in general and different interpretations of the exact value of, and
approaches to, anti-trust. Nevertheless, the internationalisation process
began earnestly in the mid 1940s. The 1947 Havana Charter (McGowan,
1998) represented the first major post-war multilateral initiative (Brown,
1950), and one which not only embraced substantive antitrust rules (which
reflected the US model) to ease international trade but also espoused the
creation of a new institution, the International Trade Organisation (ITO)
in 1946. The original schematics for the ITO had included provisions
which not only dealt with anti-competitive behaviour on an international
front but also aimed to compel ITO members to adopt national compe-
tition laws to enable the successful implementation of an international
cartel policy. This drive towards an anti-cartel strategy was informed by
events in the 1930s (see chapter 3), the salience of the theme in printed
form (Hexner, 1946; Stocking and Watkins, 1946) and firm convictions
that cartels were the tools of authoritarian regimes. In retrospect, it was
an extremely bold aspiration to be made in the 1940s when few states pos-
sessed domestic competition legislation, and it ran into political difficulties
almost immediately, but it reflected the political and economic concerns
of the time. Rather ironically the greatest pressure (often the US govern-
ment) and the greatest resistance emanated from the United States. It
was primarily American opposition and the House of Congress’ worries
not about the antitrust rules but concerns about losing any regulatory
sovereignty (Woolcock, 2003) which led to the US government’s refusal
to ratify the ITO, which in turn ensured that the ambitious plan was
effectively stillborn.
The General Agreement on Tariffs and Trade (GATT) emerged in
1947 as an alternative multilateral vehicle (although a shadow of the ITO
proposal) to promote international trade, but it was primarily concerned
with enacting tariff cuts. In contrast, the idea of pursuing an international
competition policy code was effectively sidelined despite the existence of
some ardent supporters.7 The opportunity to discuss competition policy
issues arose within the rubric of another new international forum, namely
the United Nations Conference on Trade and Development (UNCTAD).
Again, however, discussions of cartel issues were sporadic and the sig-
nificance of the few resolutions on anti-competitive activities that were
agreed can be questioned as they were non-binding on the members. That
said, UNCTAD did play a fundamental role and managed to keep the
theme alive within a much wider political spectrum, and even adopted
several measures such as the Code on Restrictive Business Practices in
1980 (Benson, 1980). More recently it has also drawn up and periodically
revises its own model competition law for those countries seeking to enact
policy for the first time, and has been particularly active at providing
technical assistance for developing countries in this area.
Overall, however, rather minimal progress of any kind was made on
moving towards any substantive multilateral competition rules from
the late 1940s until the late 1980s. This picture began really to change,
however, only with the advance of neo-liberalism and the growing recog-
nition of the reality of globalised markets and global business players in
the late 1980s. The Commission had taken an interest in the international
dimension to competition policy which reflected the sudden wave in
merger activity in the late 1980s as barriers to trade were brought down
(Damro, 2006b) and questions arose over who exactly was empowered to
regulate the processes of transnational concentration.
In considering its approach to the international dimension of cartel
policy the Commission was faced with a series of possible strategic
options to pursue. These encompassed multilateral, bilateral and uni-
lateral perspectives. The Commission strongly favoured the multilateral
approach, was actively involved in a series of multilateral initiatives such
as UNCTAD’s activities, was a member of the latter’s Intergovernmental
Group of Experts on Competition Law and Policy and pursued the idea
of global rules through venues such as the WTO. In the absence of any
concrete steps towards a global multilateral competition regime, the real
threat of a return to purely unilateral methods of international competi-
tion enforcement presented itself as one viable, if unwelcome, route. Not
only does this course of action prove an inadequate way of dealing with
transnational practices, but it can also provoke retaliation from aggrieved
competitor states.
The controversial issue here surrounds the extension of domestic com-
petition law beyond the borders of a particular state when a national or
regional law seems to impinge on another state’s sovereignty or territo-
rial integrity. Both the US and EU competition regimes allow for what
is known as the extraterritorial application of competition law. While an
American tendency to resort to extraterritorial solutions when faced with
international trade difficulties has frequently provoked harsh criticism
from the Europeans, the extraterritorial application of the EU rules has
also at times proven controversial. For here we see one aspect of competi-
tion policy which impinges directly on the ‘high politics’ of trade policy. In
applying the concept of extraterritoriality, the Commission’s competition
policy is said to affect all companies operating within, and importing goods
into, the single market, including companies the headquarters of which are
not within the EU. In the absence of multilateral solutions, and in efforts
to avoid unilateral action, bilateral agreements, such as that between the
US and the EU or that between Canada and the EU, offer a convenient
alternative.8 The globalisation of trade and the new geo-political realities
of the post-Cold War world had propelled both states to re-examine their
‘special’ relationship, and the decision of both to agree a bilateral agree-
ment on competition policy reflected growing need for co-operation (Van
Miert, 1996). The bilateral agreement aimed to smooth the path to greater
co-ordination. Judged positively it created a framework for meaningful
and useful co-operation and enabled both signatories to become more
familiar with each other’s rules and enforcement techniques, and led to a
series of bi-annual meetings between DG Competition and the US Fair
Trade Commission. A joint investigation into Microsoft in 1995 proved
one of the first examples of this new-found co-operation in practice at
work which has ‘contributed greatly to the effective resolution of a number
of cases’ (Van Cauwelaert, 1997: 52). However, difficulties remained, and
such arrangements do not compensate for the absence of an international
competition code. Despite the heralding of the 1991 US–EU Co-operation
Agreement as a landmark, the limits of bilateralism become all too clear
when we consider the 1997 dispute over the proposed merger between
Boeing and McDonnell Douglas (McGowan and Cini, 1999) and the later
tensions over the GE/Honeywell merger in 2001 (Fox, 2007; Morgan and
Maguire, 2004).9
With the likelihood of any international agreement on competition
policy seeming remote in the 1990s, given the potential for conflict
between discrete policy models, the competition agenda turned instead
to explore the scope for policy co-operation and mutual accommodation.
The Commission, together with national competition authorities such as
the American Federal Trade Commission (FTC) and the German Federal
Cartel Office and international organisations such as the United Nations
Conference on Trade and Development (UNCTAD), the OECD, the G8
and the WTO, has, at one time or another, been involved in encouraging
harmonisation and co-ordination measures (Cini and McGowan, 1998).
An increasing awareness of the importance of the international dimension
has led to the emergence of a network of agreements between states, and
the inclusion of competition policy arrangements in international trea-
ties such as, for example, the 1993 North Atlantic Free Trade Agreement
(NAFTA). Indeed, two international organisations, namely the OECD

and the General Agreement on Tariffs and Trade (GATT), became impor-
tant arenas in which these issues of internationalisation were discussed.
Both are now considered briefly in turn.
5. THE ORGANISATION FOR ECONOMIC

CO-OPERATION AND DEVELOPMENT (OECD)
AND COMPETITION POLICY
The OECD has become one of the most significant arenas for discussions
of the purpose and desirability of an international cartel policy. This body
was established in 1961 as a research body for the world’s most industrial-
ised nations and still serves as a forum in which member states can study
and formulate policies based on best practice.10 Its purpose is to encour-
age co-operation amongst its thirty members, especially in areas where
domestic policy has transnational implications.11
The OECD was initially involved in some non-binding (soft law) rec-
ommendations on competition policy from its inception, but its early
attempts to raise cartel related matters in the 1960s and 1970s met with
substantial opposition from its members.12 At the time, competition policy
was judged to be an almost exclusively domestic concern, and it was not
until the 1980s that a political interest in the international dimension of
competition policy emerged to allow the first substantive moves on this
issue. It was in this changed environment, however, that the OECD’s role
became better defined, through the work of its own Competition Policy
and Law Committee (CPL).13 The CPL, the members of which come from
the national competition authorities from the OECD member states and
DG Competition, spends much of its time publishing reports and provid-
ing data on competition and competition matters. It holds conferences on
competition policy, provides regular reviews of the state of competition
and cartel policy in member states and sees itself as ‘the world’s premier
source of policy analysis and advice to governments on how best to
harness market forces in the interests of greater global economic efficiency
and prosperity’ (OECD, 2009). The OECD approach towards cartels has
been built on consensus, and it has deliberately avoided seeking to present
itself as searching for a common global competition policy (Doern, 1996:
316). The OECD has sought to encourage co-operation between states and
even attempted to steer it. Its reports and expertise have gradually earned
the OECD a solid reputation. Its 1986 Memorandum on Co-operation
between Competition Authorities, for example, was influential in launch-
ing a coherent case for the need to harmonise competition rules and to
make the case for greater international co-operation in anti-trust matters.

Although its advocacy of harmonisation and internationalisation did not
initially bear much fruit, it was in retrospect a first and important step
forward in persuading members to implement and enforce their own com-
petition policies, using common analytical approaches.
By the mid-1990s issues such as cartel policy convergence, the interac-
tion between international trade policies and competition policy (which
led to the setting up of a Joint Group on Trade and Competition), the
connections between economic regulation and competition (which was
especially important as member countries deregulate and reformed their
regulatory regimes), and the enforcement of international competition
by competition officials all took centre stage. DG Competition once
again was fully engaged in these and in other areas of the OECD’s work.
DG Competition has participated in a working party on public support
measures, in an examination of the ‘competition advocate’ role played
by competition authorities, and in general discussions on ‘essential infra-
structure projects’, small and medium-sized enterprises, the liberal pro-
fessions and firms holding a dominant position (Commission, 1996). As
such, the OECD has become an important focal point of contact for DG
Competition, and the latter has increasingly involved itself in the pursuit
of international accord on competition rules and entered a new phase of
heightened anti-cartel activity after 1995 (see below).
6. THE WORLD TRADE ORGANISATION (WTO)
The GATT initially might have seemed a more appropriate international

forum for addressing competition issues. However, while some of its
activities – those involving anti-dumping and the grant of government sub-
sidies for example – were on the margins of competition policy, GATT was
reluctant to involve itself in debates about policy harmonisation, given the
fervent opposition of some of its members. Indeed, until the late 1980s, its
only involvement in the policy was through an annual Intergovernmental
Group of Experts on Restrictive Business Practices which was effectively
a forum for discussion. Not until the mid-1980s was it possible to identify
any change of emphasis which led to the establishment of an International
Anti-trust Code Working Group in 1992 (Trebilcock, 1996). Composed
mainly of German anti-trust experts (though comprising other Europeans,
Americans and Japanese academics), the Working Group produced a
draft International Anti-trust Code, which was submitted to GATT in
the summer of 1993 (Drexl, 2003). The Code advocated minimum stand-
ards for competition rules to cover horizontal and vertical agreements,
mergers and monopolies, and recommended the setting up of an inde-

pendent International Anti-trust Agency and a Disputes Settlement Panel
under the auspices of the WTO. Although the draft was widely criticised
on both sides of the Atlantic, it did succeed in drawing attention to the
international dimension of competition and cartel policy.
Since 1995, GATT’s successor, the WTO, has continued to involve itself
in competition matters.14 As an organisation entrusted with the promotion
of trade flows, the advancement of economic liberalisation through nego-
tiation and the establishment of impartial dispute-settlement mechanisms,
competition-related issues certainly seem to lie at its heart. However, in
the first two years of its existence, the WTO’s only dealings with competi-
tion matters were on specific trade. This began to change in 1996 at the
Singapore ministerial meeting where ministers agreed to establish several
new working groups, including one which would deal with trade and
competition policies. The idea for such a working group originated in a
report, known as the Van Miert Report (COM(95)359 final). The Report
discussed the idea of establishing an international anti-trust code which it
deemed unrealistic, and proposed in the interim that all WTO countries
should be encouraged to develop competition policies and that bilateral
ant-trust agreements should be encouraged. This working group began its
work at the start of 1997 with the task of providing the WTO with ana-
lytical and exploratory materials. The Commission was convinced that the
WTO provided the best means to work towards a multilateral framework
on competition principles, and one which would be built gradually around
the industrialised states but would in time also bring in the developing
nations (Weinrauch, 2004: 158). The US was always rather sceptical about
moving towards any multilateral deal, but it agreed to participate in the
working group (Marsden, 2003: 60). This group proved reasonably active
and met regularly, some three times per year from 1997 to 2004, to discuss
policy matters and in effect seek to forge a ‘competition culture’.
However, actual progress can be described as minimal at best as major
differences between the competition systems prevailed. One of the areas
where it had been hoped that substantial progress could have been made
in the Doha Round discussions, given a wide consensus, was the need to
tackle those hard-core cartels which determined price and output and
added little in the way of improved productivity.15 The WTO was – and
correctly – convinced that cartels are far from being a coincidental con-
vergence of interests on the part of their members, but on the contrary,
deliberate and professionally run creations which impact negatively on
price. It was estimated by the WTO that cartels on average led to price
rises of some 10 per cent, with even more significant increases in the devel-
oping world (Levenstein, 2001). More worryingly the WTO appreciated
that many cartels go undetected. Despite the general agreement on the

dangers posed by cartels there was little headway made with anything like
the WTO having the power to impose a cartel ban. The different national
perceptions about what types of agreements were actually damaging and
problematic simply prevented any agreement on cartel policy. US opposi-
tion towards any multilateral arrangement which threatened to undermine
the principles of American anti-trust was always at the forefront and,
given the differences, it was far from surprising when the WTO General
Council decided to drop competition policy from the negotiations in the
Doha Round. Consequently, its committee was dissolved in 2004 and is
now ‘inactive’ (WTO, 2009). Overall discussions on the entire trade round
were to collapse later in Cancun. The failure of the WTO initiative was
certainly unfortunate and dented the move towards greater multilateral
co-operation, but it represented only one possible attempt at achieving
agreement on rules pertaining to an international competition regime.
In the absence of such a body were there other possibilities of facilitating
greater co-operation against international cartels?
7. CONSTRUCTING AN INTERNATIONAL
COALITION TO COMBAT CARTELS
Agreement may have been difficult to attain, but there was growing rec-
ognition among competition regulators that the role and anti-competitive
strategies of some business concerns, and especially the growing reality of
international cartel activity, necessitated co-operation on the competition
policy front at a global level. Most competition agencies have long realised
the pressures, but how exactly was this goal going to be managed divided
states. Co-operation between agencies rapidly emerged as the path ahead,
as opposed for the moment to direct policy convergence. Co-operation
has its advantages as it has the possibility to alert any relevant competi-
tion agencies about cartels which may be active and operating in their
own jurisdiction, it holds the promise of sharing information, but, more
importantly, co-ordinating antitrust activities, and may avoid the risk of
destruction of evidence if one agency moves before any others where a
cartel is active. Co-operation also enables agencies to learn, collect and
collate useful information from other bodies and facilitates contact and
staff discussions. Information exchanges and co-operation can occur
at the pre-investigatory level, the investigatory level itself and the post-
investigatory level. Essentially, the information that can be imparted at all
three levels includes the exchange of information from one public agency
to another; the sharing of collected information obtained from private
sources (e.g. other rival companies) which is not available within the public
domain but the sole possession of the authority in question; possible exist-
ing information/past history notes on the companies concerned about past
misdemeanours, and new ways to facilitate cross-agency exchanges. Such
co-operation is already occurring at a number of levels and is seen in the
UNCTAD, in the shape of the OECD and in a growing series of regional/
trade integration agreements, and in a growing number (some twenty+) of
bilateral agreements (Woolcock, 2003).
The first tentative efforts at facilitating co-operation against cartels
were undertaken under the auspices of the OECD. Its 1995 report on
‘Recommendations between Agencies’ signals a modest starting point,
but one which was heading in the right direction by seeking greater inter-
action, exchanges of non-sensitive information and the co-ordination of
investigations between the competition authorities. This objective was
never going to be as straightforward in cartel cases as in merger and domi-
nance cases, and so experience proved. The OECD’s determination found
a more developed expression in the OECD Council’s ‘Recommendation
on effective Action against Hard-Core Cartels’ from 1998, which basi-
cally urged its members to be aware of the dangers posed by hard-core
cartels and to identify ways to deter them by intensifying enforcement
procedures. This plea added further pressure because traditionally what
co-operation had existed – and it was at best minimal in the cartel policy
field – had very much depended on the nature of agreements between the
NCAs themselves, and more often than not these same agencies displayed
a reluctance to both share and exchange confidential information.
The OECD was effectively taking a leadership role and steering its
states towards some form of best practices approach. It has continued to
advocate co-operation and to underline the significance and danger posed
by cartels. To this end it produced its ‘Report on Leniency Programmes
to fight Hard-Core Cartels’ in 2001 which focused very much on how the
best regimes operated, how far the role of whistleblowers could facilitate
cartel detection and whether additional incentives could also be handed
out to whistleblowers as in the UK system. A further 2002 ‘Report on
the Nature and Impact of Hard Core Cartels and Actions against Cartels
under National Competition Laws’ reinforced its anti-cartel message and
its conviction that fines had yet to reach an optimal level truly to create an
effective deterrence. Its ‘Third Report on the Implementation of the 1998
Recommendation’ from 2005 reiterated the anti-cartel message, but also
incorporated another angle when it suggested that the wider public should
be made more aware of ways in which international cartels impacted on
their lives.
The realities of international cartels and the increasing salience of the
OECD’s reports had almost certainly created a changed atmosphere, and

one which facilitated the creation of the ICN (International Competition
Network). The ICN was established in 2001 as a vehicle and forum for
the competition authorities themselves to discuss experiences and their
respective approaches on a wide range of competition issues such as
policy style, policy development and policy enforcement. Ultimately this
network sought to foster a competition culture and move towards greater
policy understanding rather than policy convergence. To this end the ICN
quickly created a small number of select working groups within it, for
example, one on mergers, one on dominant positions and one on cartels.
It has further developed its interest in the cartel area by holding an annual
ICN cartel workshop, and it has already produced a couple of reports on
anti-cartel policy. As a founding member the Commission has been eager
to play an instrumental role in the development of the ICN and it took on
the responsibility in 2005, on behalf of its fellow ICN members, to examine
the role and degree of co-operation between the competition agencies in
cartel investigations and to ascertain how much had changed.
The Commission conducted its survey in the form of a questionnaire
(Commission, 2007), and its 2007 assessment provided a fairly sober
picture of developments. Progress was taking place but it remained slow
and sporadic. Positively, some agencies did admit to using informal
exchange mechanisms and found them useful, but they were utilised less
in cartel cases than in mergers or monopoly cases. It seems that formal
information exchanges were often limited to simple notification at the
start of investigations in other jurisdictions. Indeed, information tended
to be disseminated more readily at the pre-investigation stage (with the
provision of background information, details about the sector/industry,
co-ordination of searches and raids, and travel by officials to conduct
interviews) but still occurred during actual investigations (e.g. informing
other agencies about the state of play, a general assessment of the case and
shared interviews). More interaction, agency learning and mutual respect
should intensify cooperation in the future. To this end the OECD is pur-
suing the issue and has even begun the task of pulling together a cartel
enforcement manual, and even ‘created a template for ICN members to set
out their rules governing cartel enforcement’ (Commission, 2009).
A second means to enhance co-operation stems from existing provi-
sions under national law which allow competition agencies to exchange
information. Competition authorities such as the BKartA, the Canadian
Competition Bureau, the US Department of Justice and the Romanian
Competition Council are entitled to share information, but in practice
issues arise over exactly what materials should be shared, as sensitivities
remain. For example, the latest alterations to the German GWB which
came into force in 2005 incorporate not only the provisions implementing
Article 12(1) of Regulation 1/2003 which openly advocates the sharing
of information between agencies within the ECN, but also authorises the
German authority to enter into co-operation with authorities outside the
EU.16 In a similar vein the UK Enterprise Act of 2003 enables the OFT
to supply information which it has gained from its own investigations
to another authority to aid the prosecution of criminal activity, and this
includes cartels.
A third factor facilitating stronger links and co-operation between
competition agencies occurs when specific bilateral agreements on com-
petition policy have been made between jurisdictions. The first bilateral
competition agreement was signed between the USA and West Germany
in 1976 and has become a standard type of agreement to regulate co-
operation.17 The European Union’s three dedicated bilateral agreements
with the United States, Canada and Japan serve as prototypes, and
commit the agencies party to each agreement to exchange information and
to co-ordinate their enforcement activities. The EU has other co-operation
agreements (built on the OECD’s 1995 recommendations) with China
and Korea. These agreements are largely similar in terms of both style and
purpose and are structured around notifying other competition authorities
where it is relevant, sharing information where appropriate and conduct-
ing parallel or joint investigations. Most such agreements do include a
caveat, however, which prevents co-operation where it may endanger
business confidentiality.
Within Europe the ECN is proving to be an invaluable facilitator. As a
singular and unique regulatory agency it deliberately provides for greater
co-operation between the ECN member agencies. This, of course, has
become more straightforward and even easier as all the NCAs are apply-
ing the same competition rules. Under Article 12 of Regulation 1/2003 all
ECN members are urged to exchange information, including confiden-
tial information, and this co-operation can take place at all three levels
of investigation. It is just left to the agencies themselves to determine
how and where they interact as part of the ECN. All members have to
inform the others when an investigation is launched if EC law is applied.
Importantly in the realm of cartel policy information on raids can be sup-
plied after the event, although the actual NCAs will be contacted before-
hand if inspection is to be carried out in order to co-ordinate responses,
and if need be organise simultaneous searches. As part of this network
the Commission is obliged to inform the relevant NCAs in advance
of any inspection and the NCAs are expected to give assistance to the
Commission if requested. Moreover, the Commission can actually request
that an appropriate NCA carry out the investigation on its behalf. There
has been progress but caution is still required, because the co-operation
is not without its own problems. Case complexity still abounds and the
procedures from start to finish are lengthy, especially where the judicial
authorities are brought into the equation. Co-operation has intensified
and fascinating questions arise over whether we are moving towards some
degree of policy convergence. Such notions may seem premature, but the
evolution of European cartel policy (through the introduction and refine-
ment of the leniency programme and the pursuit of private actions) finds
its origins in the US experience, has led some (McGowan and Morgan,
forthcoming) to argue that changes to the EU regime really represent
nothing more than Americanisation for slow learners. Is it not inevitable
that the EU regime introduced criminal sanctions as part of its cartel
enforcement regime?
8. CONCLUSIONS: CARTEL POLICY IN A

CHANGING ECONOMIC ENVIRONMENT
There is little doubt that competition policy finally came of age in the
course of the last twenty years (Leon Brittan, as quoted in Devuyst, 2000:
134). Various aspects of the EU regime, be it mergers, monopolies or state
aids, provide ample evidence of its salience, but it is cartel policy which has
best demonstrated the innovative and imaginative role of the European
Commission in tackling the most fundamental aspect of anti-competitive
activity, and it is cartel policy that has been at the forefront of interna-
tional cartel enforcement. Developments in European competition policy
can be approached theoretically through the three interconnected logics
which have recently been applied to the evolution and study of EU foreign
policy (Smith, 2009). Whereas the first logic of the integration process
focuses on the pressures for policy change (to create a fully functioning
single market) and adaptation, the second logic of external opportunity
structures explores the ways and degrees to which networks (e.g. ECN,
legal firms) and actors (the Commission) can push for developments and
incremental change. The third and final logic of identity is very much con-
cerned with how member state governments perceive and react to policy
initiatives, and it is this final one where we may indeed see greater member
state involvement and more direct intervention in the competition arena
than in the past. It is interesting to speculate just how stable the entire
competition regime actually is today. Until the latter half of 2008 EU
competition policy and the competition principle had been king and had
resisted for the most part political pressures, and usually successfully dis-
missed any notions of industrial policy when it came to making decisions,
but can the system deflect the seismic economic and political shocks of a
new economic recession?
The sudden and unexpected collapse of Lehman Brothers in the US in
September 2008 marked a decisive moment in the fortunes and immediate
stability of the global economy. It represented the beginnings of the onset
of the worst economic crisis to confront the western industrialised world
since the 1929 Wall Street Crash. Output has since slumped as many order
books are increasingly rather empty, and many firms have since collapsed
under the weight of the economic strain, which in turn has propelled the
number of unemployed back to early 1990s levels. The impact of such eco-
nomic and social turmoil is being felt in many quarters and the competition
policy arena is unlikely to remain totally immune from events. The central
question facing the western world once again centres on how government
responds to and approaches the ongoing economic and increasingly social
crisis. If belief in the free market comes to be discredited how will it impact
on the design and operation of competition policy?
Questions are going to be raised about whether the competition prin-
ciple will come under increasing attack from member state governments
(Wilks, 2009) which are responding to the needs of wider society in the face
of ongoing recession. It seems almost certain that enforcement in particu-
lar aspects of the competition brief is going to be affected, and particularly
the area of state aids and mergers. Indeed, the Commission at the start of
2009 sanctioned some state subsidies exceeding some €3,000 million to help
rescue the banking system. It may even be that the old conflict between
industrial policy and competition policy may re-emerge to an extent as the
objectives of both once again clash. In times of recession should the com-
petition regulators be as determined to enforce the competition rules? Do
they really want to insist on the maintenance of competition if it makes a
tough situation even tougher? Do they want a number of companies going
out of business (Stephan, 2009)? Can and should social policy concerns,
for example, supersede competition policy? Time will tell exactly how far
and whether the belief in competitive markets will triumph. It is tempting
to use words such as retrenchment and decline but these would be to over-
dramatise the events.
It can be anticipated that merger control may be relaxed, and almost
certainly that the approach to state aid will soften considerably. However,
the two traditional cornerstones of antitrust, namely cartels and abusive
monopolies, will remain untouched.18 Whatever the future holds for
European competition policy – and softening is expected in certain areas
– the war against cartels is unlikely to change, and what change may come
will probably occur with the re-emergence of sanctioned crisis cartels (for
example, in the much troubled car industry). Cartels remain a reality, and
even more so in times of economic recession, and we should expect to see

many more episodes of such cheating and collusive activity, and as such
the wars will continue and must be intensified further. It is to be expected
that ‘unquestionably leniency programmes are the greatest investigative
tool ever designed to fight cartels’ (Hammond, as quoted in Spratling
and Arp, 2004) will make detection easier and more frequent, and it is
also assumed that increased co-operation and co-ordination among com-
petition authorities will enable more cartels to be discovered. The final
message for companies (and increasingly for individuals where cartel
activity constitutes a criminal offence) is clearer than ever. They should
avoid entering into price fixing and market sharing agreements if they are
to avoid the serious consequences that will arise and the growing determi-
nation of cartel regulators worldwide to eradicate cartellisation.
NOTES
1. Case studies from Australia and New Zealand provide excellent examples of how cartels
have come to feature more heavily on the radar screens of the Australian Competition
and Consumer Commission and New Zealand’s Competition Commission, and how
both have recorded the imposition of ever higher fines and the introduction of leniency
programmes. (See Simpson Grierson, 2009.)
2. Switzerland was a member of EFTA, but did not participate in the EEA because
a referendum on EEA membership was rejected narrowly in December 1992. The
original EFTA agreement had provided for interaction between the member state
governments on competition matters (Martin, 1961). However, the EFTA Council did
not possess any powers to conduct investigations and, in effect, such aspirations were
meaningless.
3. For many of the European Free Trade Association (EFTA) states, however, the agree-
ment was little more than a stepping stone to accession. It offered access to the internal
market as a half-way house between non-membership and membership of the EU.
Three of the original participants, Sweden, Austria and Finland, joined the EU in
January 1995, leaving only Iceland, Liechtenstein and Norway as the three remain-
ing EFTA parties to the agreement. The EEA Agreement sought to create the largest
single market in the world. Fundamental to this aim was the introduction of the so-
called ‘four freedoms’ (goods, services, labour and capital), although the Agreement
also included co-operation in the fields of research and the environment, and financial
aid through the European Investment Bank (EIB). Certain European Union policies,
including Economic and Monetary Union and Common Foreign and Security Policy,
were not covered by the Agreement.
4. It should be noted that merger policy was treated somewhat differently, however, as it
was intended that the EU’s Merger Control Regulation should be modified to cover
the entire EEA region. The state aid provisions contained within Articles 61–63 of the
Agreement reflected those within the EC Treaty (Articles 88–90).
5. Drafted by the DG responsible for the single market and supported by DG Competition,
it foresaw two ways in which the Commission could assist the CEECs in building an
effective competition policy: first, by drawing up an inventory of state subsidies granted
by the CEECs and, second, by running competition policy training programmes.
6. The Cotonou Agreement (OS 2000 L 317/3) was signed in June 2000 and came into
force in April 2003, is valid for twenty years and is based around three pillars – political
co-operation, trade links and development assistance. Article 45 of the Agreement

obliges the ACP states to adopt and implement sound competition policies.
7. These supporters came mainly from Western Europe including Germany. The issue of
cartels was raised in the mid 1950s (Lloyd and Sampson, 1995) and a 1961 report made
the case of the suitability of GATT as a vehicle for tackling cartels. (See also Edwards,
1967 for a greater discussion.) Little interest existed among most GATT members
as concerns prevailed about the dangers of losing political control over the process
and also widely held views that cartels were not deemed to represent any significant
problem.
8. The EU/US bilateral agreement came into force in 1995 and was followed swiftly by a
similar agreement with Canada.
9. The first real test of the US–EU Co-operation Agreement came with the proposed
merger of two US aircraft manufacturers, Boeing and McDonnell Douglas, in 1997.
This merger was expected to create a firm with a $48 billion (£29 billion) turnover and
20,000 employees. The alliance was approved conditionally by the US’s FTC early in
July 1997. However, DG Competition had strong reservations about its impact on com-
petition with Airbus and especially in terms of market share and the exclusive twenty
year contracts with Delta, Continental and American Airlines to supply all their air-
craft. The Americans were convinced that the Commission’s criticism of the merger had
more to do with general industrial policy fears and an impulse to protect Airbus than
with any provisions within the Merger Regulation. A trade war between the EU and the
US loomed as negotiations between Boeing and the Commission continued through-
out the summer, with both sides hoping that the other would back down. Ultimately
Boeing proposed one final set of concessions which clinched a deal and Commission
acceptance. The Boeing/McDonnell Douglas case demonstrated the limits of the US–EU
Co-operation Agreement and the perpetuation of the extraterritorial application of
competition policy. There was certainly a heavy political dimension to the case.
10. The OECD was the successor to the Organisation for European Economic Co-
operation (OEEC). The latter was established as an intergovernmental organisation in
1947 as a means of liberalising trade and encouraging the growth of agricultural and
industrial production in Western Europe. It originally comprised sixteen member states
– Austria, Belgium, Denmark, France, Greece, Iceland, Ireland, Italy, Luxembourg,
the Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey and the United
Kingdom. West Germany joined in 1955 and Spain in 1959. The OEEC ceased to func-
tion in December 1961.
11. The OECD’s membership was extended to eighteen in 1960 when both Canada and the
United States were accepted as members, as was Japan in 1964. Its membership grew
rapidly after 1990 with the addition of many of the CEECs. Discussions for further
membership began with Chile, Estonia, Israel, Russia and Slovenia in May 2007.
12. The first ever recommendation from the OECD’s Competition Policy and Law
Committee was made in 1967. Revisions to this document in the 1970s made little
headway, though interestingly the recommendations (in 1973 and 1979) referred to
issues such as notification, sharing of information and co-operation.
13. The OECD also produces its own OECD Journal of Competition Law and Policy.
14. The WTO had some 153 members in 2008.
15. When the Doha Round of the ongoing trade negotiations was launched in 2001 compe-
tition policy was included as one of the themes.
16. Article 50a section 1 of the GWB stipulates that ‘in accordance with Article 12(1) . . .
the Competition authority has the power to disclose any mater of fact or law to the
European Commission and the competition authorities of other member states and to
supply the relevant document and data. This data may include confidential informa-
tion, in particular trade and business secrets. In return the competition authority has
the power to request and receive such information from other competition authorities
and can use it in evidence.’
17. Such bilateral agreements can be labelled as first generation (see ICN, 2009) attempts
to foster co-operation, and have developed further into second generation style accords
which allow for the direct exchange of confidential information between competition
authorities. To date there is only one example of the latter and it centres on an agree-
ment between the US and Australian authorities. This so-called Antitrust Mutual
Enforcement Assistance Agreement (AMEAA) was signed in 1999.
18. The highest ever fine of €1.06 billion (£948 million) under Article 82 (abusive monopo-
lies) was imposed on Intel (computer chipmaker) in May 2009 for having paid a manu-
facturer to use its chips over those of its rival companies. See http://news.bbc.co.uk/1/
hi/business/8047546.stm.
Appendix: The numbering and
renumbering of the rules on competition
under the treaties
Treaty of Rome (EEC), Treaty of Amsterdam Treaty of Lisbon,

1957 (ToA), 1997 (TFEU)*, 2007
Article 85 Article 81 Article 101
Note: * TFEU is the abbreviation for the Treaty on the Foundations of the European
Union but more commonly known as the Treaty of Lisbon. When it comes into force it will
renumber the rules on competition for a second time. This particular treaty was signed in
December 2007 and came into effect in December 2009 after successful ratification from
each of the twenty-seven Member States.
198
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Index
accountability 54, 55 Bebr, G. 90
Acheson, Dean 81 beer 157
Adenauer, Konrad 9, 78–9, 81, 82, 83, Belgium 54, 56, 65, 73, 77, 79, 94, 103
84, 88, 94, 97 Benelux states 79, 81, 84, 90, 94, 99
Adler, M. 77 see also individual countries
Advisory Committees 9, 117–18, 167 Benson, S.E. 184
African, Caribbean and Pacific (ACP) Berghahn, V. 57, 82, 84
states 182 bid-rigging 35
agency/principal theory 122, 123 bilateral agreements 185, 190, 192
Agfa 51 Bischof and Klein 164
agriculture 49, 88, 110 Bishop, M. 2
Common Agricultural Policy (CAP) Bishop, S. 4, 5, 27
39, 96, 110, 125 Bismarck, Otto von 29
see also individual products bitumen 24, 164
Air France 12 block exemptions 129–30, 154
Albania 182 Boehm, Franz 86–7
Albert, M. 15, 124 Bomberg, E. 95
Albrecht, Ernst 105 Boserup, W. 64
Allen, D. 10 Bosnia-Herzegovina 182
aluminium 39, 45, 65, 72 Bowie, Robert 81–2, 83
ammonia 72 Braithwaite, J. 26
appeasement policy 66 Brazil 63
armaments 72, 77 brewing 30, 157
Armand, Louis 101 brick sector 53
Asch, P. 27 British Petroleum 164
aspects of EU competition policy Brittan, Leon 10, 137, 138, 193
10–14 Brown, W.A. 183
Attlee, Clement 77 Buch-Hansen, H. 2, 5, 79, 85, 90, 100,
Australia 30, 57 101, 107, 154
Austria 54, 56, 65 Buiccirossi, C.P. 160
Austro-Hungary 47 Bulgaria 57, 181
Aydin, U. 177, 182 Bull 12
Büthe, T. 2, 100
Baker, D.L. 177 Byzantine Empire 26
ball bearings 72
Ball, G.W. 82 Caesar, Julius 26
banks 8, 48, 51–2, 57, 72–3, 88, 194 Canada 30, 63, 177, 185, 191, 192
Barnikel, H.H. 58 cardboard 56
BASF 51, 59, 72 cars 159, 168, 194
Bayer 51, 59, 72, 164 cartonboard 45, 139
Beaud, M. 46, 54 Cecchini, P. 137
219
cement 17, 38, 41, 45, 53, 130 extraterritoriality 184–5

European Commission 139, 156 formal proceedings 118–19
Central and Eastern European Advisory Committee 117–18,
countries 1, 152, 153, 166, 169, 167
171, 180–182 oral hearing 116–17
Chamberlain, E.H. 32 Statement of Objections 116,
characteristics of cartels 30–32 143
cheating by cartel members 35, 37–9 information, obtaining 115, 167–9
chemicals 45, 51, 53, 56, 58, 72, 136 international anti-cartel arena
dyestuffs 32, 66, 132–3 176–7, 187, 188, 191, 192–3
quinine 131–2 Europe 178–82
Childs, D. 70 recession 194–5
China 63, 192 investigation, powers of 113, 114,
Church, C. 93 115
Cini, M. 2, 3, 5, 8, 12, 14, 54, 95, 100, legal competence 9
135, 158, 160, 166, 177, 185 leniency policy 145–6, 162–5, 168,
civil/private actions 165, 193 169, 193, 195
Clark, J.M. 6 Notices and Guidelines 126–7, 130,
Clarke, R. 2 144–6, 160, 164, 165
co-operation agreements 192 origins of work 145
coal 39, 47, 49–50, 53, 54, 63, 65, 72, notifications from firms 113, 114,
135 118, 127, 128–9, 130, 145,
ECSC see European Coal and Steel 152, 153–4
Community ‘own initiative’ investigations 115,
Cockfield, Arthur 137 131–2, 157, 168
cocoa 66 third party complaints 113,
coffee 40, 66 114–15, 132, 133, 145, 156–7
coke 47, 65, 6 portfolio allocation 101–2, 105
Colombian drugs cartels 30 principal/agency theory 122, 123
comfort letters 118, 154 private damages actions 165, 193
Commission 2, 4, 5, 10, 19, 27–8, Regulation 17/62 9, 28, 110–112,
101–2, 106, 122–3 115, 118–19, 123, 125, 128, 139,
1963–1998 see deployment and 142, 154, 160
combat Regulation 1/2003 14, 18, 111, 150,
1999 onwards see decussis mirabilis 151–5, 167, 192
approaches to implementation of ‘single overall agreement’ 138
Art 81 107–10 state aids 12–13, 136
aspects of EU competition policy Woodpulp decision 32, 143, 147
10–14 Common Agricultural Policy (CAP)
competition commissioners and 39, 96, 110, 125
cartels 10, 138, 157–8 Conference of the Inter-parliamentary
courts: relationship with 134, 142–4, Union (1930) 63, 64
147, 169, 170 Congo 131
DG Competition (previously DGIV) Connor, J.M. 5
see separate entry copper 65
emergency cartels 136 cost-benefit analysis 142
enforcement 116, 123 Council of Europe 76
fines see Commission under fines Council of Ministers 9, 85, 101, 106,
exemption route 104, 113, 114, 155 109–10, 111, 125–6, 129
block exemptions 129–30, 154 Regulation 1/2003 150, 151
Index 221
Court of First Instance (CFI) 9, 10, 143 annual reports 135

Commission: relationship with 134, block exemptions 129–30, 154
142–4, 147, 169, 170 de minimis rule 129, 130, 154
criminal offences 112, 160, 172, 177, notifications 127, 128–9, 130, 145,
192, 193 153
crisis cartels 39–40, 91, 136, 194 vertical restraints 128, 129
Croatia 182 1998 to present 150, 153–5, 157,
Cyprus 152, 180 166–7, 172
Czech Republic 181 abuse of dominant position 12
Czechoslovakia 56, 62, 65 comfort letters 118, 154
Commissioner and 102
Daimler-Benz 60 complaints by third parties 114–15
Daly, K. 160 European Economic Area (EEA)
Damro, C. 2, 177, 184 180
De Beers Diamond Cartel 30 Hearing Officer 117
De Broca, H. 164 information, obtaining 115–16
de Gaulle, Charles 125 international regulation 181, 187
De Jong, H.W. 33 leniency policy 145–6, 162–5, 168,
de minimis rule 129, 130, 154 169, 193, 195
decussis mirabilis (1999 to present) notification system 113, 114, 118,
150–151, 170–173 127, 128–9, 130, 145, 152, 153–4
1999–2004 151–3 role of 100, 111, 123, 127, 142
2005 to present 162–5 staffing levels 128–9, 158–9, 169, 172
decentralisation/federalisation state aids 13, 127
166–70 Statement of Objections 116, 143
enhanced powers and proactive surprise visits/dawn raids 115–16,
leadership 156–62 136, 156, 163
Regulation 1/2003 151–5, 167 Diebold, W. 85
definitions 5, 14, 29–30 Diegmann, A. 73
Delors, Jacques 136 Dinan, D. 84
Deltafina 164 Djelic, M.-L. 72
democracy 7, 27, 54, 55, 67, 71 DKV 83, 84
Denmark 57, 134 Doern, G.B. 2, 7, 186
deployment and combat (1963–1998) Doha Round 188–9
121–5, 146–7 Doleys, T. 2, 4
1962–1972 125–34 Drexl, J. 187
1973–1984 134–6 duration of cartels 35–40, 41, 47, 59,
1985–1999 136–46 131, 156
Deringer, Arved 108–9, 112 Commission: level of fines 144–5
detergents 130 dyestuffs 32, 66, 132–3
Deutsche Bank 48
developing countries 184, 188 East Germany 69, 70
Devuyst, Y. 193 Eckbo, P.L. 36
DG Competition (previously DGIV) 4, economic and political rationales for
9, 13, 14, 18, 32, 102, 105, 106–7, competition policy 5–6
124–5 economics 2, 3, 6, 33
1963–1998 122–3, 126, 127, 131, 134 Edwards, C.D. 72, 89, 131
1973–1984 135–6 Egypt, Ancient 14, 23, 26
1985–1999 137–9, 141–2, 143–4, Ehlermann, C.-D. 151
145, 147 Ehrmann, H.W. 80
electricity/electrical engineering 56, 58 extraterritoriality 184–5

Ellison, G. 36 Eyre, S. 2, 71
embedded liberalism 16, 124, 166
employees 108 FBI 5, 21
employers 11, 108, 152 Fear, J. 44, 65
encryption software 176 Featherstone, K. 12, 14
equilibrium market performance 32 Feldenkirchen, W. 52, 57, 61
Erhard, Ludwig 78, 79, 81, 87–8, 98, 99 ferries 140–141
escalators and lifts 24, 159 fertilisers 45
Estonia 181 fines 9, 11, 18, 19, 25, 40, 176
Estrin, S. 2 Commission 111, 112, 113, 118–19,
Eucken, W. 87 125, 131, 132, 133, 134, 139
European Atomic Energy Community 1985–1999 139–46, 159
Treaty (EURATOM) 95–6, 121 1998 Notice: new method of
European Coal and Steel Community calculation 144–5
(ECSC) 8, 11, 27, 64, 84–6, 90–91, 1999 to present 150, 158, 159–65,
111, 121 168, 169, 170, 172
Schuman Plan 75–84, 91 2006 guidelines 160, 168
European Commission see access refused 116
Commission failure to provide information 115
European Competition Network leniency policy 145–6, 162–5, 168,
(ECN) 1, 153, 166–9, 171, 192, 169, 193, 195
193 settlement procedures 165
European Court of Justice (ECJ) 9, 10, incentive constraint 33
85, 102, 109, 111, 119, 130, 136, OECD 190
143 Roman Republic 26
Commission: relationship with 134, United States 27, 55, 132, 160
142–4, 147, 169, 170 Finland 56
Dyestuffs 32, 132–3, 147 First World War 54
European Sugar Cartel 133–4, 147 food 66, 73
Grundig-Consten 128 see also individual products
quinine 132, 147 Fox, E.M. 185
Wood Pulp 32, 143, 147 fragility and stability of cartels 35–40,
European Economic Area (EEA) 41
179–80 France 10, 15, 20–21, 69, 70, 72, 73, 74,
European Economic and Social 75, 94
Committee (EESC) 107, 108, 110, appeasement policy 66
155 Common Agricultural Policy (CAP)
European Neighbourhood Policy 110, 125
(ENP) 182 competition regime 89–90, 103, 169
European Parliament/Assembly 9, 101, EEC Treaty 95–6
106, 107, 111, 115, 125, 126, 150, Art 81 106, 107, 109–10
155 negotiating competition rules
approach to implementation of Art 97–101, 118
81 108–9, 110 European Commission 101–2
European Round Table of majority voting in Council 125–6
Industrialists (ERT) 11, 152, 162 quinine 131
Evenett, S.J.M. 24 Regulation 1/2003 154
evidence 31–2, 34 rise of cartels 46, 47, 54, 56, 62
export cartels 39 interwar period 62, 63, 65, 66
Index 223
Schuman Plan and ECSC 75–84, 91 Hambloch, S. 105

state aids 13 Hammond, A. 160
free market 27, 30, 46, 49, 74, 127, 194 Hammond, S. 160
Freyer, T. 63 Harding, C. 5, 16, 24, 28, 29, 39, 40,
Friedman, M. 39 41, 47, 48, 59, 61, 71, 74, 76, 89,
91, 123, 127, 130, 134
G8 185 Harmsen, R. 14
GATT (General Agreement on Trade Hayek, F.A. von 79
and Tariffs) 183, 186, 187 Henderson, W.O. 47
Gavin, B. 5, 33 Herlitzka, N. 14, 23
Gebhardt, G. 50 Hexner, E. 66, 183
Gehler, M. 137 history of cartels 25–9
Geradin, D. 163 dawn of competition principle:
Gerber, D. 14, 52, 61, 82, 86, 87, 90, 1945–1957 69–70, 90–91
96, 98, 110, 167 adoption of cartel laws 86–90
German-speaking Europe 14, 45, 48, Germany (1945–1949) 69, 70,
96 71–5
Germany 11, 13, 27, 29, 40, 45 Schuman Plan (1950) 75–84, 91
1945–1949 69, 70, 71–5 Treaty of Paris (1951) 84–6, 90–91
bilateral agreement with US 192 West Germany (1949–1957) 86–8,
Christian Democratic Union (CDU) 89
81, 84, 108 decussis mirabilis (1999 to present)
competition regime 152, 169, 191–2 150–151, 170–173
West Germany 8, 9, 74–5, 86–8, 1999–2004 151–3
103, 112, 133 2005 to present 162–5
Free Democratic Party (FDP) 81 decentralisation or federalisation
Imperial 46–54 166–70
interwar period 45, 56, 57–61, 63, enhanced powers and proactive
65, 66 leadership 156–62
population 48 Regulation 1/2003 151–5, 167
quinine 131, 132 deployment and combat
Social Democratic Party (SPD) 52, (1963–1998) 121–5, 146–7
58, 81 1962–1972 125–34
West see separate entry 1973–1984 134–6
Gerschenkron, A. 51 1985–1999 136–46
Gillingham, J. 61, 72, 75, 77, 79, 83, rise of cartels (1871–1945) see
84, 106 separate entry
glass 17, 24, 30, 41, 53, 56, 65, 159, 168 Hix, S. 95
Goyder, D.G. 2, 72, 90, 97, 126, 127, Hoechst 51, 59, 72
128, 134, 155 Hoffmann, S. 126
Greece 140–1 Hofmann, H.C.H. 172
Griffin, J.W. 36 Hofstadter, R. 70, 71
Grosser, A. 87 horizontal agreements 25, 31, 103, 127,
Grundig–Consten 32, 128 130, 172
Gyselen, L. 144 Hovenkamp, H. 55
Hungary 57, 62, 63, 65, 180, 181
Haas, E.B. 81, 84, 121–2
Hall, P. 90 ICN (International Competition
Hallstein, Walter 74, 79, 82, 83, 98, 99, Network) 177, 191
101, 105, 126, 137 IG Farben 59, 60, 72
Indonesia 131 Lehmkuhl, D. 2, 9, 123

Industrial bags 164, 176 Leniency policy 145–6, 162–5, 168,
insurance 57 169, 193, 195
international cartels OECD 190
by 1914 53–4 Leucht, B. 2, 8, 15, 71, 82, 90, 123
co-operation between competition Levenstein, M. 24, 33, 36, 188
authorities 176–7, 183–6, Levy, H. 64
189–93 Levy, N. 2
Europe 178–82 Liefmann, R. 47, 50, 51, 58
OECD 185, 186–7, 190–191 lifts and escalators 24, 159
WTO 185, 187–9 Lindberg, L.N. 121
interwar period 63–6 Lister, L. 91
International Chamber of Commerce Lithuania 181
108 Lloyds Register 5
International Trade Organisation Lowe, P. 164, 172
(ITO) 183 Lufthansa 5
Ireland 134 Luxembourg 65, 77, 79, 103
iron 46, 47, 49, 53, 56, 65, 72 lysine cartel 21
Italy 46, 73, 89, 98, 99, 107, 140–141
competition regime 103, 166 McChesney, F.S. 54
ECSC 77, 80, 81, 84 McCloy, John 82, 83–4
rise of cartels 45, 47, 56, 57, 63 McGowan, L. 2, 9, 13, 14, 88, 93, 98,
state aid 13 122, 139, 142, 152, 156, 166, 183,
185, 193
Jacquemin, A. 177 McLachlan, D.L. 100
Japan 27, 39, 63, 65, 66, 71, 137, 192 Macedonia 182
Jephcott, M. 30 Maes, I. 95
Jones, A. 2, 4, 104, 163 Malta 152, 180
Joshua, J. 115, 155, 169 mapping cartels 28–9
market-sharing cartel 35, 150
Kastl, L. 46 Marsden, P. 188
Kerse, C.S. 116 Marsh, D. 88
Kiersch, G. 66 Martin, S. 32, 62, 86, 90
Kleeberg, J.M. 51 Mason, C.F. 30
Kon, S.D. 110 media 24, 51
Korah, V. 4, 144 merger control 11, 85, 100, 156, 162,
Korea 192 185, 194
Korean War 78, 81 Mestmäcker, Ernst-Joachim 105
Kroes, Neelie 10, 16, 18, 138, 157–8, metals 54, 56
165, 168 see also particular metals
Kronstein, H. 30, 59, 74 Mexico 63
Microsoft 11, 185
Lagrange, Maurice 82 Middle Ages 26
Langer, J. 161 milk 60
Latin America 30 Milward, A.S. 90, 97
Latvia 181 minerals 56
Lavenex, S. 179, 182 Mirow, K.R. 45
lead 63 Mollet, Guy 97, 98
League of Nations 63, 64 Monnet, Jean 75–8, 79, 80, 81–2, 83,
Lehman Brothers 194 85, 89, 90, 91, 93, 94, 98
Index 225
Montag, F. 142 Oceania 177

Montenegro 182 oil
Monti, G. 30, 153, 156 industry 8, 27, 40, 54, 55, 164
Monti, Mario 2, 10, 16, 151, 157 research 59
Morgan, E. 4, 185 oligopolistic markets 30, 31–2, 33, 132
Moseler, Herman 74 OPEC (Organisation of Petroleum
Motta, M. 2, 27, 30, 31, 33, 100, 136, Exporting Countries) 30, 135
160, 163, 164, 169, 172 Ordo-liberalism 16, 79, 87, 96, 98, 99,
Mussard 97 100–101, 104, 105, 106, 107, 110,
124, 126, 137
national competition authorities Organisation for Economic
(NCAs) 1, 8, 14, 39, 106, 111, 124, Cooperation and Development
183 (OECD) 185, 186–7, 190–191
block exemptions and 130 Organisation of European Economic
Commission investigations 114, 115, Cooperation (OEEC) 76
116
Advisory Committee 117–18 Pace, L.F. 47, 56
modernisation of anti-cartel strategy Palatzke, A.K. 26
(1999–2004) 151, 152, 171, paper sector 17, 38, 41, 45, 53, 63, 65
192–3 Peacock, A. 87
decentralisation 155, 166–9 perfect competition 6
exemptions 155 Peritz, R.J.R. 27
training 169 pesticides 130
Neale, A. 55 Peters, B.G. 55
Nedchem 131 Peters, L.L. 50
neo-classical economics 6 pharmaceutical sector 17, 41, 156, 157
neo-functionalism 121–2, 126, 166 Pheasant, J. 165
neo-liberalism 10, 13, 16, 20, 124, 150, Pierenkemper, T. 48
157, 166, 184 Pijetlovic, K. 167
Netherlands 15, 26, 56, 63, 77, 90, 98, plaster 130
107, 131 Plasterboard 169
competition regime 103 plastics 72, 164
Neumann, M. 58 plea bargaining 165
Neven, D. 110, 127 Poland 57, 62, 180, 181
New Zealand 57 police 116
Nipperdey, T. 53 political and economic rationales for
nitrogen 59, 66 competition policy 5–7
Nörr, K.W. 47, 52 Portugal 89
North America 177 Posner, R.A. 35, 37, 160
see also individual countries potash 47, 50–51, 53, 60
North Atlantic Free Trade Agreement potato starch 60
(NAFTA) 185–6 predatory pricing 12
Norway 56, 61, 63 preinsulated pipes 139–40
Nugent, N. 95 price increases/inflated prices 22, 25,
number of cartels/percentage of world 31–2, 131, 132, 150, 188
trade 47, 66 Germany 50, 51, 53, 58, 60
Germany 47, 53, 57, 60, 61 price-fixing cartel 34–5, 150
interwar period 56, 57, 60, 63, 65, principal/agency theory 122, 123
66 prison 25, 27, 40, 160
Nussbaum, H. 23, 56 prisoner’s dilemma 38
private litigation 165, 193 Schmidt, Helmut 108

problems posed by cartels 16–17, Schröter, H. 47, 56, 63, 67
40–41 Schulze, R. 15, 82
Procter and Gamble 5 Schuman Plan (1950) 75–84, 91
professions 57 search powers 115, 156
profit maximisation 17, 23, 28, 30, 38 Second World War 65
protectionism 46, 48, 49, 78, 98, 135, Sedelmeier, U. 180
157 Seidel, K. 3, 9, 123
public cartels 39–40 Serbia 182
Shell 164
quinine 131–2 shipbuilding industry 39, 135
shipping conferences 39
Radaelli, C. 152, 166 shipping, liner 54
railway industry 8, 27, 50, 54, 55, 80 silk 63
Ramirez, S. 99 Single European Market (SEM) 7, 10,
rationale for competition policy 5–7 11, 12, 15, 93, 123, 137, 179, 181,
recession 194–5 193
Regulation 17/62 9, 28, 110–112, 115, Slade, M. 35
118–19, 123, 125, 128, 139, 142, Slovakia 181
154, 160 Slovenia 181
Regulation 1/2003 14, 18, 111, 150, small and medium-sized enterprises
151–5, 167, 192 (SMEs) 7, 80–81, 129
Resch, A. 47 Smith, A. 6, 25
Reynolds, M.J. 162 Sosnick, S.H. 6
Richter, Eugen 50 Soviet Union 69, 73, 74
Riley, A. 169, 172 former 181, 182
rise of cartels (1871–1945) 44–7, 66–7 Spaak, Paul-Henri 94–5, 102
Imperial Germany 46–54 Spain 13, 47, 57, 63
international cartels 63–6 Spratling, G.R. 195
triumph of cartel (1919–45) 30, stability and fragility of cartels 35–40,
56–63, 66–7 41
Germany 45, 56, 57–61, 63, 65, state aid 12–13, 85, 91, 135, 136, 194
66 steel sector 38, 39, 40, 45, 46, 47, 50,
US approach 54–6 53, 54, 55, 56, 63
Risse, T. 14 appeasement policy 66
Ritter, L.W. 115 ECSC see European Coal and Steel
Roman law 26 Community
Romania 62, 181 European Commission 130, 135,
Roosevelt, Franklin D. 71 139, 141, 156
rubber 59, 66, 130, 164 Germany: Level of Industry Plan
Rutherford, M. 60 (1946) 72
Rohstahlgmeinschaft (raw Steel
salt 45, 46 Community) 65–6, 72
saltpetre 65 Stephan, A. 194
sand, natural 130 Stevens, D. 118
Sanekata, K. 27 Stigler, G. 36
Sarkozy, Nicholas 20–21 Stocking, G.W. 66, 183
Scharpf, F. 98 Stragier, J. 180
Scherer, F.M. 5 Stresemann, Gustav 58
Schimmelfennig, F. 166, 180 Sturm, R. 9, 98
Index 227
sugar 36, 40, 55, 60, 63, 66 dyestuffs 132–3

European Commission 133–4, 139, EEC Treaty 97, 125
146, 147, 157 prison 25
Sullivan, M. 177 restraint of trade 26
supermarkets 18 rise of cartels 46, 47, 54, 56, 57, 62
Suslow, V. 36 interwar period 62, 63, 64, 66
Sutherland, Peter 10 Schuman Plan and ECSC 77, 84
Sweden 56, 61 United Nations 71
Switzerland 56, 133 UNCTAD 183–4, 185, 190
United States 5, 8, 15, 17, 26–7, 30,
tariffs 49, 62, 183 54–6, 89, 96, 104, 137
taxation 127 1890 Sherman Act 8, 26–7, 54, 55,
telecommunications 137, 157 64, 86
tendering, collusive 35 1914 Clayton Act 8, 26–7, 54, 55–6
textiles 56, 65 1914 Federal Trade Commission 54
Thomas, K. 4 bilateral agreement 185, 192
Thorn, Gaston 108 civil actions 165
timber 130 criminal sanctions 112, 160, 177
time limits 116 crisis cartels 39–40
tin cartels 40, 46, 66 EEC Treaty 97
tobacco 54 European Commission 128
trade unions 52 extraterritoriality 184
training 169 fines 27, 55, 132, 160
transparency 19, 134, 142, 144 Germany 59, 60, 69, 70, 71–5, 88,
transportation sector 53–4 89
railways 8, 27, 50, 54, 55, 80 information sharing 191
Treaty Establishing the European international cartels 65, 66
Community (TEC) 27, 93, 94–6, International Trade Organisation
121 (ITO) 183
Art 3(g) (previously Art 3(f)) 8, 96 leniency 145, 162
Art 81 (previously Art 85) 4, 11, 14, lysine cartel 21
15, 27, 100, 101, 103–10, 114, Marshall Plan 74, 76
123, 127, 128, 130, 134, 147, plea bargaining 165
151, 154, 155 prison 25, 27, 28, 160
Art 82 (previously Art 86) 11, 100, quinine 131, 132
106, 109, 110, 134, 151, 155 Schuman Plan and ECSC 78, 79, 80,
Art 86 (previously Art 90) 100 81–4, 86
Arts 87–89 (previously Arts 92–94) World Trade Organisation (WTO)
12, 100 188, 189
negotiating competition rules 97–101 Uri, Pierre 94, 99
Turkey 181, 182 USSR 69, 73, 74
former 181, 182
uncertainty 6, 30, 47
Unilever 5 Van Bael, I. 144
United Kingdom 10, 50, 69, 72, 74, 75, Van Cauwelaert 185
76, 89, 134, 139 Van den Bergh, R.J. 5
appeasement policy 66 Van den Bossche, A.M. 181
budget rebate 137 Van der Pijl, K. 73
competition regime 8, 17–18, 160, Van Miert, Karel 10, 16, 139, 185, 188
166, 169, 172, 190, 192 Van Waarden, F. 152
Vereinigte Stahlwerke (United European Commission 101–2, 104–5

Steelworks) 60, 74 Schuman Pan and ECSC 74–84
Versailles Treaty 57, 65 wheat 66
vertical agreements 25–6, 31, 32, 103, Whish, R. 2, 4, 24, 26, 34, 36, 38, 55,
127–8 128, 138, 176
Vesterdorf, B. 115 whistleblowers 18, 35, 38, 160, 163–4,
Vietnam War 132 190
vitamins 24 Wigger, A. 3, 5, 16, 81, 124, 126, 136,
Vito, F. 47 152, 154, 157, 166
Voigt, F. 53, 60 Wilks, S. 2, 5, 14, 15, 93, 110, 122, 124,
Von der Groeben, H. 9, 94, 98, 99, 101, 152, 154, 155, 166, 169, 194
105, 109 Willis, F.R. 78
Von Strandmann 29 Wils, W.P.J. 142
wine 63
Warzoulet, L. 3, 98, 110 Wood Pulp decision 32, 143, 147
Weinrauch, R. 188 Woolcock, S. 177, 183, 190
Wells, W. 77 World Economic Conference (1927)
West Germany 10, 15, 69, 89, 131, 132 63–4
competition regime 8, 9, 74–5, 86–8, World Trade Organisation (WTO)
103, 112, 133, 166 185, 187–9
EEC Treaty 95–6, 97–101, 103
Art 81 104–6, 107, 109–10 Yugoslavia 57

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Edward Elgar Publishing, Inc.

A catalogue record for this book

Library of Congress Control Number: 2009942053

ISBN 978 1 84720 146 1

Printed and bound by MPG Books Group, UK

1. The origins and scope of European competition policy:

Appendix: The numbering and renumbering of the rules on

Some commentators claim the recent reform package constitutes a ‘rev-

Lee McGowan, May 2009

EURATOM European Atomic Energy Community

1. WRITING ABOUT COMPETITION POLICY

Competition policy may not immediately catch the imagination of many

2. UNDERSTANDING THE COMPETITION

It is an undisputed fact among neo-classical economists that competition

raises more points of controversy it is very much steeped in ‘neo-classical’

3. INTRODUCING THE EUROPEAN UNION

without some form of regulation, and thus it necessitated the creation

the realisation of a European cartel policy.6 This nascent European regime

4. THE FIVE ASPECTS OF EU COMPETITION

restrictive practices (such as price-fixing and market-sharing agreements)

Table 1.1 Tracing the expansive development of EU competition policy*

1957 1960s 1970s 1980s 1990s 2000+

controversy. Abusive dominance assumes the form of using market power

create European champions (for example, Bull, to compete directly with

The Commission has regularly sought to modernise its practices and

5. THE SECRET LIFE OF CARTELS

Cartels have long represented an established aspect of commercial activ-

(Gerber, 1998). The existence of such activities and practices can be

the varieties of capitalism literature (Albert, 1993) which emphasises the

ranks. Recent events in the UK reflect the reinvigorated determination of

has become over time increasingly proactive and combative. The

6. ORGANISATION OF THE BOOK

cartel practices, before moving on to highlight some of the dangers that

neo-liberal competition mantra and pondered what competition has ever

cartellisation agreements have emerged again as a global phenomenon

1. RESTRICTIVE AGREEMENTS AS HISTORICAL

The cartel represents one of the oldest forms of anti-competitive practice

by restrictive agreements legislation in most states and certainly in the

Figure 2.1 Mapping cartels: a complex relationship between actors,

or aggressors), the cartel regulators (in their guise as referees or police

2. THE DEFINITION OF A CARTEL

3. ISOLATING CARTEL CHARACTERISTICS

A business cartel is a formal agreement between independent firms which

BOX 2.1 ESTABLISHING BASIC CARTEL

iii) Cartels are a combination to divide up markets and fix

agreements. Indeed, firms in such markets are highly interdependent, and

4. UNDERSTANDING CARTEL ARRANGEMENTS

4.1 The Price-fixing Cartel

Price-fixing agreements typify the best illustration and most undesirable

than others. Cartels affect their participating companies in different ways

4.2 The Market-sharing Cartel

5. STABILITY AND FRAGILITY

as most break up (Suslow, 1991). This may seems a plausible conclusion,

stability. Some authors have presented contrary evidence. In his study of

of each member, the behaviour of demand and, finally, the frequency of

that provides greater instability and encourages other members to cheat.

and oil industries. Cartels came to feature as part of German government

hard-core cartel arrangements are certain to have serious and detrimental