Speech by Páll Gunnar Pálsson, Director General of the Competition Authority, at a meeting of the Delegation of the European Union, the Institute of International and European Law at HR and the Competition Authority.
Dear guests,
It is a common practice, when much is at stake, to begin a speech on the benefits of effective competition with a quotation from Adam Smith, and particularly his work 'The Wealth of Nations'. I am going to resist that temptation and instead ask you to let your minds wander back through the centuries to the north of East Húnavatnssýsla.
The thing is, if you look up the term „competition“ on that remarkable website www.timarit.is It turns out that of all the myriad of texts stored there, the concept of competition is first applied in the yearbook Húnvetningi from the year 1857.
The 120-page publication covers a wide range of subjects. Following a report on the establishment of a reading society in the parishes of Svínavatns- and Bólstaðarhlíðar, a report on the establishment of an agricultural improvement society in the same parishes, instructions on making flour from potatoes and more, the story turns to commerce. Perhaps it is not surprising, as at that time commercial freedom had been established and the farmers were keen to make the best use of their newfound freedom.
In the chapter on commerce, three points are emphasised which must be considered for the newly acquired freedom of trade to be of use. The first is to get out of debt, the second to improve the quality of the goods as much as possible, and the third to establish trade associations. In the discussion of the importance of improving the quality of goods, emphasis is placed on washing and drying the wool. „so that no fault may be found with her, to melt the tallow under a new one, so that the wool may be neither coarse nor yellow, and especially to take care that the knitting will become more attractive to foreign nations.“ The text mentions that this was poorly managed, contrary to what it ought to have been., „for the fairness of the merchants in making a reasonable distinction in payment between the better and the poorer quality goods has not been much of an incentive for us to engage in processing and manufacturing.“
The text then says: „Now that foreign nations are permitted to come here and trade with us, it is of the utmost necessity for us to be able to receive them well with well-made and high-quality goods, for it is not certain that anything other than good and high-quality goods could more entice them to us. We appeal to experience, both old and new, we appeal to competition of the mighty trading nations, how they compete with one another in product innovation and manufacturing.“End of quote.
From this, we can still see what has often been proven before: that this nation's steps of progress are often taken up in North-West Iceland.
Several decades later, in the first year of operation for Morgunblaðið, specifically on 9 December 1913, the term 'competition' first appeared in an advertisement for the Edinburgh Christmas Bazaar. The advertisement claims to stock the most suitable Christmas gifts for everyone, from an infant to a decrepit old man, and the prices are affordable for all. competition.
This brief history lesson brings home the truth that the concept of competition and the idea of its incentives have been second nature to Icelanders for centuries. Despite this, we had to wait until 1993 for the first comprehensive competition laws, No. 93/1993, to be passed by the Althingi.
The Bill states that there are two reasons for its introduction. One is the growing importance of effective competition. The other is the possible accession of Iceland to the European Economic Area. The Bill sets out the development of price-setting and competition policy in Iceland over the preceding years and decades, which was characterised by price-setting rules and price supervision. I do not intend to deal with that history in any further detail here.
The Icelanders took the fortunate step of becoming a party to the EEA Agreement. In January 1993, legislation on the EEA was enacted, and the majority of these laws came into force a year later. This, among other things, gave the competition rules of the EEA Agreement the force of law in this country.
The Competition Act of 1993 replaced the Price Authority and Price Council with the Competition Authority and Competition Council. It banned collusion and provided for intervention powers in cases of abuse of a dominant market position and mergers between undertakings. However, the Act did not only contain proper competition rules, but also included provisions on the monitoring of unfair business practices, market transparency, and the payment card industry. which the competition authorities were also responsible for at the time.
Since the law came into force, it has been amended several times, in light of experience gained from its application and the development of EEA law. Among the most significant amendments, four in particular may be mentioned:
– In 2000, a ban on the abuse of a dominant position was enacted, thereby fully harmonising domestic law with EEA law. The same Act also strengthened the law's consultation and merger rules in line with EEA law and established experience.
– In 2005, the current law was enacted (No. 44/2005). The aim of that law was to strengthen competition supervision by making changes to the institutional structure of the supervision. The changes resulted in the establishment of the Competition Authority, replacing the Competition Institute and the Competition Council, which had a simpler administrative structure and a clear focus on competition supervision. This included, amongst other things, the transfer of consumer affairs (fair trading practices and market transparency) to the Consumer Authority. Another major change was that the new competition authority was tasked with enforcing the prohibition provisions of the EEA Agreement, as the law implemented EU Regulation No 1/2003 into Icelandic law.
In 2007, the penal provisions of the Competition Act were revised following the work of a committee chaired by Páll Hreinsson, then a professor of law at the University of Iceland. These amendments explicitly established the criminal liability of company directors and employees for breaches of the prohibition on illegal collusion and increased the maximum penalty to 6 years' imprisonment, in line with serious economic offences under the general criminal code. At the same time, the interaction between the Competition Authority and the police authorities in the handling of competition law infringements was clarified.
– Lastly in this history of developments, I mention the amendments to the Competition Act from 2011, which for the first time allowed the Competition Authority to appeal the decisions of the Appeal Board to the courts. Until then, only companies dissatisfied with the Competition Authority's decisions could appeal the appeals board's rulings to the courts.
This change was a significant improvement in the law, as with it the legislature confirmed the importance of matters concerning the public interest being able to be resolved by the courts in the same way as the private interests of the companies concerned. This was also a significant improvement in relation to the EEA Agreement, as the right of recourse for the public interest better secures the obligations of the Agreement, which are aimed at ensuring the harmonised application of EEA law.
These legislative amendments also enshrined in law the authority of the regulator to conduct so-called market investigations and to intervene in connection with them.
But how have these competition rules been applied here in Iceland?
Perhaps the simplest way to answer this is to present some figures. On the Competition Authority's website, there are around 940 publicly published decisions. However, it should be borne in mind that only a portion of the authority's decisions are published on the website, as various minor rulings, such as decisions on the handling of a complaint, are not published publicly as decisions.
Companies have been fined eighty times for infringements. Of these, companies have been fined forty-two times for collusion, twenty-four times for abuse of a dominant position and fourteen times for other matters, i.e. infringement of a previous decision, breach of the merger notification obligation or offences relating to the provision of information to the regulator. Eight companies have been fined more than once, one of which has been fined eight times.
The total amount of fines, following review by the appeals board and the courts, now amounts to nearly 8.7 billion krónur.
The Competition Authority has investigated a number of mergers. Between 2012 and 2017, 156 mergers were notified to the Competition Authority. Of these, the Competition Authority deemed it necessary to intervene in 37 cases, or in 24.1% of instances.
Since the Competition Act came into force, the Competition Appeals Tribunal has issued over 250 rulings in competition cases. In 82% cases, the Appeals Board has upheld a decision in whole or in part, or dismissed a company's appeal, whereas in 18% cases, a decision has been overturned.
The competition authorities have taken their role in monitoring public restrictions on competition seriously. The website contains 106 opinions in which recommendations are made to the government. This is in addition to numerous comments on draft bills and other recommendations.
It is also interesting to look at how the Competition Authority allocates its time to individual projects and markets. Both change from one year to the next, depending on which complaints or merger cases are most prominent, as well as its priorities.
Over the last two years, merger cases have taken up the most time, accounting for between 40 and 50 per cent of the disposal period, compared with around 15 per cent in the preceding years. Merger cases are handled within statutory deadlines and therefore take priority over other tasks.
However, investigations into illegal collusion have taken up a great deal of time in recent years. Investigations into the abuse of a dominant market position, on the other hand, have suffered from the pressure of merger investigations in recent years. However, this has not always been the case, as between 2006 and 2010 the Competition Authority devoted between 40 and 50 per cent of its time to investigations into the abuse of a dominant position. Such cases are, by their nature, among the most complex, and it is extremely important to keep a watchful eye on such conduct in small economies where concentration is high.
When the distribution of market intervention time is examined, significant fluctuations from one year to the next also become apparent, which are largely determined by incoming complaints and merger cases. However, it will come as no surprise that the Competition Authority spends most of its time on markets that are of great importance to Icelandic consumers, such as the grocery market, fuel, financial services and telecommunications. Transport and logistics are also of great importance for an island in the middle of the Atlantic Ocean.
But what is the effect of enforcing competition law?
First, it is perhaps right to acknowledge that it has not yet delivered effective competition in all the most important consumer markets. There is still work to be done. Monopoly is prominent in Iceland and in many areas the price of goods and services is high compared to neighbouring countries. However, it is equally clear that the position of consumers would be much worse if the EEA Agreement, competition law and the enforcement of these rules did not exist. Then, barriers to competition would be more common, concentration much greater, and it would be even more difficult for new or smaller players to compete in the market.
In this context, it is interesting to mention three important markets: 1) Telecommunications in Iceland have undergone radical changes since the entry into force of the competition law and the EEA Agreement. It is undisputed that these changes can be largely attributed to measures within the European Economic Area aimed at promoting competition. Instead of a single monopoly, competitors fight for customers, with the attendant positive effects on the price and quality of services. The Competition Authority has repeatedly halted serious restrictions on competition in this market.
2) Transport to and from Iceland has likewise undergone radical changes. Again, these can be attributed, inter alia, to increased competition in aviation, including due to developments within the European Economic Area. Instead of a single company enjoying state privileges and support, competitors now vie for customers, with the attendant positive effects on the price and quality of service. In this area, the Competition Authority has also repeatedly intervened against competitive restrictions on important flight routes and in ground handling at Keflavik Airport. It goes without saying what role competition in flights to and from the country has played in the development of the tourism industry.
3) Furthermore, actions in the financial markets, particularly in the payment card market, have driven developments that now manifest themselves, among other things, in increased competition from fintech companies, which are advancing on the basis of innovation. Their very existence in Europe is largely attributable to measures taken against anti-competitive practices in this sector.
One way to examine the effects of the enforcement of competition law is to assess the damage that restrictive practices can cause to the public and the business community. An American academic, John Connor (no relation to the terminator of the same name), has spent a large part of his life collecting information on collusion cartels around the world and assessing their impact. His synthesis of over 700 studies on the effects of collusion indicates that the median price increase amounts to around 23%. In addition, collusion has harmful effects that are not reflected in prices, e.g. due to inefficiency and waste.
There is strong reason to believe that the damage caused by collusion could be even greater in Iceland than in larger countries. An assessment by economists Guðrún Johnsen and Gylfi Zoëga, submitted in the court case of the oil companies against the Competition Authority, states that foreign research on the harmful effects of collusion is relevant in this country. However, it must be borne in mind that Iceland is a small country and its society is characterised by proximity and personal acquaintance. In such circumstances, the likelihood of company executives coordinating their actions increases, both in terms of tacit agreements and explicit collusion. Consequently, collusion established in Iceland can be more effective and even more damaging than collusion in larger societies. Furthermore, the effects of index-linking must not be forgotten, which means that the damage to us Icelanders from the collusion is twofold: higher prices for the relevant product and higher interest rates on our loans.
It should be added that the OECD has published guidelines on the assessment of competition policy impacts. They are based on detailed research and include assumptions, which are intended to provide a conservative indication of the impact of removing barriers to competition. In 2016, the Competition Authority commissioned Gylfi Magnússon, an associate professor at the Faculty of Business Administration at the University of Iceland, to assess the impact of the authority's decisions from 2005 to 2015, in which infringements of the ban on illegal collusion and abuse of a dominant market position were stopped. It was revealed that the combined benefit from these decisions amounted to 110 billion króna, i.e. calculated at May 2016 prices. This does not include the effects of interventions in merger cases and other work by the Competition Authority during this ten-year period.
[EEA Agreement]
As I mentioned earlier, the EEA Agreement was one of the main reasons why competition law was enacted in Iceland in 1993. Since then, the further development of the competition law has taken into account the evolution of competition law in the European Economic Area. I have likewise tried to give you an idea of the application of the competition law and the effects of competition supervision.
It is therefore timely to seek answers as to what significance the EEA Agreement has had for the application of competition rules and the competitiveness of Iceland.
Firstly It goes without saying how important it is for a small nation with little competition oversight to have comparable competition rules to those elsewhere. This means it can draw on the international application of competition rules, rather than having to reinvent the wheel at every turn. At the same time, it is of great value for Iceland's competitiveness that foreign parties, whether they are companies or international organisations, know that here we have comparable competition rules and oversight to elsewhere in Europe.
Secondly It is therefore important for the public interest and the legal certainty of businesses that the competition authority in this country is part of the European supervisory network. In this context, the EFTA Surveillance Authority (ESA) plays a key role. As previously noted, the Competition Authority is tasked with enforcing the competition rules of the EEA Agreement. To ensure the consistent application of the EEA Agreement, the Competition Authority has obligations towards the EFTA Surveillance Authority (ESA), which include a duty to notify when an investigation is launched, and again when a decision is at its final stage. In both cases, the ESA may decide to take over the case, i.e. if the conduct in question has cross-border effects.
Similarly, the ESA can initiate an investigation into Icelandic companies on its own initiative. The ESA has exercised this right in Norway, but this has not happened in Iceland.
The EC's follow-up has, however, manifested itself, inter alia, in its participation in legal proceedings in Iceland. When the Competition Appeals Board reduced Byko's fines by 90%, due to the company's serious collusion with Húsasmiðjan, it became apparent that the uniform application of EEA law was being jeopardised. The appeal board thus held that the EEA Agreement's competition rules were not applicable in the case, and raised serious questions about the deterrent effect of the fines. With the consistent application of EEA rules in mind, the Competition Authority decided to exercise its right to refer the appeal panel's decision to the courts. The ESA intervened in the district court by submitting written observations to the court (amicus curae), in which the institution set out its position on the case. The ESA then did the same during the proceedings before the Landsréttur, where the case is currently pending.
In this context, the role of the EFTA Court must not be forgotten. In a number of cases, Icelandic courts have referred questions to the EFTA Court and received its rulings. This has had a very positive impact on the development of competition law in this country.
The Competition Authority, together with the ESA, also participates in the extensive cooperation of competition authorities within the framework of the European Commission (European Competition Network). This cooperation promotes consistency and provides access to knowledge and experience that the Authority would not be able to develop on its own.
All of this supports both the public interest and the legal certainty of businesses. Furthermore, this practice increases confidence in the Icelandic business environment and thus contributes to increased competitiveness.
In the third and final stage It is worth considering the question of how competition rules and competition law enforcement would be faring in this country if the EEA Agreement had not been in force. It must be said that it is unlikely that Icelanders would have succeeded in establishing comparable competition rules on their own, let alone setting up a body that would enjoy independence from other government authorities and the business community. The close-knit nature of a small community and vested interests would have made it impractical.
For this reason, it is also important that we continue to develop competition law in line with the rules and objectives in Europe. I mention, for example, a new directive which came into force last January, which is intended to further strengthen competition enforcement in Europe. It contains minimum rules on the independence of competition authorities, investigative powers, the deterrent effect of fines, and more. The Directive contains benchmarks for competition authorities which it is important to take into account, regardless of when it is finally implemented into Icelandic law.
Dear attendees,
My conclusion is that the EEA Agreement is of immeasurable importance for competition and competitiveness in this country. In this regard, it is worth bearing in mind that effective competition is not an end in itself. It is a tool to promote lower prices and better services, driving company managers to streamline operations and seek innovation. Competition is thus an indispensable driving force for innovation and opportunity. At the same time, it contributes to a fairer society and better living standards.
We therefore need to keep a watchful eye out for opportunities from our competitors, no less than the farmers in the inland parishes of East Húnavatn County in the mid-nineteenth century.
