Draft Regulation concerning the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty and amending Regulations (EEC) No. 1017/68, (EEC) No. 2988/74, (EEC) No. 4056/86 and (EEC) No. 3975/87.
||Article 83 EC; consultation; qualified majority voting
||27 September 2000
|Forwarded to the Council:
||29 September 2000
|Deposited in Parliament:
||16 October 2000|
||Trade and Industry|
|Basis of consideration:
||Minister's letter of 12 February 2001
|Previous Committee Report:
||HC 23-xxx (1999-2000), paragraph 2 (22 November 2000)
|To be discussed in Council:
||4-5 April 2001|
||Legally and politically important
||Not cleared; awaiting further information
5.1 In April 1999, the Commission published
a White Paper
which outlined its plans to modernise the Community's competition
regime. It proposed, in particular, to bring to an end the requirement
for prior administrative authorisation by the Commission of restrictive
agreements and to replace it with a legal exception regime. Under
the proposed arrangements, restrictive agreements would be deemed
either to meet the terms of Article 81(3) from the outset and
be legally enforceable, or not to do so and be prohibited and
legally void. National Competition Authorities (NCAs) would be
able to bring prohibition cases to the courts where they considered
that the conditions of Article 81(3) were not met. Companies claiming
that they were damaged by restrictive agreements would be able
to seek compensation through the national courts. The Commission
would retain powers to determine any case where it considered
the issues would be better resolved at Community level, for example,
because of the scale of the agreement or because it presented
new policy issues.
5.2 In the light of the response to its
White Paper, the Commission published in September 2000 a draft
Regulation to replace the current Regulation 17/62/EEC (which
implements Articles 81 and 82 of the Treaty).
5.3 We reported on the draft Regulation
on 22 November 2000, and left it uncleared pending replies to
our questions. The reply from the Parliamentary Under-Secretary
of State for Consumers and Corporate Affairs at the Department
of Trade and Industry (Dr Kim Howells) was received on 12 February,
more than two months later. According to the Minister, the delay
arose because our questions and comments raised substantial policy
issues and required clearance from a number of Ministers, including
the Deputy Prime Minister.
5.4 Our questions and the Minister's response
are set out below.
5.5 What the UK Government's view is
on draft Article 3, and how far that tallies with the view of
the legal authorities and organisations the Government has consulted.
The Minister states:
"The underlying approach
of Article 3 could bring industry very real benefits by ensuring
that agreements and practices whose effects are not restricted
to one Member State are all assessed to a common standard.
"Business currently faces potentially up to
fifteen different national regimes as well as the Community regime
which all operate in parallel. Furthermore, whilst the law applied
would be that of the Community, the approach would respect subsidiarity
by allowing the National Competition Authority (NCA), rather than
the Commission, to investigate suspected infringements of competition
rules where the centre of gravity of a cross-border case was clearly
in one Member State.
"In its current form, however, the draft Article
is unacceptable to the Government on a number of grounds. In particular,
it would potentially prevent the use of domestic powers which
we consider necessary for the development and maintenance of effective
competition and for which there is no adequate alternative at
" powers under the Fair Trading Act
1973 for addressing complex monopolies;
" powers under the Fair Trading Act
1973 relating to the acquisition by one enterprise of material
influence over the commercial policy of another (and falling short
of the acquisition of actual control); and
" the competition powers of the sectoral
regulators under sectoral legislation.
"The Government is also concerned that the jurisdictional
test of agreements and practices which 'may affect trade between
Member States' is unclear and could lead to uncertainty as to
the law applicable in a particular case. It is therefore pressing
the Commission to explore a more precise formulation.
"The Commission is aware that many Member States
consider the scope of its current draft to be too wide. It is
therefore reflecting on wording which would capture more accurately
its declared intention of providing for a common standard for
the assessment of agreements and practices whose effects are felt
beyond one Member State, and which would not go beyond this.
"Business is attracted to the single market
benefits of the proposal and the CBI strongly support Article
3. The view of legal practitioners is more cautious as they see
the potential conflicts with our national competition law as outlined
5.6 What the perceived difficulties are
in applying Community law in this area in the UK, either administratively
by the Office of Fair Trading or, in terms of legal processes,
by the courts; and what alternative approach the Government would
prefer, and why.
The Minister points out that the Competition Act
1998 (CA98) contains two prohibitions closely modelled on Articles
81 and 82.
"Under Section 60 of
the Act the OFT is required to ensure that 'so far as is possible
... questions arising ... in relation to competition within the
United Kingdom are dealt with in a manner which is consistent
with the treatment of corresponding questions arising in Community
law...'. In effect, the concepts of Community competition law,
with some exceptions, have been applied through the CA98. Furthermore,
in the absence of any proposal in the draft new Regulation to
harmonise procedural rules in Member States, in applying Community
law directly under Article 3 the OFT would use national procedural
rules most likely modelled on those under the CA98."
5.7 The Minister also notes that in practice
there is likely to be very little difference between the OFT applying
the Competition Act 1998 and applying Articles 81 and 82 directly.
"The procedural rules
will most likely be the same (although this is yet to be decided)
and there will be little difference in the substantive jurisprudence
being applied because of Section 60 of the CA98. That said, certain
areas are potentially excluded from one or both of the prohibitions
in the CA98. If the OFT was able to apply Community law, those
exclusions from the CA98 would not prevent the OFT from taking
action in those areas under Community law. However, it is already
the case that, to the extent that the excluded areas fall within
Articles 81 and 82, the Commission can take action now.
"For these reasons the Government does not foresee
major administrative difficulties in the OFT applying Community
law directly. Nor does it foresee major practical difficulties
for the national courts, although there are issues on which further
work is required. For example, the proposal for the Commission
to monitor all proceedings relating to Articles 81 and 82 in 15
Member States may prove to be over-ambitious."
5.8 Whether the Government is concerned
about the possible further area of uncertainty facing companies
in not knowing whether agreements would be at risk of legal challenge
under EC or national law.
The Minister points out that companies could currently
face action by the Commission under Community law and by the OFT
under national law (although should they both take action the
OFT would normally defer to the Commission investigation). Thus
there is a substantial overlap between the jurisdictions of the
Commission and national authorities. The Minister notes:
"Under the Commission's
proposals this overlap would be replaced by a clear jurisdictional
divide a case would either fall to be examined under Community
law or alternatively, under national law. This in itself will
reduce uncertainty for all those cases where it is clear that
there either is or is not a potential effect on inter-state trade.
"The Government is nonetheless concerned that
there could be a significant percentage of cases for which it
would not be immediately clear whether there was a potential effect
on inter-state trade. For this reason it is pressing the Commission
to consider developing a clearer jurisdictional test than that
of a potential effect on inter-state trade and it understands
that the Commission is reflecting on this issue."
5.9 Whether it is the Minister's view
that the courts should be involved in making decisions on individual
cases on essentially economic criteria, and whether his view reflects
that of the judicial authorities and legal organisations in the
The Minister notes that the UK courts are no strangers
to complex economic issues and on rare occasions already apply
the economic criteria set out in Article 81(1). The UK courts
are also called upon to rule on contentious economic issues in
areas such as patents. The Minister states that:
"The Government believes
that the courts are certainly capable of applying Article 8 1(3)
although this task may be facilitated by judicial training as
occurs for example in the USA. The Commission proposes to issue
guidance for the courts in due course which would be helpful.
"The views of the legal profession and legal
organisations vary. Whilst some welcomed the original proposals
contained in the White Paper, others have been more guarded in
their response. It is clear that further work is necessary to
finalise the precise roles and nature of the relationship between
the Commission, NCAs and national courts, and the nature of the
assistance, if any, that is to be supplied to the court particularly
in respect of economic questions. Some of these concerns may be
allayed by the way in which the proposal is implemented, details
of which will be addressed in a forthcoming Commission notice."
5.10 Whether the Minister knows if it
is the Commission's intention to consult on draft notices on subjects
including "legal certainty", co-operation between the
Commission and the competition authorities in Member States and
co-operation between the Commission and the national courts, in
parallel with the discussion of the draft Regulation; whether
he considers that these matters can be satisfactorily dealt with
through notices; and, if so, how he proposes to ensure that the
House has an opportunity to examine them before they are finalised.
The Minister reports that it is the Government belief
that the Commission intends to issue notices in respect of each
of these subjects:
have repeatedly stressed to the Commission the importance of consulting
on these draft notices in parallel with the negotiations on the
Regulation itself because of the close interplay between the two.
We expect drafts of notices on the working of the Network of NCAs
(the Network) and on legal certainty very soon. Notices relating
to other aspects of the proposals, in particular on co-operation
between the Commission and national courts, will be produced as
"For the most part the allocation of issues
by the Commission between the Council Regulation, the Commission
implementing Regulation and Commission notices appears sensible.
That said, it is important that Commission consultation of Member
States on policy issues such as these notices be more than cursory
given the way in which the details of the accompanying measures
necessarily influences our view of the underlying proposal.
"The Secretary of State proposes to provide
the Committee with Supplementary Memoranda on the draft notices
as they are received from the Commission."
5.11 Whether the Minister is satisfied
that the strengthening of the Commission's investigatory powers,
and its powers to impose remedies on companies where it finds
infringements, including structural remedies such as the divesting
of assets, are warranted.
The Minister notes that the Commission's extended
powers of investigation will enable more effective enforcement
of the competition rules, particularly with regard to the rooting
out of serious market abuses like cartels.
"These limited increased
powers of investigation for the Commission will include the right
to search private homes and to take statements. Under the CA98,
the OFT already has the power to search private homes (when it
is believed that business records are being kept there) and they
are also used in connection with the affairs of an undertaking,
but it does not have an explicit power to take voluntary statements
and use them as evidence. The Government is concerned that the
Commission should have sufficient investigative powers to enforce
the law effectively and believes the additional powers to be warranted.
It does however share with many Member States a concern to ensure
that at all times the fundamental rights of individuals and undertakings
are respected by the Commission."
5.12 With respect to structural remedies,
including divestment of assets, the Minister says;
are an important part of any competition authority's armoury.
Fines and behavioural remedies cannot deal adequately with all
the competition problems which may arise from a company's very
possession of certain assets or market structure."
5.13 The power to impose structural remedies
are not new: for example the Commission imposed structural remedies
in the Gillette and Magill
"Whether they extend
as far as actual break-up of a company has never been tested in
the Community, although by extension from the Gillette
and Magill cases the Government considers it likely that
the ECJ would support such an approach.
"Structural cases which in the UK are handled
under the Fair Trading Act 1973, with its powers to impose structural
remedies, in the Community regime are handled under the mainstream
competition rules implementing Articles 81 and 82. If it is necessary
for the UK authorities to have these potential powers, then it
is necessary for the Commission to have them if it is to be effective
in enforcing competition rules. This power is not unlimited or
without safeguards: any such remedy must under Community law be
both proportionate and necessary to restore compliance with competition
rules. To the extent that there is doubt about whether the Commission
does have the power to impose structural remedies, the current
modernisation project is an opportunity to clarify the intentions
of the Member States in this respect."
5.14 Whether it is the Government's view
that, in principle, problems relating to inconsistency of decisions
can be handled satisfactorily by co-operation between Member States
and co-ordination by the Commission.
The Minister replies that:
"Much will depend upon
the way in which the Network of NCAs and the Commission operates.
The Commission's detailed proposals on this are expected shortly,
but the UK will aim to ensure the highest possible levels of co-ordination
within the Network. There will inevitably be a learning process
for all participants in the Network, but it seems likely that
such co-ordination between authorities and the development of
common standards of best practice will make a major contribution
to ensuring acceptable levels of coherence in Community competition
policy enforcement. The draft Regulation would require the Commission
to notify and consult the Network of NCAs before taking decisions
under EC law and an NCA would also be required to notify and consult
the Network before taking action. As a last resort, the Commission
will have a reserve power to take over a case being handled by
an NCA. We will want to be clear about the circumstances under
which the Commission would use this power, and expect this to
be one of the issues addressed by the envisaged Commission notice
on the operation of the Network of Competition Authorities.
"Achieving consistency of decision making by
national courts will be more difficult given the need to safeguard
the autonomy of the courts. Nonetheless, Article 16 requires national
courts to make 'every effort to avoid any decision that conflicts
with decisions adopted by the Commission'.
"On balance, therefore, the Government believes
that the proposals are capable of providing a workable solution
to the problem of consistency but that this will require further
5.15 A summary of the responses to the
Government's further consultation on the draft Regulation; and
whether the Confederation of British Industry (CBI) is still against
the approach favoured by the Commission.
The Minister recalls that:
"The Government consulted
widely at the time of the original White Paper and has done so
again on the basis of the draft Council regulation. Broadly speaking,
most consultees support the Commission's goals of reducing bureaucracy
and focusing more on serious infringements of competition law.
That said, three main concerns were raised in that consultation
" how companies will obtain the legal
certainty they require on co-operative agreements, particularly
for larger transactions;
" how companies will avoid multiple
litigation in the absence of a single exemption decision valid
across the EU; and
" the interface between the Commission
and the national courts and how consistency in the decisions of
the courts of 15 Member States could be ensured.
"Most respondents and a number of professional
industry bodies support greater involvement of national authorities
and courts in the enforcement of the competition rules as it brings
it closer to the markets concerned. This together with coherent
enforcement will help establish a common competition culture across
the Community. Legal practitioners have expressed their qualified
support for the Commission's proposals but are keen to see more
of the detail. In particular they feel that detailed guidance
and the provision of uniform procedural rules by the Commission
to be essential to the success of the new regime. Some respondents
also stressed the value of continued access to Commission officials
"The CBI support reform of the system of EU
competition law enforcement but believe the decentralisation route
chosen by the Commission to be fraught with difficulties. They
would prefer to see a more centralised system operated from Brussels
along the lines of the European Community Merger Regulation (ECMR)
which, amongst other things, provides a fast, one stop shop for
"The CBI have expressed strong support for the
Commission's proposal contained in Article 3 to require the use
of Community competition law where trade between Member States
may be affected. The CBI favour this provision both because it
would enhance legal certainty by ensuring that there was only
one applicable law for cross-border cases and because it would
reduce the risks of uneven application of the competition rules
across the Community. In addition they welcome the Article 10
proposal to retain the power to adopt positive decisions though
they believe such decisions should be taken not just for abstract
illustrative purposes but also to benefit parties in real life
"That said, the CBI have also expressed a number
of concerns on the Commission's proposals because they see practical
difficulties in implementation. In summary, the CBI feel the proposed
reforms could damage the single market through inconsistent application
of competition laws, creating considerable legal uncertainty,
and increase the regulatory burden on business. In addition they
are concerned about a perceived lack of safeguards in the proposals
to counterbalance the increased investigative powers assumed by
the Commission and NCAs. On the proposal to allow NCAs to apply
Articles 81 and 82, the CBI feel this could subject agreements
to multiple review and/or penalties. Linked to this is a doubt
that national courts can deal with the economic assessment of
agreements necessary under Article 81(3). Concerning the proposed
network of NCAs the CBI foresee practical working difficulties,
for example on the proposal concerning the exchange of confidential
information between NCAs.
"DTI officials meet with the CBI Competition
Panel and other stakeholders on a regular basis and are working
closely with them on the Commission's Modernisation proposals
as they develop to ensure that the outcome reflects UK interests.
"The Government intends to update its Regulatory
Impact Assessment (RIA) in the light of further consultation and
as negotiations on the Commission's proposals progress."
5.16 In our Report of 22 November, we
asked a number of questions. The Minister's reply was received
on 12 February, more than two months later. According to the Minister,
the delay arose because our questions required clearance from
a number of Ministers, including the Deputy Prime Minister. The
response, when it arrived, was helpful, but did not seem to justify
such an excessive delay.
5.17 We note that the Secretary of State
intends to submit a Supplementary Explanatory Memorandum on the
draft Notices when they are received from the Commission, as well
as an updated Regulatory Impact Assessment, and we look forward
to receiving these in a more timely fashion. In the meantime we
do not clear the document.
23 (20131) 7958/99; see HC 34-xxv (1998-99), paragraph
1 (7 July 1999) and HC 34-xxvii (1998-99), paragraph 8 (21 July
C-241/91P and C-242/91P RTE and ITP v Commission  ECR I-743. Back