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Lord Fraser of Carmyllie: I need say little more than that at an earlier stage we indicated considerable sympathy for the position of community pharmacies, not least because in our view, as a matter of health policy, to allow for a special position for community pharmacies would meet the priorities that this Government are continuing with in their development of primary care in the National Health Service. I do not think we need to consider this matter in any great detail at this stage, but it is one of the more important issues that has been raised during the Committee stage of the Bill.

10.45 p.m.

Lord Simon of Highbury: I listened with great interest to what my noble friend Lord Graham and the noble and learned Lord, Lord Fraser, have said. It is very clear that this is an important issue. We have already discussed it in general terms, and the arguments

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were well taken on the first Committee day. I do not intend to repeat our balanced arguments, but I would like to focus on the transitional arrangements for agreements, decisions and concerted practices which are the subject of proceedings before the Restrictive Practices Court under the Resale Prices Act 1967 at the commencement date. Under the Bill, if there are continuing proceedings--and as my noble friend has said the director has announced his intention to ask the court to review resale price maintenance in over-the-counter medicines so there are likely to be such proceedings--the transitional period will begin when the proceedings have been brought to a conclusion. The transitional period applies if the continuation of resale price maintenance is found to be in the public interest. I should, perhaps, add that if resale price maintenance were not found to be in the public interest there should be no entitlement to a transitional period. The Bill as drafted is not clear on this point and I believe that it should be amended accordingly. This is a matter which we will wish to return to on Report.

I note carefully the point made by my noble friend Lord Graham about the burden of subjecting the industry to two regimes in quick succession. However, I believe this concern is--subject to one point which I shall make in a moment--dealt with by ensuring that the traditional exclusion from the scope of the Chapter I prohibition commences after the conclusion of proceedings, assuming that the continuation of resale price maintenance is found to be in the public interest.

Although the director general has not yet sought leave to make an application to the court to review the exemption, the director has already announced his intention to initiate proceedings. In those circumstances I do not believe it would be right for me to intervene, in effect to say that nothing further should be done for the next six years when the transitional period would expire. That would be the result of the amendment.

I would, however, like to deal specifically with the issues raised by Amendment No. 275A, which would deprive the director of his ability to investigate during the transitional period certain agreements, decisions or practices and to issue a notice proposing a date on which the transitional period is to end.

I emphasise that that power which applies generally in the transitional period is intended to be a reserve one which we would expect the director to use in limited, serious cases only. Moreover, the power is subject to veto. The Secretary of State will be able to cancel the director's proposal to terminate the transitional period. The Secretary of State may, for example, consider that the competition concerns are not of sufficient gravity to outweigh the presumption that the transitional exclusion should apply and should be capable of being relied upon in normal circumstances.

While I am satisfied that that reserve power is right for the generality of agreements which are to enjoy a transitional period, I can see some force in my noble friend's concern that following a court ruling in favour of resale price maintenance for those medicines, that reserve power could in principle lead to it being looked at again at an early date. That is not my intention. I

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believe I should therefore reflect again carefully on whether retention of that power is appropriate in the case of resale price maintenance in over-the-counter medicines. In the light of that response, I hope that my noble friend will be able to withdraw the amendment.

Lord Graham of Edmonton: I am grateful to my noble friend. I listened carefully to what he said. It sounded hopeful. It is not that there is an open door, but I gather that my noble friend understands some of the points made. I will take advice from colleagues who will reflect upon what he has put on the record. Consultations can take place if necessary, and we may need to come back at a later stage. I am grateful to my noble friend; I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 272J to 274A not moved.]

The Viscount of Falkland moved Amendment No. 275:


Page 91, line 14, at end insert ("or until the expiry of such agreement, whichever is the later").

The noble Viscount said: I speak on behalf of my noble friend Lord Ezra. The purpose of the amendment is to preserve the existing legal validity and prevent unnecessary uncertainty arising by correcting what otherwise would be retrospective legislation in respect of a number of contracts relating to the UK gas business.

The amendment will also avoid the unnecessary review and notification of those existing agreements thereby removing significant, unwarranted burdens on the industry and the Government. It is recognised in the UK and internationally that joint arrangements between competitors are necessary to allow the efficient development and production of petroleum resources. Companies form joint operating arrangements from their initial application for offshore petroleum licences to develop fields and transport gas to the shore.

Until the early l990s British Gas was effectively the monopoly purchaser of gas. It insisted on joint sales contracts for those jointly owned fields. Those gas contracts, known as depletion contracts, are typically for the full life of a field and can last for over 20 years. The Gas Act 1986 recognised the special features of the gas industry and provided in a related exemption order for the exclusion of gas contracts from the notification and registration requirements of the restrictive trade practices legislation.

The Act and order covered both existing and new gas contracts of any description referable to offshore gas fields The Bill does not renew the current exclusion for gas contracts. Instead, in Schedule 13, it proposes a five-year transitional period of continuing validity for existing contracts. The loss of the Restrictive Trade Practices Act exclusion amounts to retrospective legislation. There will be several hundred contracts affected by the denial of the current exclusion since the majority of those will continue beyond the proposed five-year transition period. If companies have to apply for individual exemptions for such contracts, the burden on business and government will be immense. Companies will wish to make individual contract

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applications since the regime created by the new legislation; that is, the risk of such agreements being declared void and the scope for investigations and the potential for significant fines could not be ignored.

The amendment--to use my noble friend's term--will "grandfather" contracts already excluded under the 1986 exemption order from the provisions of the Bill until their expiry date.

I turn now to the position of new contracts which are also covered by the existing 1986 exemption order, as mentioned. Chapter I, Clause 6 provides for the possibility of block (or individual) exemptions, although it specifies neither conditions nor terms. In order to avoid the need for individual contract exemptions for new gas contracts, a block exemption would be the most appropriate method of ensuring certainty and continuing validity. Given the long-term nature of the gas business, such an exemption would need to be for a long period, certainly for no less than 15 years. I would therefore seek an assurance or statement from the Minister that the Government will be willing to grant a block exemption for gas contracts for a minimum 15-year period.

The breadth of the prohibition contained in Chapter I, Clause 2 does not include any "appreciability" test. That will create uncertainty over the status of all current and prospective joint contracting arrangements across the oil as well as the gas industry. Such joint arrangements are common worldwide and are entered into primarily to provide operational efficiencies. I would therefore also seek some assurance from the Government that the new prohibitory regime would only apply to such arrangements where there was an "appreciable" (and adverse) effect on completion.

In summary, to avoid wholesale uncertainty in an important United Kingdom industry, with the attendant burdens on that industry and government, I seek assurances in respect of the need for a long-term block exemption for new gas contracts and that the Government accept the need for an "appreciability" test in viewing joint arrangements in the oil and gas industry. I beg to move Amendment No. 275, which will have the effect of "grandfathering" existing gas contracts.

Lord Simon of Highbury: I am aware that Amendment No. 273 was not moved but Amendment No. 275 was moved. Before I turn specifically to the question of the gas industry, I should like to say a few words about the schedule.

Had both the amendments been placed before us, they would have given extended traditional exclusions from the Chapter I prohibition in respect of certain classes of agreement. It would be helpful to make some general points about that.

I turn first to those cases where agreements have been determined under Section 21(2) of the Restrictive Trade Practices Act not to be of such significance to call for investigation by the court. There is a good case for exclusion in that regard. As I have indicated already, we believe that an exclusion for the generality of agreements which have received directions under

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Section 21(2) is the right approach. However, I said that there is a possibility that there may be agreements which have received Section 21(2) directions but which turn out in practice to have anti-competitive effects. That is why I said an exclusion should be subject to a power for the Director General of Fair Trading to claw back the exclusion in certain circumstances. If that amendment had been before us, it would not have included this important protection.

For some time after the new regime is in operation it will be important for interested parties to be able to inspect the register of agreements and determine the status of agreements under it. Keeping the register is resource intensive. It would not be sensible to maintain it in perpetuity. At present, the Bill does not make explicit provision for the register: we will need to correct that omission on Report.

A second area where exclusion is merited is in relation to electricity and gas agreements from which the RTPA has been disapplied by the use of powers under the Electricity Act 1989 or the Gas Act 1986. In this area, Amendment No. 275 is relevant. Like Amendment No. 273, it would extend the exclusion of agreements in this category to the expiry of the agreement.

The Government's position is that a permanent exclusion is inappropriate. Unlike cases dealt with under Section 21(2) which have been examined and found not to contain significant restrictions, these other types of agreements may contain restrictions which are significant in effect but for other reasons are exempted. Those agreements need to be scrutinised under the new regime after an appropriate transitional period. We have set this at five years.

It has been put to us that exclusion of these existing agreements (under the electricity and gas Acts) does not cater for the natural evolution and change that are necessary for many of the key agreements in these sectors. I believe that this is a valid point. I therefore believe that we should improve our proposals in the area by continuing the current arrangements for scrutiny in orders which are made before commencement but providing for the effect to be disapplication of the Chapter I prohibition rather than the RTPA; and by providing a power to make new orders. I am prepared to come forward on Report with a government amendment to that effect. I believe that that will be welcomed by the industries concerned.

However, additional flexibility of that nature for a transitional period--which we have set at five years--makes it all the more important that in due course there should be a proper examination under the new prohibition. Neither of the two amendments would permit that additional flexibility.

Another area that we have already debated relates to the professions. Here the Government's position is that the wide-ranging exclusion of professional services should not be continued. Instead, we have proposed a narrow exclusion relating to professional rules. Here we have proposed in paragraph 5 of Schedule 4 a mechanism for withdrawing the exclusion if in an individual case there is good reason to do so.

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I should also like to take this opportunity to mention two other areas of the schedule where minor amendments are, I believe, needed. First, the Bill currently provides that the director may give guidance in relation to an agreement made between Royal Assent and the coming into force of the prohibition of anti-competitive agreements. However, as the Bill is drafted, such guidance would not confer immunity from penalty. I believe that it should confer immunity and I expect to bring forward an amendment on Report to that effect. Secondly, consideration needs to be given to whether explicit provision is needed in the Bill to provide for orders by the restrictive practices court to lapse when the prohibition comes into force.

Finally, I turn to the issue of special arrangements for long-term gas purchase contracts. Gas purchase contracts which contain restrictions necessary, for example, to enable the efficient development of the field should in principle be capable of exemption if the exemption criteria are satisfied. The Bill provides for classes of agreement to be given block exemptions. Gas purchase agreements may well merit an early block exemption. I do not, however, see any need to make special provision for those agreements in the Bill. Consultation is under way with the industry. I believe that we need to await the maturing of that process.

For the reasons that I have given, I hope that Members of the Committee will feel slightly more widely instructed on Amendment No. 273 which was not moved. I also hope that the noble Viscount will see fit to withdraw Amendment No. 275.

11 p.m.

Lord Fraser of Carmyllie: Before the noble Viscount withdraws the amendment, perhaps I may express my sorrow that I did not move Amendment No. 273. Indeed, if I had known that the noble Lord would be in such a positive and constructive mode, I may have done so. However, I am grateful to him for his response and shall read carefully what he said. I also welcome the proposals that he made.

As regards the other amendments, I was most interested to hear the Minister's comments. I am sure that he will realise that I did not intervene because it might have been necessary for me to declare an interest. I shall nevertheless read what he had to say on that, also with keen interest.


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