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Lord Fraser of Carmyllie: My Lords, I have certainly achieved my objective in obtaining a full and helpful statement from the Minister as to where we have reached in the deliberations on finding an exclusion for vertical agreements. For that I am extremely grateful to him. I suppose I did not expect to get a clear indication of a precise timetable from him, but I repeat that if it were to prove possible to bring forward an amendment on an exclusion for vertical agreements at Third Reading I give him the clear assurance that he would receive no complaint from us that it had appeared rather late in the passage of the Bill through this House. We would certainly prefer at least to have a look at it before the Bill moves to another place. I thank the noble Lord not only for what he said about vertical agreements but also about land. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Lord Simon of Highbury moved Amendment No. 7:

Page 2, line 45, leave out from beginning to second ("or") and insert ("providing for one or more additional exclusions").

The noble Lord said: My Lords, Amendment No. 7 is a technical amendment. I speak also to Amendments Nos. 8 to 16 and 25, 26 and 27.

I hope it will be acceptable to noble Lords that some of these amendments refer to amendments introducing new exclusions which we will come to later. This group has a unity, however, in that all the amendments concern the powers to amend and remove some of the exclusions in the Bill and to provide for new exclusions and their amendment or removal. They reflect the development of our thinking, as we have been drawing up those exclusions, as to the powers the Secretary of State may need to deal with future exclusions and any amendment of some of the existing ones.

The new proposed exclusions for agreements cleared under Section 21(2) of the RTPA and for agriculture agreements contain a power for the director to clawback the exclusion in respect of a particular agreement in certain circumstances. This is not a new concept for the Bill, as paragraph 4 of Schedule 1 already empowers the director to clawback particular agreements from the merger exclusion. The utility of such a provision has, however, become more apparent as we have been working on new exclusions. Such a power should enable us to give greater comfort and certainty to business by providing somewhat broader exclusions than we might otherwise be prepared to contemplate because we can be confident that anti-competitive agreements which do not deserve to be excluded can still be addressed. I would expect, for example, that any exclusions in the land agreement that we discussed earlier would contain such clawback power, but would be framed more widely under these circumstances than would have been possible before. Because any exclusions which we provide under the Clause 3 powers may need to contain a clawback provision, Amendment No. 16 puts beyond doubt that that would be within the scope of the powers.

Any additional exclusion in Schedule 3 will, of course, be subject to the limitation in subsection (4) of the clause, which presently provides that the powers may be exercised only if it appears to the Secretary of State that agreements which fall within the new exclusion do not in general have an adverse effect on competition or, if they may have that effect, are best considered under Chapter II of the Bill or the Fair Trading Act. Noble Lords will note that the "in general" only applies to the first limb of this test. However, if the Secretary of State were to make an additional exclusion with a clawback power it would be clear that she or he contemplated that at least some agreements within the exclusion might need to be considered under the Chapter I prohibition. Amendment No. 16 therefore relaxes the limitation a little by providing, in respect of the second limb, that the Secretary of State may provide an additional exclusion if agreements within it "in general" are best considered under Chapter II or the Fair Trading Act.

Amendments Nos. 12 and 14 enable the proposed new exclusions for Section 21(2) agreements and agricultural products to be amended or removed under Clause 3. Amendment No. 13 similarly enables the present

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exclusion of coal and steel agreements from the Chapter I prohibition to be amended or removed and Amendment No. 25 makes the corresponding provision in respect of the exclusion from the Chapter II prohibition. The reason for this is that although the European Coal and Steel Community Treaty is due to expire in 2001 and we intend the exclusion automatically with it, we now consider a power to amend the exclusion to be sensible to provide flexibility, for example, in dealing with any transitional provisions the Community might make.

We think that the concept of adding, amending or removing "a case" which runs through Clauses 3 and 19 could have led to uncertainty as to the scope of the powers. Amendments Nos. 7, 8, 9, 10, 26 and 27 make clear that the powers are to provide for certain additional exclusions and to amend or remove provisions in certain existing exclusions and in additional exclusions. I am sorry for the technical nature of my remarks. I hope that I have explained the position as briefly and as succinctly as possible. I beg to move.

On Question, amendment agreed to.

5.45 p.m.

Lord Simon of Highbury moved Amendments Nos. 8 to 16:

Page 3, line 1, leave out ("case") and insert ("provision").
Page 3, line 5, leave out from beginning to second ("or") and insert ("providing for one or more additional exclusions").
Page 3, line 6, leave out from ("any") to ("added") in line 7 and insert ("provision--
Page 3, line 9, leave out ("which falls within") and insert ("included in").
Page 3, line 9, after ("1") insert ("or 1A").
Page 3, line 9, after ("1") insert ("or 6").
Page 3, line 9, after ("1") insert ("or 6A").
Page 3, line 13, leave out from ("or") to ("best") and insert--
("(b) are, in general,").
Page 3, line 14, at end insert--
("( ) An order under subsection (2)(a) or (3)(a) may include provision (similar to that made with respect to any other exclusion provided by the relevant Schedule) for the exclusion concerned to cease to apply to a particular agreement.").

The noble Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 8 to 16 en bloc.

On Question, amendments agreed to.

[Amendment No. 17 not moved.]

Clause 17 [Enactments replaced]:

Lord Fraser of Carmyllie moved Amendment No. 18:

Page 10, line 11, after ("practices)") ("and those provisions of the Fair Trading Act 1973 relating to the investigation of a structural or scale monopoly").

The noble and learned Lord said: My Lords, we dealt with this matter rather more broadly at Committee stage. Those who followed it then, and who follow it now, will appreciate that it is a rather more restrictive proposal relating only to structural or scale monopolies. Although I cannot say there were many issues on which I secured

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much agreement from the noble Lord, Lord Borrie, at Committee stage, at least when we discussed scale monopolies he said,

    "As regards scale monopolies, the case is less strong".--[Official Report, 13/11/97; col. 299.]

It is not just less strong; I think that the noble Lord in his heart of hearts knows perfectly well that it is a non-existent case.

The retention of these provisions in addition to a wide-ranging prohibition based on Article 86 would, in our view, quite clearly give the director-general excessive powers. The argument that this additional power of investigation and remedy is necessary on the basis that there might in future be problems which the prohibition cannot solve is, in our view, extremely tenuous. These provisions have not to date been extensively used or shown to be indispensable and could easily be relinquished if a prohibition is introduced.

The Minister will appreciate that these scale monopoly provisions are deeply unpopular in industry, and rightly so. There is only one argument for the retention of this power once the new prohibition is in place. The best argument that I have heard advanced for it is that at least we know how it works. That is the argument of bureaucracy. There is no point in retaining this additional power. I have no doubt that the Minister appreciates that this could be immediately dispensed with if the Article 86 prohibition is to be incorporated into our law. It would certainly avoid unnecessary duplication. Even if the Minister does not like my drafting, I invite him to give some signal that he, too, realises that the issue of scale monopolies is not one that needs to be retained as a specific way of dealing with the problem. I beg to move.

Lord Borrie: My Lords, the noble and learned Lord, Lord Fraser of Carmyllie, referred to my comments in Committee that there was a less strong case for keeping the scale monopoly reference provisions than the complex monopoly reference provisions. I did indeed say that. I am delighted that he is no longer opposing the continuation of the complex monopoly reference provisions because they are a useful reserve power for the Director General of Fair Trading across the whole of industry. I am glad that the provision will be retained in the Bill without further opposition from the noble and learned Lord.

I believe that there is a case, to which the noble and learned Lord did not refer, for retaining the scale monopoly reference provisions. The provisions are to be found in the Fair Trading Act. As a result of a reference to the Monopolies and Mergers Commission under that Act it is possible for a structural remedy determined and recommended by the commission to be put into place if the Secretary of State accepts it. A divestment from the monopoly would be used when competition was required to be put in place as a result. There are no structural provisions in the Competition Bill. It would be a pity to lose that possibility by getting rid of the power to make scale monopoly references.

It is true that over the years in the United Kingdom divestment as a remedy for competition problems has been used rarely. I have identified that in the past 20 years there have been only four cases where divestment has

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been used. Those were in the cases of domestic gas appliances; razors and razor blades; roadside advertising; and beer. In only the razors and razor blades case was there clearly and solely a scale monopoly. It is clear, therefore, that there has not been a great deal of use in this country of the divestment powers in cases which are solely scale monopolies. Nonetheless it is a useful power, and in the unknown world into which we go with the new Bill and the new prohibitions it is not a power which should be thrown aside lightly.

I advance one further reason for retaining the power of the director general to make scale monopoly references. It is the problem of a scale monopolist with high profit margins. The European Union jurisprudence--as we have said many times, it is incorporated in the Bill via Clause 58--suggests that high profit margins alone are not sufficient to create an abuse of a dominant position. It is not clear therefore whether or not Clause 18 of the Bill will apply where a scale monopolist is enjoying over a long period high profit margins at the expense of the public or the consumer. That may suggest that at least an inquiry should be made in the public interest by the Monopolies and Mergers Commission if the director general thinks it appropriate in the circumstances.

I believe that there is a case for keeping scale monopoly references alongside the new powers and prohibitions in the Bill. For the noble and learned Lord to describe those powers as excessive, as he did a few moments ago, is a rather excessive use of language, if I may say so. All that is involved is an inquiry into whether or not something should be continued in the public interest. That is surely a power we should retain.

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