Select Committee on Delegated Powers and Deregulation Sixth Report


COMPETITION BILL [HL]

Memorandum by the Department of Trade and Industry

Introduction

  1.    This memorandum gives an account of the delegated powers proposed to be taken in the Competition Bill introduced into the House of Lords on 15 October 1997.

  2.    The Bill provides for two prohibitions. The first (the "Chapter I prohibition") would prohibit certain agreements which prevent, restrict or distort competition (clause 2). The second (the "Chapter II prohibition") would prohibit the abuse of a dominant position (clause 18). The Bill would give responsibility for the enforcement of the prohibitions, including the giving of guidance and decisions on their application, the granting of exemptions from the Chapter I prohibition, and the power to impose penalties for breach of the prohibitions, to the Director General of Fair Trading (the "Director"). Most of the Director's functions would be exercisable concurrently by the regulated utility Directors General in their respective sectors. The Bill would provide for appeals against their decisions to be made to a new body which would be created by the Bill, the Competition Commission (the "Commission").

  3.    There are 28 powers in the Bill to make regulations or orders by statutory instrument (including the provisions of clause 47, on which see paragraphs 58-59 below). A number can be said to fall into two categories. One category consists of powers to make detailed provision for the procedures and rules the Director and the Commission are to adopt in carrying out their functions under the Bill. This will enable suitable involvement by the Director and the Commission, given their key roles under the Bill, in the making of these essentially administrative arrangements; and will enable them to be adapted in the light of experience and changing circumstances, whilst still providing for appropriate Ministerial and Parliamentary control.

  4.    The second category of delegated powers consists of powers to amend the scope of the prohibitions. The broad purpose of these powers is to ensure the prohibitions remain targeted efficiently on areas of real competition concern and can be operated effectively in the light of changing economic circumstances, developments in the operation of the European Community's competition regime on which the Bill is closely based, and practical experience of the operation of the prohibitions. The Bill therefore provides powers to refine the existing exclusions from the prohibitions contained in the Bill and to provide new ones in circumstances specified in the Bill.

  5.    There are a number of other specific powers in the Bill.

  6.    By virtue of clause 67, all of the delegated powers in the Bill would be subject to a Parliamentary procedure save, as is usual, the power to make commencement orders.

Detail

Clause 3 - Excluded agreements

  7.    Subsection (2) enables the Secretary of State to amend Schedule 1, with respect to the Chapter I prohibition, by adding one or more cases, or amending or removing any case (whether or not it has been added by an order under the subsection).

  8.    Schedule 1 provides certain exclusions from both the prohibitions for mergers and concentrations. The policy reason for this is that such mergers and concentrations are subject to an existing separate competition regime. The power in subsection (2) is a reserve power intended to ensure that the line drawn between the Chapter I prohibition regime in the Bill and the mergers regime can be adjusted, if necessary, in the light of experience of its operation to ensure that it remains clear and capable of straightforward practical application.

  9.    Subsection (3) enables the Secretary of State to amend Schedule 3 (which provides for a number of exclusions from the prohibitions), with respect to the Chapter 1 prohibition, by adding one or more cases or by amending or removing any case which has been added by an order under the subsection or which falls under paragraph 1 of Schedule 3 (which excludes planning obligations, as defined). By virtue of subsection (4), the power to provide for an additional exclusion may be exercised only if it appears to the Secretary of State that agreements which fall within the additional exclusion do not in general have an adverse effect on competition or, if they may do, they are best considered under Chapter II of the Bill or the Fair Trading Act 1973. The purpose of this power is to ensure that the Chapter I prohibition is targeted efficiently and effectively at areas of real competition concern. The power could be used to take vertical agreements (for example, an agreement between a manufacturer and a distributor) outside the scope of the Chapter I prohibition on the grounds that such agreements are generally only of concern in cases of market dominance and hence may best be considered under the Chapter II prohibition or the Fair Trading Act.

  10.    Both of the clause 3 delegated powers to amend schedules 1 and 3 are subject to the affirmative resolution procedure.

Schedule 1 - Exclusions: Mergers and Concentrations

  11.    Paragraph 4(3)(b) enables the Secretary of State to prescribe by regulations categories of agreement for which the Director may not give a direction under paragraph 4(1) to withdraw the exclusion.

  12.    It is intended that this power be exercised so that the Director is not able to withdraw an exclusion in the case of particular categories of merger, notably:

(a) those that are mergers by virtue of sections 65(1) and 65(2) of the Fair Trading Act 1973;

(b) mergers in respect of which a merger reference is made under sections 64 or 75 of the Fair Trading Act 1973, or where the Secretary of State would be entitled to make such a reference but announces a decision not to make one, or mergers subject to a reference under section 32 of the Water Industry Act 1991.

  13.    Drafting the exclusion for mergers has proved technically difficult and the Government is not satisfied the Bill's provisions are yet correct in this area. The power is provided to allow flexibility in adjusting the definition in future. Following comments made in the public consultation, Ministers hope that it will be possible to bring forward Government amendments during the Bill's passage which would deal with the exclusion on the face of the Bill more satisfactorily, obviating the need for and deleting this order making power.

  14.    The power is subject to the negative resolution procedure.

Schedule 3 - General Exclusions

  15.    Paragraph 4(1) enables the Secretary of State to exclude a particular agreement or agreements of a particular description from the Chapter I prohibition if he is satisfied it would be appropriate to do so in order to avoid a conflict with an international obligation of the United Kingdom. By virtue of paragraph 4(3) the prohibition may be deemed never to have applied.

  16.    Paragraphs 4(4) and (5) make analogous provision in relation to the Chapter II prohibition.

  17.    Paragraph 5(1) enables the Secretary of State to exclude a particular agreement or agreements of a particular description from the Chapter I prohibition if he is satisfied that there are exceptional and compelling reasons of public policy to do so. By virtue of paragraph 5(3) the prohibition may be deemed never to have applied.

  18.    Paragraph 5(4) and (5) make analogous provision in relation to the Chapter II prohibition.

  19.    The Secretary of State is given these powers in order to ensure that in practice the prohibitions do not operate in conflict with our international obligations or with other public policy interests the protection of which he would regard as being an exceptional and compelling reason to disapply the prohibitions.

  20.    All four of the delegated powers in Schedule 3 are subject to the negative resolution procedure. This procedure has been chosen in preference to affirmative resolution on the grounds that the Secretary of State should have the primary responsibility for deciding what needs to be done in order to comply with our international obligations or what are exceptional and compelling reasons of public policy.

Schedule 4 - Professional Rules

  21.    Paragraph 2 requires the Secretary of State to establish and maintain a list designating professional rules as ones which have been notified to him under paragraph 3 and which by virtue of paragraph 1 are excluded from the Chapter I prohibition. The list is to be established, and any alteration is to be effected, by an order made by the Secretary of State. An application under paragraph 3 is to be made in the manner prescribed in the regulations.

  22.    Paragraph 6(3) provides for the Secretary of State, in certain circumstances, to revoke the designation of professional rules.

  23.    Because professional rules may themselves be withdrawn or amended at any time by the professional body concerned, Ministers consider that the designation of professional rules should be achieved through subordinate legislation.

  24.    The initial power in paragraph 2 to establish and maintain a list - since it involves little more than the Secretary of State satisfying himself that the rules submitted to him are indeed professional rules as defined in the Schedule - is subject to the negative resolution procedure. The power in paragraph 6(3) to revoke the designation of a professional rule is subject to the affirmative resolution procedure, since it would involve a departure from Parliament's general intention as to the treatment of professional rules under the Bill.

Clause 6 - Block Exemptions

  25.    Subsection (2) enables the Secretary of State to make an order specifying a category of agreements which is to be exempt from the Chapter I prohibition. Subsections (4)-(7) and clause 7 make further provisions as to what a block exemption order may provide.

  26.    The Secretary of State may only make a block exemption order on the recommendation of the Director, although he may modify what the Director has recommended to him. Under the Bill responsibility for applying the prohibitions and deciding whether an agreement may be exempted is given to the Director. Ministers believe that the power to exempt categories of agreement contained in this clause should be exercised by statutory instrument as it affects the scope of the application of the prohibitions generally (as opposed to administrative decisions about individual agreements).

  27.    The power in clause 6 is subject to the negative resolution procedure.

Clause 8 : Block exemptions : procedure

  28.    Clause 8 enables the Secretary of State to vary or revoke a block exemption order, whether or not there has been a recommendation to that effect from the Director.

  29.    The case for the power rests on the same grounds as that in clause 6.

  30.    The power is subject to the negative resolution procedure.

Clause 10 : Parallel exemption

  31.    Clause 10(10) enables the Secretary of State to specify by order additional Regulations adopted by the European Commission or the Council of Ministers which provide for a Community prohibition.

  32.    The purpose of the power is to enable the competition regime in Chapter I to develop in parallel with the European Community regime on which it is based, in order that those whose agreements benefit from an exemption under the Community regime automatically derive the corresponding benefit under the Chapter I regime.

  33.    The power is subject to the negative resolution procedure.

Clause 11 : Exemption for certain other agreements

  34.    Subsection (2) enables the Secretary of State to make by regulations such provision as he considers appropriate for the purpose of granting an exemption from the Chapter 1 prohibition to certain agreements. The agreements in question are those which have been the subject of a ruling pursuant to the powers granted under Article 88 of the Treaty of Rome to national authorities of the Member States to apply Article 85 in those narrow areas of the economy in which the European Commission has not been granted power to apply Article 85 (for example, international air transport between the UK and non-EC countries).

  35.    The purpose of the power is to enable the Secretary of State to provide an exemption from the Chapter I prohibition where an agreement benefits from an exemption under the Community regime, by virtue of a ruling by the Secretary of State pursuant to Article 88 of the Treaty.

  36.    The power is subject to the negative resolution procedure.

Clause 19 - Excluded Cases

  37.    Subsection (2) enables the Secretary of State to amend Schedule 1, with respect to the chapter II prohibition, by adding one or more cases, or amending or removing any case (whether or not it has been added by an order under the subsection).

  38.    The power is a reserve power intended to ensure that the line drawn between the Chapter II prohibition regime in the Bill and the mergers regime can be adjusted, if necessary, in the light of experience of its operation to ensure that it remains clear and capable of straightforward practical application.

  39.    The power is subject to the affirmative resolution procedure.

Clause 35 - Penalty for infringing Chapter I or Chapter II prohibition

  40.    Subsection (7) enables the Secretary of State to specify in an order how the turnover of an undertaking is to be determined for the purpose of setting the maximum penalty the Director may impose (which may not exceed 10% of that turnover).

  41.    The definition of turnover will need careful consideration and may need to be adjusted in the light of experience of the operation of the penalty system. Ministers therefore consider that it should be set by secondary legislation.

  42.    Because, however, the definition of turnover will be determinative of the maximum penalty that may be imposed under the Bill, and that that is naturally a matter on which Parliament may wish to take a close interest, the power is subject to the affirmative resolution procedure.

Clause 38 - Limited immunity for small agreements

  43.    Subsection (1) provides that the category of small agreements which are to benefit from the immunity from penalties provided by this clause is to be such as is prescribed by regulations by the Secretary of State.

  44.    The definition of this category of agreements is expected to be based on turnover or market share, will need careful consideration and may need to be adjusted in the light of experience of the operation of the Chapter 1 regime and of developments in the economy (including price inflation). Ministers therefore consider that the category should be defined by secondary legislation.

  45.    The power is subject to the negative resolution procedure.

Clause 39 - Limited immunity in relation to the Chapter II prohibition

  46.    Subsection (1) provides that the category of conduct of minor significance which is to benefit from the immunity from penalties provided by the clause is to be such as is prescribed by regulations by the Secretary of State.

  47.    The case for this power rests on the same grounds as that in the closely related clause 38.

  48.    The power is subject to the negative resolution procedure.

Clause 40 - Agreements notified to the Commission

  49.    Subsection (5) enables the Secretary of State to prescribe by regulations the meaning of the term `provisional immunity from penalties'. If the European Commission withdraws "provisional immunity from penalties", this will end the immunity from fines under the Chapter I prohibition (granted under subsection (2)) in respect of agreements notified to the European Commission under the European Community competition regime.

  50.    The purpose of providing the delegated power is to ensure that developments in the circumstances in which the European Commission removes provisional immunity from fines under Article 85 in respect of agreements notified to it are reflected in the circumstances in which the Director may impose fines under the Chapter I prohibition in respect of such agreements.

  51.    The power is subject to the negative resolution procedure.

Clause 44 - The Competition Commission

  52.    Subsection (5) enables the Secretary of State to make by order such consequential, supplemental and incidental provision as he considers appropriate in connection with the dissolution of the Monopolies and Mergers Commission and the transfer of its functions to the Commission. Subsection (6) provides that the Secretary of State may, in particular, make provision for the transfer of property, rights, obligations and liabilities and the continuation of proceedings and other matters, or amend any enactment which makes provision with respect to the Monopolies and Mergers Commission or any of its functions.

  53.    Schedule 7 to the Bill makes detailed provision for the Commission, Part V in particular providing certain transitional provisions. There will however need to be more detailed provision made at the time which will depend for example on what property the Monopolies and Mergers Commission then has. Ministers consider that in these circumstances flexibility to deal with these matters by subordinate legislation is needed.

  54.    The power is subject to the negative resolution procedure.

Clause 45 - Appealable decisions

  55.    Subsection (2) allows the Secretary of State to add to the list provided in the subsection of decisions of the Director against which appeals may be made.

  56.    The Government's present view is that the current list provides the range of decisions which should be appealable. However, Ministers would not want to rule out adding further decisions in the light of the way the appeal system operates. This power is intended to give that flexibility.

  57.    The power is subject to the negative resolution procedure.

Clause 47 - Appeal Tribunals

  58.    Subsection (2) enables the Secretary of State, after having consulted the President of the Competition Commission Appeal Tribunals, to make rules with respect to appeals and appeal tribunals. Part II of Schedule 8 and clause 48(4) illustrate some of the matters on which rules may be made.

  59.    Although no specific provision is made for the rules to be made by statutory instrument, Ministers intend to bring forward an amendment during the Bill's passage to have that effect. They intend that the power should be made subject to the negative resolution procedure.

Clause 49 - Rules

  60.    Clause 49 enables the Secretary of State to approve by order (and therefore bring into operation) the rules the Director makes about procedural and other matters in connection with the carrying into effect of the provisions of Part I of the Bill. The Secretary of State may, subject to certain conditions, modify a rule before approving it or vary or revoke any rule he has approved. Schedule 9, and in some respects Schedules 5 and 6 and clause 51, illustrate some of the matters on which the Director may make rules.

  61.    This power is proposed to be taken because these are in general matters of procedural detail, and because of the desirability of involving the Director in the making of his own rules whilst still maintaining Ministerial and Parliamentary control.

  62.    The power is subject to the negative resolution procedure.

Clause 53 - General Restrictions on disclosure of information

  63.    Subsections (5) and (6) enable the Secretary of State to specify in an order additional persons and functions. The restrictions on disclosure in subsection (1) would not apply to the disclosure of information made for the purpose of facilitating the performance of specified functions of any specified person.

  64.    Specifying additional persons and functions may be necessitated by developments in competition and regulatory policy over time. The power is intended to provide sufficient flexibility to respond to such developments.

  65.    The power is subject to the negative resolution procedure.

Clause 59 - Introduction

  66.    Subsection (1) gives power to the Secretary of State to prescribe by order provisions of European Community law relating to Article 85 or 86 of the Treaty in respect of which the powers under this Part are to be exercisable.

  67.    The purpose of this Part of the Bill is to provide equivalent procedures for European Community competition investigations as those available for domestic investigations. The reason for proposing the delegated power is to keep the two regimes in step: the current Community legislation concerned with investigations under Articles 85 and 86 may be revised or repealed.

  68.    The power is subject to the negative resolution procedure.

Clause 66 - Services relating to use of land

  69.    Subsection (1) amends section 137 of the Fair Trading Act 1973 to give the Secretary of State a power to provide by order for the definition of "the supply of services" to include or cease to include arrangements in connection with the use of land. At present only certain arrangements in respect of the use of land set out in section 137(3) of the Act may be referred to the Monopolies and Mergers Commission for investigation under the monopoly powers. It is proposed to take this power in order to allow the scope of the monopoly provisions so far as such arrangements are concerned to be amended in the future when the need arises.

  70.    Since the power goes to the scope of the regime in the Fair Trading Act, it is subject to the affirmative resolution procedure.

Schedule 13 - Transitional Provisions and Savings

  71.    Paragraph 3 enables the Secretary of State, at any time before the commencement date, to make one or more orders for the purpose of providing block exemptions which are effective on that date.

  72.    Block exemptions orders are made by the Secretary of State under the power in clause 6. This additional power enables the Secretary of State to have orders in place at the time the Chapter I prohibition comes into force.

  73.    The power is subject to the negative resolution procedure.

Clause 71 - Consequential and supplementary provision

  74.    Subsection (1) enables the Secretary of State to make such incidental, consequential, transitional or supplemental provision as he thinks necessary or expedient for the general purposes, or any particular purpose, of the Bill or in consequence of any of its provisions or for giving full effect to it. The rest of the clause illustrates the kinds of provision which may be made and defines the scope of the power, and paragraph 2 of Schedule 13 provides that an order under clause 17 may modify any of the provisions of Schedule 13.

  75.    Schedule 12 provides for certain minor and consequential amendments (Ministers anticipate that additional such amendments will be put forward by way of Government amendment) and Schedule 14 for repeals and revocations. Schedule 13 makes transitional provisions and savings.

  76.    Whilst Ministers would expect these provisions (subject to amendments during the Bill's passage) to provide for at least most of the necessary consequential and transitional provisions, it is possible that further provisions may be required after the Bill is passed. The exercise of powers in the Bill, for example those by which the prohibitions may be disapplied, will also require consequential, transitional and supplementary provisions to be made. The purpose of this power is to enable Ministers to make such provisions.

  77.    The power is subject to the negative resolution procedure.

Clause 72 - Short title, commencement and extent

  78.    Subsection (3) enables the Secretary of State to commence provisions of the Bill (other than clauses 67, 70(2), 71 and 72 which come into force on the passing of the Bill) on such days as he may appoint.

  79.    The Bill introduces a wide-ranging new approach to competition law and will need to be commenced at different times following the passage of the Bill. Furthermore, in deciding when particular provisions are to come into force, the Secretary of State will need to bear in mind the progress of those likely to be affected by the Bill in coming to terms with its provisions. Ministers therefore believe it is important there should be a commencement power in the Bill.

  80.    The power is not subject to any Parliamentary procedure.

27 October 1997


 
previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries

© Parliamentary copyright 1997
Prepared 6 November 1997