Select Committee on European Union Fourth Report


FOURTH REPORT



15 FEBRUARY 2000

By the Select Committee appointed to consider European Union documents and other matters relating to the European Union.

ORDERED TO REPORT

REFORMING EC COMPETITION PROCEDURES

COM (1999) 101 final  White Paper on Modernisation of the rules implementing Articles 81 and 82 of the EC Treaty

PART 1 INTRODUCTION

1. A strong and effective competition policy is one of the cornerstones of the Single Market. Such a policy requires both clear rules and an efficient and fair system of enforcement. The basic procedures for the application of the Community's competition rules have remained largely unchanged since 1962. Though the Treaty provides for both the EC Commission and the competent authorities in the Member States to enforce the rules, in practice the Commission undertakes the large majority of the work, informing and consulting the Member States as required. From time to time the Commission has encouraged Member States to take on a greater responsibility. But only about half the Member States have given their authorities the powers to apply Community law and instances of their doing so are relatively rare. Member States have preferred to apply their domestic competition laws, many of which are now based on and follow the pattern of enforcement of the Community regime. If the proposals contained in the Commission's White Paper on reform of EC competition procedures were to be adopted this position would change dramatically. A major role would be given to national competition authorities to enforce the Community rules and there would be a greater involvement of national courts in giving full effect to them.

The Treaty rules and procedures

2. The competition rules of the EC Treaty applicable to undertakings are set out in Articles 81 and 82 (formerly 85 and 86[1]) ("the Competition Rules"). Article 81 contains a prohibition on restrictive agreements but with the possibility of exemption. Prohibited agreements are automatically void. Paragraph 3 of the Article, however, provides for exemption from the prohibition where the agreement contains countervailing economic benefits in which consumers share. Article 82 prohibits abuse of dominant positions. These two rules play a key part "in establishing a common market" as provided for in Article 2 of the EC Treaty. One of the activities of the Community listed in Article 3 of the EC Treaty is "a system ensuring that competition in the internal market is not distorted". The removal of State-imposed barriers to the free movement of goods and services across national boundaries is accompanied by prohibitions on enterprises to stop them agreeing, for example, to divide and share national markets or to fix prices. Community competition policy has played an important role in the development of an integrated/Single market and has acted as a dynamic force in the European economy.

3. Under the scheme set out in the Treaty (in Articles 84 and 85) the Commission and the Member States share responsibility for enforcing Articles 81 and 82. In practice, however, the Commission takes on the role almost single-handed. The procedural rules under which the Commission carries out this role are contained in Regulation 17/62[2], which is applicable to all sectors except transport where special rules apply. That Regulation gives the Commission the monopoly in granting exemptions under Article 81(3).

4. National courts may also enforce the competition rules indirectly. The Court of Justice has held that Articles 81 and 82 produce direct effects and create individual rights which national courts must protect.[3] In litigation, persons may rely on the illegality of contractual clauses or on conduct or behaviour contrary to Articles 81 and 82. National courts cannot, however, grant individual exemptions under Article 81(3).

5. The Community's competition rules exist side by side with national competition laws. Many Member States have adopted competition laws similar in substance and approach to the Community's. In the United Kingdom, the regime of the Restrictive Practices Acts is shortly to be replaced by the Competition Act 1998, whose key provisions are modelled on Articles 81 and 82. The applicant States, in giving effect to the Europe Agreements[4] and to the acquis communautaire, have been encouraged to follow the Community regime.

The White paper

6. The White Paper seeks to address the practical problems brought about by the success of the regime introduced by Regulation 17/62 and by the monopoly enjoyed by the Commission under that Regulation. In order to get an exemption under Article 81(3) an agreement has to be notified to the Commission, a fairly lengthy procedure followed, and a formal decision granted. The Commission does not have (and has never had) the resources needed to deal with every notification under the formal procedure. Overloads have been avoided by the use of block exemption regulations, notices and, more recently, comfort letters, that is administrative letters setting out the Competition Directorate's view of a particular agreement or practice. Dealing with notifications has, however, taken up resources that might better be used in dealing with complaints and investigating "hard core" cartels. In some cases enforcement action before national courts and authorities may be blocked or halted because of the Commission's bottleneck monopoly over exemptions. Attempts to decentralise the enforcement of the Community rules have not been successful.

7. The White Paper discusses a number of options for reform, including simplification and speeding up of the present procedural regime. The Commission, however, prefers a more radical approach. Its objective is fourfold: "rigorous enforcement of competition law, effective decentralisation, simplification of procedures and uniform application of law and policy development throughout the EU". [5]

8. The Commission's proposals have two key features First, the current "authorisation" regime for applying Article 81(3) (and the Commission's monopoly over the application of Article 81(3) in individual cases) would be replaced by a "directly applicable exception system". The practical effect of such a fundamental change would be that Article 81 as a whole would in future be applied by the Commission, national competition authorities and national courts. Second, the day to day enforcement of the Competition Rules would be decentralised. Member States, through their national competition authorities and courts, would take on a greater share in the enforcement of Community competition law.

9. The reform would allow the Commission to refocus its activities on the most serious infringements of Community law. The Commission would not, however, intend to give up its central role in enforcement of the Competition Rules and the development of competition policy. It would have the power to make block exemption regulations, issue notices, take over cases from national authorities and appear as "friend of the court" in proceedings before national courts. It would also play a key practical role in ensuring a consistent and coherent application of the Competition Rules throughout the Union. The proposals do not affect the rules relating to mergers and state aids.

10. The White Paper also proposes certain other significant (but less radical) changes to Regulation 17/62, notably increasing the level of procedural fines and strengthening the Commission's powers of investigation of undertakings. While these changes are important, this Report concentrates on the central features of the White Paper, the removal of the notification/authorisation procedure and decentralisation of enforcement of the competition rules.

11. The Commission's proposals are radical in nature and have given rise to a considerable degree of controversy. They have implications for the efficiency of working of the Commission and the resources to be employed at both Commission and national level in the enforcement of the Community rules. They have raised concerns in industry for the legal certainty of major commercial investment. They have revived questions as to the justiciability of certain competition policy issues and the suitability of judges to apply economic criteria and to weigh policy considerations.

The inquiry

12. The inquiry into the issues raised by the Commission's proposal was carried out by Sub-Committee E (Law and Institutions) under the chairmanship of Lord Hope of Craighead. The membership of the Sub-Committee is listed in Appendix 1. The witnesses are listed in Appendix 2. The evidence, written and oral, is printed with the Report. We would like to thank all those who assisted in the inquiry. Appendix 3 reproduces Articles 81 to 85 of the EC Treaty.


1   Because of the change in numbering we have, in order to avoid confusion, amended the title of the White Paper to refer to Articles 81 and 82. Back

2   First Regulation implementing Articles 81 and 82 of the Treaty. [1962] J.O. 13/204, [1959-62] O.J. Spec. Ed. 57.  Back

3   Case 127/73, B.R.T. v. S.A.B.A.M. [1974] E.C.R. 51. Back

4   The name given to the Association Agreements with Central and Eastern European Countries and Baltic States. The Agreements provide for economic and political co-operation and pave the way for the integration of those countries into the Union. Back

5   White Paper, para 11. Back


 
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