12. COMPETITION POLICY
31st Commission Report on Competition Policy 2001.
Green Paper on Review of Council Regulation (EEC) No. 4064/89 (controlling mergers and certain joint ventures).
(a) 29 April 2002
(b) 11 December 2001
Deposited in Parliament:
(a) 28 May 2002
(b) 27 March 2002
Trade and Industry
Basis of consideration:
(a) EM of 26 June 2002
(b) EM of 27 March 2002
Previous Committee Report:
To be discussed in Council:
(Both) Cleared; but relevant to any debate on competition policy
- The purpose of the EU's competition rules is to prevent the distortion of competition in the Common Market through restrictive practices or the abuse of dominant positions, although certain restrictive agreements considered by the Commission to have a beneficial effect are permitted under the procedure for individual or block exemptions. The EU has given the Commission particularly formidable powers, both legislative and executive, in this area, and the Commission reports annually on competition policy.
- An important element of EC Competition policy is the EC Merger Regulation (ECMR), under which mergers and certain joint ventures ("concentrations") which are sufficiently large to be classified as having a "Community dimension" are subject to the jurisdiction of the Commission rather than that of Member States' national competition authorities. The ECMR allows for the Commission to use a "dominance test" to judge whether a merger is compatible with the Common Market. If the Commission decides that the proposed merger would "create or strengthen dominant position as a result of which competition would be significantly impeded in the common market or a substantial part of it"(Article 2), the Commission blocks the merger. The Commission has powers to impose fines in cases where companies have failed to notify it of mergers covered by the Regulation. Failure to abide by the Commission's decision could result in fines of up to 10% of the annual turnover of the companies.
- The ECMR was last revised in 1997 following lengthy consultation. That revision introduced a set of secondary, lower turnover thresholds with the aim of bringing more mergers with genuinely cross-border effects within the Commission's jurisdiction.
- The ECMR requires that the operations of the thresholds be reviewed periodically. In June 2000, under such a review, the Commission decided that a broader review of the operation of the Regulation was justified in order to take account of ten years of experience in applying it, developments in merger control in other jurisdictions and the prospect of EU enlargement. The Green Paper (document (b)) is the result of that review.
- Document (a), the Commission's 31st annual report on competition policy, covers the main developments in EC competition policy, merger control, state aid and international aspects of competition policy. It focuses on the Commission's use of anti-trust, merger and state aid rules and highlights enforcement of the competition rules as one of the Commission's key tasks.
- More specifically, the report covers the following areas:
- the proposed modernisation of the legislative and interpretative rules on anti-trust (Articles 81 and 82 of the EC Treaty);
- major cases under Article 81 (anti-competitive agreements) and Article 82 (abuse of dominant position), which included cases of cartels in the banking sector connected with the introduction of the euro and Article 82 cases in the postal sector and the car industry;
- merger control, including the Commission's Green Paper on the review of the EC Mergers Regulation, with the aim of launching a debate on how to improve the current EU merger control system;
- state aid policy, including progress in reducing state aid and re-directing aid towards horizontal objectives (e.g. training) of common interest;
- services of general interest, such as the Commission's efforts to remove barriers to services and promote market opening and competition in such areas as gas and electricity in accordance with the conclusions of the Lisbon European Council in March 2000;
- international activities, including negotiations in the competition field with the applicant countries; and
- future policy initiatives and legislation for 2002, such as the adoption of the Council Regulation relating to Articles 81 and 82 and adoption of an amended mergers regulation.
- The previous Committee left the proposals to modernise the anti-trust rules uncleared on 28 February 2001, pending further information. The general aim of the proposals is to allow the Commission to focus its efforts on the most serious infringements of Community law. The report says that the proposals have been considered and broadly welcomed by the Economic and Social Committee, the European Parliament and the Industry Council, with discussions continuing in the Council working group. The report also notes that on 14-15 May and 5 December 2001, the Industry Council reached provisional agreement on some aspects of the proposed Regulation, but concluded that discussions on the principles and modalities needed to be continued in the Council working group.
- The report also notes other moves by the Commission to concentrate more on serious price-fixing and market-sharing agreements. For example, on 20 December 2001 the Commission adopted new draft rules aimed at better detection and eradication of price-fixing and other cartels. One effect of this revised 'leniency notice' is that the compliance burden will be reduced for companies, especially smaller companies. The report also notes that on 20 December, the Commission initiated a review of the block exemption Regulation for technology transfer agreements.
- Document (b), the Commission's Green Paper on the review of the Council Regulation controlling mergers and certain joint ventures, covers three types of issues: jurisdictional, substantive and procedural, and outlines possible ways of reforming the Merger Regulation. For example, the Commission invites comments on:
- whether there should be changes to the current means of allocating jurisdiction over mergers between the Commission and Member States;
- amending Articles 9 of the Regulation to make the criteria for referring a case to national competition authorities simpler, and allowing the Commission to make such referrals on its own initiative;
- possible improvements to the due process and checks and balances in the ECMR system;
- widening the scope of the term "concentration";
- replacing the "dominance" test currently used by one based on the concept of a "substantial lessening of competition"; and
- various procedural matters, including notification, trigger events and calculation of time limits.
- The Commission considers options for amending the definition of "Community dimension" in the ECMR, with the aim of reducing the number of merger cases still requiring notification with multiple national competition authorities ("multiple filings"). It concludes that changes to the ECMR turnover thresholds are unlikely to reduce the number of multiple filings and instead proposes an automatic "Community dimension" for cases that fall to the consideration of three or more Member States' merger regimes. The Commission asks for comments on a number of ways in which the concept of "concentration" could be expanded.
- Currently, the ECMR uses a "dominance test" to judge whether a merger is compatible with the Common Market. If the Commission decides that the proposed merger would "create or strengthen dominant position as a result of which competition would be significantly impeded in the common market or a substantial part of it" (Article 2), the Commission blocks the merger. The Commission asked whether the ECMR should move to a test based on the concept of a "substantial lessening of competition", which would bring it into line with a number of other jurisdictions, including the United States and that proposed by the Government under the Enterprise Bill. The Commission asks for comments on whether the ECMR should make "efficiency" considerations a factor in merger control and on a number of possible enhancements to the ECMR simplified procedure for cases which do not raise significant competition issues.
- The Commission asks for comments on its suggestions for changes to the "permissible timings", including a 'stop-the-clock' provision for the submission and discussion of commitments during the second and third phases of an investigation.
- The Commission considers issues of due process, including the effectiveness of judicial review, in the operation of the ECMR and of the checks and balances in the system and asks for comments.
- The Commission also asks for comments on a number of other procedural matters:
- the need for clarification concerning events triggering an obligation to notify;
- the application of the standstill obligation in the ECMR;
- calculations of time limits on the basis of working days;
- electronic notifications and submission of notification copies by the parties direct to Member States;
- incompleteness of notifications;
- reversal of completed concentrations;
- enforcement provisions; and
- The Green Paper also contains two annexes on turnover thresholds and companies' experiences of the Article 9 referral procedure.
- The Commission aims to present a package of reforms by the end of 2002, which is likely to take the form of "draft proposal for amendments to the Merger Regulation for approval by the Council; draft interpretative guidelines on the practice relating to the application of the substantive competition test, embracing, notably, the analysis of market power in merger cases, and how efficiency considerations should be taken into account; and a new set of best practice guidelines on the conduct of merger investigations to be agreed with the business and legal community."
The Government's view
- The Parliamentary Under-Secretary of State for Competition, Consumers and Markets (Miss Melanie Johnson) sets out the Government's view on the main issues raised in the 31st annual report on competition policy. For example, on the modernisation of the competition rules, she says:
"The modernisation process, which began with the publication of a Commission White Paper in April 1999, is intended to decentralise much of the enforcement of Articles 81 and 82 to national authorities and courts, and would end the notification system for companies seeking exemptions for their restrictive agreements.
"The UK fully recognises the potential benefits of modernisation of the rules and is actively participating in the negotiations on the proposed new Regulation. The UK also welcomes other Commission activities in 2001 which were undertaken as part of the modernisation process, including the issue of new leniency and de minimis Notices and the opening of a review of the technology transfer block exemption. The UK also welcomes the enhanced role of the hearing officer in competition proceedings."
- As regards state aid, the Minister says:
"Government supports the adoption of the three block exemption regulations covering state aid to small and medium size enterprises, training aid and 'de minimis' aid. Under these regulations, Member States are able to grant aid without prior notification to the Commission, thus allowing business to benefit from simplified administrative procedures. The Regulations are an important step in simplifying the procedures for giving aid in a number of cases where compatibility with the Common Market does not normally pose any problems. Use of these exemptions will also free Commission services from assessing numerous standard cases and allow them to concentrate on the more important ones."
- As regards document (b), the Minister says:
"The Government welcomes the Green Paper and the Commission's broad review of the operation of the ECMR. The Government agrees with the Commission that it is appropriate to look again at the Regulation and the administrative arrangements for its enforcement in the context of the great increase in the Merger Task Force's caseload, developments in merger control in other jurisdictions and the prospect of enlargement.
"In summary, the Government considers that three of the issues raised in the Green Paper should be given particular priority in the review. These are: due process and 'checks and balances' under the ECMR; possible changes to the means of establishing whether a merger has a 'Community dimension', and the related questions of changes to Article 9 and 22; and the possibility of replacing the substantive test applied under the ECMR from one based on 'dominance' to one based on the concept of a 'substantial lessening of competition'.
"On the subject of due process, the Government's response acknowledges the systems already in place, but encourages the Commission to use the review to consider whether further improvements can be made. The Government puts forward a number of suggestions proposed by both itself and UK stakeholders for consideration by the Commission. These include increasing the remit and resources of the Hearing Officers dividing responsibility for the consideration of cases in phase I and phase II, creation of a Chief Economist position with the requisite support resources and enhancing the role of the Advisory Committee of Member States.
"On the jurisdictional issues, the Government gives a qualified welcome to the Commission's proposal that the ECMR should in future apply to all concentrations that are subject to three or more national filing requirements. The Government considers the ECMR 'one-stop-shop' to be a key strength of the Regulation and appreciates the Commission's concern at the continued occurrence of multiple filings. The Government also appreciates that any changes in this area must maintain the efficiency of the ECMR procedure. However, it also believes that cases should fall to the jurisdiction of the authority best placed to consider them and is concerned that an application of a 'three or more national filings' rule could lead to Commission jurisdiction over cases affecting markets that are narrower than national with which Member States are better placed to deal. As such, the Government's support for the Commission's proposal would be conditional upon the existence of an appropriate corrective mechanism to ensure cases are dealt with by the best-placed authority. The Government hopes that the more flexible form of Article 9 proposed by the Commission could fulfil this role if its function is sufficiently automatic. The Government also sees merit in the argument put forward by a number of UK stakeholders that any 'three or more national filings' system should operate on a voluntary basis.
"The Government warmly welcomes the discussion of the question of the substantive test that should apply under the ECMR. The forthcoming Enterprise Bill proposes that the UK merger regime's current 'public interest' test should be replaced by one based on the concept of a 'substantial lessening of competition' (SLC). The Government would also see real merit in the replacement of the ECMR dominance test with one based on SLC, which it considers fundamentally better adapted to merger control due to its more direct grounding in economic analysis and its greater flexibility, which makes it particularly well adapted to the consideration of oligopolistic markets. Adoption of an SLC test under the ECMR would also bring the ECMR into line with other international merger regimes, including that of the US.
"Following its discussion of these three main issues, the Government's response goes on to cover all the other matters listed in the Commissions Green Paper in the order in which they are presented by the Commission. This includes other important issues such as the application of the Regulation to Venture Capital investments and whether efficiencies resulting from mergers should be considered when assessing the effect on the markets."
- As regards consultations, the Minister told us that the Government had received only a "small number of replies", which because of the small number could not be taken as being representative of all the stakeholders invited to comment. She concluded, however, that the views supported the Government's proposed approach to the key issues. In a recent speech, the Competition Commissioner, Mr Mario Monti, said that the Commission had been hearing a very wide range of views from all interested parties, including businesses, the legal community, consumers, trade unions, governments, competition authorities of Member States, other European Institutions and a number of non-EU competition authorities.
- A package of draft proposals is expected to be presented by the end of 2002.
- Competition policy, especially the Merger Regulation, is a complex subject. Document (a), the 31st report on Competition Policy, provides a useful descriptive account of developments in competition policy in 2001. Many of the aspects covered in the report have been previously considered by us and by previous Committees.
- Document (b), the Green Paper, provides the background to probable reforms of a key element of EC competition policy, the Merger Regulation. We note the Government's support for the review and its interest in highlighting the issues of due process and checks and balances, the concept of "Community dimension" and the appropriate regulatory authority and the possibility of a "substantial lessening of competition" test for regulating mergers. We expect to receive draft proposals later this year and will consider them closely. If we decide to recommend them for debate, the two documents discussed here will be relevant to that debate.
- Meanwhile, we clear the documents.
19 Council Regulation 4064/89/EEC as amended. Back
20 Combined aggregate turnover more than _5,000 million worldwide and _250 million Community-wide unless two-thirds of the latter is in one Member State. Back
21 Last amended by Council Regulation (EC) 1310/97 of 30 June 1997. These amendments came into force on 1 March 1998. Back
22 Transactions that had a lower threshold would be deemed to have a community dimension if the combined aggregate turnover is more than _2,500 million worldwide; in each of three Member States combined aggregate turnover is more than _100 million; in each of those Member States aggregate turnover of at least two of the undertakings is more than _25 million and aggregate Community-wide turnover of at least two of the undertakings more than _100 million; unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State. Back
23 We reported on the Commission's 30th Report on competition policy for 2000: see (22442); HC 152-ii (2000-01), paragraph 32 (17 October 2001). Back
24 (21672) 11848/00: HC 28-vii (2000-01), paragraph 5 (28 February 2001). A supplementary EM is expected to be provided when the Commission produces its revised proposals in late Autumn 2002. Back
25 The Commission first adopted a leniency programme in 1996 in order to increase effectiveness both in the detection and in the handling of cartel cases. The leniency programme was conceived as a way of rewarding undertakings that co-operate with the Commission, reflecting the difficulty of obtaining hard evidence of secret cartels. Back
26 Speech by Commissioner Monti: "Review of the EC Merger Regulation - Roadmap for the reform project", Brussels 4 June 2002. Back
27 The position of hearing officer was created in1982. His initial responsibility was limited primarily to the organisation, chairing and conduct of the oral hearing in antitrust proceedings - i.e. cartels and abuses of dominant positions - and later on also in merger proceedings. Back
28 Review of the EC Merger Regulation - Roadmap for the reform project, Conference on Reform of European Merger Control, British Chamber of Commerce, Brussels, 4 June 2002. Back