Previous SectionIndexHome Page


Mr. Ian McCartney: The issue of vertical agreements was considered at length in Committee. Clause 50 was added to the Bill at that stage to allow additional flexibility in the treatment of vertical agreements. Since that time, the CBI has written to hon. Members--and specifically to members of the Committee. The letter was dated 7 July. I shall quote the CBI's views on the clause added in Committee. The letter states:


The CBI supports the position the Government have taken in respect of these matters.

Mr. Ian Bruce: Will the Minister give way?

Mr. McCartney: On that specific point?

Mr. Bruce: Yes. I had intended to make a speech, but an intervention is simpler. I sat through the debate on Second Reading and tried to find out from the Government what they were trying to achieve with the Bill. Can the Minister give us one or two examples of cases in which he feels that vertical agreements are not working and tell us what the Government intend to do about it so that we can judge whether the clauses will do what they intend?

Mr. McCartney: With all due respect, we are trying to achieve a fair and effective competition regime, which includes the capacity to exclude vertical agreements. The vast majority of vertical agreements are benign, but there are circumstances in which a vertical agreement may not be benign. We must have provisions in place to deal with that. That is why the Government, after discussion with

8 Jul 1998 : Column 1191

interested parties, came forward with clause 50. I repeat that that is why the CBI went out of its way to write to hon. Members saying that it supports the way in which the Government are proceeding.

Mr. Chidgey: The Minister is quoting a letter from the CBI, dated 7 July, which, as he rightly said, has been circulated to members of the Committee and others. The hon. Gentleman has given the House the impression--I am sure he did not mean to--that the letter contains a complete endorsement of the Bill. The Minister knows that it does not. There are seven points in the letter which express the concerns that the CBI still has. I am not saying that I agree with those concerns, but it is only right and proper that the record should show that, although the CBI welcomes the Bill in principle, it does still have seven specific concerns.

Mr. McCartney: With all due respect, I thought that I had made it absolutely clear that I quoted the CBI's view of what has happened on vertical agreements since the Committee stage. I quoted it accurately. I made no attempt, either generally or specifically, to attribute to the CBI any other remark--nor would I attempt to do so. I was trying to be helpful to the House. I have been dealing specifically with the issue around clause 50. I did that because that clause came about as a result of the consultations that took place. I believe that it was legitimate for me to quote the CBI's view. I assume that the CBI sent that note to hon. Members so that they could be clear about the process involved in achieving clause 50.

Mr. Letwin rose--

Mr. McCartney: I cannot think for a moment what the hon. Gentleman wants to add to that. Perhaps he will wait until I get a little further into the body of my speech.

We have said on a number of occasions that we believe that there is significant merit in recognising the special features of vertical agreements as a whole under the chapter I prohibition. The prevailing view among economists is that vertical agreements do not normally give rise to competition concerns, except where one of the parties holds market power or there exists a large network of agreements. In recognition of that, using the powers under clause 50 will reduce the burden on business of unnecessary notification. That will enable the better concentration of regulatory resources on areas of competition concern.

As hon. Members may be aware, the European Commission has been conducting a review of the treatment of vertical restraints. Papers that we have received recently from the Commission contain possible definitions of vertical agreements which could form the basis of a description for the purposes of the chapter I prohibition.

There is, of course, great merit in using the same language as proposed by the Commission, if possible. Many UK businesses are already subject to EC competition law and it might be burdensome to apply two different tests at EC and UK level when deciding how they will fall to be treated under the UK and EC prohibitions. This is a matter we are actively considering

8 Jul 1998 : Column 1192

with the vertical agreements task force, which includes representatives from the CBI, the Monopolies and Mergers Commission and the Office of Fair Trading.

Nevertheless, we recognise that some vertical agreements can cause serious competition concerns that might not be readily dealt with by reliance on the chapter II prohibition or the complex monopoly provisions of the Fair Trading Act. Clever lawyers--there are a few in the House--may also test the terms of the special treatment and squeeze agreements within it which were not intended to benefit. In particular, we do not propose to give special treatment to price-fixing vertical agreements.

It is essential that the director general is able to claw back individual agreements to examine them. That is a quid pro quo of a wide-ranging exclusion.

We have discussed our approach in detail with representatives of the CBI and it has their support, as I noted earlier when I quoted the body's parliamentary briefing.

I turn now to the specific amendments proposed by the hon. Member for South Cambridgeshire (Mr. Lansley). True to his tradition, he spoke to them in a reasonable and cogent manner. That sounds trite, but he understands what I mean. The definition suggested in amendment No. 45 for a vertical agreement is at odds with that suggested by the European Commission in its papers. As I have said, businesses may find it burdensome to have two different tests that they have to apply. Our approach in this area, as in many others, is to assist businesses by introducing a prohibition that is consistent with article 85.

Mr. Letwin: I want to press the Minister on the point about the CBI. Opposition Members entirely accept that the CBI prefers the current position to the original position, in which vertical agreements might have been entirely prohibited. Does the Minister not accept that, if the CBI was offered the alternative of total or possible total prohibition, compared to what is currently in the Bill, it would be very likely to favour the latter? He has not addressed the question whether it might favour over that the amendments in the name of my hon. Friend the Member for South Cambridgeshire (Mr. Lansley).

Mr. McCartney: I cannot say what the CBI thinks about the amendments. I suppose that, having read them, it decided to say in its briefing that it agreed with the Government's position on the matter, which would indicate that, on reflection and consideration, and after discussions with others who are stakeholders, it believes that the Government's proposal is the best way forward. If that was not the CBI's view, it would have told hon. Members so in no uncertain terms in its note to us, because this issue is as important to the CBI and its members as it is to other businesses.

Even without the objection that I described, I am concerned that the definition provided in the amendment may allow anti-competitive horizontal agreements to slip through by masquerading as vertical agreements. For example, two parties at the same level of trade could enter into reciprocal agreements for the supply of a particular good, setting conditions that relate to the supply of the good to consumers.

The amendments do not allow flexibility to amend the definition of vertical agreements over time. That is the key difference between the Government's approach and that of the hon. Member for South Cambridgeshire.

8 Jul 1998 : Column 1193

Amendment No. 45 would limit our ability to make adjustments to ensure consistency with the European regime. It would also preclude amendments to the definition if it proved to be defective. Some flexibility of that nature is desirable to ensure that special treatment remains of real value to businesses but does not open a loophole in the operation of the prohibition. Hence, clause 50 allows the special treatment to be altered, but only by affirmative resolution.

Mr. Lansley: I acknowledge that the route that I suggest might lead, in the initial stages, to a contest between a definition derived here and one proposed by the Commission. I want to tax the Minister on whether he believes that the definition towards which the Commission is moving is one with which he is content. Is it acceptable for the Commission to have a definition that includes operating on different economic levels, since that is more about form than effect and may have a significant adverse effect for franchise holders?

Mr. Deputy Speaker (Mr. Michael J. Martin): Ian.

Mr. McCartney: Thank you, Mr. Deputy Speaker. You call me that because we have known each other since childhood--I was the child.

I would not have prefaced my remarks on the necessity to provide the opportunity in clause 50 to use the wording of the Commission's proposals as I did if the Government were unhappy or thought that the proposals would not work as we want them to. The fact that we are rejecting the hon. Gentleman's amendments means that, as I have said, we believe that the proposals from discussions in Europe will meet the objectives of the Government and business for vertical agreements. I understand that the hon. Gentleman will not accept that. Although I understand his reasons, there is a genuine disagreement between us. I hope that the judgment that I am making will prove to be correct. I spent a great deal of time discussing it with the CBI and others, to ensure that the decisions that we took, in relation to the principle of clause 50 and in relation to what comes out of it, genuinely met the requirements of business. There would be no point in the Government dealing with the matter in any other way.

The amendments proposed by the hon. Member for Eastleigh (Mr. Chidgey) tackle the issue of vertical agreements from a different perspective. Amendments Nos. 53 and 54 give the Director General of Fair Trading a role in the making of an order for vertical agreements. Amendment No. 58 also gives the director general power in relation to the scope of the prohibition, allowing him to remove the benefits of an order from a category of agreements.


Next Section

IndexHome Page