Select Committee on European Scrutiny Seventh Report


COM(00) 582

Draft Regulation concerning the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty and amending Regulations (EEC) No. 1017/68, (EEC) No. 2988/74, (EEC) No. 4056/86 and (EEC) No. 3975/87.

Legal base: Article 83 EC; consultation; qualified majority voting
Document originated: 27 September 2000
Forwarded to the Council: 29 September 2000
Deposited in Parliament: 16 October 2000
Department: Trade and Industry
Basis of consideration: Minister's letter of 12 February 2001
Previous Committee Report: HC 23-xxx (1999-2000), paragraph 2 (22 November 2000)
To be discussed in Council: 4-5 April 2001
Committee's assessment: Legally and politically important
Committee's decision: Not cleared; awaiting further information


  5.1  In April 1999, the Commission published a White Paper[23] which outlined its plans to modernise the Community's competition regime. It proposed, in particular, to bring to an end the requirement for prior administrative authorisation by the Commission of restrictive agreements and to replace it with a legal exception regime. Under the proposed arrangements, restrictive agreements would be deemed either to meet the terms of Article 81(3) from the outset and be legally enforceable, or not to do so and be prohibited and legally void. National Competition Authorities (NCAs) would be able to bring prohibition cases to the courts where they considered that the conditions of Article 81(3) were not met. Companies claiming that they were damaged by restrictive agreements would be able to seek compensation through the national courts. The Commission would retain powers to determine any case where it considered the issues would be better resolved at Community level, for example, because of the scale of the agreement or because it presented new policy issues.

  5.2  In the light of the response to its White Paper, the Commission published in September 2000 a draft Regulation to replace the current Regulation 17/62/EEC (which implements Articles 81 and 82 of the Treaty).

  5.3  We reported on the draft Regulation on 22 November 2000, and left it uncleared pending replies to our questions. The reply from the Parliamentary Under-Secretary of State for Consumers and Corporate Affairs at the Department of Trade and Industry (Dr Kim Howells) was received on 12 February, more than two months later. According to the Minister, the delay arose because our questions and comments raised substantial policy issues and required clearance from a number of Ministers, including the Deputy Prime Minister.

The document

  5.4  Our questions and the Minister's response are set out below.

  5.5  What the UK Government's view is on draft Article 3, and how far that tallies with the view of the legal authorities and organisations the Government has consulted.

The Minister states:

    "The underlying approach of Article 3 could bring industry very real benefits by ensuring that agreements and practices whose effects are not restricted to one Member State are all assessed to a common standard.

    "Business currently faces potentially up to fifteen different national regimes as well as the Community regime which all operate in parallel. Furthermore, whilst the law applied would be that of the Community, the approach would respect subsidiarity by allowing the National Competition Authority (NCA), rather than the Commission, to investigate suspected infringements of competition rules where the centre of gravity of a cross-border case was clearly in one Member State.

    "In its current form, however, the draft Article is unacceptable to the Government on a number of grounds. In particular, it would potentially prevent the use of domestic powers which we consider necessary for the development and maintenance of effective competition and for which there is no adequate alternative at Community level:

    "—  powers under the Fair Trading Act 1973 for addressing complex monopolies;

    "—  powers under the Fair Trading Act 1973 relating to the acquisition by one enterprise of material influence over the commercial policy of another (and falling short of the acquisition of actual control); and

    "—  the competition powers of the sectoral regulators under sectoral legislation.

    "The Government is also concerned that the jurisdictional test of agreements and practices which 'may affect trade between Member States' is unclear and could lead to uncertainty as to the law applicable in a particular case. It is therefore pressing the Commission to explore a more precise formulation.

    "The Commission is aware that many Member States consider the scope of its current draft to be too wide. It is therefore reflecting on wording which would capture more accurately its declared intention of providing for a common standard for the assessment of agreements and practices whose effects are felt beyond one Member State, and which would not go beyond this.

    "Business is attracted to the single market benefits of the proposal and the CBI strongly support Article 3. The view of legal practitioners is more cautious as they see the potential conflicts with our national competition law as outlined above."

  5.6  What the perceived difficulties are in applying Community law in this area in the UK, either administratively by the Office of Fair Trading or, in terms of legal processes, by the courts; and what alternative approach the Government would prefer, and why.

The Minister points out that the Competition Act 1998 (CA98) contains two prohibitions closely modelled on Articles 81 and 82.

    "Under Section 60 of the Act the OFT is required to ensure that 'so far as is possible ... questions arising ... in relation to competition within the United Kingdom are dealt with in a manner which is consistent with the treatment of corresponding questions arising in Community law...'. In effect, the concepts of Community competition law, with some exceptions, have been applied through the CA98. Furthermore, in the absence of any proposal in the draft new Regulation to harmonise procedural rules in Member States, in applying Community law directly under Article 3 the OFT would use national procedural rules — most likely modelled on those under the CA98."

  5.7  The Minister also notes that in practice there is likely to be very little difference between the OFT applying the Competition Act 1998 and applying Articles 81 and 82 directly.

    "The procedural rules will most likely be the same (although this is yet to be decided) and there will be little difference in the substantive jurisprudence being applied because of Section 60 of the CA98. That said, certain areas are potentially excluded from one or both of the prohibitions in the CA98. If the OFT was able to apply Community law, those exclusions from the CA98 would not prevent the OFT from taking action in those areas under Community law. However, it is already the case that, to the extent that the excluded areas fall within Articles 81 and 82, the Commission can take action now.

    "For these reasons the Government does not foresee major administrative difficulties in the OFT applying Community law directly. Nor does it foresee major practical difficulties for the national courts, although there are issues on which further work is required. For example, the proposal for the Commission to monitor all proceedings relating to Articles 81 and 82 in 15 Member States may prove to be over-ambitious."

  5.8  Whether the Government is concerned about the possible further area of uncertainty facing companies in not knowing whether agreements would be at risk of legal challenge under EC or national law.

The Minister points out that companies could currently face action by the Commission under Community law and by the OFT under national law (although should they both take action the OFT would normally defer to the Commission investigation). Thus there is a substantial overlap between the jurisdictions of the Commission and national authorities. The Minister notes:

    "Under the Commission's proposals this overlap would be replaced by a clear jurisdictional divide — a case would either fall to be examined under Community law or alternatively, under national law. This in itself will reduce uncertainty for all those cases where it is clear that there either is or is not a potential effect on inter-state trade.

    "The Government is nonetheless concerned that there could be a significant percentage of cases for which it would not be immediately clear whether there was a potential effect on inter-state trade. For this reason it is pressing the Commission to consider developing a clearer jurisdictional test than that of a potential effect on inter-state trade and it understands that the Commission is reflecting on this issue."

  5.9  Whether it is the Minister's view that the courts should be involved in making decisions on individual cases on essentially economic criteria, and whether his view reflects that of the judicial authorities and legal organisations in the UK.

The Minister notes that the UK courts are no strangers to complex economic issues and on rare occasions already apply the economic criteria set out in Article 81(1). The UK courts are also called upon to rule on contentious economic issues in areas such as patents. The Minister states that:

    "The Government believes that the courts are certainly capable of applying Article 8 1(3) although this task may be facilitated by judicial training as occurs for example in the USA. The Commission proposes to issue guidance for the courts in due course which would be helpful.

    "The views of the legal profession and legal organisations vary. Whilst some welcomed the original proposals contained in the White Paper, others have been more guarded in their response. It is clear that further work is necessary to finalise the precise roles and nature of the relationship between the Commission, NCAs and national courts, and the nature of the assistance, if any, that is to be supplied to the court particularly in respect of economic questions. Some of these concerns may be allayed by the way in which the proposal is implemented, details of which will be addressed in a forthcoming Commission notice."

  5.10  Whether the Minister knows if it is the Commission's intention to consult on draft notices on subjects including "legal certainty", co-operation between the Commission and the competition authorities in Member States and co-operation between the Commission and the national courts, in parallel with the discussion of the draft Regulation; whether he considers that these matters can be satisfactorily dealt with through notices; and, if so, how he proposes to ensure that the House has an opportunity to examine them before they are finalised.

The Minister reports that it is the Government belief that the Commission intends to issue notices in respect of each of these subjects:

    "UK representatives have repeatedly stressed to the Commission the importance of consulting on these draft notices in parallel with the negotiations on the Regulation itself because of the close interplay between the two. We expect drafts of notices on the working of the Network of NCAs (the Network) and on legal certainty very soon. Notices relating to other aspects of the proposals, in particular on co-operation between the Commission and national courts, will be produced as negotiations progress.

    "For the most part the allocation of issues by the Commission between the Council Regulation, the Commission implementing Regulation and Commission notices appears sensible. That said, it is important that Commission consultation of Member States on policy issues such as these notices be more than cursory given the way in which the details of the accompanying measures necessarily influences our view of the underlying proposal.

    "The Secretary of State proposes to provide the Committee with Supplementary Memoranda on the draft notices as they are received from the Commission."

  5.11  Whether the Minister is satisfied that the strengthening of the Commission's investigatory powers, and its powers to impose remedies on companies where it finds infringements, including structural remedies such as the divesting of assets, are warranted.

The Minister notes that the Commission's extended powers of investigation will enable more effective enforcement of the competition rules, particularly with regard to the rooting out of serious market abuses like cartels.

    "These limited increased powers of investigation for the Commission will include the right to search private homes and to take statements. Under the CA98, the OFT already has the power to search private homes (when it is believed that business records are being kept there) and they are also used in connection with the affairs of an undertaking, but it does not have an explicit power to take voluntary statements and use them as evidence. The Government is concerned that the Commission should have sufficient investigative powers to enforce the law effectively and believes the additional powers to be warranted. It does however share with many Member States a concern to ensure that at all times the fundamental rights of individuals and undertakings are respected by the Commission."

  5.12  With respect to structural remedies, including divestment of assets, the Minister says;

    "Structural remedies are an important part of any competition authority's armoury. Fines and behavioural remedies cannot deal adequately with all the competition problems which may arise from a company's very possession of certain assets or market structure."

  5.13  The power to impose structural remedies are not new: for example the Commission imposed structural remedies in the Gillette and Magill[24] cases:

    "Whether they extend as far as actual break-up of a company has never been tested in the Community, although by extension from the Gillette and Magill cases the Government considers it likely that the ECJ would support such an approach.

    "Structural cases which in the UK are handled under the Fair Trading Act 1973, with its powers to impose structural remedies, in the Community regime are handled under the mainstream competition rules implementing Articles 81 and 82. If it is necessary for the UK authorities to have these potential powers, then it is necessary for the Commission to have them if it is to be effective in enforcing competition rules. This power is not unlimited or without safeguards: any such remedy must under Community law be both proportionate and necessary to restore compliance with competition rules. To the extent that there is doubt about whether the Commission does have the power to impose structural remedies, the current modernisation project is an opportunity to clarify the intentions of the Member States in this respect."

  5.14  Whether it is the Government's view that, in principle, problems relating to inconsistency of decisions can be handled satisfactorily by co-operation between Member States and co-ordination by the Commission.

The Minister replies that:

    "Much will depend upon the way in which the Network of NCAs and the Commission operates. The Commission's detailed proposals on this are expected shortly, but the UK will aim to ensure the highest possible levels of co-ordination within the Network. There will inevitably be a learning process for all participants in the Network, but it seems likely that such co-ordination between authorities and the development of common standards of best practice will make a major contribution to ensuring acceptable levels of coherence in Community competition policy enforcement. The draft Regulation would require the Commission to notify and consult the Network of NCAs before taking decisions under EC law and an NCA would also be required to notify and consult the Network before taking action. As a last resort, the Commission will have a reserve power to take over a case being handled by an NCA. We will want to be clear about the circumstances under which the Commission would use this power, and expect this to be one of the issues addressed by the envisaged Commission notice on the operation of the Network of Competition Authorities.

    "Achieving consistency of decision making by national courts will be more difficult given the need to safeguard the autonomy of the courts. Nonetheless, Article 16 requires national courts to make 'every effort to avoid any decision that conflicts with decisions adopted by the Commission'.

    "On balance, therefore, the Government believes that the proposals are capable of providing a workable solution to the problem of consistency but that this will require further work."

  5.15  A summary of the responses to the Government's further consultation on the draft Regulation; and whether the Confederation of British Industry (CBI) is still against the approach favoured by the Commission.

The Minister recalls that:

    "The Government consulted widely at the time of the original White Paper and has done so again on the basis of the draft Council regulation. Broadly speaking, most consultees support the Commission's goals of reducing bureaucracy and focusing more on serious infringements of competition law. That said, three main concerns were raised in that consultation and subsequently;

    "—  how companies will obtain the legal certainty they require on co-operative agreements, particularly for larger transactions;

    "—  how companies will avoid multiple litigation in the absence of a single exemption decision valid across the EU; and

    "—  the interface between the Commission and the national courts and how consistency in the decisions of the courts of 15 Member States could be ensured.

    "Most respondents and a number of professional industry bodies support greater involvement of national authorities and courts in the enforcement of the competition rules as it brings it closer to the markets concerned. This together with coherent enforcement will help establish a common competition culture across the Community. Legal practitioners have expressed their qualified support for the Commission's proposals but are keen to see more of the detail. In particular they feel that detailed guidance and the provision of uniform procedural rules by the Commission to be essential to the success of the new regime. Some respondents also stressed the value of continued access to Commission officials for guidance.

    "The CBI support reform of the system of EU competition law enforcement but believe the decentralisation route chosen by the Commission to be fraught with difficulties. They would prefer to see a more centralised system operated from Brussels along the lines of the European Community Merger Regulation (ECMR) which, amongst other things, provides a fast, one stop shop for merger cases.

    "The CBI have expressed strong support for the Commission's proposal contained in Article 3 to require the use of Community competition law where trade between Member States may be affected. The CBI favour this provision both because it would enhance legal certainty by ensuring that there was only one applicable law for cross-border cases and because it would reduce the risks of uneven application of the competition rules across the Community. In addition they welcome the Article 10 proposal to retain the power to adopt positive decisions though they believe such decisions should be taken not just for abstract illustrative purposes but also to benefit parties in real life cases.

    "That said, the CBI have also expressed a number of concerns on the Commission's proposals because they see practical difficulties in implementation. In summary, the CBI feel the proposed reforms could damage the single market through inconsistent application of competition laws, creating considerable legal uncertainty, and increase the regulatory burden on business. In addition they are concerned about a perceived lack of safeguards in the proposals to counterbalance the increased investigative powers assumed by the Commission and NCAs. On the proposal to allow NCAs to apply Articles 81 and 82, the CBI feel this could subject agreements to multiple review and/or penalties. Linked to this is a doubt that national courts can deal with the economic assessment of agreements necessary under Article 81(3). Concerning the proposed network of NCAs the CBI foresee practical working difficulties, for example on the proposal concerning the exchange of confidential information between NCAs.

    "DTI officials meet with the CBI Competition Panel and other stakeholders on a regular basis and are working closely with them on the Commission's Modernisation proposals as they develop to ensure that the outcome reflects UK interests.

    "The Government intends to update its Regulatory Impact Assessment (RIA) in the light of further consultation and as negotiations on the Commission's proposals progress."


  5.16  In our Report of 22 November, we asked a number of questions. The Minister's reply was received on 12 February, more than two months later. According to the Minister, the delay arose because our questions required clearance from a number of Ministers, including the Deputy Prime Minister. The response, when it arrived, was helpful, but did not seem to justify such an excessive delay.

  5.17  We note that the Secretary of State intends to submit a Supplementary Explanatory Memorandum on the draft Notices when they are received from the Commission, as well as an updated Regulatory Impact Assessment, and we look forward to receiving these in a more timely fashion. In the meantime we do not clear the document.

23   (20131) 7958/99; see HC 34-xxv (1998-99), paragraph 1 (7 July 1999) and HC 34-xxvii (1998-99), paragraph 8 (21 July 1999). Back

24  Cases C-241/91P and C-242/91P RTE and ITP v Commission [1995] ECR I-743. Back

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