14. COMPETITION POLICY
(a)
(21672)
11848/00
COM(00)582
(b)
(23887)
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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.
Draft Council Regulation on 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.
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Legal base: | Article 83 EC; consultation; qualified majority voting
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Department: | Trade and Industry
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Basis of consideration: |
(b) EM of 18 October 2002 |
Previous Committee Report:
| (a) HC 23-xxx (1999-2000), paragraph 2 (22 November 2000) and HC 28-vii (2000-01), paragraph 5 (28 February 2001)
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To be discussed in Council:
| 26 November 2002 |
Committee's assessment: | Legally and politically important
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Committee's decision: | Cleared
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Background
14.1 In April 1999, the Commission published a White
Paper[19] 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. In
November 2000 and February 2001 our predecessors considered document
(a) and left it uncleared pending receipt of a promised Supplementary
Explanatory Memorandum and a Regulatory Impact Assessment (RIA).
We now have an Explanatory Memorandum on document (b), which is
the latest text of the draft Regulation, together with the promised
RIA.
The documents
14.2 The European Commission proposal is for a radical
overhaul of Regulation 17/62/EEC, which sets out how Articles
81 and 82 of the EC Treaty are implemented. Article 81(1) prohibits
all agreements or concerted practices between undertakings which
prevent, restrict or distort competition within the single market
and affect trade between Member States. Article 81(3) exempts
any agreement which contributes to improved production or distribution
or promotes technical or economic progress, while allowing consumers
a fair share of the resulting benefit (provided that the restriction
of competition is indispensable to the attainment of these objectives,
and that the agreement does not afford the undertakings concerned
the possibility of substantially eliminating competition). Article
82 prohibits, in so far as it affects trade between Member States,
any abuse by one or more undertakings of a dominant market position.
14.3 The major changes proposed from the existing Regulation
are:
- from their outset, agreements would be deemed either to meet
the terms of Article 81 (either because they were not restrictive
or because while restrictive they met the exemption criteria),
or not to do so and to be illegal and unenforceable;
- a consequential end of the Commission monopoly in granting
exemptions to restrictive agreements under Article 81(3) of the
Treaty. Instead, designated national authorities would have the
responsibility within Member States of enforcing Community competition
law, with the Commission only taking cases involving multiple
jurisdictions or setting major precedents;
- national courts, while continuing to apply Community competition
law, would no longer have to defer to the Commission on Article
81(3);
- a network of competition authorities to ensure that cases
are allocated appropriately between Member States and to enable
the Commission to maintain coherent application of Community law
across the EU;
- clarification and strengthening of the Commission's own powers
in a number of areas:
- the Commission may, when strictly proportionate, impose structural
remedies;
- a limited increase in Commission's powers of investigation,
with the right to take statements from individuals and to search
private homes and property with the backing of a judicial warrant;
- discretion for the Commission to introduce an obligation to
register all agreements in a sector and to impose fines for non-compliance;
- power for the Commission to introduce block exemptions without
prior Council authorisation, simply consulting the Council on
its proposals;
- Member States to respect the primacy of Community law much
more closely, and in particular not to prohibit under national
law agreements and practices which do not infringe Article 81
- either because they are not restrictive of competition or because
they benefit from Article 81(3); and
- when applying national law to any case falling under Article
81 or 82, Member States also to apply Community law.
14.4 The major difference between the original proposal
and document (b) is in Article 3. The original draft required
the exclusive use of Community law for all cases falling within
the scope of Articles 81 or 82. Compromise language now allows
such cases to be taken under national law, but requires such cases
to be taken also under Community law.
14.5 Other important changes are:
- Article 7 now spells out that the Commission must respect
the principle of proportionality when imposing structural remedies;
- rather than an outright right to appear as a friend of the
court the Commission will be able to submit written observations
to a national court but will be able to make oral observations
only with its permission;
- whereas the original draft proposed that the validity of all
existing exemptions would end with the entry into force of the
Regulation, the present text proposes a two year confirmation
of such exemptions. Recent discussions suggest that the Commission
may agree to existing exemptions, being allowed to run their natural
course.
14.6 Recent discussions also suggest that the Commission's
final proposal will include provision for a report from the Commission
to the Council and Parliament on the operation of the regulation.
The Government's view
14.7 Our predecessors were interested in the notices
the Commission is expected to issue about implementation of the
Regulation. The Parliamentary Under-Secretary of State for Competition,
Consumers and Markets, Department of Trade and Industry (Miss
Melanie Johnson) tells us that in June 2002 the Council reached
provisional agreement that there would be a Joint Statement of
the Council and Commission on the functioning of the network of
competition authorities, setting out the spirit of partnership
and co-operation within which the Commission and the Member States
would collaborate both in setting the rules for the network and
in operating it. This is important because there will be extensive
measures from the Commission after adoption of the Regulation,
including a Commission implementing regulation and likely Commission
notices on:
- co-operation within the competition authorities network;
- co-operation with national courts;
- the test of effect on inter-state trade;
- Article 81(3) (exemptions);
14.8 The Minister's RIA concludes:
"Given the arguments set out in this RIA we feel that
the new regime will benefit UK business overall and strengthen
the single market. Decentralising enforcement of EU competition
rules and focussing it on serious infringements, providing a common
competition standard for industrial cooperation across the EU,
and reducing the bureaucratic burden on enforcers and on business,
will contribute to more effective competition in the Single Market."
14.9 On the policy implications of the draft Regulation
the Minister says:
"The current implementing rules for Articles 81 and 82
(Regulation 17/62 and related regulations) are widely viewed as
no longer being up to the task in the light of increased cross-border
economic activity and the steady growth in the number of EU Member
States since their original entry into force in 1962. The system
is criticised for being too bureaucratic and centralised, with
notification required for exemption under Article 81(3) and only
the Commission able to grant exemptions. Enforcement resources
are necessarily directed to policing the largely innocent industrial
cooperation agreements which are notified (and even here the Commission
is unable to take exemption decisions in the vast majority
of cases, offering only comfort letters to undertakings), rather
than to uncovering and rooting out the hard core cartels which
have a far more harmful impact upon the economy and which are
of course not notified.
"Resource constraints within the Commission mean also
that the Commission is highly selective in the cases it chooses
to pursue and many cases which fall under Articles 81 and 82 currently
are dealt with under national law. While the principle of the
primacy of Community law limits the extent to which such national
law decisions can contradict Commission decisions, in the absence
of such a Commission decision, cases falling within the scope
of Articles 81 and 82 may be resolved to differing national standards.
"These criticisms of the current regime are mostly shared
by Member States, the Commission itself and the UK Government.
"The Commission's proposal is for a radical overhaul
of the rules to end the notification system (to create a "legal
exception regime"), make Member State authorities the front
line of enforcement and focus the enforcement effort on the pursuit
of hard core cartels. Enforcement through complaints and private
actions in the courts would become more important than now, with
businesses taking their own legal advice as to whether they are
within the law rather than systematically notifying the Commission
for clearance. The proposals offer for the first time, a common
yardstick for cross-border agreements in the Single Market which
must be applied systematically.
"Germany believes that the legal base for the Commission
proposal, Article 83 of the Treaty, is not sufficient for a move
to a legal exception regime, and believes the relevant provision
(Article 1) of the proposal to be ultra vires. The view
of both the UK Government and of the Council Legal Service is
that Article 83 does support this part of the proposal.
"The proposals will mean that the OFT, and other national
competition authorities, will for the first time play a major
role in the enforcement of Community competition law. This raises
concerns about the consistency with which Community competition
standards are applied by these national authorities and courts.
The proposals include not only proposals for co-operation and
collaboration between national authorities on matters such as
case allocation and on the nature of decisions reached, but also
safeguards to ensure coherent application of the rules. The UK
Government has defended the latter strenuously during negotiations
because it sees them as the necessary counterpart to the distribution
of the enforcement effort among so many agencies.
"The practical impact on the OFT will be that many cases
currently handled under the Competition Act 1998, would be dealt
with under Community law to the extent that they affected trade
between Member States. The EC Commission would only take UK cases
when there is an important wider point of Community public interest
to be made.
"During the Council negotiations on the Commission proposal,
the UK Government raised the concerns of UK industry about the
degree of legal certainty that would be available to undertakings
in knowing their position before the law, notwithstanding the
guidance, Commission case law and ECJ jurisprudence available.
In response the Commission has agreed to issue, at its discretion,
written, reasoned opinions in cases where it believes that there
is a genuine lack of legal certainty about how Community law applies
to the agreement or practice in question. The UK government believes
that this is a pragmatic and flexible means of meeting the concerns
of industry without re-introducing notifications and thus undermining
the principal aim of the reforms, but will wish to work with the
Commission in finalising the Commission Notice which is to set
out the terms of this arrangement.
"The UK government also had concerns initially about
the impact of the original wording of Article 3 on the UK's sectoral
regulatory regimes (requiring the exclusive application of Community
competition law to any case falling within the scope of Article
81 or 82). These concerns have now been mostly met by the compromise
wording which has emerged on Article 3. This provides both for
the dual application for national and Community competition law
and makes clear that sector regulation whose primary goal is not
the protection of competition (eg regulatory rules to promote
universal service) is not covered by Article 3."
Conclusion
14.10 This proposed reform of the Regulation governing
implementation of the competition rules in Articles 81 and 82
EC would benefit UK businesses and strengthen the internal market.
We note the improvements in the text of the draft Regulation,
the Minister's view of the spirit in which the Commission's notices
will be prepared and the positive tone and conclusion of the Regulatory
Impact Assessment. We are now content to clear the documents.
19 (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
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