House of Commons - European Scrutiny

Select Committee on European Scrutiny Fortieth Report

14. COMPETITION POLICY

(a)
(21672)
11848/00
COM(00)582

(b)
(23887)
—

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.

Legal base:	Article 83 EC; consultation; qualified majority voting

Department:	Trade and Industry
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)
To be discussed in Council:	26 November 2002
Committee's assessment:	Legally and politically important
Committee's decision:	Cleared

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);

complaints; and

opinions.

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:

"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.

ultra vires.

"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