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Session 2001-02
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Standing Committee Debates

Enterprise Bill

Column Number: 451

Standing Committee B

Tuesday 7 May 2002


[Mr. Derek Conway in the Chair]

Enterprise Bill

Clause 126

Questions to be decided on market investigation references

Amendment proposed [1 May]: No. 306, in page 92, line 44, after `services', insert—

    `(iii) improvements to production or distribution; or

    (iv) promoting technical or economic progress'.—[Mr. Djanogly.]

10.30 am

Question again proposed, That the amendment be made.

The Chairman: We were debating the amendment when we adjourned on Thursday. Mr. Lansley was just about to sit down when I suspended the Committee, so unless any other member of the Committee wishes to speak, I shall call on the Under-Secretary to reply to the debate.

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson):As you have just said, Mr. Conway, at the end of our previous sitting, the hon. Member for South Cambridgeshire (Mr. Lansley) suggested that the amendment should be adopted because it would bring the wording of subsection (8) into line with article 81(3) of the EC treaty. I shall explain why the clause has not followed the drafting of the article.

It is common ground in the Committee that while, by and large, firms are more efficient and customers are better served when the markets are more rather than less competitive, circumstances arise in some markets in which an aspect of the market structure or conduct that has an adverse effect on competition nevertheless gives rise to economic benefits that offset prevention, restriction or distortion of competition.

The question raised by the amendment is whether the alternative drafting approach under article 81(3) would be a more effective or appropriate way of making allowances for such "countervailing benefits" in the context of market investigation than subsection (8), as presently drafted. The White Paper stated that the article 81(3) criteria reproduced in the amendment were broader than the set of customer benefits that we have adopted both in the clause and for merger investigations and, in one sense, that is true. The two sets of criteria are fundamentally the same.

I can reassure Conservative Members about any benefits that accrue from improvements in

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production or distribution, or in technical or economic progress, are passed on to customers in a United Kingdom market, not just in the market concerned. Those benefits can be in the form of lower prices, higher quality or greater choice of goods or services, or greater innovation in relation to such goods or services that already fall within the subsection (8) definition of customer benefits, provided that they fall within the criteria under subsection (8)(b) that the benefit has accrued or may be expected to accrue within a reasonable time and that it is unlikely to accrue without any aspect of market structure or conduct concerned.

Conversely, if benefits in improvements, production or distribution arise from aspects of market structure or conduct and have an adverse effect on competition that do not fulfil the criteria set out in subsection (8)(b) or which are not passed on to customers, we would not fulfil the requirements of article 81(3) either. Article 81(3) requires, for example, that customers must enjoy a fair share of the benefits of improvements in production or distribution if an exemption from an article 81 prohibition is to be granted. Thus, although article 81(3) and clause 126(8) are drafted differently, their aims are essentially the same. Given that we are not out of keeping with the spirit of article 81(3), we see no advantage in following it to the letter because the market investigations under article 81 do not have the same focus. Article 81 is concerned with agreements and arrangements consciously entered into by competitors; market investigations are concerned mainly either with structural competition problems or with parallel, but non-collusive, conduct by competing firms.

Moreover, unlike chapter 1 of the Competition Act 1998, the market investigations regime is not based on European Union law and there is no more reason for us to adopt the concepts from article 81(3) than there would be for us to use the European Commission merger regulation dominance test under part 3 of the Bill rather than the substantial lessening of competition test which, as members of the Committee know, we have already chosen. I hope that I have answered the question of the hon. Member for South Cambridgeshire about why we have so drafted subsection (8) and not done so in the terms of article 81(3) and that, as a result, the amendment will be withdrawn.

Mr. Jonathan Djanogly (Huntingdon): We have argued why the provision should be aligned with the Competition Act 1998 and article 81. I thank the Under-Secretary for explaining why the provision is not out of keeping with article 81. However, she acknowledged that there are differences.

As my hon. Friend the Member for South Cambridgeshire said last week, on consultation, the majority of businesses said that they thought that an article 1-type approach would be most appropriate. However, I appreciate the fair point that the Under-Secretary made about the fact that we are dealing with structural issues, which is not the article 81

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approach. I am concerned that there has been some confusion about the difference in the approaches taken to the competition issue and the consumer law provisions of the Bill. It would have been nice to have had the time to discuss those issues when we considered the consumer law provisions; however, we did not.

I am concerned that we are considering current, rather than future, consumers, as would be more appropriate in a competition debate. There is a risk that if we ignore the proposed amendments, a short-term approach will be taken, rather than the more strategic approach that we argued would be more relevant to the competition provisions. However, I have listened to what the Under-Secretary said, and beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 126 ordered to stand part of the Bill.

Clause 127

Variation of market investigation references

Question proposed, That the clause stand part of the Bill.

Mr. Djanogly: The Competition Commission must end its investigation within two years. That is a long time for a business to undergo an investigation, given the investigation's impact on costs, the potential fall in the company's share price on the stock market and other impacts caused by market uncertainty as to where the business is heading. In particular, foreign competitors who are not bound by the investigation may take over a company's activities while it is subject to an investigation and is stuck in a rut.

Let us imagine that, after one year, the Competition Commission says, "We have got it all wrong. We've been barking up the wrong tree for the past year. I'm sorry that your share price fell, that a foreign company has taken away your business and that, as a result, jobs that would have been made available in this country have gone abroad." That could happen, given the possibility of a variation. What if the Commission then says, "Okay, we got that wrong, but we've considered it a bit further and have decided that we investigated the wrong thing. We are going to restart the investigation, but this time we will consider a different set of criteria."?

I am sure that we all appreciate that businesses might be fearful of such circumstances arising; of not knowing what was going on, of not being able to plan and of having their strategy turned on its head. They might worry that their share price would be re-affected by the terms of the new investigation. Under the variation provisions of the clause, there is a great possibility that businesses will be dramatically affected.

Can the Under-Secretary give business some comfort about how the variations will happen?

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What remedy would business have if a variation were called? Would business be able to complain if, after a year, the investigation failed? In those circumstances, it would be unfair to be suddenly faced with a whole new set of guidelines.

Will there be a limit to the number of investigations that could be carried out, or can the Commission change the rules of the game as it goes along, willy-nilly? We shall discuss the cost of the investigation later on in our proceedings. In the meantime I would be interested to hear the Under-Secretary's views.

Miss Johnson: Perhaps I can reassure the hon. Gentleman. The point of the statutory timetable is to give certainty to business. There is real value in having such a timetable because it provides a full stop to proceedings and it is important that that is not undermined. Of course, variations could narrow as well as broaden the scope of a pre-existing inquiry; the hon. Gentleman assumes that it would always be broadened. The amended reference will build on work already done by the Competition Commission; a new inquiry will not be started. In fact, clause 161 requires that parties be given time to comment. It is unlikely that the reference would be varied significantly late in the day, as the Competition Commission would not have enough time to complete its inquiry, especially if it was to be broadened.

Mr. Mark Field (Cities of London and Westminster): Will the Under-Secretary confirm that under no circumstances would the clock be turned back to zero with the two-year timetable effectively starting again? That key concern was mentioned by my hon. Friend the Member for Huntingdon (Mr. Djanogly) and it obviously would be a concern for businesses if the uncertainty were to hang over them for a long period.

Miss Johnson: I can assure the hon. Gentleman that I do not envisage any circumstance in which the clock would be turned back to zero during the process. The decisions taken must be reasoned, and any decision to vary a market investigation would be open to appeal by the Competition Appeal Tribunal. I accept that questions raised by the Opposition on the matter are utterly reasonable, but I would argue that the clause and related provisions already meet all of their objectives.

Question put and agreed to.

Clause 127 ordered to stand part of the Bill.

Clause 128 ordered to stand part of the Bill.

Clause 129

Time-limits for market investigations and reportsMr. Field

: I beg to move amendment No. 35, in page 94, line 23, leave out `two years' and insert `12 months'.

The amendment seeks to reduce the period set out in clause 129. Opposition Members accept the value of certainty to which the Under-Secretary referred a

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few moments ago; there should be some certainty about timetables. Equally, there are other concerns, although again, I am covering ground trodden upon only a few moments ago by my hon. Friend the Member for Huntingdon, when he referred to the damaging effect on business of uncertainty. The burdens on business extend beyond the professional fees and senior management time expended in examining market investigations.

I accept the need for such investigations, and all will have a downside. However, one problem is that they will end innovation, especially in relation to product development. It is easy to see how key players within a market that is being investigated would see little sense in developing products. In the medium term, that would reduce choice and, possibly, value for consumers, depending upon the nature of the market in mind.

Once again, we have received advice from the CBI; that should wake everyone up. We await the presentation of similar advice from the Transport and General Workers Union to enable us to include any amendments that it suggests. However, the CBI has made reference to the fact that the Competition Commission has shown that it is able to handle complex monopoly issues within nine months.

10.45 am

I appreciate that we are not treating like entirely with like, but if such complex monopoly issues can be determined within one year, it would be sensible to halve the timetable for the deadline that the Under-Secretary has in mind from two years to one year.

I seek guidance as to why the two-year timetable has been put in place, and whether there is any evidence that going well into a second year is likely to be necessary, given the sorts of cases that might arise as a result of this clause.

Mr. Djanogly: I support the amendment. Two years is too long; 12 months would be more appropriate, as that is the cycle of one trading year. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) has mentioned the risk to companies during the more lengthy period, so I will not go over that again.

Subsection (3) allows the Secretary of State to reduce the period from two years, but that is looking at the matter the wrong way round. It would be better to start off with a shorter period—for example, twelve months—and to allow the Competition Commission to apply for extensions on a case by case basis. That would be fairer, and would allow the realities of each individual situation to be addressed in an appropriate manner as time goes on.

Mr. Alistair Carmichael (Orkney and Shetland): Further to what the hon. Member for Cities of London and Westminster said, I have received a briefing from a very distinguished trade union—a closed shop, in fact—known as the Law Society, which indicates that it also supports the amendment.

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It appears that our colleagues in the Law Society are also prepared to go to the barricades on this matter. As the hon. Gentleman said, the Law Society's point is that the majority of complex monopoly investigations can be handled within nine months. In my experience, if such investigations are allowed to take two years, it is likely that, henceforth, they will take two years.


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Prepared Tuesday 7 May 2002