1. Competition policy:
mergers
| (a)
(24159)
—
—
(b)
(24160)
5007/03
COM(02) 711
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Draft Commission Proposal to amend Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings.
Draft Council Regulation on the control of concentrations between undertakings ("The EC Merger Regulation").
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| Legal base | (a) —
(b) Articles 83 and 308 EC; consultation; unanimity
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| Department | Trade and Industry
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| Basis of consideration | Minister's letter of 28 July 2003
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| Previous Committee Report | HC 63-ix (2002-03), paragraph 3 (22 January 2003)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | (Both) For debate in European Standing Committee C
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Background
1.1 The Merger Regulation (ECMR)[1]
provides that concentrations of enterprises — mergers and
certain joint ventures — with a Community dimension are
subject to the exclusive jurisdiction of the Commission, so that
Member States national competition law cannot be applied. A concentration
has a Community dimension for the purposes of the Merger Regulation
if it meets thresholds relating to the merging companies turnover.
The Regulation was last revised in 1998 and introduced a set
of secondary thresholds to bring more mergers with genuinely cross-border
effects within the Commissions jurisdiction.
1.2 In January 2003 we considered these documents
but did not clear them pending further information.[2]
Document (a) set out two draft Commission notices. The first of
these is a set of draft best practice notes with basic guidance
on how the Commission and interested parties will interact during
a merger investigation. The second sets out proposed guidelines
on the appraisal of horizontal mergers,[3]
in which the Commission explains how it will implement the substantive
test of compatibility with the common market. Document (b) is
a Commission draft Regulation to amend the ECMR: the main proposals
cover jurisdictional issues, substantive issues and procedural
issues.
The Minister's letter
1.3 The Minister for Employment Relations, Competition
and Consumers, Department of Trade and Industry (Mr Gerry Sutcliffe)
now writes with the further information we requested. On the
Government's consultations with stakeholders he tells us that
views were sought from businesses, employees, consumer associations,
the UK companies most frequently involved in ECMR cases and competition
lawyers, as well as through the Department's website. 17 substantive
replies were received and 69 delegates, representing over 30 UK
organisations, attended a subsequent seminar. The Minister helpfully
provides us with a summary of the responses of stakeholders, which
we annex. The summary groups the views under the key themes of
the substantive test, jurisdiction, due process and the draft
guidelines on horizontal mergers and efficiencies. The Minister
also encloses two more detailed governmental responses to the
Commission on its draft notices.
1.4 On progress in the negotiations on amendment
of the ECMR, the Minister gives us a Greek Presidency report on
the work of the Council working group in the earlier part of this
year.[4] This shows significant
progress on 12 issues but also that substantial further discussion
is needed on nine other issues.
Conclusion
1.5 As we have said before, competition policy,
particularly the Merger Regulation, is an important but complex
matter. We think Members should have the opportunity to explore
the issues, such as jurisdiction, due process and the substantive
test, which have been highlighted by stakeholders. So we recommend
that the documents be debated in European Standing Committee C.
1.6 We are grateful to the Minister for the further
information he has provided, which will greatly facilitate the
debate. However, we note that his summary of stakeholder views,
whilst talking of "many", "most" or "some"
respondents, does not quantify the weight of opinion. We think
it would help Members in the debate if the Minister could produce
a short paper attaching numbers of respondents to the views in
his summary.
ANNEX
SUMMARY NOTES OF STAKEHOLDER RESPONSES ON THE
REFORM OF THE EC MERGER REGIME
17 substantive replies were received from UK stakeholders
in response to our invitation to comment. 69 delegates, representing
over 30 UK organisations, attended the subsequent stakeholder
seminar.
The key themes from the responses and the seminar
are detailed below.
THE COMMISSION'S PROPOSALS TO CODIFY THE SUBSTANTIVE
TEST
The Commission had put forward a proposal to codify
the meaning of the term "dominance" within the text
of the EC Merger Regulation. Almost all respondents expressed
concern over the Commission's proposed text, which they believed
introduced uncertainty, ambiguity and confusion into the application
of the regulation whilst not really addressing the perceived gap
in the current test. It was noted that the proposal could also
result in unwanted read across to Article 82 of the EU Treaty.
Whilst a small minority of respondents who commented on the test
supported retaining the current dominance formulation, many more
called for the introduction of a test based on the principle of
"Substantial Lessening of Competition" (SLC).
A number of attendees at the seminar commented that
the Commission codification and guidance was, to a large extent,
the attempted introduction of a SLC test in all but name, although
it did not explicitly point to a detrimental effect on competition.
It was noted that a small number of Member States remained strong
supporters of the existing dominance test and would be unlikely
to agree to replacing it with an SLC test in the merger regulation.
Many delegates considered that a dual SLC/dominance test might
be a possible compromise, although this itself was not without
a risk of creating legal uncertainty unless the Commission produced
sufficient guidance.
THE COMMISSION'S PROPOSALS ON JURISDICTION
The Commission had proposed a number of changes to
the mechanism for allocating jurisdiction in individual cases.
Articles 9 and 22 were to be amended to make them easier to use
and there would be a new system of pre-notification procedures.
Most respondents welcomed the concept of introducing a pre-notification
system of referrals but expressed concern that the proposed mechanism
seemed complex and could lead to lengthy delays and uncertainty.
Simplification of the referral mechanisms in Article 9 & 22
was generally welcomed but a small number of respondents expressed
concern that this may detract from the one-stop-shop principle
of the ECMR. Numerous respondent called for a clearer "bright
line" test in allocating jurisdiction and for the Commission
to publish guiding principles on the application of the system.
Delegates at the seminar added concern that the system
of silence meaning assent could lead to cases being transferred
even when a Member State most principally affected by a case objected.
They also commented on the small risk of parallel proceedings
by the Commission and Member State authorities. There were further
calls for a transparent bright line test to be added to the jurisdiction
mechanism.
THE COMMISSION'S PROPOSALS ON DUE PROCESS, INCLUDING
NOTES ON BEST PRACTICE
The Commission had introduced a number of proposals
aimed at responding to the criticisms which had been levied against
it about due process in the merger control regime, including the
announcement of the appointment of a Chief Economist and the establishment
of scrutiny panels. Greater flexibility would be allowed in the
timetable for merger analysis, together with pre-notification
discussion and regular state-of-play and triangular meetings.
The Commission had adopted new enforcement powers based on those
for Articles 81 and 82.
Whilst many respondents welcomed the principle of
the Commission's reforms on due process, they also expressed
concern that not enough information was available about the non-legislative
changes proposed. There were many calls for further elaboration
on the role of the chief economist and the system of peer review
panels. The majority of respondents welcomed the improved flexibility
of the timetable but some respondents voiced concern that this
should not diminish the success of the regime's tight timetable.
A small number of respondents also called for improvements to
the system of judicial review.
The majority of business and legal respondents were
opposed to harmonising the regime's enforcement powers with those
used in Article 81& 82 as they noted the fields of anti-trust
and mergers were significantly different. A number of consumer
respondents welcomed such enhanced powers.
Most respondents welcomed the draft best practice
paper in principle and saw it as a step in the right direction,
particularly the codification of state-of-play meetings and access
to the file. There were a number of concerns about the confidentiality
of pre-notification contacts and whether the Commission would
discriminate against parties to a merger if they did not take
up the offer of such discussions.
Delegates at the seminar express their disappointment
that the Commission had failed to introduce a real "second
pair of eyes" into the system in the form of a separate case
team during phase II. They welcomed the draft notes on best practice
but added that it would be useful if they were more comprehensive
and user-friendly. They commented that there was a strong focus
on what the Commission expected of parties but little on what
the parties could expect in return. Some delegates called for
the simplification of the notification requirements in Form CO.
There was little support for the Commission's introduction of
a power to charge filing fees unless such funds could be directly
routed to improving the merger regime.
THE COMMISSION'S DRAFT GUIDELINES ON HORIZONTAL MERGERS
AND EFFICIENCIES
The Commission's guidelines focused on three different
scenarios: paramount market position, non-collusive oligopoly
and co-ordinated oligopoly. The guidelines also covered topics
such as the failing firm defence, the importance of buyer power
and consideration of merger-related efficiencies.
A majority of respondents welcomed the publication
of guidelines on horizontal mergers as a useful tool and a step
towards greater transparency in the regime. Many of the respondents
noted that the final version of the guidance would, of course,
depend upon the form of the substantive test in the finalised
merger regulation. There was a general call for the guidelines
to be better linked to the actual text of the regulation and for
the language of the guidelines to be consistent with current concepts
and practice. Whilst some respondents welcomed the use of the
Herfindahl-Hirschman Index (HHI) others voiced concerns that the
guidelines appeared to include a presumption that a particular
HHI score would automatically lead to a decision about dominance.
Most respondents welcomed the consideration of efficiencies in
merger analysis but a number called for more clarification of
the Commission's intended process.
Delegates at the seminar suggested that the guidance
implicitly widened the scope of mergers which the Commission might
challenge and could lead to an increase in the number of cases
subject to detailed scrutiny. They commented that whilst the
guidelines were a valuable contribution to the development of
an economic framework for assessing mergers, they were highly
theoretical and their success would depend upon how they were
applied in practice. A number of delegates called for the guidance
to be drafted in such a way as to be useful to businesses and
the legal community and suggested there should be a clearer expression
of the legal and evidential burdens required in individual cases.
1 Council Regulation 4064/89/EEC as amended. Back
2
See headnote. Back
3
Horizontal mergers are those between competitors or potential
competitors. Back
4
Council document 8607/1/03. Back
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