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Third Standing Committee
on Delegated Legislation
Wednesday 21 May 2003
[Miss Ann Widdecombe in the Chair]
Draft Enterprise Act 2002
(Protection of Legitimate Interests)
The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): I beg to move,
That the Committee has considered the draft Enterprise Act 2002 (Protection of Legitimate Interests) Order 2003.
The Chairman: With this it will be convenient to consider the draft Enterprise Act 2002 (Anticipated Mergers) Order 2003.
Miss Johnson: The substantive competition provisions of the Enterprise Act 2002 will enter into force on 20 June 2003. The Act implements a pledge in the Government's 2001 election manifesto to give more independence to the competition authorities. In conjunction with other Government policies, the Act will help to boost productivity and enterprise. It is good news for business and consumers.
The Act will take politics out of competition decisions. Expert independent, competition bodies will take decisions on mergers and markets against a new competition-based test within a more transparent, predictable and accountable framework. The competition authorities are issuing comprehensive guidance on the new regime. They will be obliged to consult on and give reasons for all significant decisions.
The Act will provide procedural improvements for business. For example, there will be a new right of appeal to the Competition Appeal Tribunal in merger and market inquiries. Inquiries will have to be completed within statutory maximum timetables. There will be rules for the conduct of the Competition Commission's inquiries allowing for a more transparent remedies-setting phase following the publication of provisional competition findings.
The Act will deter those individuals who dishonestly operate hardcore cartels. It will introduce criminal sanctions with a maximum penalty of five years in prison for those who operate agreements to fix prices, share markets, limit production and rig bids. The offence will be tightly defined, ensuring that honest business people will have nothing to fear.
The voice of consumers in competition matters will be strengthened. Designated consumer bodies will be able to make super-complaints to the Office of Fair Trading, and the OFT will be required to respond within 90 days. There will be greater opportunities to gain redress for victims of anti-competitive behaviour, making it easier for individuals to bring claims for damages for losses suffered as a result of anti-competitive behaviour. Consumer bodies will be able
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to make claims on behalf of identifiable individuals who have suffered.
The orders deal with the new merger regime introduced by part 3 of the Act, which regulates both completed and anticipated mergers. The anticipated mergers order makes supplementary provision in relation to anticipated mergers and public interest intervention notices in relation to them. Anticipated mergers, I should say, are cases in which all or part of the transaction has not yet been agreed but matters are in progress or contemplation. In relation to completed mergers, sections 27 and 29 of the Act provide for the application of merger regulation where ownership or control has been obtained over a period. They act as anti-avoidance legislation, preventing creeping acquisition of an enterprise from escaping regulatory scrutiny.
In general, the OFT or, in a case raising the public interest consideration of national security, the Secretary of State must decide whether a completed merger should be referred for investigation by the Competition Commission within four months of the merger's being made public. However, where ownership or control has been achieved through one of a series of events or transactions, the competition authorities can treat them as having all occurred on the date of the last relevant event, subject to a two-year cut-off.
The purpose of the order is to apply those provisions to anticipated mergers. Thus, although the order makes only limited textual amendment to the wording of sections 27, 29 and 36 of the 2002 Act, it serves the significant purpose of preventing the parties to an anticipated merger avoiding control by engaging in transactions over a period. That replaces similar provision for anticipated mergers in section 75(4) of the Fair Trading Act 1973.
In relation to the protection of legitimate interests order, the introduction of the Enterprise Act will mean that expert independent competition bodies will take decisions on the vast majority of mergers and markets against a new competition-based test within a more transparent, predictable and accountable framework. There are, however, a limited number of cases in which the Government may wish to act to protect the public interest on non-competition grounds. In such cases, the Enterprise Act provides a mechanism whereby the Secretary of State can intervene and decide on mergers that raise specified public interest considerations by the serving of an intervention notice. National security is currently the only public interest specified in the Act.
In the process of updating the UK's competition framework, the Government had to set the updated regime within its wider European context. European competition law, where it applies, has primacy over domestic law. The instrument deals with those mergers that fall subject to the European Community merger regulation. It ensures that the UK can act in ECMR cases to protect important non-competition interests, the primary concern being national security. That is foreseen by the ECMR, under which, if a merger satisfies jurisdictional thresholds—that is, it is a concentration with a Community dimension—the European Commission has sole jurisdiction over
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competition issues and a member state is usually precluded from applying its own competition laws.
Notwithstanding the European Commission's sole jurisdiction over competition in such cases, member states may take appropriate measures to protect legitimate interests as long as they are compatible with the general principles and other provisions of Community law. Legitimate interests under the ECMR are public security, plurality of the media and prudential rules. Other public interests may be invoked which have been communicated to and recognised by the European Commission, pursuant to article 21(3) of the ECMR.
Section 67 of the Enterprise Act provides a mechanism for the Secretary of State to protect legitimate interests where the European Community has sole jurisdiction over competition issues. That section enables the Secretary of State to serve a European intervention notice if she suspects that a relevant merger situation, as defined in section 23 of the Act, has been or will be created, or if the merger is a concentration with a Community dimension, and she is considering whether to take appropriate measures to protect legitimate interests as permitted under the ECMR. However, the Secretary of State must believe that one or more of the public interest considerations specified in section 58 of the Enterprise Act is relevant. Currently, only national security, which includes public security, is specified, but other public interest considerations may be specified by an order subject to the affirmative procedure, or by primary legislation.
The order on the protection of legitimate interests provides for the taking of action by the Secretary of State, where a European intervention notice has been given, to remedy the adverse public interest effects that have resulted from or may be expected to result from the creation of a European relevant merger situation—that is, where the relevant merger situation is also a concentration with a Community dimension under the ECMR. The order follows the procedures set out in the public interest and special public interest schemes of the Enterprise Act, with appropriate modifications.
Many of the other provisions of part 3 of the Act are applied with modifications, where relevant. The order makes provision for when a European intervention notice comes into force, imposes an obligation on the OFT to produce a report where such a European intervention notice has been given, makes provision for the Secretary of State to refer the matter to the Competition Commission, and imposes an obligation to report on certain matters within certain time limits. It also enables the Secretary of State to take enforcement action in such European intervention cases. The enforcement provisions mirror to a large extent the public interest and special public interest enforcement regime in schedule 7 to the Enterprise Act.
The Enterprise Act thus preserves the current position, which is that when necessary the UK can use the domestic merger control regime to take action on grounds other than competition, such as defence, in relation to cases that fall to the ECMR. However, it is important to note that that power to protect legitimate interests will not range any wider than the public
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interest considerations that may be taken into account under the new UK merger regime.
I am grateful for Committee members' careful attention to my remarks. I await their comments.
Mr. Andrew Robathan (Blaby): In principle, we are always wary of extending the Government's powers, even if only by a small amount. However, having studied the order carefully and listened to what the Minister has to say, I do not think that there is anything sinister in it, and we have no particular objection to it. We will await the outcome and see whether the Government have to intervene at a later date. We shall be even more interested in what happens then, but I do not think that we have any objection to the orders as they stand.
Brian Cotter (Weston-super-Mare): I, too, support the measures, especially the order that has emerged through the Enterprise Act 2002. It is good to have it established that there will be independence of consideration of mergers—less political involvement is a good thing. To make a general comment on mergers, many of them do not benefit shareholders, and in many cases, people are disadvantaged by mergers. None the less, that general comment is supportive of the measure that has come through the Enterprise Act.
Given that we are likely to have more mergers in future, the tightening up of procedure and the blocking of a loophole are welcome. That is true of both the anticipated mergers order, which will ensure that people cannot find a way around the legislation, and the order on the protection of legitimate interests. Means that ensure that Ministers can address the issues, even at European level, are welcome. I support the measures.