Monday 10 November 2003
[Mrs. Irene Adams in the Chair]
Competition Policy: Mergers
The Minister for Employment Relations, Competition and Consumers (Mr. Gerry Sutcliffe): It is a pleasure to serve under your chairmanship, Mrs. Adams. I look forward to a full debate on the issues.
The proposal for discussion is a set of amendments to the European merger regulation introduced by the European Commission at the end of 2002, together with two sets of relevant guidance. The original merger regulation was agreed in 1989 and entered into force in September 1990. Under the regulation, mergers automatically fall for consideration by the Commission if they meet certain turnover thresholds. Member states cannot apply their national competition law to mergers that the Commission is considering.
In 1997, the regulation was revised to incorporate an additional set of lower thresholds, which were introduced to try to catch cases subject to multiple notifications in member states. Following a review in 2000 of the effectiveness of the turnover thresholds, the Commission recommended that the opportunity should be taken to update the regulation to take account of 10 years of case law and experience in European merger control. It launched a public consultation on the regulation, following which it published these amendments.
As the Government response to the Commission's consultation made clear, we believe that the merger regulation is a success story. It is widely accepted to have become a cornerstone of European competition law in the 13 years since it came into force. By the end of October 2003, 2,357 merger cases had been notified to the Commission, which has won a reputation for rigorous but fair enforcement of the regulation, against the background of a substantial increase in the number of cases that it has to consider. In 1990, only 12 mergers were notified under the regulation; in 2002, it was more than 250.
As the Committee has noted, the Commission's proposals for amending the regulation fall into three main areas; jurisdictional issues, substantive issues and procedural issues.
Under jurisdictional issues, the Commission has concentrated on the aim of reducing the number of merger cases subject to the notification requirements of several national competition authorities. It has also sought to ensure that member states deal with cases whose impact is mainly national or local. The proposal introduces a system that the Commission believes streamlines the way in which cases can be allocated to, and transferred between, member states and the Commission. The draft regulation contains no amendments to the existing turnover thresholds,
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which determine whether cases fall to the merger regulation. Instead, it simplifies the criteria under which cases that do not meet the thresholds can be transferred to or from the Commission to member state authorities. The proposed amendments also enable the parties to a merger to approach the Commission about who should consider their case.
On substantive issues, the Commission proposal is designed to clarify the current dominance test by including a new article, which defines the criteria under which dominance is established. The Commission is concerned to ensure that it is clear that the regulation can be applied to all anti-competitive mergers.
On procedural issues, a number of changes to the regulation are proposed. Those include a move to calculate all deadlines and time limits in terms of working days; the removal of the one-week deadline for notification of a merger; the power to create a block derogation from the suspensive effect of the regulation for certain categories of merger; the introduction of a more flexible time frame and the use of a limited stop-the-clock provision to facilitate better consideration of remedies proposed in a merger case; and a number of changes to bring the fact-finding and enforcement powers of the Commission more closely in line with those on anti-trust legislation.
Together with the draft regulation, the Commission published two draft notices. The first is a set of best practice notices, giving basic guidance on how the Commission and interested parties will interact during a merger investigation. The second document contains guidelines on the appraisal of horizontal mergers, in which the Commission explains the elements that it may consider during appraisal of a merger case.
I should update the Committee on the state of negotiations. The proposed amendments to the regulation have been the subject of a series of Council working groups during the year, and a broad consensus has been reached on the vast majority of issues. The guidelines on horizontal mergers have been the subject of an experts' meeting in Brussels, and the regulation has also been discussed in COREPER. The Italian presidency hopes that Ministers will be able to reach political agreement at the Competitiveness Council on 27 November.
We hope that the new regulation will build on the strengths of the existing regulation and increase the effectiveness and transparency of the European merger regime. I look forward to hearing Committee members' remarks on the proposals and to their support for the motion.
Mr. Henry Bellingham (North-West Norfolk): May I, too, say that it is pleasure to serve under your chairmanship, Mrs. Adams? I have a number of questions that I want to ask.
The Chairman: One at a time, please. There will be ample time to come back to the hon. Gentleman.
Mr. Bellingham: I thank the Minister for his concise and clear explanation of the draft regulation. I refer him to paragraph 3.8 of the European Scrutiny Committee's ninth report, which states:
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''The draft Regulation additionally allows the Commission . . . to take the initiative in using the referral mechanisms.''
It is also made clear that more cases will probably be dealt with under subsidiarity. However, does the Minister share my concern that with the Commission taking that initiative, there will be a danger that it will become more involved and look for more examples on which to intervene? Rather than benefiting subsidiarity, might the regulation not have the reverse effect?
Mr. Sutcliffe: I understand the hon. Gentleman's point, and I have pointed out the increase in the number of cases. The issue was raised on a recent visit to Commissioner Monti, but I do not share the hon. Gentleman's concern. The regulation will formalise and improve the current practice.
Mr. Michael Jack (Fylde): I refer the Minister to paragraph 21 of his Department's explanatory memorandum. Under the heading ''Jurisdiction'', it states:
''The Government believes that there are still some details of this proposal that require clarification and looks forward to working with the Commission and other Member states to ensure that any revised system achieves the result of cases being allocated quickly to the best-placed authority.''
What are the details, and what has been done to deal with them?
Mr. Sutcliffe: We are happy that the Commission has reappraised its approach to jurisdiction after considering the Government's views on simplifying the situation and ensuring that the jurisdiction is appropriate. As the right hon. Gentleman will know, the final outcome of the negotiations will take place at the Competitiveness Council on 27 November. Some issues need to be addressed, but the Government's overall aim is still to simplify the situation. We are trying to conclude negotiations, and the right hon. Gentleman would not want me to put the Government's position on the record given that negotiations are still taking place with member states.
Mr. Jack: May I press the Minister to be a little more specific? What issues will be the subject of further negotiations? I appreciate that he will not want to put his negotiating position into the public domain, but may we know what the issues are?
Mr. Sutcliffe: The right hon. Gentleman may indeed. The Government's main objective on jurisdiction is simple; to ensure that mergers are dealt with by the authority best placed to consider them. The difficulty is in finding a clear and objective means of doing that, which can be readily understood by businesses and provide legal clarity. It is clear that the Commission would be better placed to deal with mergers that have significant cross-border effects, which are currently subject to multiple national notification requirements. It is also true that the number of mergers referred under article 9 has increased during the past two years.
It is important that the Commission's proposal that it should have exclusive jurisdiction over a case if three member states agree to its referral includes a corrective mechanism, so that a merger can be subsequently transferred back to a national authority if it is found
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to affect competition adversely in a distinct national market. We seek clarity, both to ensure that people clearly understand the rules and to improve the position based on the evidence from the past 10 to 13 years.
Rev. Martin Smyth (Belfast, South): I seek further clarification from the Minister. Will this be any improvement over what has happened in the past? I notice that the regulations frequently refer to special arrangements when three or more states are involved. I am concerned about the only state that has a land base with the United Kingdom—the Republic of Ireland—and the impact that some mergers already have had on the protection of workers' rights. For example, Richardson's Fertilisers was bought up by a firm from southern Ireland in association with the Government in Dublin and, as a result, the pensioners and others in that firm were left high and dry. What measures will be sought to protect people in that type of situation in future?
Mr. Sutcliffe: The hon. Gentleman raises an important point about what happens to employment and employees in mergers.
The main purpose of the regulation is to improve the competitive element—to make the situation fairer all round—based on the number of cases that have occurred so far. We want to ensure that it is based purely on the grounds of competition, but stakeholders such as the CBI and the TUC were involved in the consultations that took place. We want there to be clarity and transparency, so that people know what the rules are. However, we do not want to widen the remit of competition to include too many variants, because that will then remove the need for the rules to be clear, transparent, enforceable and understandable by the bodies that will be involved.