Select Committee on European Scrutiny Thirty-Seventh Report


44 Competition policy in 2005

(27617)

10810/06

SEC(06) 761

Commission Report on Competition Policy 2005

Legal base
Document originated15 June 2006
Deposited in Parliament26 June 2006
DepartmentTrade and Industry
Basis of considerationEM of 14 July 2006
Previous Committee ReportNone
To be discussed in CouncilNone planned
Committee's assessmentPolitically important
Committee's decisionCleared

Background

44.1 The purpose of the EU's competition rules is to prevent the restriction or distortion of competition in the Single Market through restrictive practices or the abuse of a dominant position, although certain restrictive agreements considered by the Commission to have a beneficial effect are permitted under procedures for individual or block exemptions. The Commission has particularly formidable powers, both legislative and executive, in this area and reports annually on competition policy.

The document

44.2 This is the 35th such report and relates to 2005, which the Commission summarises as a year of important progress both in consolidating reforms of the regime for anti-trust measures and mergers, and in reforming the state aids area. The report also covers in detail the following four main areas, which are illustrated both with statistics and discussion of a wide range of cases.

Anti-trust measures

44.3 The Commission says that it gave highest priority in this area to detecting, dismantling and sanctioning cartels, which it describes as the most pernicious form of anti-competitive behaviour. It highlights the success of its leniency programme,[109] which it says has led to an increasing number of investigations, and the formation in 2005 of a dedicated Cartels Directorate with 60 staff. The Competition Directorate-General's other main anti-trust activity was marked by the adoption of a Green Paper on private damages actions for breaches of anti-trust rules; by proposals dealing with block exemptions; and by an increasing focus on addressing practices which are most harmful to consumers. In addition, apart from formal infringement proceedings, use was made of the opportunity which, following the adoption of Regulation (EC) No. 1/2003[110] on the implementation of competition rules laid down in Articles 81 and 82 of the Treaty, now exists for the Commission to solve competition issues by obtaining binding commitments from undertakings.

44.4 It also undertook the first two sector inquiries under that Regulation — one dealing with financial services (notably retail banking, payment cards and business insurance), and the other with energy — and it says that it will use the results of these to determine the need for enforcement and regulatory actions to ensure the proper functioning of the internal market. At the same time, the Commission is also looking at other smaller sectors, such as 3G audiovisual services and professional services (for example, lawyers, notaries, engineers, architects, pharmacists and accountants): and it has examined specific competition aspects of trade agreements, legislative proposals in the chemicals sector, pharmaceuticals, electronic communications and postal services.

44.5 This section of the report concludes with the activities of the Member States' competition authorities and the Commission within the European Competition Network. This was established as a means of discussing competition issues (including the application of Article 82 of the Treaty,[111] where the Commission has recently issued a consultation paper, and general issues of common interest relating to anti-trust policy). The Commission says that 2005 saw a further deepening of the Network's activities, dealing with issues such as discrepancies in leniency programmes, and subgroups dedicated to particular sectors.

Mergers

44.6 The Commission says that, due to the general upward trend in the number of mergers and acquisitions, enforcement activity in this area increased in 2005 by 25% compared with 2004, there being 313 notified merger cases. It notes that investigations tend to rely on increasingly thorough fact finding, with the particular attention being paid to economic considerations and to mergers which might impede the Community's liberalisation objectives.

State aids

44.7 The Commission says that 2005 saw the adoption of new guidelines for national regional aids for 2007-13, and the launch of the State Aid Action Plan (SAAP). It describes the latter as a far-reaching reform package designed to deliver more focussed state aid rules in order to promote better-targeted aid (which, for example, aims at promoting innovation, risk capital, and research and development), and with the ultimate goal of offering more predictability, better economic results and better governance. It says that this sector also saw a significant increase in workload, with 676 new cases registered in 2005, an 8% increase on the previous year. The Commission also produced within the context of the SAAP a Decision specifying the conditions under which compensation to companies for the provision of public services is compatible with Community rules, together with guidance on when such compensation has to be notified and the need for the accounts of companies receiving compensation to be transparent.

International activities

44.8 This section of the report comments briefly on the competition aspects of the accession negotiations with Turkey and Croatia, and on the preparations for the accession of Bulgaria and Romania in 2007. It also includes reports of bilateral co-operation, notably with the United States, Japan and Canada, as well as work on competition with the OECD and International Competition Network.

44.9 Finally, the Commission deals with the outlook for 2006, highlighting the continuing priority to be given to tackling cartels, to the completion and effective follow up of the current sector inquiries, to tackling competition problems and cases most harmful to consumers, and to an improvement in the application of the Community's rules. It says that there is a continuing commitment to the assessment of merger cases on the basis of economic analysis, particularly those which might impede liberalisation, and a re-examination of the rules governing the Commission's jurisdiction in merger cases. On state aids, the report says that the Competition Directorate-General will introduce a more economics-based approach, focussing in particular on market failures which such aid are meant to rectify. It will also continue to pursue an active state aid control, and to promote an increased sense of shared responsibility between the Commission and the Member States for the reform of state aid rules.

The Government's view

44.10 In his Explanatory Memorandum of 14 July 2004, the Parliamentary Under-Secretary of State for Employment Relations and Postal Services at Department of Trade and Industry (Jim Fitzpatrick) comments on a number of issues covered in the report. On anti-trust matters he notes the Government's strong support for a proactive approach by the Commission, and therefore welcomes the continuing focus on tackling cartels. He also highlights the importance of the Commission's inquiries into the energy and financial services sectors, and the emphasis it has placed in examining cases most harmful to consumers. On mergers, he says that the UK has worked closely with the Commission and other Member States to bring about recent reforms, which are expected to provide the Commission with a more effective tool for European merger control. As regards state aids, the Government strongly supports an effective Community regime, whilst believing that such aids can play a positive role in supporting economic development where they are used to tackle the causes of economic under-performance. It therefore welcomes the Commission's continuing commitment to reforming the regime, where it would like to see more emphasis being placed on a lower administrative burden, particularly where competition is not distorted.

Conclusion

44.11 Though complex, competition policy is a highly important matter. Consequently, although we are clearing this document, which gives a useful summary both of ongoing activity and of significant developments in 2005, we are drawing it to the attention of the House.




109   Under which immunity from fines can be available for the first undertaking to provide evidence of a cartel to the Commission, with a substantial reduction for any subsequent applicant. Back

110   OJ No. L1, 4.1.03, p.1. Back

111   Abuse of a dominant position. Back


 
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Prepared 26 October 2006