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Baroness O'Cathain: I thank the noble Viscount for giving way. I should declare an interest as a director of British Airways. I do not believe that the noble Viscount is fair in his comment about British Airways giving consideration to setting up a low-cost no-frills airline. I assure the noble Viscount that the last thing British Airways would do is to set up a no-frills low-cost airline with the absolute certainty that it would lose money in order to maintain its competitive position. That is certainly no part of the thinking of British Airways, and I believe that it is quite wrong for the noble Viscount to make that comment.
Viscount Waverley: I thank the noble Baroness for her remarks. I hope in turn that British Airways will not set up a low-cost airline that will have the effect of preventing other low-cost carriers from offering low prices within the European Union.
Baroness O'Cathain: I thank the noble Viscount for again giving way. In no way can the noble Viscount say that British Airways should not set up a low-cost no-frills airline. British Airways is not necessarily going
to set it up, but it is thinking about it, and that is generally agreed. Why should British Airways be prevented from setting up a low-cost no-frills airline if it will lose money? It is in an open and competitive business. Certainly, it will not set up such a business necessarily to put someone else out of business, but it is an open market. The purpose of this Bill is to make sure that in the end the customer has greater choice and is not penalised by agreements.
Viscount Waverley: This has been a useful exchange. I look forward to seeing tomorrow in greater detail the comments of the noble Baroness. I should draw to her attention that such issues are covered by Article 86. Let us see how the whole gameplan unfolds. The Minister may wish to comment on a number of the points that the noble Baroness has made in relation to British Airways.
Lord Borrie: I have some difficulty in understanding the extreme width of Amendment No. 17 moved by the noble and learned Lord, Lord Fraser. If I understand it correctly, the amendment would remove altogether the Chapter II prohibition on the abuse of a dominant position. Among all of the abuses of monopoly power that can exist, including forcing people to take goods that they do not want in order to get goods that they do want, the noble and learned Lord has inserted merely one kind of abuse which is predatory pricing and given it a definition. If I am correct in what I say, I wonder about the definition of predatory pricing in Amendment No. 17. The noble and learned Lord will recall that the Chapter I prohibition concerns agreements which have the intention or effect of restricting competition. In the amendment the definition of predatory pricing or price discrimination by a dominant firm is that it must be both with that intention and effect. It appears to me that that is a much more difficult proposition to establish and that it removes a great deal of the mischief with which the Chapter II prohibition is intended to deal.
Lord Haskel: I believe that we are considering Amendments Nos. 17 and 24. It is not for me to enter into the argument between the noble Baroness and the noble Viscount. However, I believe that both should welcome the Bill since it sets up a mechanism for settling their dispute. I hope that those are words of comfort.
Clause 18 prohibits the use of dominant market position. That prohibition is closely modelled on Article 86 of the Treaty of Rome. By virtue of Clause 58 of the Bill the prohibition will be applied so as to avoid inconsistency with the interpretation of Article 86. As a result, the principles applied in interpreting what may constitute an abuse of a dominant position under European law will be applied in the same way under the domestic prohibition. This is of crucial importance because it will ensure that business can look to European Community jurisprudence as a guide to the interpretation of abuse under the domestic prohibition and that business will not have to deal with differing prohibitions at European and domestic level. I hope that that deals with the concerns of the noble and learned Lord, Lord Fraser.
For that reason the illustrative list in Clause 18(2) is drawn directly from Article 86. It would be wrong to tinker with the list. To have a different list would seriously risk creating a divergence between the domestic and European prohibitions. For the reasons I have explained, that would be highly undesirable. As to the specific changes proposed they add nothing in practice to the prohibition.
Turning to Amendment No. 17, this removes the general prohibition from the Bill and replaces it with a narrow prohibition directed solely at predatory pricing and price discrimination, as my noble friend Lord Borrie said. This undermines the objective of the Bill to introduce a general prohibition of abuse of dominance in line with European jurisprudence.
Amendment No. 24 relates to abuses based on economic strength in another market. Again, EC case law shows that in certain circumstances Article 86 may apply where an undertaking that is dominant in one market commits an abuse in a different, neighbouring market.
The list in Clause 18(2), like the one in Article 86, is illustrative and not exhaustive. Depending on the circumstances, different types of behaviour might constitute an abuse. However, behaviour of the type set out in the list would not necessarily be an abuse because each case will turn on the structure of the market and the effect of the conduct in question. This will deal with the noble Viscount's question regarding the bananas, about which he was so obviously concerned. It is, after all, the effect that is important to customers and to other firms.
In short, the prohibition introduced by Clause 18 fulfils the Government's commitment to bringing forward stronger legislation to prohibit abuse of dominance in the economy as a whole. In view of this explanation, I ask the noble and learned Lord to withdraw his amendment.
Lord Fraser of Carmyllie: It will be clear that at this time of night on a Thursday we do not intend to press amendments to a Division. But the night is still young. Certainly, just before dinner, I do not propose to press this amendment to a Division.
This amendment seeks to achieve a clear separation or distinction between the Article 86 provisions in the treaty and what is in this Bill. It may be that it could be expanded to cover another set of clearly identified types of abuse, but what it is intended to do is to highlight two matters; one of which is, as I said at Second Reading, that there is a clear concern expressed by British industry that the effect may be to have a chilling effect on innovation in the market place. I am sure that the noble Lord agrees that such a consequence would be undesirable.
We are disappointed that there seems to be little acknowledgement from the Government that any such risk might exist. If it does exist, I hope that there will not be a shrug of indifferent shoulders from the Government on such an important matter.
The second matter is this. In my example I highlighted the case of Tetra Pak II. I hoped to tease out from the Government whether they had any concerns about the way the jurisprudence of the ECJ had developed; that it was going too far to say that if you are dominant in one market it has far greater significance on how you have to act in another market. That seems to be the consequence of Tetra Pak II and it is undesirable and going too far. What we and organisations such as the CBI wish to highlight is that that might have an effect on the innovation expected in the market place and introduce a greater degree of uncertainty than is desirable.
I am not going to press these amendments but before this Bill leaves this House we want to be satisfied that the concerns that I and organisations such as the CBI have expressed are unfounded. We also want to be satisfied that there is a clearer and greater confidence about the way that the jurisprudence of the ECJ is developing and that the Government believe, at this time and at this stage, that none of it is prejudicial or undesirable in the development of the United Kingdom market.
We shall undoubtedly return at a later stage in an attempt to obtain answers to those two issues. I beg leave to withdraw Amendment No. 17.
Amendment, by leave, withdrawn.
7.15 p.m.
Lord Simon of Highbury moved Amendment No. 18:
The noble Lord said: The purpose of Amendments Nos. 18 and 27 is to ensure that Clause 18(3) is not read as limiting the relevant geographic market for assessing dominance to the United Kingdom. It has never been our intention that it should do so, but it is important that the drafting of the legislation is not ambiguous on this point.
In order to assess whether an undertaking holds a dominant market position it is necessary to establish what the relevant market is. Clause 18 is modelled closely on Article 86 of the Treaty of Rome. There is considerable EC case law concerning the principles for defining the relevant market. By virtue of Clause 58 of the Bill these principles will also apply in determining whether an undertaking is dominant for the purposes of the UK prohibition.
In addition, the director general is required under the Bill to issue guidelines as to how he intends to apply the prohibitions. The definitions of the market and the interpretation of dominance is a key issue which we would expect to be covered in the guidelines. That, I hope, will go some way to removing the chill of the chilling effect; although it does not seem to have chilled our competition on the Continent, which has been operating under these conditions for some time and competing very strongly.
As currently drafted, Clause 18(3) defines a dominant position as,
It is necessary to specify that there must be dominance within the United Kingdom to ensure that the legislation does not catch firms which are dominant in markets wholly outside the UK. However, Clause 18(3) is not intended to limit the relevant market to the UK.
As a person who has practised business, and with particular responsibilities for single market issues, I am very well aware of the challenges and opportunities presented by increasingly global markets. Indeed, we wish to encourage our companies into them and many of them compete in those markets which extend considerably beyond the UK.
The competition that these companies face in these markets, both at home and abroad, must be fully recognised in assessing whether or not these companies are dominant. In the interests of clarity, therefore, Amendment No. 27 deletes the reference to the market within the UK in Clause 18(3). Here we are interested only in market dominance, not any other sort of dominance which one might conceivably think of. That is why we originally included the reference to the market in Clause 18(3). Because Amendment No. 27 would delete this reference, Amendment No. 18 inserts "in a market" in Clause 18(1). The amendments are to define dominance in the wider market place, and separate that out as a test issue, and then to refer to the UK as a specific instance outside that. I beg to move.
On Question, amendment agreed to.
Page 10, line 19, after ("position") insert ("in a market").
"a dominant position in the market within the United Kingdom".
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