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The Earl of Buckinghamshire: My Lords, before the noble Lord sits down, he has not answered the question as to whether primary legislation is required under the amendment proposed by the noble Lord, Lord Bruce of Donington, and also whether Clause 58 is in conflict with Clause 2, making it inoperable.

Lord Haskel: My Lords, the purpose of Clause 58 is to put Clause 2 into effect.

Lord Bruce of Donington: My Lords, I am sorry but not surprised that my noble friend has declined to accept my amendment. There is a large difference between us. For my part, as an inhabitant and citizen of the United Kingdom, I do not wish such provisions as there are--and generally speaking, British law is good--to be subject to the generalities which emanate from time to time in Community law, so-called.

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There must be a choice. I am under no illusion that there will be massive support in this place for the amendment.

Baroness Farrington of Ribbleton: My Lords, unfortunately, as my noble friend is not the mover of the amendment, he does not have a right of reply at this stage.

Baroness Wilcox: My Lords, I thank the Minister for his explanation and for the time which he has taken on this matter. I raised this issue, perhaps expressed differently, in Committee. For me and for consumers, it is a point of principle about ensuring that different parts of the economy are treated in the same way with regard to competition law without singling out parts of it for special treatment.

That is the second time I have said that and I apologise for repeating myself. However, that is possibly the most important thing that I have said. It relates to singling out certain parts of the economy to be treated differently. The noble Lord, Lord Howie, talked with nostalgic affection of his club--the civil engineers. I have worked for seven years representing the ordinary consumer, the ordinary man on the Clapham omnibus, the single person very often trying to stand against such professional organisations. The noble Lord talks of professional organisations with pride and of the business community with contempt. I have been part of the business community, as has my family before me, for many years. We talk about free and honest trade. We talk about the rogues being found out and other such matters openly, in the marketplace. We do not have anywhere to run and hide.

I feel as emotional about this subject as the noble Lord did talking affectionately and, as he said, nostalgically, about his club. I shall not ask him to go off and read any reference books, although no doubt, if I took the time, I could do so. However, those parts of the business community which do not enjoy that protection must stand up and face the Office of Fair Trading. That is no bad thing.

I am sorry that it is the second time that I have had to raise this issue with the Minister. This is a good and open Bill which tries to make it easy for ordinary people to understand quite what competition and anti-competitive practices mean. I know that today we shall not get any further on this matter.

Lord Howie of Troon: My Lords, I do not wound easily but I wish the noble Baroness would draw a veil over the word "contempt". That is not my view of the business community.

Baroness Wilcox: My Lords, of course I shall withdraw that word if the noble Lord finds it offensive.

I return to the amendment. I shall not press the matter to a Division. I am sorry that the Government are not able to make that small adjustment which brings everybody together under the same administration. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Lord Fraser of Carmyllie moved Amendment No. 6:

Page 2, line 42, at end insert ("or
(e) Schedule (Exclusion for Vertical Agreements) (exclusion for vertical agreements)").

The noble and learned Lord said: My Lords, the Minister may think it somewhat churlish of me to return to the matter of vertical agreements so shortly after he was courteous enough not only to write to me on the matter but also to send me an extremely interesting report. However, I should like to have it placed on the record exactly where we stand in relation to vertical agreements and their exclusion from the Bill.

As far back as September we knew that it was the Government's view that many if not all of those vertical agreements should be excluded. But we are now into the month of February and we still do not have the outcome of the Government's deliberations on that exclusion. It is important that we discover exactly what is being proposed.

I recognise that the Government have set up a task force and have included a number of organisations and individuals who are extremely knowledgable on the subject and there must be some cause for optimism that that task force will come forward with some solutions.

However, I hope that there will be some chance that we shall see the outcome of those deliberations before the Bill leaves this House. It is not simply a matter of our own interest, but there is a view that once the matter leaves this House it leaves the last Minister who has any real understanding about competition policy, and we should wish to have that Minister's observations on what is being put forward and his explanation before the issue moves to the House of Commons. It is extremely important that that should be done.

Secondly, real concern is building up about particular interests, not only in the drinks trade but covering a wide range of activities, which are wondering whether they are to be excluded and what is proposed. The Minister will be very familiar with off-shore oil engineering in the North Sea and the Crine arrangements. Those are extraordinarily elaborate integrated arrangements. I have even had queries about whether some of those agreements might be caught if there is not a properly explained exclusion.

I hope that the noble Lord can give some indication of where matters stand. I simply leave it to him with this observation that the report of the analysis prepared by Professor Whish and Dr. Bishop is extremely good and interesting. However, it raises not only questions about which horizontal or vertical agreements may be excluded and how those exclusions might be framed but also a very interesting set of observations as to how frequently, within the European Union, Article 85 has not been used to handle vertical agreements but has been used to forward the arrangements which are to be found in relation to single market integration. It would appear that it has been used more frequently for that purpose than for the more obvious vertical agreement problem. In my view, that will undoubtedly lead us into some very interesting debates when we get to Clause 58. However, unlike the noble Lord sitting on the Benches

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immediately behind the Minister, I do not propose at this stage to go into the complexities as to what is and what is not excluded from that clause. I merely mention it because it is most important for us to find out exactly what the Government propose to exclude; otherwise it will have an effect not just on the issue of vertical agreements but will, in turn, also affect our understanding of some other very complicated provisions in the Bill. I have already indicated that I shall not be pressing my amendment today. Nevertheless, I beg to move.

5.30 p.m.

Lord Simon of Highbury: My Lords, before turning to any discussion on the detail of the amendment, which I believe will not be necessary at this stage, I should like to speak in more general terms about the approach to vertical agreements. As the noble and learned Lord, Lord Fraser, said, since we last discussed the issue in Committee we have continued our efforts to achieve a workable solution to the matter of vertical agreements.

My department has convened a vertical agreements task force, to which the noble and learned Lord referred, to consider the issue. We have experts from the CBI, OFT and MMC all working in the group. I am especially pleased that both the competition authorities and the business community are represented in that group, because I believe that it will be the only way of finding a workable solution.

As the noble and learned Lord also mentioned, we have also secured the services of Professor Richard Whish and Dr. Bill Bishop to assist the department and the task force in this work. Professor Whish is a renowned authority on competition law as well as a practising solicitor in the field. Dr. Bishop heads an economic consultancy specialising in competition issues. Their combined knowledge of the economics and law of competition makes them well qualified to assist us in seeking to crack what was referred to in Committee as "a conundrum". Indeed, despite the time taken, which has not been overlong considering the time that noble Lords opposite took to consider such matters without arriving at a conclusion, it is still a conundrum.

The initial work has been to consider the manner in which vertical agreements have been treated under Article 85 of the EC treaty. That is of crucial importance in allowing us to understand the nature of the issue, as it is European jurisprudence which will determine the interpretation of the Chapter I prohibition within the limits of the governing principles clause, which we have already discussed today. As the noble and learned Lord pointed out, any special treatment for vertical agreements must fit properly within that structure.

Therefore, the work is very important. The analysis of the Commission's formal decisions demonstrates that the overwhelming majority of cases in which the Commission has condemned vertical agreements have been on the basis that they conflict, as the noble and learned Lord remarked, with single market objectives. Of the 30 cases in which the Commission has imposed a fine against vertical agreements for breach of Article 85, in only one of these was it not acting wholly or predominantly on the basis of its single market objectives.

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The study also illustrates that a substantial number of the judgments of the European Court of Justice and Court of First Instance relating to vertical agreements have concentrated on single market interests. The Commission's zeal to attack vertical agreements posing a threat to single market objectives has generally been upheld by the courts.

In a small number of cases the Commission has found vertical agreements which do not raise single market concerns to be in breach of Article 85. Most of these are where the Commission has acted against resale price maintenance, although a few relate to cases where the Commission has found foreclosure of the market.

As I said in Committee when discussing the governing principles clause, single market objectives would not be imported into the interpretation of the Chapter I prohibition. Such questions cannot be said to be "corresponding", within the meaning of that term, in the governing principles clause to competition issues in a domestic system. As single market objectives are not relevant to the interpretation of the Bill, the analysis of the Commission's formal decisions indicates that the risk of purely "domestic" vertical agreements, to which Article 85 would not apply, falling foul of the Chapter I prohibition should be far lower than under Article 85. If agreements are caught by Article 85, there is of course nothing that we can do to validate them.

Therefore, that is an important factor which the task force will have to look at and consider. However, it is also clear that the absence of single market objectives from the interpretation of the Chapter I prohibition is not an all-embracing panacea. In particular, the report analyses the informal practice of the Commission in relation to vertical agreements. That includes, for example, cases which are settled without the need for the Commission to take a formal decision. Here, it cannot be said that the majority of the Commission's interventions are invariably based on single market issues. Although these cases do not strictly have any legal force, they are indicative of the Commission's policy stance with respect to a particular type of agreement.

Many have been critical of the way that the Commission has extended the application of the prohibition. The matter has not been directly tested in the European Court. However, under the Bill the director and the courts must have regard to Commission statements in applying the prohibitions.

There remains a case therefore for special treatment of vertical agreements under the Bill to avoid the burden of unnecessary notification and to ease the so called "straitjacket" which existing European block exemptions impose. Of course, it remains important not to provide a loophole for seriously anti-competitive agreements to escape nor, equally important, to make things worse by drawing an arbitrary line which led those outside it to feel that they had to notify. That would simply add another straitjacket to what is already there.

However, the nature of the analysis of Professor Whish and Dr. Bishop is to emphasise that any special treatment may be more in the nature of an "avoidance of doubt" provision. Such provisions are always difficult. They can create more doubt than they remove. However, clearly we

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will have to think carefully about what they say. The task force will, therefore, continue its work. The case analysis prepared by Professor Whish and Dr. Bishop has, as the noble and learned Lord said, provided an interesting and important step forward.

While we are debating the issue of exclusions, I should also like to raise the treatment of land under the Bill. I can tell your Lordships that I have placed in the Library of the House a discussion document which sets out how we think such an exclusion might be framed. My officials have discussed the issue with interested parties in the property field. It is clear from the document that the issue raises difficult conceptual problems, but I hope that it will be possible to bring forward a suitable amendment on Third Reading or, perhaps, even in another place.

The aspect upon which I shall probably not satisfy the noble and learned Lord is that of a timetable. As I said, my department continues to work very closely with the CBI and the regulators in order to try to solve the conundrum in relation to vertical agreements. I sincerely hope that we will be able to bring forward some form of special treatment for vertical agreements. I know and understand quite fully that that would be widely welcomed.

However, for all the reasons of which I believe we are all fully aware, the provision must be very carefully thought through. The difficulties that I have highlighted in the discussion to date, given the way that the Commission and the Court have proceeded, are matters which the task force must consider very carefully. The task force is certainly the best route for devising a workable solution for treatment of vertical agreements under the Bill. However, I cannot at this stage say that we have reached a firm conclusion about timing. With that perhaps not totally satisfactory reply, I urge my noble friend and the noble and learned Lord, Lord Fraser, to withdraw the amendment at this stage.

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