Select Committee on European Union Fourth Report


Present problems

13. Under the present system, agreements for which individual exemption under Article 81(3) is sought are notified to the Commission. In practice some 200 agreements are notified each year but very few individual exemption decisions are made. Many notifications are dealt with by way of comfort letters. Professor Whish (King's College London) said that "The Competition Directorate just does not have enough people to process the number of notifications that it receives and there is no obvious prospect of the Member States providing additional funding for more staff". The current notification system diverted resources from investigating real competition problems of international cartels and abusive monopolistic behaviour (Q 9). Mr Freeman, for the Joint Working Party on Competition Law of the Bars and Law Societies of the United Kingdom (the Joint Working Party), said that from the practitioners' standpoint the problem they faced most was that of delay (Q 82). In the view of the CBI, the number of notifications had not increased in the last five years and the Commission appeared to be reducing the backlog. But it was still spending too much time and resources on arrangements and agreements that did not really pose significant competition problems (Q 34). The German Government described the present notification system as being "too bureaucratic and inefficient" (p 73).

14. Mr Mehta, for the Commission, said that the major objective of the reform proposed in the White Paper was to "enhance our enforcement of competition rules in an integrated market, dynamic and subject to globalisation". The present system would not be tenable in an enlarged Community of 20 or 25 States. The Community needed uniform rules on competition and to bring national competition authorities and courts together with the Commission in enforcing those rules. Adoption of the changes proposed, the Commission said, would enable the Commission to allocate its own resources better and to dedicate more resources to investigating serious cartels (QQ 264, 269).

15. Mrs Bloom (Director of Competition Policy, Office of Fair Trading) said that there was a serious problem with cartels, both international ones and those affecting individual Member States. Competition authorities were convinced that there was a large amount of undetected cartel activity and that it was very damaging to small firms and consumers. The problem was not sufficiently widely known. Competition authorities needed both adequate resources to pursue cartels and a mechanism to discover them. The US Department of Justice's leniency programme, which encouraged members of cartels to "blow the whistle" in return for immunity from fine, had been shown to be particularly successful in the United States, revealing on average two cartels a month. The Commission had had a leniency programme since 1996 but it was too early to say how effective it was. Only a very small percentage of the Commission's staff currently worked on detecting cartels (QQ 298-300, 302, 321-2).

General reactions

16. There was general agreement among witnesses that the present procedural arrangements should be reformed in order to improve the effectiveness and efficiency of the application of Article 81. The German Government's position was that it "must be reformed urgently" (p 73). Dr Wolf,[6] President of the German Federal Cartel Office (BKA), described the present regime as "fossilised". Antitrust laws needed to keep pace with economic developments and the dynamism of the market place (Q 168). The UK Government agreed with the Commission that the time was right to consider modernisation of the system of EC competition law enforcement. It fully supported the objective of simplifying the regime while providing for more effective enforcement of the EC competition rules (p 130).

17. Professor Whish said that what the Commission was proposing introduced a radical change and there were many issues which were not fully elaborated in the White Paper (Q 11). The CBI was particularly critical of the proposals and emphasised the radical nature of the proposed reform. Mr Ogilvie Smals said that it would "turn the established order of administering Articles 81 and 82 of the EC Treaty both upside down and inside out … the potential impact on business is likely to be greater than that of any change to the European competition regime since it was first established more than 40 years ago". The Commission's proposals had few redeeming features. The CBI's main concerns "revolve around the obvious tension between the single market objective and decentralisation; the inexperience of most national authorities in dealing with Articles 81 and 82, in particular those in the applicant States; the undue reliance which would be placed upon national courts; the potential for conflicts of jurisdiction and, not least, the loss of the legal certainty which the present notification system provides" (Q 32).

18. Mme. Montalcino, from the Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes (DGCCRF), reported that French industry had mixed views on the White Paper. Introduction of a system based on exception légale might be less of a problem because that was the system used in French law. But French industry was also concerned about the potential loss of legal certainty. M. Chambu (DGCCRF) said that if French industry had a choice between decentralisation without notification and decentralisation with notification (the German proposal) it did not want notification. If there had to be notification it should be to the Commission alone. M. Chambu described French industry's approach to the reform as being "reluctant" but "not aggressively reluctant" (QQ 216-7, 219).

19. A number of other witnesses expressed qualified support for the Commission's proposals. Nicholas Green QC said that Bar European Group (BEG) was "generally content" and had "a degree of muted enthusiasm" for the proposals (Q 81). The Joint Working Party said that the extent of the change proposed had taken many by surprise. Though radical, it did not address all the problems. Mr Freeman said: "We would prefer to take at face value the statement in the White Paper, it is a contribution or a starting point for a discussion and the results may be a little less than the total package proposed" (QQ 82, 127). Mr Leigh, Chairman of the Competition Law Association, described the proposal as "a welcome one, a constructive one and a serious one" (Q 83).

20. Mr Paulis, for the Commission, summarised the response of interested parties to the White Paper. The large majority of Member States supported the proposals. There was opposition from Germany and also, to a lesser extent, from Austria and the Netherlands. The response of the European Parliament was positive as was that of the Economic and Social Committee, though the latter had added some conditions. The view of industry was also generally positive, while emphasising the need for a consistent application of the law and for legal certainty. The CBI was opposed to decentralisation but the German Federation of Industry (the BDI) supported it. Some lawyers favoured the proposals while others had voiced strong criticisms. Some national judges welcomed the ability to apply Article 81(3). Others did not want it. The Commission had also had discussions with the two Community Courts. Concern had been expressed that the workload of the two courts might increase. Mr Paulis thought that this was inevitable, particularly in the period shortly after the new regime was introduced. As regards the applicant States the Commission had, since the Europe Agreements, had regular contact with them and had assisted them in the development of national competition laws and the establishment and training of cartel authorities (QQ 265-8).

21. While there was general agreement that the Commission had correctly identified the major problems a number of witnesses, including the Government, pointed out that the White Paper contained few or insufficient details as to how the new regime might work in practice (p 130). The Government said that it was essential that any reforms neither threatened the continued development of the Single Market nor placed unnecessary burdens on industry. The Commission should ensure that it carried out a fiche d'impact, the equivalent of the UK's regulatory impact statement (p 131). The Council of the Bars and Law Societies of the European Union (CCBE) said that "the Commission has a long way to go in ensuring that such modernisation is carried out in a way which does not threaten the uniformity of EC competition law, or the legal certainty offered to parties" (p 151). The Government welcomed the fact that there was to be further discussion between the Commission and Member States (p 130).

22. Further, not all agreed with the Commission as to what should be done to improve the present position. The German Government did not consider that, taking into account other recent developments, such a radical solution was necessary. It put forward a fourfold solution: retaining and making notification "leaner"; decentralising the application of Article 81 to national competition authorities (but not national courts); simplifying and accelerating the Commission's procedures; and introducing deadlines for the taking of exemption decisions (pp 77-8). The Competition Law Association also believed that there was scope for considerable improvements in the Commission's working methods (Q 111). The Joint Working Party also thought that there were other ways to address the current problems (Q 82).

23. The CBI advocated "modernisation" rather than decentralisation. Both the substantive and procedural rules should be updated. The CBI supported a more deregulatory and discerning approach. The US experience showed that it was not necessary to take such a formalistic and expansive approach to anti-trust rules. Mr Ogilvie Smals said that the Commission were "fishing up a lot of sprats and not a sufficiently high proportion of mackerels". The substantive rules needed to be updated. The boundaries between legality and illegality under Article 81 should be more clearly marked. More appropriate thresholds at which agreements would be deemed to have an appreciable adverse effect on competition should be set. The recent draft block exemption on vertical restraints was a step in the right direction that could be taken further. The EC regime should follow that adopted in the UK Competition Act where exemptions could be backdated and notifications made at any stage as the need arose. Industry might be required to bear a greater burden of providing information in notifications. The Commission's working practices should also be overhauled. There were numerous ways in which actual modernisation could be achieved and by which the existing system could be made to work much more effectively. Experience under the Merger Regulation showed what could be done, though the Commission would have to be adequately resourced. Timetables should be introduced and language and publication requirements reduced. Comfort letters might be converted into short form decisions having binding effect. Adoption by the Commission of a leniency programme on the lines of that employed in the USA might yield better results in uncovering cartels than allocating more staff and other resources to the task (pp 10, 14-17, QQ 32, 34, 40, 43, 68, 71-74).

Abolition of the notification/authorisation regime

24. Parties to an agreement seeking an exemption decision from the Commission are required to notify their agreement to the Commission ex ante. The Commission has the monopoly over such decisions. Neither a national competition authority nor a national court can grant an exemption. Professor Whish said that the new system would be a very different one from the present one. It would not as a general rule be possible for agreements to be formally notified to the Commission. Exemption from the prohibition of Article 81(1) would not be dependent on an administrative act on the part of the Commission. In future, decisions on the application of the totality of Article 81 could be made by national competition authorities, national courts and by the Commission (QQ 9-10).

25. Notification was currently effected through form A/B. This frequently required a large volume of information and sophisticated argumentation to be prepared, collated and supplied to the Commission. Professor Whish said: "Completing form A/B is a substantial piece of work. The costs involved can be considerable and the burden on management time can be considerable because a lot of data is requested and the data does not necessarily exist; it may have to be generated for the purpose of the notification. So one should not underestimate the burden on the parties" (Q 7). Mr Freeman (Joint Working Party) said: "it is not something which is done lightly … you may well get 17 large lever arch files going in a single notification" (Q 85). Mr Ogilvie Smals, for the CBI, described completion of form A/B as a fairly expensive exercise - "in a simple case you are talking of £15,000 or more with external professional advisers, not counting the cost of time". The sheer cost of the system operated as a filter (Q 37). Mr Cowen (CBI) added: " If it is £15,000 or whatever it costs for a notification the delay in not being on the market because you are waiting for an answer is often a very significant burden as well". But even that cost had to be set against the degree of legal certainty obtainable, particularly in the case of large multi-million pound commercial transactions (Q 38).

26. Professor Whish said that it was understandable that the function should at the outset have been given to the Commission. The issues to be determined under Article 81(3) were very complex. The tests to be applied were capable of drawing in a whole range of Community policies. With one exception (Germany) Member States had, at the time the procedural regulations implementing Articles 81 and 82 were being devised, little experience in applying competition laws. It was useful that, through the notification procedure, information on commercial practice and behaviour could be collected by a body such as the Commission. It was important in the early years of the Community that such practices should not be allowed to impede the process of single market integration (QQ 4-5). Professor Whish added that in future notification would be less important for two reasons. Firstly, a broader block exemption for vertical agreements would take effect in 2000. Secondly, an important change had recently been made (by Regulation 1216/99) to Regulation 17/62, the effect of which was that it was no longer necessary to pre-notify a vertical agreement in order to benefit from an exemption. It was worth considering whether the latter should be extended to all agreements (Q 29). Mr Jeremy Lever QC and Mr George Peretz, barristers practising in competition law, did not believe those changes would suffice and put forward a number of proposals including the introduction of a scheme of provisional validity for notified agreements (p 158).

27. The Commission proposed to move from an "authorisation" regime for applying Article 81(3) to a "directly applicable exception system". Paragraph 11 of Chapter 1 of the White Paper explained the difference between the two systems:

  "In an authorisation system, the prohibition imposed by law may be lifted only by an appropriately empowered public authority which, by constitutive decision, declares that it is lifted. Under the authorisation system, restrictive practices are void until they have been authorised by the competent authority. Under a directly applicable exception system, the prohibition on restrictive practices is not applicable to those which satisfy certain conditions defined by law. Taken as a whole, such conditions may be regarded as an exception to the prohibition principle. Restrictive practices which satisfy the conditions are therefore valid as soon as they have been concluded."

As already mentioned, the practical effect of such a fundamental change of approval would be that Article 81 as a whole would in future be applied by the Commission, national competition authorities and national courts. Undertakings would be relieved from the burden and costs of notifying agreements, but, as the White Paper acknowledged, they would have to take on an added responsibility and make their own assessment of the compatibility of agreements with the Competition Rules.[7] Mr Paulis pointed out the implications for enforcement of uniform competition rules across the Community. It would no longer be necessary to have a formal exemption decision from the Commission to establish the primacy of Community law in any particular case. Member States would have to take account of Community law and its direct applicability before applying domestic competition laws in any case which affected trade between Member States (QQ 269-71).

28. The Government thought that the current system of notification was "a poor tool in competition law enforcement". The Competition Act 1998 had adopted it in order to operate in close harmony with the EC rules. The proposed change at EC level (which would likely also require amendment of the 1998 Act) would enable the Commission to prioritise and plan enforcement better. The current EC system had a real cost for many businesses and consumers, in diverting resources away from attacking damaging anti-competitive behaviour. The proposal would free up resources to allow for a better service to complainants. It would remove burdens from business and might facilitate convergence in international regulatory regimes. But while the Government recognised the possible benefits of the Commission's approach it also recognised the concerns business had about the possibility of reduced legal certainty (pp 130-3).

29. France supported the change. French domestic competition law already had a system based on exception légale, with no need for prior notification of agreements and control essentially being ex post. Such a method of enforcement of competition laws was more efficient, allowing resources to be concentrated on harmful secret cartels (QQ 196, 210). Professor Fornalczyk (University of £ódŸ and former head of the Polish Competition Office) said that she was "convinced" that direct application of Article 81 and 82 was a good idea. Cumbersome bureaucratic procedures had to be avoided (Q 240). Germany, on the other hand, opposed this element of the White Paper. Dr Wolf (BKA) said that without notification transparency which informed the competition authorities and benefited both firms and consumers would be lost (Q 185). Notification also enabled competition authorities to exercise preventative control and also to keep abreast of market developments (pp 75-6). Mr Nagy (President of the Hungarian Competition Office) also considered notification to be helpful in shaping competition policy (Q 261). The CCBE said that notifications provided the Commission with an important source of information and added that although very few notifications led to prohibitions it was often the case that notified agreements were adapted before they could be considered acceptable by the Commission (pp 151-2).

30. Mme. Montalcino ( DGCCRF) did not know of any notified agreement that had revealed a harmful cartel (Q 210). Mr Mehta explained that the Commission did not derive much information from notifications. The Commission received a large number of complaints. These yielded information on what was happening in the market. The Commission also had powers to conduct sectoral inquiries, which could be particularly helpful in certain regulated sectors. The Commission's mergers work also gave it a lot of relevant information (Q 286).


31. A preliminary point concerns the compatibility of the proposed change with the Treaty. The White Paper says that the draftsmen of the Treaty deliberately left it open as to whether there should be an authorisation or an exception légale regime. Professor Deringer, a German lawyer and former MEP, drew attention to the fact that the Commission cited no authority for its statement that the question had been deliberately left open when the Treaty was being negotiated. He doubted whether the Commission's proposal could be effected without Treaty amendment or before, at least, a prior ruling from the Court of Justice that such change was compatible with the Treaty (p 153). The German Government did not agree with the Commission's account of the legislative history of Article 81(3) and also took the view that the Commission's proposal to change the character of Article 81(3) was incompatible with the Treaty (p 74). Dr Wolf (BKA) said the Treaty required authorisation of an agreement by Article 81(3) to be by means of an administrative act. That was clear from the wording of Article 81(3): "The provisions of paragraph 1 may, however, be declared inapplicable…". What the Commission was proposing involved not just changes in procedure, in secondary law, but a material change to the Treaty (QQ 177-83).

32. Legal practitioners in the UK were aware of the issue raised by the Germans as to the compatibility of the White Paper proposals with the Treaty. They acknowledged that the German arguments could not be discounted. Mr Peter Roth QC, for the Competition Law Association, considered it to be a very difficult question and did not wish to predict the outcome (Q 90). BEG's "guestimate" was that if the matter were to come before the Court of Justice, the conclusion would be that there was competence to do what was being proposed by the Commission (Q 89). Mrs Holmes, for the Joint Working Party, said: "it is clearly a constitutional and political debate. I think our overriding concern is to make sure that we can have a system which is effective and workable for business and legal advisers" (Q 87).

33. M. Chambu (DGCCRF) believed the account of the origins of Article 81(3) in the White Paper to be correct. There had been a compromise. He said; "We do not take seriously the arguments that there is a problem with the Treaty ... There is one Member State which is raising the issue and that is a Member State which for reasons other than legal reasons is opposed to" the Commission's proposed reforms (Q 211). Ms Anderson (DTI) thought that the German argument was based on a desire to retain the system as it applied in Germany without too much disruption (Q 325). The Government did not share the German view. The Treaty, Ms Brown (DTI) said, had to be interpreted in the light of its objectives which included ensuring undistorted competition in the single market. "If the Commission's proposals are for a more efficient system of achieving these objectives, then we think that interpretation of the Treaty can be supported" (Q 323). Mr Paulis, for the Commission, said that it was well established that the wording of the Treaty had been a compromise. As regards the wording of Article 81(3) it was well established that the provision created individual rights. If the criteria were satisfied the parties were entitled to an exemption. The word "may" was needed to enable block exemptions to be granted. In using the words "declared inapplicable", the text of Article 81 was deliberately different from that in Article 65 of the Treaty of Paris, which unequivocally provided an authorisation procedure in the case of coal and steel agreements. The wording did not require a system of a priori control. Nor did it prohibit such a system operating contemporaneously with an exception légale (for example, in order to deal consistently with structural operations) or the maintenance of block exemption regulations (which operate as general exceptions in law) (QQ 278-82).


34. The White Paper accepted that any reform must endeavour to ensure a reasonable level of legal certainty for undertakings. This meant, on the one hand, that the rules must be defined as clearly as possible so that undertakings can assess their restrictive practices themselves and, on the other, that consistency of application by the various bodies responsible (Commission, national competition authorities and courts) was ensured by appropriate preventive and corrective mechanisms.[8] As to the former, the Commission would adopt block exemption regulations with a wider scope of application. The Commission would also adopt guidelines and individual decisions to clarify the scope of Articles 81 and 82. [9]

35. The extent to which legal certainty would be improved or lessened was controversial. The Faculty of Advocates believed that the ability to invoke the direct applicability of Article 81(3) would strengthen legal certainty for both complainants and undertakings (pp 154-5). Mrs Bloom (OFT) saw substantial benefits for a large number of agreements that were not at present notified to the Commission. The current regime exposed them to being made void. The proposal would give them greater legal certainty (Q 310).

36. But the majority of witnesses took a different view of legal certainty. Professor Whish said: "there are many situations in which parties are entering into agreements where the most important thing for them is to know that their agreements will be valid and enforceable if it were to come to litigation before a national court" (Q 6). The German Government said that a directly applicable exception system would not provide the companies concerned with the necessary legal certainty. This would result in barriers to investment, would reduce potential competition and jeopardise jobs (p 74). The CBI said that business needed legal certainty and the notification system provided it (p 13). Mr Nagy (Hungarian Competition Office) took the view that it would be better for industry in Hungary to have the existing authorisation/exemption procedure (Q 261). But the Competition Law Association doubted whether the present system did in fact deliver the certainty claimed (Q 95).

37. The Government recognised that the White Paper proposals might result in increased uncertainty. It recognised that the issue was extremely important to business and Ministers took those concerns very seriously. Further work was necessary to ensure that they could be satisfactorily addressed. But the Government also noted that the present notification system was burdensome and time consuming and did not produce perfect certainty. The Government also noted that the absence of a notification regime under US law and other systems had not appeared to prejudice business innovation (pp 130, 132).

38. As already mentioned, the Commission makes very few formal exemption decisions a year, perhaps five or six. Many more cases are dealt with by way of so-called comfort letters. The Government noted that many companies opted not to notify agreements and that where they did many cases were settled by comfort letter. A comfort letter did not, however, provide the same degree of legal certainty as an exemption decision (p 133). Mrs Bloom (OFT) was not aware of any case where having given a comfort letter the Commission later held an agreement to be illegal (Q 317). The CBI took the view that although comfort letters were not ideal they were useful in providing business with an indication of the Commission's probable position. Mr Ogilvy Smals acknowledged that the CBI's attitude to comfort letters had changed. Their legal effect was limited but the CBI's view was that comfort letters provided business with a degree of certainty which was worth having, though they were not a substitute for a system which could actually deliver proper decisions (p 13, Q 39).

39. As to the measures proposed by the Commission to improve legal certainty, the Government said that although new guidelines and notices setting out in detail how Articles 81 and 82 applied would be helpful they would not eliminate uncertainty in complex cases. Greater use of block exemptions, also contemplated in the White Paper, could also be helpful in improving legal certainty for business (p 133). The White Paper proposed that the Commission should retain the ability to grant individual decisions in addition to prohibition (and fining) decisions. But, as the Competition Law Association said, the White Paper was unclear as to the nature and effects of this new type of decision (Q 110). The Government was sceptical as to the value of the new type of "positive" decision being proposed. They would be declaratory and, compared to an exemption decision, only of limited benefit to the parties to the agreement in question. It was not clear how much of the Commission's analysis and reasoning such decisions would include. The Commission could also give informal advice and it would be helpful if this could be provided within time-scales that met the needs of business. The Government doubted the degree of assistance that could be provided by national competition authorities to firms and how much reliance could be placed on it (p 133).

40. Under the White Paper the Commission would also provide "business review letters". The German Government was critical of business review letters on two grounds. First, if they meant a mere continuation of the present practice of comfort letters, there would be no reduction of workload or improvement in efficiency. Secondly, such letters would not give industry the legal certainty it wanted (p 74). What became clear was that these documents would not be comfort letters for which, Mr Mehta said, the Commission no longer saw a place in future, though it would continue to have informal contacts with parties. In place of comfort letters the Commission would develop opinions. They would extract key issues from cases and be more general and widely applicable and would be published (Q 292).

41. In future, as the CBI said, greater reliance would have to be placed on external lawyers although no law firm could fill the gap left by the disappearance of the notification system. Costs would increase, especially if it proved necessary to seek legal advice in a number of Member States (p 13). Mme. Montalcino (DGCCRF) said that after more than 30 years of Community law industry usually knew what was permissible and what was not (Q 210). Legal practitioners disagreed. The CCBE and Joint Working Party did not accept that the law was as clear as Commission's White Paper suggested. The CCBE said: " Case law on EC competition law is continually evolving and has become increasingly linked to complex economic principles. In many cases, particularly those involving new technologies or new contract forms, there is therefore unlikely to be a clear cut rule which businesses can follow" (Q 92, p 152). Mr Lever and Mr Peretz said that advice by lawyers in private practice could not by itself satisfy businesspeople's need for legal certainty in this area. Lawyers could say when something was prohibited by Article 81 or 82, but they were inevitably more cautious and qualified when giving advice that something was lawful (pp 157-8). Mrs Bloom (OFT) said that in future firms would have to rely more on their advisers. She thought that in many cases lawyers could provide this. In practice it was the bankers and the companies themselves who wanted the maximum security available. It had been suggested that if formal legal certainty were not available then companies would not see the need to seek it (Q 311, 319).

42. The White Paper has proposed the abolition of notification for all agreements except so-called partial-function production joint ventures: "Operations of this kind generally require substantial investment and far-reaching integration of operations, which makes it difficult to unravel them afterwards at the behest of a competition authority. For this particular category of transaction, therefore, effective supervision would probably be better served by a system of compulsory prior notification". It is proposed that the procedure of the Merger Control Regulation should apply.[10] M. Chambu (DGCCRF) did not believe that this caused a problem in principle, though it was necessary to have a boundary between merger control and anti-trust law. He accepted that there was a technical problem with the Commission's proposal. The definition of partial production joint ventures had to be better targeted (Q 214). The Government said that the concept would need to be clarified (p 131, Q 309). The CBI said that this was a new concept in EC competition law that would require clear definition. Mrs Martin Alegi said that there were other circumstances invoking major investments or major risks where industry would like the possibility of obtaining clearance (p 13, Q 40). Both Ms Anderson (DTI) and Mrs Bloom (OFT) said that more work had to be done to ascertain the areas where business was worried about certainty. UK industry had a much stronger culture of notification than other Member States. Consideration needed to be given as to how serious the problem was and whether the category of agreements that might in future be notified needed to be expanded. There were potential benefits of freeing up resources to tackle cartels and improving the position of consumers but legal certainty could not be thrown out of the window. Areas might be targeted where industry might be given a degree of comfort, but the Government did not want to end up with effectively another notification system by the backdoor with the same number of agreements flowing into the Commission (QQ 309-10, 329).

Decentralisation in principle

43. The White Paper took the view that in an enlarged Community with more than 20 Member States centralised detection and prosecution of infringements of the Competition Rules would be "increasingly inefficient and inappropriate". National competition authorities were well placed to take effective action in certain types of cases: they were well acquainted with local markets and national operators; they were closer to complainants; some had the necessary infrastructure to cover the whole national territory and could carry out investigations rapidly; most had sufficient human and legal resources. National courts were better placed than the Commission to give interim relief.[11] The Commission, as Mr Mehta explained, would not disappear from the scene. There would remain a substantial amount of work for the Commission. There would be the investigation of large cartels, as well as the need to police those areas recently liberalised across the Community. It was also likely that the Commission would handle cases involving public enterprises with which national authorities might find it more difficult to deal. The Commission would also have a major role to play in establishing the necessary legislative framework, developing guidelines and establishing any flanking measure necessary to facilitate co-operation (QQ 283, 285).

44. Germany supported decentralisation. Dr Wolf (BKA) thought that the time was right for the Commission to give up its monopoly on Article 81(3) and return the power to the Member States with whom, in terms of subsidiarity, the main responsibility rested. But Dr Wolf doubted whether the Commission's proposal truly constituted decentralisation. He referred to the controls that the Commission wished to have including the ability to take cases out of the hands of national competition authorities. "In reality [they] are maintaining the monopoly, even perhaps strengthening it under a different label. The only effect intended may be to get rid of the workload but not of any responsibility" (QQ 168-70, 190). The UK did not accept that view. There were practical limitations on what the Commission would be able to do and the Government saw the proposal as a genuine decentralisation, the law being applied in the place where it was most appropriate by the most appropriate body (Q 325-6).

45. France also favoured decentralisation. Indeed M Chambu described it as being "politically unavoidable" with the advent of enlargement of the Union (Q 217). Both Mr Nagy and Professor Fornalczyk supported decentralisation. Mr Nagy believed that the time had passed when Brussels was thought to be the only authentic source of competition law and policy in Europe (Q 242). For the CBI Mr Ogilvie Smals said: " the White Paper seems to seize upon decentralisation as a panacea for all of the current difficulties of the Competition Directorate-General". The CBI did not regard decentralisation as inevitable. Mrs Martin Alegi said: "Frankly, we do not see any way of maintaining consistency in a system which involves decentralisation to national authorities and national courts" (QQ 32, 56).

46. The Government, in its Response to the Commission, said that decentralising the current notification system would, in practice, merely shift the burden of work from the Commission to Member States. It would create huge resource problems and do little to improve the effectiveness on competition law enforcement. Decentralisation, in combination with the end of the exemption system, had possible benefits: improving the position of complainants, strengthening enforcement and encouraging harmonisation of national laws. But there were questions as to how the new system would work in practice. The Government acknowledged that legal certainty for businesses might be reduced and that there was a risk of inconsistent decisions (pp 131, 134, Q 362).

47. The Faculty of Advocates considered that decentralisation was consistent with the principle of subsidiarity and that enabling national authorities to apply Article 81(3) would be advantageous. The White Paper was timely given the recent changes to UK competition laws (pp 154-5). In the view of the Joint Working Party decentralisation should not be pursued for itself. Advantages had to be shown (Q 94). BEG believed that decentralisation should be tested against two criteria: would it improve the quality of decision making; and, would it give greater legal certainty? The answer to the latter question depended on the Member State to which competence was devolved. Not all Member States would at present deliver a better service. Delegation only to some States but not others was not, however, politically feasible. BEG considered that in an enlarged Community the Commission would not be able to cope and the process would grind to a halt. In the long run, decentralisation would lead to a better quality of decision taking. Decentralisation was "sensible and inevitable" (QQ 94, 96, 125). The Competition Law Association also considered that the time factor had to be taken into account. Mr Leigh said: "the question is not just whether there will be an improvement the day after a reform is introduced but whether over time that reform offers the prospect of a better functioning system than the present system does, which has serious difficulties" (Q 95).

The Question of Resources

48. Mrs Bloom (OFT) said that the current notification system was not the best use of the Commission's resources. That was also the experience of Member States that had adopted similar notification regimes (Q 298). Mme. Montalcino (DGCCRF) spoke of the need to give the Commission the means to be more effective at enforcing competition throughout the Community: "you have to rescue the Commission from the burden of notifications" (Q 218). Dr Wolf (BKA) did not believe that implementation of the White Paper would have the effect of freeing Commission resources to deal with hard-core cartels. The White Paper would create a new workload for the Commission (Q 184). Mr Justice Laddie said that it had to be recognised that the Commission had acquired an enormous expertise. If it was necessary to do more work and needed more manpower to do it, then that should be made available. "You are not making it more efficient by passing some of the work to people who have no experience. All you are doing is hiding what you are failing to do about manpower" (Q 135).

49. Professor Whish said that there seemed little prospect that the Member States would make available the funding for more staff. The existing resources might be better employed at pursing cartels rather than processing notifications. Abolishing the Commission's monopoly in granting exemption under Article 81(3) and making that provision directly applicable would enable national competition authorities and national courts to make more decisions in future. This would inevitably place an added burden onto national competition authorities. More resources would also be needed by the Commission to be able to operate the system being proposed. Professor Whish doubted whether abolishing the need for notification would release sufficient resources by itself (QQ 9, 17, 26). BEG said that resources would inevitably have to be expanded. Transactions that at present went to Brussels would in future go to national competition authorities (Q 98). The Joint Working Party thought that, with the similarity of national competition laws, such as the Competition Act in the UK, and Article 81 and 82 some duplication might be avoided and that there was the possibility of more efficiency (Q 99). The Competition Law Association thought that the proposal for direct applicability carried with it the real hope that the desire to make notifications might in many cases fall away and that any increase in resources might not be as great as might be thought (Q 99).

50. The CBI said that national competition authorities commonly said that they had insufficient resources. Some indeed were under-resourced. National competition authorities that were currently discharging their domestic duties well would need more resources to deal with the extra workload. The issue as regards resources was essentially a question of whether additional resources were to come from the Community budget or individual national budgets (QQ 45, 63, 65).

51. Mr Mehta, for the Commission, said that because the Commission would no longer have to deal with notifications the net result of what they were proposing would be a release of resources in order to enable the Commission to give priority to anti-cartel activities. Mr Paulis added that there would also be a removal of the duplication of work which presently existed because of the overlap of Community and national competition laws. The direct applicability of Article 81(3) would in many cases render unnecessary the notification of agreements under national laws. The Commission accepted, however, that if more enforcement was wanted then more resources would be needed. But existing resources in the Commission and the Member States exceeded 1000 persons. Mr Paulis said: " What do we want? We want to push more towards the application of one set of rules by this available force which is there, rather than asking for more resources. Basically, we are saying take the resources and use them better, not only in the Commission but also in the national competition authorities" (QQ 269, 273-5). A Community Regulation would be enacted to prevent national legislation from prohibiting or varying the effects of agreements exempted by Community regulation.[12] The White Paper was based on the assumption that all the national competition authorities in the Member States would be in a position and would take steps to apply Community competition laws. Ms Anderson (DTI) said: "I do not quite see how the proposal could be agreed by the Council of Ministers without their all undertaking to do this" (QQ 305-6).

6   As from 1 January 2000 Dr Ulf Böge has taken over from Dr Wolf as President of the German Federal Cartel Office. Back

7   White Paper, para 77. Back

8   White Paper, para 51. Back

9   White Paper, para 78. Back

10   White Paper, paras 79-80. Back

11   White Paper, para 46. Back

12   White Paper, para 85. Back

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