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Lord Sainsbury of Turville moved Amendment No. 29:



"(e) the European Commission is considering a request made, in relation to the matter concerned, by the United Kingdom (whether alone or with others) under article 22(3) of the European Merger Regulations, is proceeding with the matter in pursuance of such a request or has dealt with the matter in pursuance of such a request."

The noble Lord said: My Lords, this group of amendments covers issues related to the interaction between domestic and European competition law.

Throughout the process of updating the UK's competition framework, the Government have had to set the updated regime within its wider—European—context. European competition law, where it applies, has primacy over domestic law. That fact means that it is not necessary in the Bill to spell out the detailed interaction between Community and domestic law. Users of the legislation, of course, will need a clear understanding of the interactions. That will be secured by the new requirements introduced by Amendments Nos. 82 and 134 for the OFT and the Competition Commission to provide advice and guidance on the interaction between Community law and the new domestic mergers and market investigations regimes. We believe that that approach has the benefit of simplicity. It will also help to "future proof" the Bill against developments in European competition law. Amendments Nos. 91, 92, and 135 are consequential on the new requirement to provide advice and they define the term "Community law".

In very exceptional circumstances, it is possible that a merger case handled initially in Brussels can fall subsequently to domestic jurisdiction. It is important that the domestic authorities are not time-barred from considering cases that may have been delayed by European Community merger regulation proceedings. The new clause introduced by Amendment No. 82 ensures that the OFT retains the power to refer such cases. That does no more than update the existing provision set out in regulations to bring it into line with the new regime and ensure that the impact is clear from the face of the Bill.

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I now want to turn to the amendments involving provisions for the OFT's duty to refer mergers. Those mergers that fall to Europe exclusively will not in fact be in the frame for consideration under the domestic merger regime. Amendments Nos. 29, 35, 36, 38, 47, 73 and 74 therefore correct the current text of the Bill to ensure that the exceptions to the duty to refer—and the associated timetabling provisions—cover only those mergers that would fall to the OFT. The effect is to narrow the exception to only those UK mergers that the OFT decides to refer to the European Commission, on the grounds that the European Commission is better placed to consider their competitive impact under the European Community merger regulation. The previous, wider exception would have prevented references also in those very rare instances where the UK merger regime and provisions of Community competition law can legitimately apply in parallel.

A further, related amendment is Amendment No. 41, which clarifies that the Secretary of State will not give an intervention notice under Clause 41 in a case where Community law prevents a reference from being made.

Moving on from the power to refer cases under the domestic regime, I would like to turn to new Clauses 62 and 63 and consequential Amendments Nos. 85, 86, 87 and 93, which all deal with those mergers that fall to the European Community merger regulation—the ECMR. These new clauses and amendments seek to close an unintended gap in the current Bill. They ensure that the Enterprise Bill provides a vehicle for the UK to act in ECMR cases to protect important non-competition interests—the primary concern being national security. That is specifically foreseen by the European Community merger regulation itself. The European Commission has exclusive jurisdiction over the competition aspects of all European Community merger regulation cases, but member states are allowed to take action to protect a strictly limited range of recognised "legitimate interests", including public security.

Our intention is to preserve the current position, which is that, where necessary, the UK can use the domestic merger control regime to take action on matters other than competition, such as defence, in relation to cases that fall to the ECMR. It is important to note, however, that the power to protect legitimate interests will not range any wider than the public interest considerations that may be taken into account under the new UK merger regime.

Amendment No. 62 introduces a new clause which ensures that the Secretary of State can give a European intervention notice in an ECMR case. The Secretary of State will be subject to similar disciplines as those that will operate under the Clause 41 intervention arrangements.

Amendment No. 63 introduces a further new clause which provides a power to establish the scheme for protecting legitimate interests along the lines of the domestic public interest and special public interest regimes.

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Finally in this group, I want to touch on Amendments Nos. 168 and 169. Clause 204 gives the Secretary of State a power, exercisable by the affirmative procedure, to make regulations modifying the Competition Act 1998 so as to bring it more closely into line with the reformed arrangements for the enforcement of Articles 81 and 82 of the EC treaty—commonly known as "modernisation". We expect the treaty to be implemented in 2004 and it will devolve much of the work of enforcing Articles 81 and 82 to national competition authorities.

Two amendments that we propose—Amendments Nos. 168 and 169—will, together, make it clear that regulations made for the purposes of modernisation can confer the power to make rules, such as procedural rules governing how the UK competition authorities will handle various aspects of the investigation and decision-making process under Articles 81 and 82. At present, the rules governing the enforcement of the Competition Act by the OFT are made by the director-general and approved by the Secretary of State. The power would remove any doubt as to the ability to allow for the director-general to make such rules in relation to Articles 81 and 82.

The interactions between the two pieces of legislation are fairly complicated. However, I believe that, by setting out these amendments, we provide additional clarity to the position. I beg to move.

Lord Kingsland: My Lords, most telegraphically, I want to say to the Minister that the amendment to Clause 21 seems to us to be very sensible. It gives the OFT the power not to make a reference in the event that the UK and other member states are contemplating referring a merger to the EC Commission under the ECMR.

I want to raise only one question in relation to this matter. It is possible that the noble Lord has already answered it but that, inadvertently, I did not hear him. Presumably, once the European Commission ceases to consider such a request—that is, after it has made up its mind—the power would revert to the OFT to make a reference again. I am sorry not to have given the Minister notice of that question. He may want to reflect on it and return at Third Reading.

Lord Sainsbury of Turville: My Lords, the noble Lord is right that I should like to reflect on the matter. Perhaps I may write to him because the point becomes rather technical and I do not want to mislead the House. Therefore, if I may write to the noble Lord, that would be the easiest way to proceed.

Lord Kingsland: My Lords, if there is a lack of clarity about this, perhaps I may respectfully suggest to the noble Lord that he should reflect on inserting a new clause after Clause 118 in order to clarify the point.

On Question, amendment agreed to.

Lord Sainsbury of Turville moved Amendment No. 30:


    Page 12, line 36, after "of" insert "a notice or possible notice under section 41(2) or 58(2) or"

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On Question, amendment agreed to.

Clause 22 [Relevant merger situations]:

8.45 p.m.

Lord Hunt of Wirral moved Amendment No. 31:


    Page 12, line 43, leave out "45" and insert "100"

The noble Lord said: My Lords, we now turn to the subject of relevant merger situations under Clause 22. We also return to the question of the turnover test, which we debated for a short time in Committee. Perhaps I may stress that the purpose of Amendment No. 31 is to ensure that we avoid the imposition of excessive burdens on both business and the OFT by making certain that the whole system is not clogged up by the OFT having to review transactions which are unimportant in competition terms.

The Government do, indeed, propose to remove the assets test in the Fair Trading Act 1973 and replace it with a turnover test. At present, Clause 22(1)(b) refers to,


    "the value of the turnover in the United Kingdom of the enterprise being taken over exceeds 45 million".

I have discussed this clause with the CBI and with several of my noble friends and colleagues. Whereas we favour removal of the assets test from the scope of the UK's merger regime, since assets are not the best test of the market strength or otherwise of a company, and as the Government acknowledged back in 1999 when the reforms were first floated, asset structures are changing.

However, we believe that if the assets limb is to be replaced with a turnover test, it is vitally important to achieve the appropriate level. Therefore, I asked the CBI what figure would be arrived at today if it were to take the 70 million gross assets figure, which was last set in 1994 by RPI, and increase it through the mechanism of the price index. The answer was 85 million.

If one applies a ratio of average turnover to gross assets from, say, a sample of 500 companies, by using the same database as the Government, we then arrive at a figure of 100 million. That is the justification for the view that, if 45 million were replaced by 100 million, that would ensure that transactions which were not important in competition terms did not clog up the system.

A key difference between that analysis and the calculations used by the Government is that, as I explained, the figure to which I refer was arrived at by the use of indexation through the application of the RPI. Things have changed a great deal since 1994 so I suggest to the Minister that 100 million is a more realistic and reliable figure to adopt.

Grouped with Amendment No. 31 is Amendment No. 33 which seeks to leave out on page 13 subsections (3) to (8) inclusive and to insert a new subsection (3) to state:


    "The condition mentioned in this subsection is that the merger would create or strengthen a share of 25 per cent or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom".

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Of course, the concept of "relevant market" underpins modern competition law. It is used elsewhere in the Enterprise Bill and, so far as I can gather, the test is applied in all other jurisdictions.

The share of supply test, which dates from the old Fair Trading Act 1973, is an anachronism, never even adopted in other jurisdictions. While share of supply and market share may sometimes be the same, they are often different. If the substantial lessening of competition—SLC—test is adopted, a share of supply threshold will require the OFT to analyse the relevant market on a multi-basis in any event. A separate test would be required and that is a confusing and unnecessary aspect of the Bill. The share of supply test is a classic example of the old formalistic approach, long-since abandoned in favour of a more substantive approach to such issues.

Also in this group are Amendment No. 37, on which I look forward to hearing the Minister, and Amendments Nos. 83 and 84. No doubt the Minister will explain the reasoning behind Amendment No. 83, which would give Ministers the power to alter the share of supply test. I still contend that if the noble Lord were to accept Amendments Nos. 31 and 33, a great deal of confusion would be removed. There would be clarity and a lot of situations not necessary to investigate and which would clog up the system could be avoided. I beg to move.


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