23 JULY 2002
By the Select Committee appointed to consider European
Union documents and other matters relating to the European Union.
THE REVIEW OF THE EC MERGER REGULATION
COM(2001) 745/6 Final: Green Paper on the Review
of Council Regulation (EEC) No 4064/89
PART 1: EXECUTIVE
1. The European Union's merger control regime is
facing new challenges posed by global mergers, further market
integration, the introduction of the euro and, perhaps most importantly,
the enlargement of the Union. Furthermore, the European Commission
has had to deal with an exponential increase in the number of
cases it considers each year and has come under increasing criticism
over its handling of cases and the perceived absence of checks
and balances on its decisions. Some of these criticisms have been
borne out by the recent judgment of the Court of First Instance
in the Airtours/First Choice case. In this Report, we
examine ways in which the European Community's Merger Regulation
(ECMR) can be amended to meet these challenges and consider how
it is best for the Commission to address these criticisms.
2. Last December, the European Commission published
a Green Paper reviewing the Merger Regulation. The Green Paper
(COM(2001) 745/6 final) launched a debate on how the ECMR functions
and proposed a wide range of possible reforms to Europe's merger
control regime. This Report is a response to that Green Paper.
We examine what the objectives of the ECMR should be and analyse
the Commission's policy proposal.
3. The Green Paper identifies three areas for potential
reform: jurisdictional issues; substantive issues; and procedural
issues. Our greatest concern is with the procedural issues and
the question of what the appropriate checks and balances should
be to the work and decisions of the Commission.
4. The top priority for reform should be to ensure
objectivity and fairness in the ECMR process. The many concerns
about due process are best addressed by improving the procedural
safeguards in the current system. Efforts must focus on improving
the internal checks and balances in the ECMR regime. To achieve
this, the Commission should take the following action:
for the consideration of cases in Phase I and Phase II should
be divided between two separate teams of officials.
· The role
of the Hearing Officer should be strengthened so that they take
a prominent role in the negotiation of remedies.
· The Commission
needs to strengthen its overall capacity for economic analysis
in merger cases. In particular, DG Competition should appoint
a Chief Economist.
5. Of great consequential importance is the issue
of how the Commission should be staffed for its functions. The
ECMR and its effective, equitable and transparent implementation
is far too important to be jeopardised by resource constraints.
The new posts required to carry out the necessary procedural changes
should be provided to the Competition Commissioner.
6. We make two further key policy recommendations:
7. The criteria by which mergers are assessed should
be changed. The European Union should adopt the substantial lessening
of competitionthe standard that is used in the other major
jurisdictions around the worldas the substantive test in
8. To clarify the issue of who has jurisdiction over
which mergers, we support the Commission's proposal to move to
a simpler system whereby it would have jurisdiction over all mergers
that are subject to three or more national filings. This would
reduce the number of instances where companies are required to
file for clearance with a multiplicity of National Competition
Authorities. Such a change would give greater certainty for business.
9. An effective competition policy is one of the
cornerstones of the Single Market, bringing benefits to consumers
across Europe. It is desirable, in order to protect competition
in the EU market, that mergers are appraised, so far as possible,
on objective criteria that reflect the interests of the Community
as a whole.
THE COMPETITION RULES
10. One of the activities of the Community listed
in Article 3(1)(g) of the EC Treaty is to promote "a system
ensuring that competition in the internal market is not distorted".
The removal of state-imposed barriers to the free movement of
goods and services across national boundaries is accompanied by
prohibitions on enterprises to stop them agreeing, for example,
to divide and share national markets or to fix prices. Community
competition policy has played an important role in the development
of an integrated/single market and has ensured that competition
acts as a dynamic force in the European economy. The competition
rules applicable to undertakings are set out in Articles 81 and
82 (formerly 85 and 86). Article 81 contains a prohibition on
restrictive agreements but allows exemptions where the agreement
contains countervailing economic benefits in which consumers share.
Prohibited agreements are automatically void. Article 82 prohibits
the abuse of a dominant position. These two rules have played
a key part "in establishing a common market" as provided
for in Article 2 of the EC Treaty.
11. Enforcement of the Community's competition rules
is undertaken primarily by the EC Commission on whom extensive
powers of investigation, decision and fining have been conferred.
Subject to review by the Community Courts, the Commission acts
as investigator, prosecutor and judge.
HOW THE ECMR WORKS
12. The EC Treaty does not contain specific provisions
for the control of mergers.
In 1966, the Commission published a memorandum on concentrations
which considered the prospect of controlling those affecting competition
at Community level through the use of the competition rules in
Articles 81 and 82 (then 85 and 86). There was some doubt how
far these rules applied to mergers and whether they were suitable
for exercising prior control. Landmark decisions of the Court
of Justice, notably the Continental Can and Philip Morris
cases, showed that there could be circumstances where mergers
fell within the scope of Articles 81 and 82. However, considerable
legal uncertainty remained, a factor which the Commission exploited
in order to persuade Member States back to the negotiating table
to consider a draft Regulation.
13. In contrast to the procedure relating to the
application of Articles 81 and 82, Council Regulation (EEC) No
4064/89 (the Merger Regulation (the ECMR)) introduced a compulsory
system of prior notification for "concentrations" with
a Community dimension, set out a so-called 'substantive test'
for their appraisal and established a strict timetable for handling
As a result, the control of a significant number of large mergers
now lies with the Merger Task Force (MTF) in the Competition Directorate-General
(formerly DG IV), currently under Commissioner Mario Monti. Companies
risk fines and the invalidity of their transaction if they fail
to notify the MTF of their proposed merger. Generally, mergers
must not be put into effect before notification or before the
merger has been declared compatible with the common market by
14. The Commission must carry out an initial examination
of the proposed merger within one month of notification to ascertain
whether the merger falls within the scope of the Regulation and,
if so, whether serious doubts are raised as to its compatibility
with the common market (this is referred to as Phase I). If it
judges that such doubts exist, a further examination (which can
last up to four months) is set in motion to determine whether
the merger would create or strengthen a dominant position as a
result of which competition would be significantly impeded in
the common market or a substantial part of it (this is known as
Phase II). Where the Commission concludes that a merger would
create or strengthen a dominant position as a result of which
competition would be significantly impeded, it must declare it
incompatible with the common market. The Commission has the power,
however, to accept undertakings from the parties to avoid prohibiting
the merger. In practice, the vast majority of mergers notified
under the ECMR (approximately 95 per cent)
have been considered to raise no serious competition issues and
have been cleared at the end of Phase I.
15. The procedural rules governing the notification
and appraisal of mergers are set out in the Merger Control Regulation
and the Implementing Regulation.
To assist it in the performance of its task, the Commission has
coercive powers of inquiry analogous to Articles 11 and 14 of
Regulation 17 (the principal implementing Regulation for the competition
rules in Articles 81 and 82). Before any final decision on the
merger is reached (at the end of Phase II), the parties must be
told the case against them and given the opportunity to respond.
The Commission may order remedial action to be taken if it considers
such action necessary. It has the ability to impose fines and
penalties to back up its powers of inquiry and capacity to take
suspensive and remedial action. During the procedure, the Commission
may be assisted by the competent authorities of the Member States.
As in cases under Articles 81 and 82, decisions of the Commission
are subject to judicial review by the Community Courts.
Previous Reports of the Committee
16. The Select Committee has taken a long and sustained
interest in the ECMR. We have reported to the House on the ECMR
on several previous occasions. The ECMR was the subject of a detailed
inquiry by the Committee prior to its adoption in 1989.
The Commission carried out a review of the working of the Regulation
in 1993 and then again in 1996; the Committee reported on each
Most recently, we examined in detail the role of the Hearing Officer
in Phase II of merger cases.
The content of this Report
17. On 11 December 2001, the European Commission
adopted a Green Paper reviewing the Merger Regulation.
The Green Paper aimed to launch a debate on how the ECMR functions
and proposed a wide range of possible reforms to Europe's merger
18. This report is a response to that Green Paper
and we welcome the opportunity to contribute once again to the
debate. The scope of the Commission's Green Paper is, however,
very broad. The issues raised in it range from technical modifications
on procedural matters to the possibility of a fundamental change
to the substantive test for judging whether a merger should be
prohibited, as well as reconsideration of the important question
of whothe Commission or Member Statesshould be responsible
for examining large mergers having trans-national effects. Due
to the limited amount of time available to the Committee, we could
not examine all of these issues. The Committee therefore decided
to focus on certain key questions. When analysing the Green Paper,
the Committee defined the central issues as: which mergers should
be assigned to Community control; by which criteria they should
be assessed; what powers should rest with Member States; how the
Commission should be staffed for its functions and what the appropriate
checks and balances are to the work and decisions of the Commission.
19. The decision to focus on these five questions
means that there are several issues with which we do not deal
in this Report. These include: the concept of 'concentration';
suspension of concentrations; calculation of time limits; administrative
efficiency; completeness of notification; Article 8(4), which
deals with the situation when a merger has already been implemented;
enforcement provisions; and filing fees. This does not mean that
we judge these issues not to be worthy of consideration.
20. For the ease of the reader who wishes to read
this report in conjunction with the Green Paper itself, we have
followed its structure. That is, we deal first with jurisdictional
questions, then move on to substantive issues and conclude with
procedural matters. Where possible, cross references are provided
to the paragraphs in the Green Paper.
The success of the ECMR and the need for further
21. The Merger Regulation has become one of the
cornerstones of EC competition law and many witnesses (from business
to regulators) have spoken to us about how highly they regard
the Regulation and what a success its operation has been. The
Committee recognises the good work of the Commission in applying
the ECMR. We endorse the Government's view that the Commission
"has responded with great success to the huge challenge of
enforcing the regulation rigorously, but fairly, despite an exponential
increase in its caseload" (Q 411).
22. Furthermore, we welcome the way in which the
Commission has conducted the current review. The Green Paper has
launched a wide-ranging debate to which we are pleased to be able
to add our voice. Despite welcoming the review, witnesses were
disappointed by the limited amount of attention given in the Green
Paper to the important issues of due process and the checks and
balances to the Commission's decision making process. These issues
go beyond the rules set out in the ECMR itself and concern the
Commission's internal administrative practices for handling cases
and even the role of the Community Courts.
23. The Commission has been the subject of some
serious criticism and witnesses have drawn our attention to shortcomings
in the ECMR system which are causing increasing concern. Some
of these criticisms have been borne out by the recent judgment
of the Court of First Instance in the Airtours/First Choice
case. The Committee therefore considers it important that the
current Review should be taken as an opportunity to assess all
of the ECMR procedures. We hope that our recommendations can help
to achieve this aim. However, when considering ways in which the
ECMR might be improved, we have been mindful of the need to safeguard
its fundamental strengths.
1 Our membership is listed in Appendix 1. Our witnesses
are listed in Appendix 2: we are grateful to all of them. Back
The ECSC Treaty, by contrast, made express provision in Article
66 for the control of mergers and acquisitions falling within
the scope of the European Coal and Steel Community. Back
We analyse the substantive test in paragraphs 98-161 below. We
examine some aspects of the timetable in paragraphs 188-214 below. Back
In 1999, 260 out of a total of 270 (or 96.3 per cent) cases
referred under the ECMR were cleared at the end of Phase I. In
2000, the figure was 328 out of 345 cases (95.1 per cent).
In 2001, 320 out of 340 cases (94.1 per cent) were cleared
at the end of Phase I. Back
Regulation 447/98. Back
Merger Control, 6th Report, HL 31, Session 1988-99. Prior
to this, the Committee also reported on two drafts of the Regulation:
European Communities Committee, 8th Report, HL 62, Session 1974-75
Concentrations Between Undertakings; and Competition
Practice, 8th Report, HL 91, Session 1981-82. Back
Enforcement of Community Competition Rules, 1st Report,
HL 7-I, Session 1993-94; Review of the EC Merger Regulation,
4th Report, HL 30, Session 1996-97. Back
Strengthening the Role of the Hearing Officer in EC Competition
Cases, 19th Report, HL 125, Session 1999-00. Back
Green Paper on the Review of Council Regulation (EEC) No 4064/89,
COM (2001) 745/6, 11.12.2001. Back
The Regulation refers to the control of "concentrations"
between undertakings, a term which includes not only full mergers
but also other transactions (see the Commission Notice on the
concept of concentration: http://europa.eu.int/comm/competition/mergers/legislation/co406489_en.pdf).
However, for convenience, in this Report we use the more familiar
expression "mergers". Back
The table below illustrates the great increase in the number of
cases notified under the Merger Regulation: