Referrals to Member StatesArticle
56. As mentioned above, because the main test for
determining whether a merger has a Community dimension is set
out in terms of the turnover of the undertakings concerned at
global or Community level, it is a crude way of determining who
is the best-placed authority to deal with the case. Article 9
provides a corrective mechanism and allows a Member State to request
that the Commission refer back a case that might have a particular
competition problem in a distinct market within that Member State
and which might not be remedied by the MTF applying the ECMR.
In the Green Paper, the Commission suggests that the referral
back system laid out in Article 9 should be amended. It suggests
that it should be easier for the Commission to pass cases back
to the Member States. The proposal to amend and simplify the criteria
the Member States must meet to request a referral back (which
are contained in Article 9(2)) is aimed at ensuring that mergers
are dealt with by the best-placed authority.
57. Clarification of the operation of the referral
back mechanism was widely welcomed by witnesses. They believed
that the criteria for referring a case back to a Member State
needed to be simple and predictable so that its function was,
in the Government's words, "as close as possible to automatic"
(p 151). The parties to a merger (and the Member States) needed
to understand the types of cases that the Commission considered
apt for Article 9 referral. Yet the Competition Commission saw
reform of Article 9 as "very critical" for establishing
the flexibility necessary to make sure that mergers end up being
examined by the most appropriate regulatory body (Q 259). A number
of witnesses from industry, however, were against any amendment
that would increase the number of referrals back to Member States
(see below paragraphs 59-67).
58. The Government agreed with the Commission that
Article 9 had the potential to provide a corrective mechanism
to the proposed amendments to Article 1(3). However, the Government
considered that Article 9 would not be able to perform this role
"if the Commission's current broad discretion over Article
9 referrals were retained" (p 150). The decision not to refer
a case should be possible only "on certain clearly defined
grounds" (p 151). The Government argue that "a more
predictable system would bring more certainty about the regulatory
path a particular deal is likely to take" (p 151). The Union
of Industrial and Employers' Confederation of Europe (UNICE) backed
this call for more transparency in how Article 9 referrals would
work (Q 299).
GROUNDS FOR MEMBER STATES TO REQUEST A REFERRAL
59. The Green Paper proposes that, when making an
Article 9 request, the National Competition Authority (NCA) should
no longer be obliged to show that a merger would lead to a threat
that a dominant position in a distinct market in the Member State
will be created or strengthened. Dominance is too complex and
too difficult a concept for Member States to prove at this stage
in the merger review process. Instead, it would be sufficient
for Member States to provide "a substantiated claim of effect
on competition" in such a market. That is, Article 9(2)(a)
would be removed; Article 9(2)(b) would be maintained, but the
Commission would facilitate its use by establishing simpler geographic
60. This amendment was supported by the Government,
who saw it as limiting the Commission's current broad discretion
to refuse an Article 9 request. The Government considered that
the Commission's proposal to simplify Article 9 by removing the
need to demonstrate dominance, thereby making its operation more
predictable, had "potential" (p 151). The Office of
Fair Trading (OFT) agreed that this amendment would make the test
simpler with the consequence of making the application procedure
more predictable (Q 204). These witnesses argued that simplification
of the requirements for submission of a referral request was in
the interests of procedural efficiency.
61. The Competition Commission considered the new
form of words proposed by the Commission to be "the right
wording". It saw the amendment as "a sound step"
that could deliver "an element of automaticity" (Q 259).
The National Consumer Council (NCC) also saw the Commission's
proposal for simpler criteria as providing "a less cumbersome
and swifter means of ensuring that the best placed authority has
jurisdiction over the merger" (p 193).
62. Other witnesses, however, opposed the changes
proposed to Article 9 by the Commission. The Competition Law Association
(CLA) argued that the effect of theses changes would be "to
make referrals easier and more frequent than is the case today"
(p 49). The Joint Working Party of the Bars and Law Societies
of the UK (JWP) shared the concern that increasing the number
of referrals would add to uncertainty (Q 89).
63. The American Chamber of Commerce feared that
the Commission's amendment would cause "procedural inefficiency
and legal uncertainty to the parties to a concentration having
a Community dimension and constitute a clear departure from the
one-stop-shop principle" (p 127). UNICE also opposed this
amendment, considering that it would increase the number of referrals
to Member States (p 106). It proposed that an Article 9 request
should be granted only when it has the consent of the parties
64. The Confederation of British Industry (CBI) wanted
the requirements for referral to be "predictable and exceptional".
It opposed the increased use of Article 9 and considered partial
referrals to be "particularly inefficient and contrary to
the interests of business" (Q 15).
The CBI would "firmly oppose" any measures which would
significantly increase the number of referrals back to NCAs (p
65. In contrast, the Competition Commission did not
believe that the number of referrals would greatly increase. For
one thing, Dr Derek Morris, the Chairman of the Competition Commission,
did not think that, if one analysed past cases, amending Article
9 as the Commission was proposing would have led to a vast increase
in the number of referrals back to Member States. Moreover, he
argued that there was no magic or ideal figure for the number
of cases that should be examined by the Commission under the ECMR.
He reasoned that cases should go to the MTF only if they were
of a cross-border nature and so should be dealt with by a supranational
"the one-stop shop is about applying a Community
dimension, if a Community dimension is appropriate. That is what
we need to reflect [in the Regulation]. It is not about saying
'let us have everything in Brussels, irrespective of the characteristics
of the case'" (Q 258).
66. Commissioner Monti explained that, as far as
he was concerned, "the 'one-stop-shop' model did not imply
that a case should in all circumstances be dealt with by the Commission".
He emphasised that the issue had to be seen "from a qualitative
rather than quantitative perspective". He said that, in order
for a case to be referred back to Member States, "there must
clearly be a national competition problem". He added that
he planned that the Commission would retain "some degree
of discretion" (Q 393).
67. The Committee believes that speed is important
in the referral process. Dominance is too complex and too difficult
a concept to expect the Member States to demonstrate at this stage
in the merger review process. The Committee therefore considers
that the grounds for referral under Article 9 should be simplified.
The Committee supports the Commission's proposal to amend Article
9 so that, to be granted a referral back, Member States only have
to provide evidence of an "effect on competition" in
a distinct national market, that is, they should no longer have
to demonstrate that a merger would lead to a threat that a dominant
position would be created or strengthened.
SHOULD MEMBER STATES USE THE ECMR RULES RATHER THAN
THEIR NATIONAL LAW?
68. UNICE proposed that, where a merger was referred
back under Article 9, the Member States should deal with the case
under the substantive rules of the ECMR and not under the national
law of the countries involved.
UNICE were "very much against" Member States applying
their own national merger control law after an Article 9 referral
since it would mean that a case would be subject to different
substantive criteria in different countries. As UNICE was against
referrals to more than one country in principle, it saw this as
a means of ensuring the case was dealt with consistently across
the Union (QQ 299, 303-05).
69. The NCC supported the proposal that the NCA should
deal with referred cases "in line with ECMR procedures".
It considered this would strengthen "the wider need for harmonisation
of practices and greater co-operation between NCAs across the
EU, to increase certainty and consistency for all interested parties"
(p 193). Furthermore, the European Consumers' Organisation
(Bureau Européan des Unions de ConsommateursBEUC)
"strongly support" this proposal for harmonisation,
based on EU principles.
Mr Van Gerven, of the ACC, thought that having the NCAs apply
EC law might help though he suggested that the main differences
in national merger laws were procedural rather than substantive
(Q 363). In its Report on the Green Paper, the European Parliament's
Committee on Economic and Monetary Affairs was quite clear that
the Member State to which a merger with a Community dimension
has been referred "must apply Community law" to that
70. The Government considered that such a move would
be "unnecessary" (Q 415). Article 9(8) already
prevented Member States from considering anything other than competition
issues in their assessment of repatriated cases.
The Government considered it difficult to see how this proposal
for NCAs to apply the ECMR "could actually be made to work".
It would not be possible for national authorities to apply all
the rules of the ECMR because their institutional structures were
different and they would not be compatible on procedural grounds
(this would apply, for instance, to rules of timing). An alternative
would be to limit the requirement to the application of the ECMR
substantive test. However, this would also have "a downside
attached to it" and would not necessarily be in the interests
of the parties, as the national authorities would often be applying
a test with which they were not very familiar (Q 415).
71. While the Committee does want to "increase
certainty and consistency", it does not consider that requiring
NCAs to use ECMR procedural or substantive rules for cases referred
back would be the most effective or realistic way of achieving
this. NCAs should not be required to apply a substantive test
other than that in their national legislation because it could
lead to greater confusion and delay.
GROUNDS FOR THE COMMISSION TO REFUSE A REFERRAL
72. Witnesses were keen to limit the number of circumstances
in which the Commission could refuse an Article 9 request. The
Competition Commission suggested that there should be two criteria:
the Commission should have to be able to disprove the argument
that there was a strict national market or identify cross-border
activities that the NCA had not identified. It considered that,
combined with the proposed amendments to the criteria for requesting
a referral, these could deliver a near-to-automatic system that
would, "in the vast majority of cases, lead to a merger being
dealt with at the right level (QQ 258-59). The OFT also said that
the Commission should be able to refuse a request for an Article
9 referral only if essentially the Member State had it wrong and
the merger was one that had cross-border effects (i.e. if the
case was one that really should not have fallen to a Member State
because it did not just have solely national effects) (Q 204).
73. The criteria upon which the Commission can
refuse to grant a referral back should be strictly limited. They
also need to be clear and unambiguous.
74. The Government strongly supported the Commission's
suggestion that guidelines be issued on how the new system will
operate in practice. This would have the benefit of maximising
transparency (p 151). They urged the Commission to outline how
it proposed to use its discretion over referrals. The JWP regretted
the fact that there was currently very little guidance from the
Commission on Article 9 (Q 89). Even witnesses, such as the CLA,
who opposed altering Article 9 strongly urged the Commission "to
issue clear, unambiguously worded guidelines explaining its policy
in this area" (p 49).
75. The Government also argued that, in order to
further the predictability of the referral process, reasoned decisions
capable of challenge should be published "in all cases"
(p 151). The Competition Commission considered transparency to
be "critical" to the successful working of Article 9.
This would have to include not only published guidelines on the
whole mechanism but also "publication of the outcome"
76. Commissioner Monti agreed that publication of
the Commission's decisions on referrals under Article 9 and of
guidelines defining the Commission's discretion would help to
make the Article "more predictable and transparent".
Moreover, he appreciated the effect that ensuring all decisions
were "fully reasoned" would have on these objectives.
He added that "steps have been taken to ensure the publication
of all referral decisions taken so far" (Q 391).
77. The Committee considers that the Commission
should issue, as soon as possible, guidelines on the implementation
of Article 9 and supports the call for greater transparency in
decision making under that Article.
REFERRAL BACK AT THE COMMISSION'S INITIATIVE
78. The Green Paper suggested that the Commission
should be able to refer cases to Member States on its own initiative
and without a specific request from a Member State. The Green
Paper notes that such a decision would nonetheless normally involve
prior consultation between the Commission and the relevant Member
State. The idea is that this amendment would basically mirror
the current option for Member States to refer cases to the Commission
under Article 22(3) (see paragraphs 86-95 below).
79. Again witnesses were divided on this issue. On
the one hand, the CBI saw "no good reason for such a proposal"
(p 6). The American Chamber of Commerce also opposed it (p 127).
The JWP felt that such a move would "disproportionately undermine
the principle of the 'one-stop shop'," concluding that "Article
9 referrals should be made only pursuant to a request from a Member
State" (p 32). UNICE would only support this amendment if
the referrals had to have the consent of the parties in order
to go ahead (Q 300)
80. On the other hand, the Competition Commission
saw such an amendment to Article 9 as "a key element"
in ensuring that mergers were examined by the most appropriate
regulatory regime. The Government were also "content in principle"
with the idea of referrals at the Commission's initiative and
saw it as "an important possibility". Mr Burnside, of
Linklaters, had "no objection" to this amendment. Mr
Kirch, of the ACC, believed that such referrals would happen very
infrequently in practice. But the Government pointed out that
the Commission was "already increasingly taking the initiative
over Article 9 referrals in an informal way".
81. Where the Commission's initial analysis on
a case suggests that it would be better dealt with by a national
authority, the Commission should be able to take the initiative
to refer it back to the relevant NCA. Article 9 should be amended
accordingly. Such an amendment would not have any greater implication
for the principle of the one-stop shop than a Member State being
able to make an Article 9 request.
82. However, the right of referral should not
be absolute. Referrals back at the Commission's initiative should
be preceded by prior consultation between the Commission and the
Member State. Moreover, such referrals back should be subject
to the agreement of the Member State: a national authority should
not be required to deal with cases which it considers raise trans-national
or cross-border issues that the Commission should address.
GENERAL CONCLUSIONS ON ARTICLE 9
83. If the '3 plus' rule is adopted in Article
1(3) and this has the effect that substantially more mergers fall
to Brussels for initial consideration, it may well be necessary
to have a system whereby more of those cases than at present would
then come back to the Member States.
84. The Committee is aware of concerns that amending
Article 9 to make referrals back easier could lead to delay, increased
legal uncertainty and inconsistent application in decision-making.
However, as John Vickers, the Director General of the Office of
Fair Trading, said, it is "well worth the price in terms
of flexibility to ensure that things are, where possible, considered
in the most sensible place, to have that element of unpredictability
about where that location will be" (Q 210).
85. In order to counter the concern over uncertainty,
the Committee supports the principle that all the Member States
should employ common criteria and standards. We encourage a process
of convergence to this end.
Joint referrals to the CommissionArticle
86. The Green Paper also aims to facilitate the referral
of cases in the opposite direction, that is, from one or more
Member States to the Commission. Article 22 allows Member States
to request that the Merger Task Force take a case that has no
Community dimension within the meaning of Article 1. The Committee
asked whether it should it be easier for Member States jointly
to refer national cases to the Commission.
87. Article 22 was originally included in the Merger
Regulation in 1989 to deal with the absence of effective merger
control regimes in a number of Member States. Article 22 enabled
a Member State to ask the Commission to assume jurisdiction where
they could not examine the merger themselves. However, all the
Member States, except Luxembourg, now have merger control laws
and so Article 22 now serves a slightly different purpose. Amendments
made in 1997 were intended to allow two or more Member States
to make joint referrals to the Commission where they felt that
the Commission was better placed to act (it is therefore complementary
to Article 1(3) and its operation reflects that of Article 9).
It has been used in this way in only two cases.
However, the drafting was not originally intended for this type
of situation and the NCAs have said that understanding how the
Article now works is difficult. They say that the Commission's
procedure and timetables, both for the parties and for the Member
States, are hard to define.
88. The Article's main purpose now is to try and
catch cases where, because of the turnover of the parties in particular
countries, the case falls to national jurisdiction, yet the merger
would affect wider markets.
The Competition Commission saw Article 22 as providing a mechanism
to try to address that shortfall in regulatory oversight and to
enable such cases to be dealt with by the MTF (Q 251). The Competition
Commission thought, operating in such a way, Article 22(3) should
be "an extremely important mechanism [
] an important
bulwark" for Member States (Q 261).
89. Nonetheless, the regulators were clear that the
Article needed reform. The Government viewed it as "important"
that the Commission address the current weaknesses in this Article
since difficulties in its drafting had caused "a number of
problems" and made it "very difficult to use" (p
152; Q 425). The Government considered that Article 22 could provide
a "useful complement" to the new system of establishing
jurisdiction that the Commission is proposing in Article 1(3)
and saw it as having "an important role to play as part of
the corrective mechanism" (p 153; Q 425).
90. The JWP went further and believed that Article
22 was a "more promising mechanism for dealing with the 'problem'
of multiple filing than an adjustment to the thresholds in Article
1(3)" (p 32). The JWP considered that "the Member
States should determine whether they believe there is a case of
such importance that the Commission should look at it" (Q
87). The JWP believed that "the principle" of Member
States being able voluntarily to renounce their jurisdiction in
favour of the one-stop shop of the Commission was "a good
one" and preferable to it happening automatically as the
Commission proposed (p 32). The JWP stressed that "Article
22(3) referrals should not be allowed simply on the basis that
the parties would obtain the administrative benefit of avoiding
multiple filings." It said that "referrals should not
be available at the request of the parties to a concentration".
Its proposal to amend Article 22(3) and retain a mandatory scheme
of notification for the thresholds in Article 1(3) would thus
avoid any risk of forum shopping (p 32).
91. Whether or not Article 22(3) is amended in conjunction
with amendments to Article 1(3), there are procedural weaknesses
that need addressing. For instance, at present, the request to
refer a case has to be made within one month of when the merger
is "made known to Member State(s)". There is much confusion
surrounding the meaning of this provision. Does it mean the notification
date? What about when there is no mandatory notification system?
What about when a merger is effective in different Member States
at different times? The Government said this provision was "unclear"
and specifically wanted clarification of its meaning. The OFT
confirmed that "it is actually difficult to know when the
article is complied with" (Q 212). There was also a question
about the timetable for the article. The Commission needed to
clarify the deadline by when joint referrals had to be made and
the point at which the ECMR timetable began to run following referral
92. For the OFT, too, these problems were "real
issues." Clarification "would doubtless make future
use of the article much easier" (Q 212). The OFT explained
that its request, made with other NCAs, was only successful because
of the Association of European Competition Authorities.
For the article to operate more efficiently in the future, this
body of NCAs might need to be more formalised. The OFT concluded
that these procedural difficulties were "serious issues"
and the article needed to be "reformed so that it is easier
to operate." (Q 212)
93. Because of the current absence of an efficient
information exchange network between the Member States' competition
authorities and in the absence of greater harmonisation of national
rules, BEUC considered that amending Article 22(3), to make it
easier for Member States to make joint referrals, could not in
itself ensure that all mergers of a Community dimension were examined
by the Commission.
94. It should be easier for Member States jointly
to refer national cases to the Commission. The Commission should,
after consultation, bring forward proposals for a re-drafted Article
22(3) that will address these procedural weaknesses.
95. Greater co-operation between the Member States'
competition authorities is to be encouraged. This might be achieved
through greater use of the meetings of the European Competition
SHOULD THE COMMISSION BE ABLE TO REQUEST AN ARTICLE
96. The Government considered that it would also
"be logical" for the Commission itself to be able to
request that an Article 22 referral be made and saw "no reason"
why this should not be permitted. The article could then operate
as a form of reverse Article 9 (p 152; Q 425). Such a change was
supported by both the NCC and the OFT (p 194; Q 213). Dr Morris
saw it as vital to combating any forum shopping that could arise
if Article 1(3) were to be made optional, as "it may well
be the European Commission that is the first to identify that
there is a series of cross-border activities such that it should
go to the Commission" (Q 263). The Committee agrees that
the Commission should be able to request that an Article 22 referral
THE NEED FOR THE COMMISSION TO ISSUE GUIDELINES ON
97. The Competition Commission called on the European
Commission to issue clear guidelines on Article 22 (Q 261). We
support the view that the Commission should issue guidelines on
the implementation of an amended Article 22(3).