Competition law: An unfair restriction on trade?

As Europe feels the effects of recession, one business isbooming; advising on competition laws. In 1989 there were threenational competition authorities in Europe, as well as theCommission. There are now 13, not counting the Commission's mergertask force established in 1990. Big companies now deal with theseauthorities with increasing frequency.

The 24th annual International Company Lawyers Conference held inVienna by Management Centre Europe, the first day of which focuseson competition, gave Klaus Becher from Daimler Benz AG the chanceto air industry's main concerns with the current regime.

Globalisation. The multiplicity of systems, aggravated bythe globalisation of world markets, makes life difficult for largecompanies. These systems have different and sometimes conflictingapproaches, even within Europe, adding to the burden of companiestrying to do business internationally or implement cross-bordermergers.

At an international level, business would like bilateralco-operation agreements to be extended, so long as nationalconfidentiality rules are respected.

But they recognise that an international competition code is adistant prospect; more important is to set the European house inorder.

Merger control. This desire lies behind proposals toextend the European merger control regime, a notable success inpreventing multiple applications. The regime follows the one stopshop principle, meaning that companies can apply for clearance oncein Brussels rather than in each national authority (see "Themerger maze", page 21, this issue). Industry would like to seeBrussels take charge more often by lowering the thresholds from aworldwide turnover of ECU 5 billion to ECU 2 billion and thecommunity-wide turnover from ECU 250 million to ECU 100million.

The community-wide threshold is particularly irritating for bigbusiness; as Horst Dengler of Procter & Gamble, the chairman forthe day, joked, "we are often tempted to buy a bit more so we cango to Brussels".

Article 85. Other areas of European competition law havenot operated as smoothly as the Merger Regulation. Article 85 lacksmany of the Merger Regulation's best features; speed, simplicityand certainty. It covers vertical agreements, with complicatedblock exemptions in certain cases. But vertical restraints do notoften give rise to significant anti-competitive effects. If theyare covered at all there should be a simplified test.

Procedures also need streamlining. There should be simpleauthorisation process with a time limit for decisions, and abinding decision at the end of it. At the moment there aredifferent procedures, which can drag on for years and culminate inan unsatisfactory non-binding comfort letter.

Joint ventures. Another bugbear of industry is thedifference in treatment between concentrative and co-operative fullfunction joint ventures. Currently, co-operative joint ventures aredealt with under Article 85 but concentrative are dealt withthrough the merger regulation. Companies would prefer a harmonisedtreatment within the procedures of the merger controlregulation.

At EU level a Green paper has been issued on the mergerregulation proposing some of the above changes which will be put tothe Council in the summer. A Green paper is expected on verticalrestraints.

But radical change is unlikely and is jeopardised by politicalpressure from Member States. For example, the proposed reduction ofthe merger control thresholds, may be watered down to allow the ECto take control where more than one national system will beinvolved. With so many different national systems, some withvoluntary procedures, this is likely to increase the lawyers' workand remove certainty.

Likewise, a redrafting of Article 85 is not feasible, nor is theCommission likely to push for a power to grant binding decisionswhen some Member States may use the review to erode itsauthority.

Will Member States come into line? The UK is one of the worstoffenders, and reform has been proposed for some time. Aconsultation paper has just been released by the DTI ("Tacklingcartels and the abuse of market power", March 1996) proposing twomajor changes:

* Replacing the outdated Restrictive Trade Practices Act 1976with a general prohibition on cartels, anti-competitive agreementsand concerted practices based on Article 85.

* Strengthening the powers of the Director General of FairTrading (DGFT) to deal with abuse of market power. Although thisdoes not go as far as introducing a general prohibition on marketabuse, it will bring the DGFT's investigatory powers into line withEurope, including the power to make dawn raids in cartels.

Basing the general prohibition on Article 85 looks helpful. Thedifficult question is how closely the UK equivalent should followthe original, given its flaws and the fact that it is stillevolving.

The answer must be as closely as possible, even if this leads tosome problems at a national level. There will have to be somemodifications; the procedures should be improved and we will haveto accept Article 85 modifications. But in general the two shouldbe tied together closely, including making English judicialprecedent subject to European jurisprudence. This is the approachtaken by the proposals.

The proposals shy away from preventing an overlap between thenew national prohibition and Article 85, which will mean thatcompanies will have to apply under both systems; the DTI hopes thatwith similar procedures and recognition of Commission comfortletters the disadvantages will be reduced.

The long term solution must be to sort out Article 85 byimproving the procedures. Ideally, more radical changes should bemade, defining "community dimension" by reference to definedthresholds and applying the one stop shop principle to Article 85restrictions as well as mergers.

The consultation paper also does not mention the problem ofco-operative and concentrative joint ventures. As well as being aproblem in Europe, in the UK parties sometimes need to make RTPAfilings as well as following the Fair Trading Act merger clearanceprocedure. The detail of the legislation will need to draw cleardistinctions as to which procedure applies; even then there is adanger that companies will shoehorn deals into the most convenientprocedure, which is what has happened in Europe.

This is perhaps the result of making piecemeal adjustments tothe current system. We should also look at the UK's merger controlregime, with its confusing system of multiple authorities andapplication procedures. This too should be brought into line withEurope, following the Merger task force model.

The present government do not look likely to introduce this. AsJohn Taylor MP, the corporate affairs minister put it at aconference co-hosted by Lovell White Durrant and the Public PolicyUnit on 27th March, 1996 when commenting on a possible merger ofthe MMC and OFT, "this is one merger I have no intention of waivingthrough".

We have been waiting seven years for changes to UK competitionlaw. Now that we are pushing ahead with reform, we should followthe lead set by the DTI proposals and bring the whole UK systeminto line with Europe - for once taking the initiative in Europe.RJD