Splits emerge over threshold for vetting exclusive deals

Date: 11/02/1999

By Chris Johnstone

NATIONAL governments are pushing the European Commission to simplify its proposed shake-up of the competition rules for vetting exclusive agreements between manufacturers and retailers.

They are arguing in favour of setting a single market-share threshold below which such deals would be safe from scrutiny by Commission competition officials.

However, a fierce battle is developing between hardline countries such as Germany, which want a low threshold to ensure that as many exclusive deals as possible are vetted, and other member states such as the UK, which are insisting on a higher threshold to ensure that the institution focuses its energies on those deals which are most likely to cause problems.

The debate is being followed closely by large swathes of European industry including the brewing, oil and cosmetics sectors, which use so-called vertical restraints agreements to force pubs, service stations and shops to sell their brand of products rather than those of rivals.

The Commission kept its options open when it published its proposals for reforming the rules for vetting agreements last September by offering a single threshold, somewhere between 25% and 35% market share, or a more complex two-threshold system.

The latter would guarantee automatic competition security for firms with less than 20% of the market, offer possible clearance for those with between 20% and 40%, but only allow agreements in exceptional circumstances if their market share was above 40%.

National competition experts and industry have since come down against the two-threshold option, arguing that it would create too much uncertainty.

But while most favour the single-threshold alternative, the UK is arguing for a level close to 40%, while Germany is pushing for around 25%. "We have a rule of thumb that within any industry, a market share of around one third creates problems and we think this should apply to vertical deals as well," said a spokesman for Germany's federal cartel office.

Governments are under pressure to agree a common line on the market-share threshold by April, when negotiations with the Commission over the details of the new rules will begin in earnest.

The institution faces a two-stage battle to push through its reform. It must first win the support of governments for special powers to change its current rules and later go back to ministers to seek clearance for its final plans.

The institution argues that the new rules, whatever their final form, will be an improvement on the current system of offering ten-year exemptions from competition scrutiny to sectors of industry which have exclusive sales agreements. It says the changes will free up staff to search out abuses of competition rather than vetting agreements which would not cause any problems.

Commission staff argue that some sections of industry are gradually warming to the reform plan. Brewers were originally hostile to the change but some, such as British brewer Bass and Denmark's Carlsberg, have now come out in favour of the change.