Firms voice fears over anti-trust reforms

Date: 30/09/1999

By Renée Cordes

EUROPEAN industry fears that it may soon be swapping one kind of bureaucracy for another.

Under a controversial plan unveiled by former Competition Commissioner Karel van Miert in the spring, companies forming joint ventures or signing other kinds of cooperative agreements would no longer have to put their plans on hold while awaiting the green light from EU anti-trust regulators.

If the blueprint for reform is approved by the Union's 15 governments, the Commission would relinquish its nearly 40-year-old monopoly on anti-trust policing.

EU officials would reserve the right to scrutinise pacts which affected the Union as a whole as well as mergers, production joint ventures and suspected price-fixing cartels. They would also review 'vertical agreements' between manufacturers, wholesalers and retailers with a market share of more than 30%, under new rules due to take effect next year, and scrutinise agreements in the sports sector.

But EU governments would be free to launch their own investigations into such cases if the Commission decided not to, and more routine cases would be mainly left to competition authorities in the member states. It would be up to them to probe 'restrictive agreements' such as marketing ventures, exclusive broadcasting and distribution rights, and research and development deals.

The move is aimed at enabling the Commission to trim its ever-increasing workload before an expected onslaught of new anti-trust cases as the EU expands eastward.

"Given the fact that our resources are limited, we should focus on the essentials," said Van Miert when he unveiled the plan, which some have dubbed his last will and testament. "We now find ourselves dealing with an awful lot of notifications, most of which do not raise competition problems."

Van Miert's successor Mario Monti must now see through the most difficult part of the plan: convincing companies that the proposed changes will actually make it easier to do business across the EU. While many agree that the current system is far from perfect, they remain to be convinced that the Commission's prescription is the right remedy.

"There is a real necessity to make some improvements to the present system," says Guy Sebban, European affairs director for French drugs maker Rhone-Poulenc, who testified before the European Parliament's economic and monetary affairs committee at a hearing on the issue last week. "But the proposals are not yet a real answer to the problem."

Van Miert's plan aims to cut the red tape currently faced by firms - a process described by one Commission official as "de-bureaucractisation" - by giving automatic approval for most agreements.

Competition agencies in member states would take on added responsibility in certain areas, leaving the most serious anti-trust cases or those with a cross-border dimension to be dealt with by the EU's trust-busters.

But European industry is worried that this may just create another administrative hurdle. The worst-case scenario is that individual member states would interpret the same contractual arrangements differently, so that there would no longer be one clear voice on anti-trust law.

"There are some advantages in the abolition of notification requirements," says Erik Berggren, an adviser at the European employers' federation UNICE. "But the fact that you may have to comply with different national regimes could be very burdensome. We fear that if national courts are going to apply national competition law, the risk of widely differing decisions will be very big. This will just invite more litigation."

In other words, companies which received approval for a joint venture or marketing agreement in one country could not be assured of getting approval in another member state, thereby losing the relative legal certainty which they now enjoy.

Legal experts also argue that many judges in national courts lack the training needed to review anti-trust cases properly.

In a policy paper released earlier this week, UNICE suggested that the Commission should focus on modernising the substantive and procedural rules of the current system rather than "opt exclusively for the risky approval of a full decentralisation." But Commission officials shrug off business' fears of a re-nationalisation of EU competition policy.

Alexander Schaub, head of the Commission's competition department, told MEPs last week that under the reform plan, member states and Union anti-trust officials would be able to work together to ensure a "more effective" application of EU anti-trust laws. He added that in any cross-border cases, Union rules would take precedence over national ones.

Regardless of whether member states interpret restrictive agreements in the same way or not, businesses fear that the proposed changes would make them more vulnerable to penalties if they were later found to have violated anti-trust rules.

Under the current rules, firms which sign restrictive agreements must apply to Brussels for a legal exemption from Articles 85 and 86 of the EU treaties (formerly Articles 81 and 82).

As the Commission is swamped by a growing number of cases, its officials do not grant formal legal exemptions most of the time, but instead send the company concerned a so-called "comfort letter", essentially assuring it that everything is above board and giving it the go-ahead for the agreement. Although a comfort letter lacks the legal teeth of a formal exemption, it normally stands up in court as legal evidence if disputes arise later.

In 1997, the Commission opened 499 new anti-trust cases, up from 447 the previous year. But because of the increasingly large caseload, it closes most cases through informal procedures in the form of a comfort letter. In 1997, officials closed 490 cases in this way, with just 27 closed by formal decisions. In the previous year, the Commission closed 367 cases through informal procedures and 21 through formal decisions.

Under the proposed changes, firms would no longer have to file a notification to get an exemption from the EU. Instead, it would be up to them to ensure that their agreements did not violate anti-trust rules. In return for gaining this added responsibility, companies could face fines or other penalties later - imposed by national officials or their EU counterparts, if there was a cross-border dimension - if the agreement was found to violate anti-trust rules.

Brussels competition lawyer Julie Nazerali of Beachcroft Wansbroughs suggests Union regulators could give businesses a certain degree of legal certainty by setting a timetable for making anti-trust decisions. "Only clearly defined deadlines will provide industry with the necessary legal certainty to promote agreements effectively," she said.

While the Commission has proposed setting itself a four-month deadline for informing businesses of what action - if any - it proposes to take on a complaint, its plan makes no mention of the latest date by which a decision would have to be reached.

Businesses are not alone in fearing a confusing patchwork of anti-trust decisions if Van Miert's plan is accepted by EU governments. Ursula Pachl, of the European consumer group BEUC, is urging Union regulators to take consumers' interests into account when making anti-trust decisions - something which her organisation feels is lacking in the present system. BEUC would, for example, like to see comfort letters published to allow third parties to comment.

So far, competition authorities from member states have given the plan mixed reviews. Dieter Wolf, president of Germany's powerful Bundeskartellamt, claims the Commission would be making a mistake if it abandoned the notification procedure, which constitutes an important "filtering" system for preventing anti-trust practices. But Caroline Montalcino of France's competition agency disagrees, arguing that the proposed changes would eradicate a great deal of unnecessary bureaucracy.

EU governments, which have only just begun discussing the plan, have yet to decide on their responses. But whether or not the Commission's proposals are accepted in full or watered down, everyone involved agrees that they have opened a long-overdue and much-needed debate about how to improve the way anti-trust cases are handled in the Union.

Source: The European Commission

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