Industry hits out at plans for vetting exclusive deals

Date: 18/06/1998

By Chris Johnstone

EU COMPETITION officials face a coordinated attack from wide swathes of European industry over their plans to shake up the way some exclusive deals between manufacturers and retailers are vetted.

Representatives from Europe's brewing, oil and cosmetics industries met in Brussels this week to explore the possibility of a joint campaign to stop the proposal from the European Commission's Directorate-General for competition (DGIV) in its tracks.

Officials sparked this unprecedented get-together by recommending industry's least-favoured option for vetting the sort of exclusive deals which exist between some producers and retailers, such as brewers and pubs and oil companies and petrol stations.

Under these 'vertical restraint' arrangements, retailers are offered favourable contractual conditions if they agree to sell just one type of beer or petrol.

Until now, these deals have been given ten-year industry-wide exemptions from competition scrutiny.

The industries affected want the current block exemption rules extended when they come up for renewal in 1999.

But competition officials are recommending that in future the Commission should scrutinise all such deals individually, basing its decision on whether to approve them on the market share of the companies involved, and offering only a three-year clearance.

Their preference for the 'market caps' option is made clear in a provisional report weighing up the four ideas floated in a consultative Green Paper on reform of the EU's vertical restraints policy last year.

The approach favoured by DGIV, and most national governments, would enable special sales arrangements to be cleared where the companies involved did not have more than a 20% share of their market.

Only in special circumstances would such deals be approved when the firms concerned had a share of between 20% and 40%, and they would be banned outright above 40%.

In principle, national markets are looked at when assessing company dominance. But Europe's brewers say a high market share even within one city could be seized upon as a potential competition problem.

The Confederation of EU Brewers claims the proposed new regime would dramatically change the relationship between brewers and pubs and cafés across the Union, threatening long-term loans made by brewers and tenancy agreements.

It argues that the market share test would disproportionately affect brewers in small countries and make them less able to compete in the EU.

It also claims that a three-year clearance for exclusive sales deals would be too short for brewers to develop long-term strategies and invest in pubs or cafés.

"How can you plan for the next ten to 15 years if you only have such a short period of certainty about contracts?" said a spokesman.

This warning is echoed by the European petroleum industry lobby Europia, which says the proposed three-year clearance for exclusive deals with petrol sellers is "commercially unrealistic" given the high investments being made.

Europia claims that the outcome of the vertical restraints debate could "lead to radical changes in the way in which oil companies distribute their products and the level of investment they are prepared to undertake at service stations operated by independent resellers".

It also maintains that the offer of a more lenient Commission line on problem agreements if retailers were allowed to sell competing products would not work for petrol stations because of basic storage and dispensing problems.

"The creation of any such multi-brand service stations will pose a number of practical difficulties," said a spokesman.

European employers' lobby UNICE has also warned that companies will face extra costs in trying to check on their market share and those of rivals.

Industries affected by the proposed change in policy want competition officials to think again before they come out publicly in favour of the market share strategy.