The modernisation of competition rules, April 2003

After European leaders rubber stamped the next enlargement of the European Union in Athens on 16 April 2003 by signing the Accession Treaty, the European Commission must now concentrate its efforts on ensuring that all the EU's policies can be effectively implemented in a Union of twenty five or more.

In the field of competition policy, some of this work has already been achieved following the Council's adoption of a new Regulation on the implementation of Articles 81 and 82 of the EU Treaty on 16 December 2002. Regulation 1/2003 replaces Regulation 17, providing a modernised approach to the enforcement of competition rules in the European Union. The rules in the Regulation will become applicable on 1 May 2004 - the day the European Union welcomes ten new Member States.

Background

Articles 81 and 82 of the EU Treaty, formerly Articles 85 and 86 EC, govern the general rules applicable to restrictive practices and abuses of dominant position respectively. The Treaty empowers the Council to give effect to these provisions in Article 87 of the EC Treaty.

In 1962, the Council adopted the first regulation implementing these provisions - Regulation 17 -by creating a system that gave the European Commission the exclusive power to exempt restrictive practices and required companies to notify their agreements to the European Commission prior to any exemption.

At the time of its creation, such a highly centralised authorisation system was needed to ensure the development of a coherent body of decisions concerning competition rules. Indeed, it proved very effective in establishing a 'culture of competition' in Europe.

However, nearly forty years on, it became clear that such a centralised authorisation system may no longer be the most effective way of enforcing the EU's competition rules, particularly in the context of the expected consequences of economic and monetary union on competition policy and the enlargement of the EU in 2004.

White Paper on the reform of system for enforcing competition rules

Aware of these challenges, the European Commission adopted a White Paper on 28 April 1999 aimed at modernising the system for implementation of Articles 85 and 86 EC Treaty.

The proposed reform outlined three key objectives:

• Rigorous enforcement of competition law
  In order to concentrate its efforts on the most important infringements of EU law (such as price-fixing and market-sharing cartels) the European Commission proposed strengthening the system of prohibition rules. It also suggested that the investigation of complaints lodged with the Commission should take on more importance, that the procedures for handling these complaints should be simplified and that a timeframe should be introduced obliging the Commission to inform the complainant within four months if it intended to investigate the complaint in detail.
• Effective decentralisation of its application
  The European Commission proposed that Article 85 EC, in its entirety, should be made directly applicable thereby providing the Commission, national competition authorities and the national courts with concurrent powers to apply the EU competition rules.
  However in order to ensure a coherent application of the rules throughout the Union the European Commission proposed several mechanisms to that effect:

• European Commission to keep a leading role in determining EU competition policy both through the adoption of legislative measures and guidelines, and through the adoption of leading decisions in individual cases
• European Commission would enforce the rules as part of a network of competition authorities in which it would play a central role as Guardian of the Treaty
• The right of the European Commission to withdraw from the national competition authorities cases would be maintained
• The application of the EU rules by national courts would be supervised by the European Court of Justice
• Assistance would be provided to national courts to encourage the training of national judges to ensure EU competition rules are enforced in a coherent manner

• Simplification of enforcement procedures
  Under the White Paper the notification system would be abolished, cutting the cost for companies of notifications. A new system would allow companies to obtain civil enforcement of their contracts in their national courts from the date of their conclusion. Centralised authorisation of individual agreements by the European Commission would no longer be required.

Commenting on the White Paper, the European Commissioner for Competition at that time, Karel Van Miert said:

'Our aim now is to prepare the Union for the challenges of the next century by allowing the Commission and national competition authorities to concentrate their resources on the most serious restriction of competition. This requires a two-pronged approach: opening up effective decentralisation while maintaining an adequate level of legal security an consistent application of the rules'.

Interested stakeholders had until 30 September 1999 to submit their views on the White Paper. While the initiative of modernising the EC's competition rules to reflect the changing environment was welcomed as positive by most stakeholders, there were different views on the nature of the reforms.

In particular, the European Chemical Industry Council expressed regret that more power would be distributed amongst the national competition authorities, arguing that the 'one-stop shop' developed by the European Commission provided the most effective way to ensure a coherent application of EU competition law.

From a legal perspective, the European Company Lawyers' Association (ECLA) called on the European Commission to take the opportunity to include a provision on legal privilege regarding communications with in-house lawyers if as the European Commission expected, companies would have to further rely on increased self-assessment. According to the ECLA,

'If this right were to be recognised, companies would then be able to receive proper and objective advice from their in-house lawyers without fear of reprisal, and for companies it would restore the legitimate right to choose freely their defence'.

Proposal to replace Regulation 17

On the basis of the comments regarding the White Paper on the enforcement of EU competition rules, received from the European Parliament, the Economic and Social Committee and other interested stakeholders, the European Commission prepared a proposal [COM(2000)582] to replace Regulation 17 from 1962 with a new Regulation. This sought to reform the procedures applicable to co-operative agreements between businesses and to abuses of dominant market positions but did not concern state aid or merger control.

The proposal, which was adopted by the European Commission on 27 September 2000, fell subject to the consultation procedure, so it only required adoption by the Council with the Parliament being consulted. The main objective of the proposal followed that of the White Paper - to establish a new decentralised system for the enforcement of EU competition rules. The characteristics of the proposed system are the following:

• more efficient protection of competition
• refocusing the Commission's action
• increased powers of investigation for the Commission
• more level playing field
• more application of Community competition law
• consistent application of Community competition law
• an adequate level of legal certainty for companies and a reduction of bureaucracy.

Although only involved at the consultation level the European Parliament's Committee on Economic and Monetary Affairs took responsibility for the proposal within the Assembly and Jonathan Evans, a member of the European People's Party prepared a report on it. The European Parliament held its first reading of the proposal on 6 September 2001 and voted overwhelmingly in favour of it but with several amendments, as proposed by Mr Evans. These sought to introduce an element of harmonisation as far as the fines were concerned and a clearer definition of public interest, while another amendment aimed to limit the right to interview staff in an investigation to representatives in order not to jeopardise the individual's position in the company was also approved. MEPs also voted to delete the Commission's proposal for a registration system to replace the current notification and authorisation system on the grounds that the value of the proposed new system had not been demonstrated.

In December 2001 the Council held a debate on the major points of the proposal with the following key conclusions:

• the main operating principles of the network should be enshrined in a joint Council and Commission statement
• the detailed arrangements should be set out in a Commission communication prepared in close co-operation with the Member States.

The Council also reaffirmed the need to press ahead with work in order to secure adoption of the proposal in 2002, enabling the new arrangements to be introduced prior to the accession to the Union of the first candidate countries in May 2004.

The momentum behind the proposal was reinforced at the Barcelona European Council in March 2002 when European leaders gave absolute priority to proceedings on this issue and called on the Council to adopt the new legislative framework by the end of 2002. After further discussions in the remit of the Council in June 2002 the proposal was eventually adopted by the Council on 16 December 2002 as Regulation 1/2003 EC. It entered into force 24 January 2003 although the new rules will not apply until 1 May 2004.

The reaction to the European Commission's proposal for a new regulation on the modernisation of EC competition enforcement rules was mixed: whilst the need for reform was identified, the specific measures proposed by the European Commission met with some criticism. In particular, European businesses feared that the decentralisation of the system would lead to an incoherent application of the EU's competition rules. These misgivings were summed in a position paper prepared by the EU Committee of the American Chamber of Commerce in February 2001, which stated:

'The EU Committee is seriously concerned that the proposed reform would do more harm than good to European industry in general and to the protection of competition in particular. It will increase the legal uncertainty for companies wishing to invest in Europe. It will also increase the administrative burden on companies, who will risk facing multiple challenges in various jurisdictions, with no guarantee of consistent outcomes. And it does not take sufficient account of the need to safeguard the legitimate interests of companies and to preserve the rules of due process.

However, some groups have welcomed Regulation 1/2003. The United Kingdom government Department for Trade and Industry (DTI) produced a report in April 2003, which stated that the modernisation of the EC rules had 'come at just the right time' and that the 'modernisation of European competition law is good news for businesses across Europe'. The DTI also suggested that distributing more power to the national competition authorities was a positive step that would bring 'competition enforcement closer to home' providing the national competition authorities with a stronger role in ensuring that markets across Europe work fairly for the benefit of everyone.

The future for EC Competition Rules

Regulation 1/2003 is clearly the first step in the modernisation of the EC's competition rules, bringing them up to date with the current environment. However, as the European Commission acknowledged in a recent competition policy newsletter 'modernisation is more than just rules'. Member States still have to put in place the necessary instruments to ensure the effective application of the new Regulation and the important new partnerships between the public enforcers across the EU and between these enforcers and businesses and the consumers have yet to be established, let alone tested.

Further information within European Sources Online:

European Sources Online: Topic Guides
	The Competition Policy of the European Union
European Sources Online: European Voice
	30.09.99:	Firms voice fears over anti-trust reforms
	11.11.99:	Enforcement is key concern in competition arena

Further information can be seen in these external links: (long-term access cannot be guaranteed)
EU Institutions
European Commission: DG Press and Communication: RAPID: Press Releases:
	28.04.99:	Commission adopts White Paper proposing fundamental reform of the system for enforcing EU competition rules [IP/99/275]
	27.09.00:	Competition: Commission proposes regulation that extensively amends system for implementing Articles 81and 82 of the Treaty [IP/00/1064]
European Commission: DG Press and Communication: RAPID: Speeches:
	27.11.00:	The application of Community competition law by the national courts [SPEECH/00/466]

European Commission: DG Competition
	Conference on 'The Reform of European Competition Law', Freiburg, 9-10 November 2000
	Proposal for a Council Regulation on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [COM(2000) 582]
	White Paper on modernisation of the rules implementing articles 85 and 86 of the EC Treaty
	White Paper on reform of Regulation 17 - Summary of the observations
	Competition Policy newsletter - Spring 2003

European Commission: SCADplus:
	Competition Policy
	Introduction
	Co-operation with national authorities
	Co-operation with national courts

European Parliament:
	Report on a proposal for a Regulation on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty
	OEIL: Competition - Implementing Articles 81 and 82 of the EC Treaty
	OEIL: Competition reform - rules applying to undertakings: Articles 85 and 86

National Organisations
United Kingdom: Department of Trade and Industry
	European Competition Policy
	Modernisation - a consultation on the Government's proposals for giving effect to Regulation 1/2003 EC and for re-alignment of the Competition Act 1998 [April 2003]

Miscellaneous Organisations
European Roundtable of Industrialists [ERT]
	Homepage
	Proposals for Reform of EU Competition Policy [December 2000]
European Company Lawyers Association [ECLA]
	Homepage
	Commission's White Paper on the Modernisation of the rules implementing Articles 81 and 82 of the Treaty of Rome
Union of Industrial and Employers' Confederations of Europe [UNICE]
	Homepage
EU Committee of the American Chamber of Commerce
	Homepage
	EU Committee Position Paper on the Draft Regulation implementing Articles 81 and 82 of the EC Treaty [February 2001]
European Chemical Industry Council [CEFIC]
	Homepage
	Response and proposals on the Commission's White Paper regarding the modernisation of the rules implementing Articles 81& 82 of the Treaty [September 1999]
The Kangaroo Group
	Homepage
	But who will control those who are in control? - Kangaroo Group Newsletter, No.30 [April 2002]
The European Institute of Public Administration
	Homepage
	Maybe definitely - definitely maybe? EC competition law - is the time ripe for reform? EIPASCOPE, No.2, 2001

Helen Bower

30 April 2003

A new Regulation on the implementation of Articles 81 and 82 of the EU Treaty was adopted on 16 December 2002 with the aim of ensuring that the EU's competition policy continues to be enforced effectively in an 'EU of 25'.