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European Union

New merger rules enter into force

On March 1 1998, the amendments to the 1989 EU Merger Regulation entered into force. For the details of the new regime see International Financial Law Review, June 1997, page 53.

Commission view on Euro

With the May 2 deadline approaching for the formal selection of those member states participating in Emu from the outset, the Commission has adopted several Recommendations on practical aspects of the introduction of the Euro. The Recommendations cover banking charges for conversion to the Euro, dual display of prices and other monetary amounts, and the provision of information to facilitate the transition to the Euro.

The Recommendation on banking charges sets out a standard of good practice for these charges, covering both legal requirements and recommended practices. Banks should not charge for the conversion of payments denominated in the Euro during the transitional period, or the conversion of national accounts and the exchange for their customers of household amounts of national banknotes and coins into Euros. In addition, banks should not charge a different fee for services in the Euro than for otherwise identical services in the national currency. Banks are not, however, required to perform cross-border transfers in the Euro without charging.

The Commission also recommends a voluntary approach to dual pricing, although a binding strategy has not been ruled out, should this approach fail. Bank statements and utility bills should provide dual displays early in the transitional period, while the exact pace of change in the retail sector will depend on factors such as the pace at which clients and customers wish to make the changeover, the nature of the retail outlet and the types of products being sold. The Recommendations also encourage continued dialogue between consumer and professional bodies and the creation of observatories to monitor the transition into Euro. The Commission hopes these Recommendations will be endorsed by the European Council on May 2.

Directive proposed to tackle late payments

The Commission has adopted a proposal for a Directive to tackle late payments in commercial transactions both between private enterprises and between private enterprises and the public sector. The proposal is designed to address the widespread practice of late payments, which poses particular problems for small and medium-sized enterprises in terms of cash-flow. The main elements of the proposed Directive include compensation for late payment, retention of title by the seller, accelerated and simplified recovery procedures and prompt payment by the public sector. An earlier Commission Recommendation on this subject, in 1995, did not lead to any action by the member states.

  • Compensation for late payment — the Directive would provide for compensation for late payment, including interest on any outstanding amount as well as for damage caused by late payment. The level of interest should be at least the tender rate of the European Central Bank plus a margin of eight percentage points. An automatic time limit of 21 days for payment of debts would apply unless otherwise specified in the contract.
  • Retention of title — the proposed Directive would also ensure the seller retains title until the buyer has made payment. This should enable the seller to require that goods be returned if the buyer has not paid.

Other proposed changes include a 60-day recovery procedure for undisputed debts and a simplified legal procedure for small debts up to Ecu20,000. Finally, it also requires measures are put in place to ensure the prompt and automatic payment of debts by the public sector.

Communication on risk capital

On March 31 1998 the Commission adopted a Communication entitled 'Risk capital: a key to job creation in the EU'. The report sees advantages in the creation of an integrated risk capital market in the EU along the lines of Nasdaq in the US. The Commission's action plan was submitted to the EU finance ministers on April 21 1998.

The Communication notes the positive effects of Nasdaq in raising capital for fast growing small and medium-sized enterprises and in the creation of new jobs. In the EU it can take between 10 and 40 years to be listed on a stock exchange, but in the US, venture capital-assisted businesses can go public within a few years of creation. The lack of the necessary venture capital means that enterprises, particularly for high technology products, often become dependent on bank loans and overdrafts for financing. This kind of financing is less flexible and more expensive.

The Communication argues for the need to end the fragmentation of European capital markets. With 33 regulated stock markets, the capitalization and liquidity for each national market is reduced, in comparison to the US, which has three principal stock markets. In addition, because of lack of information and transparency, the Communication concludes that small and medium-sized European enterprises in reality do not have access to capital markets in other member states. The Communication concludes that the reliance on short-term credit rather than on equity damages job creation and growth.

Merger Regulation applies to collective dominant positions

On March 31 1998, the European Court of Justice delivered its judgment on the Kali & Salz appeal. The court ordered that the operative part of the Commission Decision, issued in 1994 in respect of a joint venture between Kali & Salz and Mitteldeutsche Kali, be annulled. The Court found that the Commission's analysis of the concentration and its effects on the market was partly flawed, which affected the economic assessment of the concentration. As a result, the Commission had not established to the necessary legal standard that the proposed concentration would give rise to a collective dominant position liable to impede effective competition in the market. However, the court clearly stated that collective dominant positions do not fall outside the scope of the Merger Regulation.

A position of collective dominance arises where several undertakings taken together are able to adopt a common policy on the market and act to a considerable extent independently of their competitors, customers and consumers. The court felt that if the Merger Regulation did not apply to the concentrations, then its purpose of securing a system of undistorted competition, would be partially frustrated.

Michael Reynolds
Allen & Overy

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