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European Union

Commission boosts competition cooperation

On June 4 1998, Commissioner Karel Van Miert signed an agreement between the EU and the US on the application of positive comity principles in the enforcement of their competition laws. The Positive Comity Agreement provides that where a party is adversely affected by anti-competitive behaviour in the other's territory, it may request that other party to take appropriate action. The Agreement also provides that the parties may agree that the party requesting enforcement will defer or suspend its enforcement proceedings over the anti-competitive practice while it is investigated by the other party.

The Positive Comity Agreement represents a commitment to cooperate on antitrust enforcement rather than seeking to apply antitrust laws extraterritorially. It constitutes an important step in the ever-closer relations between the EU and US antitrust regulators and supplements a 1991 agreement on cooperation in the field of competition. The Commission has also published a proposal for a similar agreement with Canada, which it hopes to conclude in the near future. Attempts to secure an agreement with Japan have to date not been successful.

The Agreement does not apply to mergers, because neither EU nor US law allow public proceedings over mergers to be deferred or suspended. Nonetheless, the EU and US competition authorities have cooperated closely in a number of important merger cases recently.

Follow-up vertical restraints paper

Following the receipt of comments on its Green Paper on vertical restraints (see IFLRev, April 1997, page 27), the Commission has produced a follow-up paper outlining those comments and setting out a draft Communication on the subject. Certain categories of these agreements are now covered by Block Exemption Regulations, which provide that, where the conditions set out in the relevant Regulation are fulfilled, an agreement is automatically exempted under Article 85(3) of the EC Treaty.

A number of shortcomings had been identified by the Commission in its current vertical restraints policy. The Block Exemption Regulations are considered too legalistic in their strict form-based requirements which impose a strait-jacket on companies' choice of distribution. In its follow-up paper the Commission concludes a more economic approach is required, one based on the effects on the market rather than on the contractual provisions. The new proposal is for a broad umbrella Block Exemption covering vertical restraints for the distribution of all goods and services, using market share thresholds to target agreements involving companies with market power. It is based on a 'black clause' approach of defining primarily which provisions will not be exempted, thereby attempting to simplify the applicable rules. A limited number of restraints such as minimum and fixed resale price maintenance and certain restrictions on resale are characterized as 'black clauses'.

For companies with a market share of more than 40% only certain vertical restraints would be exempted irrespective of how large the market share, such as qualitative selective distribution and service requirements, as well as maximum and recommended resale prices. However, vertical agreements between companies with a turnover of less than Ecu150 million would not be subject to the market share threshold. Where a company has a share of between 20% and 40%, certain additional vertical restraints may be imposed without losing the block exemption, such as non-exclusive quantity agreements and exclusive distribution and purchasing requirements. Finally, where an undertakings' market share falls below 20%, it is assumed that vertical restraints have no significant negative effects, so the vertical restraints, other than the listed 'black clauses' would be exempted.

The new vertical restraints policy faces a lengthy procedure before being implemented. The first step is adoption by the Commission, after a process of consultation. Following this, the Commission estimates the adoption of a new group exemption regulation will take at least 12 months, and all the legislative changes required to implement this proposal are intended to be in place by the end of 1999.

Commission on taxation of electronic commerce

The Commission has published guidelines on the application of indirect taxation to electronic commerce. The guidelines are intended to provide the basis for the EU's contribution to the debate on this issue at the OECD Ministerial Conference in Ottawa in October 1998. The Commission's stated aim is to ensure that electronic commerce can develop with a minimal tax burden and with neutrality in relation to other forms of commerce.

According to the guidelines, no new taxes should be applied. Instead existing taxes and in particular VAT should be adapted to electronic commerce. For VAT purposes, electronic transmission should be considered as the provision of a service, even where products are being supplied using electronic transmission. Services should be taxed where they are supplied within the EU for the purpose of being consumed there. Where services are provided within the EU for the purpose of being consumed outside the EU however, they should not be subject to tax, and input tax should be deductible. 

Progress on European Company Statute

On May 18 1998, the Internal Market Council concluded that "a broad measure of agreement" had been reached concerning the draft Regulation on the Statute for a European Company. The European Company Statute would allow companies with operations in more than one Member State to establish themselves as European companies governed by one law applicable in all EU countries. Final agreement however, is conditional on agreement being reached on several important outstanding issues. One of the most important is the proposed Directive on worker participation (see below), which forms part of a package with the proposed Regulation both politically and because the texts contain cross-references. Reaching agreement on the outstanding issues may prove difficult.

At a June 4 1998 meeting, the Social Affairs Council failed to agree on the proposed Directive on worker participation, on which the European Company Statute is dependent. The matter has been sent to the Committee of Member States Permanent Representatives to the EU (COREPER) and will be reconsidered in the second half of 1998, during the Austrian Presidency of the EU.

Michael Reynolds
Allen & Overy, Brussels

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