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European Union

Draft Notice on market definition

On October 3 1997, the Commission published a draft Notice on the definition of relevant markets for the purposes of Community competition law. This text is not expected to be amended very substantially.

The purpose of the Notice is to provide guidance as to how the Commission applies the concepts of relevant product and geographic market in its enforcement of EU competition law. Market definition is the tool the Commission uses to define the boundaries of competition between firms and identify in a systematic way the competitive constraints the undertakings concerned face. By defining a market in both its product and geographic dimensions, the Commission is able to identify the actual and potential competitors of the undertakings involved capable of constraining their behaviour and preventing them from behaving independently of effective competitive pressure. The Notice incorporates the interpretation given to the concept of relevant market by the European Courts, but is of course made without prejudice to any further construction of the rules which those Courts may offer in future.

By publishing the procedures it follows when considering market definition, and by identifying the criteria and evidence on which it relies to reach a decision, the Commission expects to increase the transparency of its competition law policy and decision-making. Increased transparency will also lead to companies and their advisors being better placed to assess the likelihood that the Commission would raise competition concerns in any individual case. Furthermore, companies will be better able to understand what sort of information the Commission considers relevant for the purposes of market definition.

Commission to review fewer antitrust cases

On October 8 1997 the Commission adopted a Notice defining agreements which do not have an appreciable effect on competition and trade within the Community and are not therefore caught by the prohibition contained in Article 85(1) of the EC Treaty. Once the Notice is published and comes into force, it will amend the previous de minimis Notices. The Notice is intended to provide the parties concerned with a clearer interpretation of the Community rule in question, improve legal certainty and lighten the administrative burden on firms by cutting down on the number of notifications which have to be made to the Commission. This in turn will allow the Commission to focus on more important cases and is in keeping with the Commission's policy of modernizing its competition rules and promoting small and medium-sized enterprises (SMEs) by granting them preferential treatment. SMEs are defined as firms with an annual turnover or balance-sheet total of not more than Ecu40 million (US$45 million) or Ecu27 million respectively and not employing more than 250 persons. In future, agreements entered into by SMEs which satisfy the relevant threshold requirements need not, in principle, be notified to the Commission, regardless of their market shares, although the Commission reserves the right to intervene if the agreements in question significantly affect competition in a substantial part of the market. The commission may also intervene if, in the relevant market, competition is restricted through the cumulative effect of parallel networks of similar agreements established by several manufacturers or dealers.

Under the changes, the Commission will also drop the requirement that companies with revenue of Ecu300 million per year must seek clearance for agreements which could restrict competition. Instead, the need for notification will depend on the market share held by a company or the nature of its agreements. As such, large firms with small market shares as well as SMEs will benefit from the changes.

A distinction will also be made between horizontal and vertical agreements. In future, vertical agreements between companies, such as those between a supplier and a distributor, that have less than 10% of the market will no longer be subject to rules concerning restrictive agreements. For horizontal agreements, such as those between companies acting in the same part of the market, the threshold will remain at 5%.

SWIFT reviews membership rules

The European Commission has obtained an undertaking from the Society for Worldwide International Financial Telecommunications (SWIFT) to review its membership rules. SWIFT operates an international telecommunications network providing data communication and processing to financial institutions worldwide. Earlier this year, the Commission expressed its objection to SWIFT's practice of reserving full access to any institution in the EU which provides cross-border payments services to the public and fulfils the criteria set out by the European Monetary Institute (EMI) for admission to domestic payment services. At present, those criteria require an entity to be authorized to hold accounts for customers; its direct participation in one or more EU fund transfer systems processing third-party payments must be approved by the relevant central bank; and the risk of failure must be minimized by the entity's public nature or by the fact that it is supervised by a recognized competent authority.

The undertaking demanded by the Commission, which will monitor SWIFT's future behaviour, will ensure that SWIFT does not abuse its dominant position, contrary to Article 86 of the EC Treaty.

Introduction of the Euro

The Commission has adopted a Communication on the practical aspects of the introduction of the single currency. The aim of the Communication is twofold: to provide information on the practical preparations at national and European level by both the public and the private sectors, identifying the issues on which decisions still need to be taken, and to define the desired level of harmonization and to determine whether those issues should be dealt with by the EU or be left to the member states.

The Commission advocates the following measures:

  • Member states should present their transition plans before the end of 1997, including statements on accounting, reporting and tax declarations made in Euro.
  • Public issuing authorities should announce their intentions on redenomination of existing debt and on conventions applicable to the new debt.
  • Member states concerned should finalize the selection of the design of the national faces of the Euro coins with the agreed common features before the end of 1997.
  • Member states should launch their national communication campaigns without further delay. In this respect, the UK government is reported to be seeking EU funds to support the information campaign and is thus abandoning the policy of non-cooperation pursued by the previous government.
  • The competent authorities of each member state should announce, before the end of 1997, their positions on the fiscal consequences of switching over to the Euro, thus ensuring the widest possible audience.
  • A formal proposal should be presented by the Commission before the end of 1997 on the date for the introduction of notes and coins, and a decision should be taken by the Council shortly thereafter.
  • Other practical issues, such as dual display and conversion charges, should also be determined in order to clarify whether or not a common approach is necessary across the participating member states and whether such a common approach should be enforced by legislation at a national or European level, or could be left to market forces, or to duly monitored voluntary arrangements or codes of practice. The Commission will finalize a study of theses arrangements before the end of 1997 and, if Community legislation is required, will submit proposals to the Council.

Cooperation with the Commission

On October 15, the Commission published a Notice setting out a framework for cooperation between national competition authorities and the Commission in handling cases falling within the scope of Articles 85 or 86 of the EC Treaty. The Commission acknowledges that in competition policy the Community and the member states perform different functions, and that the involvement of national authorities means that decisions can be taken as closely as possible to member state citizens. The Notice, which will be reviewed no later than four years after its adoption and which will not apply to the transport sector, is intended to be the counterpart of the Notice issued by the Commission in 1993 spelling out the relations between the national courts and the Commission in applying Articles 85 and 86.

At present, national competition authorities can be empowered to apply the prohibitions in Articles 85(1) and 86, but lack the power to grant exemptions in individual cases under Article 85(3). The Commission believes that enhancing the role of national authorities will boost the effectiveness of Articles 85 and 86 of the EC Treaty and acknowledges that the involvement of national authorities will mean that decisions can be taken as closely as possible to the parties involved. The Notice accordingly sets out what practical cooperation can take place between the Commission and the national authorities during the course of investigations, but does not purport to affect the extent of the powers conferred by Community law on either the Commission or national authorities for the purpose of dealing with individual cases. The Commission acknowledges that for cases falling within the scope of EU law, checks on compliance with competition rules should wherever possible be carried out by a single authority (either the Commission or the member state's competent authority) to avoid duplication. Parallel proceedings between national authorities and the Commission in relation to the same case should also be avoided to prevent uncertainty, divergent decisions and spiralling costs. The Commission therefore plans to encourage the competition authorities of all member states to cooperate with it and to either apply Community legislation directly, or to amend national legislation to enable the national authorities to apply Articles 85 and 86.

As far as case allocation is concerned, national authorities would generally handle cases whose effects are felt mainly in their territory and which appear unlikely, on preliminary examination, to qualify for exemption under Article 85(3). However, the Commission would reserve the right to investigate certain cases having a particular Community interest, such as cases involving alleged anti-competitive behaviour by public undertakings.

Because the Commission has exclusive powers under Article 85(3), any notified restrictive practice which prima facie qualifies for exemption must be examined by the Commission. No such limitation exists, however, on the implementation of Article 86 of the Treaty: the Commission and the member states would therefore have concurrent competence to investigate complaints and to prohibit abuses of dominant positions.

Cooperation is more difficult to achieve in cases which the Commission deals with first. The Notice recognizes the difficulty in practice of fostering cooperation between the Commission and the national competition authorities in those cases first or solely investigated by the Commission, such as own-initiative proceedings and cases notified by parties seeking an exemption under Article 85(3) of the Treaty. Nevertheless, the Notice states that the Commission will involve national competition authorities when dealing with complaints that do not involve Article 85(3) and with cases based on alleged infringements of Article 86.

In cases which are dealt with by national authorities under EU law, the Notice states that the Commission should be informed systematically of any proceedings which are opened, particularly cases raising new points of law or of great economic importance, in which access by firms from other member states to the relevant national market is significantly impeded.

The Commission also makes it clear in the Notice that where national competition authorities apply Articles 85 and 86, they should be at liberty to seek information from the Commission on the state of any proceedings which the Commission may have set in motion and as to the likelihood of its giving an official ruling on cases which they are investigating on their own initiative. National competition authorities can also contact the Commission where the concrete application of Articles 85 and 86 raises difficulties in order to obtain any economic and legal information which the Commission is in a position to supply.

Michael Reynolds
Allen & Overy

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