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European Union

Commission survey points to positive effects of the single market

The single market has promoted growth, employment and competition, but the EU still has some way to go towards meeting the target of creating a set of truly common rules. This is the theme of a major new report to be presented by the Commission at the next European Council meeting in December. The report took two years to complete and gives an overview of the impact and effectiveness of the single market since its inception nearly four years ago.

Overall, the report estimates that Community GDP in 1994 was 1.1% to 1.5% higher than it would have been without the single market, and investment was 2.7% higher. In the services sector, for example, the report highlights retail banking as one of the areas which has experienced a significant increase in competition. The push towards creating free movement of capital has led to a 25% increase in capital movements since 1990. Some of the greatest benefits in this sector have been those introduced by the Second Banking Directive. These include the establishment of the home country control principle, which contributed to a 58% increase in the number of cross-border branches in the banking sector between 1993 and 1995.

However, a number of key elements of the 1985 white paper, which provided the blueprint for the single market legislation, have not yet been addressed. Work has yet to begin on creating a European company law system, or on harmonization of taxation systems, for example. The Commission has warned that national authorities must tighten up implementation of present single market legislation before any of these further measures can be taken at the Community level. Single market commissioner Mario Monti has questioned the quality of some national measures intended to implement Community legislation, and has also criticized certain countries for delays in the introduction of national measures. Only Denmark, Luxembourg and the Netherlands, for example, have implemented the full set of public procurement directives; and Greece and Spain have a particularly poor record in the insurance sector, having failed to implement the Third Life Assurance Directive. Under EU law, the Commission can open infringement proceedings against the countries concerned, and businesses and individuals can bring actions for damages directly against a member state.

Green light for acquisition of Duracell by Gillette

The Commission has approved the acquisition of the US company Duracell International by the US consumer products group Gillette. Both companies hold a strong market position in the EEA in their respective businesses. Duracell's business involves the manufacture and marketing of consumer batteries, whereas Gillette's business includes the manufacture and distribution of personal grooming products, stationary products and through its subsidiary Braun, small electrical appliances.

Although there was initially concern about the fact that the products of both companies are generally sold to the same customers (ie the major retail chains), the Commission concluded that the acquisition would not raise serious competitive concerns, because the companies are operating in unrelated fields.

Cross-channel ferry companies fined

The Commission has fined five cross-channel ferry companies for operating a price cartel in 1992. The companies concerned, P&O, Stena Sealink, Sea France, Brittany Ferries and North Sea Ferries, were fined a total of Ecu645,000 (US$822,000). P&O and Stena Sealink, as initiators and organizer of the cartel, received the heaviest fines (Ecu400,000).

The Commission found that following the devaluation of sterling in September 1992, the companies had agreed to apply surcharges simultaneously to their tariffs on freight shipments between the UK and France, Belgium and the Netherlands, and that the surcharges were calculated according to the same method.

The Commission has the power to fine companies up to 10% of their annual turnover, but decided in this case to impose moderate fines, given that due to opposition from customers, the cartel was only partially successful and had not lasted beyond a few months.

Eurotunnel decision overturned

A 1994 decision by the European Commission declaring that the agreement between Eurotunnel, British Rail and the French railway company SNCF concerning the rights to operate services on the Channel tunnel link breached EU competition rules was overturned by the European Court on October 22.

The concession to build and operate the tunnel was originally obtained by two companies, Channel Tunnel Group and France Manche, which together established for this purpose the joint venture company, Eurotunnel. Eurotunnel then entered into an agreement with British Rail and SNCF concerning the use of the fixed link.

The Commission's objection to this agreement was based on its belief that it reserved 50% of the tunnel's capacity for the shuttle services run by Eurotunnel and 50% for international freight and passenger services run by the two railway companies, and that British Rail, SNCF and Eurotunnel would obtain 100% of the hourly paths available for international trains. As the tunnel had only a limited physical capacity, the Commission concluded that it would be impossible for other railway companies to obtain tunnel paths for international trains.

In March 1995 British Rail and SNCF appealed against the decision. The court found that the Commission had misinterpreted the agreement. There was nothing in the agreement to say that Eurotunnel should reserve its 50% capacity for shuttle services, and so Eurotunnel could make the tunnel available to other railway companies by turning over to them part of its own capacity. Under the terms of the agreement, other operators are free to apply for access to the tunnel.

Michael Reynolds
Allen & Overy

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