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European Union

Commission proposals for revision of the Merger Regulation

Following the debate launched earlier this year by the Commission's Green Paper on the review of the Merger Regulation, the Commission has published two proposals for revision of the Regulation, which it has submitted to the Council of Ministers for discussion. One of these, containing the Commission's more controversial proposals concerning reduction of the 'Community dimension' thresholds, is capable of adoption by qualified majority, as envisaged in the existing Regulation. The other proposal, which requires the unanimous agreement of the member states, contains a number of improvements to the Regulation which are likely to be less controversial.

In the first of the two proposals, the Commission suggests a reduction of the worldwide turnover threshold from Ecu5 billion (US$6.3 billion) to Ecu3 billion, and the reduction of the Community-wide turnover threshold from Ecu250 million to Ecu150 million. Between these 'intermediate' levels and lower thresholds of Ecu2 billion and Ecu150 million, the Commission would also have exclusive jurisdiction where a proposed concentration would qualify for investigation by the competition authorities of at least three member states.

This new test, if implemented, will add an additional and often complex element to the analysis of whether a proposed transaction will benefit from examination in the 'one stop shop'. In practice, it is often unclear whether a transaction will fall within the national competition rules of a particular member state.

The applicability of the merger control rules of a number of member states depends, for example, on the existence of a specified market share. Whether or not such a share exists frequently requires a time-consuming analysis, which is ultimately subjective in relation to market definition, and which it may not be possible to perform with any accuracy in the absence of reliable information about the extent of sales by competitors.

In other cases, the applicability of national merger control rules depends on the operation of imprecise concepts such as, in the case of the UK Fair Trading Act, the existence of 'material influence'. In many instances, issues of interpretation create uncertainty which may in practice be difficult to resolve. Will the Austrian Supreme Court, for example, confirm the case law development according to which the application of the Austrian merger control rules requires the existence of a 'structural link' with Austria, and will the existence of, for example, a trade mark registered in Austria be sufficient for such a link to be present?

The application of a mandatory notification requirement in such circumstances is puzzling. It is likely to create additional work and uncertainty for the parties, and will create an additional level of jurisdictional analysis just when the Commission is seeking to simplify the most complex aspect of the existing regime (see below). It is also questionable whether the existing penalties and other consequences which could theoretically flow from non-compliance with the Regulation are appropriate in the context of such a jurisdictional test.

The principal aspect of the Commission's second proposal is a welcome redefinition of the concept of a concentration, so as to bring all structural joint ventures within its scope. The intention of this suggestion is to eliminate the present disparity between the treatment of concentrative and cooperative joint ventures, and the difficulties of classification which that distinction involves. Cooperative aspects of such joint ventures would be assessed by the Commission, applying the criteria of Articles 85(1) and (3) in a single procedure.

Other aspects of the proposal include the redefinition of the turnover of credit and financial institutions as banking income rather than by reference to assets; formal powers for the Commission to accept modifications in the first phase of the procedure, and to impose conditions and undertakings; the extension of the suspension obligation until a final decision has been taken; and other 'housekeeping' improvements to the Regulation. Consistent with the practice of a number of the member states, the proposal also envisages the possibility of fees being charged in respect of the examination of notified transactions.

Commission adopts three proposals on the introduction of the euro

In a speech given to the European Parliament on September 18, EU Commission President Jacques Santer emphasized the paramount importance of the single currency to the EU, and called on the business and finance community in Europe to prepare for its 'inevitable' introduction, stating that the technical preparations for the introduction of the euro are now at an advanced stage.

European Finance Ministers were due to meet in Dublin on September 20 and their agenda was due to include discussions on the Stability Pact, designed to ensure that countries continue to respect the Maastricht criteria after entry into monetary union. The Stability Pact is to be governed by EU law and is to be entered into by all participating countries. It is expected that it will set a desirable budgetary goal, as well as a ceiling to the admissible deficit. The Dublin talks will also focus on arrangements for exchange rates between the euro and the other currencies, as well as the legal status of the euro during the transition stage to a single currency. It will then be up to the European Council to make a decision on these issues in December.

Meanwhile, Sir Leon Brittan has responded to comments made by the Governor of the Bank of England that Britain risked suffering discrimination at the hands of France and Germany as regards access to the 'Target' inter-bank payment system being set up in the preparation for European Monetary Union. Sir Leon noted that such discrimination was likely to become a real threat as Britain moved further towards ruling out participation in a single currency in advance. He called for an end to the 'polarization' of the debate in Britain and emphasized the urgent need to bring British influence to bear in the preparations for the euro.

Following this informal meeting of the European Finance Ministers, the Commission has adopted draft legislation required for the introduction of the euro.

First, the Commission has approved proposals for establishing the legal framework of the euro. The draft legislation, adopted on 16th October, confirms that the new currency will be named the 'euro', rather than the 'Ecu' and that it will be divided into 100 'cents'. It envisages that the conversion rate will be one euro for one Ecu. The proposed transitional period will run from January 1 1999 until December 31 2001 at the latest. Euro notes and coins will be introduced from January 1 2002 at the latest and will immediately have legal tender status in all participating countries. They will circulate alongside national notes and coins for up to six months, after which only euro notes and coins will be legal tender.

The draft legislation addresses certain technical problems associated with the introduction of the euro. The Commission has proposed that there be a general principle of continuity of contracts denominated in national currencies, and also that the conversion rate between the euro and the participating national currencies be set to six significant figures.

The second proposal approved by the Commission concerns the so-called 'Stability Pact'. This is designed to ensure that countries participating in monetary union avoid excessive public deficits during the third stage of monetary union. Under this proposal, participating countries would adopt stability programmes and should ensure that their budget deficit does not exceed the 3% GDP, except in "temporary and exceptional" circumstances. Sanctions are proposed against countries not complying with the provisions of the Stability Pact, although these countries would be allowed a period of at least 10 months in which to take corrective action.

In a third development, the Commission has put forward a communication to the Council which sets out proposals for reinforcing existing convergence procedures within EMS 2. This aims to create exchange rate stability between the euro and currencies which do not participate in monetary union from the start (the 'pre-in' countries), with the eventual objective of accelerating the entry of the pre-in countries into the euro-zone.

Meanwhile, in a move which has been widely taken as confirmation of Finland's commitment to participation in the euro, Finland's currency has entered into the EMS exchange-rate mechanism at a chosen central rate of 5.80661 Finnish markkas to the Ecu.

Michael Reynolds
Allen & Overy

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