EFTA SURVEILLANCE AUTHORITY

Transcription

1 EFTA SURVEILLANCE AUTHORITY COMPETITION AND STATE AID DIRECTORATE EFTA Surveillance Authority comments on the European Commission s Merger Review Green Paper 1. Executive summary In the EEA context, merger control rules have a special position because of the uneven split of competence between the Commission and the Authority to handle the assessment of the impact of notified concentrations across the EEA as a whole. The de facto one-sided allocation of jurisdiction in favour of the Commission means that the co-operation rules in Protocol 24 to the EEA Agreement have added importance given the two pillar structure of the EEA Agreement. Community dimension: the Authority accepts the need to further address the problem of multiple filings for a single concentration; this question was not satisfactorily resolved through the current provisions of Article 1(3) of the EC Merger Regulation. The introduction of an automatic Community competence over cases subject to multiple filing requirements in three or more Member States should be seriously contemplated. However this does not address the need to secure a homogeneous application of the EEA competition rules within the European Economic Area to certain large mergers currently falling between the two pillars. Article 9 referrals: Article 9 of the EC Merger Regulation is an important safeguard in the allocation of competence in EU merger control. Its EEA equivalent when the Commission has jurisdiction, Article 6 of Protocol 24 EEA, is all the more vital given the absence of the application of the Community two-thirds rule to the EFTA States. The simplification of criteria and procedures for making referrals, in principle a positive development, requires further consideration. Article 6 of Protocol 24 EEA must be clarified and updated to reflect any changes to the Community rules in a manner which befits the EEA context. Article 22 referrals: the absence of a workable referral option in the EFTA pillar means that an EFTA State may have to investigate a merger under its national rules as it cannot ask the Authority or the Commission to take on the case. This is not only incompatible with the one-stop shop principle, but also with the proper functioning of the EEA Agreement. Rue de Trèves 74, B-1040 Brussels, Tel: (+32)(0) , Fax: (+32)(0) registry@surv.efta.be Homepage:

2 Page 2 Simplified procedures: the Authority welcomes the Commission s report of the successful simplified treatment of certain concentrations under the EC Merger Regulation. New structures for simplified treatment must retain a mechanism for considering cases that raise competition concerns under normal procedures, and the Commission must remain able to honour its obligations under the EEA Agreement in mixed cases. Procedural issues: the debate launched by the Commission on procedural issues is a timely one. The Authority highlights its concerns in respect of matters raised pertaining to administrative efficiency, the commitments procedure and enforcement provisions in terms of their implications in the EEA context. 2. Introduction The EFTA Surveillance Authority welcomes the initiative of the European Commission (the Commission ) to review Council Regulation (EEC) No 4064/89 (the EC Merger Regulation ), as set out in the Commission s Green Paper of December 2001 (the Green Paper ). 1 The proposals for reform put forward for discussion by the Commission clearly reflect a constructive reappraisal of the workings of the EC Merger Regulation, based on the practical experience of the Commission in applying these rules over the past decade (including the amendments which came into force on 1 st March 1998). It must be recalled that the application of the EC Merger Regulation was extended, beyond the European Union, to the European Economic Area through the incorporation of the EC Merger Regulation into the EEA Agreement in The Authority proposes to focus, in its comments, on a number of EEA-specific issues that should be taken into account by the Commission both as it formulates concrete amendments to the EC Merger Regulation and as the same amendments are subsequently transposed into the EEA legal framework. 3. Relevance of the EEA Agreement to cases handled under the EC Merger Regulation By way of background to the Authority s comments, a summary of the application of the EEA Agreement in merger cases is provided. Commission competence: it follows from Article 57(2)(a) of the EEA Agreement that the Commission has sole jurisdiction to take decisions in respect of concentrations within the EEA that have a Community dimension in accordance with the provisions of the EC Merger Regulation. 2 It appears that the Commission makes reference to its jurisdiction under the EEA Agreement in all cases handled under the EC Merger Regulation. The Commission must thus, in assessing cases with a Community dimension, take into account effects on competition in the EFTA States (Iceland, Liechtenstein and Norway) as well as in the EU, and declare incompatible with the EEA Agreement concentrations which create or strengthen a dominant position as a result of which effective competition would be significantly impeded within the EEA or a substantial part of it (Article 57(1) EEA). 1 Green Paper on the Review of Council Regulation (EEC) No 4064/89 COM (2001) 745/6, This remains subject to the scope of the EEA Agreement: Article 8(3) EEA effectively excludes most agricultural products and derivates.

3 Page 3 The transposition of the provisions of the EC Merger Regulation into the EEA Agreement is not entirely straightforward. Annex XIV of the EEA Agreement provides an adapted version of Articles 1 to 5 of the EC Merger Regulation only, for the EEA context. These are stated to be substantive rules (and include inter alia the definition of an EFTA dimension) - as opposed to the procedural rules set out in Articles 6 to 24 of the EC Merger Regulation. In terms of procedures to be applied, the Commission is justified in following the relevant provisions of the EC Merger Regulation insofar as: The text of Article 57(2)(a) EEA itself expressly refers to the ECMR; and Article 1 of Protocol 21 EEA places an obligation on the Community to ensure that the Commission will follow, when applying EEA competition rules, the same procedures as when it applies the EC Treaty, and Article 3(1) makes a reference to Articles 6-25 ECMR as amended (i.e. as provisions in respect of which this obligation applies); Council Regulation (EC) No. 2894/94 makes it clear at Article 5 that the Commission will apply the same procedural rules when applying the EEA competition rules as it already follows in an EU context. Application of EEA co-operation rules by the Commission: by virtue of Article 58 EEA and Protocol 24 to the EEA Agreement, a number of cases handled by the Commission under the EC Merger Regulation and Article 57 EEA require the involvement by the Commission of the Authority and the EFTA States through the application of the EEA cooperation rules to so-called mixed cases. These are cases where one of the criteria set out at Article 2 of Protocol 24 EEA is fulfilled. Protocol 24 EEA addresses co-operation issues in respect of the control of concentrations under the EEA Agreement and so places additional procedural obligations on the Commission as regards such cases. Protocol 24 EEA only covers EEA co-operation cases in respect of which the Commission has competence; no reciprocal co-operation is envisaged when the Authority is competent. It does not replicate the procedural rules set out in Articles 6 to 25 ECMR. In 2001 there were 24 new such mixed cases: nine of these involved in-depth (Phase II) investigations by the Commission, four resulting in prohibition decisions, whereas one notification was withdrawn. Of the remaining 15 cases that were considered by the Commission, 12 were cleared by the Commission in the initial phase of its investigation, one was authorised subject to commitments offered by the parties, and one was cleared under the simplified procedure. Three cases were still pending at the end of Authority competence: it follows from Article 57(2)(b) EEA that the Authority is only competent to review mergers under the EEA Agreement where two conditions are met: cases must not have a Community dimension; and they must have an EFTA dimension: thresholds set out in Annex XIV EEA must be fulfilled in the territory of the EFTA States. Those thresholds mirror the ones set out in the ECMR but are adapted for EFTA purposes. The procedural rules to be applied by the Authority, when it has jurisdiction, are set out in Chapter XIII of Protocol 4 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, (the Surveillance and Court Agreement).

4 Page 4 There has been no such case to date. Pure EFTA cases are viewed as unlikely to occur in practice. The provisions at Article 1(3) of the EC Merger Regulation, as incorporated into the EEA Agreement, do not, despite the lower thresholds, increase the likelihood of such cases occurring as Iceland, Liechtenstein and Norway are the only relevant EFTA States for the purposes of establishing whether a concentration has an EFTA dimension. Conclusion: in the EEA context, the merger control rules have a special position because of the uneven competence between the Commission and the Authority to handle concentrations as laid down in the EEA Agreement. The de facto one-sided allocation of jurisdiction in favour of the Commission means that, from the perspective of the Authority and the EFTA States, the co-operation rules in Protocol 24 to the EEA Agreement are of special importance given the two pillar structure of the EEA Agreement. The Commission has an obligation to carry out the procedures set out for the implementation of Article 57 EEA "in close and constant liaison" with the Authority. The Authority is actively involved in EEA co-operation cases and gives priority to cases where competition concerns are raised in the EFTA pillar. Overall the Authority views the cooperation between the Commission and the Authority in this field to be very effective. This successful working relationship must be maintained in the context of any changes to the EC Merger Regulation in order to continue to contribute to a homogeneous European Economic Area with equal conditions of competition. 4. Jurisdictional issues Community dimension: the Authority agrees with the Commission s assessment of the need to address the problem of multiple filings for a single concentration insofar as this question has not been satisfactorily resolved through the provisions of Article 1(3) of the EC Merger Regulation. The Authority also shares the Commission s view that establishing an automatic Community dimension is something which should be seriously contemplated. The Authority considers that the other Community dimension criteria, as set out at Article 1(2) of the EC Merger Regulation, should be maintained. From the viewpoint of a harmonised application of the merger control rules and for the attainment of the objective of homogeneity within the EEA, a three-country test is unlikely to increase the number of mergers over which the Authority has competence in the EFTA pillar. Besides it being unlikely that a merger would involve the three EFTA States without at the same time having a Community dimension, the EFTA States competition regimes pose additional difficulties to such criteria being applied on the EFTA side. The Icelandic competition laws contain merger control rules which apply where the turnover threshold for notification is met this is currently set at Euro c However there is no merger control regime in Liechtenstein and in Norway there is no obligation to notify a concentration for prior approval (although voluntary notification procedure exists and the Norwegian Competition Authority may within a certain time-frame decide whether or not to investigate a concentration on its own initiative). 3 To the extent that a Community dimension would be established in respect of cases subject to multiple filing requirements in three or more EU Member States, such a change to the current provisions of the EC Merger Regulation will not tangibly improve the 3 As the merger rules in Norway (together with the rest of the Norwegian Competition Act) are currently under review and it cannot be excluded that an obligation to notify mergers will be introduced within 2 or 3 years.

5 Page 5 situation for those cross-pillar mergers that are not at present caught by the EEA merger control rules. Article 57 of the EEA Agreement and the provisions of Annex XIV EEA clearly set out two alternative situations for the application of the EC Merger Regulation in an EEA context, by making the distinction between a Community dimension and an EFTA dimension. The EEA single market objectives are not fully reflected in these provisions insofar as there are a number of concentrations without a Community or EFTA dimension that would be covered by the EEA Agreement if the thresholds were applied to the EEA as a whole rather than within each pillar. The absence of any catch-all competence to cover situations where the threshold criteria are met when one considers the EEA as a whole creates a gap in competencies when it comes to assessing concentrations. The failure of Article 57 of the EEA Agreement to introduce a concept of EEA dimension results in a loss of control by either authority of concentrations which possess neither a Community nor an EFTA dimension but which may still have an EEA dimension. Examples include KLM/Braathens (and would have included Storebrand/Scania had Pohjola not become a party to the merger). The fact that only national authorities will have jurisdiction in such cases is not in keeping with the spirit of the EEA Agreement, which aims at creating a homogeneous European Economic Area with equal conditions of competition (Article 1 and Recitals to EEA Agreement). In this context the same issues arise as in all other cases where multiple filings remain the norm. Any extension of the scope of the EC Merger Regulation to cover all structural joint ventures would potentially exacerbate this problem. Less reliance on turnover-based criteria for determining the existence of a Community dimension (or ultimately an EFTA dimension) therefore is unlikely to lessen the chances of certain large mergers falling between the two pillars. Although the question of whether an EEA dimension needs to be introduced to the merger control rules under the EEA Agreement was apparently considered by the EFTA States in 1997, no changes were included to address this point at the time the EEA Agreement was amended to reflect the provisions of Reg. No.1310/97. The Authority notes with satisfaction that in their comments on the Green Paper, 4 the EFTA States have flagged a general need to discuss how to ensure equal treatment of undertakings and homogeneity within the EEA. Article 9 referrals: The Authority agrees that Article 9 of the EC Merger Regulation constitutes an important safeguard in the allocation of competence in EU merger control. Such a referral option is all the more important in the EEA context: the EFTA States do not retain jurisdiction under the two-thirds rule when it is used to determine whether or not there is a Community dimension, as the rule only applies in respect of one and the same Member State. The Authority is not against the simplification of the criteria and procedures for making such referrals, and would give further consideration to concrete proposals in due course. In this context the implications of the referral rules in the EEA context must be borne in mind. A number of points came to light as a result of the Commission s decision concerning a partial referral to Norway in Aker/Kvaerner (II) the first of its kind. 4 Doc. SCI/L 24/02 of 27 th March 2002 at para. 56.

6 Page 6 Article 9 of the EC Merger Regulation does not cover referrals by the Commission to EFTA States. Instead Article 6 of Protocol 24 EEA relates to the transfer of merger cases from the Commission to an EFTA State: 5 Article 6 applies in respect of EEA co-operation cases handled by the Commission (i.e. those cases that are covered by the provisions of Protocol 24 EEA); It reflects the criteria set out in Article 9(1) and (2) of the EC Merger Regulation before these provisions were amended by Article 8 of Council Regulation (EC) No. 1310/97; The provisions at Articles 9(3)-(8) and 9(10) of the EC Merger Regulation are not replicated in Protocol 24 EEA and thus Article 6 is silent on procedures; Article 6 does not require that an EFTA State make a referral request: although the Commission waited for such a request in the Aker/Kvaerner (II) case the text as it currently stands does not bar the Commission from referring a case on its own initiative where the established criteria are met; and At present Article 6 does not expressly refer to partial referrals. The provisions of Article 9 of the EC Merger Regulation are only relevant to the extent that procedures set out therein are to be followed in accordance with the Commission s obligations under Protocol 21 EEA and Regulation (EC) No. 2894/94. As regards the substantive test and the right to make a referral to an EFTA State in an EEA co-operation case, this stems from Article 6 of Protocol 24 EEA alone. Further changes to Article 9 of the EC Merger Regulation without corresponding changes to Article 6 of Protocol 24 to the EEA agreement would increase the discrepancies between the rights of EFTA States and EU Member States as regards the possibilities of having mergers referred to them by the Commission. This would limit the procedural efficiency aimed at as well as affecting the homogeneity of the EEA Agreement. Further clarification of the impact of a referral on the addressee State to apply its national merger control rules should be given, also in the EEA context. It is not clear how the provisions of Article 9 (5-7) are to coexist with the application of the national competition law in question. Also of relevance, particularly in the case of partial referrals, is the question of the extension of the suspension of concentrations to national proceedings: it should be confirmed that Article 7 of the EC Merger Regulation does not apply to the part of the transaction which is referred to an EEA State. Article 22 referrals: the Authority agrees that Article 22 of the EC Merger Regulation theoretically constitutes a further safeguard in the allocation of competence in EU merger control insofar as it allows referrals of cases to it by Member States in certain circumstances. The Authority also agrees with the assessment made by the Commission, which highlights that the ineffectiveness of this provision in practice and that it is doubtful whether this provision could be modified to provide an efficient and general method for alleviating the multiple filing problem. 5 The rules to be followed by the Authority, when it has jurisdiction, are set out in Article 9 of Chapter XIII of Protocol 4 to the Surveillance and Court Agreement which mirrors the criteria set out in Article 9(1) and (2) of the EC Merger Regulation, as amended by Article 8 of Council Regulation (EC) No. 1310/97.

7 Page 7 From an EFTA perspective the current rules provide even fewer safeguards than in the EU: The Authority can only have jurisdiction, in accordance with the terms of Article 22(3) of Chapter XIII to Protocol 4 to the Surveillance and Court Agreement, where it is established that the concentration in question affects trade between EFTA States. It is highly uncertain when this criterion would ever be satisfied, especially in cases relating to Liechtenstein - which is all the more problematic since undertakings active in Liechtenstein at present are not subject to any form of merger control at the national level; and The question has been raised whether an EFTA State could, alone or together with an EU Member State, legitimately request that the Commission examine a case under Article 22(3) of the EC Merger Regulation where trade between the two pillars is affected. This issue is important given the EEA Agreement s failure to address cases with an EEA dimension. Article 22(3) of the EC Merger Regulation is not transposed into the EEA Agreement or Protocol 24 thereof. It states that the requirement for the Commission to look into a concentration which does not have a Community dimension must come from one or more Member States. It is doubtful that an EFTA State should be able to join its request to those of at least one Member State. The absence of a real referral option means that an EFTA State may have to investigate a merger under its national rules where it cannot ask the Authority or the Commission to take on the case. The Commission is restricted, by virtue of Article 22(3) of the EC Merger Regulation, to taking measures necessary to maintain or restore effective competition within the requesting EU States only. This again is liable to create results that are not only incompatible with the one-stop shop principle, but also with the proper functioning of the EEA Agreement. 5. Substantive issues Substantive test and merger-specific efficiencies: The Authority has not considered these issues in any great detail at this stage. It notes that certain analysts, including the EFTA States, consider that the difference between the current substantive test and a possible substantial lessening of competition test is unlikely to produce very different results. The need to harmonise the test applied by various competition authorities around the world must be considered further. The existence of a genuine efficiency defence should be clarified. Simplified procedure: the Authority welcomes the Commission s report of the successful application of the simplified treatment for certain unproblematic concentrations under the EC Merger Regulation following the Commission s September 2000 notice on this topic. As regards possible options for further simplification, such as a simpler Form CO, shorter time-frame for decisions (subject to shortening the deadline for Article 9 referral requests), or even a block exemption or de minimis approach to do away with notification requirement, the Authority s main concerns would be two-fold:

8 Page 8 A clear mechanism must remain in place for bringing cases that turn out to be problematic back within the main procedures under the EC Merger Regulation; and The Commission must continue to respect its obligations under the EEA Agreement and therefore it must remain in a position to identify whether the criteria for treating any given case as an EEA co-operation case are met. 6. Procedural issues The debate launched by the Commission on procedural issues is a timely one. The Authority has no strong views at this stage on questions such as whether to introduce greater flexibility in respect of the triggering event for the notification of a concentration, the suspension of concentrations and the calculation of time limits. However the Authority wishes to highlight its concerns in respect of the following: Administrative efficiency: the Authority should point out that in mixed cases handled by the Commission the Authority is under an obligation, when it receives copies of notifications from the Commission, to forward copies of the same to the competent authorities of the EFTA States. 6 Thus any administrative burdens and delays may be amplified as information on cases is extended to the EFTA pillar. The Authority s task is facilitated when information is received electronically (via Fourcom) from the Commission and encrypted means of electronic communications are currently being established with a view to forwarding relevant data electronically. If copies of notifications are to be supplied to the Commission and to the competent authorities of the EU Member States directly by the parties, the question arises how such a procedure would be transposed into the EEA context. In principle the Authority has no objection to the parties supplying notifications under the EC Merger Regulation direct to the Authority and the EFTA States, so long as this is acceptable to the Commission. However the Commission must retain the responsibility of ensuring that this obligation is complied with in respect of all cases that qualify as mixed cases under Protocol 24 of the EEA Agreement. A similar system has already sometimes been used on an ad hoc basis to communicate documents to the Authority in EEA co-operation cases (including for replies to formal requests for information sent by the Commission to undertakings located in the EFTA States: the respondent is invited to provide the Authority with a copy of its reply directly for information, thereby lessening the burden on the Commission of ensuring that the Authority is copied in as requested). Commitments procedure: the Authority and the EFTA States are involved in the consideration of commitments proposed by the parties to a concentration in EEA cooperation cases insofar as these are discussed in the Advisory Committee. 7 The Authority has experienced not least in the Telia/Telenor case instances in which last minute proposals of remedies by the parties have impaired a timely consultation of the Advisory Committee. Introducing the possibility to stop the clock may present a better option for all concerned, and would be preferable to a less restrictive application of Article 18(2) of Regulation 447/98 (i.e. the meaning of exceptional circumstances ) in Phase II cases. 6 Article 19 of Chapter XIII of Protocol 4 to the Surveillance and Court Agreement. 7 See Article 5 of Protocol 24 to the EEA Agreement on the rights of the Authority and the EFTA States in this respect.

9 Page 9 However it seems that this will not necessarily remedy the situation where a party persists in making last minute commitment proposals (as opposed to making a best shot offer up front) and the Advisory Committee may once again be called upon to discuss the matter before market testing of the remedies is completed. Any solution must be viewed pragmatically, balancing the need for proper consultation with a desire to avoid situations where a notification is withdrawn or a project cancelled simply because of time pressures in seeking to find a plausible solution to competition concerns identified (such instances, however, remain a minority). This is an area in which it is submitted that the role of the Hearing Officer could be reinforced if needs be. Enforcement provisions: the Authority notes with interest the proposed modifications to the EC Merger Regulation as listed under this heading. At this stage the Authority would simply like to flag that in an EEA context any inspections to be conducted in the territory of the EFTA States would have to be carried out by the Authority at the request of the Commission and with the assistance of the competition authority of the EFTA State in question. Such inspections are already provided for at Article 8(4) of Protocol 24 EEA, and the Authority has experience of carrying out inspections at the request of the Commission in antitrust cases. 8 While in principle the Authority would have no objections to extending such co-operation to the field of merger control, the Commission and the Authority would need to consider the issue further on a bilateral basis as regards timing and resource allocation question in particular. * * * * * 8 For a recent public example see the Authority s press release PR (01) 16 of : Statement on reverse vending machines inspections.