1. Introduction Modernisation of EC Policy General The Council s Views 7

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1 Review and Amendment of the Dutch Competition Act 1. Introduction 2 2. Dutch Competition Policy in a European Context Introduction Characteristics of EC Policy Relationship between Dutch and EC Competition Policy 4 3. Modernisation of EC Policy General The Council s Views 7 4. More Scope for Cooperation Issue and Problems The Council s Views 9 5. Abuse of a Dominant Position Issue and Problems The Council s Views Position of the Consumer Issue and Problems The Council s Views 14

2 1. Introduction On 20 December 2002, the Dutch Minister of Economic Affairs asked the Social and Economic Council (SER) to issue an advisory report on the proposed amendment to the Dutch Competition Act. The report was to focus on three issues which had emerged during a review of the Act in : The scope and structure of the de minimis exemption: Does the Competition Act allow enough scope for cooperation or should the de minimis exemption be extended? The desirability of a stricter prohibition on the abuse of a dominant position: Abuse of a dominant position is difficult to prove in actual practice. Should stricter rules be introduced to be better able to enforce the prohibition? The position of the consumer under the Competition Act: The improved operation of the market should eventually benefit consumers. Consumers cannot, however, file individual claims under the Act. Should the government s competition policy serve to strengthen the position of consumers? Context of the report The Council has placed these three issues in a wider context. In November 2002, the EC Competition Council adopted a regulation aimed at modernising EC competition policy. As this regulation will have a major impact on the operation of the Dutch Competition Act, the Council felt that it should address its implications in the report. The Council would also like to emphasise that competition policy is a means rather than an end. The aim of the Competition Act is to promote and maintain competition in order to boost prosperity in Dutch society. The Council defines prosperity very broadly in this context: it implies more than material progress (income and productivity growth); it also means social progress (wellbeing and social cohesion) and a good quality of life (in both the spatial and environmental senses). This broad definition of prosperity is reflected in Dutch competition policy through the Competition Act, which, amongst other things, allows scope for cooperation agreements which further so-called noneconomic interests. 1 Berenschot, Syntheserapport evaluatie Mededingingswet, The Hague 2002.

3 2. Dutch Competition Policy in a European Context 2.1 Introduction Dutch competition law is firmly embedded in EC competition law. Any changes in EC competition policy will, therefore, affect Dutch policy as well. This section provides a summary of the basis characteristics of EC policy, and goes on to look at the issues on which Dutch policy and EC policy differ. 2.2 Characteristics of EC Policy EC competition law contains provisions relating to: cartels; abuse of a dominant position; state aid. A separate Regulation has been adopted on the control of concentrations. This report does not cover state aid and concentration control. Prohibition of cartels Article 81(1) of the EC Treaty prohibits all anti-competition agreements, decisions and concerted practices which may adversely affect trade between member states. Article 81(2) provides that agreements banned under Article 81(1) are automatically void. The provisions of Article 81(1) may be declared inapplicable pursuant to Article 81(3), subject to certain conditions. The impact on both trade and competition must be appreciable in order for Article 81(1) to apply. In the de minimis Notice, the European Commission quantifies the concept of appreciability with the help of market share thresholds. Hardcore restrictions, such as price fixing and the allocation of markets and customers, are however still prohibited. An important aspect in terms of implementation is that the Commission may grant a waiver under Article 81(3) of the EC Treaty if an agreement contributes to improving the production or distribution of goods or promoting technical or economic progress. Then there are different block exemptions which apply to specific categories of agreement, such as specialisation agreements. Agreements which restrict competition need not be notified to the Commission if they fall within the framework of a block exemption. Prohibition of abuse of a dominant position Article 82 of the EC Treaty prohibits undertakings with a dominant position from abusing that position if this were to adversely affect trade between member states. Article 82 contains a non-exhaustive list of instances of abuse: a directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

4 b c d limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. An exception to this prohibition applies to undertakings entrusted with the operation of services of general economic interest. On account of their special public function, these services are subject to an alternative competition regime, as contained in Article 86 of the EC Treaty (prohibition of state aid). 2.3 Relationship between Dutch and EC Competition Policy General The Dutch Competition Act came into force on 1 January It replaced the Economic Competition Act, which used an abuse-based system that allowed anticompetition agreements and dominant positions to exist, in principle, unless there were grounds to prohibit all or any part of such agreements in the public interest. This gave rise to a string of major cartels which were prohibited under EC competition law. In 1992, for example, the Dutch government was called to account by the European Commission for its passive and, at times, even supportive stance towards cartels in the building industry. With the introduction of the Competition Act, the abuse-based system was replaced by a prohibition-based system. Under the prohibition system, anticompetition agreements are prohibited, unless the conditions for granting a waiver or an exemption are satisfied. The Act also paved the way for the creation of an independent watchdog, the Netherlands Competition Authority (NMa). Merger control rules were introduced as well. The Competition Act is not a one-to-one translation of the EC rules. The carefullyworded Explanatory Memorandum ( Memorie van Toelichting ) states that the Act draws on the competition rules in the EC Treaty, but is not a copy of those rules. The basic premise is, however, that the Competition Act should not be more or less stricter than the EC competition rules. In fact, a one-to-one translation would not be practicable. EC competition law is not an end in itself, but rather a means to achieve the purposes of the common market. It has a typically European dimension, which Dutch law has not, in that it is aimed at achieving completion of the internal market and promoting competition on the European markets. Removing the barriers to trade between member states is not an explicit goal of the Dutch Competition Act, although foreign companies may well benefit from a more effective competition policy in the Netherlands. Similarities to EC competition law The influence of EC competition law has made itself felt particularly in the wording of the core provisions of the Competition Act. The cartel prohibition in Article 6 of the Act

5 is a direct copy, and its main terms are defined by referring directly to the EC Treaty ( undertaking, concerted practices ). The prohibition of abuse of a dominant position is laid down, basically, in Article 24(1) of the Competition Act, which reads verbatim: Undertakings shall be prohibited from abusing a dominant position. Article 24 of the Act is clearly based on the prohibition provided for under Article 82 of the EC Treaty, but there is a difference as well. The Treaty itself explicitly lists the types of abuse which are prohibited. The Competition Act merely provides a number of examples of abuse of a dominant position (extremely high prices, exclusion of competitors). Similarly, the system of waivers and exemptions draws on EC law. The criteria for granting a waiver (Article 17 of the Act) are taken from Article 81(3) of the EC Treaty: a waiver may be granted for decisions or practices which contribute to improving the production or distribution of goods or promoting technical or economic progress, whilst allowing consumers a fair share of the resulting benefits, and which do not (a) impose upon the undertakings concerned restrictions which are not indispensable to attaining these objectives, or (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. The power to grant a waiver is, therefore, exercised as much as possible in line with the Commission s decision-making practice. The exemptions provided for in Article 12 of the Competition Act refer to the EC group exemptions. Article 12 stipulates that the cartel prohibition does not apply to competition agreements to which Article 81(1) of the EC Treaty (European cartel prohibition) has been declared inapplicable pursuant to a Council or Commission Regulation. Discrepancies with the EC system Under the de minimis rule of Article 7 of the Dutch Competition Act, the cartel prohibition does not extend to agreements etc. involving no more than eight undertakings with a joint turnover of 4,540,000 euros (undertakings which mainly supply goods) or 908,000 euros (all other undertakings). This rule was introduced mainly to keep the system workable from an administrative point of view, but it can also be used to create scope for cooperation agreements between small and mediumsized companies. The Dutch de minimis rule is different from its EC counterpart. In the Explanatory Memorandum, the Dutch legislature explains that the Commission s de minimis Notice should not be taken into account when interpreting Article 6 of the Dutch Competition Act (cartel prohibition), although it is a guiding factor. The reason for this is that the criteria used in the Commission s de minimis Notice are specifically geared to the European market. Obviously, the turnover thresholds for the Dutch de minimis exemption will nearly always be lower than the market share thresholds stated in the Commission s de minimis Notice. Moreover, the Commission s de minimis Notice builds on the appreciability requirement, meaning that hardcore restrictions (such as price fixing) do not qualify for

6 exemption. They do qualify for exemption under the turnover threshold in Article 7 of the Competition Act, although the Netherlands Competition Authority has the power, under Article 9 of the Act, to declare the cartel prohibition applicable to hardcore cartels which are making use of the de minimis exemption. The prohibition of abuse of a dominant position does not provide for any exemptions, but does allow for the specific possibility of obtaining a waiver (Article 25 of the Competition Act). A waiver may be granted upon request to undertakings entrusted with the supply of services of general economic interest. Here, the Competition Act varies slightly from Article 86(2) of the EC Treaty, which exempts such undertakings from the prohibition.

7 3. Modernisation of EC Policy 3.1 General The Council considers it essential that, in amending the Dutch Competition Act, the legislature should follow European developments as closely as possible. Accordingly, this report looks at the most recent modernisation of EC policy, as laid down in Regulation 1/2003. This key piece of legislation describes how the core competition rules in the EC Treaty are to be applied in practice. At the heart of the policy change is the abolition of the duty of notification for obtaining a waiver from the cartel prohibition, and of the European Commission s monopoly to assess and grant such waivers. With effect from 1 May 2004, cartels which meet the conditions in Article 81(3) of the EC Treaty (production improvements, promotion of technical progress and so on) will be statutorily excepted from the cartel prohibition, and will no longer be required to notify the Commission in order to obtain a waiver. Also, the monitoring of compliance with the conditions of Article 81(3) of the EC Treaty has been decentralised. As from the effective date of Regulation 1/2003, the national courts and national competition authorities may go ahead and apply the entire body of competition rules laid down in the EC Treaty. 3.2 The Council s Views From waiver to statutory exception The system of the Dutch Competition Act corresponds with the operation of the EC cartel prohibition as contained in Article 81 of the EC Treaty. This means that cartels agreements between undertakings and decisions by associations of undertakings which appreciably restrict competition are prohibited, but a waiver from this prohibition can be obtained. The Competition Act provides for a waiver from the cartel prohibition in Article 17, which lists four cumulative conditions which must be satisfied, such as the requirement that the agreement must contribute to improving the production or distribution [of goods] or promoting technical or economic progress. Consumers are to benefit from these agreements, and there must be enough competition left as well. In order to achieve convergence, the Council believes that the Competition Act should follow the structure of the new EC system. Accordingly, the possibility of obtaining a waiver under Article 17 of the Competition Act should be converted into a statutory exception. Position of the judiciary With the decentralisation of EC competition policy, the national courts are given the power to apply all of the competition rules contained in the EC Treaty. This will lead to a substantial increase in the workload of the judiciary. The Council would, therefore, suggest that the Dutch Cabinet take timely measures to ensure that the judicial apparatus is properly equipped to take up its role in implementing EC and national competition policy. If this means that more staff are needed, the Cabinet will have to deliver the necessary financial resources.

8 Investigative powers of the Netherlands Competition Authority Under the new system, the European Commission is vested with further investigative powers, such as the power to search private residences. The Council believes that the Netherlands Competition Authority should only be given these powers subject to strict requirements. The entry of commercial premises and private residences should, for example, require a written decision from the Netherlands Competition Authority, stating the purpose of the investigation; in the case of private residences, prior authorisation from the Public Prosecutor should also be required. In the opinion of the Council, the bottom line for entering private residences should be that all statutory requirements imposed upon Dutch investigating authorities with similar powers of entry are satisfied. Moreover, the Council recommends clarifying the rights and duties relating to the entry and search of commercial premises and private residences. More specifically, it recommends that the NMa issue an information leaflet detailing the competition authority s powers (listing all instruments of investigation and describing the conditions under which they can be used) as well as the rights of the party affected by the investigation.

9 4. More Scope for Cooperation 4.1 Issue and Problems The review of the Dutch Competition Act bears out that small and medium-sized enterprises generally find the turnover thresholds for the de minimis exemption to be too low. Only small companies are likely to keep below the threshold. Relaxation of the de minimis exemption would give small and medium-sized businesses more leeway to successfully compete with large companies. In this view, higher thresholds would promote rather than restrict competition. Moreover, intensified cooperation could lead to innovation in the SME sector. Competition generally serves as a catalyst for innovation as companies are encouraged to continuously look for ways to maintain or strengthen their position. At the same time, certain forms of innovation such as systems aimed at improving quality require effective consultation and collaboration along the chain, as well as between competitors. Cut-throat (price) competition may drain the resources needed for innovation and quality improvement. Non-economic interests (cultural heritage, environmental effects) may also benefit from companies joining forces, and hence justify a (temporary) restriction of competition. According to the Netherlands Competition Authority, non-economic interests can play a role in deciding whether or not to grant a waiver from the cartel prohibition. This would only apply, however, to the economic effects of those noneconomic interests. The conclusion to be drawn from the review is that the Netherlands Competition Authority is rather reluctant to take non-economic interests into consideration. Nor does it appear to be using transparent criteria in its decision-making process. 4.2 The Council s Views De minimis exemption: a different criterion Convergence with EC competition law is also key to the issue of the de minimis exemption. The Council is of the opinion that the current criterion for the de minimis exemption a turnover threshold coupled with a limitation on the number of cartel members should be replaced by the system described in the European Commission s de minimis Notice, which uses a market share criterion for the de minimis exemption. This means that the threshold for applying the de minimis exemption expands and contracts with the size of the market. In the opinion of the Council, this is an important advantage over the turnover criterion, which puts in place a fixed threshold, regardless of the size of the market in question. Under the Commission s de minimis Notice, hardcore agreements (such as price fixing) are not allowed. This ought to be the same under the Dutch system. Some

10 members of the Council 2 are in favour of introducing as part of the de minimis exemption an explicit exemption for hardcore cartels, on the basis of the argument that the SME sector should be allowed to cooperate and form a countervailing force against purchasers with a dominant position further down the chain. and higher de facto thresholds As for the level of the market share thresholds, the Council would also adhere to the EC system: a joint market share of 10 per cent for horizontal price agreements and 15 per cent for vertical agreements. The Council considers it desirable that the threshold for applying the de minimis exemption be increased de facto by these percentages. There are two arguments for doing so. Firstly, it is of great importance that small and mediumsized companies, in particular, are given more leeway to join forces. This is essential not only to promote innovation among those companies, but also for them to achieve economies of scale and be able to form a countervailing force against dominant purchasers and suppliers, for example, through combined purchasing. Secondly, raising the threshold will render enforcement more effective, and prevent the Netherlands Competition Authority and the civil courts from being burdened with cases of minor or minimal importance. Specific exemption as an alternative An alternative to raising the de minimis threshold would be to allow an exemption on the grounds of Article 15 of the Competition Act. An exemption along these lines could be used more precisely to permit only those forms of cooperation which are considered desirable. A drawback of using such an exemption is that the government would have to decide (whether or not in consultation with trade and industry representatives) what forms of cooperation should be exempt from the cartel prohibition. On the basis of the above considerations, and with a view to keeping the system simple and effective, the Council would prefer to raise the de minimis threshold. Non-economic interests From the perspective of the broad definition of prosperity, it is important that noneconomic interests, such as culture and the environment, are given proper consideration when assessing anti-competition agreements. In principle, EC and Dutch competition law provides enough scope for taking these interests into account. The criteria for obtaining a waiver (or qualifying for a statutory exception) from the cartel prohibition are particularly relevant in this context. The Council would like to see this system kept in place and strengthened by updating and clarifying the criteria on the basis of which the regulator and the courts may take non-economic interests into consideration. This task should, first and foremost, be undertaken by the European Union because the Dutch criteria are derived from the EC Treaty. The Council would recommend that the Cabinet, at the first possible opportunity to amend the Treaty, insist on updating the criteria of Article 81(3) of the EC Treaty, which have been the same since Secondly, the Council considers it of great importance that the current criteria are 2 The Council members appointed by MKB-Nederland and LTO-Nederland.

11 properly interpreted. It is still unclear, for example, whether or not the European Commission allows non-economic interests to fulfil the criteria of Article 81(3) of the EC Treaty. The Council believes that non-economic interests should not just be assessed according to their economic impact (as the Netherlands Competition Authority does at present). In the light of the broad definition of prosperity, such interests form an integral part of the economic and technical progress criterion, which can be grounds to grant a waiver from the cartel prohibition (provided that the other conditions are also fulfilled, e.g. that sufficient competition is left).

12 5. Abuse of a Dominant Position 5.1 Issue and Problems The prohibition of abuse of a dominant position is one of the key provisions in the Dutch Competition Act (Article 24). The review shows that enforcing this prohibition is by no means an easy matter. The cartel authorities and the courts are faced with the difficult task of making a distinction between abuse of a dominant position and normal business conduct, especially when it comes to a company s pricing policy. The question arises, therefore, whether Article 24 of the Act should be amended to allow certain forms of ex ante regulation of companies with a dominant position. Heavy regulation could be introduced, such as regulatory approval of tariffs, or perhaps more lenient forms, such as a duty to supply information to competitors and purchasers. This issue also touches upon the problem of where to draw the line between general and specific competition regulation. Certain sectors are subject to specific competition rules in order to enable the transition from a monopoly market to a normal market. Once the transition gets underway, however, it would seem appropriate to review the relationship between sector-specific and general competition policy. The problem is that this is a difficult line to draw. 5.2 The Council s Views Clamp down on abuse The problem of applying Article 24 of the Competition Act is that it is a timeconsuming and tricky task to prove instances of abuse. The Council is of the opinion that enforcement of the prohibition could be improved by including in Article 1 of the Act a reference to the definition of the concept contained in Article 82 of the EC Treaty. That would give the courts the option of obtaining a preliminary ruling from the European Court of Justice, where necessary. 3 Ex ante regulation It does not seem desirable to the Council to amend Article 24 of the Act to allow forms of ex ante regulation on the basis of the prohibition. This would only add to the administrative burden of companies with a dominant position. Any such extra burden would not, in the Council s opinion, be justified. There is nothing to indicate that companies with a dominant position are causing large-scale problems for the Dutch economy. Similarly, the Council opposes amending Article 24 of the Act to enhance the operation of the market in other ways, such as by competition engineering (deliberately promote competition in relatively closed markets) and sector-specific regulation (tariffs and quality regulation). Efficient enforcement 3 The Dutch Consumers Association regards this solution unsatisfactory, and has argued in favour of including a non-exhaustive list of instances of abuse in the Competition Act.

13 However, the Council would recommend putting in place a procedure which should enable the Netherlands Competition Authority to enforce the prohibition on abuse of a dominant position in a more efficient way. One of the problems with enforcing the prohibition is that it usually requires conducting what is often a lengthy and costly audit. Such audits are necessary because abuse of a dominant position usually concerns a company s pricing policy (excessive, discriminatory or, indeed, too low prices). During the preliminary audit (when collecting financial data from the company s accounts), the Netherlands Competition Authority could use an additional tool. The Council recommends introducing the rule that, in certain cases, companies with a dominant position must come to an understanding with the NMa about how they render transparent the income and expenditure associated with a product or service for which they are the dominant provider. It is not for the Council to provide the precise details of such a rule. Suffice to say that the Netherlands Competition Authority should be given a tool which would make it easier for it to get companies to cooperate with such an arrangement. The rule should not, however, oblige companies to apply a specific costing method. That would be the subject of the negotiations. The legislation should merely define the end (transparency) and not the means (costing method).

14 6. Position of the Consumer 6.1 Issue and Problems The Dutch Competition Act is mainly concerned with companies: cartels, abuse of a dominant position, and concentrations are all actions undertaken by companies. Given the nature of the obligations and prohibitions it imposes, it is usually companies which file a claim under the Act. However, competition is not just about suppliers fighting each other. In order for competition to be effective, the relationships between suppliers and customers should also be taken into account. Consumers are, in fact, the eyes and ears of the Netherlands Competition Authority. As they buy finished and semi-finished products, they have direct experience with the behaviour of companies and hence are an important source of information in terms of investigating anti-competition activities. In executing this role, however, consumers are still impeded by a number of obstacles. Under the current policy, although individual consumers are regarded as claimants, they are not considered to have any interest in competition matters. As a result, consumers are left without any possibility of entering an objection or appeal against Authority decisions in cases where they filed a complaint. The review has shown that the majority of consumer complaints are followed up by an ex officio investigation. The position of non-interested parties would, therefore, appear to be reasonably safeguarded. It should be noted, however, that an ex officio investigation is often nothing more than a marginal examination of the data supplied. When dealing with consumer complaints in the past, the Authority has often used the argument that it has to set priorities, which has usually come down to any further investigation being dropped. 6.2 The Council s Views No amendment to the law and new tools The Council does not recommend amending the Competition Act or introducing new legal remedies to strengthen the position of consumers. An amendment to the Act would likely lead to a watering down of the concept of interested party as used in the Act, and include consumers which form part of a group (e.g. the clients of a supermarket). In its request for an advisory report, the government refers to a new legal remedy known in Britain as a super complaint. This remedy allows consumer bodies which are recognised by the British Ministry of Economic Affairs to submit a complaint on the grounds of the competition rules. The regulator is then obliged to issue a decision on the complaint within ninety days and announce any follow-up actions. More efficient use of existing legal remedies In the report, the Council stresses the need for a more efficient use of existing legal remedies. The General Administrative Law Act (Algemene wet bestuursrecht) allows consumers to unite in a legal entity, such as a foundation or an association. If one of the legal entity s objects is to serve the joint interests of the consumers in question, it may be regarded as an interested party by the Netherlands Competition Authority and the

15 civil courts. The decisions issued to date show that this has proved to be a successful approach. 4 The Council would recommend bringing this option to the attention of claimants by providing them with better information. The Authority s information leaflet about the Filing of Complaints, for example, fails to make any mention at all of the fact that claimants stand a better chance if they unite in a legal entity. Then there are specific interest groups which may play a role as well. If their objects are specific enough, they can act for their members or third parties as an interested party during complaint proceedings based on the Competition Act. Furthermore, the Council recommends that general interest groups, such as the Dutch Consumers Association although they cannot act as interested parties because of their broadly defined mandates should initiate or help consumers find others who are willing to unite in a legal entity and use this route to submit a complaint with the Netherlands Competition Authority. 4 Taking the position that stronger safeguards are needed for consumer organisations, the Dutch Consumers Association is in favour of introducing the super complaint in the Dutch legal system.