Opinion of the Economic and Social Committee on the 'Green Paper on the review of the Merger Regulation` (96/C 295/04)

On 2 February 1996 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the 'Green Paper on the review of the Merger Regulation`.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 19 June 1996. The rapporteur was Mr Bagliano.

At its 337th Plenary Session (meeting of 10 July 1996), the Economic and Social Committee adopted the following Opinion by 96 votes to one, with two abstentions.

1. Introduction

1.1. The Green Paper has been issued two and a half years after the Report to the Council on the first three years of operation of the Merger Regulation (COM(93) 385 final of 28 July 1993).

1.2. Such a review ('before the end of the fourth year following... adoption`) is explicitly provided for in Article 1(3) (thresholds) and Article 9(10) (referrals) of Regulation 4064/89 (). Moreover, when the Regulation (which came into force on 21 September 1990) was adopted, the Commission and the Council both expressed their intention of making further changes regarding credit institutions, calculation of turnover, and transparency. These are also the limits of the review.

1.3. Following the 1993 Report (), the Council accepted the Commission's proposal to postpone the deadline for re-examination of the Regulation from the end of 1994 to the end of 1996, so it is timely that the Commission should present this Green Paper at the beginning of the year.

1.4. The Green Paper fleshes out the themes and findings of the 1993 Report.

Chapters cover:

- The 'one-stop shop` principle.

- Thresholds.

- The two-thirds rule.

- Referrals.

- Concentrative and cooperative joint ventures.

- Commitments made in phases 1 and 2.

- Credit and financial institutions.

- The transparency of the decision-making process.

Additional ad hoc paragraphs cover:

- Multiple notifications.

- The situation in the Member States.

There are also more substantial analyses of the major problems relating to:

- Joint ventures (concentrative and cooperative).

- Referral procedures (Articles 9 and 22 of Regulation 4064/89).

1.5. On certain matters the Commission states or clearly indicates (with justification) its preferences among the various options.

1.6. This is thus a Green Paper with facets of a White Paper. However, the Committee considers this a highly positive aspect of the document, as it could hasten proceedings whilst maintaining transparency and fully involving all the interested parties, facilitating work on matters that have been clearly and exhaustively described and documented.

2. Preliminary considerations

2.1. Almost all the subjects scrutinized in the Green Paper have already been discussed in the ESC Opinions of 1994 and 1995 ().

However, the Committee welcomes the chance to reconsider the matter in its entirety, in the light of the latest thinking at the Commission, again within the limits of the review.

2.2. The Committee congratulates the Commission on the scrupulous and diligent manner in which it has consulted enterprises, associations, lawyers, experts and the Member States themselves on this occasion.

This was also the case when the 1993 Report was being drawn up; for the Green Paper the process was however repeated on a broader front, using questionnaires to glean detailed information and general comments. Thus all parties have been able to express their feelings and describe their experiences, enriching and extending the information available to the Commission.

2.3. Although the matter under discussion is limited to a 'review` of a Regulation which has been in operation for some years, and focuses on specific issues, it should nonetheless be borne in mind that the Regulation is an instrument for controlling competition rather than an end in itself, and has the ultimate aim of encouraging both competition and cooperation between companies.

2.4. Firstly, when implementing the requisite improvements to the Regulation, bureaucratic and restrictive measures should be scrupulously avoided. Instead the emphasis should be on simplifying the formalities and improving clarity, in a climate of increasingly transparent and dynamic competition.

2.5. Merger control measures must ensure and promote fair and effective competition, with particular emphasis on the requirements of SMEs. Account must also be taken, however, of the need to develop economic and productive structures for the purpose of ensuring ever-greater competitiveness for the overall Community economy on world markets. In any case, Community merger control must be considered within the context of the world economy, in order to take account of an ever-increasingly competitive international situation.

2.6. The Committee is pleased to note the Commission's efforts to deepen the debate and to open it up to contributions from all the interested parties.

In this spirit, and to support the Commission's position vis-à-vis the Council and the Member States, the Committee recommends that discussions should not be confined to certain participants. They should involve all the interested parties, and should also deal with the social effects of restructuring the economy.

3. The Community dimension - the subsidiarity and 'one-stop shop` principles

3.1. Because of their fundamental importance, two concepts need to be taken into account when assessing whether a concentration has a 'Community dimension` (and thus falls within the ambit of Regulation 4064/89 et al.):

- The subsidiarity principle.

- The 'one-stop shop` principle.

3.2. In its 1994 Opinion (1.5) the Committee stressed the need for a correct interpretation of the subsidiarity principle.

3.3. To that end the terms of the Treaty itself regarding agreements between undertakings (Article 85) are undoubtedly a useful guide for correct interpretation.

Indeed, when attempting to define the 'Community dimension`, the criterion of potential effects on trade between Member States (Article 85(1)) is consistent and convergent with that of 'effects of a merger extending beyond the borders of a Member State`, as the Commission itself points out. It is this criterion which the Commission is emphasizing when it coins the term 'mergers with significant cross-border effects`.

3.4. The Committee broadly agrees that concentrations having 'significant cross-border effects` should be considered as having a Community dimension.

3.5. Conversely, it clearly makes sense for any merger carried out within a single Member State to remain within the competence of the Member State in question (1995 ESC Opinion, 2.3.1).

3.6. The Community dimension, on the other hand, logically implies Community responsibility for control of concentrations.

In this regard the 'one-stop shop` principle guarantees uniform rules, conditions and criteria for assessment and thus ensures certainty in legal relations.

The Committee, as in its 1995 Opinion (2.2), agrees with the observations on this matter in point 28 of the Green Paper, which hint at the Commission's preferred option: 'It is important that the extent and the manner in which concentrations with significant cross-border effects are controlled should be uniform throughout the Community.`

4. Turnover thresholds

4.1. To ensure an acceptable level of legal certainty when evaluating whether there are significant cross-border effects on the EU market, it is necessary to determine whether certain thresholds are exceeded, namely the aggregate world-wide turnover of all the undertakings involved and the Community turnover of at least two of them.

This is necessary regardless of the level at which the thresholds are actually set, which is now under discussion.

4.2. The Commission's thoughts on this matter (Green Paper, points 31 to 47) bear out the criticisms made by the Committee in its 1994 Opinion (2.6).

The Commission, in the light of its inquiries, suggests (Green Paper, point 34) that 'a considerable number of concentrations with significant cross-border effects` still fall outside the jurisdiction of Regulation 4064/89.

4.3. The points put so clearly by the Commission on the basis of a sector-by-sector analysis are undoubtedly an accurate reflection of the situation. The conclusion that 'the current thresholds catch only a small percentage of European companies` (point 46 of the Green Paper) implicitly supports the case for lowering the thresholds.

The Committee still favours such a move, although it also recognises the merits of a number of promising alternative solutions (as will be shown later) which are in the final analysis preferable to the status quo (see sections 4.6 and 5 below and points 72 to 88 of the Green Paper).

4.4. The Committee's 1994 Opinion proposed a prudent and realistic 'phased` reduction of the thresholds.

As a concrete proposal, and as an alternative to a simple reduction (from five to two), the Committee feels that the ECU 5 billion threshold for world turnover could be lowered to an intermediate level between 5 and 2 billion (and likewise a figure between ECU 250 and 100 million for Community turnover), with a review of these levels four years after their introduction, similar to the procedures operated under Article 1(3) of the Regulation.

4.5. Furthermore, the criterion of a prudent, gradual, realistic and flexible approach is implicit in Article 1(3) of Regulation 4064/89 (and in the tenth recital), which provides for a review to ascertain whether the merger control is commensurate with the primary objective mentioned in the Regulation (first recital).

4.6. However, the decision on this matter, which needs to be taken without further delay, should be influenced only by practical experience, not by other (e.g. political) considerations. The Committee has already noted its view (1994 Opinion, point 2.6.2) which it reiterates here: amendment of the Regulation is both necessary and urgent.

4.7. Any estimate of the number of extra concentrations which the Commission would have to examine if the thresholds were lowered is not merely difficult (Green Paper, point 69) but in many respects arbitrary.

In any case the Committee feels that the Commission is in a position to manage its resources so as to deal flexibly and adequately (and hence efficiently) with an increased workload without allowing standards to slip (Green Paper, point 71). Close cooperation with the national authorities could undoubtedly be useful here.

4.8. Finally, the Committee agrees with the Commission's assessment that the impact of inflation and the enlargement of the Union on the existing thresholds is limited (Green Paper, point 68).

5. The 'two-thirds` rule

5.1. Article 1(2) of the Regulation excludes concentrations where more than two thirds of aggregate Community-wide turnover is within one Member State.

In both its 1994 and 1995 Opinions (points 2.7.2 and 2.3.2 respectively), the Committee called for the lifting of this criterion which excludes concentrations from Community control.

The fact that a large part of turnover is derived in one country does not necessarily mean that a merger is not of Community significance. Many manufacturing and service sectors would be excluded despite the fact that their geographical reference market extends far beyond the national market.

6. Multiple notifications

6.1. The Green Paper (points 72 to 88) brings new light to bear on the problem of concentrations notified to more than one Member State (multiple notifications), and presents an interesting range of possible solutions.

6.2. These new ideas for resolving the problem of multiple notifications of concentrations that fall below the thresholds set out in Regulation 4064/89 might also offer a useful alternative course of action should no consensus be reached on lowering the thresholds.

6.3. There is a widespread feeling that, in practice, notifying the authorities of more than one country incurs greater costs and legal uncertainty.

6.4. Another consequence is the possibility of varying or even contradictory assessments, unlike the Community 'one-stop shop`.

6.5. Concentrations which are subject to multiple notification (in several Member States) are deemed to have 'significant cross-border effects` and thus some significance to the Community, even though they fall below the world-wide and Community turnover thresholds that confer a 'Community dimension` under Article 1 of Regulation 4064/89.

It would thus seem reasonable for these concentrations to be examined at Community level.

6.6. The Commission studies clearly demonstrate the variations in the forms and procedures used in national merger control systems, not least as regards the optional or compulsory nature of the notification.

The Committee agrees with the Commission (Green Paper, point 74) that the (albeit desirable and necessary) harmonization of national systems would be a lengthy process and would still not remove the problem of parallel Community and national jurisdictions. Nevertheless, this is the path to follow.

6.7. Furthermore, when dealing with concentrations with cross-border effects which, although significant, fall below the Regulation 4064/89 thresholds, the choice of which authority to notify cannot be left to the discretion of the business involved.

6.8. One solution to the problem of multiple national filings (Green Paper, point 77) could, if thresholds remain unchanged, be to extend the jurisdiction of the Commission to include those concentrations falling below the thresholds but still coming within the jurisdiction of more than one national system.

The criterion would thus be the existence of multiple filings, which in itself could justify the assumption of Community significance, irrespective of whether notification was optional or compulsory under national legislation. Assessment of whether national thresholds were reached would obviously be a matter for the Member State.

6.9. In practice, any concentration which has to be notified to two national systems, and hence two Member States, is, as the Commission notes (Green Paper, point 80), likely to have significant cross-border effects.

In this case the Commission concludes that the concentration should benefit from the 'one-stop shop` of the Community Regulation; the Committee agrees.

6.10. Taking account of feedback from the Member States, the Commission also feels that further consultations should be held regarding the case for only allowing this option when three Member States are involved rather than two.

The Committee feels that when only two Member States are involved it is neither certain nor even very probable that 'any problems could be more or less adequately solved through bilateral coordination` (Green Paper, point 80).

The Committee considers that there are no reasons for limiting the definition of significant cross-border effects and thus the concept of 'Community dimension` to cases involving a minimum of three Member States.

6.11. Quantitative yardsticks will inevitably be necessary if the existence of several filings (see 6.8 above) is not felt to provide a sufficient criterion for defining the 'significance` of cross-border effects that give a 'Community dimension` to concentrations subject to multiple notification.

These might involve twin thresholds, with a range of worldwide turnover between ECU 5 billion and a lower figure to be determined (e.g. ECU 2 billion) and Community turnover between ECU 250 million and a lower figure to be determined (e.g. ECU 100 million); within these ranges, a concentration subject to more than one national notification would be deemed to have a Community dimension.

6.12. Regarding procedural matters, the Commission - quite reasonably - proposes leaving the application of their own national thresholds up to Member States.

In this and other procedural aspects the Committee is in agreement with the Commission that 'during the consultation period following the adoption of the Green Book` (sic) there will be an 'opportunity to examine this issue` (Green Paper, point 85).

However, it is important to ensure rapid procedures, simple forms and shorter deadlines, so as to keep costs below those involved in notification to several Member States. The 'one-stop shop` must be economically attractive as well as more suitable from the legislative angle.

7. Referral procedures

7.1. Referral to national authorities 7.1.1. Both the Committee's 1994 and 1995 Opinions (2.10 and 3.3.2 respectively) pressed for a narrow interpretation of this provision, which is effectively a derogation.

The few instances in which the provision has been applied have shown that the Commission has indeed followed this line.

7.1.2. However, if the thresholds are lowered, the probable increase in applications for referral to national authorities should under no circumstances lead to a more elastic interpretation of Article 9 of Regulation 4064/89.

7.1.3. The basic criterion used must continue to be that of effect on the market. If only a non-substantial part of the common market is involved, or a local or regional market within one Member State, then it is correct to apply Article 9. The Committee supports the Commission's concern not to undermine the 'delicate balance` of the existing legislation (Green Paper, point 94). The balance is however never particularly delicate when the application of the law is consistent with the aims of that law and the complex realities of the marketplace are correctly assessed.

7.1.4. The Regulation must be applied with due flexibility. Accordingly, in the interests of consistency, account must be taken of the 'one-stop shop` principle and the need to ensure the highest possible degree of legal certainty for undertakings.

7.1.5. The Committee agrees with the Commission that it would be appropriate to issue an interpretative notice on the matter, pursuant to the interests of effective control of concentrations and the safeguarding of fair, healthy competition at both EU and international level.

7.2. Referral to the Commission 7.2.1. Article 22(3) of Regulation 4064/89 allows Member States to ask the Commission to apply the Merger Regulation to concentrations which, while lacking a Community dimension, could create or strengthen 'a dominant position as a result of which effective competition would be significantly impeded within the territory of the Member State concerned`.

The Commission proposes that this 'useful tool` (Green Paper, point 97) be retained, but suggests a few procedural changes.

7.2.2. The Committee reaffirms the principle that the referral procedure should operate in both directions and that 'in cases where the merger has actual or potential implications for the common market, the Member States should be obliged to submit notified mergers to the Commission for appraisal` (1995 Opinion, 3.3.3). The referral procedure could be initiated at the request of a firm concerned, a Member State or automatically, and hence also by the Commission itself. It therefore agrees with the Commission that this is a useful provision which is worth refining.

8. Joint ventures

8.1. Definitions Following the notice of 21 December 1994 () which revised, clarified and broadened the criteria, it is possible to distinguish more clearly between concentrative and cooperative joint ventures (1994 ESC Opinion, 2.15).

8.2. However, the procedural and practical problems remain, along with the need (as the Commission admits) to 'make the system simpler, more transparent, and more effective` (Green Paper, point 106). In particular, and even after the amendments to the Regulations implementing Article 85(3), the procedural treatment accorded to cooperative joint ventures of a structural nature is still felt to be less favourable (slow procedures, legal uncertainty) than that applied to concentrative joint ventures (fast procedures, legal certainty). Yet they both have similar effects on the structure of the market.

8.3. The Commission puts forward five options in the Green Paper (point 107). Three of these are purely procedural, while two are both procedural and substantive.

8.3.1. The Committee feels that, despite the Commission's careful consideration and analysis, the substantive solutions do not yet offer real security of interpretation. More experience and further thought are needed before any steps are taken to amend the substantive assessment criteria.

8.3.2. For example, the definition of a 'cooperative full-function joint venture of a structural nature` contains two concepts, namely that of a 'full-function` joint venture and that of 'cooperation of a structural nature`.

The legal and economic strands are closely intertwined, and individual cases also differ from sector to sector (commodities, manufactures, services). Drawing up a definition which is both economically and legally sound is clearly a complex matter.

8.3.3. Furthermore, considering that, as the Commission points out (Green Paper, point 105) 'there is a basic difference between restrictions of competition, to be assessed under Article 85, and concentrations` (which fall within the field of application of Regulation 4064/89), it is clearly difficult to reach rapid agreement on the definition which offers the greatest legal certainty.

8.3.4. The Committee thinks that the most practicable answer in the short term lies in one of the three procedural options, as the Commission can more profitably and quickly use these to devise a framework that is acceptable to all parties and in particular to businesses, which are the most directly affected.

8.3.5. Of the three procedural options, the Committee proposes that the Commission explore option a), which envisages an ad hoc regulation designed to simplify procedures, speed up decisions and guarantee greater legal certainty.

9. Commitments in merger cases (Green Paper, points 122-126)

9.1. Under Article 8(2) of Regulation 4064/89, it is only in Phase 2 (i.e. after the start of the four-month procedure) that the Commission 'may attach to its decision conditions and obligations intended to ensure that the undertakings concerned comply with the commitments they have entered into vis-à-vis the Commission with a view to modifying the original concentration plan`.

9.2. However, the Commission also accepts commitments in Phase 1 (i.e. when the decision is made within a month) in the case of concentrations for which the competition concern is clear-cut, limited and easily remedied, and compliance easily monitored.

9.3. In the interests of legal certainty, the Commission feels that the Regulation could usefully be amended so that the Phase 2 procedure could also be used in Phase 1.

The Committee endorses this.

9.4. In all its previous Opinions, the Committee has been adamant that deadlines should not be extended. It therefore feels that the most appropriate of the three solutions proposed in the Green Paper, and the one most in keeping with the structure of Regulation 4064/89, is 'a mechanism comparable to Article 9 (...); commitments would have to be submitted within three weeks from notification and phase 1 would be extended to six weeks` (Green Paper, point 126). It is difficult to envisage shorter deadlines.

10. 'De minimis` operations

The Commission's analysis and findings (Green Paper, points 127-134) accord with the 1994 and 1995 ESC Opinions (2.16 and 3.4.2 respectively).

In particular, if, as the Commission proposes, the simplified notification is backed by easier compilation of form CO and a short-form decision procedure, all remaining problems would be satisfactorily resolved.

11. Credit and financial institutions - calculation of turnover

11.1. The Commission (Green Paper, points 135-141) is considering changes that for the most part take account of the criticisms made in the Committee's 1994 and 1995 Opinions (points 2.13 and 2.4.2 respectively).

11.2. In particular, the Committee reiterates the case for defining turnover not in asset terms (one tenth of total assets), but in terms of banking income, as this not only 'would more properly reflect the economic reality of banks' operations` (Green Paper, point 138) but is also more in keeping with the definition of business turnover.

11.3. This leaves the question of whether to use gross or net income. The Commission feels that there is a case for using gross banking income to calculate turnover, but reserves the right to examine 'which of the two types of banking income would more accurately reflect the economic reality of the whole banking sector`.

The Committee supports the Commission line that gross banking income should be used for calculating turnover: this method is consistent with the Commission's general approach in calculating turnover figures in the 'processing industries` and 'services` sectors.

12. Conclusions

12.1. The Committee congratulates the Commission on the scrupulous and diligent manner in which it has consulted enterprises, associations, lawyers, experts and the Member States themselves on this occasion.

12.2. Merger control measures must ensure and promote fair and effective competition, with particular emphasis on the requirements of SMEs. Account must also be taken, however, of the need to develop economic and productive structures for the purpose of ensuring ever-greater competitiveness for the overall Community economy on world markets. In any case, Community merger control must be considered within the context of the world economy, in order to take account of an ever-increasingly competitive world situation.

12.3. The Committee recommends that discussions should not be confined to certain participants. They should involve all the interested parties, and should also deal with the social effects of restructuring the economy.

12.4. The Committee confirms the validity of the 'one-stop shop` principle, which guarantees uniform rules, conditions and criteria for assessment and thus ensures certainty in legal relations, and recommends a modern simplification of the formalities and clearer legislation.

12.5. The Committee favours a lowering of the thresholds. If agreement cannot be reached on lowering the thresholds to ECU 2 billion (world turnover) and ECU 100 million (Community turnover), an intermediate figure could be considered. At all events, a decision needs to be taken without further delay. If no lowering of the thresholds can be agreed upon, then alternative ways of solving the multiple notification problem (which the Commission is examining in detail) could produce constructive results.

12.6. The Committee considers it logical that concentrations subject to multiple notifications which are not covered by Article 2 of Regulation 4064/89 be examined at Community level. For this it proposes a range of turnover thresholds to establish the existence of 'significant` cross-border effects.

12.7. The Commission should be able to adjust its resources to the possible increased workload, with cooperation from the national authorities.

12.8. The Committee reiterates its call for the lifting of the 2/3 rule in a single market which is now a fact of life.

12.9. The Committee reiterates the validity of the procedure for referrals to national authorities (Article 9(2) of Regulation 4064/89), but emphasizes that the referral procedure must operate in both directions.

The implementing procedure for Article 22(3) of Regulation 4064/89, which covers referral to the Commission, should therefore be improved.

The referral procedure could be initiated at the request of a firm concerned, a Member State, or automatically, and hence also by the Commission itself.

12.10. The Committee recognizes the difficulty of devising procedures which do not discriminate between cooperative joint ventures and concentrative joint ventures, and which offer the same speed and legal certainty for both categories.

To this end, and pending clarification of the related legal and economic considerations, the Committee suggests that the Commission consider an ad hoc regulation designed to simplify procedures, speed up decisions and improve legal certainty.

12.11. As regards the commitments which undertakings enter into with a view to modifying the original concentration plan, the Committee endorses the Commission's suggestion that the Phase 2 procedure laid down in Regulation 4064/89 could also be used in Phase 1.

12.12. The Committee favours further streamlining of the simplified notification procedure for 'de minimis` operations.

12.13. The Committee supports the Commission line that gross income should be used for calculating turnover figures in the banking sector.

Done at Brussels, 10 July 1996.

The President of the Economic and Social Committee Carlos FERRER

() Regulation 4064/89 of 21. 12. 1989, in OJ No L 395, 30. 12. 1989.

() ESC Opinion in OJ No C 388, 31. 12. 1994.

() OJ No C 388, 31. 12. 1994 and OJ No C 18, 22. 1. 1996.

() OJ No C 385, 31. 12. 1994.