Opinion of the Economic and Social Committee on "Competition rules relating to horizontal cooperation agreements - Communication pursuant to Article 5 of Council Regulation (EEC) No 2821/71 of 20 December 1971 on the application of Article 81(3) of the Treaty to categories of agreements, decisions and concerted practices modified by Regulation (EEC) No 2743/72"(1)

(2001/C 14/03)

On 25 May 2000, the Economic and Social Committee, acting under Rule 23(2) of its Rules of Procedure, decided to draw up an additional opinion on the above-mentioned communication.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 27 September 2000. The rapporteur was Mr Regaldo.

At its 376th plenary session (meeting of 19 October 2000) the Economic and Social Committee adopted the following opinion with 93 votes in favour and one abstention.

1. Introduction

1.1. The two draft Commission regulations on the application of Article 81(3) of the EC Treaty to research and development agreements and specialisation agreements, and the accompanying draft guidelines on the applicability of Article 81 to horizontal cooperation, are the result of lengthy consideration of the need to reform and modernise competition policy regarding horizontal cooperation agreements.

1.2. The draft regulations and guidelines are designed to replace the current regulations on specialisation (Commission Regulation (EC) No 417/85) and research and development (Commission Regulation (EC) No 418/85), and the two notices on cooperation between enterprises(2).

1.3. The two draft regulations and the notices on the guidelines for horizontal cooperation agreements are to enter into force on 1 January 2001 and to apply for ten years, expiring on 31 December 2010.

A transitional period is scheduled from 1 January 2001 to 31 December 2001 during which agreements already in force on 31 December 2000 will not be subject to the Article 81(1) ban even if they do not satisfy the conditions laid down in the new regulations; they must however satisfy those of the existing regulations.

2. General comments

2.1. The Committee is pleased to note that the new proposed reform of horizontal agreements fits into - and must be analysed within the context of - the wider revision of competition rules, which was launched with the new rules on vertical agreements and the proposals set out in the White Paper on modernisation of the rules implementing Articles 81 and 82 of the EC Treaty. Taken together, these proposals radically alter the competition rules which have governed agreements over the past forty years.

2.2. The main points of the reform envisaged in the White Paper(3), such as the lifting of the notification obligation and the decentralisation to national level of the application of competition rules (Articles 81 and 82) with the move from an authorisation system to a directly applicable exception system, were weighed up by the Committee in its opinion(4) on the White Paper.

2.3. While the modernisation of competition policy proposed in the White Paper is to be welcomed (even though the details of the formal revision of Regulation 17(62) are not yet known), the reform is not without risks for Community competition rules on agreements between companies. The main risks relate to non-uniform application of the rules, market fragmentation and a renationalisation of competition policy.

2.4. The risk that Member States will differ in their assessments or take differing action - especially when dealing with agreements that fall outside Article 81(1), that exceed the market-share threshold of the block exemption regulations, or that are governed by non-binding guidelines - will create legal uncertainty for companies and may actually threaten the integrity of the single market.

2.5. The new rules on vertical agreements and those now being proposed for horizontal agreements are preliminary to the reform envisaged by the White Paper. They are thus vital for establishing clear, easy-to-apply rules that will enable companies and the Community and national authorities to interpret and apply competition law uniformly throughout the single market. The Committee thinks that the new block exemption regulations must therefore be designed in anticipation of decentralised application.

2.6. This is vital in order to give companies a high degree of legal certainty, particularly when they are called on to make a self-assessment of the economic and competition-related aspects of their agreements in the light of Community legislation and its application at both Community level and national level. If there is fragmentation, the Committee urges the Commission to take steps to achieve consistency.

2.7. On the latter point, previous Committee opinions have already discussed the principle of a one-stop shop, and decentralised application should make this a top priority.

2.8. The Committee is pleased to note that the Commission's approach to the proposed new regulations and guidelines is similar to that used for vertical agreements.

2.9. The new reform revamps the current legalistic interpretation of Article 81 in favour of more economic criteria, based on the concept of market power. Thus agreements will be assessed in the light of their impact on the relevant market.

2.10. By allowing certain agreements to enjoy legal certainty, the proposal rightly aims to make it easier for economic operators to respond to rapidly changing markets and adjust to the keener competition caused by globalisation and technical advances.

2.11. The Committee points out that the Commission proposal recognises the economic benefits of horizontal cooperation, and that this is an important instrument for helping SMEs adjust to market change particularly in the case of R& D agreements.

2.12. The Committee also recognises the competition problems that can be caused by concerted practices which can arise from horizontal cooperation, particularly between competing companies. As horizontal cooperation can take many forms, it is vital for companies to have a precise legal framework enabling them to weigh up both the anti-competitive effects and the benefits of cooperation under the terms of Article 81.

2.13. Here the Committee points out that although the guidelines setting out the criteria for assessing horizontal cooperation under Article 81 only supplement the block exemption regulations on R& D and specialisation agreements, the Commission also intends to apply them to agreements on standardisation, joint purchasing and joint marketing, which are not covered by block exemption agreements. In these latter cases there may be an objective risk of legal uncertainty in the assessment of the agreements. Therefore, the Committee calls on the Commission to develop a block exemption regulation which covers all types of horizontal cooperation similar to the block exemption regulation for vertical agreements, and to further study this question.

2.14. The new provisions abolish the current "white list" of explicitly exempted clauses. Instead, the Commission proposes to establish a safety zone allowing companies to conclude agreements with general exemption if their combined market share is below 20 % in the case of specialisation agreements and 25 % in the case of R& D agreements, on condition that they do not contain basic restrictions ("black list") such as price fixing, limitation of output, and sharing of market and customers, which would make the block exemption inoperable in practice.

2.15. The Committee notes that, assuming that legal certainty for companies is achieved, the reform of horizontal agreements is bound to help secure the economic benefits expected from better competition, and to pass these benefits on to all those affected by the companies' activities, in particular, the consumer.

2.16. The specific comments which follow are designed to increase legal certainty and sharpen up the proposals so that the abovementioned benefits are easier to achieve.

3. Specific comments

3.1. Introduction to specific comments

3.1.1. The Committee welcomes the Commission's acknowledgement of the need for reform in the field of inter-firm cooperation in research and development and specialisation agreements in relation to production of goods and provision of services. It also welcomes the Commission's endorsement of an economic approach to the assessment of such horizontal agreements as well as the proposed move away from a clause-by-clause approach to one which allows improved flexibility in the form of commercial agreements within the sphere of R& D, unilateral and reciprocal specialisation agreements and joint production agreements. In this connection, the Committee is pleased to see the proposed abandonment of the "white list" of exempted clauses.

3.1.2. The Committee welcomes in general the Guidelines which provide guidance which is more comprehensive than the earlier Notices and Regulations. The Committee nevertheless asks the Commission to take a more practical view in its guidelines on horizontal agreements. Companies, competition authorities and - in the future system of ex-post control - national courts need practical advice on how to apply the new rules for horizontal agreements.

3.1.3. While therefore welcoming the direction of this reform, the Committee wishes to make a number of suggestions for improvement based on its experience with industrial and commercial life.

3.2. Some issues common to the two draft regulations

3.2.1. The Commission appears to recognise the need for a reform of horizontal agreements on a scale similar to vertical agreements but has ended up with a two-tier approach. Only R& D and specialisation agreements received the benefit of the block exemption. A number of other horizontal agreements, e.g. joint purchasing agreements, commercialisation agreements and standardisation agreements are covered by the guidelines but not by the block exemption. The fact is that if the Commission recognises that such agreements are largely pro-competitive, they should in principle provide the legal certainty of a block exemption. It would be a pity if after all the efforts to achieve a new legal framework concerned with economic effects, we end up in a position where undertakings feel they have to distort horizontal agreements to fit into the existing block exemptions.

3.2.2. The Commission has not provided for retrospective notification of horizontal cooperation in the form of R& D and specialisation agreements. If it is concerned to encourage such agreements, would it not be appropriate to consider an amendment to Article 4(2) of Regulation 17 to allow retrospective notification of agreements as was enacted in the context of the new rules on vertical agreements? Such a step would go a long way to deal with the disquiet attached to the task of calculating market shares to which the Committee has drawn the Commission's attention in its past opinions. The Committee suggests that the Commission seek the necessary authorisation to make this change.

3.2.3. Furthermore the parties' good faith effort to evaluate their market share position should explicitly be taken into consideration in the regulation or guidelines.

3.3. The proposed R& D regulation

3.3.1. The Committee welcomes the wider scope and greater flexibility in the proposed new Article 1 as well as the abandonment of the framework agreement requirement. The Committee also welcomes the changes made to make the proposed new regulation more attractive to commercial and industrial undertakings. The R& D block exemption has not been one of the Commission's most conspicuous successes in the past. It is hoped that the Commission will consider some further changes to make the regulation even more "user friendly" than the proposed draft.

3.3.2. The Commission acknowledges the importance of R& D agreements for the ability of the EU to be competitive in the world markets. It has also acknowledged that the new legal framework is concerned with the encouragement of types of cooperation which potentially generate efficiency gains and specifically excludes other types of agreements between competitors such as information agreements or minority shareholdings. As it points out in its guidelines, the criteria of Article 81(3) can be assumed to be fulfilled particularly in the case of R& D agreements and production agreements where the combination of complementary skills or assets can be the source of substantial efficiencies (para. 38). The Commission also claims that it wishes this legal framework to provide a balanced assessment taking into account economic benefits as well as anti-competitive effects such as excessive market power, price and output fixing or market sharing.

3.3.3. The Committee wonders whether the Commission has got the balance entirely right in the proposed R& D regulation when it restricts the availability of the block exemption to agreements between competing manufacturers where the parties have a combined market share of no higher than 25 % of the relevant market. If the Commission accepts that the types of horizontal agreements are broadly speaking beneficial, then it would make sense to achieve consistency with the vertical agreements block exemption regulation and set it at 30 %. This is particularly true when the Commission has retained the safeguards of Article 5 in the proposed R& D regulation which appear to address all of the Commission's competition concerns with such agreements.

3.3.4. Furthermore, the Committee has concerns about the difficulties of calculating market shares in a field where the agreements often relate to new products and new types of innovation markets. In the circumstances, it would suggest that the Commission give more specific guidance in the guidelines in relation to the identification of markets and the calculation of market shares in the case of horizontal R& D agreements.

3.3.5. The Committee agrees with the Commission's decision to distinguish between R& D agreements between non-competing manufacturers and those between competing manufacturers. The Commission has exempted R& D agreements between non-competing manufacturers for the duration of such agreements but in the case where the results are jointly exploited the exemption is restricted to five years from the time the contract products are first put on the market.

3.3.6. The Committee wonders whether existing references in the proposed guidelines are adequate to deal with R& D agreements based on substantial investments which are not likely to be recouped in the five-year period. The Commission acknowledges in recital 11 of the proposed R& D regulation only that "The joint exploitation of results can be considered as a natural consequence of joint research and development."

3.3.7. The Committee's view is that joint exploitation is often more important than being merely a consequence. It can often be an essential prerequisite for undertakings to cooperate in the first place in risky investments. In the interests of promoting R& D cooperation, the Committee thinks that the expression of the principle of longer periods of exemption for joint exploitation where investments are made which are not likely to be recouped in five years, mentioned in paragraph 69 of the guidelines, should be stated in the recitals.

3.3.8. The Committee wonders if it is necessary for the Commission to insist in Article 2(3) of the proposed regulation on R& D that for "pure" R& D agreements to qualify for the exemption each party must be free to exploit independently the results of the joint research and development and any pre-existing necessary know-how. The Committee fails to understand why the policy expressed in Article 4(e) of the existing R& D regulation, which allows exploitation of R& D to be restricted between non-competitors to one or more fields of technical application, cannot be retained. The proposed change introduces a new rigidity into a situation where industry needs to be able to adapt.

3.3.9. The current draft regulation is silent on the question of the relationship between the R& D regulation and the technology transfer regulation. The Commission should at least state explicitly that parties to agreements covered by the R& D regulation may benefit from the rules of the technology transfer regulation.

3.3.10. The Committee is concerned about the Commission's use of the concept of products capable of being improved or replaced by the contract product which is used in the R& D draft for assessing whether manufacturers are competitors and whether they have market power. This too needs further clarification in the guidelines.

3.3.11. The Committee is also worried about the width of the definition of "competing manufacturers" because it extends to actual and potential competitors. The concept of potential competitors is too wide in this context. The Committee suggests that the Commission qualifies this term by changing it to "real potential competitors" as in the guidelines on vertical restraints. The Committee further suggests that the explanation of "real potential competitor" in the guidelines on vertical restraints should be incorporated in the guidelines on horizontal agreements.

3.3.12. The Commission appears convinced that it can remove the non-opposition procedure from its proposed R& D regulation because all restrictions will be dealt with in the new block exemption regulation on R& D. Yet these exemptions are subject to certain restrictions and a non-opposition procedure would be beneficial to the process of encouraging R& D agreements.

3.3.13. The Committee is in agreement in principle with the use of the black list as the limit to the block exemption. The Committee thinks however that the Commission should review its use of the black list to prohibit passive sales during the first five years from the time the contract products are first put on the market within the common market. The Commission should accept the need to provide protection to risky investments in new technology cooperation in R& D agreements just as it has in technology transfer agreements.

3.3.14. The Committee also fails to understand why the Commission insists on maintaining a "black list" in the de minimis notice. As the Committee pointed out in its opinion on vertical agreements, this step is not consistent with an "economic" approach to the regulation of commercial agreements. The Committee calls for a revision of the de minimis notice.

3.4. The proposed specialisation block exemption regulation

3.4.1. The Committee welcomes the widened scope of the proposed new Article 1 to cover unilateral and reciprocal specialisation agreements as well as joint production agreements and ancillary provisions and to extend to products in the form of services.

3.4.2. The Committee also agrees with the simplification of related purchasing and marketing agreements and with the Commission proposal's deletion of the turnover threshold.

3.4.3. The Committee thinks however that the 20 % market share limit is too low. It recommends an increase to 25 %, bearing in mind the protections of the black list in Article 4.

3.4.4. The Committee also recommends the retention of the non-opposition procedure.

3.5. Joint purchasing agreements

3.5.1. The Committee wonders why joint purchasing agreements have been singled out for inconsistent treatment. In the first place, as horizontal agreements, they are covered by the guidelines but not by a block exemption, but as vertical agreements some are covered by the block exemption, e.g. those under 50 million Euro turnover for each company. Secondly, as horizontal agreements they are given a maximum market share of 15 % but as vertical agreements they may rise to a market share of 30 %. The Committee wishes the Commission to look again at these discrepancies and keep this area of joint purchasing agreements under constant review.

3.5.2. The Committee shares the Commission view that is indispensable for SMEs to cooperate in buying, as also the view expressed in paragraphs 107-108 of the guidelines, and consequently asks the Commission to show flexibility in assessing these agreements. In particular, the Commission should better clarify the different horizontal and vertical aspects of such agreements.

3.5.3. The Committee however disagrees that joint buying is to be assessed by taking into account a 15 % combined market share on both the purchasing market(s) and the selling market(s). This underestimates the pro-competitive effects of joint buying and overestimates the negative effects on competition of a 15 % market share. Furthermore this would trigger application of Article 81(1) to joint purchasing agreements even if there is no negative effect on competition. The Committee is concerned that paragraphs 122 and 141 of the guidelines fix a 15 % maximum market share and urges the Commission to increase this ceiling to 20 % for SME joint purchasing.

3.5.4. The Committee suggests that the Commission provide clearer methodology in order to help companies evaluate the economic effects of the horizontal and vertical agreements on the relevant market. The Committee is of the opinion that all the buying activities of groupings are to be considered more vertical than horizontal in essence. The Committee also believes that due to the specificity of purchasing agreements, the Commission has to focus more prominently on the market downstream where the participants of the joint purchasing agreements are active as sellers.

4. Conclusions

4.1. In the light of the above general and specific comments, the Committee expresses its satisfaction with the considerable work carried out by the Commission and therefore broadly supports the proposed reform of horizontal cooperation agreements.

4.2. The Committee is nevertheless concerned with the partial nature of the reform. The Committee would prefer a single comprehensive block exemption on horizontal agreements, so that all relevant agreements obtain the benefit of the block exemption

4.3. The Committee would also like to see retrospective notification of horizontal agreements as is the case for vertical agreements, and would like the Commission to take steps to resolve this problem.

4.4. The Committee recognises that the Commission would need a specific mandate from the Council for this. It therefore urges the Commission to seek such a mandate.

4.5. The Committee would also recommend:

- a market share of 30 % for research and development agreements

- a market share of 25 % for specialisation agreements

- a market share of 20 % for SME joint purchasing agreements.

4.6. The Committee points out that the new rules on horizontal agreements and those on vertical agreements are preliminary to the reform envisaged by the White Paper and must therefore be designed in anticipation of decentralised application.

4.7. The Committee urges the Commission to recognise the need for transparency, clarity and simplicity, and this requires less complexity in the legal framework particularly in the case of the market share requirements.

4.8. The Committee recommends that the transitional period for adaptation of the existing rules to the new provisions be extended from one year to two, i.e. to 31 December 2002. Until then, agreements which comply with the existing rules should be allowed to continue unchanged.

Brussels, 19 October 2000.

The President

of the Economic and Social Committee

Göke Frerichs

(1) OJ C 118, 27.4.2000.

(2) OJ C 75, 29.7.1968 and OJ C 43, 16.2.1993.

(3) White Paper on modernisation of the rules implementing Articles 81 and 82 of the EC Treaty.

(4) OJ C 51, 23.2.2000.