Opinion on the proposal for a Commission Regulation (EC) on the application of Article 85(3) of the EC Treaty to certain categories of motor vehicle distribution and servicing agreements

(95/C 133/09)

On 20 December 1994 the Economic and Social Committee, under the second paragraph of Article 23 of its Rules of Procedure, decided to draw up an Opinion on the abovementioned proposal.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 1 March 1995. The Rapporteur was Mr Moreland.

At its 324th Plenary Session (meeting of 29 March 1995) the Economic and Social Committee adopted the following Opinion by 70 votes for, with none against and 11 abstentions.

1. Background

1.1. Article 85(1) of the EC Treaty prohibits undertakings entering into agreements which restrict competition and affect trade between Member States. However, in accordance with Article 85(3), Council Regulation 19/65 permits the Commission by regulation to declare that Article 85(1) shall not apply to certain categories of agreements.

1.2. In 1984, the Commission adopted Regulation 123/85 which block exempts certain agreements for motor vehicle distribution and services. Regulation 123/85 came into force on 1 July 1985 and expires on 30 June 1995.

1.3. Regulation 123/85 exempts agreements between vehicle manufacturers and dealers under which the manufacturer grants the dealer an exclusive territory. The Regulation also applies to this type of agreement where the manufacturer imposes, inter alia, the following obligations on the dealer:

- an obligation not to sell competing motor vehicles. The manufacturer can extend this obligation to cover all companies in the dealer's group;

- an obligation not to seek customers outside the dealer's allotted territory;

- an obligation not to sell or use competing spare parts which do not match the quality of the manufacturer's spare parts;

- an obligation to supply only end users or authorized resellers within the manufacturer's distribution network.

In general, the Regulation only applies if the agreement is for a minimum fixed period of four years or an indefinite period with at least a one-year notice period.

2. The Commission's proposal

2.1. On the expiry of Regulation 123/85 the Commission proposes to replace it with a new regulation, based on Regulation 123/85 but including various changes which are designed to establish a better balance between the various parties involved primarily by giving dealers greater independence from manufacturers, and independent spare-part manufacturers and distributors easier access to the various markets and by increasing consumer choice.

2.2. The main changes are as follows:

- Manufacturers will no longer be able to prevent dealers selling competing motor vehicles if such sales are made by a separate legal entity on separate sales premises and under separate management.

- Under Regulation 123/85, a manufacturer relying on the block exemption is permitted to impose sales targets on the dealer and oblige the dealer to keep a minimum stock and a minimum number of demonstration vehicles. In the absence of agreement between the manufacturer and the dealer as to the minimum sales target, amount of stock and number of demonstration vehicles, the manufacturer is to set these on the basis of estimates. Under the new proposal, in the absence of agreement, these matters must be referred to arbitration.

- The minimum duration for fixed term agreements is to be raised from four to five years and the minimum notice period for indefinite duration contracts will be increased from one to two years.

- Under Regulation 123/85, the manufacturer can reserve the right to alter the allotted territory or appoint other dealers in it during the contract period. This option does not appear in the proposed new regulation. Instead, where there is an urgent need for restructuring established by the parties through agreement or arbitration, the manufacturer can terminate the agreement by giving six months notice.

- Manufacturers will no longer be able to prevent dealers seeking customers outside their allotted territory by advertising.

- Manufacturers will lose the benefits of the block exemption not only if they restrict the freedom of dealers to purchase third party spare parts matching the quality of the manufacturers' spare parts but also if they restrict the freedom of independent producers to supply spare parts to resellers of their choice.

- Manufacturers will lose the benefit of the block exemption if they do not supply to independent garage owners the technical information they require to provide repair services on their vehicles (provided this is not covered by industrial property rights or does not constitute secret know-how).

- Changes have been made to ensure that leasing companies which do not transfer ownership of vehicles or give customers an option to purchase the vehicles prior to expiry of the leasing contract are not classified as resellers (in which case dealers could refuse to supply them because they are not authorized dealers).

2.3. It is proposed that the new regulation will exempt agreements falling within it until 30 June 2005.

3. General Comments

3.1. The Committee accepts that it is necessary to replace Regulation 123/85 on its expiry. The EFTA Surveillance Authority's view that passenger cars are no more sophisticated than other technically complicated consumer durables which do not benefit from a specific block exemption is noted. However, a fundamental and immediate alteration of the existing distribution system would be damaging to the ability of European motor vehicle manufacturers to compete on the global market and to the interest of consumers in benefiting from an efficient motor vehicle distribution system. The Committee therefore favours a replacement regulation. Subject to the specific comments below, the Committee welcomes the Commission's proposal and considers that it should operate to the benefit of vehicle manufacturers, spare part manufacturers, dealers and consumers.

3.2. According to Article 11.3 of the draft regulation, there is to be a report on the evaluation of the replacement regulation on or before the end of 2000. If it is anticipated at that stage that the replacement regulation will not be renewed after 2005, a clear statement to this effect should be published to give the motor vehicle industry ample time to adjust to the new regime.

4. Specific Comments

4.1.

Recital 9 last sentence (also Article 3.8 (b))

It should be made clear that dealers can contact customers by communication through the media aimed partly or wholly at areas outside the dealer's territory.

4.2.

New Recital

See 4.5 below.

4.3.

Article 3.3

The Committee agrees with the general principle that a dealer's freedom to distribute vehicles of other makes should be conditional, inter alia, on the dealer exercising this activity in separate sales premises, under separate management and in the form of a distinct legal entity. However, the Commission should clarify what is meant by 'unfair trading practices' or delete the reference to such practices.

4.4.

Article 3.8 (b)

See 4.1 above.

4.5.

Article 3.11

This Article allows manufacturers to oblige dealers to sell vehicles to consumers using the services of an intermediary only if the intermediary, inter alia, has prior written authority to purchase from the consumer. The Committee recommends that a new recital be inserted between recitals (9) and (10) drawing attention to the fact that both the Commission (in its 1991 Notice) and the Court of Justice (in the Peugeot/Ecosystem case) have provided clarification on the concept of an intermediary as used in this Article.

4.6.

Article 4.1 (3), (4) and (5) (and also Article 5.4 and Article 10.14)

4.6.1. The Commission has introduced the concept of 'arbitration' to resolve disagreements between manufacturers and dealers over sales targets and minimum stock and vehicle demonstration obligations as well as to resolve disputes over whether termination is justified in certain circumstances.

4.6.2. 'Arbitration' is defined in Article 10.14. as 'a procedure for resolving disputes between parties by arbitrators of their choice, as provided for by legislation or convention'.

4.6.3. 'Arbitration' as defined is used in the draft replacement regulation to cover two very different types of situation. In Article 4.1 arbitration is used to set certain commercial terms in the dealer contract in the event that the manufacturer and dealer cannot agree. In this situation, the Committee considers the imposition of arbitration to be unnecessary where the manufacturer and the dealer do not already have an agreement in place - if the parties wish to resolve a disagreement about the terms on which they will do business, but nevertheless desire an agreement, they can revert to arbitration voluntarily. Where the manufacturer and dealer already have a dealer agreement in place and are simply conducting an annual target review, the imposition of arbitration may be appropriate, as long as it is clear how the procedure will work. See 4.6.4 below on this point.

4.6.4. In Article 5.4 on the other hand, arbitration is imposed with the intention of ensuring that there is a speedier alternative to litigation in the event of a dispute about whether the dealer contract has been properly terminated. Provided that it is without prejudice to the parties' rights of access to competent courts (and Recital 19 states that it is), the imposition of arbitration is acceptable, as long as it is properly described. At present it is not clear how the arbitration procedure will work. For example, what happens if the parties are not able to agree on an arbitrator? Is the Commission assuming that the parties will set up and conduct their arbitration in accordance with national arbitration law and in the absence of such law in accordance with the provisions set out in the dealer agreement? If so, this should be made clear.

4.7.

Article 5.2 (2)

4.7.1. The Committee notes the proposal to extend the minimum duration of fixed term dealer contracts and the notice period of indefinite term dealer contracts. However, this appears to run counter to the Regulation's aim (as stated on page 1 of the Explanatory Memorandum) of 'developing flexible ... structures' in the distribution of motor vehicles.

4.7.2. The argument used by the Commission to justify the extension of the minimum duration and notice period relates partly to the fact that the laws of certain Member States do not provide dealers with an automatic right to a goodwill indemnity in the event of ordinary termination. It is arguable that if the Commission wishes to address the issue of harmonization of the laws of Member States on indemnities payable to distributors on termination, it should do so in a separate proposal.

4.8.

Article 5.4

4.8.1. See 4.7 above.

4.8.2. The Committee considers that the supplier should not benefit from a shorter notice period (one year instead of two) if he is terminating the dealer contract because the dealer gives notice that he intends to sell competing motor vehicles. As the Commission points out in its Explanatory Memorandum (on page 2) 'the scope for allowing multi-dealerships has been used very rarely'. Given the obstacle of the conditions which a dealer will need to satisfy before he can engage in multimarketing (contained in Article 3.3), the Committee considers that this further disadvantage to multimarketing (the prospect of a shorter notice period) will act as a disincentive to dealers to deal in competing products.

4.9.

Article 6

The Committee welcomes the extensions of the black list of prohibited clauses, which should not be weakened. The Committee agrees that manufacturers engaging in abusive practices which are detrimental to competition should not be able to benefit from the regulation.

4.10.

Article 6.1 (12)

4.10.1. The Commission's proposal provides that 'manufacturers will lose the benefit of the block exemption if they systematically refuse to make accessible, where appropriate upon payment, to non-network firms the technical information necessary for the repair and maintenance of motor vehicles, provided that the information is not covered by industrial property rights or does not constitute secret know-how'.

4.10.2. The Committee is concerned that the lack of harmonization of the laws of the Member States on industrial property, in particular the differences between the copyright laws of the Member States, will cause problems in the implementation of this Article. Furthermore the Committee notes the Commission's use of the term 'industrial property' as opposed to 'intellectual property'. The latter is generally considered to cover a wider range of rights and the Committee suggests the use of the latter term if the Commission intends this Article to cover the wider range.

4.10.3. This Article is too imprecise: it is not clear what amounts to 'systematic refusal' or when payment will be 'appropriate' and what the level of payment should be.

4.11.

Article 7

The 6 month transitional period allowed for existing arrangements is too short. In particular, there may be a conflict with the length of notice manufacturers must give dealers if they are currently relying on Regulation 123/85 but do not wish to rely on the proposed new block exemption. Therefore the transitional period should be 12 months.

4.12.

Article 10.12

The new exclusion of leasing companies from the definition of 'reseller' may go further than its aim as stated in the Explanatory Memorandum at point 3(d) on page 6 (of preventing the evasion of the provisions concerning territoriality and the principle of selectivity). There may be leasing companies which, for reasons unrelated to evasion of the distribution system, transfer ownership of the vehicle prior to the expiry of the contract.

4.13.

Article 10.14

See 4.6 above.

4.14.

Article 11.3 (and Recital 32)

There will be a report of the Commission's regular evaluations on the application of the new regulation after five years. The Commission should not hesitate to issue interpretative communications on the various aspects of the regulation following the report in 2000.

4.15.

Article 12

The Committee agrees that the regulation should remain in force until 30 June 2005.

5. Further Comments

5.1. The Commission's Explanatory Memorandum indicates (at point 7, page 8) that it is proposed to retain the Commission Notices of 12. 12. 1984 and 18. 12. 1991 unaltered. The Committee considers that the Notices should be updated at least so that they refer to the correct articles of the proposed regulation.

Done at Brussels, 29 March 1995.

The President

of the Economic and Social Committee

Carlos FERRER

APPENDIX to the Opinion of the Economic and Social Committee

The following amendment, which secured at least a quarter of the votes cast, was rejected during the course of the debate:

Point 4.7.1

Replace the second sentence ('However, this appears ..... of motor vehicles') by the following:

'The Committee endorses these extensions since they will increase dealers' confidence in their ability to recoup their investments'.

Reasons

The extension both of fixed-term dealer contracts from four to at least five years and of the notice period of indefinite-term dealer contracts from one to two years will increase dealer confidence vis-à-vis the manufacturer with regard to the time available for recouping what are frequently very substantial dealership investments.

Result of the vote

For: 27, against: 36, abstentions: 9.