WRITTEN QUESTION E-2383/99

by Bart Staes (Verts/ALE) to the Commission

(16 December 1999)

Subject: Regulation on exclusive purchasing obligations

A new European regulation seeks to make exclusive purchasing obligations impossible for products and services if the suppliers in question have a market share greater than 30 %. However, the proposed regulation threatens to make exclusivity contracts the norm. Very few suppliers have a market share in excess of 30 %. For example, owners of cafés and public houses would be tied to one supplier not only for drinks but also for all other goods and services which they need.

1. What were the economic arguments for the abovementioned draft regulation? What persuaded the Commission to draft this regulation?

2. Does the Commission have a (detailed) breakdown of exclusive purchasing obligations in the fifteen Member States? If so, what contracts and what (percentage) shares of the market are involved? If not, does not the regulation risk producing the opposite effect in view of the 30 % threshold that is applied?

Answer given by Mr Monti on behalf of the Commission

(6 January 2000)

The Honourable Member's question refers to the draft block exemption regulation the Commission has published, together with draft guidelines(1). These draft texts are the final step in the review and reform of Community competition policy towards vertical agreements.

The first step was the publication of a green paper(2), followed by a consultation of all interested parties, and the publication of a communication by the Commission(3). In these documents the reasons for the review and reform are amply described.

In short, the future policy that is proposed signifies a shift to a more economic approach. This is widely supported and is made necessary by a number of structural weaknesses in the current block exemption regulations, including that covering certain of the beer delivery contracts. The three existing block exemption regulations concerning exclusive distribution, exclusive purchasing and franchising agreements have been widely criticised in recent years for being too narrow in scope, over formalistic in their approach and for imposing on industry a strait-jacket incompatible with the evolution of production and distribution methods. In addition, in cases where companies have market power, vertical restraints can be used for pro-competitive purposes as well as anti-competitive purposes, for example to foreclose the market.

The proposed new policy will considerably simplify the rules applicable to vertical restraints and reduce the regulatory burden, as it will enable companies which lack significant market power (and most companies lack significant market power) to benefit from a safe harbour within which it will be no longer necessary for them to assess the validity of their agreements under the Community competition rules. In accordance with this new approach, the proposed block exemption regulation covers, up to a market share threshold proposed to be set at 30 %, all vertical restraints concerning both intermediate and final goods, as well as services, except for a limited number of hardcore restraints and conditions. For example, in relation to the beer delivery contracts the Honourable Member mentions, it is in general not to be expected that a brewer with a market share below 30 % will be able, on its own, to foreclose the market to its competitors by imposing a non-compete obligation on the pubs it is supplying.

Companies with market shares above the 30 % threshold will not benefit from the safe harbour. However, their vertical agreements will not be presumed illegal but may require an individual examination under Article 81 (ex Article 85) EC Treaty. The accompanying guidelines are designed to assist undertakings in carrying out such an examination and thus to increase the effectiveness of the competition rules.

As regards non-compete obligations, it is not feasible to have an overview of all such obligations in the Community as this would concern thousands of agreements in many sectors. However, the Commission does not fear nor expect that non-compete obligations will become the norm for a number of reasons.

Firstly, the new block exemption provides for a reduction of the exempted duration of non-compete obligations to 5 years, while under the current regime, in certain sectors like the beer sector, distributors can be tied up to 10 years or even indefinitely. This will give distributors the power to put pressure on their suppliers by threatening to change supplier, which is more efficient than regulating in detail the rights and obligations of the contracting parties.

Secondly, as said above, unlike the current regulations, the future block exemption will not cover undertakings with market shares exceeding 30 %.

Thirdly, the proposed regulation covers for the first time associations of small and medium-sized enterprises (SME) retailers, which should enable such SMEs to strengthen their position vis-à-vis their suppliers and better compete with large integrated distribution groups.

Fourthly, the new legal framework also provides for a withdrawal mechanism that will enable the competition authorities to intervene even below the 30 % market share threshold, if vertical restraints lead to an anti-competitive outcome.

The Commission's aim is to establish a competition policy genuinely based on economic criteria and focused on the analysis of the effects of vertical agreements on the market. The Commission does not want to regulate, through the Community competition rules, the contractual relations between the parties for the purposes of re-equilibrating their respective bargaining positions. The antitrust rules are there to protect competition and to ensure that vertical restraints do not lead to an anti-competitive outcome in the markets, in particular where suppliers have significant market power. The new policy will also benefit SMEs.

(1) OJ C 270, 24.9.1999.

(2) Green paper on vertical restraints in EC competition policy, COM(96) 721 final.

(3) Communication on the application of the EC competition rules to vertical restraints, (COM(98) 544).