WRITTEN QUESTION E-1925/98

by Bill Miller (PSE) to the Commission

(18 June 1998)

Subject: Vertical restraints

In the light of the continuing review on vertical restraints, could the Commission indicate whether its proposed new approach will help to achieve greater market integration for the brewing sector across the EU?

Will it address the problem of market foreclosure which exists in several Member States?

Will any new proposal limit the duration of brewers' loan ties across the whole of the EU to a specific period. If so, how long is that period likely to be?

In the review of vertical restraints, will there be sectoral guidelines for the brewing and pub-retailing industries, and what is the timetable for this?

Answer given by Mr Van Miert on behalf of the Commission

(22 July 1998)

A draft communication is under discussion in the Commission with a view to adoption in the course of this year. This reply must be treated as provisional given that the relevant services are still in the process of formulating their position.

The draft communication should be based upon a shift to an economic effects based system from the current system which is based on the form rather than the effect. There would also be a shift from the current system of having different regulations for specific forms of vertical restraints or sectors to one wide comprehensive block exemption regulation covering all vertical restraints for all sectors of distribution. Such an approach would have the advantage of treating different forms of vertical restraints having similar effects in a similar way, thereby preventing unjustified differentiation between forms or sectors. It would also avoid a policy bias in the choice companies make concerning their formats of distribution.

One of the principal ideas behind such a wide and flexible block exemption is to grant companies which lack market power (and most companies lack market power) a safe harbour within which it is not necessary for them to assess the validity of their agreements under the Community competition rules. In order to preserve competition and to limit the extent of this exemption to companies which do not have significant market power, the block exemption would establish market share thresholds, beyond which companies could not avail themselves of the general exemption. For companies with market shares above the thresholds of the block exemption it must be stressed that there would be no presumption of illegality. The market share threshold would only serve to distinguish those agreements which are presumed to be legal from those that may require individual examination. To assist companies in carrying out such an examination the Commission would, prior to the adoption of such a wide block exemption, draft guidelines detailing its policy above the thresholds.

Market integration would be promoted in two ways. Firstly, the freedom to contract and choose the type of distribution system which best suits marketing and logistical requirements, should, subject to certain limited exceptions, be returned to economic operators. Secondly, given that vertical restraints can be used to isolate national markets, particularly where there are price differences between Member States, certain restrictions on resale should be black-listed under the new policy proposal.

Market foreclosure should also be addressed in the new policy proposal. In view of the possible foreclosure effects arising from non-compete obligations, the Commission is also considering imposing a limit on the duration of vertical restraints which have the effect of limiting the ability of buyers to sell competing products. The Commission is also considering dispensing with duration limits in the particular case where the supplier owns the premises from which the buyer operates.