ADDITIONAL OPINION of the Economic and Social Committee on the Report from the Commission to the Council on the implementation of the merger Regulation
Date: 1994-07-06
Institutions: European Economic and Social Committee
Subjects: economic concentration, merger control, turnover













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51994AC0855

ADDITIONAL OPINION of the Economic and Social Committee on the Report from the Commission to the Council on the implementation of the merger Regulation  


Official Journal C 388 , 31/12/1994 P. 0041 





Opinion on the Report from the Commission to the Council on the implementation of the merger Regulation (94/C 388/09)On 23 November 1993 the Economic and Social Committee, acting under the third paragraph of Article 23 of its Rules of Procedure, decided to draw up an Opinion on the Report from the Commission to the Council on the implementation 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 8 June 1994. The Rapporteur was Mr Petersen.At its 317th Plenary Session (meeting of 6 July 1994) the Economic and Social Committee adopted the following Opinion by a large majority with 2 abstentions.1. Introduction 1.1. The European Union faces major political and economic challenges. Deep-seated problems of growth and employment must be overcome, four candidates for accession to the Union integrated, and reform processes in the fledgling democracies of Central and Eastern Europe underpinned. The globalization of markets and the increasing economic interdependence of economies are triggering dynamic changes in the European internal market, thus creating a need for new economic cooperation structures and leading to corporate restructuring, with wideranging consequences for jobs.1.2. Given this conjuncture of circumstances and growing competitive pressures, sustained and effective interaction between national and European competition policy is more than ever needed. The welcome progress made on the approximation of national competition laws should facilitate this. Belgium, France, Greece, Italy, Portugal and Spain have already brought their competition laws into line with the European model. Greater willingness on the part of the other Member States to follow suit would yield considerable benefits.1.3. The need regularly to reassess and extend the scope of European merger control is beyond dispute. The great advantage of European merger control is the sole responsibility of the Commission, which has the greatest expertise in this area ('one-stop shop` principle). In terms of integration policy it is illogical to have cross-border mergers assessed by different authorities, using different legal systems and standards. Until mergers with a cross-border dimension are assessed uniformly by a single authority, there is a danger of divergent decisions, legal uncertainty and time-consuming procedures. The presumed accession to the European Union of four EFTA countries and the closer relations with the associated countries of Central and Eastern Europe will only add to the regulatory labyrinth. It should be borne in mind that burgeoning bureaucracy means rising costs and thus disadvantages for industry located in the EU. Divergent legal systems and the exhaustive information on market conditions required by the authorities in respect of cross-border mergers already constitute a disproportionate administrative burden for European firms. The burden, not only on the firms making the submissions but also on third party (often small or mediumsized) enterprises which are either competitors or customers, is no longer justifiable.1.4. In its most recent Report on Competition Policy, the Commission rightly said that there would have to be major developments on merger control in 1993, as the first revision of the Regulation was due. To the Committee`s great regret, this expectation proved to be unfounded. Particularly disappointing is the reluctance of some Member States, despite thorough preparatory work by the Commission, to review Regulation (EEC) No 4064/89 () and to reduce the thresholds. Although the timeframe is spelt out unambiguously in Articles 1(3) and 9(10) of the Regulation, the review is to be postponed for three years and will not be carried out until the end of 1996. This confirms the fear voiced by the Committee as early as 1990, that some Member States would like to perpetuate the political compromise hammered out for the initial phase of the merger control Regulation ().1.5. In view of the proliferation of national merger control systems, it would be disastrous if misguided attachment to the principle of subsidiarity were to promote fragmentation of merger controls in the Union and condemn the Commission to inactivity in the exercise of its right of proposal. Moreover, as the Committee pointed out in its Opinion on the XXIInd Report on Competition Policy (), the principle of subsidiarity has been enshrined in the competition provisions of the Treaty of Rome since the outset. Articles 85, 86 and 92, as well as Article 90 of the EC Treaty, are applicable only where agreements between undertakings, decisions by associations of undertakings and concerted practices may affect trade between Member States. The same applies to European merger control which draws a distinction between European and national merger control based on threshold values and thus takes sufficient account of subsidiarity. In this connection the Committee stresses the need to retain the 'Dutch clause` [Article 22(3) of the Regulation]. In future it ought also to be possible to apply the clause on application from the companies concerned.2. Commission Report on implementation of the merger control Regulation 2.1. Contrary to initial fears, the Committee feels that the Commission`s existing administrative practices have generally proved their worth. The Commission has succeeded in fleshing out the merger control Regulation. Given the multiplicity of legal and practical difficulties which a completely new instrument of this kind entails, the achievement of the Commission and of its Merger Task Force in particular, is considerable. A point to stress is that the deadlines laid down by the Regulation have been met. Accelerated procedures are, however, needed for all concerted practices assessed under Articles 85 and 86 of the EC Treaty. The Directorate-General for Competition took a first step in this direction with regard to cooperative joint ventures (see point 2.15). The Committee sees this as evidence of the Merger Task Force`s activities positively influencing the other departments of the Directorate-General for Competition.2.2. The focus of European merger control is the establishment or strengthening of a market-dominating position. However, prohibition, as provided for in Article 2(3) of the Regulation, requires that effective competition in the common market, or a substantial part of it, be significantly impeded by the creation or strengthening of a dominant position. In the course of its competition assessment, the Commission has analyzed not only the firms` existing market share, but also many other individual criteria [Article 2(1) of the Regulation] in order to establish whether the proposed merger would cause lasting damage to the market structure. The Commission has adopted a dynamic approach. In particular the position of competitors and customers and vertical relations (e.g. the specific problems of suppliers) in the sectors concerned are important criteria for the Commission`s prognosis. But it is clearly the Commission`s responsibility - and the Committee would emphasize this - to assess whether the merged company exhibits behaviour indicative of a lack of competition.2.3. However, the Commission has a tendency to demarcate the market too narrowly, both in business and geographical terms. Because consumer behaviour tends to be 'nationally` based, the Commission has frequently used the national market as the basis for its decision. This is short-sighted. The Committee has repeatedly stressed that the Community is now the minimum frame of reference, and that the worldwide dimension should not be lost sight of (). The United States and Japan have long since tailored their competition policy to cross-border markets, including world markets. The Committee also refers to the wording of Article 2(1) of the Regulation, which requires the Commission in assessing mergers, to take account of 'actual or potential competition from undertakings located either within or without the Community`. The Committee feels therefore that, before taking a decision on a planned merger, the Commission must carry out a detailed analysis of the relevant international market and consider the relative positions of the firms concerned in this worldwide market. At the same time the Commission should take greater account than hitherto of the fact that the reference markets are constantly changing and expanding.2.4. The Committee also points out that Opinions on merger control have repeatedly urged that proposed mergers be assessed in the light of overall Community policy and taking into account the need to safeguard social values and employment. In this context the Committee is of course aware that 'the multifarious economic and social problems created by [mergers] cannot all be solved by a [merger] control Regulation based on competition policy` (). This makes coordination of competition legislation with other policy areas, such as regional and sectoral structural policy, research and development policy and consumer policy all the more urgent. Council and Commission should continue their work on approximating laws. Particularly in the field of company law, the Committee considers the European Company Statute a suitable instrument for improving cross-border cooperation between enterprises and promoting economic integration in the European Union (). The Committee assumes that the European Company Statute will also be available to SMEs.2.5. In the light of experience with the Regulation so far the Committee would comment on the Commission`s Report as follows:Proposals for updating the Regulation2.6.Turnover thresholds2.6.1. The Committee has in the past criticized the extraordinarily high referral thresholds (). It considered them a political compromise, unjustifiable in economic, and thus competition, terms.2.6.2. The Committee cannot endorse the Commission`s intention of not at present submitting to the Council any formal proposal for revision of the merger control Regulation, and in particular for a reduction of the turnover thresholds. The Commission`s reference to the outcome of its 'extensive consultations` is not convincing, particularly as the reservations expressed by the national administrations and competition authorities (subsidiarity, inflation, enlargement of the European Union) are largely irrelevant to the underlying question. The Commission correctly asserts that 'it would be wrong to delay reexamination of the threshold indefinitely` (). The Committee considers that the Commission should at the earliest opportunity submit proposals for revision to the Council and urge the Member States to ensure that the thresholds can still be reduced before the follow-up conference on the Treaty on European Union. Otherwise there is a danger that the Member States` allegedly excessive workload will be used as a pretext for a further postponement of the necessary amendment of the merger control Regulation.2.6.3. The aim should be a reduction of the main threshold (worldwide turnover) from ECU 5 bn to ECU 2 bn. This would be in line with the Commission`s original 1989 proposal. It would offer a practicable distinction between mergers which in general have a Community dimension and those which do not. A phased reduction of the main threshold could be envisaged. However, a precondition for this, the Committee feels, would be binding provisions in the Regulation governing the reduction (e.g. from ECU 5 bn to 3 bn and subsequently to 2 bn) and its timing. Article 9(1) of the Regulation provides an appropriate procedure for mergers which, despite exceeding the ECU 2 bn threshold, affect only local or regional markets.2.6.4. At the same time the threshold for Community turnover should be reduced from ECU 250 m. to ECU 100 m. The Regulation`s two-thirds criterion (Article 1(2)) should be dropped. The two-thirds rule makes it possible even for large companies to merge in a Member State, without the Commission being entitled to intervene. It is easy to see that mergers of this kind are likely to constitute a significant obstacle to effective competition in the common market or a substantial part of it.2.7.Reasons for the reduction of thresholds2.7.1. The Commission`s own figures indicate that only 20% of mergers with a Community dimension are at present referred to it. This means that 80% of cross-border mergers are assessed - if at all - according to divergent criteria and, still worse, divergent procedures. The Commission report, states that of the 282 mergers with a Community dimension listed in the Annual Report on Competition Policy (1991/92), only 50-60 were referred to the European merger control authority. The Commission also points out that some mergers may be authorized without the possible adverse effects at Community level being taken into account. There is also a danger that the cumulative effect of mergers in several Member States may not be taken into account.2.7.2. The resulting problems for the functioning of the internal market are many and serious:- Industrial policy measures in some Member States sometimes promote high barriers to market entry. Such barriers are incompatible with an open, competition-orientated industrial policy. They are, above all, detrimental to small and medium-sized enterprises (SMEs). Also, in other markets, SMEs often come up against 'giants` which can use their human and financial resources to deny market opportunities to others. A striking example of this is SMEs` still inadequate access to public procurement contracts. This makes it all the more important that there be a single cross-border merger authority for the entire internal market.- The Regulation`s two-thirds criterion, under which a merger is assumed to have no Community dimension if the companies participating in the merger each derive more than two thirds of their Community turnover from a single Member State, is of dubious value in terms of integration and competition policy. As has already been pointed out, whole sectors are thereby removed from the Commission`s remit. For example, in its Report, the Commission refers to steel, textiles, automobile components, machine tools and electrical equipment for railways. Acceptance of the Committee`s suggestion that this criterion be dropped would ensure that mergers in reference markets 'typically much wider than the national level` () would no longer be excluded.- European denationalization policies, particularly with regard to banks, insurance companies, energy, transport and telecommunications, also require strong competition control at European level. In some cases, companies in these sectors enjoy, at least for a transitional period, a 'de facto` national monopoly. Monitoring their conduct at European level would be of great importance not only for consumers but also for the framing of future competition structures in the internal market. But the high turnover thresholds and two-thirds criterion make this impossible at present.- Services are steadily increasing their percentage share of GDP. The Commission has established that many key activities in the services sector such as publishing, advertising and computer services, are increasingly being structured on cross-border lines but, given the existing thresholds, they remain outside Community jurisdiction. Dominant positions in these markets which significantly hinder effective competition can damage the interests of intermediate and final consumers and impede economic and technological progress.2.7.3. The application of fixed quantitative thresholds is admittedly, as the Commission also points out, an approximate and somewhat crude method for allocating jurisdiction between the national and Community authorities. But for reasons of legal certainty, the Committee feels that the threshold criterion must be retained. Other criteria, such as market share or the size of the company (e.g. number of employees) are, as national experience shows, impracticable.2.8.Decentralized application of European competition law?2.8.1. It is beyond dispute that a reduction of the thresholds would approximately double the number of cases to be assessed. There are therefore fears that the Commission`s growing workload could permanently impair the efficiency of the current control procedures.2.8.2. The Committee feels that the Member States` lack of confidence in the Commission`s capacity is unfounded. The establishment and operation of the Merger Task Force is in itself proof of the Commission`s organizational capacity, where tight deadlines are required. With regard to the rising workload, the Commission points out that the increase in staff needed to deal with additional work following a reduction of the threshold is likely to be proportionately much lower than the rise in the case-load (from approx. 60 to approx. 110 cases annually). Moreover, the Committee has repeatedly stressed - most recently in its Opinion on the Commission`s XXIInd Report on Competition Policy - that an increase in the staffing of the Directorate-General for Competition is in any case both desirable and feasible. 'Even in a period of budget austerity` this could be achieved 'by making better use of [the Commission`s] existing resources` ().2.9.European cartel office2.9.1. The discussion of the setting up of a European cartel office raises very complex questions. The role of this office will depend in particular on the future institutional structure of the European Union. Central issues such as the position of the Commissioner for competition policy or the consideration of other, non-competition-related parameters (structural policy, cohesion policy etc) by a political control body require detailed and informed discussion. The Committee therefore feels that when the merger control Regulation is revised, the question of setting up a European cartel office should be kept strictly separate from that of a reduction of the referral thresholds.Other suggested improvements2.10.Referral under Article 9(2) of the Regulation2.10.1. In its Report the Commission saw no reason to suggest that the Article 9 referral procedure be changed. It does however consider whether a more flexible approach - outlined in its Report - is needed. Under Article 9(2) of the Regulation, the Commission may, on application by a Member State, refer a planned merger to the competent national competition authority, if a merger threatens to create or strengthen a dominant position, as a result of which effective competition will be significantly impeded on a market within that Member State. The Commission suggests that a more flexible referral procedure could be considered when the thresholds are reviewed.2.10.2. The Committee reminds the Commission that the provision under Article 9 of the Regulation constitutes an exception to exclusive Community competence. As an exception it should be interpreted narrowly. The Committee has repeatedly stressed the principle of the primacy of Community over national law. If the Regulation`s thresholds [within the meaning of Article 1(2)] are attained, the planned merger by definition has a Community dimension. The Committee therefore strongly endorses the restrictive interpretation of the provision applied so far. It calls on the Commission not to relax this provision in the future.2.11.Commitments in the first phase of the procedure2.11.1. The Commission Report suggests ways in which the commitments made in the first, one-month phase of the procedure could be improved. The current procedure lacks transparency, third parties are not heard and commitments are not published. Moreover, there is no standard to ensure possible subsequent enforcement of conditions. Article 8(2) of the Regulation applies only to conditions imposed during the second phase of the procedure. The Commission therefore considers whether the first phase should be extended for a further month, and whether it should be made clear that Article 8(2) will also apply during the first phase of the procedure.2.11.2. The Committee supports the Commission`s intention of specifically stipulating that Article 8(2) will also apply during the first phase. However it does not consider an extension of the first phase by one month necessary. Extension would undermine one of the pillars of the Regulation, its short deadlines. If the case creates obvious difficulties and if these difficulties cannot be resolved via conditions in the first phase, the Commission should embark on the second, more detailed phase of the assessment. The principles of the accelerated procedure in any case require the Commission to adopt its decision as early as possible [Article 10(2)]. In the second, four-month phase of the procedure the Commission has sufficient time to hear third parties and the Member States.2.12.Improved transparency of commitments in the second phase2.12.1. The Commission Report expresses calls for greater transparency in the second phase of the decision too. The Commission says that commitments are usually proposed only at a late stage. This is detrimental to the consultation of third parties and the Member States. The Commission therefore suggests that the four-month time limit of the second phase also be extended by a maximum of a further month. The Commission also suggests that the Regulation could make express provision for firms` commitments to be published in the Official Journal before a clearance decision is adopted.2.12.2. The Committee has strong reservations on these proposals. Here too, for administrative reasons, the procedure should not be prolonged. Consultation is no more important than firms` need for a swift, clear-cut legal decision on their merger plans. It is also up to the Commission to put its conditions as early as possible. If it does this, there will be sufficient time to consult the Member States and competitors. Further ramifications of the complicated rules would merely confuse firms and diminish legal certainty. In any case, commitments by firms are already published in the Official Journal in the second phase. This is sufficient as any third party affected by the decision can institute proceedings in the Court of First Instance. Moreover, conditions are brought to the attention of third parties via publication of the decision and its conditions in the Official Journal.2.12.3. The Committee also supports the Commission`s general quest for greater transparency. Specifically, the quantity and quality of information in the first and second phases must be improved. In particular, the Committee feels that the parties should enjoy improved access to the case files and should receive copies of the preliminary draft decision submitted to the advisory committee on merger control. This would enable them to put their arguments to the advisory committee, as the right to legal hearing requires. And, as the Committee has also suggested (), the Commission press releases should be more comprehensive and contain the views of interested parties.2.12.4. The fact that the Committee approves the proposal for an improved information policy is dictated not least by the desire to enable third parties, which demonstrate sufficient interest in a planned merger, to make an application for hearing in time and have the opportunity to be heard. They include in particular the recognized representatives of the employees of the undertakings concerned. In its Opinion on the amended proposal for a Council Regulation (EEC) on the control of concentrations between undertakings () the Committee emphasized this requirement. However, lack of information or late submission by the companies concerned in individual cases prevented workers` legitimate representatives from making their application for hearing on time in accordance with Article 18(4) of the Regulation; they were thus only able to make informal representations on behalf of the workers concerned to the Commission. In the light of this experience, the Commission should draw up, in cooperation with the Member States, a proposal ensuring that the legally-recognized representatives of the workers of companies participating in mergers can submit their applications for a hearing to the Commission on time and state their views on the planned merger in the context of a formal hearing. In this context, the ETUC`s recommendation to the Commission for an improved hearing procedure should be studied. This refers in particular to the practice of the United Kingdom`s Monopolies and Mergers Commission (MMC).2.13.Changes with respect to banking and credit institutions [Article 5(3)a of the Regulation]2.13.1. In its Report the Commission argues that the 'turnover` criterion, estimated on the basis of balance-sheet assets, should be replaced by 'banking income` as defined in Directive 86/635.2.13.2. The Committee feels that this proposal has some merits. Using banking income is more conclusive and logical than the current approach. The technicalities of calculating banking income require further detailed study however. The Committee is therefore not at present in a position to comment on this.2.13.3. Under the second paragraph of Article 5(1) of the Regulation, turnover is calculated by reference to the place of residence of the party acquiring the product or service. The Committee feels that it would be very expensive, if not actually impossible, to calculate banking income in relation to the place of residence of the beneficiary of the service. It would be far better to calculate the turnover of banking and credit institutions by reference to the place of establishment of that part of the institution in question (branch, subsidiary) which carried out the transaction and received the income.2.14.Appraisal criteria2.14.1. The Commission stresses that it is a priority objective of the Regulation to ensure undistorted competition within an open market economy. However the Regulation also requires the Commission to place its appraisal of mergers within the general framework of the achievement of the fundamental objectives referred to in the Treaty on European Union (recital No 13 of the Regulation). The Committee expects the Commission - subject to its central task of ensuring effective competition - to take account as far as possible of the Community objectives referred to above in its forecasts of the future development of markets.2.14.2. In this connection, the Committee endorses the Commission`s view that it would be wrong to allow dominant positions to be created which could hinder effective competition on the Community market. Such a policy would primarily harm consumers, cause the disintegration of the markets and ultimately not only act to the detriment of European firms themselves but also endanger jobs. Moreover, as the Committee has pointed out, Article 2(1) of the Regulation provides a flexible framework to take account of future structural developments, actual or potential competition from undertakings located either within or without the Community and scientific and technological progress.2.15.Joint ventures2.15.1. The Committee concurs with the Commission`s view that the distinction between concentrative and cooperative joint ventures is at present unsatisfactory. The Commission has attempted to alleviate the problem via a package of measures (broadening of the existing group exemption Regulations, and publication of guidelines). By speeding up proceedings in cases of cooperative full function joint ventures, the Commission has also attempted to treat all forms of joint venture (whether cooperative or concentrative) equally (see also point 2.1).2.15.2. The Committee considers these measures to be an important step in the right direction. Cooperative joint ventures however have the major disadvantage that they do not fully benefit from the Commission`s exclusive competence. They are assessed in accordance with the principles of Articles 85 and 86 of the EC Treaty and the provisions of Regulation 17/62. As in most cases the Commission takes its decision in the form of a comfort letter, there is considerable legal uncertainty for firms, given that the comfort letters are recognized neither by the national courts nor the national competition authorities. The Committee therefore suggests that the Commission either upgrade its comfort letter and/or amend Regulation 17/62. The merger control Regulation [Article 6(1)(b)] should be matched by a corresponding provision in Regulation 17/62.2.15.3. As the Committee made clear in its Opinion on the XXIInd Report on Competition policy, it would be a good idea to update the Commission`s Notice regarding merger and cooperation transactions under Regulation 4064/89 in line with new developments in administrative practice.2.16.De minimis joint ventures2.16.1. The Committee welcomes the Commission`s plans to introduce a simplified notification and assessment procedure for smaller 'de minimis` joint ventures. The Committee assumes however that third parties will continue to be heard. Simplified assessment procedures mean less bureaucracy for companies and more efficient administration for the Commission. This enables the 'effects doctrine` of international law to be more effectively applied. Only cross-border mergers with a tangible impact on competition conditions in the common market should be assessed by the Commission.2.16.2. The Committee also feels that a general simplification of all notification procedures is needed. In view of the increasingly global economy and the resultant proliferation of procedures, the competition authorities must distinguish between significant and insignificant cases. There must be greater administrative efficiency and concentration maxims must be applied. The simplified notification forms (the Commission is thinking in terms of sections 1 and 2 of the form and certain additional market data) should not be restricted to concentrative joint ventures. Rather, a twostage (notification) procedure of this type should apply to all joint ventures assessed in accordance with the principles of Article 85/86 of the EC Treaty and the provisions of Regulation 17/62. This would be of particular help to SMEs and would reduce costs. It would also bring the merger and cooperation procedures further into step.2.17.Calculating the turnover of joint ventures2.17.1. The Committee agrees with the Commission that there is no need to change Article 5(5) of the Regulation, concerning the calculation of the turnover of joint ventures. The Commission has in practice found adequate solutions to the allocation problem. Moreover, legal continuity will enhance the standing of the Regulation and public acceptance of administrative practices in general.Done at Brussels, 6 July 1994.The Presidentof the Economic and Social CommitteeSusanne TIEMANN() OJ No L 395, 30. 12. 1989.() OJ No C 225, 10. 9. 1990, p. 60.() OJ No C 34, 2. 2. 1994, p. 83.() OJ No C 333, 29. 12. 1986, p. 86.() OJ No C 208, 8. 8. 1988, pp. 12 and 15.() OJ No C 23, 30. 1. 1989, p. 37.() OJ No C 208, 8. 8. 1988, p. 12 and OJ No C 225, 10. 9. 1990, p. 60.() COM(93) 385 final, p. 22.() COM(93) 385 final, p. 10.() OJ No C 34, 2. 2. 1994, p. 83.() OJ No C 34, 2. 2. 1994, p. 83.() OJ No C 208, 8. 8. 1988.