OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE on the review of the Community Merger Regulation
Date: 1995-10-25
Institutions: European Economic and Social Committee
Subjects: competition policy, division of powers, economic concentration, merger control, turnover













EUR-Lex - 51995AC1157 - EN






Avis juridique important




|



51995AC1157

OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE on the review of the Community Merger Regulation  


Official Journal C 018 , 22/01/1996 P. 0021 





Opinion  on the review of the Community Merger Regulation(96/C 18/06)On 22 June 1995 the Commission  decided to consult the Economic and Social Committee, under Article 198a of the Treaty establishing  the European Community, on the review of the Community 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 22 September 1995. The Rapporteur was Mr  Petersen. At its 329th Plenary Session (meeting of 25 October 1995), the Economic and Social Committee  adopted the following Opinion unanimously. 1. Introduction1.1. The European Merger Regulation once again comes up for review in  1996. In preparation for this, the Commission has sent out varying forms of questionnaire to  undertakings, associations and lawyers enquiring about their experiences with the merger control  regulation. The Commissioner responsible for competition, Karel van Miert, has now asked the  Committee for an Opinion. The (second) questionnaire survey was necessary because two years ago  (1993) the Commission did not feel that it was in a position to recommend lower thresholds. The  reason for this was that, at the time, an informal Commission proposal for lower thresholds failed  to win a majority in the Council. Particularly the large EU Member States were unwilling to confer  greater powers on the Commission. This fully confirmed the Committee's fears, expressed as long ago  as 1990 (), that individual Member States would seek to extend indefinitely the political  compromise that was reached for the initial phase of merger control. 1.2. The Commission had already evaluated the effectiveness of European merger control in a 'White  Paper'. In a report to the Council, the Commission examined specific aspects of the functioning and  effectiveness of the Merger Regulation (). In its Opinion on the subject, the Committee urged lower  thresholds (). In concrete terms, the Committee recommended a phased reduction of the main  threshold (worldwide turnover) from ECU 5 bn. to ECU 2 bn. It also suggested lowering the threshold  for Community turnover from ECU 250 million to ECU 100 million and dropping the two-thirds  criterion (Article 1(2) of the Regulation). In its response the Commission welcomed the Committee's  firm stance and gave assurances that the Committee's recommendations would be incorporated in the  official review of the Regulation thresholds to be conducted by the end of 1996 (). 2. Extending the scope of European merger control2.1. Basically, the Committee holds to what it  said in last year's Opinion. Various factors continue to bear out the Committee's views. It would  therefore also make reference to the statements and reasoning given in that Opinion. 2.2. Advantages of the 'one-stop shop' principle2.2.1. The Committee would once again emphasize  the great advantage of the one-stop principle, by which a single authority - in this case, the  Commission - assesses planned mergers uniformly over a short period of time and has exclusive  Community-wide competence. As it is, almost every EU Member State has its own merger control  arrangements with different rules, procedures and appraisal times. Any proposed cross-border merger  within the Community which falls below the current - high - threshold involves an excessive amount  of bureaucracy as well as unnecessary costs for the undertakings involved. This has a detrimental  effect on cooperation and integration. As far as the Commission is concerned, the need for a  one-stop system and for uniform rules and conditions is more pressing than ever. Once again, it is  small and medium-sized enterprises (SMEs) who bear the brunt of the current regulations. Thus, a  planned regional merger, a joint venture between SMEs for instance, may have to be reported to two,  three or even more competition authorities in separate states. 2.2.2. These highly bureaucratic procedures will become even more complex in future, firstly,  because of the proposed enlargement of the EU and, secondly, because of the increasing  liberalization of worldwide trade and international financial services, leading to more  cross-border mergers between firms domiciled in the EU, the USA and Japan and between firms  domiciled in other markets (South-East Asia). The inevitable result will be differing procedures  and decisions, with all the difficulties, risks and contradictions mentioned above, especially as  alignment of competition rules at international level, although desirable, still appears a long way  off. 2.3. Subsidiarity and merger control2.3.1. Subsidiarity is usually cited as an argument against  extending the scope of European merger control and against lower thresholds. The Committee  emphasizes the relevance of the subsidiarity principle to mergers within a single EU Member State.  It makes sense for such cases to remain within the competence of the Member State in question. 2.3.2. However, the two-thirds criterion (Article 1(2) of the Regulation) used for this purpose is  unsatisfactory from the point of view of integration and competition policy (). Under this  criterion, whole sectors fall outside the Commission's merger control remit in certain cases. The  two-thirds criterion allows even large companies (distribution) to merge within one EU Member State  without the Commission having any say. The service sector generally falls outside the Commission's  competence as well because most companies make two-thirds of their Community turnover in one Member  State. Clearly, such mergers may well constitute a significant obstacle to effective competition in  the internal market, or in a substantial part of it. 2.4. Should the turnover criterion continue to determine which is the competent authority?2.4.1.  The Committee is aware that the existing rules, whereby the Community-wide significance of a  proposed merger is measured solely by reference to the total turnover of the undertakings involved,  result in an approximate and rather crude method for the division of powers between state and  Community authorities. The chosen criteria may also have different implications for different  sectors, as indicated above. In addition, the current rules mean that numerous Community  undertakings with little or no impact on the common market come under European merger control. 2.4.2. There are problems with credit and other financial institutions (Art. 5(3)(a) of the  Regulation). In its report the European Commission argues that the turnover criterion estimated on  the basis of balance-sheet assets should be replaced by the 'concept of banking income' as defined  in Directive 86/635. The Committee can see definite advantages in this suggestion. The use of  banking income would appear more conclusive and logical than the current legal situation. The  technicalities of calculating banking income require detailed study however (). 2.4.3. Even so, the Committee feels that the turnover criterion has proved its worth as a means of  allocating jurisdiction between Member States and the Commission. The legal certainty argument is  the most compelling in favour of maintaining the turnover criterion. By looking at their turnover,  the undertakings concerned can quickly and reliably determine who is responsible for the appraisal  procedure. This avoids duplication of the procedure. In any case, other criteria, such as the size  of the company (e.g. number of employees), have already proven to be impracticable. 2.4.4. Keeping to the 'crude' turnover criterion does not rule out the development of more refined  arrangements for allocating jurisdiction. Such fine-tuning will presumably be essential once  thresholds are appreciably lowered. The Committee feels that, in this case, the future 'division of  labour' between the Commission and the EU Member States should hinge first and foremost on which  markets the proposed merger will mainly affect. 3. The Committee's proposed improvements3.1. Lowering the thresholds in European merger control,  as recommended by the Committee, must be accompanied by some structural improvements in procedures.  In the following sections the Committee outlines some concrete proposals in this regard. 3.2. Improved cooperation between the Commission and EU Member States3.2.1. First of all, the  Committee recommends closer cooperation and better coordination between the Commission and  competition authorities in the Member States. Only when this is firmly in place will it be possible  to establish detailed and comprehensive arrangements for allocating jurisdiction which can  successfully be applied in practice. These arrangements (which are still to be developed) should be  based on the following considerations: the national competition authorities have considerable  expertise with regard to their 'own' markets. Notified mergers which demonstrably affect only local  and regional markets should in future be decided on solely by the competition authority of that  Member State. Proposed mergers with a Community-wide impact should be assessed and decided on by  the Commission alone. This leaves those cases which, while territorially confined to one Member  State, nevertheless have implications for the internal market. Clearly, it is this last type of  merger which necessitates closer cooperation between the Commission and Member States. The  authorities of individual states must provide the Commission with all their specialist information  on these markets. Only then will the Commission be in a position to make an informed decision,  within the short time allowed, as to whether or not the notified merger poses problems for the  common market. 3.3. Referral of a planned merger to another competition authority3.3.1. Under present rules  (Article 9 of the Regulation) the Commission may refer a planned merger to the competent authority  of the relevant Member State, but only under strict conditions. 3.3.2. In its Opinion concerning the White Paper on Community merger control law, the Committee  called on the Commission to retain the narrow interpretation of the referral provision. In the  Committee's view, Article 9 of the Regulation constitutes an exception to exclusive Community  competence and, as such, should be interpreted narrowly. In its response, the Commission pointed  out that it could not provide 'an absolute guarantee' that Article 9 of the Regulation would  continue to be interpreted restrictively in the long term. According to the Commission, this  depended to a large extent on the level of future thresholds. However, the Committee maintains that  any relaxation of Article 9 could mark a trend towards renationalizing European competition policy.  Even if the thresholds are lowered to the level urged by the Committee, relaxation of Article 9  should only be permissible under two conditions: i) the merger should affect only local or regional  markets in a single Member State; and ii) the Member State concerned should assess the merger in  accordance with Community merger control rules and not with its own competition rules. In this way  undertakings would not be forced to resubmit a merger application - possibly in another language. 3.3.3. Referral of notified mergers should of course be a two-way street. The Committee feels that,  in cases where the merger has actual or potential implications for the common market, the Member  States should be obliged to submit notified mergers to the Commission for appraisal. This could  happen at the request of an undertaking concerned or of a Member State, or automatically, and would  apply to mergers which must be referred to more than one competition authority or where there is a  risk that competition will be seriously impeded in a substantial portion of the single market. 3.4. The need to simplify procedures3.4.1. Lower thresholds will certainly increase the  Commission's workload. The Committee is convinced that the Commission will rise to the challenge,  given its impressive record with the Merger Task Force. In addition, the Committee has repeatedly  stressed - for example, in its Opinion on the Commission's XXIInd Report on Competition Policy -  that allotment of more staff to 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' (). 3.4.2. Greater prioritization is also needed. The Committee urges considerable simplification of  the procedure for all mergers which have no appreciable bearing on the common market. This will  lead to less red tape for undertakings and greater economy of operation at the Commission. The  Committee sees this as particularly appropriate in two types of case, namely 'de minimis' joint  ventures and mergers outside Community territory. In line with Recital 15 of the Regulation, the  Committee recommends a simplified notification and appraisal procedure for smaller-scale mergers. 3.5. Correct competition controls essential3.5.1. A well run appraisal procedure is crucial for  the credibility of competition control. The criteria for the Commission's decision must always be  clear from the outset. The Committee therefore urges the Commission to continue exercising  consistent control over competition. The ESC reiterates its view that merger-control appraisal must  be based primarily on market structure, the criteria being the current market situation and whether  the merger creates or strengthens a dominant position, as a result of which effective competition  would be significantly impeded in the common market or in a substantial part of it (Article 2(2) of  the Regulation). 3.5.2. The Committee also points out once again that markets - both in the EU and worldwide - are  not static. The ESC has repeatedly asked the Commission not to demarcate the market (too) narrowly,  either in business or geographic terms. The ESC is somewhat puzzled by the response to its July  1994 Opinion, in which the Commission claims that market delimitation in merger control is based on  Articles 85 and 86 of the EC Treaty and has been confirmed by the rulings of the Court of Justice.  Unlike Treaty Articles 85 and 86, which refer to past events, a planned merger requires the  Commission to assess, i.e. predict, the future impact on market structure. For the ESC, it is this  crucial difference which justifies wide market delimitation. 3.5.3. The Commission should therefore take greater account of the international competition  situation than hitherto. The Committee points out with regret that the Commission has recently  become increasingly restrictive in this respect, e.g. with regard to the delineation of the  relevant markets. This is true not only for European merger control, but also for the anti-trust  ban. The Committee therefore calls on the Commission in applying the competition rules, to take  greater account than hitherto of the actual competitive situation on non-Community markets. In  other words what is required is an economic analysis worthy of the name. 3.5.4. Article 2(1)(a) of the Regulation also calls for account to be taken of international  competition in the appraisal process, stating: 'In making this appraisal, the Commission shall take  into account: (a) the need to maintain and develop effective competition within the common market  in view of, among other things, the structure of all the markets concerned and the actual or  potential competition from undertakings located either within or without the Community' (). This  goes for all stages of the procedure, including demarcation of the relevant market. The  Commission's argument that a prudent, narrower approach to market delimitation 'does not  necessarily lead to incorrect conclusions' (point 2.3 of the Commission's response) is less than  convincing given the clear wording of the Regulation. The Commission also knows that, in a  globalized economy, many markets are in a state of flux and constantly changing. For this reason,  the Commission's 'prudent' market delimitation will often lead to incorrect conclusions which it  will only be possible to correct at a later stage in the procedure, when assessing market  dominance. The unfortunate consequences for the undertakings concerned are a longer appraisal  period and higher costs. 3.6. Improving the definition of concentrative joint ventures3.6.1. Lastly, the ESC points out  that, despite a Commission Notice on the subject, the definition of a concentrative joint venture  is still causing problems in practice. In its report on the implementation of the Merger Regulation  () the Commission rightly comments that 'the distinction between concentrative and cooperative ()  JVs has proved to be, in practice, one of the most difficult problems in applying the Merger  Regulation'. The Committee feels that any joint venture with structural implications for the  undertakings involved (e.g. combining previously separate activities) should be regarded as a  merger. The Commission's administrative practice is already moving in this direction, but it should  go further and do away altogether with, say, the assessment of the spill-over effects, i.e. the  repercussions on the parent companies' own conduct. Done at Brussels, 25 October 1995. The Presidentof the Economic and Social CommitteeCarlos FERRER() OJ No C  225, 10. 9. 1990, p. 60.  () COM(93) 385 final.  () OJ No C 388, 31. 12. 1994, p. 41.  () Action on Opinions adopted by the Economic and Social Committee at its Plenary Sessions in July  and September 1994. Brussels, 10. 4. 1995, p. 12.  () OJ No C 388, 31. 12. 1994, p. 41.  () OJ No C 388, 31. 12. 1994, points 2.13.1 and 2.13.2.  () OJ No C 34, 2. 2. 1994, p. 83.  () OJ No L 395, 30. 12. 1989, p. 1.  () COM(93) 385 final, point 21, first sentence.  () To clarify: Specific problems connected with national cooperatives are not included in this. The  Committee assumes that, in applying the Regulation, due regard is given to the legal framework  specifically dealing with cooperatives.