XXVth REPORT ON COMPETITION POLICY (1995)
Date: 1996-04-10
Institutions: European Commission
Subjects: activity report, competition law, competition policy, competitiveness, single market

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  10.04.1996 
COM(96)  126  final 

XXVth  REPORT  ON 
COMPETITION POLICY (1995) 

(presented  by the Commission) 

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TABLE OF CONTENTS 

Page 

Introduction 

I.  Anti-trust  : Articles 85 and 86 

A. 

Ensuring the benefits of the internal market 

1. 
2. 
3. 
4. 
5. 
6. 
7. 

Car distribution 
Restrictions on parallel trade 
Restrictions on access to the market by new entrants 
Green Paper on vertical restraints 
Cross-border credit transfers 
Leniency programme 
Access to the file 

B. 

Cooperation and competition in a rapidly changing and 
increasingly global economic environment 

1. 

The application of articles 85 and 86 in the 
telecommunications sector 

1.1  Strategic alliances 
1.2  Access and interconnection agreements 

2. 

Globalization of markets 

3. 

Transfer of technology 

C. 

Transport 

1. 

Maritime transport 

1.1  Liner shipping consortia 

1.2  Inland rate fixing by ship liner conferences 

2. 

Air transport 

2.1  IATA tariff consultations 
2.2  Cooperation between airlines 
Trans-European networks and competition rules 
Competition and environment 
Secondary product markets 
Liberal professions 
Subsidiarity and decentralization 
De minimis agreements 
1. 
2. 
Decentralization 
Statistical overview 

D. 
E. 
F. 
G. 
H. 

I. 

12 
12 

12 
13 
15 
17 
17 
19 
19 

20 

20 

20 
22 

23 

23 

24 

24 

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25 

26 

26 
26 
27 
28 
29 
30 
31 
31 
31 
.  33 

II.  State monopolies  and monopoly  rights  : Articles  37  and  90 

A. 

Introduction 

1. 

2. 
3. 

Services  of general  economic  interest  at  the heart  of  the 
Commission's  liberalization policy 
Article  90(3) Directives 
Other  instruments  available  to the Commission 

B. 

Telecommunications 

1. 
2. 
3. 
4. 
5. 

General measures 
Cable TV  liberalization  directive. 
Mobile  telephony  liberalization  directive 
Full  competition  directive 
Infringement  proceedings under Article  90(3) 

C. 
D. 
E. 

Energy 
Postal  services 
Transport 

1. 

2. 

Airports 
1.1  Landing  fees 
1.2  Ground handling 
Ports 

F. 

Other  state monopolies  of a commercial  character 

1. 
2. 
3 . 
4. 

Swedish  and  Finnish alcohol monopolies 
Austrian  alcohol monopoly 
Austrian  salt monopoly 
Austrian manufactured  tobacco monopoly 

III. Merger  control 

A. 
B. 

Introduction 
In-depth  investigations 

1. 
2. 

Media  cases 
Other  in-depth  investigations 

C. 
D. 
E. 
F. 
G. 

Other major  cases 
Legitimate  interests  of Member  States 
Mergers  in the coal and  steel  industries 
Perrier 
Statistical  overview 

IV.  State  aid 

A. 

General  policy 

35 

36 

36 
36 
37 

38 

38 
38 
39 
40 
41 

42 
43 
43 

43 
44 
44 
45 

45 

45 
46 
46 
46 

48 

48 
48 

48 
50 

52 
53 
54 
54 
55 

57 

57 

New measures  to enforce  compliance with  the notification  requirement  58 
58 
59 

Recovery  of  illegal  aid 
Cooperation between  the Commission  and national  courts 

1. 
2. 

B. 

Concept  of aid 

C. 

Assessment  of compatibility  of aid with the common market 

1. 

Sectoral  aid 

1.1  Sectors  subject  to specific  rules 

1.1.1  Aid  to shipbuilding 

59 

62 

62 

62 

62 

1.1.2  Steel 
1.1.3  Coal 
1.1.4  Motor vehicle  industry 
1.1.5  Synthetic  fibres  industry 
1.1.6  Transport 
1.1.7  Agriculture 
1.1.8  Fisheries 

1.2  Specific  sectors not  subject to special  rules 

1.2.1  Banking 
1.2.2  Postal  sector 
1.2.3  The audiovisual  sector 

2. 

Horizontal  aid 

62 
63 
63 
65 
65 
68 
69 

70 

70 
71 
71 

72 

72 
2.1  Research  and development 
73 
2.2  Employment  aid and general  social measures 
75 
2.3  Aid  for environmental  protection 
2.4  Aid to small and medium-sized  enterprises  (SMEs) 75 
76 
2 .5  Export  aid 
76 
2.6  Rescue and  restructuring  aid 
78 
2.7  Treuhandanstalt 

3 . 

Regional  aid 

D.  Procedures  (rights of complainants) 
E.  Statistics 

V.  International  activities 

A. 
B. 

European  Economic Area 
Central  and  Eastern Europe, Baltic  States, New  Independent 
States  and Mediterranean  countries 

1. 
2. 
3 . 

Central  and Eastern  Europe 
Baltic  States, Slovenia and New  Independent  States 
Mediterranean  countries and Mercosur 

C. 
D. 
E. 
F. 

North America 
Japan 
Australia  and New  Zealand 
Multinational  organizations  and other  international  issues 

1. 
2. 
3 . 
4. 

OECD 
World  Trade Organization 
UNCTAD 
International  cooperation 

VI.  Information  policy 

Annex  :  cases  discussed  in  the  report 

78 

78 
79 

82 

82 
82 

82 
83 
83 

84 
85 
85 
85 

85 
86 
86 
86 

88 

89 

Introduction 

1. 

A  competitive  environment  as  a  prerequisite  for  competitiveness 

1. 
to play in ensuring that EU industry remains competitive. 

It is widely recognized that competition policy has a key role 

Competition  policy  serves  as an  instrument  to achieve  the  optimal 
allocation of  resources, technical progress and the  flexibility to 
adjust  to a changing environment. In that respect, competition and 
competitiveness  belong  together.  Experience  shows  that  only  those 
companies which are used to strong competition and perform well in open 
and dynamic markets will be able to function effectively on a wider 
scale - be it in other geographic areas or in a more global economy in 
general. 

Competition  policy  and  competitiveness  policy  are  thus  not 
contradictory but rather serve the same goals of creating the essential 
conditions  for the development  and maintenance  of an efficient  and 
competitive Community industry, bringing better products and services 
to European citizens, and providing a stable economic environment. 

2. 

Internal  market  and  competition  policy 

2. 
The complementarity between those two policies is also clearly 
shown by the Community's objective of creating an internal market. On 
the one hand, the internal market is an essential condition for the 
development  of an efficient  and competitive  industry. On the other 
hand, competition policy is an important tool for achieving the goal 
of,  and  maintaining,  an  internal  market,  in  particular  via  the 
enforcement of rules ensuring that the regulatory barriers to trade 
which have been removed are not replaced by private or other public 
restrictions having the same effect. 

2.1 Factors affecting competition  in the internal market 

3. 
While  the  legislative  steps  spelt  out  in the  1985  Commission 
White Paper on the internal market have almost all been adopted and 
transposed at national level, preliminary evidence suggests that  some 
product and service markets remain fragmented.1 

Internal  market  integration,  in  tandem  with  the  progressive 
globalization of markets, is expected to widen geographic markets (not 
necessarily  to  Community  level  - relevant  geographic  markets  may 
contain a distinct set of regional or national areas) . It may therefore 
redefine  the  structural  parameters  of  the market  within  which  the 
implications  of actions of public- or private-sector  operators  for 
competition must be judged. No definitive judgement can be made at this 
early stage as to whether the pro-competitive impact of the internal 
market  has manifested  itself.  In some markets, there  is  tentative 
evidence that competition is increasingly defined at a supranational 
level, while in others there is reason to believe that markets remain 
segmented  along  national  lines.  The  latter  can  be  explained  by 
reference to a range of factors which must be taken into account when 
assessing the consequences of internal market integration in terms of 
the geographical expansion of "relevant markets". 

4. 
A first factor relates to the effectiveness of legislative action 
(and  ancillary  measures  such  as  European  standardization)  in 

During 1996 the Commission intends to present the findings of an overall analysis of the 
impact and effectiveness of the internal market programme pursuant to Council Resolution 
92/1218 of 7 December 1992. 

dismantling  legal  and  administrative  barriers  to  cross-border 
transactions.  Where  the  legislative  framework  is  incomplete  or 
inadequate, the Commission  intends to press for its reinforcement. 
There may also be situations where there are no entry barriers but 
where discrepancies in national arrangements result in differences in 
economic  conditions  that  are  capable  of  distorting  trade  and 
competition  (e.g.  pharmaceutical  pricing,  taxation,  monetary 
fluctuations). Where these factors result in differences in economic 
conditions between national markets, leading operators to distinguish 
between them, this may need to be taken into account in defining the 
relevant market for competition. "Natural barriers" such as language, 
taste  and  habits,  or  structural  characteristics  which  reduce  the 
tradability of products or services, may also require that national 
markets be regarded as separate entities. These issues have arisen in 
the  context  of  the  Commission's  investigation  of  mergers  in  TV 
broadcasting  and  the  media  sector,  where  linguistic  and  cultural 
factors  require  that  the EU market be regarded  as consisting  of a 
series  of  distinct  national  markets.  This  cultural  diversity 
contributes to the richness of our shared European heritage and must 
be taken into account in the analysis of cases by the Commission, even 
if  cases of dominance  are more  frequently  encountered  as a result 
(Nordic 'Satellite; RTL/Veronica/Endemol). 

2.2 Role of competition policy 

5. 
While internal market  integration shapes the economic  context 
within which Community competition policy must be applied, it is also 
the case that the application of Community competition policy will help 
to reinforce the functioning of a single market. Three main areas of 
activity can be identified: anti-competitive agreements and practices, 
the regulated or monopolized sectors, and state aid. It is an essential 
consideration here that the Commission has at its disposal a set of 
interdependent competition policy instruments. The anti-trust rules, 
merger  control,  the  policing  of  state  aid  and  the  rules  on 
liberalization,  all  serve  the  same  objective  of  ensuring  that 
competition in the internal market is not distorted. 

6. 
The  Commission  is vigilant  in applying  Community  competition 
rules  where  firms  attempt  to  stifle  the  pro-competitive  effects 
emanating from internal market integration through anti-competitive 
behaviour  designed  to  sustain  market  segmentation.  Examples  of 
behaviour which give rise to such concern are restrictions on parallel 
trade,  certain  types  of  vertical  agreements  and/or  distribution 
systems, and unjustified refusal to provide (non-discriminatory) access 
to facilities which third parties require in order to compete. 

7. 
The liberalization of traditionally monopolized markets, such as 
utilities, is an essential step in the establishment of an internal 
market.  It  is strongly believed  that, without  a stronger  and more 
competitive  base  in  the  fields  of  energy,  public  transport  and 
telecommunications,  the  European  economy,  including  consumers  and 
medium-sized  enterprises,  will  be  at  a  disadvantage.2  The  Madrid 
European Council in December 1995 concluded that it is essential to 
introduce  increased  competition  in  different  sectors  in  order  to 
enhance competitiveness  and so create new jobs. The Commission has 
therefore pursued its efforts to open up these markets to competition 
and intra-Community trade while ensuring that the measures proposed or 
adopted are compatible with the performance by public services of tasks 

Competitiveness Advisory Group, Enhancing European Competitiveness, Second Report to the 
President of  the European Commission,  the Prime Ministers  and Heads of State, December 
1995  ("Ciampi Report") . In the same context, it is argued that "what matters most is not 
so much  that  the ownership  - and management  - of public utilities moves  from  the  State 
to the private sector, as that competition is introduced and extended wherever possible" . 

of general economic  interest, such as the provision of a universal 
service to all citizens at affordable prices. 

8. 
Telecommunications is a strategic area of considerable interest 
for the European Union3. Ongoing  liberalization  of  this sector has 
forced telecom operators to launch new services and to reduce prices. 
Both industry and consumers benefit  from the opening-up  of telecom 
markets. The introduction of competition in this sector is also vital 
to facilitate the transition to the information society, and thus for 
our  ability  to  survive  in  an  increasingly  competitive  and  global 
market. In this context, cultural diversity and equal access to the new 
services are essential objectives that need to be addressed. 

Much of the legislation at Community level has either been adopted or 
is well under way for complete liberalisation by 1998. This must of 
course be transposed into national legislation and effectively applied 
in order to ensure the introduction of real competition. The role of 
the Commission will not be reduced once the legislative acts are in 
place. On the contrary, the Commission must ensure that, once removed, 
the legal barriers will not be replaced by agreements or practices of 
a  similar nature, such as anti-competitive mergers, market-sharing 
agreements, abusive behaviour of the incumbents against newcomers -for 
example, by denying non-discriminatory access to essential facilities-
or by  illegal  state  aid. Where exclusive  rights are maintained  in 
reserved  areas, cross-subsidization  of the operator's  non-reserved 
areas should be avoided. 

In the meantime, industry moves on to anticipate new emerging markets. 
New alliances having global implications have been submitted to the 
Commission for scrutiny. The Commission's assessment of these cases 
demonstrates  how  the  existing  competition  rules,  when  applied 
realistically, are capable of grasping the dynamics of innovation and 
globalization.  But  newly  emerging  markets  is  not  a  password  for 
approval. While alliances should be allowed, or even encouraged when 
pro-competitive, they  cannot be accepted where they thwart or threaten 
the  demonopolization  process.  Where  big  players  join  forces,  the 
Commission should aim to prevent market foreclosure. 

9. 
To  an  even  greater  degree  than  the  télécoms  sector,  the  air 
transport sector, where full liberalization will be completed by the 
end  of  1997,  demonstrates  that  legislation  is  necessary  but  not 
sufficient to achieve a fully competitive environment. In this sector, 
where  airlines  fight  to  secure  or  retain  a  sufficient  share  of a 
modestly  growing  and  competitive market,  there  is  an  ever-present 
danger that the incumbents might use unfair methods to protect their 
interests. Strict application of competition rules, mainly in the field 
of state aid and control of abusive behaviour, is absolutely necessary. 
In particular, state aid is seen as a counterproductive measure which 
tends to protect the inefficient against the efficient, simply delaying 
the necessary restructuring. State aid might even be used to fight new 
competitors by means of predatory pricing and other measures. While 
restructuring  is  necessary  to  achieve  efficiency  gains  and 
competitiveness in a growing market, the Commission has to make sure 
that  a high degree  of  concentration does not  foreclose  routes and 
slots, thereby re-erecting legally removed barriers. 

10.  Energy is another key factor for industry and was mentioned as 
such in the Ciampi Report. However, this year has not produced any real 
progress in the liberalization of this sector. 

Green  Paper  on  the  liberalization  of  telecommunications  infrastructure  and  cable 
television  networks  : Part  One  (COM(94)  440,  25.10.1994)  and  Part  Two  (C0M(94)  682, 
25.01.1995). 

11.  According  to  the  fourth  survey  on  state  aid  in  the  European 
Union, published  in 1995, the total amount  of national  aid  in the 
period  1990-1992  has decreased, but  - at around  ECU  94 billion on 
average per year for the Community as a whole - is still too high for 
the Commission's objectives to be attained, notably with respect to the 
richer Member States. Vast amounts of state aid are not the way to 
achieve competitiveness. They delay necessary restructuring, distort 
competition between the companies and regions, and are a burden on 
public budgets. 

However,  it would be unrealistic  to suggest  that all  state  aid be 
simply eliminated, and this has never been envisaged by the authors of 
the Treaty or by the Commission. Market forces alone, in a market which 
is not perfect, do not allow the attainment of certain  fundamental 
objectives  of  the  Member  States  and  the  European  Union,  such  as 
economic  and  social  cohesion,  a  sufficient  degree  of  R&D  and 
environmental protection, the development of SMEs, and the necessity 
of allowing time for structural adjustment, in particular for social 
reasons. For the Commission, it is essential  to ensure that, where 
state aid is allowed by derogation, the negative effects on competition 
and  trade  between  Member  States  are  limited  to  what  is  strictly 
necessary and that they are offset by the realization of objectives of 
general Community interest. 

3. 

International cooperation 

12.  The  increasing  globalization  of  the  world  economy  and  the 
changing  pattern  of  modern  trade  makes  international  cooperation 
between competition authorities inevitable. 

First, companies operating worldwide must be aware of, and must comply 
with,  differing  competition  laws  and  practices  in  different 
jurisdictions.  This  necessarily  entails  a  cost  for  the  companies 
concerned. Moreover, when transactions fall within the jurisdiction of 
multiple  competition  authorities,  there  is  an  increased  risk  of 
conflicting measures being imposed. Competition authorities for their 
part may have difficulties in gaining access to information evidencing 
an  anti-trust  violation  located  outside  their  jurisdiction. 
Alternatively,  competition  rules  aimed  at  preserving  effective 
competition on the home market may be less effective in dealing with 
anti-competitive conduct at the global level. Finally, it is widely 
recognized that greater application of competition rules must accompany 
trade liberalization if it is to be effective - private barriers must 
not replace dismantled public barriers. 

For all these reasons greater cooperation at international level is 
clearly in the interests of industry and consumers. 

13.  On  a  bilateral  level,  the  Agreement  with  the  United  States 
(confirmed  in April  1995 by the Council)  already  offers  scope  for 
cooperation  and  its  provisions  on  coordination  of  enforcement 
activities to some extent allow the parties to work together to tackle 
anti-competitive situations affecting the EU and US markets. 

In a report on competition policy in the new trade order drafted by it 
at  the  request  of  Mr  Van  Miert,  an  independent  group  of  experts 
recommends  as  a  "priority"  the  deepening  of  the  current  EC/US 
Agreement.  It  also  formulates  recommendations  in  relation  to 
plurilateral  cooperation  as  it believes  that  bilateral  agreements 
cannot of themselves adequately address all the problems which could 
arise at international level. 

4. 

Role of the Commission in applying the competition  rules 

14.  It  is  fair  to  say  that  the  development  phase  of  Community 
competition  policy  is  completed.  Policy  and  law  are  now  well 
established through the Commission's administrative practice and the 
principles developed by the European Courts. On the other hand, the 
Commission has at its disposal limited resources to deal with an ever-
increasing number of cases. In 1995 in particular, the number of new 
cases,  especially  state  aid  and  Articles  85/86  cases,  increased 
significantly as a result of the accession of three new Member States. 

15.  Accordingly, the Commission has been considering how to focus on 
those arrangements which have a significant effect on competition and 
are likely to affect trade between Member States appreciably. For this 
purpose, several instruments and concepts have already been developed. 
Preparatory  work  is under way  to broaden and  refine  them  further. 
Particularly relevant in this respect are the application of the de 
minimis  principle  (in the fields of both anti-trust and state aid) , 
group  exemptions  (which  allow  firms  to  make  agreements  without 
notifying them to the Commission so as to obtain legal certainty) , and 
the notion of Community interest in the case of complaints. 

16.  Where the Commission must deal as a priority with cases having 
an  appreciable  effect  on  intra-Community  competition,  the  role  of 
national  authorities  and  courts  in competition  cases  becomes  more 
important. The decentralized application of the competition rules is 
often a quicker and more efficient way to bring infringements to an end 
. More frequent application by national courts and authorities reminds 
the Community citizen that these rules are part of the "living law" of 
each Member State and are aimed at protecting their rights. 

17.  The Commission therefore continued to encourage the decentralized 
application of Community competition rules, in particular as far as 
cases falling within the scope of Articles 85 and 86 are concerned. 
It's aim is to establish effective cooperation between the national 
courts,  competition  authorities  and  itself.  In  this  respect,  the 
preparatory work for a new notice on cooperation between the Commission 
and  national  competition  authorities  is  well  advanced  and  will 
complement the existing notice on cooperation with the national courts. 

This policy of decentralization should however be implemented gradually 
and with care. The actual decentralization process goes hand in hand 
with a continuing effort on the part of the Commission to clarify and 
simplify the rules of substance in order to enable the Member States 
to use the same concepts when applying the Community competition rules. 

18.  The principle of subsidiarity dictates that the most appropriate 
authority  should  take  action. Therefore,  certain  cases  which  fall 
within  the  jurisdiction  of  several  national  authorities  should  be 
handled  by  the  Commission.  Thus,  in  the  case  of  mergers,  it  is 
preferable for firms to have their proposed mergers examined by the 
Commission  alone  rather  than having  to submit  them  to a number of 
national authorities.  In 1995 the Commission embarked on a new review 
of the Merger Regulation, inter alia to consider whether the turnover-
based criterion for determining those cases which must be submitted to 
the Commission and those which fall within the exclusive jurisdiction 
of the Member States is still appropriate. 

19.  In the field of state aid, the subsidiarity principle dictates 
that the Community must have exclusive competence because Member States 
cannot be asked to control their own state aid expenditures in a fair 
way vis-à-vis their neighbours. However, one aspect can be handled at 
national  level  : national  courts  may  act  upon  complaints  by  the 
competitors of the firm receiving state aid, and in particular it may 

control whether the necessary notification and approval procedures have 
been followed by the Member State. The Commission has published a new 
notice in this area which has a threefold purpose : to strengthen and 
decentralize  enforcement  of  state aid  rules, to clarify  the  legal 
position  for  the  benefit  of  all  interested  parties  and  to  offer 
assistance to judges. 

5. 

Transparency 

20.  Competition rules are often complex because the economic, legal 
and  political  context  in  which  they  operate  is  complicated  and 
constantly evolving. This does not mean that there is no room left for 
more transparency and simplification. The Commission has indeed found 
several ways to increase information about its policy and to simplify 
the legal framework. They include : the newly adopted group exemption 
for  technology  transfer  agreements,  which  will  replace  the  two 
regulations  concerning  know-how  and  patent  licensing;  the  use  of 
notices and communications to provide guidelines on the application of 
the  competition  rules  in  certain  sectors  (cross-border  credit 
transfers; postal services); the use of green papers for the purpose 
of public  consultation  (i.e. the planned  green papers  on vertical 
restraints  and  merger  review  to  be  published  in  1996) ;  and  the 
publication of explanatory brochures (new car distribution regulation) . 
In the field of state aid, the obligation to notify, which is laid down 
in the Treaty, is central to ensuring transparency. The Commission has 
indicated in a communication that it intends to utilize all the powers 
which the Treaty confers on it to ensure that Member States respect 
this  obligation.  It  has  also  started  working  on  a  revised  and 
consolidated regional aid framework and has adopted a new framework for 
aid  for  research  and  development.  Lastly,  it  pursued  its  active 
campaign to inform the public of competition policy matters  : press 
releases and conferences, DG IV s Information Service, publications, 
the Competition Policy Newsletter and, last but not least, the Annual 
Report on Competition  Policy, all of which serve the same purpose, 
namely to enhance transparency, legal certainty and predictability. 

6. 

Democratic  accountability 

21.  Competition  policy  cannot  simply  be  a  technocratic  or 
administrative exercise, but has everything to gain by bringing about 
a wide democratic consensus. The Commission accordingly attaches great 
importance to a fruitful dialogue with the other Institutions of the 
European Union on all aspects of its competition policy. 

22.  The  Annual  Report  on  Competition  Policy  serves  as  a  basic 
instrument of communication and information to the other Institutions 
of  the  European Union,  in particular  the European  Parliament, the 
Council and the Economic and Social Committee. The fruitful exchanges 
of view and discussions concerning the previous report were clearly of 
help to the Commission in implementing its tasks and contributed to 
better  information  on,  and  comprehension  of, European  competition 
policy.  Moreover,  where  appropriate,  the  Commission  takes  the 
initiative  of  consulting  the other  Institutions  on newly  proposed 
provisions or on other policy documents. In particular, in the context 
of  the  adoption  of  Article  90  liberalization  directives,  it  has 
carefully considered the observations made by the European Parliament, 
the Council, the Economic and Social Committee, and the Committee of 
the Regions. 

23 .  The Commission has also collaborated closely with the Council on 
various  aspects  of  its  policy,  in  particular  as  regards  the 

10 

relationship between competition policy and competitiveness. 

24.  Member States are closely involved in the Commission's decision 
making process through the Advisory Committee on Restrictive Practices 
and Dominant Positions, the Advisory Committee on Concentrations and 
the Conference of national government experts. Moreover, Commission 
officials have regular and constructive informal contacts with their 
colleagues at national level. 

25.  On  3 and 4 April  the Commission organized  the  First  European 
Competition Forum in Brussels on the issue of vertical restraints.4 
More than 260 participants including competition authorities and judges 
from 3 5 European countries attended. The purpose of such a forum is to 
promote exchanges of experience and discussions among Community and 
Member State officials whose responsability is to enforce competition 
law, and to encourage decentralized application of competition law. A 
second Forum is planned in 1996. 

26.  The Commission's XXVth Annual Report on Competition Policy (1995) 
differs in presentation from the previous annual reports. 

27.  In recent years the Commission's competition report has increased 
steadily  in size, to reach more than 600 pages  in 1994. Since the 
Commission's separate brochure "European Community competition policy 
- 1994", which summarizes the Commission's policy and decisions in a 
"user-friendly" format, has been well received, the Commission has been 
asked, in particular by the Economic and Social Committee, to present 
a shorter and more readable document. 

The Commission therefore decided to produce a shorter report than in 
the past, focusing on the main policy developments  in the field of 
competition,  which  are  illustrated,  where  applicable,  by  the 
Commission's major decisions and new legislative measures. 

In addition to the present Annual Report, the Directorate-General for 
Competition  (DG IV) of the European Commission prepared a "Report on 
the application of the competition rules in the European Union - 1995", 
which  describes  the  important  individual  cases  decided  by  the 
Commission. It also contains lists of references to the new legislative 
provisions and notices, the Commission decisions and press releases, 
and decisions by the Court of Justice and the Court of First Instance. 
It furthermore gives a description of the application of competition 
rules in the Member States. 

7. Statistics 

28.  There has been a large increase  in the overall number of new 
cases registered. The total number of new cases (anti-trust, mergers, 
state aid) rose from 1 081 in 1994 to 1 472 in 1995 - an increase of 
36%. New Articles 85 and 86 cases increased by more than 42%, merger 
notifications rose by nearly 16% and the number of new state aid cases 
grew by 35%. A significant part of this increase, in particular in the 
field of anti-trust-and state aid, is due to the accession of three new 
Member States to the European Union on 1 January 1995. 

29.  The total number of cases closed in 1995 remained almost at the 
same level as in 1994  : 1 210 cases compared with 1 200. 

Competition  Policy Newsletter, No 5, Volume  1, summer  1995, p. 7. 

11 

I - Anti-trust  : Articles 85 and 86 

A - Ensuring the benefits of the internal market 

30.  An essential aim of European competition policy is to ensure that 
the completion of the internal market brings consumers and the European 
economy as a whole all the benefits of a Community-wide market. 

Competition  policy  must  create  the appropriate  framework  allowing 
companies  to  adjust  to  the  new  possibilities  opened  up  by the 
elimination of national barriers. However, where companies try to slow 
down the process of market integration or even obstruct cross-border 
trade  by anti-competitive  practices, it is necessary  to pursue a 
vigilant policy, including the imposition of severe sanctions in case 
of hard-core infringements of the competition rules. 

Vertical arrangements between suppliers and distributors are a core 
element of European competition policy in this field. Some of these 
arrangements may be necessary to penetrate new markets, launch new 
products or promote efficient distribution networks and might thereby 
benefit  consumers. Problems may, however, arise where  there is not 
enough competition between producers or between distributors in the 
same markets or where the arrangements are used for anti-competitive 
purposes, i.e. for market-partitioning or for restricting access to the 
market by new entrants. 

1. Car distribution 

31.  Because motor vehicles are consumer durables which require expert 
maintenance and repair, manufacturers cooperate with selected dealers 
and  repairers  in  order  to  provide  specialized  distribution  and 
servicing for the product. Such arrangements are likely to enhance 
efficient distribution of the products concerned, and the exclusive 
and/or selective nature of the distribution system can be regarded as 
indispensable for attaining rationalization and efficiency in the motor 
vehicle industry. 

This was and still is the basic motivation for allowing restrictive 
distribution and servicing agreements in the car sector. However, the 
new group exemption relating to the distribution and servicing of motor 
vehicles,5 which the Commission adopted on 28 June 1995 to replace the 
existing Regulation No 123/85,6 contains several adjustments aimed at 
intensifying competition in the markets for cars and spare parts and 
improving  the position of consumers by guaranteeing  them  the full 
benefits of the internal market. 

32.  In particular, the new regulation secures greater independence 
for dealers vis-à-vis car manufacturers. Most importantly, dealers are 
allowed to sell cars of other manufacturers provided that this is done 
on separate sales premises, under separate management, in the form of 
a distinct legal entity and in a manner which avoids confusion between 
brands. To ensure effective competition on the maintenance and repair 
markets,  car manufacturers  or suppliers are not allowed  to impede 
access by independent  spare part producers and distributors to the 
markets or to restrict the dealer's right to procure spare parts of 
equivalent  quality  from  firms  of his  choice  outside  the  network 
Furthermore,  car manufacturers  must  provide  repairers  outside the 

Commission Regulation  (EC) No 1475/95 of 28 June  1995 on the application of Article 85 
(3)  of  the  Treaty  to certain  categories  of  motor  vehicle  distribution  and  servicing 
agreements  (OJ L 145, 29.6.1995, p.  25). 

Commission Regulation  (EEC) No 123/85 of 12 December 1984 (OJ L 15, 18.1.1985). 

12 

network with the technical  information they need to enable them to 
repair  and  maintain  cars  produced  by  them,  provided  that  the 
information is not covered by an intellectual property right. 

33.  Multidealerships,  opening-up  of  the  market  in  spare  parts, 
greater  competition  in the  field of repairs, all  serve  the aim of 
increasing consumers' choice in accordance with the principles of the 
single market. The same objective requires that consumers are able to 
buy  a  car  and  to  have  it maintained  or  repaired  wherever  in  the 
European Union prices or terms are most favourable. 

This  is  all  the  more  important  in  the  car  sector,  where  price 
differences between Member States are significant. In its latest six-
monthly survey of car prices, published in July, the Commission noticed 
that price differentials had risen dramatically since November 1994.7 
Since the beginning of 1995 it has received an increasing number of 
complaints from individuals in the European Union, mostly from Austria, 
Germany and France, who have been prevented from purchasing a car in 
Italy and Spain, where, following currency devaluations, prices were 
relatively low.8 

The new regulation expressly bans any practices designed to prevent 
parallel trade.9 Dealers must be allowed to meet demand from outside 
their allotted sales area and may in future undertake certain means of 
advertising outside their territory. 

34.  The Commission departments published on 26 September 1995 in all 
Community  languages  a  brochure  which  explains  the  new  regulatory 
framework  for  manufacturers,  dealers,  spare  part  producers  and 
independent repairers. It also provides consumers with information on 
their freedom to buy a car anywhere in the Community.10 

2. Restrictions  on parallel trade 

35.  It is one of the most well-established principles of Community 
competition law that producers are forbidden to divide the internal 
market  by private  agreements  and  to maintain price  differences by 
arranging anti-competitive absolute territorial protection. However, 
such behaviour continues to occur on the market and, where it comes to 
light, one can expect severe action by the Commission. 

BASF/Accinauto 

36.  In a decision of 12 July 1995,X1 the Commission imposed a fine of 
ECU 2.7 million on the German car refinish paint producer BASF Lacke 
+ Farben, a subsidiary of the BASF group, and a fine of ECU 10,000 on 
BASF' s exclusive distributor in Belgium and Luxembourg, Accinauto S.A.. 
The case originated with a complaint by two English parallel importers 
of Glasurit car refinish paint products. They alleged that Accinauto, 
from whom they bought the Glasurit products, had ceased deliveries to 
them in the summer of 1990 on the instructions of BASF. The Commission 
carried out investigations on the premises of BASF and Accinauto and 
found  out  that Accinauto  was bound by a contractual  obligation  to 

Commission press releases IP/95/50 of 19.1.1995 and IP/95/768 of 24.7.1995. 

"The impact of currency fluctuations on the internal market", Communication from the 
Commission to the European Council, 31.10.1995, point 25. 
See also judgments of the Court of Justice of 24 October 1995 in Cases C-70/93 
Motorenwerke 
AG,  VAG Leasing  GmbH (not yet published). 
"Distribution  of  motor vehicles", Explanatory  brochure, European  Commission, DG IV, 
IV/9509/95. More than 7 000 copies of this brochure have already been distributed. 

D  GmbH and C-266/93  Bundes/cartellamt  and 

AG  and  ALD  Auto-Leasing 

Bayerische 

Volkswagen 

OJ L 272, 15.11.1995, p. 16. 

13 

transfer to BASF all orders from customers from outside its exclusive 
distribution territory. The Commission concluded that this obligation 
constitutes an unacceptable restriction of competition as it hinders 
the export by Accinauto of the relevant products from Belgium to the 
United Kingdom. In fact, as a result of this obligation, BASF itself, 
and not the exclusive distributor, decides on and controls supplies to 
parallel importers from other Member States. . 

Pharmaceutical products :•  Organon 

37.  Prices for pharmaceutical products differ significantly between 
Member States. This is usually explained by the differences in national 
price control and health care systems. On several occasions, the Court 
of Justice  has  ruled  that parallel  imports  should not  be blocked, 
irrespective of the factors that determine price differences. Hence, 
in the pharmaceutical sector, the Commission has consistently applied 
the competition rules to agreements or conduct which restrict parallel 
trade  in drugs. It is believed  that  the unrestricted  operation of 
market  forces  in this way  is  likely  to act  as a  catalyst  for the 
gradual  convergence  not  only  of  prices  but  also  of  price  control 
mechanisms. Prices in the high-cost countries should fall, while those 
in the low-price countries should, if they fail to offer pharmaceutical 
companies a reasonable return on investment, ultimately increase in 
reaction to the real threat of product withdrawal. Some Member States 
with high drug prices even stimulate parallel imports in order to bring 
about a reduction in their country's overall drug bill. 

38.  Organon  is  a  British  subsidiary  of  Akzo  (Netherlands)  which 
specializes in the manufacture and marketing of contraceptive pills. 

On  4 May  1994  Organon  changed  the price  regime  applicable  to  its 
contraceptive  pills  Mercilon  and  Marvelon,  the  latter  holding 
substantial market shares throughout the Community. Before that date, 
ORGANON applied a discount of 12.5% on all products supplied to its 
customers,  irrespective  of  their  final  destination.  The new price 
regime differentiated between those pills to be sold in the UK and 
those  intended  for export. Only the former qualified  for the 12.5% 
discount rate. 

Following  several  complaints and Organon's notification  of the new 
pricing system, the Commission initiated proceedings against Organon 
and issued a statement of objections aimed at withdrawing the immunity 
from fines brought about by notification. For the Commission, the new 
price regime, which forms part of continuous business relations between 
Organon and its wholesalers  and therefore constitutes  an agreement 
within  the  meaning  of  Article  85(l),12  constituted  a  serious 
infringement  of  the  competition  rules  in  that  it  gave  rise  to 
discrimination  in  the  prices  of  the  products  according  to  their 
geographical destination. As a result, consumers could no longer enjoy 
the benefits of parallel trade.. In the Netherlands in particular, where 
the Marvelon pill of Dutch origin is not fully reimbursed by the social 
security scheme, whereas the price of the British pill allows it to be 
offered at a price equal to the Dutch social security reimbursement 
level,  consumers  were  no  longer  able  to  opt  for  the  UK  produced 
Marvelon and thus to benefit from not having to pay an amount over and 
above the reimbursement price. 

Organon, however, decided to abandon the new pricing regime, which the 

In its judgment of 24 October 1995 in Cases C-70/93 and C-266/93  (see footnote  9), the 
Court confirmed its prior jurisprudence that a call by a company to its dealers does not 
constitute an unilateral act which falls outside the scope of Article 85(l) but is an 
agreement within the meaning of that provision if it formed part of a set of continuous 
business relations governed by a general agreement drawn up in advance. 

14 

Commission had opposed, and reintroduced the previous price conditions. 
The status quo having being restored, the Commission  suspended its 
proceedings and reserved the right to examine the forthcoming pricing 
system which Organon intends to bring in. 

3.  Restrictions  on access to the market by  new entrants 

39.  A truly competitive internal'market also implies that companies 
are free to enter the market to compete with existing market players. 
The Commission is therefore particularly keen to keep open markets and 
has in fact  intervened  where  companies, be it through  restrictive 
agreements or by unilateral action, have impeded access to the market 
by new entrants. 

40.  New competitors can be prevented  from entering  the market by 
vertical arrangements between existing suppliers and distributors. This 
is in particular the case where a large number of retailers on the 
market are tied by an obligation to sell only the products of the 
manufacturer with which they have a contract or arrangements having a 
similar exclusionary effect on third parties. The cases concerning the 
impulse  ice  cream  market  (Unilever/Mars)  are  examples  of  such 
arrangements. 

In other  cases, access by third parties  to the market  is impeded 
through a horizontal agreement or concerted practice between actual or 
potential competitors. This is what happened on the Dutch crane-hire 
market  (Van Marwijk/FNK-SCK) . 

Access to the market can also be blocked through abuse by a monopoly 
or dominant provider of essential facilities or services. This is a 
problem of increasing importance in various sectors. Where a dominant 
company owns or controls a facility access to which is essential to 
enable its competitors to carry on business, it may not deny them 
access, and it must grant access on a non-discriminatory basis. Be it 
dn the transport sector, in particular air transport, in banking or in 
the telecommunications  sector, the Commission applies  this general 
principle of EU competition law13 in order to foster new competition. 
The case concerning access to the port of Roscoff in France (ICG/CCI 
Morlaix) raises the same issue. 

Unilever/Mars 

41.  Unilever is market leader in most EU Member States in "impulse" 
ice  cream  products  (i.e. single  wrapped  items  of  industrially 
manufactured ice cream sold for immediate consumption in places like 
newsagents, petrol stations, etc.). 

In  the Republic  of  Ireland,  it is by far the largest  ice cream 
producer. Unilever's distribution system consisted in providing freezer 
cabinets to retailers subject to a condition of exclusivity whereby 
only  Unilever  products  could be stored  in the cabinets  ("freezer 
exclusivity"). Moreover, the cost of cabinet provision was included in 
the price of the ice cream charged to all retailers, irrespective of 
whether they had a Unilever freezer cabinet. 

On a complaint  from Mars, the Commission examined the distribution 
arrangements operated by Unilever in Ireland. It found that, where a 
retailer has only one or more Unilever freezer cabinets in his outlet, 
that outlet is in practice tied exclusively to the sale of Unilever ice 

This  general  principle has found  support  in the Judgment of the Court of Justice of 6 
April 1995 in Cases C-241/91 P and C-242/91 P  Radio  Telefis 
Television 

(Magill)  [1995] ECR 1-743. 

Ltd  v  Commission 

Publications 

Indépendant 

(RTE)  and 

Eireann 

15 

cream as a result; the majority of all outlets offering impulse ice 
cream in Ireland fall into this category. Such outlet exclusivity has 
already been condemned by the Commission in 1992 with regard to the 
German  impulse  ice cream market.14 The Unilever  agreements  had  the 
cumulative effect of appreciably restricting competition by preventing 
third competitors' access to the market. The arrangements were also 
found to be an abuse of Unilever's dominant position on the market. 

Unilever,  however,  agreed  to  alter  its practices  with  the  aim  of 
freeing  up  the  market,  in  particular  by  giving  wider  choice  to 
retailers.  The  Commission  has  accordingly  announced  that  the  new 
arrangements  appear  to meet  the conditions  for  the  granting  of an 
exemption.15 

Van Marwijk/FNK-SCK 

42.  In its decision of 29 November  199516,  the Commission  imposed 
fines17 on FNK and SCK for infringements of Article 85 (1) on the Dutch 
crane-hire market. 

FNK (Federatie van Nederlandse Kraanverhuurbedrijven) is an association 
of  Dutch  firms  which  hire  out  mobile  cranes.  SCK  (Stichting 
Certificatie Kraanverhuurbedrijf) was set up on the initiative of FNK 
in order to guarantee, through a certification system, the quality of 
cranes  and equipment  used  in the crane-hire  business. Most  of the 
firms which participate in SCK are also members of FNK. They account 
for between 50% and 80% of the Dutch market. Crane-h'irers themselves 
hire cranes from other crane-hirers on a.large scale. 

Apart from FNK's recommended prices for the hiring-out of cranes and 
the concerted prices applied between members of FNK, the Commission 
attacked the ban on SCK certificate-holders hiring cranes from firms 
not affiliated to SCK. It considered that the SCK hiring ban was caught 
by the prohibition of Article 85 (1) as the SCK certification system did 
not  fulfil  the  conditions  of  openness  and  acceptance  of  other 
equivalent quality guarantee systems. It concluded that the ban not 
only restricted the freedom of action of the affiliated firms but also 
considerably impeded access by third parties to the Dutch market. 

In its decision, the Commission indicated that, while its policy on 
certification  allows  scope  for  private-law  certification  systems 
designed  to  provide  supplementary  monitoring  of  compliance  with 
statutory provisions, such systems should be in accordance with the 
competition rules. 

ICG/CCI Morlaix 

43.  Irish Continental Group (ICG) applied to the Chambre de Commerce 
et  d'Industrie  de Morlaix  (CCI Morlaix)  for access  to the port of 

In 1992 the Commission took a negative decision against Langnese  (Unilever) and Schôller, 
who  are  in a duopolistic  position on the German  impulse ice cream market. In that  case 
the  Commission  acted  against  "sales  outlet  exclusivity"  arrangements  under  which  a 
retailer  undertakes  to  sell  only  the products  of  the manufacturer  with  whom  he  has  a 
contract. The Commission decided that the cumulative effect of the agreements in question 
amounted  to  an  appreciable  restriction  of  competition  by  Langnese  and  Schôller.  This 
finding was appealed against by the parties but was upheld by the Court of First Instance 
[1995] 
in  its  judgments  of  8 June  1995  in Case T-7/93  Langnese-Iglo 
ECR  11-1533  and  in Case T-9/93  Schôller 
[1995] 
ECR  11-1611. 

GmbH  v  Commission 
GmbH  &  Co.  KG  v  Commission 

Lebensmittel 

OJ C 211, 15.08.1995, p.4. 

OJ L 312, 23.12.1995, p.79. 

The immunity from fines resulting from the notifications by FNK and SCK in early 1992 was 
withdrawn  under Article  15(6)  of  Regulation No.  17 by  Commission  Decision  of  13  April 
1994  (OJ L 117, 7.5.1994). 

16 

Roscoff  (Brittany)  for  the  purpose  of  commencing  a  ferry  service 
between Ireland and Brittany in the summer of 1995. Brittany Ferries 
was at that time the only ferry company operating between Ireland and 
Brittany. Initially, an agreement in principle was reached between the 
parties following which ICG started to market and take bookings for its 
new ferry service. Negotiations were however suspended in January 1995 
and no final agreement could be reached between CCI Morlaix and ICG 
after ICG had complained to the Commission and further negotiations had 
taken place. 

The Commission found that CCI Morlaix, being the operator of the port 
of Roscoff, which was the only port capable of providing adequate port 
facilities in France for ferry services-between Brittany and Ireland, 
was prima facie in a dominant position. It also found that, by its 
unjustified  refusal  to give  ICG  access  to  the  port  facilities  of 
Roscoff, CCI Morlaix had prima facie abused its dominant position. The 
Commission  could  therefore  order  interim  measures  on  16  May  1995 
obliging CCI Morlaix to take the necessary steps to allow ICG access 
to the port of Roscoff until the end of the summer season. 

After the Commission's intervention, the parties concluded a five-year 
contract for the use of the Roscoff port facilities by ICG; this was 
not only to their mutual benefit but, more importantly, to the benefit 
of travellers, who now have a wider choice of transport services and 
activities in the Roscoff area. 

4. Green Paper on vertical  restraints 

44.  Vertical arrangements between suppliers and distributors in the 
various Member States have always received particular attention under 
Community law in view of the goal of market integration. It has been 
a core element of Community policy to keep channels for parallel trade 
open  and  free  from  restrictions  by  private  business.  Even  though 
competition policy towards vertical restraints has served the Community 
well to date, it is felt necessary to undertake a review in order to 
ascertain whether Community policy in this field is still adapted to 
the distribution and consumer needs of the future. 

For example, the application of information technology and just-in-time 
methods is changing not only production methods but also the form and 
systems  of  distribution.  The  implications  of  this  must  be  fully 
reflected  in policy  so as not  to stifle  the highly  innovative and 
rapidly changing distribution techniques. 

Moreover, the main block exemptions in the field of vertical restraints 
come up for renewal soon  : exclusive selling and buying in 1997 and 
franchising in 1999. These renewals need to be prepared. 

The review will  take the form of a Green Paper which will  set out 
different alternatives for future policy. The intention is to submit 
this option paper next year to a wide and in-depth public consultation 
of all interested political and socio-economic partners (the European 
Parliament, Member States, producers, distributors and consumers). 

5. Cross-border credit transfers 

45.  The  banking  sector  is  still  not  characterized  by  a  properly 
functioning internal market. Payments for financial transactions are 
an important cost factor for companies and may act as ,a significant 
impediment to the smooth operation of the internal market. 

46.  In September the Commission adopted a notice on the application 

17 

of the EC competition rules to cross-border credit transfers.18 

The notice is part of a package of measures adopted by the Commission, 
including a proposal  for a directive, with a view to improving the 
cross-border credit transfer services offered by banks.19 These systems 
are used by banks to transfer money on behalf of customers between 
different countries in the Union. 

47.  The notice updates and replaces competition principles published 
in 1992. It states that the Commission's general approach will be to 
view positively cooperation agreements between banks that in particular 
enable them to meet the requirements of the directive. This cooperation 
should not, however, go so far as to eliminate competition between 
banks. The notice therefore provides guidelines for banks as to how 
they can set up cooperation arrangements to handle cross-border credit 
transfers more efficiently without  falling  foul of the  competition 
rules.  It  may  therefore  contribute  to  the  development  of  payment 
systems which are more favorable to European citizens. 

48.  The notice addresses two issues of particular importance: market 
entry, and price competition. 

As to market entry, the Commission wishes to ensure that smaller banks 
are not unfairly excluded from systems to which they must belong if 
they  are,  in  practice,  to  be  able  to  offer  cross-border  credit 
transfers to their customers. The conditions for access to such systems 
should be objectively justified and applied in a non-discriminatory 
manner. Conversely, the exclusion of newcomers from a system which is 
not an essential facility, e.g. a smaller system developed by groups 
of banks, will not normally give rise to competition concerns. 

As  far as price competition  is concerned, the notice  distinguishes 
between  bank-customer  pricing  agreements  and  inter-bank  pricing 
agreements. 

Banks must not conclude agreements among themselves that determine the 
level of customer  fees or the way in which they are to charge such 
fees. 

The  key  issue  concerning  inter-bank  pricing  agreements  is  the 
assessment of multilaterally agreed interchange fees, i.e. collectively 
agreed transaction fees paid by one bank (typically the sender's bank 
or its correspondent bank) to another bank  (the beneficiary's bank). 
The Commission takes the view that a multilaterally agreed interchange 
fee is a restriction of competition falling within the prohibition of 
price agreements contained in Article 85(1). Such a fee can, however, 
be exempted under Article 85(3) where the conditions for exemption are 
met.  In the case of OUR cross-border credit transfers  (i.e. where the 
sender has asked to bear the costs) , a beneficiary's bank cannot charge 
the beneficiary an additional fee for handling a cross-border credit 
transfer. In such a case, banks may agree that the beneficiary's bank 
receive a multilaterally agreed interchange fee if that fee covers the 
costs actually and necessarily incurred by the bank when it handles 
cross-border credit transfers. The agreed fee should not exceed the 
average real costs incurred by the beneficiary's bank when it handles 
cross-border credit transfers. Furthermore, it should be expressed as 
a default fee, allowing bilateral agreements on amounts above or below 
the default. 

OJ  C 251, 27.09.1995, p. 3. 

Commission Communication  "EU Funds Transfers: Transparency, Performance and.Stability", 
COM(94)436,  19 October  1994; Bull. EU 9-1995, point  1.3.12. 

18 

6. Leniency programme 

49.  The Commission continued its active pursuit of secret cartels, 
involving price fixing or market sharing, which still appear to exist 
in major industries. 

Fact-finding is accounting for an increasing share of the Commission's 
administrative resources for competition law enforcement. In 1995 the 
Commission undertook some 91 on-the-spot investigations, including 87 
surprise inspections. 

50.  Cartels  are  typically  operated  in  secrecy  and  considerable 
efforts  are  devoted  by  participants  to  avoid  detection  by  the 
authorities, including the use of information technology. 

In certain cases, the benefit which may accrue to consumers from the 
detection and prohibition of secret cartels outweighs the interest the 
Community  may  have  in  fining  companies  which  cooperate  with  the 
Commission, thereby enabling or helping it to detect and prohibit a 
cartel. For this reason, the Commission is considering granting lenient 
treatment to companies which cooperate in the preliminary investigation 
or proceedings in respect of an infringement.20 It published a draft 
notice which specifies the conditions under which firms cooperating 
with the Commission can receive  immunity from fines or significant 
reductions in the fine which would otherwise have been imposed upon 
them.  Before  it adopts  the notice, the Commission has  invited  all 
interested persons to submit their observations on its draft notice.21 

7. Access to the file 

51.  The European Community's anti-trust enforcement procedures must 
not  be  arbitrary  or unfair. The Commission  is required  to observe 
procedural  safeguards  aimed  at  protecting  the  interests  of  firms 
affected by its decisions. Take, for instance, preservation  of the 
rights  of  defence,  in  particular  the  right  to  a  fair  hearing. 
Addressees of formal decisions and interested parties also have the 
ultimate safeguard of the right of appeal to the European Courts. 

52.  The  Court  of  First  Instance  annulled  a  series  of  Commission 
decisions  of  19  December  199022  sanctioning  infringements  of  the 
competition  rules on the market  in soda ash. One of  the  decisions 
related to a concerted practice by which Solvay and ICI divided the 
European market between them. In addition, the Commission found that 
both Solvay and ICI abused their dominant positions in western Europe, 
in the United Kingdom and Ireland respectively.23 

The decision, which was based on Article 85, has been annulled on the 
ground  that  the Commission  did not  respect  the parties' rights of 
defence. The Court found that the Commission should have given Solvay 
access,  in  the  context  of  the  Article  85  procedure,  to  certain 
documents contained in the Commission's file for the Article 86 case 
against ICI.24 Conversely, the Court, acting on the same basis, decided 

On  10 August  1993  the US Department  of Justice Antitrust  Division  issued  its  corporate 
leniency policy. This was followed by a leniency policy for individuals that was  issued 
on 10 August  1994. 

OJ C 341, 19.12.1995, p.  13. 

OJ L 152, 15.6.1991. 

XXth Report on Competition  Policy  (1990), points  92 and 113. 

Judgment  of  the  Court  of  First  Instance  of  29  June  1995  in  Case  T-30/31  Solvay 
Commission 

[1995] ECR  11-1775. 

v 

19 

in favour of ICI.25 

The Commission is examining the exact impact of these decisions on its 
current  practice,  also  in view  of  the new mandate  of  the  Hearing 
Officer, which provides that, if a company believes that the Commission 
has not provided it with all the documents necessary for its defence, 
the Hearing Officer should examine any such claim and decide on the 
merits .2S 

B  -  Cooperation  and  competition  in a  rapidly  changing  and  increasingly 
global  economic  environment 

53.  Today's economic environment is characterized by a sharp increase 
in competitive pressures. Several factors have contributed to this : 
the  continuing  shortening  of  product  life-cycles;  the  growing 
globalization  of  industries and markets; and the completion of the 
legislative programme for the achievement of the internal market. These 
economic  realities  must  be  taken  into  account  in  applying  the 
competition rules. As a result, economic market analysis is becoming 
increasingly important in competition cases. The Commission has to take 
account of the specific economic features of a particular market in 
placing the relevant case in its proper context. 

In an economic environment characterized by dynamic markets, innovation 
and globalization, cooperation between firms is often vital to enable 
them  to  remain  competitive  on  the  market  by  improving  their  R&D 
efforts, reducing costs and developing new products. None the less, 
such cooperation must not lead to anti-competitive situations which are 
incompatible with the competition rules of the Treaty. 

1.  The  application  of  Articles  85  and  86  in  the  telecommunications  sector 

1.1. Strategic alliances 

54.  The  ongoing  liberalization  of  the  telecommunications  sector, 
together  with  the  increasing  convergence  of  telecommunications, 
information technologies and media, are spurring substantial commercial 
activity in the core sectors of the information market. Market players 
are  now  positioning  themselves  to  take  advantage  of  the  new 
opportunities.  This  has  resulted  in  a  wave  of  new  alliances  and 
partnerships being announced or implemented.27 

Strategic  alliances  between  incumbent  telecommunications  operators 
(TOs)  moving  into  global  markets  are  one  type  of  such  alliances 
(BT/MCI; Atlas-Phoenix). Other alliances (conglomerate alliances) are 
set  up  either  between  companies  with  no  prior  presence  in  the 
telecommunications  market but which benefit  from synergies  through 
market  entry  -such  as  electricity  utilities  or  banks  that  have 
substantial internal networks as well as financial means and know-how -
or between the latter and TOs (Cable & Wireless and Veba; BT-Viag; BT-
BNL, Albacom) . Large consortia are also being formed to offer mobile 
satellite telecommunications services on a worldwide basis (Inmarsat-P, 
Iridium, Globalstar and Odyssey). 

55.  The application of the basic competition rules to these alliances 

Judgment of the Court of First Instance of 29 June 1995 in Case T-36/91  Imperial 
Industries 
Commission Decision of 12 December 1994 on the terms of reference of hearing officers in 
competition procedures before the Commission  (OJ L 330, 21.12.1994, p.67). 

pic  v  Commission  [1995] ECR 11-1847. 

Chemical 

A comprehensive overview of case decisions and publications in this field is given in 
Community  Competition  Policy  in  the  Telecommunications  Sector,  European .Commission, 
Official Documents, Update July 1995 (IV/18571/95). 

20 

has become one of the major challenges for EU competition policy in 
recent years. The Commission must ensure that the current restructuring 
process will lead to competitive and growth-oriented market structures . 
The Community's policy aimed at liberalizing  telecommunications  is 
generating  new  services  and  products  at  competitive  prices  for 
consumers,  reducing  costs  for  the  industry  and  creating  new  jobs. 
However, these efforts would serve little purpose if new restrictive 
agreements, practices or market  structures were allowed  to develop 
which prevented competition from emerging on liberalized markets or if 
TOs  could  engage  in  abusive  behaviour  aimed  at  preserving  their 
position. This shows that there is a close inter-relationship between 
different Community policy areas and that all competition instruments 
must be applied together in a coherent way. . 

56.  The Concert joint venture between British Telecommunications and 
the US MCI Corporation was the first major télécoms strategic alliance 
which the Commission dealt with, and it was granted an exemption under 
Article 85 (3) ,28 

Alliances intending to offer new global services, with features sought 
in particular by large corporations (e.g. seamlessness, end-to-end, one 
stop shopping and billing, etc.), will in general improve the quality 
and the availability of advanced telecommunications services and will 
also contribute to the creation of trans-European networks, which is 
one of  the objectives  of  the EC Treaty  (Article  12 9b).  Consumers, 
including large multinational companies, but also innovative small and 
medium-sized  enterprises,  can  benefit  from  more  advanced  global 
services  and efficiency gains, thereby  improving  their  competitive 
position both globally and within the European Union. 

However,  to  the  extent  that  alliances  offer  domestic  as  well  as 
international  services,  the  indispensability  required  under 
Article 85(3)  and  the  possible  elimination  of  competition  at  the 
national level are important elements in the Commission's analysis. 
Important  elements  in  the  Commission's  favourable  attitude  to the 
creation of Concert were the genuinely global nature of the services 
concerned and the fact that the markets of both parent companies are 
open to competition. 

Atlas/Phoenix 

57.  The Atlas agreement, which the Commission investigated during 
1995,  differs  from  the BT-MCI  alliance  in two  important respects: 
firstly,  the  domestic  component  of  the  services  offered  is  much 
stronger  than  the global  elements planned  and,  secondly,  the home 
markets of the parties (France and Germany) are less liberalized than 
the home markets of BT and MCI  (UK and US) . 

The Atlas transaction brings about a joint venture between the French 
and German public telecommunications operators, France Telecom (FT) and 
Deutsche Telekom  (DT) . Atlas is also the instrument of DT's and FT's 
participation in the second transaction, named Phoenix, with the US 
company Sprint Corporation. 

Atlas  targets  two  separate  product  markets  for  value-added 
telecommunications services, namely the market for advanced corporate 
telecommunications services and the market for standardized low-level 
packet-switched  data  communications  services.  The  broader  Phoenix 
alliance  will  address  the  same  markets  for  value-added 
telecommunications network services and also the market for traveller 

Decision of 27 July 1994  (OJ L 223, 27.08.1994, p. 36); XXIVth Report on .Competition 
Policy  (1994), points 156-160. 

21 

services and the market for so-called carrier's carrier services. 

The Atlas and Phoenix arrangements raised a number of concerns from a 
competition point  of view,  in particular  with respect  to the home 
markets of the EU partners to the transactions, where FT and DT hold 
legal  and de  facto dominant positions with  respect  to a number of 
telecommunications services and the provision of infrastructure. It was 
argued therefore that competition could be eliminated and the positive 
effects of future full liberalization endangered. In response to this, 
the  parties  to  the  alliances  as  well  as  the  French  and  German 
Governments  have  undertaken  certain  amendments  and  commitments  to 
address these concerns. They relate to the non-intégrâtion into Atlas 
of the domestic French and German public switched data networks, the 
non-discriminatory  access  to  these networks, and  the  avoidance  of 
cross-subsidization.  However,  the  main  commitment  made  by  the 
governments  was  that  the  use  of  alternative  telecommunications 
infrastructure  for the provision of  liberalized  telecommunications 
services  (i.e. not basic voice telephony) will be liberalized as of 1 
July 1996. Without such liberalization, competition in the area of data 
communications would also be endangered or eliminated in other Member 
States by the alliance between the Union's largest telecommunications 
organizations. 
Full  liberalization,  i.e.  including  basic  voice 
telephony and infrastructure, will be achieved by 1 January 1998. 

On this basis, the Commission has indicated that it is ready, subject 
to observations from third parties, to take a favourable view of the 
Atlas-Phoenix agreements.29 

58.  Other strategic alliances of the same type which the Commission 
has begun to investigate are Unisource and its Uniworld alliance with 
AT&T. 

Global Mobile  Satellite Systems 

59.  The  Commission  has  launched  an  in-depth  and  comprehensive 
examination of the newly emerging strategic alliances which are being 
formed  to  offer mobile  satellite  telecommunications  services  on a 
worldwide basis. 

In this  sector, which has only a few global market players, it is 
essential, that competition is safeguarded in the downstream markets 
involved, namely local service provision, distribution and equipment 
supply. 

One of the systems examined, Inmarsat-P, has already been favourably 
viewed by the Commission.30 

1.2. Access and interconnection agreements 

60.  'An important problem for the application of EU competition law 
to the sector, and in general for the regulatory environment of the 
future  telecommunications  market,  is  the  issue  of  access  and 
interconnection  agreements.31 In fact, the post-monopoly and future 
multimedia environment  is likely to be characterized  by  situations 
where firms singly or jointly control facilities - such as networks, 
conditional access systems or critical software interfaces - which may 
provide an essential route to customers. 

Notices pursuant to Article 19(3) of Regulation No 17 (OJ C 337, 15.12.1995, pp. 2 and 
13) . 
Notice pursuant to Article 19 (3) of Regulation No 17 (OJ C 304, 15.11.1995, p.  6). 
G7 conclusions and Telecommunications Infrastructure Green Paper. 

22 

Access and interconnection agreements may, in principle, be seen as 
pro-competitive  because  they  are  aimed  at  extending  the  range  of 
services  available  to  customers.  However,  they  may  also  generate 
substantial  collusive behaviour and market  foreclosure, as well as 
abuse  of  dominant  positions.32  The  non-discriminatory  access  to 
essential facilities on reasonable terms is of central importance in 
this context. The Commission therefore intends to present in 1996 a 
draft communication on the implementation of the competition rules in 
this area. 

2.  Globalization  of  markets 

ATR/BAe 

61.  The market for regional aircraft is an example of a sector with 
a  worldwide  dimension.  The  main  manufacturers  operate  in  all 
continents. 

62.  On 18 August  the Commission authorized, by means of a comfort 
letter, the regional aircraft joint venture between Aérospatiale and 
Alenia, already integrated in ATR, and British Aerospace. The ultimate 
objective of the project is to merge the parties' regional aircraft 
activities. The first stage of cooperation mainly concerns services 
direct to customers and the joint carrying-out of feasibility studies 
for new aircraft in this sector. 

The  Commission's  authorization  is valid  for only  a  limited  period 
ending  on 6 June  2000; this  leaves  it the option of  reviewing  the 
situation if, following the feasibility studies, the parties decide not 
to develop, produce or launch the programmes for new aircraft but to 
nonetheless maintain their cooperation in the areas of sales and after-
sales service. 

3. Transfer of technology 

63.  One  of  the  priority  tasks  of  the  Commission  with  a  view  to 
developing the large internal market is to encourage innovation and the 
dissemination of new technology in European industry. The prime role 
played  by  technology  transfer  in the  development  of  technological 
innovation in the economy of the European Union and in strengthening 
the  competitiveness  of  enterprises  operating  in  this  area  was 
highlighted in the Commission White Paper on growth, competitiveness 
and employment. 

64.  The Regulation on the block exemption of categories of technology 
transfer agreements,33 proposed in 1994 and substantially amended in 
1995  following  third party hearings  and  the  second meeting  of  the 
Advisory Committee on Restrictive Practices and Dominant Positions, is 
intended  to promote  economic growth and enhance competitiveness by 
simplifying the content of the two existing regulations on licensing 
agreements34 and combining them in a single regulation. 

65.  The  Regulation  thus  reduces  the  disparities  between  the 
Regulation on patent licensing and the Regulation on know-how licensing 
and removes several clauses preventing block exemption or transfers 
them to the so-called "opposition" procedure. It also provides for new, 
lawful clauses which give greater contractual freedom to the parties. 

Coudert Bros, Competition aspects of interconnection agreements in the telecommunications 
sector, Report  to the European Commission, June 1995. 

The Regulation was adopted by the Commission on 31 January 1996. 

Regulations  (EEC) Nos  2349/84 of 23 July 1994 and 556/89 .of 30 November 1988. 

23 

This relaxation of the rules, which will benefit most operators in the 
Community is, however, accompanied by a clear warning to enterprises 
with strong market positions:  the benefit of the block exemption can 
be withdrawn if enterprises use their exclusive licences to monopolize 
the market for a product and prevent third parties from gaining access 
to new technologies.  When assessing such cases, the Commission will 
pay particular attention to situations in which the market share of the 
licensee exceeds a threshold of 40%. 

C - Transport 

1. Maritime transport 

66.  The European Union is the largest trading bloc in the world. The 
bulk of its trade with the rest of the world  (and a significant part 
of intra-Union trade) is carried out by means of maritime transport. 
Liner shipping, i.e. scheduled maritime transport services, is of major 
importance in this respect. 

It is  therefore  essential  for  the European Union to have  the best 
possible  maritime  transport  service  at  the  lowest  possible  cost. 
Competition  policy  is  a  tool  well-adapted  to  help  achieve  this 
objective. 

67.  It should also be noted that in the United States, a proposal to 
deregulate liner shipping and make it subject to a more competitive 
statutory regime was recently adopted by the House of Representatives 
and  is  currently  before  the  Senate.  If  the  proposal,  the  Ocean 
Shipping Reform Act, is passed, the US regime will more closely match 
the European rules. 

1.1. Liner shipping consortia 

68.  The new regulation granting block exemption to liner shipping 
consortia35 is an important  instrument  for this purpose, as it will 
encourage  shipowners  to  improve  and  rationalize  their operations, 
thereby  reducing  costs  and  freight  rates  whilst  at  the  same  time 
allowing  them to offer a better-quality  service along with greater 
frequency. This is the second block exemption that has been adopted in 
the liner shipping sector. Regulation (CEE) No 4056/86, which lays down 
rules for the application of Articles 85 and 86 to maritime transport, 
already contains a block exemption for liner conferences.36 

69.  The new block exemption entered into force on 22 April 1995 and 
applies  for  a  period  of  five  years. Liner  shipping  consortia  are 
agreements between two or more shipping companies relating to the joint 
operation  of  liner  transport  services  through  cooperation  in  the 
technical, operational and/or commercial field, with the exception of 
price .fixing. It applies only to international liner shipping services 
to or from one or more Community ports intended exclusively for the 
carriage of cargo, chiefly by container. It also covers both consortia 
operating within a liner conference and consortia operating outside 
such conferences, except that it does not cover the joint fixing of 
freight rates. Consortium members that wish to fix rates jointly and 
do not satisfy the conditions of Regulation (CEE) No 4056/86 must apply 
for individual exemption. 

Commission Regulation  (EC) No 870/95 of  20 April  1995 on the application of Article  85 
(3) of the Treaty to certain categories of agreements, decisions and concerted practices 
between  liner  shipping  companies  (consortia)  pursuant  to  Council  regulation  (EEC) 
No 479/92  (OJ L 89, 21.04.1995, p.  7 ). 

Regulation  (CEE) No 4056/86 of 22 December  1986  (OJ L 378, 31.12.1986, p. 4) . 

24 

The block exemption covers the following activities : the coordination 
and/or  joint  fixing of sailing timetables and the determination of 
ports of call; the exchange, sale or cross-chartering of space or slots 
on vessels; the pooling of vessels and/or port installations; the use 
of one or more joint operations offices; the provision of containers, 
chassis  and  other  equipment  and/or  rental,  leasing  or  purchase 
contracts for such equipment; the use of a computerized data exchange 
system  and/or  joint  documentation  system;  temporary  capacity 
adjustments;37 the joint operation or use of port terminals and related 
services; the participation in tonnage, revenue or net revenue pools; 
the  joint  exercise  of voting  rights  in liner  conferences; a joint 
marketing structure and/or joint bill of lading; and any other activity 
ancillary to any of these and necessary for its implementation. 

70.  The Commission considers that consortia generally help to improve 
the productivity and quality of available liner shipping services by 
reason of the rationalization they bring to the activities of member 
companies  and  through  the  economies  of  scale  they  allow  in  the 
operation of vessels  and utilization of port  facilities. Transport 
users generally  obtain a fair share of the benefits  resulting  from 
consortia if there is sufficient competition in the trades in which the 
consortia operate. 

In  order  to  benefit  from  the  block  exemption,  a  consortium  must 
possess, in respect of the ranges of ports it serves, a share of direct 
trade of under 3 0% when it operates within a conference and of under 
35% when it operates outside a conference. A  simplified  opposition 
procedure applies to consortia whose share of the trade exceeds the 
above limit but does not exceed 50% of the direct trade. 

1.2. Inland rate fixing by ship liner conferences 

71.  On 8 June 1994 the Commission adopted a report38 on how it intends 
to apply the competition rules to liner shipping which it presented to 
the Transport Council.  The report focuses on an analysis of the legal 
position with regard to price-fixing agreements concluded by shipowner 
members of liner conferences concerning the land section of multimodal 
transport services provided by them in the Community.  It concluded 
that this practice was contrary to the Community competition rules and 
could not qualify for exemption as it stood.  It suggested, however, 
that  a  new  approach  be  established  that  was  compatible  with  the 
competition  rules  and  allowed  inland  container  transport  to  be 
organized more efficiently and more to the advantage of shippers. 

72.  At  the  Council  meeting  in  November  1994,  Mr Van Miert, 
Competition  Commissioner,  agreed  to  report  to  the  Council  on  the 
implementation of the guidelines, on the basis of the work of a wise 
men's committee.  This committee, known as the Multimodal Group, was 
set up in July 1995, and would be submitting an interim report to him 
at the beginning of 1996 which would be presented to the Council in the 
first half of 1996. 

73.  In  1994  the  Commission  took  two decisions prohibiting  inland 
price fixing agreements : the TAA (Transatlantic Agreement) decision39 

This does not include arrangements concerning the non-utilization of existing  capacity, 
whereby shipping line members of the consortium refrain from using a certain percentage 
of the capacity of vessels operated within the framework of the consortium; See Article 
4 of Regulation  (CEE) No 870/95 and Commission Decision of 19 October 1994 concerning the 
Trans-Atlantic Agreement,  in which the Commission prohibited  an agreement  for the non-
utilization  of  capacity  (OJ L 376, 31.12.1994, p. 1 ). 

SEC(94)933. 

Decision of  19 October  1994  (OJ L 376, 31.12.1994, p. 1 ). 

25 

and  the  FEFC  (Far  Eastern  Freight  Conference)  decision.40 
On 10 March 1995 the Court of First Instance ordered the suspension of 
the TAA decision  in so far as it prohibited  joint price  fixing  in 
respect  of  the  inland  portions  within  the  Community  of  through-
intermodal transport services.41 That order was confirmed on appeal by 
the Court of Justice on 19 July 1995.42 

In the meantime, a modified version of the TAA, the Trans-Atlantic 
Conference  Agreement  (TACA),  was  notified  to  the  Commission.  The 
Commission  sent  the parties  to the TACA  a statement  of  objections 
setting out the reasons why it had formed the preliminary view that it 
was appropriate  to withdraw  any  immunity  from  fines  in respect  of 
inland price fixing which may have been brought about by the new TACA 
notification.43  An  application  for  interim  measures  preventing  the 
Commission's anticipated decision to withdraw immunity from fines was 
dismissed by the Court of First Instance.44 

2. Air transport 

2.1. IATA tariff consultations 

74.  Regulation  (EEC)  No  1617/93  of  25  June  199345  states  that 
Article 85(3)  is  applicable  in  particular  to  the  holding  of 
consultations on tariffs for the carriage of passengers and freight on 
scheduled air services between Community airports.  The exemption is, 
however,  subject  to  the  conditions  set  out  in  Article  4  of  the 
Regulation,  notably  that  the  exemption  is  applicable  only  if  the 
consultations give rise to interlining. 

75.  According  to  the  preliminary  information  obtained  by  the 
Commission in 1995, it would seem that, as a general rule, there are 
not many, if indeed any, interlining agreements on the carriage of 
goods. It is also clear that tariffs established through consultation 
by  airlines  are  appreciably  higher  than  normal  market  prices  and 
therefore encourage airlines to increase their tariffs beyond the level 
normally set by competition. 

The Commission therefore considers it desirable to amend the above-
mentioned  Regulation  in  order  to  exclude  from  its  scope  tariff 
consultations relating to the carriage of freight.  The Commission has 
published a notice46 giving the airlines and other interested parties 
the opportunity to make known their views in advance. It will decide 
on further action in 1996. 

2.2. Cooperation between airlines 

76.  Cooperation  between  airlines  can  facilitate  the  healthy 
restructuring of air transport in Europe and lead to an improvement in 
the quality of consumer services and better cost control.  While the 
Commission does not intend to impede the restructuring of European air 
transport, it is monitoring operations to ensure they do not lead to 
restrictions of competition that are not indispensable and do not rule 
out opportunities for real competition from new operators on the main 

Decision of  21 December  1994  (OJ L 378, 31.12.1994, p. 17). 

Case T-395/94  R  Atlantic 

Container 

Line  and  Others 

v  Commission 

[1995] ECR  11-595. 

Case C-149/95 P  (R)  Commission 

v  Atlantic 

Container 

Line 

and  Others  [1995] ECR  1-2165. 

Commission press  release  IP/95/646, 21.06.1995. 

Order  of  the  President  of  the  Court  of  First  Instance  of  22  November  1995, 
Case T-395/94  R  II  Atlantic 

(not yet published) 

Line  and  others 

v  Commission 

Container 

OJ L 155, 26.6.1993, p. 18. 

OJ C 322, 2.12.1995, p. 15. 

26 

routes. 

The conditions proposed by Swissair/Sabena which the Commission agreed 
when it. approved the merger of the two airlines, and the conditions 
imposed by the Commission when it exempted the cooperation between 
Lufthansa and SAS, satisfy that objective. 

* 

Lufthansa/SAS 

77.  The  general  cooperation  agreement  between  Lufthansa  and  SAS 
provides  for  the  setting-up  of  an  integrated  air  transport  system 
between  the  two  airlines, based  on long-term  relationships  in the 
commercial  and operational  fields.  Commercial  cooperation will be 
particularly close on the routes between Scandinavia and Germany where 
the parties are considering setting up a joint venture. 

78.  The Commission stated47 that, although the agreement appreciably 
restricted competition on the markets in question, especially on the 
routes between Scandinavia and Germany, it could qualify for exemption 
provided  that  certain  conditions  were  met,  allowing  existing  and 
potential competition to be maintained. 

These conditions related chiefly to:  a frequency freeze on certain 
routes operated by the two companies; the opening of frequent flyer 
programmes to airlines not operating such schemes;  the obligation on 
Lufthansa  and  SAS  to  conclude,  subject  to  certain  conditions, 
interlining  agreements  with new  entrants;  termination  of  certain 
cooperation agreements with other airlines;  transfer to new market 
entrants of slots in certain crowded airports. 

The Commission adopted a decision granting exemption on 16 January 
1996. 

D  - Trans-European  networks  and competition  rules 

79.  In 1995, the Commission examined the question of the relationship 
between  the  private  financing  of  trans-European  networks  and  the 
Its  conclusions  were 
application  of  the  competition  rules. 
incorporated in the general report on trans-European networks, given 
a warm reception by the Madrid European Council on 15 and 16 December. 
In the report, the Commission set out the following guidelines on the 
handling of competition questions and announced that it would set up 
a  "one-stop  help-desk"  (fax:  32.2.295 65 04)  to  provide  project 
managers with additional information on the guidelines. 

80.  The Commission proposes to apply the following principal criteria 
when processing cases submitted to it :  (i) where the infrastructure 
operator wishes to give enterprises the opportunity to reserve capacity 
as soon as a project is launched, the opportunity should be offered to 
all  Community  enterprises  likely  to be  interested;  (ii)  capacity 
reserved  by  an  enterprise  must  be  proportional  to  the  direct  or 
indirect  financial  commitments  entered  into by  the  enterprise  and 
correspond to planned operational requirements covering a reasonable 
period;  (iii) new infrastructure is generally not congested when it 
first  enters  into  service.  Therefore, an undertaking  or group of 
undertakings within the meaning of Article 3 of Directive 91/440/EEC 
should not reserve all available capacity.  Some of the capacity should 
remain available to enable other firms to operate competing services; 
(iv) enterprises holding operating rights may not object to the loss 
of such rights if they are not used;  (v) the duration of agreements 
reserving capacity must be reasonable and adapted to each case. 

OJ C 201, 5.8.1995, p. 2. 

27 

This  list  of  criteria  is not  exhaustive  and does not  prejudge  the 
Commission's final position, which will be defined in the light of the 
specific characteristics of each project. 

81.  The  Commission  will  endeavour  to  deal  rapidly  with  the 
notifications of agreements relating to the financing of trans-European 
networks.  In particular, it is considering adopting a final decision 
in not more than six months' time, provided the parties have contacted 
the Commission before finalizing the agreements. 

Gas Interconnector 

82.  In its White Paper on growth, competitiveness and employment, the 
Commission highlighted the importance of new European infrastructure 
networks that could help overcome the fragmentation of certain markets 
in Europe. 

On 17 May 1995 the Commission issued a comfort letter clearing a joint 
venture arrangement between nine leading European gas companies for the 
construction  and  operation  of  a  UK-Belgium  underwater  gas 
interconnection, in particular a high pressure gas pipeline which will 
be the first connection between the United Kingdom and continental gas 
markets. 

Given  the  possibility  for  third  parties  to  acquire,  on  freely 
negotiated  terms,  access  to  transport  capacity  through  the 
interconnector, and in view of the fact that this project will create 
opportunities for competition between markets which so far are quite 
isolated, the Commission found that the pro-competitive effects of the 
joint venture clearly outweigh the restrictions of competition. In its 
comfort letter, the Commission also ensured that the agreements will 
operate in practice in such a way as to effectively meet demand for any 
reverse flow capacity which may arise. 

E - Competition  and  environment 

83.  In 1995 the Commission once again made clear how it intended to 
apply competition policy to environmental matters, especially voluntary 
agreements .48 

84.  Community  environmental  policy  favours  the  "polluter  pays" 
principle. The effectiveness of this principle depends, in particular, 
on the functioning of the pricing mechanism; this must  reflect, in 
terms of costs, the negative effects of an economic activity on the 
environment.  For  the mechanism  to act  correctly  as  an indicator, 
enterprises must internalize the costs of environmental protection. The 
"polluter pays" principle does not preclude state aid for environmental 
protection, under certain conditions  (see below). 

Distributing resources in ways which respect the environment can take 
the form of direct public regulation, taxation, "voluntary" agreements 
and  self-regulation.  Voluntary  agreements  are  contracts  between 
industry  and  public  administrations  which  include  a  number  of 
environmental objectives to be achieved by the industry in question 
according  to a timetable.  Voluntary agreements may relate both to 
objectives and to the means of achieving them. 

The use of voluntary agreements is growing in most OECD countries in 
parallel with a trend towards deregulation and less intervention by the 

See the document  "Competition and the environment" presented by DG IV to the Round Table 
on  the  Environment  and  Competition  held  by  the  OECD  Committee  on  Law  and- Competition 
policy,  Paris, May 1995. 

28 

state. 

Voluntary agreements and self-regulation are often regarded as a less 
bureaucratic  and  more  flexible  solution  than  more  traditional 
approaches.  Voluntary  agreements  or self-regulation, however, may 
contain restrictions of competition under Article 85(1) of the Treaty. 
The Commission is in fact currently examining several complaints on 
this matter. 

85.  When the Commission examines individual cases, it weighs up the 
restrictions of competition arising out of an agreement against the 
environmental objectives of the agreement, and applies the principle 
of proportionality in accordance with Article 85(3).  In particular, 
improving the environment is regarded as a factor which contributes to 
improving  production  or  distribution  or  to  promoting  economic  or 
technical progress. 

The Commission intends, however, to remain very firm with regard to the 
principle of non-closure of national markets to foreign operators.  It 
will also be very vigilant about problems of access by third parties 
to a system and about agreements which could result in a product being 
squeezed out of the market. 

The Commission also takes a negative view of multilateral tariff or 
price  fixing  resulting  from  an  agreement  on  the  environment;  its 
assessment will, however, be on a case-by-case basis and will look at 
whether any such agreement is indispensable.  The aim of environmental 
protection  is  not  necessarily  sufficient  in  itself  to  warrant  an 
agreement on prices being regarded as indispensable. 

F -  Secondary  product markets 

86.  Several  complaints  which  the Commission  received  concern  the 
alleged abuse of a dominant position in secondary product markets such 
as spare parts, consumables or maintenance services. These products are 
used in conjunction with a primary product and have to be technically 
compatible with it (e.g. software or hardware peripheral equipment for 
a computer) . Thus, for these secondary products there may be no or few 
substitutes  other  than  parts  or  services  supplied  by  the  primary 
product  supplier. This prompts  the question whether  a non-dominant 
manufacturer of primary products can be dominant with respect  to a 
rather  small  secondary  product  market,  i.e.  secondary  products 
compatible with a certain type of that manufacturer's primary products. 

The question raises many complex issues. Producers of primary equipment 
argue that there cannot be dominance in secondary products if there is 
lack  of  dominance  in the primary product  market  because  potential 
buyers would simply stop buying the primary products if the prices for 
parts or services were raised. This theory implies a timely reaction 
on the primary product market due to consumers' ability to calculate 
the overall life-time costs of the primary product including all spare 
parts, consumables, upgrades, services, etc. It furthermore implies 
that  price  dicrimination  is  not  possible  between  potentially  new 
customers and "old" captive customers or that switching costs for the 
latter are low. On the other hand, complainants who produce consumables 
or maintenance  services  assume  dominance  in the secondary  product 
market if market shares are high in this market, i.e. this approach 
focuses  only  on  the  secondary  products  without  analysing  possible 
effects emanating from the primary product market. 

In the Commission's view, neither of these approaches reflects reality 
sufficiently. Dominance has always been defined by the Commission as 
the  ability  to  act  to  an  appreciable  extent  independently  of 
competitors and consumers. Therefore, an in-depth fact-finding1 exercise 

29 

and analysis on a case-by-case basis are required. In order to assess 
dominance in this context the Commission will take into account all 
important  factors  such  as  the price  and  life-time  of  the  primary 
product,  transparency  of  prices  of  secondary  products,  prices  of 
secondary  products  as  a proportion  of  the  primary  product  value, 
information costs and other issues partly mentioned above. A similar 
approach was taken by the US Supreme Court in its 1992 Kodak decision. 

Pelikan/Kyocera 

87.  The Commission took this approach when it rejected in 1995 the 
complaint of Pelikan, a German manufacturer of toner cartridges for 
printers, against Kyocera, a Japanese manufacturer of computer printers 
including  toner  cartridges  for those printers. Pelikan's complaint 
alleged a number of practices by Kyocera to drive Pelikan out of the 
toner market and accused Kyocera, among others, of abusing its dominant 
position  in the  secondary market  although  Kyocera was  clearly not 
dominant in the primary market. Apart from the fact that there was no 
evidence of behaviour that could be considered abusive, neither did the 
Commission find that Kyocera enjoyed a dominant position in the market 
for consumables. This was due to the particular features of the primary 
and secondary markets. Thus, purchasers were well informed about the 
price charged for consumables and appeared to take this into account 
in their decision to buy a printer. "Total cost per page" was one of 
the criteria most commonly used by customers when choosing a printer. 
This was due to the fact that life-cycle costs of consumables (mainly 
toner cartridges) represented a very high proportion of the value of 
a printer. Therefore, if the prices of consumables  of a particular 
brand  were  raised,  consumers would have  a  strong  incentive  to buy 
another  printer  brand.  In  addition,  there  was  no  evidence  of 
possibilities for price discrimination between "old"/captive and new 
customers. 

G  -  Liberal  professions 

88.  The free movement of liberal professions in the Community means 
that  certain  restrictive  practices  in  this  field  are  increasingly 
likely to affect trade between Member States. One can expect a growing 
number  of  cases  in  this  area.  On  several  occasions  the  European 
Parliament has called on the Commission to apply the competition rules 
to the liberal professions.49 

Coapi 

89.  On 30 January the Commission took a decision under Article 85 
applying the competition rules in this field. 

The Colegio Oficial de Agentes de la Propiedad Industrial  (Coapi) is 
the professional association of industrial property agents in Spain. 
All agents practising in Spain are members. Industrial property agents 
give advice to the general public, and assist or represent clients in 
proceedings involving industry property rights. 

The Commission found that the fixing by the general meeting of Coapi 
of compulsary minimum scales of charges for the cross-border services 
provided by its members constitutes an infringement of Article 85(1) . 

In conformity with existing Community law, the Commission confirmed 
that  the  national  legal  framework  within which  such agreements or 

Resolution on  the XlXth Report  on Competition  Policy, point  9  (iii),  and Resolution  on 
the XXth Report on Competition Policy, point 38 and the Commission's  response hereto in 
the XXIst Report on Competition  Policy, pp. 233 and 234. 

30 

decisions  by  liberal professions  are made,  is not  relevant  to the 
application of Article 85. Even if public authorities encourage such 
behaviour or delegate to an association of undertakings the power to 
fix the prices to be applied by its members, the association's exercise 
of that power does not fall outside the scope of Article 85 of the 
Treaty. 

H  - Subsidiarity  and  decentralization 

90.  In his address to the European Parliament on the occasion of the 
investiture debate of the new Commission, the President of the European 
Commission  insisted  on the necessity  to make  a constant  effort  to 
concentrate on essentials  : "Less action, but better action". 

As far as cases falling within the scope of Articles 85 and 86 are 
concerned, this principle is applied by the Commission in limiting its 
action  to  those  arrangements  which  have  a  significant  effect  on 
competition and which are likely to affect trade between Member States 
appreciably. Moreover, in view of the responsibilities incumbent on the 
Commission, which has the sole power to authorize certain agreements, 
the Commission is encouraging decentralization, in particular in cases 
which may lead to a prohibition decision. 

1. De minimis agreements 

91.  Agreements whose effects on trade between Member States or on 
competition are negligible are not caught by the ban on restrictive 
agreements  contained  in  Article  85(1).  Only  those  agreements  are 
prohibited which have an appreciable impact on market conditions. For 
this  reason,  it  is essential  for  the  Commission  to make  a proper 
analysis of the market in which those agreements operate. 

The  Commission's  notice  on  agreements  of  minor  importance  sets 
quantitative criteria to give guidance as to the concrete meaning of 
the  concept  of  "appreciability".  Despite  the  recent  increases  in 
thresholds,50 it is believed that a further review of the de minimis 
concept may be justified. The Commission has therefore started internal 
deliberations on this issue with a view to presenting new proposals for 
consultation during the course of 1996.' 

2.  Decentralization 

92 .  In its attempt to deal as a matter of priority with cases having 
a significant Community dimension, the Commission is also encouraging 
national enforcement of Community competition law. It considers that 
there is not normally a sufficient Community interest in examining a 
complaint when the plaintiff is able to secure adequate protection of 
his  rights  before  national  courts.51  In  its  SACEM  judgments  of  24 
January  1995,  the  Court  of  First  Instance  further  specified  the 
conditions  under  which  the  Commission  has  the  right  to  reject  a 
complaint  on  the  ground  that  it  lacks  a  significant  Community 
interest.52 In 1995 several cases were closed on this basis. 

Commission notice concerning the updating of the 1986 communication on agreements of 
minor importance  (OJ C 368, 23.12.1994). 

The Court of First Instance endorsed this practice for the first time in its judgment of 
17 September 1992 in Case T-24/90 Automec  v  Commission  [1992] ECR 11-2223, paragraphs 91 
to 94. 
Case T-114/92  BENIM  v  Commission  [1995] ECR 11-147 and Case T-5/93  Tremblay  v  Commission 
[1995] ECR 11-185. The Court of First Instance, referring to the Automec II judment, 
indicated that, in order to assess the Community interest, the Commission must balance 
the significance of the alleged infringement as regards the functioning of the common 
market, the probability of its being able to establish the existence of the infringement 
and the extent of the investigative measures required to enforce the competition rules. 

31 

93.  An important step forward in the decentralization effort  is the 
Commission's  notice  on  cooperation  between  national  courts  and  the 
Commission in applying Articles  85 and 86.53 In 1995 several  national 
courts  in  Spain,  France,  Germany  and  Belgium  have  relied  upon  the 
cooperation mechanism  laid down in this notice to obtain  information 
from  the Commission  on competition issues. 

In its preliminary ruling of 12 December  1995,54 the Court of Justice 
found that the same principles of cooperation between the  Commission 
and national courts apply in the field of agriculture, where Regulation 
No 26 determines the extent to which the Community competition  rules 
apply. It is worthwhile noting that, according to the Court's judgment, 
the national court can, in its assessment, take into consideration the 
criteria  established  by  the  case-law  of  the  Court,  as  well  as  the 
practice of the Commission, which practice is evidenced not only by the 
decisions, adopted  by  the  Commission  but  also  from  other  sources, 
including  in  particular  its  reports  on  competition  policy  and  its 
communications. 

94.  It  is not  only national  courts, but  also  national  competition 
authorities, that have an important role to play in raising the level 
of enforcement of Community competition law and, generally  speaking, 
in ensuring unrestricted and fair competition in the Union. In cases 
where  an  appreciable  economic  effect  is  felt  mainly  in  one  Member 
State, national authorities  are closer to the market and may thus be 
better placed  to handle  the case. 

The Commission has pressed ahead with its preparation of a notice on 
cooperation  between  the  Commission  and  national  competition 
authorities55, pursuant to which the Commission will inform and consult 
the national authorities when the latter apply Article  85(1) or 86 or 
national competition law in cases with a Community dimension. A draft 
has  already  been  submitted  to  the  Member  States  for  consultation. 
Further  consultation  of  interested  third parties will  follow on  the 
basis  of  a draft  notice  which  the  Commission  intends  to publish  in 
1996. 

95.  Decentralized enforcement should not, however, lead to differing 
application of competition law in the European Union. The  Commission 
is therefore also pursuing uniformity in the substance and application 
of national competition laws. This is done not through any formal act 
of harmonization but  through a continuation of, and  improvement  in, 
communication  and  cooperation  between  Community  and  national 
enforcement  officials. 

At present, nine Member States have competition  laws with respect  to 
restrictive  agreements  and  abuses  of  a  dominant  position  which 
substantially resemble those of the Community. Most of the others are 
considering amendments to national law aimed at bringing them into line 
with Community law. This process of "soft harmonization" is a natural 
consequence of the integration process, which creates pressure  for a 
level-playing  field  throughout  the Community. 

The fact that a national court or national competition authority is already dealing with 
a  case concerning  the the compatibility of an agreement  or practice  with Article  85 or 
86 is a factor which the Commission may take into account, 

OJ C 39, 13.2.1993, p. 6. 

Joined  cases  C-319/93,  C-40/94  and  C-224/94  Dijkstra/Frico 
(not yet published). 
Melkunie 
Melkunie, 

de  Bie/Campina 

Domo, 

van  Roes 

sel/Campina 

The  conclusions  of  an ad  hoc  group  of  representatives  of  national  authorities  and  the 
Commission which were approved  by the Directors-General  for Competition  in. 1994  served 
as the basis for the Commission's draft. See XXIVth Report on Competition PoJ.icy  (1994), 
points  40-42. 

32 

I - Statistical  overview 

Graph 1 : New cases 

600 

500  4 

400 

300 

200 

100 

•  Cases opened on 
Commission's ow n 
initiative 
B  Complaints 

•  Notifications 

1991 

1992 

1993 

1994 

1995 

96.  During  the  year  the  Commission  registered  559  new  cases, 
including 368 notifications, 145 complaints and 46 cases opened on the 
Commission's own initiative. This represents an increase of more than 
42% compared with 1994 and exceeds the average number of incoming cases 
over the last eight years by more than 32%. 

Almost half of the increase in new cases (78 cases) is attributable to 
the  transfer  of  cases  pending  by  the  EFTA  Surveillance  Authority 
following the accession of Sweden, Finland and Austria to the Union. 

33 

Graph 2 : Cases dealt with 

1200 

1000 + 

800 

600 

400  4 

200 

I Formal decisions 

I Informal procedure 

1991 

1992 

1993 

1994 

1995 

97.  During  the year the Commission  closed 433 cases  in total, of 
which 419 through an informal procedure  (including comfort  letter, 
discomfort letter, rejection of complaint and administrative closure 
of the file56) and 14 by formal decision. In 1995, the number of cases 
closed  fel by 23.4% compared with 1994. 

Cases closed because agreements are no longer in force, because the impact was too slight 
to  warrant  further  investigation,  because  complaints  had  become  moot  or  had  been 
withdrawn or because  investigations had not revealed any anti-competitive practice. 

34 

Graph 3 : Stock of cases over time 

2500 

2000 

1500  4 

1000 

500 4 

1991 

1992 

1993 

1994 

1995 

I Input of cases 

r":—\ Output of cases 

-•— Stock of cases 

98.  The  overall  net  result  of  input  and  output  in  1995  leads  to  an 
increase  of  the  stock  of  cases  remaining  open  at  the  end  of  the  year 
for the first time since 1988. This increase  is however rather modest; 
more specifically  it is less than 12% and,  if the number of  additional 
files of  the new Member  States  are not  taken  into consideration,  less 
than 5%. The actual stock of cases is still considerably lower than the 
more  than  3000  cases  pending  at  the  end  of  the  1980s  and  corresponds 
roughly  to  the  number  of  cases  being  actively  dealt  with. 

The  Commission  is  nonetheless  aiming  at  a  further  reduction  in  the 
existing  stock  of  cases,  to  be  achieved  in  particular  by  further 
improving  the  efficiency  of  its  proceedings  and  by  encouraging  the 
decentralized  application of the competition rules where  appropriate. 

35 

II - State monopolies and monopoly rights : Articles 37 and 90 

A - Introduction 

1.  Services  of  general  economic  interest  at the  heart  of the  Commission's  liberalization 
policy 

99.  The Commission has pursued its policy of liberalizing and opening 
up to competition certain sectors traditionally subject to monopoly 
such as telecommunications, energy, postal services or transport.  As 
these sectors are essential to individual consumers, competitiveness, 
growth and job creation in the European economy as a whole, the gains 
in efficiency resulting from the introduction of some competition will 
have generally positive results for the citizens of Europe. Otherwise, 
we will not have a true internal market while these essential sectors 
continue to be organized on a purely national and monopolistic basis. 

Because of the importance of these sectors to our society and because 
of their specific characteristics, e.g. their network structure, Member 
States have in the past granted exclusive or special rights to public 
or private operators or allowed other restrictions of competition in 
exchange for the operation of services of general economic interest 
such as the supply of a universal service to all citizens on specific 
terms and at affordable prices. 

The Commission has always acknowledged  that  these general  economic 
interest  objectives  are  legitimate  but  considers  that  the  means 
traditionally used ,to provide them are no longer always  justified, 
particularly in view of technological developments and the new needs 
of consumers, and also in view of  European integration itself.  This 
is particularly true for the information society, a source of growth, 
new services and new jobs in the years ahead. 

A  thorough  review  is  therefore  needed,  in  the  light  of  these  new 
realities, of the instruments most likely to provide the public with 
the quality services it requires. The Commission considers that the 
introduction  of  competition  can,  in  many  cases,  improve  service 
quality, allow innovation and the creation of employment and help to 
cut consumer prices.  The removal of obstacles to free competition is, 
however, only one aspect of the Commission's liberalization policy. 
On  the  one  hand,  the  adoption  of  a new  regulatory  framework  will 
frequently be necessary to ensure that universal service is provided 
in  a  competitive  environment.  On  the  other  hand,  where  certain 
restrictions of competition prove essential in maintaining a universal 
service, the Commission recognizes the legitimacy of these restrictions 
under Community law  (as in the case of state aid). 

The Commission therefore considers that the development of competition 
policy  is fully compatible with public service.  It should also be 
noted  that  the  liberalization  of  a  sector  is  different  from  the 
privatization of public enterprises operating in the sector. Whilst the 
introduction of competition can in certain cases stem from Community 
rules, the latter are neutral as regards the public or private nature 
of enterprises. 

2.  Article  90(3)  Directives 

100.  In order to achieve the objective of introducing competition, 
Article  90(3) gives the Commission the power to adopt decisions or 
directives  that  are  binding  on  the  Member States.  This  latter 
possibility is occasionally objected to by certain parties. 

36 

In practice, even  if Article  90(3) allows  the Commission  to adopt 
directives,  the Court of Justice has stipulated  that  the provision 
empowers it only to establish general rules defining the obligations 
already imposed on Member States by the Treaty with regard to public 
undertakings or undertakings granted special or exclusive rights, or 
to take the necessary preventive measures to allow it to carry out its 
monitoring function. 

The limited power conferred on the Commission by Article 90(3) is thus 
different  from  and  more  specific  than  the  power  of  the  European 
Parliament or the Council to adopt directives.  The Commission may not 
impose new obligations on Member States;  it may only determine, with 
regard to all the Member States, the specific obligations imposed on 
them by the Treaty.  The extent of the Commission's duties and powers 
consequently depends on the scope of the rules that are to be complied 
with. 

The  Commission  has  always  used  this  instrument  with  caution. 
Directives under Article 90(3) have been used only in situations where 
the existence of many infringements of the fundamental rules of the EC 
Treaty made them necessary to avoid a multiplicity  of  infringement 
proceedings  and  to  give  operators  a  minimum  amount  of  legal 
certainty.57  These initiatives have generally been taken in response 
to concerns expressed by the Council or Parliament.  The Commission has 
always attached the greatest importance to the need for this instrument 
to be used as part of a transparent procedure involving the broadest 
possible dialogue with the other Union institutions, Member States and 
interested parties. 

This is the approach normally adopted in the initial assessment -stages, 
through the publication by the Commission of Green Papers or discussion 
papers intended to stimulate debate at the public consultation stage. 
On the basis of the results of the consultations, studies by experts 
and information obtained by it, the Commission adopts a draft directive 
which is presented for comments to Parliament, the Economic and Social 
Committee, the Committee of the Regions and the Member States.  The 
draft text is also published in the Official Journal of the European 
Communities  to  enable  other  interested  parties  to  submit  their 
comments. 

The adoption by the Commission of the final Article 90(3) directive is 
in  any  event  preceded  by  careful  scrutiny  of  comments  received, 
especially any comments from the European Parliament, the Economic and 
Social Committee and the Committee of the Regions. 

The  discussions  held  during  the  year  on  the  directives  on  cable 
television networks, mobile communications and the full liberalization 
of telecommunications are good illustrations of this approach. 

3.  Other instruments available  to the Commission 

101.  Article  90(3) also enables the Commission to adopt  individual 
decisions,  where Community law is applied to specific  cases;  the 

Commission  Directive  80/723/EEC  of  25  June  1980  on  the  transparency  of  financial 
relations between Member States and public undertakings  (OJ L 195, 29.7.1980, p. 35), as 
amended by Commission  Directive  85/413/EEC of 24 July  1985  (OJ L 229, 28.8.198(,p.  20) 
and  Commission  Directive  93/84/EEC  of  30 September  1993  (OJ L 254, 12.10.1993, p. 16); 
Commission  Directive  88/301/EEC  of  16  May  1988  on  competition  in  the  markets  in 
telecommunications terminal equipment  (OJ L 131, 27.5.1988, p. 73);  Commission Directive 
90/388/EEC of 28 June  1990 on competition in the markets for telecommunications  services 
(OJ L 192, 24.7.1990, p. 10), as amended by Commission Directives 94/46/EC of 13 October 
1994 on satellite communications  (OJ L 268, 19.10.1994, p. 15) and 95/51/EC of 18 October 
1995 on the abolition of the restrictions on the use of cable television networks for the 
provision  of  already liberalized  telecommunications  services  (OJ L  256, 26..10.1995,  p. 
49) . 

37 

decisions  are very similar  in substance  to Commission decisions in 
other fields (aid) , and their legality is also monitored by the Court 
of Justice. 

In certain cases, the Commission may find it necessary, in order to 
enhance legal certainty and transparency, to explain the criteria it 
intends to follow in monitoring compliance of Community law by Member 
States and operators in a specific sector.  The draft communication on 
the application of the Treaty rules to the postal service published in 
1995 is an example of this sort of initiative. 

B  -  Telecommunications 

1. General measures 

102.  The Commission continued, with the support of the Council and the 
European  Parliament,  to  promote  liberalization  in  the  field  of 
telecommunications. 

On 25 January  it adopted the second part of the Green Paper on the 
liberalization of telecommunications infrastructures. The Green Paper 
examined the regulatory conditions required to ensure full competition 
in the telecommunications sector within the time-frame agreed by the 
Council.58 After wide-ranging  consultations on the Green Paper, the 
Commission  adopted  on  3 May  a Communication  on the consultations59 
summing up the results and listing the measures necessary to complete 
the moves towards  full liberalization and establishment  of a clear 
regulatory framework.  This includes: 

setting the date of 1 January 1998 for the discontinuation of all 
remaining  exclusive  and  special  rights  for both public voice 
telephony and network competition by way of Article 90 directives 
under EU competition law; 
ensuring the financing of a universal service and clarifying the 
interconnection of access conditions, via further development of 
the legislative framework ensuring Open Network Provision; 
further development of the regulatory framework at national and 
European  level, including discussion of future interaction of 
national and EU regulation in this sector. 

Three Commission proposals for directives drafted in this connection 
under Article 90(3) were discussed and/or adopted during the year. 

2.  Cable  TV  liberalization  directive 

103.  On 18 October the Commission adopted a directive allowing cable 
TV  infrastructure  to  be  used  to  provide  already  liberalized 
telecommunications  services.60  The draft had been issued for public 
consultation  on  21 December  199461. Although not bound  by  specific 
Treaty  requirements,  the  Commission  has  sought  to  establish  a 
transparent  and  open  procedure  for  the  adoption  of  Article  90(3) 
directives.  The more than forty written comments received expressed 
their broad support for the Commission draft. 

Council  Resolution  of  22  December  1994  on  the  principles  and  timetable  for  the 
liberalization  of telecommunications  infrastructures  (OJ C 379, 31.12.1994, p. 4 ). 

COM{95)158. 

Commission  Directive  95/51/EC  of  18  October  1995  amending  Directive  90/388/EEC  with 
regard to the abolition of the restrictions on the use of cable  television networks for 
the provision of already liberalized  telecommunications  services  (OJ L 256, 26.10.1995, 
p.49) . 

XXIVth Report  on Competition  Policy  (1994), point 220. 

The directive provides for the abolition of restrictions on the use of 
transmission capacity on cable TV networks for all télécoms services, 
apart from public voice telephony from 1 January 1996, and ensures that 
cable TV networks are allowed  (i) to interconnect with the national 
public  télécoms network,  and  (ii) to interconnect  with  each  other 
directly.  It also calls on the Member States to impose accounting 
transparency and the separation of financial accounts between the two 
business activities as soon as a turnover of ECU 50 million is reached 
in the market for telecommunications. 

This  directive  is  only  a  first  step  towards  the  objective  of 
liberalizing the infrastructures, which will be achieved in the full 
competition directive. It will also facilitate from 1 January 1996, the 
effective provision of already liberalized services. 

3.  Mobile telephony  liberalization  directive 

104.  The second directive concerns the liberalization of mobile and 
personal communications. A draft was published for public consultation 
by the Commission on 1 August 1995,62 with a period of two months being 
allowed for comments. It was transmitted to the Council, the European 
Parliament, the Economic and Social Committee, and the Committee of the 
Regions. Comments were broadly in favour of the wording of the draft. 

At  its  meeting  on  20  December  1995,  the  Commission  agreed  the 
Article 90(3)  directive  in principle.  The  directive  was  formally 
adopted by the Commission on 16 January 1996.63  The Commission's aim 
is to ensure fair competition as regards both the granting of licences 
to operators and the management of mobile telephony networks in the 
European Union.  This should help new entrants to gain access to the 
market and facilitate the interconnection of national networks. 

The  directive  seeks  to achieve  this by  requiring Member  States  to 
abolish  all  exclusive  or  reserved  rights  in  the  field  of  mobile 
communications  and  to put  in place, if the Member  States  have not 
already done so, authorization procedures for the granting of licences. 
It also calls on the Member States to allow new entrants on the market 
in mobile telecommunications services to offer their services via their 
own infrastructures or via so-called alternative infrastructures. This 
is  indispensable  if  competition  is  to  be  fostered  since,  as  the 
Commission  noted  in  its  Communication  on  the  1992  review  of  the 
telecommunications sector,64 high tariffs for and lack of availability 
of  the  basic  infrastructure  over  which  liberalized  services  are 
operated  or provided  to third parties  have delayed  the  widespread 
development of such services. 

However,  the  Member  States  who  have  less  well-developed  networks 
(Spain, Greece, Ireland and Portugal) may benefit,  if they wish, from 
a five-year derogation period.  Luxembourg, because of the small size 
of its network, may extend the deadline by two years. 

The legal reasoning for the removal of the special or exclusive rights 
under  this  directive  is that  they  constitute  a restriction  on the 
freedom to provide services under Article 59.  In addition, however, 
the  directive  is based  on Article  86, with  recital  10  reading  as 
follows : 

Draft  Commission  Directive  amending  Directive  90/388  EEC  with  regard  to  mobile  and 
personal  communications  (OJ C 197, 1.8.1995, p. 5 ). 

Commission Directive  96/2/EC of 16 January  1996 amending Directive  90/388/EEC with regard 
to mobile  and personal  communications, OJ L 20, 26.1.1996, p. 59. 

Communication  of  21  October  1992  on  the  1992  review  of  the  situation  in  the 
telecommunications  service  sector  (SEC  (92)  1048). 

39 

"The  exclusive  rights  that  currently  exist  in  the  mobile 
communications  field  were  generally  granted  to  organizations 
which  already  enjoyed  a  dominant  position  in  creating  the 
terrestrial networks, or to one of their subsidiaries.  In such 
a  situation,  these  rights  have  the  effect  of  extending  the 
dominant position enjoyed by those organizations and therefore 
strengthening that position, which, according to the case-law of 
the Court of Justice, constitutes an abuse of a dominant position 
contrary to Article 90." 

4. Full competition  directive 

105.  In its resolution of 22 December 1994, the Council of Ministers 
reaffirmed  that  1  January  1998  should  be  the  date  for  the 
liberalization of telecommunications infrastructures and public voice 
telephony, services, subject to transitional arrangements for certain 
Member  States  ( i.e. Greece, Spain, Portugal, Ireland  : up to five 
years; Luxembourg : up to two years) . The Commission responded to this 
by proposing a package of two measures: an Article 90(3) Commission 
directive  concerning  the introduction of full competition  into the 
telecommunications markets, and a proposal for a Council and Parliament 
directive  based  on  Article  100a  of  the  EC  Treaty  with  a  view  to 
The  package  thus 
harmonizing  the  rules  for  interconnection. 
demonstrates  the  need  for  competition  policy  to  develop  in  close 
cooperation  with  the  more  general  aspects  of  Community 
telecommunications policy. 

106.  As regards the Article 90(3) directive, this was published for 
comments on 10 October 1995 and envisages the liberalization of all 
telecommunications  services including voice  telephony by  1 January 
1998,  with  transitional  periods  for  certain  Member  States. 
Restrictions on the use of alternative infrastructures must be lifted 
by 1996 (except for public voice telephony, which is to be liberalized 
in  1998) , and  the  conditions  and  rules  for  the  authorization  of 
interconnection must be established by 1997. The directive also lays 
down the fundamental principles governing authorization of new entrants 
on  the  markets  for  voice  telephony  and  telecommunications 
infrastructures.  These  principles  guarantee  the  introduction  of 
competition  into  these  sectors  and  list  the measures  necessary  to 
safeguard universal service in the Member States.  The directive also 
provides that Member States must publish the authorization conditions 
and  procedures,  as  well  as  the  terms  and  conditions  for 
interconnection. 

In addition, Member States with underdeveloped or small networks can 
benefit from derogations of five and two years respectively. 

107.  In parallel  with  its action  to establish  the  above-mentioned 
regulatory  framework, the Commission pursued  its efforts  to ensure 
in  the 
full •  implementation  of  the  existing  directives 
telecommunications sector and in particular the Services Directive.65 
On 4 April, the Commission issued a Communication66 on the status and 
implementation  of  this  directive,which  affirmed  the  Commission's 
intention  to  ensure  that  the  problems  and  gaps  in  implementation 
identified in the Communication are resolved. 

Commission  Directive  90/388/EEC  on  competition  in  the  markets  for  telecommunications 
services  (OJ L  192, 24.7.1990, p. 10). The Services Directive provided  for the  removal 
of  special  and  exclusive  rights  granted  by  Member  States  for  the  supply  of  all 
telecommunications  services  other  than voice  telephony;  it came  to be  recognized  as  a 
cornerstone of the EU framework for liberalizing the European telecommunications market. 

Commission Communication  of 4 April  1995 to the European Parliament  and  the Council  on 
the status and implementation of Directive  90/388/EEC on competition  in the markets  for 
telecommunications  services  (OJ C 275 of 20.10.1995, p. 2 ). 

40 

5. Infringement proceedings under Article 90(3) 

108.  As well as directives of general application the Commission is 
also authorized under Article 90(3) to take decisions against Member 
States in individual cases.  It signalled its intentions to do this as 
regards possible discrimination against second mobile phone operators 
in several Member States. State operators already enjoy significant 
advantages over new entrants - such as the universal phone network, a 
dominant position on the market and an established mobile user base 
(often with permission to offer mobile services having been granted 
without any requirement of a selection process). The Commission has 
therefore  taken  care  to ensure  that  second  operators  receive  fair 
treatment from Member States. In particular, it was concerned about the 
auction procedure  which  a number of Member  States  included  in the 
selection criteria for the second operator. Such an auction, critically 
analyzed  in  the  1994  Green  paper  on  mobile  and  personal 
communications,67 results in the award of second licences not only on 
the basis of a comparison of intrinsic qualitative elements but also 
on the basis of a financial bid above a certain set threshold. 

Omnitel Pronto Italia 

109.  On  4  October,  the  Commission  took  a  formal  decision  under 
Article 90 (3)68 in the case of Italy for discriminating against Omnitel 
Pronto  Italia  and  in  favour  of  Telecom  Italia  Mobile  (the  state 
operator) . The discrimination which strengthened the dominant position 
of Telecom Italia Mobile, took the form of a requirement that Omnitel 
Pronto Italia pay an entry fee for a GSM licence, without a similar 
payment being required from Telecom Italia and without compensation for 
Omnitel in the form of an easing of the regulatory environment.  The 
decision provided that the Italian Government must either require that 
Telecom  Italia  Mobile  make  an  identical  payment  or  adopt,  after 
receiving  the  agreement  of  the  Commission,  corrective  measures 
equivalent in economic terms. In addition, the measures definitively 
adopted  must  not  undermine  the  competition  introduced  by  the 
authorization of the second GSM operator. 

GSM Radiotelephony services in other Member States 

110.  The Commission has also been taking action against a number of 
other countries  (including Belgium, Spain and Ireland) with a view to 
establishing a level playing-field for the second GSM operator.  For 
example, only after discussions with the Commission did Belgium give 
an undertaking to charge Belgacom  (the state operator) a similar fee 
for  its  existing  GSM  licence  as was  to be paid  by  the  second GSM 
provider,  Mobistar.  The  Commission  is  continuing  to  monitor  the 
operating conditions for second operators in the Member States. 

Vebacom 

111.  The Commission has also taken action under Article 90 in other 
areas of telecommunications.  In April, it received a complaint under 
Article 90 from Vebacom, the telecommunications subsidiary of VEBA AG, 
a  German  utilities  holding  company.  Vebacom  had  made  several 
unsuccessful  attempts  to  obtain  a  licence  for  a  broadband 
telecommunications  network  based  on  SDH  (Synchronous  hierarchy) 
technology which would allow the transfer of data between 36 different 
sites of the German public television broadcaster ARD.  The Commission 

Towards the personal communications environment - Green paper on a common approach in the 
field of mobile  and personal  communications  in the European Community  (COM(94)145). 

OJ L 280, 23.11.1995, p. 49-57. 

41 

formed  the  preliminary  view  that  the  complaint  was  justified,  in 
particular  since Vebacom  intends to offer a service based on a new 
technology  (SDH) which was not offered by Deutsche Telekom AG, the 
holder  of  the  infrastructure monopoly  in Germany.  After  informal 
discussions  with  the  Commission,  the German Ministry  of  Posts and 
Telecommunications agreed to grant a licence for the establishment and 
operation of an alternative telecommunications network. 

C - Energy 

112.  The Council  continued  its in-depth examination of the amended 
proposals  for  directives  concerning  common  rules  for  the  internal 
market in electricity and gas presented by the Commission on 7 December 
1993 . 

113.  However, it has been impossible in 1995 to make any substantial 
progress with the liberalization of the Community's electricity and 
natural gas markets, which, with a few exceptions, are still dominated 
by exclusive rights or monopolies. The Council of Ministers, at its 
meeting on 2 0 December, was not in a position to agree on a common 
position with regard to the draft Directive concerning common rules for 
the internal market  in electricity, although the Spanish Presidency 
could conclude that negotiations had reached the final stage and that 
it should be possible to take a decision early in 1996. 

114.  Early  in  the  year  and  at  the  request  of  the  Council,  the 
Commission  examined  the  possibilities  for  coexistence  between  the 
Commission's  negotiated  access  approach  (consumers  and  producers 
negotiate  access  to the grid with  its operator)  and  the  so-called 
single buyer concept (one single entity within a system responsible for 
all buying and selling and for public services) . In its working paper 
on  the  organization  of  the  internal  electricity  market,69  the 
Commission  concluded  that  the  original  single  buyer  model  was 
incompatible with the Treaty and would not provide equivalent economic 
results or reciprocity between the two systems. It also suggested a 
number of modalities  for the single buyer model which would permit 
coexistence of the two systems. These modalities covered the degree of 
consumer choice for all eligible consumers, the possibility of imports 
and exports under objective conditions, measures to ensure transparency 
and  to  avoid  any  distortions  of  competition,  guarantees  for  fair 
competition  in  generation  and  also  its  opening  up  to  independent 
producers,  and  the  possibility  of  establishing  direct  lines. The 
Council at its meeting in June accepted the Commission's position in 
principle by concluding that coexistence of the two systems could take 
place only on the basis of modifications to the single buyer model. 
However, little agreement was forthcoming on the list of modalities 
proposed by the Commission. 

115.  The Spanish Presidency presented a compromise text in July which 
incorporated all the political agreements already reached in previous 
Council  conclusions, including  the conclusions of  the  Commission's 
March  working  paper,  and  attempted  to  come  up  with  solutions  to 
problems not yet solved. It accepted the coexistence of the negotiated 
access and single buyer systems, but modified the latter to take into 
account a number of the required changes. This compromise  text was 
intensively discussed throughout the second half of the year. 

116.  The two central issues outstanding concern the degree of market 
opening via the definition of eligible customers and especially the 
question whether distributors should be among the eligible customers 
that  would  be  free  to contract  with  the most  efficient producers. 

SEC(95)464  of 22.3.1995. 

42 

Furthermore, some Member States fear that the proposed solution for 
public-service  obligations  may  be  abused  in  a  manner  that  unduly 
restricts competition. 

117.  The Commission deplores the fact that it has not been possible 
to reach agreement on the proposed directive, especially in view of the 
importance  of  the  subject.  As  stated  in  the  Ciampi  report,70 the 
failure to liberalize the energy sector is having a very detrimental 
effect on the competitiveness of the European economy. 

D  -  Postal  services 

118.  On  26  July  the  Commission  adopted  a  package  of  measures 
consisting  of  a  proposal  for  a  European  Parliament  and  Council 
Directive  establishing  common  rules  for  the  development  of postal 
services and a draft Commission communication on the application of the 
competition rules to the postal sector.  The aim of the measures is to 
guarantee the provision of universal service and at the same time to 
open up the postal market to greater competition. 

The proposal,71 based on Article 100a of the EC Treaty, provides for 
mandatory universal services to be provided throughout the Community 
to all citizens at affordable prices, with a high degree of quality, 
including in remote areas and peripheral regions of the Community.  In 
order to ensure the financial viability of the universal service, the 
proposal  defines harmonized  criteria for the services which may be 
reserved for the universal service providers.  Thus, domestic mail in 
the Member States weighing not more than 350 g where the tariff is less 
than five times the rate for a standard letter  (up to 20 g),  direct 
mail and incoming cross-border mail may continue to be reserved until 
31 December 2000  (subject to review of the direct mail sector by 30 
June 1999).  The proposal also requires the Member States to set, in 
particular, universal service tariffs at affordable prices fixed in 
relation to the costs and to define quality standards applicable to 
national services which are consistent with the Community measures. 

The  draft  communication,72  which  will  be  the  subject  of  a  public 
consultation procedure, complements the proposal for a Directive.  The 
Commission sets out the principles governing how it intends to apply 
the competition rules in the Treaty to the postal sector, in order to 
facilitate gradual, controlled liberalization of the postal market. 
It  describes  the  approach  it  intends  to  adopt  to  analysing  State 
measures restricting the freedom to provide services or to compete on 
the  postal  markets,  in  relation  to  the  Treaty  provisions.  The 
Commission  particularly  raises  questions  of  non-discrimination  in 
access to the postal network, identifying cross-subsidies and defining 
the mandatory safeguards necessary to ensure fair competition. 

E  -  Transport 

1.  Airports 

119.  The  Commission  is  pursuing  its  efforts  to  ensure  that  the 
liberalization  of ' air  transport  in  the  European  Union  is  not 
jeopardized by anti-competitive practices at airports.  It continued 

See  footnote 2 above. 

Proposal  for  European  Parliament  and  Council  Directive  on  common  rules  for  the 
development  of  Community  postal  services  and  improved  quality  of  service  (OJ  C  3 22, 
2.12.1995  p. 22). 

Draft  Commission  communication  on  the  application  of  the  rules  of  competition  to  the 
postal  sector and in particular on the assessment of certain State measures relating  to 
postal  services  (OJ C 322, 2.12.1995, p. 3 ). 

43 

its  investigation  of  several  complaints  and  took  decisions  aimed  at 
improving competition at certain major airports of the European Union. 

1.1  Landing  fees 

Brussels-National  Airport 

120.  The Commission adopted a decision under Article 90 (3 )73 concerning 
the system of discounts on landing  fees charged at  Brussels-National 
Airport under the Royal Decree of 22 December  1989.  British Midland, 
the  airline  which  lodged  the  complaint,  considered  that  the  system 
enabled the airline Sabena, its main competitor on the Brussels-London 
route, to benefit from a discount of 18% on its landing fees, although 
no other  airlines  qualified  for a reduction. 

After examining the complaint, the Commission concluded that the system 
constituted a state measure within the meaning of Article  90(1),  read 
in conjunction with Article 86, as it had the effect of applying to the 
airlines dissimilar conditions for equivalent transactions  connected 
with  landing  and  take-off  and  hence  introducing  distortions  of 
competition.  The  Commission  considered  that  such a system  could be 
justified  solely  by  economies  of  scale  achieved  by  the  airport 
operator. 

This did not apply in the case in question.  The Commission  therefore 
requested  the Belgian  authorities  to put  an end  to the  system. 

1.2. Ground  handling 

its 

also 

continued 

Commission 

121.  The 
of 
anti-competitive practices  in ground handling  (ramp, terminal  and/or 
cargo handling) .  Positive results were achieved during the year, the 
Commission's  approaches  to  the  authorities  of  Member  States  having 
resulted either in a gradual opening-up of the market  (e.g. in Ireland, 
where  the ground  handling market  has been open to a second  operator 
since  1 January  1995),  or  specific  commitments  to this  end  (e.g. in 
Greece and Spain, whose authorities notified the Commission of  their 
plans to improve efficiency in this sector, as well as a liberalization 
timetable). 

investigation 

The Commission also continued its examination of the complaints lodged 
under Article  86 of the Treaty against  two private airport  companies 
responsible  for operating  two of  the largest  airports  in the Union: 
Frankfurt  and Milan. 

122.  A fresh development in this area was the agreement in principle, 
reached  on  8  December,  by  the  Transport  Council,  on  the  Directive 
relating to the liberalization of ground handling services in Community 
airports.  The proposal, based on Article  84 of the Treaty, had been 
presented by the Commission in December 1994 and followed the Council 
Resolution  of  24 October  199474  on  the  situation  in  European  civil 
aviation and the Commission communication on 'The way forward for civil 
aviation  in Europe'. 

Ground handling is an activity related to air transport without which 
carriers  would  be  unable  to  carry  on  their  business. 
Its 
liberalization forms part of the completion of the single market in air 
transport  and  follows  the  adoption  of  the  Community  rules  on  slot 
allocation and the operation of computerized reservation systems.  It 
is also intended to help European airlines to improve control of their 

OJ L 216, 12.9.1995, p. 8. 

OJ C 309, 5.11.1994, p. 2. 

44 

operating  costs  and  better  match  their  services  to  customer 
requirements. 

The proposal also provides for a transitional market adjustment period, 
fixing  different  deadlines  for  entry  into  force  based  on  certain 
reference thresholds. Full liberalization should take place, depending 
on the sector and the case at issue, between 1998 and 2003. 

2. Ports 

123.  Following the judgment of the Court of Justice in Port  of  Genoa,7S 
Italy initiated a reform of its port system which led to the adoption 
in 1994 of Law No 84. 

In principle, the law provides for the opening-up to competition of the 
market  for  port  handling  operations  (loading  and  unloading).  In 
practice, however, this has not proved the case as in some Italian 
ports the local authorities have systematically refused to grant the 
necessary operating  licences  to potential  competitors  of the long-
established dockers companies.  As this situation was contrary to its 
policy of competition in ports, the Commission decided that action was 
necessary.  The port of Genoa was selected in view of its importance 
to the Union as a whole and its position as the leading Italian port. 

On 21 June, the Commission warned the Italian Government to issue an 
operating licence within ten days to the firm that had been unlawfully 
denied that right by the local port authority. 

On 11 July the Italian authorities informed the Commission that the 
licence had been issued within the period stipulated.  The licencie 
opened up the port operations sector in the Port of Genoa to other 
service providers.  The measure will benefit port users, a number of 
local enterprises, chiefly small and medium-sized firms, and generally 
increase  the  dynamism  of  the  port  with  regard  to  international 
competition. 

124.  The  Commission  is  also  pursuing  its  different  infringement 
proceedings instituted against Italy concerning aspects of port work 
which continue to pose problems with regard to Community law. 

F - Other state monopolies of a commercial character 

125.  The adjustment of national monopolies of a commercial character 
in  the new Member  States was  the  subject  of  extensive  discussions 
between the Commission and the governments concerned.  The aim was to 
adjust the laws governing the monopolies to Community legislation and 
to Article 37 of the Treaty in particular. 

1. Swedish and Finnish alcohol monopolies 

126.  The adjustment of the alcohol monopolies in Sweden and Finland 
was discussed by the Commission and the two new Member States with a 
view to adjusting the monopolies to Community law.  In the light of 
these objectives, the two Member States agreed to abolish the exclusive 
rights  to  import,  export, produce  and  sell  wholesale,  including 
wholesale sales to cafés and restaurants.  The Commission was able to 
ensure  that these exclusive  rights, which should already have been 
abolished  when  the  EEA Agreement  entered  into  force, were  finally 
abolished by the new laws on alcohol adopted by Sweden and Finland at 

Judgment of 10 December 1991, in Case C-179/90 Porto  di  Genova  v.  Siderurgicn 
[1991] ECR  1-5889. 

Gabrielli, 

45 

the end of 1995.76 

The Commission considers that the exclusive rights to retail alcohol 
may, without prejudice to future developments in the caselaw of the 
Court of Justice, be justified under existing Community legislation, 
in particular in view of legitimate national concerns about alcoholism, 
provided that there is no discrimination between national products and 
products  imported  from other Member States.  To ensure that retail 
monopolies conformed to these requirements, the Commission considered 
it necessary to be closely involved in detailed and regular monitoring 
of their operation. 

2.  Austrian alcohol  monopoly 

127.  Austria holds a national monopoly of a commercial character in 
pure alcohol and certain alcoholic beverages which involves exclusive 
import and wholesale rights but which, unlike the exclusive retailing 
rights, are considered to be clearly incompatible with Article 37 of 
the EC Treaty, without any of the above-mentioned requirements being 
applicable.  The exclusive rights should therefore have been abolished 
by 1 January 1995.  As this had not been carried out, the Commission 
was compelled to initiate the infringement procedure provided for in 
Article 169 of the EC Treaty against Austria. 

3.  Austrian salt monopoly 

128.  With regard to the national monopoly of a commercial character 
in the salt.sector, Austria, following action taken by the Commission, 
finally  agreed  to abolish  the  exclusive  rights  to  import  and sell 
products from other Member States wholesale;  the rights should have 
been abolished by the start of 1995.77 

4. Austrian manufactured tobacco monopoly 

129.  The Austrian monopoly of manufactured tobacco, characterized by 
exclusive import and marketing rights, is subject to the requirements 
of Article 71(1) to  (3) of the Act of Accession of Austria.78  Under 
that Article, Austria is required gradually to adjust its monopoly of 
manufactured tobacco by the progressive opening, as  from the date of 
accession, of quotas for the import of products from Member States so 
that, by 31 December 1997 at the latest, no discrimination regarding 
the  conditions  under which goods  are procured  and marketed  exists 
between nationals of Member States.  Compliance with this obligation 
entails  the  abolition  of  exclusive  import  rights  and  exclusive 
wholesale rights.  As regards retail sale of products imported under 
quotas, distribution of such products to consumers must be carried out 
in a non-discriminatory manner. 

Finding that Austria had not taken the necessary measures to comply 
with these provisions, in particular as regards the opening of quotas 
as required, the Commission was obliged to initiate the infringement 
procedure provided for in Article 169 of the EC Treaty. 

The Commission also checks that the retail sale of products imported 
under quotas is carried out in a non-discriminatory manner.  Thus, for 
instance, the Commission must ascertain that licensing and distribution 

Regarding Sweden, see the Alcohol Act  (1994:1738) promulgated 16.12.1994 and entered into 
force  1.1.1995.  For Soumi-Finland, see new Alcohol Act  (1143/94)  adopted on 8.12.1994 
and entered  into force on  1.1.1995. 

Bundesgesetzblatt  (Austrian Official Journal) No  518/1995,  4.8.1995. 

OJ C 241, 29.8.1994, p. 35. 

46 

agreements between Austria Tabakwerke and other European operators are 
not liable to jeopardize the effectiveness of adjusting the Austrian 
manufactured  tobacco  monopoly  and  are  compatible  with  the  Treaty 
competition rules. 

47 

Ill  - Merger  control 

A - Introduction 

130.  Concentrations falling under the Merger Regulation were even more 
numerous than in 1994. The Commission received 114 notifications (1994: 
100) and took 109 final decisions (1994: 90) . Activity in 1995 was over 
24% higher  than the previous year, which itself had been about 50% 
higher than in the three years 1991 to 1993. A total of 7 second-phase 
investigations  were  begun  compared  with  6  a  year  earlier  and  2 
operations were prohibited compared with 1 in 1994. 

This year marked the fifth anniversary of the entry into force of the 
Merger Regulation.79 In those five years the Commission took 382 final 
decisions, an average of about one decision every three and a half 
working days or over 70 decisions per year.  The sectoral breakdown of 
cases indicated a continuing significant number of notifications in 
telecommunications, financial services, the media and pharmaceuticals . 

The revised Implementing Regulation80 came into force on 1 March 1995. 
In addition, four interpretative notices which were published at the 
end of 1994 were applied for the first time in 1995.81 They concern the 
distinction between concentrative and cooperative joint ventures, the 
notion of a concentration, the notion of undertakings concerned and the 
calculation of turnover. 

These changes in the operation of the Merger Regulation were adopted 
by the Commission as a result of its 1993 review exercise. A new review 
exercise was launched during the year. The Commission carried out a 
wide-ranging  consultation  exercise  on  the  issue  of  lowering  the 
thresholds  contained  in the Merger Regulation  as well  as on other 
aspects of the Regulation which might need to be revised. Among those 
consulted  were  the  Member  States,  other  Community  institutions, 
individual businesses, trade associations and legal advisers. A Green 
Paper on the operation of the Merger Regulation was published early in 
199682 with a view to full public consultations on the issues involved. 
Legislative proposals are likely to be made later in the year. 

B -  In-depth  investigations 

131.  A total of 7 in-depth (phase-two) investigations were completed 
under the Merger Regulation. As a result, 2 operations were prohibited 
which were both in the media sector - the Nordic Satellite Distribution 
(NSD) joint venture in the Nordic area and the RTL/Veronica/Endemol 
(Holland  Media  Groep  - HMG)  transaction  in  the Netherlands.  The 
remaining 5 operations were all cleared, 2 unconditionally and 3 with 
conditions which removed the competition problems identified by the 
Commission during its investigation. 

1. Media cases 

132.  The Commission has received an increasing number of notifications 
in the media sector which reflect the changing patterns of ownership 

Council Regulation  (EEC) No 4064/89 of 21 December 1989 on the control of  concentrations 
between undertakings  (OJ L 395, 30.12.1989, p. 1 ). 

Commission  Regulation  (EC) No  3384/94  of  21 December  1994  on  the  notifications,- time 
limits  and hearings provided  for in Council Regulation  (EEC) No 4064/89  on the  control 
of  concentrations  between  undertakings  (OJ  L  377,  31.12.1994);  XXIVth  Report  on 
Competition  Policy  (1994), points  234-235). 

XXIVth Report  on Competition Policy  (1994), points 237-260. 

COM(96)19. 

48 

and  the  convergence  of  previously  separate  technologies,  e.g. 
telecommunications  and  media.  The  majority  of  these  cases  have 
presented no competition problems and have been approved after a first-
phase enquiry. 

The decisions in the NSD and HMG cases indicate the importance which 
the Commission attaches to cases in this sector.  These transactions 
involved  significant  horizontal  and  vertical  effects,  with  new 
companies being created which would restrict access to TV networks -
terrestrial, satellite or cable - in the future. In 1994 the Commission 
had prohibited  the MSG Media Service joint venture, which had been 
proposed by Bertelsmann, Kirch and Deutsche Telekom with a view to 
providing services for pay-TV in Germany. In its prohibition of the NSD 
operation, the Commission invited the parties' to present new proposals 
which could be considered  compatible with the common market.  This 
emphasizes the Commission's willingness to see new companies being set 
up in this sector, provided that they do not create or strengthen a 
dominant position. 

Nordic Satellite Distribution 

133.  NSD was designed to transmit satellite TV programmes to cable TV 
operators and households receiving satellite TV via their own dish. 
However, the Commission concluded that the establishment of NSD in its 
proposed form would have led to a concentration of the activities of 
its parents, creating a vertically integrated operation extending from 
production of TV programmes to retail distribution services for pay-TV 
channels. 

NSD's parents  are  strong media players  in the Nordic  area.  Norsk 
Telekom  A/S  is  the  largest  cable  operator  in  Norway,  has  pay-TV 
distribution activities in Norway and also controls satellite capacity 
suitable for Nordic viewers. TeleDanmark A/S (TD) is the dominant cable 
TV operator in Denmark. In addition, TD, with Kinnevik, controls most 
of  the  remaining  satellite  capacity  suitable  for  Nordic  viewers. 
Kinnevik, a Swedish conglomerate, is the most important provider of 
Nordic satellite TV programmes and a major pay-TV distributor in the 
Nordic countries and has an important stake in cable and advertising-
financed TV in Sweden. 

The Commission found that NSD would have resulted in the creation or 
strengthening of a dominant position on three markets: 

the provision of satellite TV transponder capacity to the Nordic 
region  (Denmark, Norway, Sweden, and Finland); 
the Danish market for operation of cable TV networks; 
the  market  for  distribution  of  satellite  pay-TV  and  other 
encrypted TV channels to direct-to-home households. 

The vertically integrated nature of the operation would have meant that 
the parties would have been able to foreclose the Nordic satellite TV 
market to competitors and obtain a "gatekeeper" function for the Nordic 
market  for  satellite  TV broadcasting. As  the affected  markets  are 
currently in a transitional phase the Commission acted to ensure that 
these future markets would not be foreclosed. 

RTUVeronica/Endemol 

134.  The Commission began an examination of the 
case following a request from the Dutch Government under Article 22 of 
the Merger Regulation. This Article allows a Member State to refer a 
case to the Commission even if it does not have a Community dimension, 
provided there is an effect on trade between Member States. Although 

RTL/Veronica/Endemol 

49 

the Commission took the view that the relevant geographic market was 
the Netherlands, it concluded that the concentration affected trade 
between Member States because it would influence conditions for new 
entrants on the Dutch TV broadcasting market and would have an impact 
on the acquisition of foreign-language programmes and because the joint 
venture itself is based in Luxembourg, where two of its channels are 
"licensed" by the Grand Duchy of Luxembourg. The examination followed 
the normal procedure except that the usual suspension provisions did 
not apply. Therefore, in this case, the parties were able to complete 
the operation despite the Commission's decision that the joint venture 
would result in a dominant position for the parties. 

The case concerned a joint venture, Holland Media Groep (HMG) , between 
RTL, Veronica and Endemol. RTL transferred its broadcasting activities 
in the Netherlands to HMG, in particular the two commercial TV channels 
RTL4  and  RTL5.  A  third  commercial  channel  was  introduced  through 
Veronica, which left the public broadcasting system in the Netherlands 
to participate in the joint venture.  The other main parent, Endemol, 
is  the  largest  independent  producer  of  TV  programmes  in  the 
Netherlands. 

Following  its investigation, the Commission concluded  that  the new 
company  would  have  at  least  4 0% of  the market  for  free  access  TV 
broadcasting in the Netherlands and over 6 0% of the TV advertising. 
In addition, Endemol's position as the largest independent TV producer 
in the Netherlands would be strengthened by its participation in HMG. 
The Commission adopted a prohibition decision and invited the parties 
to propose measures to restore effective competition on the Dutch TV 
advertising  and  production  markets  within  three  months.  The 
Commission's decision has been challenged before the Court of First 
Instance. 

2.  Other in-depth  investigations 

135.  The remaining operations in which in depth investigations were 
opened were all ultimately declared compatible with the common market. 
a joint venture in the telecommunications equipment 
Siemens/Italtel, 
industry in Italy, and  Mercedes  Benz/Kàssbohrer, 
the acquisition by 
Mercedes of one of the other German bus and coach manufacturers, were 
both cleared unconditionally. In each case, however, the parties made 
certain statements which were included in the decision concerning their 
future business conduct. However, these statements were not an integral 
part of the Commission's competition analysis but were offered by the 
parties.  For example, STET, the parent company of Italtel, undertook 
not to influence the purchasing policy of Telecom Italia in favour of 
the joint venture; and Mercedes announced that it would supply engines 
at competitive prices to third-party manufacturers who lacked their own 
engine production capability. 

Siemens and STET, the holding company for 
136.  In  Siemens/Italtel, 
the Italian telecommunications operators, including Italtel, intended 
to  contribute  their  respective  telecommunications  equipment 
manufacturing subsidiaries to a joint venture. The operation raised 
both horizontal and vertical issues. Horizontally, the joint venture's 
highest market share occurred in switching equipment where the parties' 
combined  share was  50-60% of the Italian market, and around  30% of 
overall  EU  sales  (combined  shares  in  transmission  equipment  were 
lower). Vertically, the joint venture would be partially owned by its 
largest customer. 

In concluding that the proposed joint venture was compatible with the 
common market, the Commission took into account : 

the potential effects of new technologies which are likely to alter 

50 

the telecommunications markets significantly; 
the effects of standardization and public procurement directives in 
opening up national markets; 
the further liberalization of telecommunications services and, in 
particular, of telecommunications infrastructure, which will lead 
to world markets for telecommunications equipment. 

13 7.  In the  Mercedes  Benz/Kâssbohrer 
case, although the bus market 
throughout Europe would be affected, the Commission considered that the 
German bus market in particular required in-depth investigation. Three 
markets were identified with the parties combined share reaching 44% 
in city buses, 54% in tourist coaches and 74% in intercity buses. With 
a  share  of  57% of  the entire  bus market  in Germany,  however,  the 
Commission- concluded  that  there  would  be  adequate  constraints  on 
Mercedes' freedom of action on the German market because there were two 
German competitors, as well as potential entrants from elsewhere in 
Europe.  According  to  customers  these  potential  entrants  could  be 
expected to provide additional leverage to German bus operators. Lastly 
the Commission found that public procurement directives, which make 
Community-wide tendering compulsory for the main part of the market for 
city and intercity buses, were also leading to the development of a 
wider European market. 

138.  In the other cases, the Commission's clearance of the respective 
operations was conditional on undertakings given by the parties in the 
course of the proceedings. 

139.  In  ABB/Daimler  Benz,  the Commission considered that the market 
for local trains had remained national in Germany although, in other 
Member  States,  the  lack  of  major  national  rail  transportation 
industries had already led to wider geographic markets. The proposed 
operation would have led to the creation of a dominant duopoly in the 
German market  for  local  trains. The concentration  would  also have 
impeded market entry by foreign suppliers by eliminating independent 
German suppliers of electrical components. No competitive issues were 
identified in relation to other relevant product markets. 

In order to alleviate the Commission's concerns, the parties agreed to 
the sale of Kiepe Elektrik GmbH, a Daimler-Benz subsidiary specializing 
in  electrical  supplies  for  local  trains.  As  a  result  of  this 
divestiture, a competent producer of electrical components that was 
independent of the parties would remain on the German market and would 
be  able  to  supply  or  cooperate  with  suppliers  of  the  mechanical 
components  of  local trains. Kiepe is an established  and  successful 
supplier and played an important role in opening up the German market 
through its cooperation with the Canadian firm Bombardier. 

The transaction was the subject of a request for referral by the German 
authorities under Article  9 of the Merger Regulation. Although the 
competition  problems  were  concentrated  on  two  product  markets  in 
Germany, the proposed operation - which created the largest supplier 
of railway equipment in the world - had significant effects throughout 
Europe. The request for referral was thus refused. 

the acquisition was approved  subject  to the 
140.  In  Orkla/Volvo, 
divestiture  of  Orkla's  brewing  company  Hansa.  The  parties  would 
otherwise have had a 75% share of the Norwegian beer market and neither 
the  retail  nor  the  hotel  and  catering  industries  were  considered 
capable of deploying any countervailing purchasing power. 

141.  In  Crown  Cork  and  Seal/Carnaud 
following  a  detailed 
second-phase  analysis  of  both  the  horizontal  and  vertical  issues 
raised, the Commission determined that the only market in which the 
proposed concentration threatened to create a dominant position was the 

MetalBox, 

51 

market for tinplate aerosol cans. In the European Economic Area  (EEA), 
both parties produce and sell tinplate aerosol cans and food cans, as 
well  as  certain  closures  for beverage  cans  and bottles,  including 
beverage  can  ends,  metal  crowns, and  plastic  and  aluminium  caps. 
Consequently,  the  Commission  concluded  that  Crown's  commitment  to 
divest a specified group of tinplate aerosol can operations would be 
sufficient to overcome its competition concerns. 

The parties agreed to divest substantial manufacturing activities for 
tinplate aerosol cans in five different Member States; these activities 
accounted  for  almost  22% of  the  EEA  tinplate  aerosol  can market. 
Without the divestiture, the combined European market shares of the two 
parties would have been more than 6 0%, with the next largest competitor 
having a 15%-20% market share and with the major share of the excess 
capacity in this market being held by the parties. 

C - Other major cases 

and  Upjohn/Pharmacia. 

142.  A  number  of  major  operations  were  cleared  without  in-depth 
investigations within one month of their notification.  They included 
several in the pharmaceutical sector, among which were 
Glaxo/Wellcome, 
Behringwerke/Armour 
Hoechst/Marion  Merrell  Dow,  Rhone 
Pharmaceutical, 
In order to remove any 
Poulenc  Rohrer/Fisons 
possible doubts as to compatibility, Glaxo agreed to grant to a third 
party  an exclusive  licence  for one  of  the anti-migraine  compounds 
currently under development by either Glaxo or Wellcome. It appears 
that recent mergers  in the pharmaceutical  industry are  intended to 
increase the range of products offered by companies, thereby making 
them more competitive as suppliers to the wholesalers, hospitals and 
pharmacy chains. As a result, the operations to date have been largely 
complementary in nature and have not in general led to any competition 
problems. 

143.  In  Swissair/Sabena, 
the  Commission  secured  remedies  for 
resolving  the  competition  problems  raised  by  the  operation  which 
consisted  of  Swissair  acquiring  a  49.5%  stake  in  Sabena. 
The 
transaction  would  have  led to a monopoly  in air  transport  between 
Switzerland and Belgium. Moreover, Swissair was a participant in the 
European Quality Alliance with SAS and Austrian Airlines, while SAS had 
proposed a cooperation agreement with Lufthansa. The operation, taken 
together with these arrangements, would have enabled the participating 
airlines to create an extensive route network carrying about 3 5% of 
passenger  traffic within Europe, twice as much as the next  largest 
carrier.  In order  to clear the operation,  the Commission  secured 
undertakings  from  the  two airlines  and  from  the Belgian  and  Swiss 
Governments that they would make available the necessary traffic rights 
and airport  slots  to enable competitors  to operate  flights between 
Belgium and Switzerland.  Swissair and Sabena were also required to 
provide  competitors  with  interlining  arrangements  and  with  the 
opportunity  to participate  in  frequent  flyer programmes.  Lastly, 
Swissair was required to sever its previous links with SAS through the 
European Quality Alliance. This transaction was notified twice, on the 
second occasion following modifications to the operation. At that time, 
it was fully evaluated (including consultations with the Member States) 
without it being necessary to initiate a second-phase procedure. 

144.  The  Commission  approved  an  operation  by  which  the  Finnish 
companies  Repola 
entered  into a 
full  merger.  Repola  and  Kymmene  are  large  international  companies 
active in the fields of printing paper and packaging materials. The 
operation involved, among other products, the markets for newsprint, 
magazine paper and paper sacks. 

and  Kymmene  Corporation 

Corporation 

As  regards  paper  sacks, the Commission's  investigation  led  to the 

52 

conclusion that there is a separate Finnish market for this product and 
that  the  concentration  would  lead  to  the  creation  of  a  dominant 
position on that market. The new company would be virtually the sole 
supplier of paper sacks to Finnish customers.The parties have given 
commitments  involving  the divestiture  of  some  of  their paper  sack 
capacity on the Finnish market. 

The markets  for newsprint  and magazine  paper  are  at  least  Western 
European in scope and Repola/Kymmene, like all the other major European 
paper producers, transport  and market  their products  in almost all 
Member States. As a result of the operation, the new company will be the 
major European player in newsprint and magazine paper. However,  the 
combined market shares will not exceed some 20% in either of the two 
product markets; what is more, several competitors have strong market 
positions. 

Along with five other Finnish paper producers, Repola is a member of 
Finnpap Marketing Association, a joint sales organization which markets 
the paper products of the members on a worldwide basis. Kymmene has its 
own sales network and is not a member of Finnpap. The parties have 
undertaken not to sell paper products through the Finnpap joint sales 
agency. 

D - Legitimate  interests of Member States 

des 

Water  by  Lyonnaise 

145.  On 6 March the United Kingdom authorities made, in the context 
of  the  proposed  acquisition  of  Northumbrian 
Eaux,  the  first  application  under  Article  21(3)  of  the  Merger 
Regulation  for  the  recognition  of  a  legitimate  interest. 
The 
application  concerned  legislation which regulates  the water  supply 
industry in the United Kingdom. This legislation has specific merger 
provisions  which  are  designed  to  enable  the  regulatory  system  to 
achieve its objective of safeguarding the provision of a vital service 
and protecting the consumer. Accordingly, whenever a merger takes place 
or is expected to take place, the case is referred to the Monopolies 
and Mergers  Commission  (MMC) for it to decide whether  it would be 
expected to operate against the public interest.  The criteria for the 
public interest test for water industry mergers include the number of 
independently  controlled  water  companies  among  which  the  water 
regulator could make comparisons for the purpose of calculating the 
price  regulatory  formula. The United Kingdom's application  covered 
these provisions  as  the reference  to the MMC  is automatic  and not 
discretionary. 

The  Commission,  in  acknowledging  the  United  Kingdom's  legitimate 
interest,  set  specific  limits  to  the  MMC  investigations  in  these 
circumstances. Its decision of 29 March 1995 acknowledged that the MMC 
could assess potential mergers on the basis of the public interest test 
but that the public interest in those cases was limited to those issues 
which were directly related to the operation of the water regulatory 
legislation. The United Kingdom authorities were required to inform the 
Commission  of  any  measure  taken  under  the  decision  so  that  the 
Commission could check that the measure was appropriate. 

Soon after the Commission's decision, the United Kingdom authorities 
referred  the proposed  takeover bid to the MMC.  Following  the MMC 
report, which found the merger to be against the public interest unless 
substantial  price  reductions  for  consumers  were  achieved,  OFWAT 
consulted  Lyonnaise  and Northumbrian  and proposed  a measure  which 
included a price reduction formula with which Lyonnaise subsequently 
formally  agreed.  As  required by  the decision,  the  Commission was 
informed of the proposed measure by the United Kingdom government and 
had no observations to make on it. 

53 

E - Mergers in the coal and steel industries 

146.  During  the  year  the  Commission  took  seven  decisions  on 
concentrations under Article  66 of the ECSC Treaty. Three of these 
cases involved the sale to the private sector of steel companies that 
had previously been State-owned  : the acquisition by the  RIVA group 
of  Ilva's  flat products  operation; a joint venture  between  Usinor 
and  Hoogovens  to take over the Portuguese flat products company 
Sacilor 
SN-Planos;  and another joint venture between  RIVA  and  FREIRE involving 
the takeover of  SN-Longos. 

F - Perrier 

147.  On  27 April  the Court  of  First  Instance  (CFI)  ruled  on two 
cases, one brought by the employees of Perrier and the other by the 
employees of Vittel and Pierval against the Commission's decision of 
22 July 1992 in the case Nestlé/Perrier.  The Commission had approved 
the  concentration  with  conditions  and obligations.  The  principal 
points of the judgments were as follows: 

while  recognizing  that  the  Merger  Regulation  is  concerned 
primarily with questions of competition, the CFI concluded that 
this does not preclude the Commission from taking into account 
the social effects of a concentration if these affect the level 
or  conditions  of  employment  at  the  level  of  the  European 
Community or a substantial part of it; 
the fact that a third party has not directly intervened in the 
course of the administrative procedure does not  in all cases 
exclude that third party from being entitled to challenge the 
decision; 
the representatives  of the workers of a company are not, in 
principle, directly concerned by a merger procedure and so are 
not entitled to request the annulment of a decision, except to 
protect their procedural rights; 
third parties do not have the right to be treated in the same 
way as the parties to the concentration in the administrative 
procedure. 

54 

G - Statistical  overview 

Graph 1 : Number of final decisions adopted each year since  1990 

Final decisions taken under the Merger Control Regulation 

120 

100 

1990 

1991 

1992 

1993 

1994 

1995 

Graph 2 : Breakdown for 1995 by type of operation 

Type of concentration  (total 1990-95) 

Others 

Agreed bid 

7% 

Joint venture / control 
49% 

Acquisition of  majority 
39% 

55 

Graph 3  : Country of origin  of the enterprises involved in the operations in 1995 

49 

Breakdown of enterprises by country of origin 
(for 1995; in cases where a final decision was taken) 

56 

IV  -  State  aid 

A - General  policy 

148.  In July, the Commission published its Fourth survey on state aid 
in the Community83 covering 1991 and 1992.  The survey is an essential 
quantitative instrument in defining aid policy.  The trend recorded in 
the period  1981-1990  showing a slow but steady fall  in total aid has 
continued, despite the high costs of German unification, recession and 
stronger international competition. However, total aid granted remains 
high, with an average of ECU 94 billion a year for the Community as a 
whole,  or  1.9%  of  its  GDP  and  ECU  704  per  person  employed. 
In 
November,  the  Industry  Council  met  and  approved  the  Commission's 
analysis  indicating  that,  whilst  taking  account  of  other  Community 
objectives,  it  was  necessary  to  continue  to  reduce  aid  levels  by 
strengthening  control mechanisms  and  improving  their  transparency. 

149.  The obligation  to notify aid  imposed by  the Treaty  is central 
to aid transparency.  In a communication adopted in May, the Commission 
stated that it intended to use all the powers it had under the Treaty 
to compel Member States to comply with that obligation.  By publishing 
a  communication  on  cooperation  between  the  Commission  and  national 
courts,  it demonstrated  its will  to assist national  courts  in  their 
role of protecting the rights of firms affected by illegal aid that has 
been granted  to competitors. 

150.  The publication  of guidelines  and communications  defining  the 
criteria applied by the Commission in assessing  the compatibility of 
state aid with the common market  is another important  feature of the 
Commission's  policy  of  transparency  and  simplification. 
All 
instruments  in  force  at  31 December  1994,  including  the  manual  of 
procedures  and  a  list  of  Court  of  Justice  judgments,  have  been 
collected in a single volume entitled "Competition law in the European 
Communities.  Volume II:  Rules applicable to state aid".  However, as 
the  rules have  accumulated  over  the years, it would be  desirable  to 
consolidate  certain instruments and revise others. Those on regional 
aid are therefore being consolidated, and the Commission has adopted 
a new  framework on research and development  aid, which was  discussed 
at  a multilateral  meeting between  the Commission  and Member States' 
experts in April.  At that meeting, there was also a discussion on the 
criteria  for  distinguishing  between  state  aid  and  the  "general" 
measures not covered by Article 92(1), and the problems of aid granted 
in connection with the sale of publicly-owned  land and in the form of 
loan guarantees.  A detailed questionnaire on state guarantees was sent 
to all Member  States. 

151.  Two  other  multilateral  meetings  were  held  in  1995.  In  July 
Member States' experts reviewed the  de  minimis  rule and the Guidelines 
on State aid for small and medium-sized enterprises, as well as draft 
guidelines on state aid to the arts and cultural activities, especially 
the audiovisual sector.  In December, they examined the future control 
of  aid  to  the  synthetic  fibres  industry  and  a  first  draft  for  a 
horizontal framework on regional aid for major investment plans and the 
problems of defining and collecting the reference and discount  rates 
that  are  crucial  to calculating  aid. 

152.  Over the year the Commission took a record number of state aid 
decisions, partly because of the accession of three new Member States. 
Much of the aid examined was intended to offset the social consequences 

Fourth Commission Survey on state aid in the European Union in the manufacturing.and certain 
other  sectors, COM(95)365  final. 

57 

The  Commission  is  also 
of  restructuring  in  certain  sectors. 
endeavouring  to  increase  control  of  aid  in  sectors  that  have 
traditionally been protected from international competition and less 
obvious  forms  of  aid  that  have  often  escaped  checks  in  the past. 
Because  firms  are  increasingly  sensitive  to  aid  granted  to  their 
competitors and are better informed about the opportunities for fair 
competition  afforded  them  by  the  Community  competition  rules  has 
resulted in their submitting more and more complaints to the Commission 
and more appeals  to the Court of First  Instance against  Commission 
decisions to approve aid to their competitors. 

N ew measures to enforce compliance with the notification requirement 

153.  The Commission continued its efforts to enforce compliance with 
the requirement that Member States notify all plans to grant state aid. 
Experience  has  shown  that  this  obligation,  provided  for  in 
Article  93(3),  must, if it is to be effective, be accompanied by a 
package of incentives or, if necessary, penalties. 

1.  Recovery of illegal aid 

154.  Again the Commission emphasised the importance it attaches to 
the system of prior control of aid plans and the concrete expression 
of the system, i.e. the rule that prior notification must be given. 
Thus, in May, it adopted a communication84 that details the principles 
it  intends  to  apply  in ensuring  compliance  with  its policy on the 
recovery of aid granted in breach of that obligation. 

The  communication  forms part  of  a wider movement  aimed  firstly at 
ensuring that Member States comply more strictly with Article 93 (3) of 
the EC Treaty and, secondly, at encouraging economic operators to be 
more vigilant about the lawfulness of the aid granted to them.  The 
Commission had already tackled the matter before when it sought the 
recovery  of  incompatible  and unlawful  aid,85 a position  upheld  and 
indeed  strengthened  by  the Court  of Justice.86  More  recently, the 
Court of First Instance again upheld Commission policy in this area. 
In its judgment of 13 September in joined cases T-244/93 and T-486/93, 
Textilwerke 
Commission's decision to make its authorization of a new aid package 
subject to a suspension of the payment of that aid, until a prior aid 
to the  same  company which had been declared  incompatible  had been 
recovered, because it was clear from the Commission's decision that the 
cumulation of the incompatible aid and the new aid package would render 
the totality of the aid incompatible. 

the  CFI  upheld  the 

Commission, 

Deggendorf 

GmbH  v. 

However, in terms of its effectiveness, such temporary suspension was 
of  limited  usefulness  inasmuch as  it would not have  any  immediate 
effect on the part  (or all) of the aid already paid.  These means were 
therefore not sufficient to tackle and settle the problem of potential 
distortion of competition, the effects of which could continue until 
the final Commission decision.  Even if they repay the aid eventually, 
firms benefitting from illegal aid nevertheless continue to have an 
edge over their competitors, either in financial terms or by having a 
longer period of solvency in the case of firms in crisis. 

This is the problem the Commission communication seeks to tackle.  It 
stipulates that, in certain cases, the Commission reserves the right, 

OJ C 156, 27.6.1995, p. 5. 

Commission  Communication  on aids granted  illegally  (OJ C 318, 24.11.1983). 

Judgment  of  21 March  1990, in Case C 142/87  Royaume  de  Belgique 
v  Commission 
[1990]  ECR  1-959.  Judgment  of  14 February  1990,  in Case  C  301/87  République 
Commission 

[1990] ECR 1-307. 

(Boussac) 

. 

58 

(Tubemeuse) 

française 

v 

after having given the Member State concerned notice to submit its 
views and to consider rescue aid instead, to require the Member State 
by  means  of  a  temporary  order  to  recover  all  or part  of  the  aid 
granted  in  breach  of  the  Treaty.  Recovery  must  comply  with  the 
provisions of domestic law and interest must be charged from the time 
the aid was paid.  Another new point is that interest is calculated not 
on the basis of the legal rate but according to the commercial rate, 
i.e.  the  reference  rate used by  the Commission  in connection  with 
regional aid.87  If a Member State failed to comply with such an order, 
the Commission might apply to the Court of Justice for interim measures 
by a procedure similar to that provided for in the second subparagraph 
of Article 93(2) of the EC Treaty. 

2. Cooperation between the Commission and national courts 

155.  In  October,  with  the  same  aim  of  increasing  observance  of 
legality  in  the  Community,  the  Commission  adopted  a  notice  on 
cooperation between national courts and the Commission in the state aid 
field.88  It is not binding or limiting but seeks to give fresh impetus 
to relations between the Community executive and national courts and 
to draw courts' attention to the important role that they can play in 
the prompt safeguarding of the rights of third parties and securing 
compliance by Member States with certain procedural obligations.  The 
notice thus clearly forms part of the general trend described in the 
preceding point. 

The notice points out that, while the Commission is the Community body 
responsible for implementing and developing competition policy in the 
Community's public interest, national courts do no more than preserve, 
until the final decision of the Commission, the rights of individuals 
faced with a possible breach by State authorities of the prohibition 
laid down by the last sentence of Article 93(3) of the EC Treaty.89  To 
that end, national courts are invited to use all appropriate devices 
and remedies and apply all relevant provisions of national law and, in 
particular,  to  grant  interim  relief,  by  ordering  the  freezing  or 
returning  of monies  illegally paid, or awarding damages  to parties 
whose interests are harmed. 

In order to attain these objectives more efficiently, the Commission 
intends to assist national courts by instituting closer cooperation, 
notably by: 

pursuing  and  improving  its policy of transparency by publishing 
information on state aid; 
supplying information of a procedural nature on pending cases; 
supplying factual, statistical and analytical information. 

B - Concept of aid 

156.  Interpreting the concept of aid as set out in the Treaties is 
often the most difficult part of the Commission's assessment of aid 
measures.  The criteria for determining the presence of aid in measures 
taken by the Member States with regard to their enterprises are of 
particular importance not only to the administrative authorities of the 
Member States responsible for notifying them but also to the national 

87  See Commission Communication to the Member States, letter SG(95)D/1971 of 22.2.1995.  The 
Court of First Instance very recently confirmed that the Commission could seek the payment 
of  interest  on sums recovered:  Judgment  of  8 June  1995,  in Case T  459/93  Siemens 
[1995]ECR  1 1 - 1 6 7 5. 

SA, 

OJ  C  3 1 2,  2 3 . 1 1 . 1 9 9 5,  p.  8. 

88 
89  Judgment  of 21 November  1991, Case C 354/90  Fédération 

produits 
Etat 

alimentaires 

et  Syndicat  national 

des  négociants 

et 

transformateurs 

français, 

[1991] ECR 1-5527, paragraph 14. 

nationale 

du  commerce 

extérieur 
de  saumon 

des 
contre 

59 

courts which may have to determine whether a contested measure should 
have been notified.  Several Commission decisions taken in 1995 help 
to define the concept of aid provided for in the competition rules. 

157.  (a) For Article 92(1) to apply, the measure must have provided 
a firm with an economic advantage which it would not have received in 
the normal  course  of business. The  Commission  considers  that  this 
condition would be met if a company were to acquire publicly owned land 
or publicly owned industrial site at a price lower than the market 
price. It therefore decided to initiate the Article 93(2) procedure in 
respect of the acquisition by the company  Siemens  Nixdorf  AG/Mainz  of 
a publicly owned site at a price estimated to be between DM 5 .5 million 
and DM 21.5 million lower than the market price.. The same reasoning 
would apply if the State were to acquire land from a company at a price 
higher than the market price. As the Commission had doubts whether the 
price for the land sold by the Spanish steel company Tubacex to the 
public  authorities  corresponded  to the market value, it decided to 
initiate the Article 93(2) procedure. 

158.  Public  financing  of  costs  inherent  in  the  preparation  of a 
building/industrial  site  and  in  providing  connections  to  various 
(public) utility services does not fall under Article  92(1) if the 
company  pays  for  the  use  of  the  infrastructure  through  direct  or 
indirect charges. Since preparation of the site in Villey, Meurthe-et-
Moselle, for setting-up a new production plant by the paper company 
Kimberly-Clark 
benefited this company alone, in particular because it 
is the owner and sole user of the installations put  in place, the 
partial public financing provided constituted an aid to that company. 
In this context, the Commission also took into consideration that a 
private market investor would not have carried out this preparation 
since  the  selling  price  for  the  site  did  not  even  cover  partial 
financing of it. 

159.  Public funds provided to a (public) undertaking on terms more 
favourable  than those  on which a private  investor  operating  under 
normal market  conditions would provide them to a private  firm in a 
comparable financial and competitive position constitute state aid. In 
cases where the State's acquisition of a holding in a company may be 
combined  with other  types of public  intervention which need  to be 
notified  to  the  Commission  pursuant  to Article  93(3),  there  is a 
presumption  that state aid may be involved.  In accordance with its 
Communication on the application of Article 92 and 93 of the EC Treaty 
to public authorities' holdings,90 the Commission asked the Spanish 
Government  to inform  it in advance of any acquisition made by the 
Institute 

the  Development 

Andalusia. 

for 

of 

GmbH and  Lech-Stahlwerke 

Because the intended capital injection by the Land of Bavaria to cover 
the  accumulated  losses  of  the  steel  undertakings  Neue  Maxhutte 
GmbH would coincide with the sale 
Stahlwerke 
of its shares in these companies, thereby removing  any prospect of 
profitability from the provision of these funds even in the long term, 
the Commission decided that these capital injections constituted state 
aid.  For similar reasons, it decided that the capital injections made 
by the Italian State through its industrial holding company ENI into 
the fertilizer company Enichem  Agricultura 
S.p.A.  in the period 1991-94 
constituted state aid, as the capital injections were made before a 
restructuring plan had been set up solely to prevent the company from 
going bankrupt and thus without any prospect of a reasonable return. 
Moreover, the Commission considered that, under the circumstances, the 
period during which the company had suffered heavy losses, i.e. five 
years,  was  too  long  to  have  been  acceptable  to  a  private  market 

90 

See Commission Communication of  1983, Bulletin EC 9-1984, points  3.4  and  4.4 

60 

investor  who  would  have  liquidated  or  thoroughly  restructured  the 
company much earlier. The capital injections to be made in the context 
of  a  restructuring  plan  set  up  at  a  later  stage  therefore  also 
constituted  state  aid  and  the  Commission  considered  the  positive 
results expected from implementation of the plan to be too low compared 
with  the  total  injection of new capital. 

However,  if  a  capital  injection  by  the  State  into  a  company  is 
accompagnied by an injection of capital by a private investor on equal 
terms  and  if the private  investor's  holding  in the  company has  real 
economic significance, the Commission considers that no aid is involved 
in  the  public  intervention.  It  therefore  decided  that  the  capital 
injection and loans provided by the authorities of Wallonia  (Belgium) 
to  the  textile  company  EM-Filature  were  based  on normal  commercial 
considerations and did not constitute state aid since this intervention 
went hand-in-hand with an injection of capital by private shareholders 
making  them  majority  shareholders  in  the  company  and  since  private 
shareholders offered loans on similar terms. For similar reasons, the 
Commission considered that the injection of capital by the Portuguese 
in  connection  with  a 
State  into  the  ship  repair  company  Lisnave 
restructuring  of  the  company  did  not  involve  state  aid  under 
Article  92(1) . 

160.  (b)  Under  Article  92(1)  aid  must  be  granted  to  certain 
undertakings  (or the production of certain goods) to constitute state 
aid. General  measures  of  economic,  tax or social policy  do not  fall 
within Article  92 (1) and competitive advantages for firms in one Member 
State arising from differences in such general policy measures must be 
addressed, if necessary, under the appropriate procedure laid down in 
Articles  101 and 102. 

Therefore, Article 92(1) does not apply to general measures applicable 
to all undertakings in a Member State and satisfying objective and non 
discriminatory requirements. In the light of these considerations, the 
Commission  considered  that  aid  granted  by  the German  Government  to 
employees of the firm Maschinenfabrik Sangerhausen GmbH to cover social 
security obligations in connection with the liquidation of the firm did 
not constitute state aid, since the aid is automatically available to 
any firm  in liquidation  in Germany. Similarly, it took the view that 
the  suspension  of  debt  repayments  in  favour  of  the  Spanish  steel 
company  Tubacex  did not, in itself, constitute state aid, but a general 
measure  taken within the framework of Spanish insolvency  legislation 
generally applicable  to all companies. However, it also follows  from 
the above criteria  that, if the effect of the objective  requirements 
under a scheme open to all firms is that only certain undertakings may 
benefit  from  the measure,  the  Commission  considers  state  aid  to  be 
involved. 

If  a  measure  is  applicable  to  all  undertakings  but  confers 
discretionary power on the authorities administering the measure, state 
aid may also be involved. Therefore, the Commission considered that a 
Finnish employment  aid scheme available  to all firms in every sector 
of the industry and every region of the country nevertheless  involved 
state aid since the labour market authorities had discretion as to the 
level  of  aid  and  the  length  of  the  subsidized  period  for  each 
unemployed  person  taken on by a firm. 

161. 
(c)  The  financial  benefit  to  certain  undertakings  must  be 
granted  by  a  Member  State  or  through  state  resources  in  order  to 
constitute state aid under Article 92(1) , which applies to aid granted 
by any central, regional or local authority and any public or private 

61 

body  established  or  appointed  by  the  State  to  administer  the  aid.91 
Even if an aid is not granted through a body established or appointed 
by the State, state aid may be involved if the financial  contribution 
to the  recipient  firm(s') is made by  the State. 

162.  (d)  The  aid  must  be  capable  of  affecting  trade  perceptibly 
between Member States. The Commission considered this condition to be 
met  in  respect  of  aid  to  the  German  company  Leuna-Werke 
GmbH even 
though the company does not export goods to other Member States, since 
the  aid  may  enable  it  to  increase  its  production  for  the  domestic 
market  and thus reduce  the potential market there for goods  imported 
from other Member  States. 

C - Assessment  of compatibility  of aid with  the common  market 

1. Sectoral aid 

1.1.  Sectors  subject  to specific  rules 

1.1.1. 

Aid 

to 

Shipbuilding 

163.  On 21 December the Council adopted Regulation  (CE) No 3094/9592 
implementing  an  OECD  agreement  with  respect  to  normal  competitive 
conditions  in commercial  shipbuilding  and  shiprepair,  including  the 
elimination of production subsidies.  The new regulation will apply as 
from the entry into force of the OECD agreement.  This was  scheduled 
for  1 January  1996  but,  although  the  European  Union  ratified  the 
agreement  in  December,  entry  into  force  was  unfortunately  delayed 
because of delays  in ratification by other parties to the agreement. 
The Council therefore decided that the rules of the Seventh Directive 
on aid to shipbuilding93  should  continue  to apply ad  interim but  not 
beyond  1 October  1996.  If the OECD  agreement  has  still not  entered 
into force by 1 June  1996, the Commission will put forward appropriate 
proposals  to the  Council  so that  it can decide  future  policy  before 
1  October  1996.  Against  this background,  the Commission  decided  to 
maintain  from  1 January 19 96 the common production aid ceiling at  9% 
for large vessels and 4.5% for vessels costing less than ECU 10 million 
and  for  conversions. 

1.1.2 

Steel 

164.  During 1995 the Commission continued to be vigilant in applying 
the steel aid code.94 This strict enforcement of the aid rules resulted 
in a number of negative decisions being taken, including ordering of 
the recovery  of aid  illegally  granted. 

In November and December respectively the Council gave  its unanimous 
assent  to  special  derogations • under  Article  95  ECSC  relating  to 
production  and  closure  aid  for  iron-ore  mining  in  Austria  and  the 
privatization  of  the public  steel  company  in  Ireland. 

Close monitoring of six previous Article  95 ECSC cases  (Ilva in Italy, 
CSI and  Sidenor  in Spain, EKO Stahl and  SEW FreitaT in Germany,  and 
Siderurgia  Nacional  in  Portugal)  was  maintained  with  half-yearly 
reports being  submitted  to the Council. 

Judgment of the Court of Justice in Case 78/76  Steinike 
und  Forstwirtschaft 

[1977] ECR 575. 

und  Weinlig 

v  Bundesamt 

fur 

Ernâhrung 

OJ L 332, 30.12.1995. 

Council Directive  90/684/EEC, as last amended by Directive 94/73/EC. 

Commission Decision  3855/91/ECSC. 

: 

62 

In March the Commission proposed that the provisions of the steel aid 
code relating to aid for environmental protection should be brought 
into  line  with  the  revised  Community  guidelines  on  state  aid  for 
environmental protection under the EC Treaty to ensure that the steel 
industry enjoyed equal treatment with other industrial sectors.  The 
Council's assent is still awaited. 

1.1.3 

Coal 

165.  Decision No 3632/93/ECSC95 of 28 December 1993 establishes the 
Community rules for state aid to the coal industry covering the period 
from 1994 until 2002. 

On 4 April the Commission authorized96 financial assistance totalling 
ECU 3 3 84.2 million that had been planned by Germany for 1995 in the 
form of compensation to the electricity generators under the Third Law 
on electricity produced from Community coal, aid for maintaining the 
underground workforce in mines ( "Bergmannspramie"), and aid to cover 
the exceptional costs of a number of coal undertakings resulting from 
inherited liabilities. 

On  19  July  the  Commission  delivered  a  positive  opinion  on  a 
restructuring plan submitted by the French authorities and authorized 
aid97 totalling ECU 912.8 million to cover operating losses for 1994, 
aid to cover inherited liabilities resulting from the modernization, 
rationalization and restructuring of the coal industry, and aid for 
research and development. On the same occasion, the Commission approved 
additional German aid totalling ECU 196.9 million for the supply of 
coking coal and coke for the Community steel industry.98 

On 26 July the Commission authorized99 France to grant aid totalling 
ECU 668.1 million to cover operating  losses for 1995, aid to cover 
inherited liabilities resulting from the modernization, rationalization 
and  restructuring  of  the  coal  industry,  and  aid  for  research  and 
development. 

The  Commission  authorization  for  the  United  Kingdom  to  grant  aid 
totalling ECU 2 594.4 million for inherited liabilities in 1995 was 
contained in the Commission Decision of 3 November 1994.10° 

Notifications of aid for 1995 have been received from the Portuguese 
and  Spanish  authorities,,  and  an  additional  notification  has  been 
received from the German authorities. These are all being examined by 
the  Commission  departments  to  determine  their  compatibility  or 
otherwise with Decision 3632/93/ECSC. 

1.1.4.  Motor  vehicle 

industry 

166.  By its judgment of 29 June 1995,101 the Court of Justice ruled in 
respect of the last Commission's decision extending the EC framework 
on state aid to the motor vehicle industry for an unlimited period that 
it had ceased to apply on 1 January 1995.  To avoid any legal vacuum 
that  the  judgment  might  create,  the  Commission  had  to  take 
extraordinary action and, on 5 July decided to extend the framework 

OJ L 329, 30.12.1993, p. 12. 

Decision  95/464/ECSC  (OJ I, 267, 9.11.1995. p. 42). 

Decision  95/465/ECSC  (OJ L 267, 9.11.1995,  p. 46). 

Decision  95/499/ECSC  (OJ L 287, 30.11.1995, p. 53), 

Decision  95/519/ECSC  (OJ L 299,  12.12.1995, p. 18), 

Decision  95/995/ECSC  (OJ L 379, 31.12.1995, p. 6 ). 

Case C-135/93  Spain 

v  Commission 

[1995] ECR 1-1651, 

63 

retroactively from 1 January 1995 and, at the same time, proposing to 
the Member States that the framework be reintroduced for a two-year 
period starting no later than 1 January 1996. 

Subsequently, the Spanish Government appealed to the Court against the 
Commission's decision to extend the framework retroactively and, unlike 
all  other  Member  States,  also  refused  to  accept  the  proposal  to 
reintroduce  it  for  a  two-year  period.  Following  the  refusal,  the 
Commission was obliged to initiate the Article 93 (2) procedure in order 
to examine the compatibility of all aid schemes which might benefit the 
motor vehicle industries in Spain. On 20 December it adopted a final 
decision compelling Spain to comply - in the same way as the other 
Member  States  -  with  the  requirements  of  the  newly  reintroduced 
framework. 

On the basis of its decision of 5 July, the Commission continued to 
apply the framework during 1995.  It received 9 notifications on the 
basis of approved schemes and 2 notifications on the basis of ad hoc 
schemes.  It adopted a decision approving notified aid in 6 cases. It 
also  took  an  interim  decision  enjoining  the  German  Government  to 
provide within a fixed deadline all the information necessary to allow 
an assessment of aid to the new projects of  VW  Sachsen,  which were not 
covered by a previous 1994 decision.102 

167.  In assessing  individual awards based on regional aid schemes 
(e.g.  FORD Genk),  the  Commission  continued  to apply  its  criterion 
whereby regional aid in this sector should be in proportion to the 
actual regional handicaps arising for an investor. However, it should 
be noted that, on average, it has allowed higher aid intensities for 
motor vehicle manufacturers carrying out investment projects in the 
least-developed regions of the EU. 

168.  As regards rescue and restructuring aid, the Commission adopted 
final decisions on the cases concerning  DAF Belgium,  DAF 
Netherlands 
and  SEAT-Volkswagen.  These decisions implied, pursuant to the existing 
regulations, a recovery of part of the aid in the case of bankrupt DAF 
and a significant reduction of production capacity in the case of SEAT. 
Furthermore,  the  Commission  decided  to  initiate  proceedings  under 
Article 93 (2) against aid granted by the Spanish authorities to  Santana 
Motor 

S.A. 

169.  In assessing aid for research and development the Commission, 
while recognizing the potential beneficial effects of R&D activity on 
economic development, takes into consideration the risk of distortions 
of competition and ensures that such aid is granted only to projects 
that are genuinely innovative at a European level. It also verifies 
that the maximum intensities laid down in the Community framework on 
aid for R&D are adhered to. As these conditions were fulfilled in the 
Opel  Austria  and  Ford  Valencia  cases, the Commission approved the aid 
proposed for these projects. 

170.  Both cases also involved aid for investment projects to reduce 
environmental pollution. In line with the motor vehicle framework and 
the guidelines on state aid for environmental protection, such aid can 
be approved only if it is to cover extra investment costs necessary to 
reduce or eliminate pollution or to adapt production methods in order 
to protect  the environment and only if the limits of aid intensity 
specified, i.e. 15% for projects complying with new standards and 30% 
for  projects  significantly  exceeding  standards  or  for  voluntary 
measures,  are not  exceeded.  In both the Opel Austria •and the Ford 
Valencia cases, as well as in the Ford Genk case mentioned earlier, 

102  XXIVth Competition Report, point  367 and Annex  II.E., point 2.6. 

64 

these conditions were fulfilled with the result that the Commission 
approved the proposed aid. 

171.  In several past cases, the Commission has required the national 
authorities to monitor the realization of eligible investment and asked 
the Member States to send annual reports on the investments carried out 
and the aid payments made. Practice has shown the importance of such 
a  follow-up procedure, bearing  in mind that the execution of large 
multi annual  investment projects leads to many changes which might 
require modification of the aid payments. In the course of 1995 this 
ex  post  control  was  exercised  in  the  Ford/VW  Se tubal  and  Fiat 
Mezzogiorno  cases as well as in the  Chrysler  and  SNF cases in Austria, 
where the European Union had reached agreement on aid reductions with 
the  Austrian  authorities.  In  its  NedCar  decision,  the  Commission 
required the Dutch authorities to notify the rules on the allocation 
of costs between the old and new models, so that it could ensure that 
no aid was granted to Volvo and Mitsubishi on the basis of inadequate 
rules.103 The analysis of the cost allocation rules for 1994 and 1995 
showed that they did not contain elements of state aid. Finally, in the 
case of restructuring aid for  Rover,  which dates from a period prior 
to the establishment of the framework, and in the case of regional aid 
for  Opel  Eisenach  the ex post monitoring was terminated after all the 
conditions of the decisions had been fulfilled. 

1.1.5. 

Synthetic 

fibres 

industry 

172.  Since  1977  aid  to  this  industry  has  been  subject  to 
supplementary control through the code on aid to the synthetic fibres 
industry.  In April the Commission asked an independent consultant to 
assess  the code's effects and, if supplementary  control were still 
considered necessary, advise what form it should take.  The consultant 
reported in October and the Commission will decide what action to take 
early in 1996.  Also in April the Commission extended the period of 
validity  of  the  current  code104  for  a  further  nine  months  to 
31 March 1996105. 

1.1.6. 

Transport 

173.  The year has seen a substantial increase in the number of aid 
cases in the transport sector (from 29 to 52) . At the same time, cases 
have  become  increasingly  complex  and  the  scope  for  enforcement  of 
Articles 92 and 93 has expanded. As the liberalization of transport 
markets progresses, commercial pressure increases on operators across 
the board. The forthcoming completion of civil aviation liberalization 
will include cabotage rights for European carriers from March 1997. The 
recently approved Directives on infrastructure charges and track access 
in the railway sector follow on from Directive 91/440, which is also 
being extended to intra-state lines in the shipping industry. These are 
but a few examples of the progress being made towards a single market 
for transport services. 

174.  As  commercial  operations  move  into  new  areas,  control  of 
financial support from the state must be stepped up to preserve a level 
playing-field  for  all  enterprises,  both  public  and  private.  In 
transport cases, no advantage that reduces the costs normally included 
in the cost structure of an undertaking and stems from a State measure 
should be authorized unless it responds to the need for coordination 
of transport or represents reimbursement for the discharge of public 
service obligations. In addition, the development of transport as an 

103  XXIVth Competition  Report, points  367 and Annex  II.E, point  2.6 

104  OJ C  346, 30.12.1992. 

105  OJ C  142, 8.6.1995. 

65 

economic activity or a concrete project of common European interest 
might qualify for exemption. 

175.  In  the  course  of  the  year  the  Commission  departments  were 
consulted on several cases (Ferrovie dello Stato, fixed Ôresund link) 
by Member  States  in order  to clarify whether public  investment  in 
infrastructure could be considered state aid. Governments have always 
used financial intervention as an essential tool in their policy of 
infrastructure development. In principle, as long as access and usage 
remain public and general, such intervention will not constitute aid 
within the meaning of Article 92(1) but will be normally regarded as 
being in the public interest. For there to be a distortion that might 
qualify  as  aid,  the  infrastructure-related  advantages,  should  be 
conferred  selectively, with the aim of helping specific  firms: for 
example, a purpose-built facility for the sole use of one undertaking 
or discriminatory access restrictions. 
In economic terms, public authorities normally provide these goods and 
services  because  of  the  inability  of  the  price  system  to  do  so 
effectively. Goods such as infrastructures tend to be indivisible and 
collectively consumable by all citizens whether they pay for them or 
not. Such a public good provided by government benefits society in a 
collective manner and is not conferred upon any specific enterprise or 
industry (principle of non excludability). Consequently, public support 
for  infrastructure  will not  normally  constitute  aid, but  rather a 
general measure  derived  from the State's sovereignty  in respect of 
economic policy, land planning and development. 

176.  Various  complaints  submitted  during  the  year  claimed  the 
existence  of  state  support  for ports. The question  arises  whether 
financial backing for port activities can be examined in the context 
of Article  92. 

177.  In  relation  to  civil  aviation,  the  Commission  based  its 
decisions concerning state aid on the principles developed in the new 
guidelines  adopted  in  November  1994.10G  These  take  account  of  the 
increasingly  competitive  nature  of  the  market  for  air  transport 
services after the entry into force of the third liberalization package 
in  1993.  In  1994  the  Commission  authorized  the  granting  of 
restructuring aid to be paid in instalments in favour of TAP and Air 
France. In both cases, the Commission's approval was made subject to 
the  correct  fulfilment  of  a  list  of commitments  and  restructuring 
plans. Then in 1995, with the assistance of independent experts, the 
Commission monitored compliance . In view of the satisfactory fulfilment 
of both elements by TAP107 and Air France108 no objections were raised 
to payment of the second tranches of the aid. 

178.  Also in 1994, the Commission decided that the subscription by 
the  French  public .entity  CDC-P  to  bonds  issued  by  Air  France 
constituted  illegal  aid,  incompatible  with  the  common market, and 
requested its reimbursement. In October 1994, France and Air France 
challenged the Commission decision before the Court of First Instance. 
The Commission then decided on 4 April 1995109 to amend its original 
decision, and to request France to ensure that the aid and interest on 
arrears  are  deposited  in  a  blocked  bank  account  until  the  Court 
delivers a final ruling. The economic rationale of this mechanism is 
to deprive Air France of the use of the money corresponding to the aid, 
pending Court proceedings. 

106  XXIVth  Report  on Competition  Policy, point 375. 

101  OJ C  154, 21.6.1995. 

109  OJ C 295, 10.11.1995. 

109  OJ L 219, 15.9.1994. 

66 

179.  On  4  May  1995110,  the  Commission  analysed  the  financial 
transactions  involved  in an agreement between Swissair and Sabena, 
aimed at the acquisition by the former, of a strategic stake (49.5%) of 
Sabena. The operation implied the issue by Sabena of new shares for 
BEF 9.5 billion, BEF 6  billion being subscribed by Swissair and the 
remaining  part  by  Belgium  and  a  group  of  Belgian  investors.  The 
Commission recalled that when the public holding in a company is to be 
increased, the capital injection will not involve state aid provided 
that  the  public  investment  goes  together  with  the  injection  of  a 
significant  amount  of capital by a private  shareholder.  Swissair's 
subscription  of  new  shares  at  the  same  price  and  under  the  same 
conditions  as  Belgium  and  the  Belgian  investors  was  accepted  as 
evidence that the operation was a normal financial transaction and not 
state aid. 

180.  On 10 May 1995, the European Commission decided not  to raise 
objections to plans by the German government to contribute to pension 
funds  in  favour  of  Lufthansa  employees  as  part  of  the  company's 
privatisation programme initiated in 1992. The measures were linked to 
the charges imposed on Lufthansa following its compulsory withdrawal 
from a supplementary pension fund managed by the public entity VBL to 
which,  as  a  public  company,  it  had  been  obliged  to  belong.  The 
Commission considered that a private investor in the same position as 
the German State, obliged to relinquish the control of Lufthansa, would 
have acted in the same way in order to maximise the final value of its 
stake. 

181.  On 19 July 1995, the Commission analysed a capital injection of 
FF 300 million into the company AOM by its parent State owned company 
Credit Lyonnais. The Commission, having analysed the restructuring plan 
of the airline, reached the conclusion that AOM was likely to return 
to profitability in the near future and that the net present value of 
future cash-flows was higher than that of the investment. The operation 
was considered  to amount to a normal  financial  transaction and not 
state  aid,  since  a  market  economy  private  investor  in  the  same 
circumstances would have made the investment in AOM. 

182.  On 2 9 November 1995, the Commission adopted a final negative 
decision  concerning  the  exceptional  mechanism  of  depreciation  of 
aircraft registered in Germany and used for international commercial 
activities.  In  certain  circumstances,  the  scheme  allowed  for  an 
exceptional depreciation of up to 30% of the total acquisition cost. 
The Commission considered that the scheme amounted to an aid and that 
it could not fall within the second and third paragraph of Article 92. 

183.  Likewise, the Commission took a number of decisions  in cases 
involving aid to the maritime sector. The Commission's 1989 guidelines 
on the examination of state aid to Community shipping  companies is 
currently under  review in the context of an overall reappraisal of 
Community maritime transport policy. The results of this exercise will 
be presented by the Commission in a strategy discussion document on 
which the European institutions, the Member States and other interested 
parties will be invited to comment. 

184.  In particular the Commission decided that an agreement between 
Spanish  regional  and  local  authorities  in  the  Basque  Country  and 
"Ferries Golfo de Viscaya", concerning a ferry service between Bilbao 
and Portsmouth did not contain state aid elements.  The final decision, 
following  the  opening  of  the procedure  under  article  93.2  of  the 
Treaty, was taken on 6 June 1995. 

°OJ L 239, 7.10.1995 page  19. 

67 

185.  Serious  doubts  were  raised  about  the  compatibility  of  aid 
granted to the French State-owned shipping company Compagnie Générale 
Maritime  ('CGM')  with  the  Treaty.  The  Commission  decided  on 
31 October 1995, and later on 20 December 1995, to initiate and extend 
respectively,  the  Article  93.2  procedure. 
The  aid  amounts  to 
approximately ECU 33 0 million. 

186.  The Commission also examined several cases of state aid in the 
road  transport  sector,  taking  particular  account  of  the  gradual 
liberalization of cabotage since 1 January 1995111 which entails the 
opening-up of local markets to Community competition. 

187.  On  18 August  the  Commission  brought  an  action  before  the 
Court of Justice  against  Italy  for not  having  taken  the  necessary 
measures to comply with the Commission Decision of 9 June 1993, which 
declared  a  tax credit  for  professional  road  hauliers  in  Italy 
incompatible with the common market and ordered the Italian authorities 
to recover the sums paid. 

In addition, the scheme, which had been deemed to be operating aid and 
had initially been scheduled for the 1992 tax year, was extended by the 
Italian authorities to 1993 and 1994, with a budget of ECU 558 million. 
On  4 October the  Commission  decided  to  initiate  Article 93(2) 
proceedings in respect of the extensions and called for the immediate 
suspension of the aid. 

188.  In the area of inland waterways, the structural reorganization 
aimed at reducing existing overcapacity by scrapping vessels that was 
begun in 1990 on the basis of Council Regulation  (EEC) No 1101/89 of 
27 April  1989  is still underway.  In view of the amount  of excess 
capacity, the Commission presented a proposed amendment of the above-
mentioned Regulation to the Council on 23 May, recommending extensive 
scrapping in the period 1996-98, part-financed by the Community, the 
Member States concerned and the trade.  This action is an important 
measure 
the 
waterway-transport market which was also advocated by the Commission 
in a proposal of 23 May 1995. 

liberalization 

the  gradual 

accompanying 

of 

189.  In the  course  of  1995 some operations undertaken by railway 
companies were examined by the Commission in the light of Articles 92 
and  93.  In  relation  to  the  UK  sale  of  the  railway  rolling  stock 
companies  (ROSCOs)  the  Commission  decided  on November  2 9 that  the 
guarantees provided to the purchasers maximised the sale profit and 
therefore do not constitute State aid. 

Similarly, on October 18 1995, the Commission decided that, a state 
guarantee  in  favour  of  Ferrovie  dello Stato S.p.A.,  issued by the 
Italian government  for a loan of 372 MECU to railway infrastructure 
investments  in the high  speed  train  link Brenner  -Verona, did not 
constitute state aid. 

1.1.7. 

Agriculture 

190.  The  accession  of  three  new  Member  States  (Austria,  Sweden, 
Finland) brought about some change in the situation regarding state aid 
in agriculture.  The Act of Accession established a specific procedure 
for each new Member State for aid existing at the time of accession and 
for  a  given  transitional  period.  In  accordance  with  the  Act  of 
Accession, the new Member States informed the Commission by 3 0 April 
of  all  existing  agricultural  aid  schemes  within  the  meaning  of 
Article 93 (1) of the Treaty.  On 13 February the Commission adopted two 

111  Council  Regulation No 3118/93  (OJ L 279,  12.11.1993). 

68 

decisions  approving  the  Austrian  and  Finnish  programmes  for  the 
implementation of Articles 138 to 140 of the Act of Accession, which 
provide for the granting of transitional, degressive national aid for 
agricultural products.  The decisions were subsequently modified to 
take account of new factors. 

191.  Generally  speaking,  the  Commission  opposes  any  state  aid 
relating  to  support  measures  that  would  be  liable  to  upset  the 
Community market machinery and which, as operating aid, would not have 
any lasting effect on the development of the sector in question. 

192.  As regards investment aid in the primary production sector and, 
in particular, pursuant to Article 12(1) of Council Regulation  (EEC) 
No 2328/91 on improving the efficiency of agricultural structures,112 
the assessment of Community and state aid should, as far as possible, 
be carried out in conjunction with a parallel assessment of the cases 
within the periods stipulated for state aid;  this procedure would make 
it possible to send only one letter to the Member State concerned, 
under both Articles 92 and 93 of the Treaty and Regulation No 2328/91. 

193.  As regards aid to investments in improving the processing and 
marketing of agricultural products, Community policy is laid down by 
Council Regulation (EEC) No 866/90.113  This Regulation also authorizes 
Member States to establish aid measures, under various conditions, in 
accordance  with  Articles  92 and  93 of  the  Treaty.  However,  this 
facility  is  limited  by  the selection  criteria provided  for  in the 
Regulation, applied by the Commission by analogy to the assessment of 
state aid. 

Until  1994, the selection criteria applicable  to such investments, 
known  as  "sectoral  limits", were  specified  in Commission  Decision 
90/342/EEC of 7 June 1990.114  This was amended by Commission Decision 
94/183/EEC of 22 March 1994.115  In 1994, the Commission informed Member 
States that it would continue to apply the sectoral state aid limits 
provided for in point 2 of the Annex to the 1990 Decision.116  In 1995, 
the  Commission  altered  its  position  in  order  to  apply  the  more 
favourable  limits  provided  for  in the 1994 Decision.117  Following 
preparatory work with the Member States, the Commission adopted118 the 
principle of the application to state aid, from 1 January 1996, of the 
criteria contained in its Decision of 22 March 1994 and no longer those 
in its Decision of 7 June 1990. 

194.  The Commission also adopted the principle of a review of its 
policy  concerning  subsidized  operating  loans  in  the  agricultural 
sector.119 

1.1.8. 

Fisheries 

195.  In 1995 the Commission registered 37 new aid schemes and 20 aid 
schemes that were either not notified or were only notified after their 
adoption, as well as three new cases of existing aid.  It decided not 
to object to the aid in 22 cases, one of which was started in 1994. 

OJ L 218, 6.8.1991,  p. 1. 

OJ  L 91, 26.4.1990, p. 1. 

OJ L 163, 29.6.1990, p. 71, 

OJ L 79, 23.3.1994, p. 29. 

OJ C  189, 12.7.1994, p".5. 

OJ C 71, 23.3.1995, p. 6. 

OJ C 29, 2.2.1996,  p. 4. 

OJ C  44, 16.2.1996, p. 2. 

69 

It also decided to initiate the Article 93(2) procedure  in respect of 
two  aid  measures,  one  Italian  and  the  other  German.  In  the  same 
period, the Commission decided to terminate the Article 93 (2) procedure 
initiated  in  respect  of  an  aid  measure  implemented  in  Italy  and 
notified  in 1993. 

1.2.  Specific  sectors not  subject  to special  rules 

196.  For  some  years  Europe  has  been  experiencing  a  major  shift 
towards liberalization, privatization and the adjustment of national 
monopolies.  This trend, together with continued harmonization of rules 
at  Community  level,  prompted  the  Commission  to  study  methods  of 
applying state aid rules to certain sectors such as banking or postal 
services.  Although they are in principle subject to the same treatment 
as any other sector  (especially the principle of a "private  investor 
in a market economy"), they are nevertheless sufficiently different to 
warrant being taken into account by the Commission when assessing state 
aid. 

1.2.1. 

Banking 

197.  This  sector  has  particular  characteristics  that  are  chiefly 
social  and  statutory  (protection  of  savers),  macroeconomic  and 
financial  (necessary stability of the sector, smooth operation of the 
payments system), political and international  (possible repercussions 
in the form of  "panic" in other establishments  in the same country or 
other  countries  due  to the considerable  interdependence  existing  in 
this sector, especially in the event of a major institution  failing). 
That is why specific authorities are in charge of monitoring the sector 
in the various Member States. 

After  the  Banesto  case  in  1994,  the  Credit  Lyonnais  case  is  an 
important example of the way in which state aid rules should be applied 
with a view to the particular sensitivity of a sector.  In terms of the 
amounts  involved,  this  case  is  the  largest  yet  dealt  with  by  the 
Commission:  the  total  volume  of  aid  was  FF 45  billion  (ECU  7.5 
billion).  In addition, at  the end of  1993, Crédit  Lyonnais  was  the 
largest  European  bank  in  terms  of  total  balance,  thus  providing  an 
example  of  what  happens  when  a  major  bank  fails,  with  all  the 
downstream consequences for the entire financial and banking system in 
France  and,  indeed, Europe. 

The principle adopted by the Commission, after consulting a high-level 
group of experts, was to apply to the banking sector substantive  and 
procedural rules on state aid, taking account of the specificities of 
Compliance  with  the  rules  also  ensures  that  credit 
banking." 
establishments enjoying the implicit or explicit support of the state, 
being either public establishments or too important  to be allowed  to 
go bankrupt, do not act in an imprudent manner.  Such an attitude would 
require state assistance and hence lead to distortions of competition 
Even  if  state  intervention  were 
which  could  have  been  avoided. 
considered necessary to prevent undesirable effects on other financial 
establishments  and markets, the Commission would wish to ensure  that 
the  solution  chosen  would  produce  the  least  possible  distortion  of 
competition.  Lastly, major counter-concessions will have to be offered 
by a defaulting establishment in order to offset the negative effects 
of  state  assistance  on  other  market  operators.  That  is  why  the 
Commission  eventually  decided  to approve  the aid  to Crédit  Lyonnais 
conditional on the sale of a large part of its international network, 
on a contribution to the costs of the hiving-off mechanism in the form 
of  a  better-fortunes  clause,  on  a  clear  separation  between 
Crédit  Lyonnais  and  the  hived-off  structures  and  on  the  probable 
privatization  of  the bank within  five years. 

70 

1.2.2. 

Postal 

sector 

198.  The Commission regards this as an essential sector owing to its 
vital function as a vehicle for the social and economic activities of 
a country.  However, it must also take account of the fact that the 
Court of Justice specified that the competition rules applied to postal 
services,120 without prejudice to the principle of Article 90(2) of the 
EC Treaty. 

Postal services, especially public or semi-public services or those 
granted  special  and  exclusive  rights, continue  to enjoy  a  special 
relationship  with  the  state.  This  is reflected  in the benefit of 
direct  financial  support  (grants) or indirect  support  (tax relief) 
usually  lacking  in transparency.  On the one hand,  the  Commission 
Directive on the transparency of financial relations between Member 
States and public undertakings  is applicable  in this area,121 which 
entails special accounting and financial obligations.  On the other 
hand, such direct or indirect financial assistance constitutes state 
aid which the Commission has a duty to monitor, both because of the 
obligation on Member States to notify aid plans in advance and because 
of its obligation to keep under constant review all existing systems 
of  aid  in order  to  take account  of the progressive  development  or 
functioning of the common market. 

The case "Activités concurrentielles de la Poste française" is doubly 
interesting  in  this  respect  inasmuch  as  it  deals  both  with  the 
application of the state aid rules  (Articles 92 and 93) and with the 
provisions on enterprises entrusted with the operation of services of 
general economic interest '(Article 90 (-2)) . This case constitutes the 
first combined application of these two provisions by the Commission. 
The latter considered that the tax advantages enjoyed by the postal 
services  did  not  outweigh  the  extra  costs  resulting  from  the 
constraints  imposed  on  the  French post  office  in carrying  out  its 
public service task and did not benefit the competitive aspects of its 
activities  (i.e. the activities not reserved to the post office under 
French law) . The Commission therefore decided that the tax advantages 
did not constitute aid under Article 92(1) of the EC Treaty. 

1.2.3 

The  audiovisual 

sector 

The Commission recognizes that the European film and television 
199. 
industry makes an important contribution to the diversified European 
culture. Thus, the promotion of cultural diversity is accepted by the 
Commission as a justification for state aid to the film industry and 
the production of television programmes. However, in its assessment of 
state aid to the audiovisual sector, the Commission will ensure that 
the aid does not cause any undue distortions of competition and that 
there  is no  discrimination  on grounds  of nationality  or any other 
impediment to the free flow of goods, services, people and ideas across 
the European Union. The Commission aims to strike a balance between the 
requirements of cultural and heritage promotion and the openness of 
trade and competition in the single market. 
To clarify state aid policy in this field, the Commission is currently 
preparing  guidelines  on  state  aid  for  culture,  the  arts  and  the 
audiovisual sector. The guidelines were discussed with Member States 
at a multilateral meeting in June and met with general support. 

Judgment  of  12 February  1992, Joined  Cases C-48 and C-66/9Ô  Nederland 
PTT  Post 
ECR 1-2563. 

[ 1992]  ECR  1-565;  Judgment  in  Case  C-320  Paul  Corbeau 

v  Commission 

en  PTT  Nederland 

and 
[ 1993] 

Commission  Directive  80/723/EEC  of  25  June' 1980,  as  amended  by  Directive. 84/413/EEC 
(OJ L 229, 28.8.1985, p. 20). 

71 

200.  In light of complaints  from private  TV stations  alleging  that 
public broadcasters receive state aid which distorts competition on the 
TV market  within  the EC, the Commission  in  1993  appointed  a  firm  of 
consultants  to undertake a study on the situation, paying  particular 
attention  to  the  public  service  obligations  imposed  on  public 
broadcasters,  how  much  they  cost  and  how  much  subsidy  the  public 
broadcasters  receive.  In October,  the Commission  received  the  final 
report and sent it to Member States for comments. In respect of the new 
Member  States and the EFTA States, signatories  to the EEA Agreement, 
it  has  issued  an  invitation  to  tender  for  a  similar  study.  When  it 
receives the comments' of Member States on the first study and when the 
second  study  is  completed,  the  Commission  will  consider  the  cases 
pending  and encourage  a debate on the way  forward. 

2.  Horizontal  aid 

2.1.  Research  and  development 

201.  On 20 December the Commission adopted a new Community framework 
for state  aid  for research and development. 

The framework in force since 1986 was amended in the light of the new 
competition environment both in the Community and internationally. The 
revised version takes account of the recommendations of the White Paper 
on growth, competitiveness and employment  and of the consequences  of 
the  agreements  resulting  from  the multilateral  negotiations  of  the 
Uruguay  Round.,.  In  addition,  the  text  clarifies  certain  unwritten 
practices developed by the Commission since the 1986 framework entered 
into  force. 

Although as a general  rule the admissible aid level is still 25% for 
pre-competitive development projects that are closer to the market, and 
50% for basic industrial research, "bonuses" are possible for projects 
involving  SMEs  (+10 points),  assisted  regions  (+5 or  10 points) and. 
projects  tagged  as  priority  in  the  Community  R&D  framework  (+15 
points). 

Furthermore, the admissible aid intensity will also be increased by 10 
points  for projects meeting  at  least  one  of  the  following  criteria: 
cross-frontier  cooperation  between  independent 
firms,  broad 
dissemination of research results, cooperation between universities and 
industry.  An  increase  of  25 points  will  be  allowed  for  priority 
projects under the R&D framework which also provide for cross-frontier 
cooperation  between  enterprises  or  between  enterprises  and  public 
research bodies, and broad dissemination  of results. 

This  system of bonuses will make  it possible  to adjust  the amount of 
aid that is acceptable on the basis of the general interest and which 
must  in any event  comply with the maximum rates of the WTO  Subsidies 
Code. 

To  take  account  of  competition  outside  the  Community  and  the  new 
possibilities  offered  by  the  WTO  Agreement  on  Subsidies  and 
Countervailing Measures, the new framework provides that European firms 
are eligible  for the maximum aid levels approved by the WTO  (50% for 
precompetitive research and 75% for basic industrial research) in the 
following  cases: 
overlapping  state  aid  and  Community  support, 
important  project  of  common  European  interest  (exemption  under 
Article  92(3)(b)), projects and programmes for which similar activities 
are  carried  out  by  enterprises  outside  the  European Union  having 
benefited  (in the last three years) or about to benefit from aid having 
an equivalent intensity at a level accepted by the WTO for the same two 
types  of  research. 

72 

In the new  framework,  to  lessen  the bureaucratic  burden  on Member 
States and itself, the Commission believes, on the basis of experience, 
that it is no longer necessary to notify annual budget increases of 
less than 100% of the original amount and/or extensions of authorized 
schemes, provided that certain conditions are met. 

Aid to an individual project under a research and development scheme 
authorized  by  the  Commission  need  not  in  principle  be  notified. 
However, the new framework requires notification of large aid grants 
under existing schemes, setting the aid threshold.at ECU 5 million and 
project costs at ECU 25 million. 

The revised framework also provides for different situations in which 
public financing of R&D conducted by establishments of higher education 
or non-profit-making public research bodies, either individually or on 
behalf of enterprises or in collaboration with them, does or does not 
cope within the scope of Article 92(1) of the EC Treaty. 

The framework  also specifies the factors taken into account by the 
Commission to determine whether R&D aid proposed by a Member State 
encourages  enterprises  to  carry  out' supplementary  research  and 
development in addition to that which they carry out in the course of 
their normal work  (incentive effect of R&D aid) . 

For SMEs, it will be assumed that the aid is necessary and acts as an 
incentive, whilst in the case of large undertakings the Commission will 
pay particular attention in aid cases where the research is close to 
the marketplace. 

2.2 Employment  aid and general social measures 

202.  In  1995, the persistently  high unemployment  rate within the 
Community was the fundamental economic and social problem facing the 
Community.  In an attempt to remedy this grave situation Member States 
introduced an increasing number of measures to promote employment and, 
in  its White  Paper  on growth,  competitiveness  and  employment, the 
Commission set out various ways of promoting employment in harmony with 
Community competition policy. 

Most measures taken by Member States under their labour market policies 
are general in nature and do not involve aid, either because they do 
not favour certain undertakings or do not affect trade between Member 
States  within  the meaning  of Article  92(1) of  the  EC  Treaty.  For 
example, under the new  Danish  Energy  Package,  which imposes on Danish 
industry new or increased energy taxes (C02 and S02 emissions) , some of 
the proceeds of these taxes will flow back to the industry in the form 
of  a general  reduction  in labour market  contributions  paid  by the 
industry. As all companies automatically benefit from this reduction 
on the basis of objective criteria, the Commission did not consider 
this reduction to constitute state aid under Article 92(1) . 

Only measures that selectively reduce labour costs of certain firms or 
in certain sectors with a view to encouraging them to increase their 
labour force, to maintain the level of employment or to recruit certain 
categories  of  unemployed  persons  distort  or  threaten  to  distort 
competition  because  they  favour  the beneficiaries vis-à-vis  their 
competitors. Accordingly,  the Commission considered  that  a 
Swedish 
scheme  available  only  to  firms  with  less  than  500 
employment 
employees  constituted  state  aid  in  favour  of  those  firms  to  the 
detriment of competitors with more than 500 employees. 

aid 

203.  Given  the  considerable  number  of  aid  measures  to  promote 
employment, the Commission considered it appropriate to clarify state 

73 

aid policy in this field by way of the employment aid guidelines.122 As 
regards support measures for training, the issue will be indirectly 
addressed in the more general guidelines on the distinction between 
state aid and general measures since measures that support training can 
in many cases be defined as general measures. The prime objective of 
the Employment Aid Guidelines is to inform Member States and interested 
parties of the principles the Commission will apply in determining the 
existence and compatibility of employment aid measures with the common 
market and in ensuring coherence between the competition rules and the 
employment policy measures advocated in the Commission's White Paper 
on growth, competitiveness and employment. The guidelines confirm the 
traditionally positive approach the Commission has taken towards state 
aid  for  job  creation,  in particular  aid  granted  to  SMEs  or  firms 
located in regions eligible for regional aid, provided that the aid 
leads to a net increase in the number of jobs in the firm concerned. 
Similarly,  the  Commission  normally  takes  a  favourable  view  of  aid 
granted to firms that take on unemployed persons who have particular 
difficulties  in  finding  a  permanent  job,  such  as  the  long-term 
unemployed or young people. In its assessment the Commission will also 
take account of possible counterparts offered by the firm for aid going 
beyond the employment of the unemployed, such as training. Moreover, 
in line with the general principles underlying state aid policy, the 
Commission will always examine whether or not the aid is necessary to 
take on an unemployed person and whether or not it is temporary. 

However, not all employment aid is viewed favourably by the Commission, 
which  considers  that  certain  employment  aid measures, given  their 
actual or potential harmful effect on competition within the common 
market, are contrary to the common interest and may be approved only 
in  a  limited  number  of  cases.  Thus,  the  guidelines  confirm  the 
Commission's unfavourable view on aid to maintain jobs in a firm. In 
fact, such aid constitutes operating aid which generally has the effect 
of frustrating or delaying structural changes necessary to render a 
firm/sector  economically  viable,  thereby  keeping  unprofitable 
businesses artificially alive. The Commission considers that, in most 
cases, the negative effects of such aid outweigh the possible short-
term benefits in terms of maintaining a certain level of employment. 
Moreover, it will normally look unfavourably on aid for job creation 
available to only one or more sectors that are sensitive, suffer from 
overcapacity or are in a crisis. The negative effects such aid might 
have on competing firms in the same sector in other Member States and 
the risk that aid would merely export unemployment  to other Member 
States  outweigh  the positive  effects  in terms  of  reduction  of  the 
unemployment rate in the Member State granting the aid. The Commission 
thus decided to initiate the procedure provided for in Article 93(2) 
in  Italy  under 
in respect of employment aid offered to the  shoe  sector 
a general employment aid scheme to sectors suffering from an employment 
crisis. 

However, aid to maintain jobs may be approved if it is granted to firms 
located in regions which, owing to the serious socio-economic problems 
they  are  experiencing,  are  eligible  for  regional  aid  under 
Article 92(3)(a) or if it is granted in the context of a rescue or 
restructuring plan.123 Moreover, sectoral employment aid may be approved 
in regions with serious unemployment or if it is granted in subsectors 
which are experiencing economic growth and generating jobs. 

204.  In  response  to  the  urgent  need  to  deal  with  the  current 
unemployment crisis in the European Union and to support the promotion 
of structural employment policies, in particular by means of active 

122  OJ C  334,  12.12.1995, p. 4. 
123  Guidelines on rescuing and restructuring firms in economic difficulty  (OJ C 368, 23.12.1994) . 

74 

labour market  measures, the  Commission  is  considering  adopting  an 
accelerated procedure for the notification of employment and training 
aid  schemes. Under  the  accelerated  procedure,  the  Commission  will 
decide within twenty working days on notified aid measures. 

2.3. Aid for environmental protection 

205.  The Community's environmental policy is based on the principle 
that  the polluting  firm should pay for the environmental  damage it 
causes. Aid to firms for environmental protection is, in principle, not 
compatible  with the  "polluter pays" principle. However, it must be 
recognized that, in certain cases, such aid may be necessary either as 
an incentive for companies to implement measures for the protection of 
the environment  going beyond existing mandatory  requirements  or in 
order to preserve the competitiveness of the industry when imposing new 
environmental requirements. Thus, under certain circumstances, aid for 
environmental protection may be justified. However, it is clear that 
such aid is capable of distorting competition between companies within 
the common market and is justified only if the beneficial effects of 
the  aid  on  the  environment  outweigh  the  distortive  effects  on 
competition. 

206.  The  Community  guidelines  on  state  aid  for  environmental 
protection124  aim  to  strike  a  balance  between  the  above-mentioned 
competition policy and environmental policy considerations. Thus, they 
confirm the "polluter pays" principle but at the same time provide that 
environmental aid may be authorized under certain conditions. 

firms 
tax  on  groundwater 

In line with these principles, the guidelines stipulate that, although 
operating aid is normally considered to be incompatible with the common 
market, in exceptional cases the Commission may authorize operating aid 
in  the  form  of  relief  from  environmental  taxes  as  well  as  other 
compensatory measures, provided that the aid is necessary to achieve 
the environmental objectives set. Thus, the Commission considered that 
the relief from new energy taxes on  C02  and  S02  emissions 
energy-intensive 
from 
Netherlands 
could be approved since they had to be regarded as the 
inevitable price to be paid for being among the first  countries to 
introduce a tax beneficial for the environment. Without some relief 
these taxes would so seriously damage the competitiveness of energy-
intensive firms in the countries going ahead with the tax, in this case 
Denmark and the Netherlands, as to be impracticable. However, in order 
to ensure that these tax reliefs do not distort competition unduly and 
to encourage aid recipients to implement measures to reduce pollution, 
the  Commission  will  always  stipulate  that  the  tax  relief  must  be 
temporary and, in principle, degressive. 

in  Denmark  and the  Netherlands 

in 
and the 
firms 

of 
relief 
the 

of  certain 

and  waste 

favour 

favour 

in 

in 

2.4. Aid to small and medium-sized enterprises  (SMEs) 

207.  The Commission continued in 1995 to apply the criteria of the 
Community guidelines on state aid for SMEs adopted by the Commission 
on  20  May  1992.125  The  framework  provides  for  a  review  of  its 
application  by  the  Commission  no  later  than  three  years  after 
publication.  The  Commission  therefore  presented  experts  from  the 
Member  States,  at  a  multilateral  meeting  held  in  July,  with  the 
conclusions  of  the review and noted  the changes  it believed  to be 
necessary.  The Commission's objective continues to be to authorize aid 
which provides impetus and overcomes specific handicaps affecting SMEs 
The 
whilst  limiting  distortions  of  competition  to  a  minimum. 

124  OJ  C 72, 10.3.1994. 
125  OJ  C 213,  19.8.1992, p. 2. 

75 

discussion chiefly centered on clarification and simplification of the 
rules, updating  the  de  minimis  rule and  the possibility  of  taking 
account of investment expenditure relating to technology transfers. 

2.5. Export aid 

208.  Export aid, i.e. aid linked to the quantity126 of goods sold in 
other Member States/EEA States or aid closely linked to the marketing 
and sale of goods in those countries  (such as aid for the setting-up 
or operation of distribution networks or sales agencies for goods and 
services within the Community and the EEA) , is clearly at odds with the 
objective  of  an  internal  market.  Such  aid  does  not  promote  any 
Community objective which can justify its direct distortive effects on 
competition.  Thus,  the  Commission  will  not  authorize  export  aid. 
However,  in  line  with  the  favourable  view  it  takes  of  financial 
assistance to SMEs, in particular in view of their limited know-how and 
difficulties  in  raising  external  financing,  the  Commission  may 
authorize  soft aid in favour of SMEs related to the development of 
export markets, such as aid for consultancy and marketing research, 
provided  that  the  aid  is  a  one-off  operation  and  limited  to  the 
penetration  of  new markets. It may, under  the  same circumstances, 
approve aid to SMEs for participation in trade fairs. 

209.  European companies are not only in competition within the EC/EEA 
but also compete for investment on foreign markets, such as Eastern 
Europe, Russia and South-East Asia. The Commission believes, that aid 
to firms for investments on foreign markets may distort competition and 
affect trade within the Community and therefore falls under the state 
aid rules of the EC Treaty. It is concerned that such aid measures may 
lead  to business  relocation  and be available predominantly  in the 
central and most-developed regions of the Community, thereby negating 
the efforts made under the Community's cohesion policy to reduce the 
gap between the more prosperous and the less prosperous regions of the 
Community. On the other hand, these aid measures may assist countries 
in Eastern Europe, the Baltic States and Russia in their efforts to 
convert to a market economy and may, therefore, be justified in certain 
cases. To establish a clear policy in this field the Commission decided 
to  open  the  Article  93(2)  procedure  in  respect  of  a  number  of 
internationalization  schemes  and  invited  Member  States  and  third 
parties to submit their comments. 

210.  The Commission has continued its efforts to reach an agreement, 
with Member  States  on a Communication  on  short-term  export  credit 
insurance, which will require Member States to withdraw public support 
from  export  credit  insurance  companies  in  respect  of  short-term 
commercial risks. The Commission expects that the outstanding problems 
will be resolved in the course of 1996 so that the Communication can 
then be adopted. 

2.6. Rescue and restructuring aid 

211.  The Commission continued to apply the new guidelines on rescuing 
and  restructuring  firms  in  economic  difficulty.127  Without  strict 
control, rescue and restructuring aid may be used by Member States to 
sustain ailing companies artificially, with the risk that necessary 
structural adjustments in the internal market will be frustrated or 
unduly delayed and the burdens of such adjustments shifted onto viable 
companies. However, rescue and restructuring aid may be warranted, for 
instance, on the basis of social or regional policy considerations, and 

The  Commission  is  considering  whether  to include  an explicit  exemption  to  this  end  in the 
"de minimis"  rule under  revision. 

OJ C 368, 23.12.1994, p. 12. 

76 

the main objective of the guidelines is to strike a reasonable balance 
between such considerations and the creation of a common market with 
free and undistorted competition. 

212.  The purpose of rescue aid is to maintain a firm in operation 
temporarily while an appropriate restructuring plan  is drawn up. A 
rescue aid may therefore be granted for only a limited period of time, 
normally no more than six months. The Commission considered that the 
guarantee with a duration of eighteen months granted by the Spanish 
(Guascor)  for commercial 
Government to  Gutierrez 
loans did not meet the conditions of rescue aid. 

Asunce  Corporacion 

213.  Under  the  guidelines,  the  Commission  makes  the  approval  of 
restructuring aid subject to strict conditions.  In particular, the aid 
should  normally  be  a  one-off  operation.  It  must  be  linked  to  a 
restructuring plan capable of restoring the long-term viability of the 
firm within a reasonable period of time and on the basis of realistic 
assumptions as to its future operating conditions, so that further aid 
will not be necessary. The Commission considers this to be a sine qua 
non for the approval of restructuring aid.128 In view of the fact that 
certain  German  guarantee 
did not, in principle, exclude the 
restructuring 
repetitive provision of aid for such operations in favour of the same 
firm, the Commission reserved its right to examine such repetitive aid 
individually. Similarly, as the restructuring plan for  SANTANA  Motor 
S.A.,  a subsidiary of SUZUKI Motor Corporation Group, was vague and 
unconvincing and did not aim to restore the long-term viability of the 
firm,  the  Commission  could  not  approve  the  aid  which  the  Spanish 
Government intended to grant under that plan and decided to institute 
the investigative procedure of Article 93(2) EC. 

and  soft-loan 

in  difficulty 

of  firms 

schemes 

rescue 

and 

the 

for 

Agricultura 

214.  In  order  to  offset  as  far  as  possible  adverse  effects  on 
competitors, it is a condition for authorizing restructuring aid to 
firms operating in sectors suffering from structural overcapacity that 
the recipient firm reduce capacity in a genuine and irreversible way. 
In its approval of restructuring aid to the Italian fertilizer company 
the  Commission  emphasised  the 
Enichem 
implementation of an irreversible reduction in the company' s production 
capacity and decided, moreover, that this condition for approval had 
to be  respected  until  such  time as  the effects  of  the  aid  on the 
competitive situation in the Community were insignificant. However, it 
was  unable  to  approve  a  state  guarantee  in  favour  of  the  Spanish 
company Guascor since the restructuring plan for the company did not 
seem  to provide  for reductions  in capacity  in at  least  one of its 
product sectors in which there is overcapacity in the EC. 

S.p.A., 

The Commission cannot itself impose a condition of privatisation on an 
undertaking that receives aid for restructuring purposes. However, a 
commitment from a Member State to privatize the recipient of aid may 
be  a  decisive  element  for  the  Commission  in  assessing  the  future 
viability of the company without the need for further aid. Thus, in its 
decision on the compatibility of the restructuring aid to the Italian 
fertilizer  company  Enichem  Agricultura 
the Commission took 
account of the commitment made by the Italian Government to privatize 
the company. 

S.p.A., 

128  See also the Community guidelines on state aid to the aviation sector  (OJ C 350, 10.12.1994, 

p.  5) . 

77 

2.7. Treuhandanstalt 

215.  In January the Commission decided on the terms applicable for 
1995 for privatization aid in the new  Lander.  Such terms had previously 
been defined  in 1991129 and 1992130. Following the dissolution of the 
the  Commission  decided  that  the  procedures  and 
Treuhandanstalt, 
assessment criteria applying to privatizations in 1995 should be more 
in  line  with  those  applicable  for  other  Member  States. After  the 
transition year 1995 no special rules would exist. 

The Commission investigated several individual cases of aid for the 
privatization of companies in the new  Lander.  By far the most important 
was  the  privatization  of  the  petrochemical  plants  of  BSL  (Buna, 
Sâchsische  Olefinwerke,  Leuna)  to  Dow  Chemical.  In  November,  the 
Commission took a final decision allowing aid of ECU 5 billion (DM 9.5 
billion) for the restructuring of BSL as an integrated complex. 

3.  Regional  aid 

216.  The Commission continued its review of the schemes in force, 
their  arrangements  and  the maps  of  the  regions  to be  regarded  as 
eligible  for  regional  aid  (in accordance  with  the principles  of a 
reduction in population coverage and consistency with the Structural 
Fund  maps).  Decisions  were  taken  for  the  Netherlands,  Belgium 
(excluding Hainaut), Spain and Italy.  The whole review exercise is 
thus almost over with only one country's still having to revise its 
map.  As  regards  the  three  new  Member  States  (Austria,  Sweden, 
Finland) , the Commission approved and adopted the maps drawn up by the 
EFTA Surveillance Authority in 1994 in the context of the European 
Economic  Area.  The  Commission  also  continued  to  examine,  under 
Articles 92 and 93 of the Treaty, the compatibility of Structural Fund 
assistance for  various Community objectives and initiatives. 

D - Procedures (rights of complainants) 

217.  In its judgment of 28 September 1995 in Case T-95/94 SYTRAVAL 
v.  Commission,  the Court of First Instance annulled the Commission's 
decision  of  31  December  1993  rejecting  a  complaint  in  respect  of 
alleged state aid in favour of Sécuripost, a subsidiary of the state-
owned  French  postal  administration,  which  operates  in  competitive 
markets.  The  CFI  considered  that  the  Commission  had  not  provided 
sufficient reasoning for the rejection of a series of statements by 
complainants alleging preferential treatment of Sécuripost. 

The significance of this judgment lies in the statements made by the 
CFI in respect of the rights of complainants in such procedures. The 
CFI  stated  that  the  Commission  must  examine  impartially  and 
exhaustively all allegations made* by complainants and cannot impose on 
the  complainant  the  burden  of  proof  concerning  the  existence  and 
(in)compatibility  of  state  aid.  Otherwise,  complainants  would  be 
required to obtain information in support of their allegations which 
in  most  cases  they  would  not  be  able  to  collect  without  the 
Commission's  acting  as  an  intermediary.  Therefore,  the  Commission 
cannot  justify  the  lack of  sufficient  reasoning  or the  failure  to 
examine certain allegations on the grounds that the complainant has not 
provided sufficient information.  The conclusions in  SYTRAVAL confirm 
the  CFI's  judgment  of  18  September  1995  in  Case  T-49/93  SIDE 
v. 
Commission. 

129  XXIst Competition  Report, point 249. 
130  XXIInd  Competition  Report, point 349. 

78 

218.  There  are  two  stages  in  the  Commission's  procedure  for  the 
examination of state aid measures: the preliminary examination of the 
measure, and the opening of the procedure provided for in Article 93 (2) 
EC  in  cases  where  the  Commission,  following  the  preliminary 
examination, still has doubts as to the compatibility of the measure 
with the common market. Whereas the Treaty provides for a procedure 
whereby  third parties  are  invited  to submit  their  comments  in the 
procedure opened under Article 93(2), this is not the case in respect 
of the preliminary examination. When the compatibility of an aid with 
the common market can be established without further examination, it 
does not appear necessary to alert third parties before tja.e decision 
of the Commission. Therefore, it has been the consistent practice of 
the Commission not to grant third parties, including complainants, a 
right  to be heard during  the preliminary examination. The European 
Court  of  Justice  has  supported  this  position  in  a  number  of 
judgments.131 However, further to the requirement to examine impartially 
and exhaustively all the allegations made by the complainant and to 
state the reasons  for its decision in SYTRAVAL, the CFI imposes an 
obligation on the Commission, under certain circumstances, to initiate 
a  contradictory  procedure  with  complainants  in  cases  involving 
difficult questions as to the determination of whether or not measures 
are state aid before the Article 93(2) procedure has been opened. The 
judgment seems to impose additional obligations on the Commission in 
its examination of complaints in cases giving rise to doubts about the 
existence of aid, and to go against the established case-law of the 
European Court  of Justice.  Therefore, the Commission has appealed 
against this judgment to the ECJ. 

E - Statistics 

219.  Over the year, the Commission registered 680 notifications of 
new aid measures or changes to existing aid measures, and 113 cases of 
unnotified aid.132 In the same period, it decided in 504 cases not to 
raise objections in 504 cases.  In 57 cases it decided to initiate the 
procedure  provided  for  in  Article  93(2)  of  the  EC Treaty  or  in 
Article 6(4)  of  Decision  3855/91/ECSC. 
This  detailed  analysis 
procedure resulted in 22 positive final decisions, 9 negative final 
decisions and 5 conditional final decisions.  Lastly, the Commission 
decided to propose appropriate measures under Article 93 (1) of the EC 
Treaty in respect of 6 existing aid systems. 

131  See  in particular  Case  84/82  Germany  v  Commission  [ 1984]  ECR 1451. 
132  These  figures  dp not  include  aid cases in agriculture,  fisheries, transport  and-coal 

79 

Graph 1:  New cases in 1995 

I  10 

113 

680 

•  Reexamined aid 

*  Unnotified aid 
D  Notified aid 

16 
68 

510 

1 

1994 

1995 

Decisions taken by the Commission 

619 

900 

800 

700 

600 

500 

--

400 

300 

200 

100 

0 

Graph  2 

700 

600 

500 1 

400 

300 

200 4 

100 

1991 

1992 

1993 

1994 

1995 

80 

Table 1: Decisions by Member State 

Austria 

Belgium 

Denmark 

Finland 

France 

Germany 

Greece 

Ireland 

Italy 

Luxembourg 

Netherlands 

Portugal 

Spain 

Sweden 

United  Kingdom 

EUROPEAN UNION 

22 

15 

17 

2 

51 

209 

9 

3 

93 

1 

34 

12 

110 

6 

35 

619 

81 

V  -  International activities 

A -  European  Economie Area 

220.  After Austria, Finland and Sweden joined the European Union on 
1  January  1995,  Norway  and  Iceland  were  the  only  remaining  EFTA 
signatories  of  the  Agreement  on  the  European  Economic  Area  (EEA 
Agreement). On 1 May 1995 they were joined by Liechtenstein. 

Cooperation in matters of competition resulting from the EEA Agreement, 
supplemented  by  informal  but  systematic  consultation  measures 
established  by  common  accord  between  the  Commission  and  the  EFTA 
Surveillance Authority,133 was maintained with the three countries. 

In addition, in accordance with Article 172 of the Treaty of Accession 
of Austria, Finland and Sweden to the European Union,134  the aid cases 
relating to the new Member States that were being processed by the EFTA 
Surveillance Authority were forwarded to the Commission (some 80 cases 
under Articles 53 and 54 of the EEA Agreement and about 400 aid cases) . 

B - Central and Eastern Europe, Baltic States, New Independent States and 
Mediterranean  countries 

1. Central and Eastern Europe 

221.  As part of the pre-accession strategy for the six associated 
countries of Central and Eastern Europe  (CEECs),135 the Essen European 
Council  of  December  1994  stressed  the  importance  not  only  of 
competition policy but also of facilitating  its' enforcement.  Among 
other  things, it  charged  the  Commission,  together  with  the Member 
States, with setting up a competition policy training programme.  The 
Commission and the Member States' authorities have met several times 
and managed to improve coordination of their actions and to launch a 
significant joint action. Officials from the CEECs and from the Baltic 
States  attended  a  two-week  collective  training  period  at  DGIV  in 
September  (financed by  the  PHARE programme)  and  then  individually 
visited a national  competition authority  in the EU. The action was 
widely acclaimed by the participants. 

Technical  assistance  under  the  PHARE programme  has  so  far centred 
mainly on anti-trust law aspects. In 1996, it will focus in particular 
on monopolies, exclusive rights and state aid, and will pay particular 
attention to effective enforcement of legislation. 

The Commission's White Paper providing guidelines on the  integration 
of the CEECs136 underlines the importance of a viable competition policy 
for economies in transition and lays down four pillars  (anti-trust, 
mergers,  state  aid  and  state monopolies/exclusive  rights)  for the 
approximation  of  legislation which the associated  countries  should 
undertake. Substantial progress has been made in this area as regards 
anti-trust;  all but  one associated  country have  a  competition  law 
authority.  Upon  accession,  these  countries will  accept  all  of  the 

133  22nd Competition Report, points 85 to 89 and 24th Competition  Report, point 399. 

134  OJ C 241, 29.8.1994. 
135  The  Europe  Agreements  with  Romania,  the  Czech  Republic,  Bulgaria  and  the  Slovak  Republic 
entered  into  force on 1 February  1995; those with Poland  and Hungary entered  into  force on 
1  February  1994, The Agreements'  substantive  competition  rules are basically  those  of  the 
Treaty  of Rome; see XXIVth Report on Competition  Policy, point 401. 

136  Commission White Paper on the preparation of the associated countries of Central and Eastern 
Europe  for  integration  into  the  internal market  of  the  Union  (May  1995),  endorsed  by  the 
Cannes  European Council  in June 1995. 

82 

Community legislation in force  ("acquis communautaire") and, in the 
meantime, technical assistance is being provided. 

As regards the rules for implementing the Europe Agreements, those for 
applying the competition rules to undertakings are in the process of 
being adopted by the Association Councils while a proposed set of rules 
is being discussed for state aid. One country has agreed to the set of 
rules  and  the  formal  approval  process  is  being  launched.  Another 
country has announced its agreement. 
The Commission has made several efforts to publicize competition policy 
for all economic agents in these countries. At the Brno conference in 
April, the Director-General for Competition spoke to a wide audience, 
including competition officials and business representatives, about the 
international dimension of competition policy and the importance of 
cooperation between competition authorities. At the Visegrad Conference 
on 19-21 June, heads of the competition authorities in the CEECs and 
DGIV officials discussed specific competition problems of economies in 
transition  and  also  the  interaction  of  anti-trust  and  state  aid 
policies; a joint action programme was agreed upon. It was agreed inter 
alia to establish a network for electronic data exchange. In the autumn 
the Director-General  for Competition visited Bulgaria and discussed 
issues relating to state aid and monopolies. 

2. Baltic States, Slovenia, and New Independent States 

222.  As part  of  the pre-accession  strategy  for  the  Baltic  States 
(Estonia, Latvia  and Lithuania), the Free Trade Agreements  (FTAs), 
which  contain  the  same  competition  rules  as  those  in  the  Europe 
Agreements with the CEECs, came into force on 1 January 1995. They will 
soon be replaced by the Europe Agreements signed in June; these three 
countries now must fulfil the same conditions for inclusion in the pre-
accession  strategy  which  the  EU  has  set  for  the  CEECs. The  same 
implementing rules as those for the CEECs are proposed for the Baltic 
States. One country has notified its basic agreement both with the 
rules on undertakings and with those on state aid. Negotiations with 
Slovenia for a Europe Agreement are under way. 

Partnership and cooperation agreements have been sighed with Russia, 
Ukraine, Belarus, Kazakhstan, Kyrgyzstan and Moldova; although the 
competition rules agreed upon are less stringent than those in the CEEC 
agreements, the agreements also include a clause on the approximation 
of legislation. Cooperation has begun, in particular by means of the 
provision of technical assistance under the TACIS programme. In this 
context,  financing  was  provided  for  an  international  conference 
organized by the Russian competition authority in the autumn in Moscow 
and attended by the Deputy Director-General for Competition. A working 
group with Russia met in May and again in December. It reviewed ways 
of embarking on the practical implementation of the partnership and 
cooperation agreement  (PCA). 

3. Mediterranean countries and Mercosur 

223.  Association agreements have been signed with Tunisia, Morocco 
and Israel and similar agreements are currently being negotiated with 
Jordan, Egypt  and Lebanon.  These contain or are expected to contain 
competition rules as provided in the Europe Agreements.  The agreement 
for establishing a customs union with Turkey, which has been signed and 
is  in  the  process  of  ratification,  contains  extremely  stringent 
obligations relating to the approximation of legislation, particularly 
competition law, which must be fulfilled within specified periods. 

It is to be noted that all these bilateral agreements have triggered 
important  moves  in  the direction  of policy  harmonization. This  is 

83 

compatible  with  the  recommendations  of  the  group  of  experts  on 
competition policy in the new trade order  (see below). 

Negotiations  with  Mercosur  are  under  way  and  will  extend  to  some 
aspects of competition. 

C - North America 

224.  The Agreement  between  the  European Community  and  the United 
States on the application of their competition laws was approved by the 
European Council on 10 April. At the same time, the Council approved 
the text of a letter addressed to the United States clarifying the 
European  Community's  interpretation  of  certain  provisions  of  the 
Agreement .137 

This letter, reflecting the text of Commission statements made to the 
Council, clarified two issues. 

Firstly, information covered by Article 20 of Regulation No 17 or by 
equivalent provisions of other regulations in the field of competition 
may  not  be  communicated  by  the  Commission  to  the  US  anti-trust 
authorities save with the express agreement of the source concerned. 

Secondly, each Party ensures the confidentiality of all information 
provided in confidence by the other Party and will use all the legal 
means at its disposal to oppose the disclosure of such information. The 
Commission, after notifying the US competition authorities, will inform 
the Member State(s) whose interests are affected of notifications sent 
to  the  Commission  by  the  US  anti-trust  authorities  and,  after 
consulting them will also inform the Member State(s) concerned of any 
cooperation or coordination of enforcement activities.  In the latter 
regard,  however,  the  Commission  will  respect  a  request  by  the  US 
authorities not to disclose the information which they provide in cases 
where this is necessary to ensure confidentiality. 

The approval of the Agreement by the Member States has imparted the 
political  impetus  and  created  the  legal  certainty  necessary  for a 
redoubling of cooperation efforts between the EC and the US. 

Notifications from the US to the EC under the Agreement have continued 
regularly through the year with a total of 35 altogether  (21 from the 
Department of Justice and 14 from the Federal Trade Commission) , 21 of 
which were in merger cases. The notifications from the EC to the US 
resumed  after  10  April,  following  the  short  interruption  due  to 
uncertainty about the legal position of the Agreement under Community 
law138. The EC notified  the US on 43 occasions  in 1995, of which 30 
involved merger cases. 

The biannual high-level meetings between the Commission and the US 
anti-trust  authorities  resumed on 13 November after a break of two 
years. The discussions concentrated on the effectiveness of current 
bilateral cooperation and a number of areas were identified for further 
study. Future bilateral and multilateral cooperation was also discussed 
in the context of the report of the group of experts on competition 
policy in the new trade order and of the adoption by the United States 
of the International Antitrust Enforcement Assistance Act of 1994. A 
significant  part  of  the meeting  was also given over  to  innovation 
markets and their relationship with competition policy. 

137  OJ L 95, 27.4.1995, as corrected by OJ  L 131, 15.6.1995, 

138  XXIVth Competition  Report, point 413. 

84 

On  23  January  the  Council  authorized  the  Commission  to  open 
negotiations with Canada on a bilateral cooperation agreement in the 
area  of  competition.139  A  first  round  of  negotiations  under  this 
authorization was held on 27 January, when good progress was made in 
defining  the  shape  of  a  draft  agreement.  The  draft  agreement  was 
discussed by the Council Group on Economic Questions on 6 March. It is 
expected that the negotiations will be concluded in the first part of 
1996. 

An informal meeting between the Commission and the Canadian Bureau of 
Competition Policy was held on 14 November to exchange views on recent 
developments in competition policy in the EU and Canada. 

D- Japan 

225.  Relations between DG IV and the Japanese Fair Trade Commission 
(JFTC) remained close during the year under review. 

On 22 November the third seminar held jointly by the two competition 
authorities took place in Tokyo.  The seminar topics concerned the role 
of  competition  policy  in  a  globalized  economy  and  the  scope  of 
competition policy. 

The annual bilateral meeting between DG IV and the JFTC was held on 24 
November. 
The  two  competition  authorities  discussed  bilateral 
relations and subjects of common interest such as the liberalization 
and internationalization of the competition rules. They also reported 
on the main legislative developments in their respective areas and on 
the implementation of the competition rules. 

Both formal and informal contacts with the Japanese authorities were 
intensified in 1995.  DG IV was thus able, under the deregulation plan 
adopted in May by the Japanese Government, to put forward its requests 
to that Government for a broader and more rigorous application of the 
competition rules, the abolition of virtually all the exceptions to 
those rules and the strengthening of the competition authority (JFTC). 

E - Australia and New Zealand 

226.  Bilateral contacts with Australia were pursued on a number of 
occasions during 1995. Topics discussed during these informal meetings 
included  recent  policy  developments  in  the  EU  and  Australia,  in 
particular  in  the  area  of  deregulation,  and  the  reform  of  the 
Australian Competition Act. 

F - Multilateral organizations and other international issues 

1.  OECD 

227.  DG  IV  played  an  active  part  in  the  work  of  the  OECD  on 
competition matters.  The main areas of discussion were the convergence 
of  laws,  international  cooperation  and  the  relationship  between 
competition policy and international commercial policy, in the context 
of the liberalization of trade.  Other topics included the application 
of the competition rules to the liberalized sectors (telecommunications 
and maritime  transport);  lastly, particular attention was paid to 
certain individual or sectoral aspects of competition policy (failing 
firm  and  efficiency  claims,  vertical  integration  in  the  cinema 
industry, competition policy and environmental policy). 

XXIVth Competition  Report, point 414. 

85 

DG  IV  represents  the- Commission  in the  OECD  Industry  Committee's 
Working Party on Public Support Measures. By way of its expertise, it 
continued to contribute to the ongoing OECD survey on public support 
in the manufacturing sector. 

2. World Trade Organization 

228.  Negotiations in the sectors where agreement could not be reached 
by the end of the Uruguay Round were actively pursued, especially as 
regards basic telecommunications services. The European Union, within 
the framework of the negotiations, put forward a proposal which places 
emphasis in particular on a timetable for external liberalization that 
is compatible with liberalization within the European Union, as well 
as guarantees in terms of the independence of regulators. 

In the state aids field, all Member States agreed to the Commission's 
proposal  for  a  joint  notification  and  reporting  procedure  to  the 
Commission and the World Trade Organisation,  thereby modifying  the 
existing standardized system of notification and annual reporting of 
state aid140. As a result of this modification, the notification of 
subsidies  as  required  by  the  WTO  Agreement  on  Subsidies  and 
Countervailing Measures and the above annual reporting is carried out 
in one step.  The Commission is confident that this new procedure will 
alleviate the administrative burden on Member States and ensure a high 
level of transparency. 

3. UNCTAD 

229.  DG IV continued to play an active part in the work of UNCTAD on 
restrictive trade practices.  In particular, it took part in the third 
United Nations Conference which reviewed all the principles and rules 
agreed by UNCTAD in this area. 

4. International cooperation 

230.  The group of experts convened by Mr Van Miert in 1994 to discuss 
the prospects for closer cooperation between competition authorities 
presented  its  report  in  July  1995.141  It  made  a  number  of 
recommendations.  Having, briefly  examined  the  possibility  of 
establishing an international competition authority and a worldwide 
competition code, it put this to one side as not being realistic in the 
short or medium term. Instead it felt that one should commence with the 
introduction of an adequate set of competition rules by those countries 
not  yet  having  one.  In  this  regard  the  group  recommended  that 
assistance should be provided by those countries which have already 
acquired experience in this area. 

The  group  proposed  a  dual  approach.  First,  it  recommended  a 
strengthening of bilateral cooperation between competition authorities 
with,  as  a priority, a deepening  of existing  cooperation  with the 
United  States  and  an  extension  of  bilateral  cooperation  to  other 
partner countries. 
The  second  but  principal  recommendation  of  the  group  was  the 
elaboration  of  a  plurilateral  cooperation  framework  as  the  group 
believes that, even if it is strengthened, bilateral cooperation cannot 
resolve  all  the problems  facing  competition  authorities  or  create 
effective momentum for enforcing competition rules in third-country 
markets.  A  plurilateral  agreement  would  include  all  the  elements 

140  Commission  letter  D/20500  dated  2  August  1995  replacing  letter  SG(94)  D/2484  dated 

22 February 1994. 

m 

Competition policy in the new trade order: strengthening international cooperation and rules 
(COM(95) 359  final). 

86 

already incorporated in bilateral agreements, to which would be added 
a  set  of  minimum  competition  rules,  a  binding  positive  comity 
instrument  and  an  effective  and  progressive  dispute-settlement 
mechanism. 

On 17 July the Commission authorized the presentation of the report to 
the Council and to Parliament with a view to launching discussions with 
the Union's main partners and within the international organizations 
concerned. 

At a meeting of the Directors-General of the Member States' competition 
authorities on 17 October, it was agreed that a working group should 
be established to consider the technical aspects of some of the group's 
recommendations. 

This report has also been presented to the European Parliament, to the 
Council's Article 113 Committee and to the Community's OECD partners. 
The initial reaction has been positive. 

87 

VI  -  Information  policy 

231.  During  1995,  the  Commission  continued  its  active  public 
information  campaign  on  competition policy. As  in  the past, press 
releases on competition-related issues accounted for almost one third 
of the total number of Commission press releases. With  its limited 
resources, DG IV s Information Service replied during the past year to 
more  than  1000  questions  from  the  public,  forwarding  relevant 
documentation or providing useful advice. Owing to a lack of resources, 
most information enquiries have in recent months been answered by way 
of  standard  letters  containing  an  updated  list  of 
Community 
(including 
publications 
studies and speeches by DG IV officials) . DG IV, in collaboration with 
the Office for Official Publications, published during 1995 several 
reference books on competition law, while the  EC  Competition 
Policy 
Newsletter, 
issued three times per year and with a print-run of 17 000 
copies, has established itself as a leading source of information in 
the field. For 1996, several new publications are under preparation and 
DG IV plans to introduce data on EUROPA, the European Institutions' 
host on the World Wide Web.143 

the  public1*2 

on  competition 

available 

to 

For more information and to obtain the latest list of  Community  Publications 
available 
rue de la Loi, Bruxelles B-1049 Brussel, tel. (+32-2) 295 76 20, fax.  (+32-2) 295 54 37, 
Electronic mail: X400: c=BE;a=RTT; p=CEC;o=DG4;s=INF04, Internet: Info4@dg4.cec.be 

Competition 
the  public,  contact DG IV s Cellule Information, C150 00/158, Wetstraat, 200 

on 

to 

http://www.cec.lu. 

Annex : Cases discussed in the report 

1.  Articles 

85  and  86  and  Article 

90 

Case 

' 

Brussels National Airport 

Atlas - Phoenix 

ATR/BAe 

BASF/Accinauto 

Coapi 

Gas Interconnector 

ICG/CCI Morlaix 

Inmarsat-P 

Lufthansa/SAS 

Omnitel Pronto Italia 

Organon 

Pelikan/Kyocera 

TACA 

Uni lever/Mars 

Van Marwijk/FNK-SCK 

Vebacom 

2.  Merger 

control 

Case 

ABB/Daimler Benz 

Crown Cork and Seal/Carnaud MetalBox 

Glaxo/We 11 come 

[ 

- 

Lyonnaise des Eaux/Northumbrian Water 

Paragraph numbers 

120 

57 

61-62 

36 

89 

82 

40,43 

59 

77-78 

109 

37-38 

87 

73 

40, 41 

40,42 

111 

Paragraph numbers 

139 

141 

142 

145 

Mercedes Benz/Kâssbohrer 

. 

135,137 

Nordic Satellite Distribution 

Orkla/Volvo 

Perrier 

Repola Corporation/Kymmene 

RTL/Veronica/Endemol 

Siemens/Italtel 

Swissair/Sabena 

133 

140 

147 

144 

134 

135-136 

76,143 

89 

3. State aid 

Case 

Air France 

Andalusian Development Agency 

AOM 

BSL  (Buna, Sâchsiche Olefinwerke,Leuna) 

CGM 

Chrysler 

Crédit Lyonnais 

DAF Belgium 

DAF Netherlands 

Danish energy package 

EM-Filature 

Employment aid scheme in Sweden 

Energy taxes in the Netherlands 

Enichem Agricultura S.p.A. 

Ferries Golfo De Viscaya 

Ferrovie dello Stato S.p.A. 

• 

Fiat Mezzogiorno 

Footwear industry in Italy 

Ford Genk 

Ford Valencia 

Ford/VW Setubal 

French postal administration 

Guascor  (Gutierrez Asunce Corporacion) 

. 

Kimberley-Clark 

Lech-Stahlwerke GmbH 

Leuna-Werke GmbH 

Lisnave 

Lufthansa 

Maschinenfabrik Sangerhausen GmbH 

NedCar-Volvo/Mitsubishi 

; 

Opel Austria 

Opel Eisenach 

ROSCOs 

Rover 

Santana Motor SA 

SEAT-Volkswagen 

Paragraph numbers 

177, 178 

• 

159 

181 

215 

185 

171 

197 

168 

168 

202, 206 

159 

202 

206 

159, 214 

184 

189 

171 

203 

167 

169 

171 

198 

212 

158 

159 

162 

159 

180 

160 

171 

169 

171 

189 

; 

171 

] 

' 

213 

| 168 

; 

| 

. 

90 

Siemens Nixdorf AG/Mainz 

SNF 

Swissair-Sabena 

Sytraval 

' 

TAP 

; 

Textilwerke Deggendorf  GmbH 

Tubacex 

; 

157 

171 

179 

217  -

177 

154 

157, 160 

91 

ISSN 0254-1475 

COM(96) 126  final 

DOCUMENTS 

EN 

08 

Catalogue number  : CB-CO-96-135-EN-C 

ISBN 92-78-01875-9 

Office  for Official Publications of the European Communities 

L-2985 Luxembourg 

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