Source: EURLEX
Language: en
Format: md

**COMMISSION OF THE EUROPEAN** **COMVTUNITIES**

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                           C0M(93) 162 final

                           Brussels, 5 May 1993

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**X X I I n d** **REPORT**

**ON**

**COMPETITION POLICY**

**1 9 9 2**

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XXI Ind COMPETITION REPORT - TABLE OF CONTENTS

INTRODUCTION

PART ONE - MAIN DEVELOPMENTS IN COMPETITION POLICY

Chapter I - Maintaining a competitive environment

§1 - Restrictive agreements and abuses of dominant positions
§2 - Merger control

§3 - State aid

§4 - Special or exclusive rights

Chapter II - Application of the competition rules to particular industries
§1 - Posts and telecommunications

§2 - Financial services

§3 - Energy
§4 - Transport

§5 - Cinema and television

Chapter III - Competition policy and other Community policies
§1 - Completion of the internal market
§2 - Consumer protection

§3 - Environment

§4 - Small and medium-sized enterprises

§5 - Regional policy

Chapter IV - Community competition policy and developments in the rest of the

        wor Id

§1 - General

§2 - Competition policy as a tool to open up trade with third countries
§3 - Structures in Europe

§4 - United States

§5 - Japan
§6 - Competition policy in multilateral organizations

Chapter V - Application of the competition rules

§1 - Transparency
§2 - Subsidiar i ty
§3 - Adaptation of procedures
§4 - Commission activities (quantitative description)

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                      - 2 - ^

PART TWO - COMPETITION POLICY TOWARDS ENTERPRISES

Chapter I - Main decisions and measures taken by the Commission

A. Restrictive agreements

    §1. Horizontal agreements

       - Establishment of Joint ventures

         a. Car Isberg/Courage
         b. CarIsberg/AIIied Lyons
         c. Fiat/Hitachi

         d. Ford/VW

       - Agreements in the financial services sector
         e. Assurpol
         f. Eurocheque: Helsinki Agreement

       - Agreements in the energy sector
         g. SHG/EDF and ENEL

         h. Jahrhundertvertrag

       - Agreements in the maritime transport sector

         i. French-West African shipowners' committees

         J. CEWAL Liner Conference

       - Agreements concerning fisheries and agriculture

         k. Scottish Salmon

         I. Milk Marketing Board

       - Agreements relating to intellectual property
         m. Chiquita/Fyffes

       - Agreements relating to charges connected with environmental
         protect ion

         n. VOTOB

       - Cartels

         o. Building and construction industry in the Netherlands

     §2. Distribution
         a. Newitt/Dunlop Slazenger International
          b. Mars/Langnese-Schôl1er
         c. Givenchy
         d. Viho/Parker Pen

         e. 1990 Football World Cup

         f. UIC

         g. Ford Agr iculturaI

B. Abuse of a dominant position
         a. British Midland/Aer Lingus
          b. B&I/SeaI ink, Holyhead
         c. Gillette/Wilkinson Sword

C. Merger control
     §1. Scope of application
     §2. Appraisal of concentrations (Article 2)
     §3. Restrictions ancillary to concentrations
     §4. Suspension of concentration (Article 7)

     §5. Referral to the competent authorities of the Member States
        (Article 9)

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                      - 3 - O

D. Substantive and procedural rules

    §1. Block exemptions

       a. Regulation amending the block exemption Regulations

        b. Application of the block exemption Regulations
       c. Insurance block exemption
       d. Sea transport

       e. Motor vehicle distribution

       f. Air transport

     §2. Notices

       a. Cooperative joint ventures

        b. Cooperation between the Commission and national courts

       c. Contracts with commercial agents

       d. Application of the "de minimis" principle in exclusive beer

         supply arrangements

    §3 Interim measures

Chapter II - Main cases decided by the Community lawcourts

     §1. Application of Article 85(1) to restrictive practices in the
       polypropylene sector
     §2. Application of Article 85 to a cooperative

     §3. Application of Article 85 to a selective distribution system
     §4. Non-applicability of Article 85 to statutory restrictions on
        imports and exports of electricity
     §5. Refusal to exempt a net price system for imported books
     §6. The concept of effect on trade between Member States
     §7. Abuse of a collective dominant position
     §8. Procedure

     §9. Art icle 90

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                      _ 4 - *T

PART THREE - COMPETITION POLICY AND STATE INTERVENTION

Chapter I - Main decisions and measures taken by the Commission

A. State aid

     §1. General policy questions
     §2. Third survey on state aid
     §3. Aid for research and development
     §4. Aid to industrial sectors subject to a Community framework on

       state aid

       a. Shipbuilding industry

        b. Steel covered by the ECSC Treaty

       c. Non-ECSC steel sectors

       d. Aid to the coal industry

       e. Aid to the synthetic fibres industry

        f. Aid to the motor vehicle industry

     §5: Aid to other industrial sectors

     §6. Aid in the service sector

     §7. Horizontal aid schemes

       Aid for environmental protection and energy conservation

       General investment aid

       Other general investment aid schemes

       Aid examined in the context of privatizations
       Aid to small and medium-sized enterprises
       Aid for employment and training

       Rescue and restructuring aid
     §8. Regional aid
     §9. Aid in the transport sector
     §10. Aid in the agricultural sector
     §11. Aid in the fisheries sector

B. Public enterprises and state monopolies

     §1. Telecommunications

     §2. Postal services

     §3. Energy
     §4. Transport

     §5. Other industries

     §6. Other aspects

     §7. Communication concerning public undertakings in the manufacturing

       sector

Chapter II: Main decisions of the Court of Justice

     §1. Admissibility of applications lodged against decisions to
        initiate proceedings under Article 93(2)
     §2. Failure to comply with a decision under Article 93(3)

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                      - 5 
PART FOUR - CONTACTS WITH COMMUNITY AND OTHER INSTITUTIONS

Chapter I - The contribution from socio-economic and political circles
§1. European Parliament

§2. Economic and Social Committee

§3. Advisory Committee on Restrictive Practices and Dominant Positions
§4. Report on the Advisory Committee on Concentrations

§5. Conference of National Government Experts
§6. Other forms of cooperation with the authorities of the Member States

§7. Other contacts

Chapter II - International contacts
§1. Implementation of the EC/US Agreement on the application of their
  competition laws
§2. Countries of Central and Eastern Europe
§3. Contacts with other countries

§4. Multilateral

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Intro. 1

                 N T R O D U C T I O N

Alongside the establishment of a common market, competition policy Is one of

the two great strategies by which the Treaty of Rome sets out to achieve the

Community's fundamental objectives: the promotion of harmonious and balanced

economic development throughout the Community, an improved standard of

living, and closer relations between the Member States. Competition policy

cannot therefore be pursued in isolation, as an end in itself, without

reference to the legal, economic, political and social context.

Rapid changes in that context call for rigorous consistency and steadfastness

in applying the competition rules, combined with greater flexibility in

adapting to the new situation and staying in tune with the objectives which

the Community has set itself for economic and social cohesion, industrial

competitiveness, research and technological development, and the environment.

In addition to the completion of the internal market, the progress being made

in technology, and the globalization of markets, there are two new factors

which competition policy must take into account:

   the slowdown in economic growth, with its social consequences, and

   the application of the principle of subsidiarity.

These developments are combining to create an environment in which

competition between firms is fiercer than ever, while the tendency to adopt a

defensive and protectionist posture has never, been so strong. At the same

time the Maastricht debate shows that the greatest possible clarity is needed

in the Commission's efforts to ensure that competition is not distorted.

This Report seeks to meet the demand for clarity and transparency by setting

out in plain terms the Commission's thinking on competition. The policy

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Intro. 2

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**7**

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priorities detailed in previous reports remain unchanged; in particular,

competition policy seeks to contribute to the achievement of a genuinely

frontier-free area, and to economic and social cohesion, by throwing open

markets which might otherwise be protected by exclusive rights, restrictive

practices, the abuse of dominant positions, or state aid. This Twenty
second Report sets out to explain how in a context which has changed

radically the Commission proposes to draw the necessary distinctions between,

on the one hand, behaviour on the part of firms or Member States which

contributes to progress and .the restructuring of European industry and, on

the other hand, behaviour which holds back the process of adaptation by

partitioning markets, creating or strengthening dominant positions, or

keeping firms alive when they are no longer viable, thereby damaging the

dynamism and competitiveness of European industry.

As far as the conduct of firms is concerned, the Commission continues to

enforce the competition rules strictly: anti-competitive agreements and

mergers based on the defensive sharing of markets, and restrictive practices

which reduce long-term capabilities and competitiveness, are and must be

prohibited. But the Commission hopes that more rapid decision-making and

greater legal certainty will faciIitate those types of cooperation and merger

which enable firms to adapt and to improve their overall competitiveness.

The "one-stop shop" principle which was adopted in the Merger Control

Regulation is a step in this direction. Further steps were taken in 1992

with a Commission notice on cooperative joint ventures, the extension of

several block exemptions, and the drawing up of a programme for the

acceleration of procedures.

The main challenges facing competition policy are without any doubt the

introduction of competition into regulated sectors and the monitoring of

state aid. State monopolies and exclusive rights have to be seen in their

new context, which is the single market: change and competition are vital if

the four fundamental freedoms are to be given practical effect, and the

benefits of the single market are to materialize. This is particularly so

as technological progress and the demands of users are removing the rationale

of some monopolies, for example in telecommunications. But there has

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Intro. 3

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**8**

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to be a proper balance between this drive for economic efficiency and the

need to take account of the social dimension and to maintain a universal

service, or in the case of sectors such as gas and electricity to maintain

security of supply as well.

There is Just as delicate a balance to be observed in the field of state aid,

particularly at a time when the economic going is difficult and strong

pressure is being brought to bear on the public authorities by firms which

face more intense competition and a slowdown in demand. The Commission

looks at cases from a Community rather than a national angle, and seeks to

distinguish aid whose harmful effect on competition is offset by its

contribution to economic growth, to structural adjustment and to economic and

social cohesion from aid which impedes development towards more efficient

structures and serves merely to export problems to other Member States.

The globalization of markets and the knock-on effects of certain anti
competitive behaviour outside the Community mean that policy must broaden to

take account of the international dimension. The scope of Community law is

confined to conduct or measures implemented inside the Community. But some

practices outside the Community may affect- the Community market; and

Community firms may have to contend with anti-competitive practices on non
Community markets. The main competition policy response to this situation

is to seek to encourage the application of similar policies by the

Community's main trading partners, by means of bilateral agreements or

through multilateral negotiation. Unlike protectionism, a broadening of

competition policy of this kind is ultimately in the interests both of the

Community and of its partners.

The transparency and subsidiarity debates have also highlighted the need for

wider familiarity with the objectives of the rules and mechanisms of

competition policy as a factor in industrial competitiveness. The policy

cannot be effective if its objectives are not embraced by the business

community.

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Intro. 4

The Commission accordingly pressed ahead with its policy of transparency; it

approved a considerable number of regulations and codes and published various

explanatory booklets. Work also went ahead on the consolidation of existing

rules.

A successful competition policy depends very much on proper application of

the principle of subsidiarity, with matters being handled at the level at

which they can be dealt with most effectively. The Commission is firmly in

favour of a decentralized application of competition law, which would allow

the appropriate authorities in the Member States to deal with cases, whose

implications are essentially domestic, leaving the Commission free to

concentrate its resources on the cases which it alone is capable of

resolving. The process should be facilitated by the notice which the

Commission approved this year on cooperation between national courts and the

Commission in applying Articles 85 and 86 of the EEC Treaty. The measures

taken to improve transparency should help to ensure the wide awareness which

decentralization will require.

The general structure of the Twenty-second Competition Report is the same as

that of its predecessor. A few changes have been made, however, in order to

improve the content.

In Part One, which outlines the main thrust of Community policy, the chapter

on the relationships between competition policy and other Community policies

contains new sections on the environment and on small and medium-sized

enterprises; in the preceding report it concentrated on the completion of

the internal market, industrial policy, technology development and economic

and social cohesion.

The main decisions of the Court of Justice regarding the application of

Article 90 of the Treaty are now reviewed in Part Three, which deals with

competition policy and state intervention, rather than in Part Two, which

deals with competition policy towards enterprises.

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Intro. 5

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**10**

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Part Four includes several new sections describing the proceedings of the

Advisory Committee on Restrictive Practices and Dominant Positions, the

Advisory Committee on Concentrations, and the Conference of National

Government Experts, and reporting on contacts between Commission departments

and interested parties in the course of the preparation of legislation.

The annexes continue to be an important part of the Report. The first,

detailing reaction to the Twenty-first Report in Parliament and the Economic

and Social Committee, now contains the Commission's reply to the Economic and

Social Committee's opinion as well as its reply to Parliament's opinion.

Annex II gives the full text of legislation which will allow readers to

update the Compendium of European Community Competition Law; the Commission

is to publish a revised version of the Compendium shortly. Annex III

contains summaries of the main decisions not described in the body of the

Report, and references for decisions, notices and Judgments relating to

individual cases, but now adds a complete list of all Commission press

releases on competition issues.

Changes to the last two annexes await the next report: the annex on the

development of concentration, competition and competitiveness will be using

new sources of data for the year 1993 onward, and the scope of the annex on

competition law in the Member States will be expanded to cover the

decentralized application of the Community competition rules.

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1.l.§1. 1

<T1> PART ONE: MAIN DEVELOPMENTS IN COMPETITION POLICY

 <T2> Chapter I: Maintaining a competitive environment

 <T4> §1. Restrictive agreements and abuses of dominant positions

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**11**

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1. The year was a very busy one for the Commission, which handled a great

many individual cases and approved a large number of general measures as

we 11.

2. In the individual cases it dealt with the Commission continued to take

vigorous action against restrictive agreements, both horizontal and vertical,

and against the abuse of dominant positions. This has long been a key aspect

of competition policy. The offending practices generally do damage of two

kinds. They cause a loss of efficiency by preventing, restricting or

distorting the competition which would otherwise spur business into a

constant search for ways of improving efficiency. They also impede the

integration of markets by restricting trade between Member States, and thus

hold back the improvement in the economic efficiency of the Community's

production structure which integration ought to produce. From the consumer's

point of view the damage is reflected in higher prices and a narrower choice.

3. In the year under review this policy was extended to a number of

industries in which it had not previously had occasion to bite. Examples are

sea transport, the building industry, and the organization of sporting

events. The year also saw the first decision imposing fines in the banking

sector.

Policy continued to be strengthened in some areas where the Commission has

already built up a considerable body of administrative precedent, such as the

cosmetics trade, which provides a good illustration of the Commission's

efforts to prevent distribution agreements from obstructing the integration

of the common market.

4. The practices which the Commission contests have the effect of reducing

or removing the incentive to greater efficiency provided by competition. As

a general rule they also set out to prevent rival firms from entering the

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1.l.§1. 2

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**12**

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 market, or to drive them out. This means that they deprive the consumer of

 choice, and prevent him from optimizing the allocation of his Income. Their

 basic thrust is usually to prevent the dynamic development which would

 otherwise be generated by competition and the establishment of the single

 market, and to defend a status quo which favours the firms taking part in

 them.

 Similar considerations guide other aspects of competition policy, such as

 policy towards state aid or towards companies given special or exclusive

 rights. There is a fundamental consistency underlying these different areas

 of competition policy.

 Thus the Commission continued to take an active approach to regulated sectors

 such as energy, telecommunications and transport. It is vital that these

 Infrastructures adapt to the single market if the single market Is to deliver

 all the gains in efficiency which the Community is entitled to expect from

 it.

 The achievement of a single market requires that competition policy be

 energetically pursued in other regulated sectors too, and the Commission

 proposes to give greater attention to these. Services - primarily financial

 services but also legal and consultancy services - are a field where

 restriction can appreciably affect trade between Member States and

 competition in the common market.

 5. But some forms of cooperation between firms are desirable, for example

 because they facilitate the entry of new firms to the market, generate

 synergies conducive to technological progress, or permit economies of scale.

 The Commission stepped up its efforts to encourage cooperation of this kind,

 particularly through various general measures which it adopted in the course

 of the year.

 This was the thinking which prompted the Commission to broaden the scope of

 certain block exemption regulations. At the same time it approved a notice

 concerning the assessment of cooperative joint ventures. The two measures

 should improve the legal certainty available to firms by clarifying the rules

 with which they have to comply. This will facilitate certain kinds of

 cooperation between them, particularly those which promote R&D and the

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1.l.§1. 3

 transfer of technology in Community industry.

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**13**

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The Commission also reviewed its own internal procedures in order to see how

they could be speeded up, particularly in cases which, while not involving a

"concentration" within the meaning of the Merger Control Regulation,

nevertheless have a structural dimension which requires rapid decision-making

if the benefit of an agreement is not be held up by a long period of legal

uncertainty.( [1] >

The same desire for efficiency underlay the Commission's efforts to encourage

the "decentralized" application of Community competition law, where the

Commission hopes to arrive at as rational a division of tasks as possible

between the national authorities and itself. The approach is in accordance

with the principle of subsidiarity.

Courts in Member States have an essential role to play here. In order to

encourage the application of Community competition law by national courts the

Commission published a notice on the subject, which spells out the assistance

the Commission is prepared to provide in such cases.( [2] )

6. Another aspect which will in all likelihood be growing more important in

future is the international dimension of the policy of prohibiting

restrictive practices. As markets become more international and trade

expands, an anti-competitive practice on a non-Community market is more and

more likely to have a damaging effect on firms or consumers in the Community.

Provisions on this subject have accordingly been included in the EEA

Agreements and the agreements with Central and East European countries.

(1) See points 122 to 124 of this Report.
(2) See point 299 of this Report.

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1.1.§2. 4

 <T4> §2. Merger control

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7. Merger control occupies a central place in Community competition policy-,

it aims to reconcile two imperatives. Firstly, the mergers envisaged by

industry will generally help to adapt industrial structures to the single

market so that the market can in fact generate the desired efficiency gains.

The notifications which firms submit have to be dealt with efficiently and

rapidly in order to avoid the harm which would be caused by a prolonged

period of uncertainty. It is fair to say that that objective has been

achieved, since at the first stage of inquiry the Commission is settling a

large number of cases which raise no serious doubts from a competition point

of view. Another fundamental consideration here is the principle of the

"one-stop shop", which means that a merger is considered once, at Community

level, and that firms do not find themselves having to approach a number of

different authorities.

8. Secondly it is likewise vital that mergers should not be allowed to

establish dominant positions in the Community, with the holders of such

positions no longer exposed to sufficient competitive pressure. They would

not then need to pass on to consumers the benefit of the increased efficiency

secured through the merger; instead they could exploit consumers' new

dependence on them. In such cases the Commission must be able to take the

measures necessary to maintain a competitive market structure in the

Community, which is the only way of ensuring that the beneficial effects of

the single market materialize in practice.

9. This was the second full year of Community merger control, and for the

most part the Commission continued with the policy followed in 1991. In the

great majority of cases a decision not to oppose the merger was taken at the

first stage in the procedure. It did not happen, as it had the previous

year, that the original plans could not be adjusted satisfactorily and a

decision to prohibit the merger had to be taken. There were in fact more

cases in which the plans notified were amended in accordance with

Article 8(2) of the Regulation in order to allow a favourable decision to be

taken. This is a welcome development from the point of view both of the

Commission and of business, since it produces a result which is at the same

time in the interests of competition and acceptable to the firms involved.

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1.1.§2. 5

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**15**

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The conditions which the Commission imposed consisted mainly of obligations

either to sell off part of the new group which the merger would create or to

withdraw from particular markets where the new group would enjoy a dominant

position. The Commission's objective was always to maintain a competitive

 structure on the relevant markets by preventing the establishment of a

 dominant position. This made it necessary to ensure proper market access for

 existing or potential competitors.

 10. There were several cases which presented novel aspects of some

 importance in the development of Commission merger control policy. The

Mannesmann/Hoesch case is of special interest: the Commission there allowed

 the establishment of an enterprise holding a very significant share of a

 national market, because it was clear that the position would be only a

 temporary one given that Community directives liberalizing the market were to

 enter into force very rapidly. The case provides an example of the need to

 take a dynamic view of markets; analysis may reveal that a market which at

 present is still a national one is likely to become a Community market in the

 near future. This approach allows account to be taken of the probable

 developments which firms themselves seek to anticipate, and of those

 developments' probable impact on the firms.

 11. The Commission considerably clarified the scope of its merger control

 powers in its decision in the Nestlé/Perr ier case, where it stated the

 principle that the purpose of the Regulation, which was to maintain

 competitive structures, required that the Commission be able to prevent the

 creation or strengthening not just of a dominant position held by a single

 firm but also of a dominant position held jointly by a number of firms. Thus

 the Commission has power to prevent restrictions of competition resulting

 from the creation or strengthening of a duopoly or oligopoly.

 12. The first two legal actions challenging merger control decisions have

now been brought before the Court of First Instance.

 13. Cooperation between the Commission and the authorities of the

Member States was satisfactory, with regular and close contact being

maintained between them.

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1.1.§2. 6

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**16**

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Another significant development came in the Steetley/Tarmac case.* [3] ) The

 Commission for the first time agreed to refer aspects of a case to the

 national authorities on the ground that the relevant markets and the

 Implications of the transaction were clearly confined to parts of the

 territory of a Member State. The case was an exception in that the market

 affected was clearly limited to certain areas in the United Kingdom. At the

 time the Regulation was adopted both the Council and the Commission

emphasized the exceptional nature of this procedure. The German authorities

 too made a request for referral in the Mannesmann/Hoesch case. The

 Commission implicitly refused that request when it initiated proceedings and

 subsequently took a final decision in the case.

 14. There will doubtless be further important developments in 1993, when the

 first review of the Regulation is to take place. The Regulation provides

 that the thresholds above which it is applicable and the mechanism for

 referral to the Member States are to be reconsidered. When the Regulation

 was adopted both Council and Commission commented that they were prepared to

 consider the method of calculating the turnover of joint ventures which is

 provided for in Article 5(5) of the Regulation, and possible inclusion of

 factors other than turnover. The Commission is preparing proposals.

 15. The business interests concerned are generally satisfied at the way

 merger control has been handled by the Commission. The Commission is also

 pleased to note that on the whole the application of the Regulation aroused

 less controversy this year than it did in 1991. In the Commission's view

 this shows that there is growing acceptance of its own position that the

 essential objective of merger control must be the maintenance of a

 competitive market structure in the Community, because a competitive

 structure is vital to any improvement in the competitiveness of Community

 (3) Another point to note here is that on 30 November the Commission
    received the first request made by a Member State under Article 22 of
    the Regulation, which allows a Member State to ask the Commission to
    look into a transaction which does not have a Community dimension in
   order to establish whether it creates or strengthens a dominant position
   on the market of that Member State (British Airwavs/Dan Air. OJ C 328,
    12.12.1992, p. 4 ) .

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1.1.§2. 7

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**17**

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 industry. An improvement of this kind is the main priority of Community

 industrial policy, and is crucial to success in other Community policies such

 as social and regional policy.^ [4] )

 (4) Twenty-first Competition Report, point 45.

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1.1.§3. 8

 <T4> §3. State aid

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**18**

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16. The main developments in the state aid field this year can be summarized

as fol lows.

<T5> Strict control

17. The Commission continued to exercise very strict control of state aid as

the establishment of the single market progressed. A single market will make

sense only if customs barriers and other trade restrictions are not replaced

by increased state aid. The Commission continued its policy of eliminating

general schemes of aid to investment, for which the Treaty offers no

Justification, and taking a very tough line on schemes targeted at particular

industries, which produce particularly acute distortions of competition.

Like the Commission's established principle that regional aid should be

concentrated in the regions which really justify it, and not granted in rich

areas, this policy contributes to the Community's economic and social

cohesion. The Third Survey on State Aid in the European Community, which was

adopted this year, gives the Commission an overall picture of the effects of

its state aid policy. It also allows the Commission to set priorities for

the areas of work on which it will have to concentrate over the next few

years.

The Commission made full use of the Treaty provisions dealing with state aid

and of the rules developed in the Judgments of the Court of Justice. It

initiated the full inquiry proceedings provided for in Article 93(2) of the

Treaty wherever a measure appeared on initial examination to be incompatible

with the common market, or where the information supplied was insufficient,

or where it had proposed appropriate measures to a Member State and the

Member State refused to accept them. The Commission also invoked

Article 93(1) in order to ask Member States to amend schemes it had

previously approved. It brought proceedings before the Court of Justice

under Article 169 of the Treaty in cases of failure to comply with earlier

court judgments in state aid cases. It took one decision requiring that

payment of aid be suspended in line with the Court of Justice's Judgment in

Boussac. It began applying the communication on public undertakings in the

manufacturing sector which it published on 18 October 1991.

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1.1.§3. 9

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**19**

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The Commission gave special attention to aid measures which had not been

 notified. As in the past it took up with the Member State concerned any

cases where it learned from the press or from Parliamentary questions that

 state aid had been granted without the advance notification required by

Article 93(3) of the Treaty. It also looked into complaints sent to It by

Member States, by local and regional authorities, or by firms or trade

associations. Such complaints are being made more and more often; they

demonstrate the growing interest in the question of state aid among the

parties concerned, and the confidence they are prepared to place in the

Commission. In response to such complaints the Commission has had to look

 into areas of manufacturing or services not really explored hitherto and to

 intensify the supervision of assistance given by local authorities.

The international dimension of the control of state aid must also be

mentioned here. This aspect was reflected in the Draft Treaty on the

 European Economic Area, which was signed this year; under the Treaty the

 EFTA Surveillance Authority is to have powers similar to those of the

Commission, and the two institutions are to cooperate. The Interim

Agreements concluded on 1 March 1992 with Hungary, Poland and the Czech and

Slovak Federal Republic also contain provisions on state aid. The Commission

examined one individual case of aid to the motor industry in Austria; after

discussion with the Austrian authorities the level of assistance was

significantly reduced.< [5] )

<T5> New aid codes

 18. If there is to be strict control of state aid there must necessarily be

clear rules defining the types of measure which will qualify for exemption

under Article 92(2) and (3). The Commission has set out rules of this kind

 in the form of codes, now always published in the Official Journal, which

provide governments and firms with guidance on the approach which the

Commission intends to take in determining whether aid is compatible with the

common market.

 (5) See point 344 of this Report.

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1.1.§3. 10

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**20**

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 A particularly important code which was adopted this year was the Community

 Guidelines on State Aid for Small and Medium-sized Enterprises (SMEs). These

 guidelines, which will be considered in more detail elsewhere in this

 Report,(6) define what is meant by an SME and distinguish between different

 types of assistance by their form and purpose. Other codes adopted were the

 new Code on Aid to the Synthetic Fibres Industry^ [7] ) and the Community

 Guidelines for the Examination of State Aid in the Fisheries and Aquaculture

 Sector;( [8] ) the Commission decided not to amend the Community Framework for

 State Aid to the Motor Vehicle Industry.( [9] )

 The Commission made progress in the study of possible new codes, or

 amendments to existing ones, dealing with aid towards capital-intensive

 investment, aid for rescuing and restructuring firms in difficulty, aid in

 connection with export credit insurance, aid towards environmental

 protection measures and aid to the tourist industry. A new decision

 establishing Community rules for aid to the coal industry was submitted to

 the Council for its assent.

 The synthetic fibres and motor industry codes are designed mainly to provide

 guidance for the examination of individual cases in which aid is to be

 granted under regional schemes; the Commission plans to review the

 usefulness of these two codes should a code on aid to capital-intensive

 investment be approved.

 <T5> Control of aid in the former GDR

 19. The Commission took a large number of decisions on aid measures in the

 former German Democratic Republic, which comprised both regional measures

and individual projects in industries such as steel, shipbuilding, motor

vehicles and synthetic fibres. It took full account of the socio-economic

situation in the regions concerned, which was a consideration particularly

 relevant to regional aid and the steel and shipbuilding industries. But it

did not hesitate to apply the rules in force and to initiate investigation

proceedings where necessary.

 (6) See points 78, 342 and 348.
 (7) See point 401 of this Report.
 (8) See point 510 of this Report.
 (9) See point 405 of this Report.

```

```
1.1.§3. 11

```

**21**

```
 The Commission adopted a decision on the activities of the privatization

 agency, the Treuhandanstalt. The decision is intended to ensure that the

 Commission is informed of certain measures planned by the agency and can thus

 form an opinion. The measures involved consist of loans and guarantees

 granted by the Treuhandanstalt to firms before privatization; the conditions

 of sale of groups of previously independent companies; compensation awarded

 to former owners repurchasing their firms, where it falls outside the scope

 of ordinary law; and sales at "negative prices". The obligation to notify

 is to apply only to fairly important cases; the Commission will deal with

 cases within specified deadlines which are shorter than those which normally

 apply. [(10) ]

 <T5> Exemption from notification requirement for certain

              aid measures of minor importance

 20. The Commission decided that aid schemes which did not permit the grant

 of more than ECU 50 000 to one firm over a period of three years need no

 longer be notified. For a fuller account see Chapter V of this Report.

 (10) See point 349 of this Report.

```

**i.i.§4.** **12** **2 2 .**

```
 <T4> §4. Special or exclusive rights

 21. The policy of restricting monopolies has its basis in Article 90 of the

 Treaty, which states that competition law is to apply to "public undertakings

 and to undertakings to which Member States grant special or exclusive

 rights". The same goes for "undertakings entrusted with the operation of

 services of general economic interest... in so far as the application of such

 rules does not obstruct the performance, in law or in fact, of the particular

 tasks assigned to them". Even then, "the development of trade must not be

 affected to such an extent as would be contrary to the interests of the

 Community".

 22. Tackling monopolies is without any doubt one of the most fundamental

 challenges in competition policy. This is particularly true in the

 production and distribution of gas and electricity, in telecommunications,

 and in postal services. But the basic problems are the same in financial

 services or transport, where there are barriers to market entry as a result

of national or local rules and regulations, and where access to networks or

other vital facilities can be difficult. A broad outline of Commission

policy is given here while the particular sectors are dealt with

 individually in Chapter II.

 23. In most of these areas there have for many years been monopolies

operating extensive networks under a public service obligation which

requires them to supply basic services across all or part of the territory of

a Member State. The rules of the Treaty, the demands of the single market

and legal, economic and technological factors all call for a review of this

form of organization.

24. The existing form of organization is based on a market divided along

national lines and is therefore intrinsically incompatible with the Community

competition rules, something which has become steadily clearer in the

judgments of the Court of Justice. It is a structure which will often

facilitate the abuse of a dominant position. It restricts freedom to supply

services and the free movement of goods. It is often accompanied by

discrimination on grounds of nationality.

```

**`1.1.§4.`** **`13`** **23**

```
 25. Furthermore, the sectors involved are of vital importance to the quality

of infrastructures in the single market. If Community businesses and

 consumers are to draw full benefit from the single market the regulated

 sectors must be made to match the scale of the single market in order to

maximize the potential efficiency gains. Yet that result can be achieved

only by establishing a competitive environment throughout the Community which

will boost the volume and variety of supply and demand. The process of

establishing a single market must encompass areas such as energy, posts and

 telecommunications. The competitiveness of the whole of the Community

economy is at stake.

 26. These industries are at the same time going through a period of

exceptional structural change, induced especially by technological progress.

One result has been that in most cases consumers are demanding more and more

diversified services, far more complex than the basic services which

monopolies were traditionally expected to supply. The capital needed to

modernize these industries has increased in proportion, at a time when the

resources available from public budgets have been falling, and this has

prompted the authorities to seek to bring in private capital. In some cases

technological progress has actually done away with the original Justification

for the monopoly.

The Commission has a duty to take steps to identify the sectors concerned and

to ensure that an open and competitive environment prevails to the full

extent required by the Treaty. Clearly the Commission has to balance the

general requirements of the Treaty against the arguments which may be put

forward in Justification of a monopoly, such as security of supply or the

maintenance of a universal public service, and it has to do so in the light

of the principle of proportionality. But the Commission feels that the

concepts invoked have now to be viewed not just in the national perspective

but in a Community perspective too.

These imperatives do not necessarily conflict with free competition: indeed

the relationship is more likely to be complementary. An example is the

desirability of a universal service, which by definition ought to be

available to everyone throughout the Community: the service will be less

```

```
1.1.§4. 14

```

**24**

```
 expensive and its quality will be higher if there is competition to stimulate

 technical progress; this is particularly so because the introduction of

 competition into a regulated sector often leaves the old monopoly operator

with part of its activity exposed to free competition while the rest, the

 universal service proper, continues to be its own reserved domain. But it is

obliged to improve its efficiency in the competitive sector, and this can

 have beneficial effects in the monopoly section of its business. Thus

 competition can benefit a universal service rather than damage it. This is

 especially important in outlying regions of the Community, and consequently

 for the achievement of economic and social cohesion.

 27. Some of these sectors rely on networks whose establishment and

maintenance require substantial investment; new market entrants must have

 access to these networks if real competition is to be possible. Free access

 to the network by outsiders is therefore a constant objective in Commission

 policy. Access must be fair: account has to be taken both of the costs

 borne by the operator of the network and of the new entrant's need for a deal

which allows him to be competitive; the difficulty is rendered more acute by

 the fact that the new entrant will often be in competition with the network

operator himself, which creates a need for proper clarity in the structure of

 the operator's costs. State aid policy and the prevention of the abuse of

 dominant positions must combine to help ensure fair market access.

 28. To ensure wide consultation in which all interested parties will have

 the opportunity to make their views known before any action on the

Commission's part, the Commission published a review of the situation in the

 telecommunications services sector,( [11] ) a communication on the

 telecommunications equipment industry,( [12] ^ and a Green Paper on postal

services.( [13] ^ The basic question in these sectors is how to arrive at

solutions which restrict competition and the fundamental freedoms of

 (11) SEC(92)1048 final.

 (12) SEC(92)1049 final.

 (13) C0M(91)476 final.

```

```
1. I .§4. 15
```

**25**

```
solutions which restrict competition and the fundamental freedoms of

Community law as little as possible, while at the same time preserving a

public service. A study has been launched of the accountancy problem in

 firms which operate both in reserved areas and in competitive ones.

 29. In a Judgment dealing with telecommunications services the Court of

 Justice confirmed earlier precedent allowing the Commission to take necessary

measures in this sphere. [14 ]

14 See point 333 of this Report

```

```
1.ll.§1. 1
```

_**"Ko**_

```
 <T2> Chapter II: Application of the competition rules

                 to particular industries

 <T4> §1. Posts and telecommunications

 30. Posts and telecommunications resemble one another in that they have both

 for a long time been protected from competition by monopolistic structures,

 and with the arrival on the market of new competitors and new services in

 recent years they have both been going through a far-reaching process of

 development. The Commission believes there is every reason to encourage

 these changes.

The influence of technological progress is growing: this has considerably

 broadened the range of services on offer, and has helped to render some

 national monopolies obsolete.

 <T5> Telecommunicat ions

 31. The need to maintain a balance between liberalization and harmonization

 is central to the Commission's approach in this sector. [1] Efforts to

harmonize telecommunications equipment and services are thus going ahead

alongside efforts at liberalization.

32. Here too the Commission is trying to establish a competitive environment,

which should substantially broaden the range of services on offer to

consumers and at the same time ensure that prices reflect the lower costs

engendered by competition and technological progress. The Commission

believes that this objective is compatible with the maintenance of a public

service accessible to all, and indeed that the two sets of requirements can

complement one another. This objective is equally compatible with those of

economic and social cohesion as long as the conditions expressed in paragraph

26 are present.

33. Several major steps have already been taken under this overall policy.

The Council has approved harmonization measures in respect of open networks,

and the Commission has so far adopted two liberalization directives dealing

respectively with terminal equipment and telecommunications services. The

   See point 511 of this Report.

```

```
1.ll.§1. 2
# **_n_**

 Court of Justice has broadly upheld the lawfulness of these two directives,

which had been contested by some of the Member States; the Judgment in the

 second case came this year. [2 ]

 Following the directives on open network provision (ONP) and

 telecommunications services, the Commission published a review of the

 situation in the industry. [3] The Services Directive requires the abolition

of exclusive rights in telecommunication services, with stated exceptions,

 such as voice telephony provided to the general public. The review considers

 the present situation with regard to these exceptions, and puts forward

proposals for further action. It notes in particular that prices continue to

be high, particularly for cross-border calls; the price of a call between the

same two places varies depending on which place the call is made from, and

 this is causing growing deflection of traffic; and the range of services and

prices offered is limited.

34. The review concludes that of the available options the one which at this

stage seems to conform most closely to the fundamental objectives of the

Community is that of opening voice telephony between Member State to

competition. That would allow the current price anomalies to be eliminated,

without compromising the financial resources available to telecommunications

organizations to meet their universal service obligations. The fact that

these organizations would be exposed to competition in a segment of their

business would increase their overall capacity to optimize their cost

structures; and this should reduce the cost of supplying a universal service,

so that the universal service can grow in volume, as has already happened in

those countries which have made most progress towards liberalization.

35. The Commission also adopted a communication on the telecommunications

equipment industry, which shows the benefit to the industry of the

liberalization of services arid market expansion which would ensue. [4] For this

to happen there must be continued progress towards the achievement of a

single market, through harmonization and liberalization; liberalization would

also take in state aid and government procurement.

2 See point 333 of this Report.

3 1992 Review of the Situation in the Telecommunications Sector

   (SEC(92)1048 final).

4 The European Telecommunciation Equipment Industry: the State of Play.
   Issues at Stake and Proposals for Action - Communication from the
   Commission (SEC(92)1049 final).

```

```
1.ll.§1. 3
#### **28**

 36. in 1993 the Commission will be continuing the wide-ranging process of

 consultation initiated in the review and communication Just referred to by

seeking the views of the many interested parties. It will be devoting

particular attention to ensuring that the legislation already adopted is in

 fact implemented.

 37. Current developments clearly show that the competition dimension is a

 vital component in a Community telecommunications policy based on a balance

between liberalization and harmonization. The establishment of a genuine

common market in telecommunications, in which the competition rules are

properly applied and in accordance with the objective of economic and social

cohesion, will permit an expansion of the market and an improvement in

quality which will benefit producers and consumers wherever they may be in

the Community. The policy also has an international aspect. The Community

 is seeking to have the same principles applied in its dealings with

non-member countries, and to have their markets opened up in the same way as

 its own.

<T5> Postal services

38. The commission this year published a Green Paper intended to launch a

debate on measures which might be taken in respect of postal servi ces. [C 5 ) ]

The fundamental objective is to achieve first-rate postal services which are

better able to meet users' needs and the demands of a single market. The

Green Paper suggests a series of harmonization and liberalization measures.

 It envisages the liberalization of express delivery services, the delivery of

publications, direct mall, and cross-border post.

39. The Green Paper emphasizes the need for a universal service, a concept

which has still to be defined. The Commission accepts that certain services

could go on being reserved to monopoly organizations. But the business thus

reserved should never be more extensive than it needs to be in order to

ensure that a universal service can be provided, it could be defined by

applying precise tests which give all the interested parties the legal

certainty they need to be able to invest and compete on the market. It will

be equally necessary to consider if the measures concluded on the basis of

the 'Green Book' take fully into account the objective of economic and social

cones i on.

 (5) See point 512 of this Report

```

**`1.ll.§1.`** **`4`** _**<2q**_

```
 40. The Green Paper also draws attention to the advantages of better

 harmonization of postal services in the Community; this will require active

 participation on the part of users, operators and the national regulatory

 authorities, particularly with a view to technical harmonization and the

 improvement of services to users.

41. With regard to state aid, the Commission began a careful re-examination

of two complaints which had been lodged with it by competitors of La Poste,

 the public body that provides postal services in France; the complaints

concerned the transport of valuables in armoured vehicle and express delivery

services.6 The main allegation was that there was state aid to La Poste's

monopoly business which ultimately benefited the sections of its business

exposed to competition. The Commission's initial decisions were challenged

 in court, and this demonstrates the importance of the question, which must

necessarily arise wherever the same organization is carrying on a monopoly

business alongside other activities which are open to free competition:

following the Green Paper, the Commission has taken up the two cases again.

   See point 438 of this Report

```

```
1.11.§2. 5

 <T4> §2. Financial services

```

**30**

```
42. Financial services have traditionally been heavily regulated by

government. In some Member States outside firms have had a strong

competitive presence, but in others competition, and particularly outside

competition, have played only a marginal role. Community integration has

advanced very little. There are substantial changes ahead. The Directives

adopted this year,( [7] ) coming on top of the legislation already approved,

mean that here too the single market is imminent, and will shortly be

widening the range of services available to consumers while significantly

increasing openings for market participants.

43. Because more intense competition will now be possible in financial

services it is essential that the Commission should exercise greater

vigilance in its efforts to apply the competition rules, thereby ensuring

that restrictive agreements between firms or the grant of unlawful state aid

do not prevent competition from springing up and thus thwart the beneficial

effects of the single market.

44. The Commission has been active in various sectors. It continued its

investigations into interest rates, where it concluded its study of the

replies to its requests for information of the previous year. Certain

agreements were abandoned or amended as a result, and a statement of

objections was sent in one case.

The Commission's current priority in the banking sector is the question of

payment cards, an area which is in rapid expansion and is of great importance

to traders and consumers. The antitrust authorities in different

Member States have adopted strongly divergent solutions, making Commission

intervention especially appropriate here. Problems identified so far include

the usual matter of agreements on interbank commissions and that of the

(7) The Third Non-life Insurance Directive, Council Directive 92/49/EEC of

   18.6.1992, OJ L 228, p. 1, and the Third Life Assurance Directive,
   Council Directive 92/96/EEC of 10.11.1992, OJ L 360, p. 1.

```

```
1.11.§2. 6

 trader's freedom to pass commissions on to customers.

```

**31**

```
45. But the Commission is by no means opposed to all forms of cooperation

between firms in this area, provided they satisfy the tests for exemption

laid down in Article 85(3) of the Treaty. This is demonstrated, for example,

by the block exemption regulation for insurance agreements which it adopted

this year.* [8] ) The regulation exempts categories of agreement covering a

number of aspects: the calculation of "pure" premiums, that is to say the

pure statistical cost of the risk, excluding expenses and profit; the

establishment of standard policy conditions; the formation of co-insurance

and co-reinsurance groups; and security devices.

46. The Commission is currently investigating several complaints against

state aid in postal banking services and public credit institut ions. [(9)] It

is giving particular attention to the extent to which the special rules

governing the organizations operating here might in some cases tend to

generate state aid. The Commission will probably be making its findings

known in the course of 1993.

47. The Commission this year adopted one of its first state aid decisions

concerning the banking sector. It applied the principle of the private

investor operating in normal market economy conditions to the

recapitalization of the Banco di Sicilia and of the Centrale di Risparmio

("SiciIcassa").( [1] °) It initiated proceedings under Article 93(2) of the EEC

Treaty against Italian tax measures specifically for banks and insurance

companies in Trieste.* [11] ^

(8) Point 274 of this Report.
(9) Point 439 of this Report.
(10) Point 440 of this Report.
(11) Point 498 of this Report.

```

```
1.11.§2. 7

```

**32**

```
 48. These developments show that as the single market brings the terms of

 competition more closely into line, state aid policy is of growing relevance

 in areas where it has not intervened in the past. They also illustrate the

 importance of the role which competition policy in general can play in

 opening up markets, particularly at the present time, when the single market

 is spreading to new sectors.

```

```
1.I I.§3. 8

 <T4> §3. Energy

```

**33**

```
49. Energy is an industry which has for long been shielded from competition,

and the results run counter to the establishment of a single market:

consumers are generally dependent on monopoly producers or distributors, or

both; they are not offered any choice in the matter. Yet greater choice in

all areas of economic activity is one of the objectives of the single market.

Complaints are becoming more frequent, which is a factor the Commission

cannot ignore. There is a failure to make the best possible use of

production and distribution infrastructures, and this damages the

competitiveness of the Community economy as a whole. There continue to be

substantial price gaps between Member States, illustrating the absence of a

Community market here.

The Commission is determined to continue with its policy of liberalizing the

energy market, in order to create a competitive environment which will

generate efficiency gains to the advantage of both consumers and producers.

It is well aware of the concern which is being expressed regarding security

of supply and the maintenance of a public service accessible to all. The

Commission remains convinced, however, that the application of the

competition rules will make for better security of supply, by increasing the

number of suppliers on the market, and that public service obligations can be

met in a way compatible with the Treaty. Both of these concepts have in any

event to be looked at in a Community context rather than a purely national

one.

50. The proposals which the Commission put forward this year under

Articles 57(2), 66 and 100a with a view to the achievement of a single market

in gas and electricity( [12)] are still the subject of a wide-ranging debate,

and the Commission is currently studying the conclusions which can be drawn

from discussion in the Council. The main objectives of the proposals are to

abolish exclusive electricity generation rights; to create an open and

non-discriminatory system for the grant of licences for the construction of

electricity and natural gas lines; to apply the concept of "unbundling",

(12) Proposal for a Council Directive concerning common rules for t he
   internal market in electricity and proposal for a Council Directi.^ ve

   concerning common rules for the internal market in natural gas, OJ C 65,

   14.3.1992.

```

```
,.„.|3.. 3 4

under which vertically-integrated enterprises are required to have

 production, transport and distribution handled by separate divisions with

 separate accounts; and to require transmission and distribution companies to

 allow outside access to their networks at a reasonable price (access would

 have to be available to large industrial consumers and distribution companies

under certain conditions), subject to the availability of capacity. Access

 is vital to an increase in competition in both sectors, because new

 competitors cannot enter the market without it. At the Council meeting on

 energy held on 30 November there was an intense policy debate on the

 Commission proposals. The Council decided to continue the debate on the

 single energy market and to work towards more open, transparent, efficient

 and competitive electricity and gas markets. It asked the Commission to

 amend its proposals in the light of the Council discussions and of

Parliament's opinion, which is expected at the beginning of 1993.

The question of market access also underlies the proposal for a directive

under Articles 57(2), 66, 100a and 113 on the conditions for granting and

using authorizations for the prospection, exploration and extraction of

hydrocarbons. [13 ]

51. In putting forward these proposals inter alia under Article 100a, the

Commission expressly reserved the right to exercise the powers conferred on

 it by the Treaty, and particularly by the competition rules. Thus the

Commission initiated infringement proceedings against certain Member States

regarding exclusive import and export rights, and also acted in the case of

the independent generator Société Hydroélectrique de Grangeviei I le. [14] The

Treaty rules on the free movement of goods are applicable too: there was an

example in the Corami ne case, which concerned a dispute between Electricité

de France and Coramine regarding certain clauses which Electricité de France

had included in its contracts. The Commission there put forward the view that

13 See 0J C 139, 2.6.1992, p. 12.
14 See points 142 et seq. of this Report.

```

```
1.11.§3. 10

```

**35**

```
exclusive transport, distribution and marketing rights for electricity could

 infringe Articles 30 to 37 of the Treaty. The case has since been settled.

 52. The Commission continues to give favourable consideration to aid measures

notified to it which are intended to promote energy efficiency, the

development of new or alternative energy sources, or the diversity of energy

supplies in the Community. It accepted the extension of the ERP scheme in

Germany,( [1] ^) the introduction of a new scheme to promote the production of

wind energy in Denmark,( [1] ®) and the grant of aid to Kraftwerke Ruhr by the

authorities in Saxony-Anhalt in Germany for the construction of a

 lignite-fired power station.< [17] > But the Commission has always taken care to

ensure that the objectives pursued do not conflict with the desire for a

Community electricity market. It insisted that the aid to Kraftwerke Ruhr be

substantially reduced from what had been proposed, and that no further aid of

 this kind be granted in Germany: by encouraging the consumption of lignite,

which is produced locally, such aid is liable to distort trade in fuel and

electricity within the Community.

 53. It is clear in any event that the energy sector is one in which there are

going to be very important developments in competition policy over the next

 few years.

 (15) See point 453 of this Report.
 (16) See point 449 of this Report.
 (17) See point 433 of this Report.

```

```
1.1 I.§4. 11

 <T4> §4. Transport

```

**36**

```
54. The Commission forcefully pursued its efforts to increase competition in

transport. Here as elsewhere the achievement of the single market requires

the establishment of structures which are competitive and consequently more

efficient. The measures taken were concerned particularly with sea and air

transport.

<T5> Sea transport

55. This year saw the first decision in a sea transport case.^ [1] **) The

Commission clearly demonstrated its determination to apply the block

exemption strictly, and showed that it would combat efforts to circumvent the

terms of the exemption, for example where liner conferences and non-member

operators concluded agreements restricting competition in a particular trade.

The decision is a first step in a vigorous policy intended to open the sea

transport market to competition. Success here is vital to the interests of

the Community; 95% of trade between the Community and the rest of the world

is carr ied by sea.

The Council this year granted the Commission powers to declare a block

exemption for consortia, and the Commission began drafting a regulation.

Consortia are a modern form of cooperation between liner shipping companies

in which users receive a fair share of the benefit alongside the companies

themselves. They enable shipowners to organize their services jointly, which

gives users a better-quality service and allows the shipping companies to

rationalize their activities.

56. The Commission studied the desirability of amending the rules on aid to

shipowners. In line with discussions in the Council it continued to work on

the establishment of a Community shipping register.

57. In several individual cases dealt with under Article 86, or under

Article 90 in conjunction with Article 86, the Commission sought to ensure

(18) See points 147 et seq. of this Report

```

```
1.11.§4. 12

```

**37**

```
 that the competitive environment would extend to access to ports and port

 services,( [19] ) an aspect essential to free competition on the market in sea

 transport services. This objective also requires a vigilant policy on state

 aid. Financial relations between public authorities and the ports are

 generally lacking in transparency.

 <T5> Air transport

 58. The year 1992 also saw the adoption of the "third package" of measures to

 liberalize air transport.< [2] °) The package sets out to create a single market

 by 1 January 1993. There are to be exceptions, and a transitional period,

 but a solid start has none the less been made in the shape of the greater

 freedom airlines now have to set fares, and the freedom they will very soon

 have to offer their services throughout the Community.

 59. Among the advances included in the third package there is an extension

 of the Commission's powers to apply the Community competition rules to air

 transport inside a single Member State. The Council also authorized the

 Commission to declare block exemptions in air transport beyond the date of

 31 December 1992.

 The problem which still has to be resolved here is that of market access for

 new entrants, which can be rendered impossible by traffic congestion at

 certain airports. The Council adopted a regulation which will increase new

 entrants' chances of obtaining worthwhile slots at saturated airports.< [21] )

 60. The benefits of a single market must not be nullified by anti-competitive

 agreements between firms or by the abuse of dominant positions; both impose

 restrictions on competition which in practice take over from those which

 liberalization seeks to remove. Merger control also has a role to play here.

 The increase in competition is generating an increase in restructuring

 operations, which must not be allowed to establish new dominant positions.

 (19) See points 219 and 525 of this Report.

 (20) OJ L 240, 24.8.1992.
 (21) Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for
    the allocation of slots at Community airports, OJ L 14, 22.1.1993.

```

```
1.1 I.§4. 13

```

**38**

```
 61. One of the Commission's next policy objectives will be to extend the

 application of the competition rules to relations with non-member countries.

 62. If it is to have its full effect liberalization must be accompanied by a

 vigilant state aid policy. The Commission sent the Council and Parliament a

 report on measures to assist Community airlines. In addition, the

 Commission had to consider an increase in the capital of Air France, through

 the issue of convertible bonds and subordinated debt securities with no fixed

 maturity; it found that the measures were in line with ordinary commercial

 practice and that no aid was involved. The Commission also approved the

 increase in the capital of Iberia, which it considered compatible with the

 common market in view of undertakings given by the Spanish Government

 regarding the restructuring of the company.

 <T5> Road transport

 63. Lastly, the Commission initiated proceedings under Article 93(2) of the

 EEC Treaty in respect of aid to Italian road hauliers. The decision was

 deemed necessary given the liberalization of the road transport market from

 1 January 1993 onward.< [22] )

 (22) See point 500 of this Report

```

```
1.1 I.§5. 14

 <T4> §5. Cinema and television

```

**39**

```
64. The cinema industry is one in which the Commission has taken a

sympathetic approach to state aid, particular in the light of the cultural

policy being pursued by the Community. But the decisions taken in recent

cases have made it clear that the special nature of the industry will not

prevent the Commission from checking whether any aid granted is in accordance

with the various branches of Community law, and whether it is liable to

interfere with competition.

65. The Commission this year took two decisions dealing with the French and

German schemes of assistance to the cinema and television industries, in

which it confirmed that it will not approve aid which does not comply with

the fundamental principles of Community law, and particularly the principle

that there is to be no discrimination on grounds of nationality.< [23] ) The

Commission had initiated proceedings under Article 93(2) of the Treaty in

respect of the German scheme, which provided for example that aid could be

granted towards the making of a film only if the director was of German

nationality or from a German cultural background. The German authorities

subsequently amended the legislation. The French scheme was likewise

examined closely in this respect.

66. The two decisions concerning France^ [24] ) show how competition policy

considerations can apply in the cinema and television industry. The

Commission held that a capital injection into Société Française de

Production, which produces films and television programmes and provides other

related services, constituted state aid, on the principle of the private

investor operating under normal market economy conditions; but the

Commission concluded that the aid was compatible with the common market,

because it was linked to a restructuring plan which was likely to produce a

financially viable company. With regard to the overall aid scheme for the

cinema and television industry, the Commission indicated that it would be

(23) See points 442 and 444 of this Report.

(24) See points 443 and 444 of this Report.

```

```
1.I I.§5. 15

```

**40**

```
 carefully monitoring a clause under which a French television channel which

 had contributed to the support fund was to have the first broadcasting rights

 in a subsidized work. The Commission took the view that the clause was

 liable to restrict trade in television productions between the Member States.

```

```
1.lll.§1. 1

 <T2> Chapter III: Competition policy and

                other Community policies

```

**41**

```
67. Competition policy is a vital dimension of several Community policies.

It can make a decisive contribution to the achievement of their objectives.

Application of the competition rules will prevent companies and governments

from behaving in ways which in practice reconstruct the barriers the

Community is trying to remove.

But competition policy is not purely a matter of dissuasion or punishment.

The mechanisms of competition have an indispensable role to play in

facilitating dynamic developments such as the adaptation of the productive

system to environmental requirements, the involvement of SMEs in the single

market, or progress towards economic and social cohesion. It is competition

which gives consumers a fair share of the benefits of the single market.

<T4> §1. Completion of the internal market

68. The completion of the internal market is the result of a combination of

Community policies. The removal of borders has to be understood in a very

broad sense. It refers not just to physical barriers but also to differing

technical standards, tax barriers, or restrictions on access to public

contracts. The removal of borders is not an end in itself; it is intended to

clear the way for the growth of the Community economy, which will benefit

firms and households alike. The process has to be monitored in order to

ensure that its benefits are felt throughout the Community and that small and

medium-sized enterprises play a full part.

69. There is a growing consensus that the benefits of the single market will

be real and durable only if they are backed up by vigilant enforcement of

competition policy. The application of the competition rules prevents firms

from partitioning markets between them, cancelling out the positive impact of

```

```
1.1 II.§1. 2

```

**42**

```
 integration by establishing new barriers whose effect is identical to that of

 the government restrictions removed by the single market.

 The ban on restrictive agreements is not the only aspect of competition

 policy which is relevant. The other competition rules make their own

 contributions to market integration. This is true of state aid policy and

 policy towards the abuse of dominant positions. A dominant firm must not be

 allowed to abuse its position and to partition the common market. Where

 trade between Member States might be affected the Commission polices the

 grant of aid to firms in order to protect the single market. And it is only

 in a competitive environment that firms are constantly spurred on to innovate

 and consequently to carry out the research and development necessary to

 reduce their costs or to improve their products. This benefits the consumer,

 because the pressure of competition obliges firms to pass on their

 productivity gains. Competition also induces firms to broaden their product

 ranges and improve quality.

 70. There is one area of competition policy which deserves special mention

 here. This is the Commission's handling of distribution and licensing

 agreements. Such agreements can lead to more efficient distribution. But

 they often include territorial clauses which may have the effect of dividing

 the common market. It has been the Commission's constant practice to exempt

 such agreements only if they do not restrict trade between Member States to

 an unacceptable degree. Parallel imports must continue to be possible if the

 distribution benefits of the agreements are not to be offset by a damaging

 fragmentation of markets. The Commission confirmed its practice this year in

 decisions in the perfumery trade and in measures in respect of the motor

 trade, where as yet there is clearly no single market.

 71. The policy of deregulating monopolies also merits a remark. Subjecting

 the existing monopolies to a measure of competitive pressure, by opening part

 of their business to competition, will oblige them to improve their

```

```
1 . I I l . § 1 . 3

```

**43**

```
 efficiency, and this may be of benefit in their reserved business too. The

 result should be better services supplied at better prices, and faster

 development of infrastructures, reducing the cost of connections in terms

 both of time and of money. This should be particularly useful to outlying

 regions, because it will lower the costs occasioned by the distance between

 them and the central regions, and will thus improve cohesion. It is clear,

 therefore, that there need not be a clash between the objective of developing

 competition and the objective of strengthening economic and social cohesion,

 and that they may in fact complement one another.

 72. The contribution of state aid policy to the completion of the internal

market is evident, as state aid policy seeks to ensure that particular firms

 are not given favourable treatment which might improve their capacity to

 export or curtail imports into the Member States in which they are

 established. The disappearance of state barriers to trade in the Community

means that the distortion caused by unlawful state aid or infringements of

 Articles 85 and 86 is all the more serious, and strict control by the

 Commission is the only way of preventing damage to the operation of the

 single market.

 73. Thanks to the one-stop shop principle, which means that firms do not

 need to deal with a number of separate authorities, Community merger control

 facilitates the adaptation of industrial structures to the single market,

while preventing mergers which would produce dominant positions liable to

 compartmentalize the common market.

```

```
1. I I I. § 2 . 4

 <T4> §2. Consumer protection

```

**44**

```
74. Competition is basic to Community policy towards consumers, though

consumer policy proper relies on other more specific measures. Competition

policy may seem an abstract concept to the general public, but the benefits

it brings to consumers are nevertheless substantial. Firms are forced to

compete for consumers' favour. The single market and competition policy work

together to allow consumers to choose between the goods and services offered

by firms throughout the Community, at the best possible prices. Competitive

pressure also provides a constant stimulus to firms to innovate and to reduce

their costs in order to avoid losing their place on the market. They have to

compete both in terms of quality and in terms of prices and the product

ranges they offer.

Action to challenge the abuse of dominant positions and anti-competitive

agreements must be seen against this background. The Commission is the only

authority in a position to combat Community-scale restrictive practices whose

harmful implications for consumers are well known. The same is true of

merger control, which seeks to prevent the establishment of dominant

positions, and thus to maintain sufficient diversity on the supply side to

ensure that the consumer has freedom of choice between several actual or

potential competitors, and is not left dependent on a single dominant

enterprise. The decisions in the Nestlé/Perr ier and Air France/Sabena cases

illustrate this point very well; Nestlé/Perr ier also shows that the consumer

has to be protected not only against the dominant position held by a single

company but also against those established by several companies together.

The need to maintain diversity of supply likewise guided the decision in

ICI/Du Pont. which makes it clear that the party whose choice is to be

preserved need not necessarily be the final consumer but may also be an

intermediate purchaser or producer.

The practical contribution made by competition policy to the integration of

markets, and thus to freedom of choice for consumers, can be illustrated by

three examples. Firstly there is the action taken by the Commission with

regard to interest rates, where it requested information which helped it to

```

```
1.lll.§2. 5

```

**45**

```
 check whether restrictive agreements were being applied by banks or other

 financial institutions, preventing consumers from obtaining the best possible

 rates. [(1] >

Another area where Commission action is of evident interest to consumers is

 the motor trade, where following a report on car prices in the different

Member States the Commission reminded manufacturers of their obligation to

guarantee the consumer's freedom to buy the vehicle of his choice wherever he

wishes in the common market.< [2] )

 In the third place there is the area of exclusive rights. In some basic

 sectors there are monopoly rights granted by Member States which prevent the

 single market from having any practical impact, and leave households and

 firms with only a restricted choice or no choice at all. This situation is

 incompatible with the principles of market integration, and entails extra

 costs which are ultimately borne by the consumer whose choice is restricted.

 It is all the more serious as the sectors involved are basic sectors of which

 all consumers make considerable use.

 The same is true of transport, by land, sea or air, where the Commission is

 trying to intensify competition in order to increase the diversity of supply

 and to reduce prices.

 (1) See Annex IM.A.1 to this Report
 (2) See point 290 of this Report.

```

```
1.I I I.§3. 6

 <T4> §3. Environment

```

**46**

```
75. Environmental policy, formally embodied into Community law by the Single

Act, is a fundamental policy of the Community. The Article 130r which the

Single Act inserted into the Treaty specifically requires Community action on

the environment "to preserve, protect and improve the quality of the

environment." The importance attached to the environment in our societies,

and the legal constraints to which this has given rise, mean that the

environment is a major concern with considerable financial implications,

which firms have to incorporate into their cost structures, their pricing

policies, and their general strategy. It is only natural, therefore, that

there should be interaction between competition policy and environmental

questions. The Commission this year examined several aid measures aimed at

protecting the environment, and exempted them under Article 92(3)(c) of the

Treaty. Three such measures deserve to be highlighted.

   Firstly, there were two cases in which energy-intensive industries were

   to be exempt from a tax on carbon dioxide emissions, in Denmark and the

   Nether lands. ( [3] * Such a tax exemption is in line with the Commission's

   communication to the Council proposing the introduction of a carbon

   dioxide/energy tax, and the Commission decided that it constituted state

   aid compatible with the Treaty under Article 92(3)(c).

   The second example is that of a scheme to promote the recycling of

   manure in the Nether lands.( [4] ^ The Commission had initiated

   Article 93(2) proceedings against this scheme in 1991, but finally

   approved it in 1992, on condition that the variable costs of the new

   body which was to collect, store and dispose of manure were covered by

   the price paid by farmers, as the scheme would otherwise become

   operating aid to those farmers. This decision shows that the Commission

   studies the implications of environmental aid in other policy areas, and

   approves it only if it does not distort competition unduly.

(3) See point 451 of this Report
(4) See point 450 of this Report

```

```
1.1 II.§3. 7

```

**47**

```
 76. The Commission made a thorough study of the possibility of recasting the

 Community code or framework which currently governs aid towards environmental

 protection. A draft was submitted to Member States' experts at meetings held

 during the year, and the Commission believes that new guidelines can be

 approved in the course of 1993. This move comes against the background of

 the Fifth Environment Programme, which puts forward a new strategy based on

 the principle of sustainable development. The strategy is aimed at achieving

 lasting economic and social progress which respects the environment and

 natural resources, with environmental objectives forming an integral part of

 other Community policies. The thrust of the draft guidelines on aid is as

 foI Iows:

    the "polluter pays" principle would be confirmed, particularly where

    additional environmental investment by firms was undertaken in order to

    meet legal requirements: the tightening of environmental standards

    should as far as possible be achieved without financial support from

    government, and law-making should therefore proceed in stages;

    aid could be granted at low intensities to facilitate and accelerate

    adaptation to standards by firms with plant already working for at least

    two years before the new standards enter into force-,

    aid could be granted at higher levels for environmental investment going

    substantially beyond the legal requirements, or in the absence of legal

    requirements: firms should be encouraged to make an extra effort, and

    should not be penalized if they do so by comparison with those who do

    not ;

    cases of operating aid would be examined case by case, and the concept

    of "aid to promote the execution of an important project of common

    European interest" would be interpreted strictly.

 77. As far as the application of Articles 85 and 86 is concerned, it is

 clear that agreements which restrict competition continue to be prohibited by

Article 85(1) even if the parties invoke environmental protection in order to

```

```
1.11 I.§3. 8

```

**48**

```
 justify them.* [5] ) Article 85(3) may however be applicable. The tests it lays

 down must of course be satisfied; in particular, sufficient competition must

 be maintained, and the restrictions must be indispensable to the alleged

 economic benefit. Another problem arises where measures are taken by public

 authorities which might compromise the effect of the competition rules, for

 example by requiring firms to engage in behaviour which restricted

 competition. Such measures can have a very appreciable effect on competition

 and trade between Member States. In such cases the Court has held that

 Article 85 may apply, in conjunction with Articles 5 and 3(f) of the Treaty.

 The Commission takes the view that the contribution which the competition

 rules make to environmental protection will grow in importance. The

 environment is a field where legislation is expanding and technology is

 advancing rapidly. The Commission's handling both of agreements between

 firms and of the rules being applied will have to develop too. The

 Commission is continuing its study of the matter. The following general

 points must be kept in mind.

 Commission environmental policy is founded on the "polluter pays" principle;

 the effectiveness of the principle depends in particular on the proper

 operation of the price mechanism, which ought to translate into costs the

 negative effects of a particular process on the environment, so that prices

 can perform their signalling function which forms the basis of the market

 economy.

 But if this is to happen the competition rules must be applied vigorously, so

 as to avoid the conclusion of agreements or the abuse of dominant positions

 which might prevent or restrict the operation of the price mechanism.

 (5) For an example see the VOTOB case, point 177 of this Report

```

```
o

```

```
1.I I I.§3. 9

```

**49**

```
 If the price mechanism does perform its signalling function throughout the

 Community, thus enabling firms to convert the environmental cost of an

 economic activity into financial terms, competition will quite naturally

 generate the most efficient allocation of resources possible, by prompting

 businesses to reduce costs. This will benefit both the environment and the

 economy in general.

```

```
1 . I I I .§4. 10

 <T4> §4. Small and medium-sized enterprises

```

**50**

```
78. The new Community guidelines on state aid for small and medium-sized

enterprises (SMEs), which the Commission approved this year, are a

translation into competition terms of the active policy towards SMEs which

the Commission has been pursuing for many years.* [6] ^ They acknowledge the

principle that the existence of a large number of SMEs in an industry is a

sign of healthy competition, and that SMEs are an engine of economic growth,

as the European Council accepted in Edinburgh when it decided to set up the

European Investment Fund.

The Commission feels that the development of SMEs should be encouraged, and

an effort made to overcome the specific handicaps they face as a result of

their size: the guidelines therefore accept that SMEs may qualify for

investment aid even in regions which are not eligible for regional aid.

However, the intensity allowed is deliberately set fairly low, at 15% for

small enterprises and 7.5% for medium-sized ones, to avoid frustrating the

objective of cohesion.* [7] ^ Such aid is also justifiable given the more

limited impact SMEs can have on trade between Member States as compared with

that of large companies.

The Commission takes the view that SMEs need primarily to improve their

financial base, to secure access to better expert advice, to improve the

level of training among their staff, to obtain information or credit which is

normally available only to large companies, and the like; it is here that

their fundamental handicaps lie. The Commission accordingly takes a

favourable view of aid for these purposes, even at relatively high rates.

Like aid for consultancy services or aid towards the establishment of public

guarantee funds, such aid is well upstream from the market-place, involves

only small amounts of money, and has only limited effects on competition.

Research is an activity which is often beyond the capabilities of SMEs. The

Commission accordingly maintains the special clauses in the Community

Framework for State Aids for Research and Development which authorizes

(6) See also point 342 of this Report.
(7) Higher intensities may be allowed on a case-by-case basis until the end
   of 1993 in areas which are not eligible for regional aid but do qualify

   for structural measures.

```

```
1 . I I I . § 4 . 11

```

**51**

```
 higher rates of assistance for SMEs. It plans to include a comparable clause

 in the Community framework for state aid towards environmental protection.

 The Commission believes that the establishment and development of SMEs in

 areas eligible for regional aid makes a vital contribution to the development

 of those regions. It accepts that the rates of aid authorized may be

 increased by 10% in regions eligible under Article 92(3)(c) and by 15% in

 regions eligible under Article 92(3)(a), though of course the ceilings of 30%

 net grant equivalent and 75% net grant equivalent which are authorized there

 can never be exceeded.

 Schemes of assistance to SMEs existing in the various Member States are

 gradually to be adapted to these guidelines.

 79. The competition rules applying to firms take account of the fact that

 agreements which are on a small scale, as most agreements concluded by SMEs

 are, rarely restrict competition to an appreciable extent, even supposing

 that they do affect trade between Member States, something the Commission

 would have to prove. SMEs are particularly concerned by the Commission's

 efforts at transparency, and the Commission this year decided to publish a

 special brochure for their benefit.* [8] ) The Commission's 1986 Notice on

 agreements of minor importance states that agreements between firms with a

 market share of no more than 5% and an aggregate annual turnover of no more

 than ECU 200 million need not be notified.* [5] *) This means that SMEs need not

 normally notify their agreements in order to ensure that they are compatible

 with the competition rules. Several block exemption regulations, including

 some of those which the Commission amended this year,* [10] ) give more

 favourable treatment to agreements between parties whose market shares are

 below a certain threshold. In particular, the Commission clarified the

 application of the de minimis principle to beer distribution agreements.* [11] )

 The amendments which the Commission made to the block exemption regulations

 (8) To appear in the European Documentation series.

 (9) OJ C 231, 12.9.1986.

 (10) See point 265 of thise Report.
 (11) See point 301 of this Report.

```

```
1 .I I I.§4. 1 2

```

**52**

```
 in respect of R&D, specialization, patent licensing and know-how licensing 
 amendments which are intended to make it easier to take advantage of the

exemptions, particularly in the case of technology transfers and R&D projects

- contain thresholds which allow for the fact that agreements between firms

with only small market shares have a less restrictive effect on competition;

 this should benefit SMEs. Lastly, Article 86 protects SMEs against the abuse

of a dominant position by a larger competitor.

```

```
1.I I I . § 5 . 1 3

 <T4> §5. Regional policy

```

**53**

```
80. It is generally recognized that economic and social cohesion is a

necessary corollary of the single market. It is reflected in the reform of

the Structural Funds, which have now been coordinated to operate in

accordance with six precisely-defined objectives, with the monies allocated

to them doubled. Once the Treaty on European Union enters into force the

process will continue with the establishment of the Cohesion Fund, which will

assist only Greece, Ireland, Portugal and Spain, and will have a budget of

about ECU 15 000 million for the period 1993-99. The Structural Funds

themselves will be able to draw on more than ECU 161 000 million over the

same period. Mention should also be made of the financing of large trans
European networks, and of the fact that the EFTA countries are to participate

in the Cohesion Fund.

This policy is intended to enable the less-favoured regions in the Community

to take full advantage of the single market, and to prevent the single market

from widening the gap between them and the richest regions.

81. The Commission began applying the guidelines it adopted in 1991 to

ensure consistency between competition policy and the regional policy being

followed at Community level through the Structural Funds. In the framework

of the Delors II package it continued the preparation of a more coherent map

of the regions eligible for the Structural Funds and for national regional

aid schemes, with aid being concentrated geographically and differentiated in

the light of the seriousness of the problems to be overcome.

The Commission sought to reduce the scale of assistance in more prosperous

areas, taking account of the changing socio-economic situation: a good

example is the relative severity with which the Commission assessed aid in

west Berlin, where the need for aid is now debatable. The logical

consequence of this approach should be that aid will be concentrated on the

less-developed regions; it shows how a strong competition policy can help to

support economic and social cohesion.

The importance of cohesion is reflected in the introduction of a regional

component into most of the aid codes. The guidelines on aid for research,

```

```
1 . I I I . § 5 . 1 4

```

**54**

```
 and SMEs, for example, authorize higher rates of assistance in areas

 qualifying for regional aid. The same concern underlies the Commission's

 efforts to put an end to general or industrial aid schemes which are

 available without distinction throughout the territory of a Member State.

 Despite this, the Third Survey on State Aid in the Community shows that the

 share of total aid to industry accounted for by the four largest

Member States is rising by comparison with the outlying countries, and that

 the four weakest among the outlying countries give less aid to industry per

 person employed than the Community average and a good deal less than the

 central and more prosperous States. This shows that the Commission's efforts

 must be cont inued.

 Lastly, the Commission departments have begun studying the possibility of

 limiting regional aid towards capital-intensity investment, whose

 contribution to regional development is sometimes insufficient to justify

 high rates of assistance. They have also begun work on recasting and

 consolidating the rules governing regional aid, some of which date back to

 1971 .

```

```
1 .IV.§1 . 1

 <T2> Chapter IV: Community competition policy and developments

                  in the rest of the world

 <T4> § 1. Genera I

```

**55**

```
82. As explained in last year's Report (Part One, Chapter IV, point 58),

competition policy can play an important role in liberalizing trade and hence

in promoting economic integration. This is why the Community generally

negotiates the inclusion of competition rules in its bilateral trade

agreements. Because the degree of integration sought varies from one

bilateral relationship to another, the level of detail of the competition

rules included in those agreements also varies, as does the degree of

harmonization with the Community's own competition rules.

The Agreement on the European Economic Area,* [1] ) which was signed on

2 May 1992, seeks to extend the single market to the EFTA countries and thus,

in principle, to ensure between the Community and the EFTA countries in the

areas covered by the EEA the same level of economic integration as exists

within the Community. It was therefore decided that the same competition

rules and policies had to apply throughout the EEA. It was felt that this

situation even called for identical and largely parallel enforcement

structures and procedures in the Community and in the EFTA countries. The

entry into force of this Agreement had to be postponed after the Swiss

referendum of 6 December, in which the Swiss people rejected ratification of

the EEA.

The Europe Agreements with Hungary, Poland, the Czech and Slovak Federal

Republic, Romania and Bulgaria, as well as the Interim Agreements with those

countries, the first three of which entered into force during the year under

review, do not envisage the same degree of economic integration and therefore

do not contain the same ambitious competition rules as the EEA Agreement.

However, because the Europe Agreements aim at achieving greater economic

integration than the association agreements concluded with the EFTA countries

in 1972, their competition rules go beyond those contained in the latter.

One of the main differences is that the 1972 agreements do not provide for

any procedures for enforcing the principles laid down in the competition

articles, while the Europe Agreements and the Interim Agreements provide for

the establishment, by the Association Council, of implementing rules.

Another important difference resides in the fact that, unlike the 1972

(1) Twenty-first Competition Report, point 59.

```

```
1.IV.§1 . 2

```

**56**

```
 agreements, the Europe and Interim Agreements ensure in principle that the

 substantive rules applied to trade between each of those countries and the

Community will be very similar to the Community's rules.

Other bilateral relationships of the Community aim for even less economic

 integration, which is why competition rules are not as elaborate or are not

 provided for at all. In cases where existing agreements are being updated or

 renegotiated, the Commission intends to consider carefully whether

 competition provisions should be strengthened or inserted.

 At the same time, the Commission will continue to step up cooperation with

 other competition authorities, either through bilateral agreements of the

 type concluded with the United States in 1991 or on an informal basis.

```

```
1.IV.§2. 3

```

**57**

```
 <T4> § 2. Competition policy as a tool to open up trade with third countries

 83. The agreements referred to above, together with a number of others, thus

 lay down competition rules which apply to trade between the Community and

many of its major trading partners. Although such agreements do not exist

with all of the Community's trading partners, it has to be recognized that

most of its major trading partners have competition rules and enforcement

mechanisms. The existence of such rules and mechanisms both in the Community

 and in its trading partners should provide useful instruments for dealing

 with private-sector obstacles to trade between the two. The question is

 therefore not so much whether rules actually exist or the degree to which

 they cover all possible obstacles, but whether or not they are actively

 enforced. This is why emphasis has recently been placed by the Community on

 tightening the enforcement of competition rules both internationally and

 within the territories of its major trading partners.

 84. Most of the recently concluded trade agreements which contain competition

 rules are thus no longer confined to laying down principles and substantive

 rules, but also deal with the enforcement issue. This is true in particular

 of the EEA, where the EFTA Surveillance Authority will help ensure that the

 competition rules are applied throughout the EEA in much the same manner, and

 of the Europe and Interim Agreements, which allow for the establishment of

 implementing rules by the Association Council and the Joint Committee

 respect ively.

 With regard to countries with which no international competition rules have

 been agreed and where ant i-compet it ive practices will thus have to be dealt

 with on the basis of national competition rules, other procedures have to be

 fol lowed.

 One vehicle for doing this, as regards the OECD countries, is a provision

 (point I.B.4) in the 1986 OECD Recommendation on restrictive business

 practices (Sixteenth Report, point 14). This provision, now usually referred

 to as a "positive comity provision", is based on the recognition that

 anti-competitive practices in one OECD country may affect another country's

 important interests, e.g. by creating obstacles to market entry. In such a

 case, the country whose exporters are the victims of such practices can ask

 the other to apply its own competition rules in order to remedy the

 situation. The Commission would be more than happy to apply this positive

 comity principle in appropriate cases.

```

```
1.IV.§2. 4

```

**58**

```
 The Commission is seeking ways to strengthen this approach in both bilateral

 and multilateral forums. This has already led to the inclusion of a positive

comity provision in Article V of the EC-US Agreement of September 1991 on

cooperation in competition policy matters (Twenty-first Report, point 64).

Similar provisions can also be found in several draft texts now being

negotiated in GATT (services code, multilateral steel arrangement) and at

regional level (European energy charter).

Therefore, although a number of procedures exist under which the Commission

can tackle private-sector obstacles to trade with third countries, their

actual application depends on the availability of concrete and detailed

 information about such obstacles. The Commission therefore repeats the

 invitation which it made to companies at the end of point 65 of last year's

competition report and would like to extend to other persons as well as to

other countries. It would welcome information from any person about

restrictive practices in any third country which affect trade between that

country and the Community. Where the information is sufficiently detailed to

warrant action under one of the aforementioned positive comity provisions or

other rules, the Commission will be most interested in acting accordingly.

```

```
1.IV.§3. 5

 <T4> § 3. Structures in Europe

```

**59**

```
85. Generally speaking, in its relations with other countries, the Community

is seeking to establish a greater degree of economic integration in Europe

than elsewhere in the world. During the reference period, the most important

events having a bearing on competition in Europe were the signing of the

EEA Agreement, the entry into force of the agreement with Norway and Sweden

on civil aviation, the entry into force of the Interim Agreements with three

Central European countries and the membership applications received from

several European countries.

<T5> - European Economic Area

86. One of the main objectives of the EEA Agreement, apart from eliminating

private-sector obstacles to trade, is to establish equal conditions of

competition throughout the area.

The substantive competition rules in the EEA Agreement are based on existing

Community legislation.

<T6> (a) Fundamental principles

87. Monitoring and application of the EEA competition rules will be guided

by two fundamental principles: the two-pillar approach and the

"one-stop shop" principle. This means that there will be two surveillance

bodies, viz. the Commission and an independent EFTA Surveillance Authority

having equivalent powers and similar functions to those of the Commission.

In the case of restrictive practices, this includes the power to carry out

investigations and impose fines. As regards the granting of state aid, the

EFTA countries will be subject to control by the EFTA Surveillance Authority

on the basis of the same rules and procedures as those applied to Community

Member States. Each surveillance authority will examine the legality of

state aid both from the standpoint of its own territory and as regards its

impact on other territories.

```

```
1 . IV.§3. 6

```

**60**

```
 To avoid any overlapping of responsibilities, the introduction of parallel

 procedures, and the danger that the two authorities may, on the basis of the

 same facts, adopt different decisions, the EEA Agreement establishes the

 principle of the "one-stop shop". This means that, in each individual case,

 it is either the Commission or the EFTA Surveillance Authority which assumes

 responsibility for the procedure and that the decisions taken will be valid

 and enforceable throughout the EEA. This approach has considerable

 advantages for the enterprises concerned as they will not need to refer the

 same case to two different authorities both of which may have jurisdiction in

 the matter.

 88. This principle of the "one-stop shop" makes it necessary to reach

 agreement on simple and transparent allocation criteria. Such criteria are

easy to define for cases involving state intervention, such as state

monopolies, public enterprises or the granting of state aid. Here, each

 authority is responsible for "its" member states.

<T6> (b) Restrictive practices and abuse of dominant positions

89. As regards the control of restrictive practices and dominant positions,

 the allocation of cases poses no problems where the effects of a particular

case are limited to Community or EFTA territory. Such cases will be dealt

with by the authority competent for the territory concerned. Difficulties

arise, however, in "mixed" cases, which involve both territories and for

which either authority could, in principle, claim jurisdiction. Before the

Court of Justice delivered its first opinion, the solution envisaged in the

EEA Agreement was based on the turnover of the enterprises concerned.

However, following that first opinion, the allocation of responsibility had

to be modified, with the result that the Commission will be responsible for

all "mixed" cases affecting trade between Community Member States, except

where such cases have no appreciable effect in the Community. In that event,

the EFTA Surveillance Authority will be competent, provided that the

enterprises concerned achieve at least 33% of their turnover on EFTA

territory; the Commission will also deal with cases affecting trade between

```

```
1.IV.§3. 7

```

**61**

```
a Community Member State and one or more EFTA States, provided that the

enterprises concerned achieve over 67% of their EEA turnover on Community

 terr itory.

 <T6> (c) Merger control

90. The Commission will continue to act in merger control cases where the

 criteria as to turnover laid down in the Community Regulation on the control

of concentrations (Merger Control Regulation) are met by the enterprises

concerned.

However, under the EEA Agreement, the Commission will take account not only

of the situation in the Community but also of that in the EFTA countries.

Thus, in addition to the powers it enjoys under the Merger Control

Regulation, it must prohibit a merger if it results in a dominant position on

 the market solely within the territory of the EFTA countries.

Where the Commission has no jurisdiction under the above criteria, EFTA will

apply its own merger control arrangements, without prejudice, however, to the

 rights of Community Member States in this area.

<T6> (d) Cooperation between the surveillance authorities

91. The proposed system for monitoring the competition rules of the EEA

calls for close cooperation, on both state aid and restrictive practices,

between the two surveillance authorities, the Community Member States and

EFTA countr ies.

<T7> . Cooperation in respect of restrictive practices and abuse of

                  dominant positions

92. Cooperation will be necessary for the "mixed" cases and will, in

principle, cover all the stages of the procedure. The three main principles

on which it will be based are:

      exchanges of information and mutual consultation on the cases

      concerned;

      cooperation in investigations;

      application of decisions.

```

```
1.IV.§3. 8
```

**62**

```
 A copy of the notification of all "mixed" cases will be sent to the other

 surveillance authority, which, together with the respective countries, will

 have the right to atte.ïc» *nd take part in hearings of the enterprises

 concerned and in meetings of tha advisory committees but will have no voting

 rights. Cases notified to the wrong surveillance authority will be referred

 to the competent authority.

 93. Cooperation on investigations is of particular importance. It may, for

 example, be necessary to carry out on-the-spot investigations on the

 territory of the other authority. In that event, the surveillance authority

 dealing with the case in question can ask the other authority to organize the

 investigation in accordance with its own rules. Representatives of the

 competent authority may be present when such investigations are being carried

 out and may play an active part in them.

 Lastly, cooperation will also take place in the matter of the payment of

 fines and other financial obligations.

 <T7> . Cooperation and merger control

 94. Cooperation in the field of merger control will generally follow the

 principles set out above. The aim is to set up the most efficient machinery

 possible. Cooperation will thus take place in the following cases:

       if the enterprises concerned achieve at least 25% of their EEA

       turnover on EFTA territory;

       if at least two of the enterprises concerned achieve a turnover in

       excess of ECU 250 million on EFTA territory;

       if there is a risk that a dominant position will be created or

       strengthened on EFTA territory or on a substantial part of that

       terr i tory.

 Cooperation will also take place if the EFTA countries claim a legitimate

 interest within the meaning of Article 21 of Regulation (EEC) No 4064/89 or

 if they invoke the existence of a distinct national market within the meaning

 of Article 9 of that Regulation.

```

```
1.IV.§3. 9

```

**63**

```
Cooperation must take place within the very specific deadlines provided for

 in the Community rules and may not lead to any extension of those deadlines.

 <T7> . Cooperation on state aid

 95. With regard to state aid, the two authorities will exchange information

 and views on matters of general policy and will each provide or provide on a

 case-by-case basis, at the other's request, information on programmes and

 individual state aid cases. If one of the surveillance authorities considers

 that application of the rules of the EEA Agreement on state aid by the other

 surveillance authority is leading to distortions of competition, it may,

 after consulting the other authority, adopt interim measures and, if the

 dispute cannot be settled by the EEA Joint Committee, replace them with

 definitive measures limited to what is strictly necessary to remedy the

 effects of any such distortions.

 <T6> (e) State monopolies of a commercial nature

96. Under Article 16 of the EEA Agreement, it is for the Commission and the

 EFTA Surveillance Authority to make the necessary adjustments.

 <T6> (f) Control by the courts

97. Decisions adopted by the Commission will be subject to the control of

 the Court of First Instance and/or the Court of Justice, while appeals may be

 lodged with the EFTA Court against any decision taken by the EFTA

Surveillance Authority.

<T6> (g) Informing economic operators

98. To ensure that economic operators are informed about the competition

rules applicable to enterprises under the EEA Agreement, an information

brochure has been prepared jointly by the Commission departments and EFTA

experts.

```

```
1.1V.§3. 10

```

**64**

```
 99. The entry into force of the EEA Agreement was initially scheduled for

 1 January 1993 but was postponed following the Swiss referendum on

 6 December 1992. A diplôme* [s] c conference is planned for the beginning of

 next year in order to take stock of the new situation.

 <T5> - Civil aviation agreement with Norway and Sweden

 100. With the entry into force on 18 July 1992 of the civil aviation

 agreement between the EEC, Norway and Sweden, air transport and associated

 matters in these two countries became subject to the same competition rules

 as apply within the Community. The agreement does not, however, create a

 "second pillar" for Norway and Sweden, as will be the case under the

 EEA Agreement.

 The Norwegian and Swedish authorities must ensure that Articles 4 and 5

 (which are identical to Articles 85 and 86 of the EEC Treaty) are applied

 within their territories and enforced with the same effect as in the

 Community. With regard to state aid granted by Norway and Sweden in the

 aviation sector, the Commission will play an active role, in particular by

 keeping under constant review all existing aid schemes in those countries and

 by proposing that they take appropriate measures.

 Any cases of disagreement regarding the application of these provisions may

 be referred to a Joint Committee created by the agreement. The Joint

 Committee can take binding decisions by unanimity.

 <T5> - Central and Eastern European countries

 101. The Europe Agreements concluded on 16 December 1991 between the

 Community and its Member States, on the one hand, and Hungary, Poland and the

 Czech and Slovak Federal Republic, on the other, provide that the parties

 "shall gradually establish a free-trade area in a transitional period lasting

 a maximum of ten years".* [2] )

 These agreements naturally include provisions on competition that also form

 (2) Twenty-first Competition Report, point 63.

```

```
1.1V.§3. 11

```

**65**

```
 part of the Interim Agreements, which entered into force on 1 March 1992

 (Articles 26, 33 and 35).* [3] )

 102. These provisions go further than those of the association agreements

 signed in 1972 with the EFTA countries and have the following

 characteristics:

  (i) they concern both industry and service activities;

 (ii) they deal with ECSC products in a separate protocol;

 (ill) they include the traditional principle that restrictive practices,

      abuse of dominant positions and state aid affecting trade are

      incompatible with the Community law and refer to the criteria

      arising from the application of the principles set out in

      Articles 85, 86 and 92 of the EEC Treaty-,

 (iv) they set a three-year deadline for the adoption of rules

      implementing these principles, a five-year deadline for the

      adjustment of state monopolies of a commercial nature, and a

      three-year deadline for compliance by public enterprises or

      enterprises granted special or exclusive rights with the principles

      of the EEC Treaty;

  (v) they stipulate that, where state aid is concerned, the three

      countries in question will, for an initial period of five years, be

      regarded as Community areas as described in Article 92(3)(a);

 (vi) they do not contain any provisions on mergers.

 103. As regards the competition rules applicable to enterprises, and without

 prejudging any decisions of the Association Council, the aim is to eliminate

 anti-competitive practices affecting trade between the Community and the

 countries of Central and Eastern Europe without superimposing new regulations

on those already in place. Articles 85 and 86 of the EEC Treaty will apply

 (3) See point 555 of this Report.

```

```
1.1V.§3. 12
```

**66**

```
 as in the past to practices affecting intra-Community trade (e.g. in

 situations similar to the "Wood Pulp" case, where the unlawful practices were

 carried out by enterprises outside the Community).

 104. As regards the rules applicable to state monopolies of a commercial

 nature, state aid and public enterprises or enterprises granted special or

 exclusive rights, the Association Council will be examining the necessary

 substantive and procedural rules for the proper operation of the Agreements.

 If progress is to be made, an inventory of the aid measures applicable in

 each of the Central and Eastern European countries will, therefore, have to

 be drawn up on the basis of the methodology developed by the Commission. One

 of the difficulties will be to determine which authority will be responsible

 for monitoring aid liable to distort trade between the Community and the

 Central and Eastern European countries, the task already performed by the

 Commission as regards aid affecting intra-Community trade.

 A similar exercise will have to be undertaken for state monopolies and

 enterprises granted special or exclusive rights.

 105. Under the agreements, the Community or the Central or Eastern European

 country concerned may, if implementing rules do not exist or do not allow a

 practice regarded as incompatible to be dealt with in the correct manner,

 adopt appropriate measures after consulting the Joint Committee.

 106. The agreements being negotiated with Bulgaria and Romania will include

 similar provisions on competition.

 <T5> - Accession of new Member States

 107. When Sweden, Malta, Finland and Cyprus submitted applications for

 accession, the Commission drew up for the Council an opinion, the most

 significant aspects of which concerned competition.

 As regards the three EFTA countries that have applied for membership, the

 Commission took particular note of their commitment to radical reforms in the

 national rules applicable to restrictive commercial practices. Sweden in

```

```
1.1V.§3. 13

```

**67**

```
 particular has made considerable progress in harmonizing its national rules

 with those of the Community, while the reform undertaken in Finland, although

 not as extensive, should also allow anti-competitive practices to be

 monitored more effectively.

 108. With regard to state aid, monopolies of a commercial nature and service

monopolies, the Commission opinion identifies certain situations which will

 have to be brought into line with Community legislation, this being a task

 primarily for the EFTA Surveillance Authority pursuant to Articles 16, 59, 61

 and 62 of the EEA Agreement and the relevant provisions concerning ECSC

 products.

 The Commission took the same approach in its examination of the situation in

 Malta and Cyprus in order to identify potential difficulties as regards

 competition in the event of accession.

 It also examined the membership applications submitted by Switzerland and

 Norway.

```

```
1.1V.§4. 14

 <T4> § 4. United States

 <T5> - Agreement with the US antitrust authorities

```

**68**

```
109. The period under review saw the completion of the first full year of

application of the agreement between the Commission and the US Government

which came into effect on 23 September 1991.

The very positive results achieved during the first year are due essentially

to the strengthening of the relationship of confidence between the respective

competition authorities, through the meetings provided for in the agreement

and less formal contacts as well as through cooperation in specific cases.

110. The agreement calls for officials of the respective competition

authorities to meet twice a year to exchange information and discuss matters

of common interest. Such meetings took place in November 1991* [4] ) and

September 1992.* [5)] In addition, there were informal bilateral contacts in

January 1992 in Washington as well as on the sidelines of other meetings.

Experience has confirmed that, within the confines set by the agreement, and

in particular the protection of confidentiality, there is much scope for

useful exchanges of information regarding competition policies and

enforcement activities when it comes to improving mutual understanding of

policies and increasing their effectiveness.

111. While the more specific procedures laid down in the agreement have not

been triggered, there has been cooperation in a number of individual cases.

These positive developments confirm the importance of close cooperation

between competition authorities in the context of increasingly globalized

economic activity and place future cooperation with the US competition

authorities on a firm footing.

(4) Twenty-first Competition Report, point 362.
(5) See point 554 of this Report.

```

```
1.1V.§5. 15

 <T4> § 5. Japan

```

**69**

```
112. Contacts with the Japanese Fair Trade Commission have become both more

frequent and more substantive during the year under review. A formal

bilateral meeting took place in Brussels on 6 October and covered a broad

range of issues. The breadth of the discussions was such that the one day

initially planned proved to be insufficient and a further meeting was held in

Paris on 2 December.* [6] ) In addition to these formal contacts, a number of

informal contacts took place as well, both on general and on specific issues.

These contacts have shown that the Japanese Fair Trade Commission is

genuinely interested in a meaningful dialogue with the Commission. The

Commission is pleased with these developments and hopes that they can make

some contribution towards resolving the problem identified in the

Commission's communication to the Council on "A consistent and Global

Approach - A review of the Community's relations with Japan" as "the failure

of competition and market mechanisms in many spheres".

(6) See point 558 of this Report.

```

```
1.1V.§6. 16

```

**70**

```
 <T4> § 6. Competition policy in multilateral organizations

 113. The OECD, and in particular its Committee on Competition Law and Policy,

 has recently been increasing the scope and pace of work in areas which

 impinge upon the international dimension of competition policy. It has

 embarked on an important exercise looking at the scope for convergence in

 member countries' procedures and practices in the area of merger control.

 In line with the OECD's tendency to adopt a multidisciplinary approach to the

 issues of internationalization of markets and globalization of economic

 activity, the Committee on Competition Law and Policy has discussed the

 interface between competition policy and anti-dumping policy, on which a

 report is being prepared. It has also considered the wider interactions

 between competition policy and trade policy, in cooperation with the OECD's

 Trade Committee, with which joint meetings have been held at working party

 level. The Commission has taken an active role in the work of the OECD,

 including continued participation in the OECD Industry Committee's work on

 "subsidies and structural adjustment".

 114. During the year, efforts to conclude the Uruguay Round of GATT

 negotiations continued, through multilateral discussions as well as bilateral

 contacts with trading partners, in a bid to reach agreement on a number of

 outstanding issues. The Commission believes that it is vital to bring the

 Round to a successful conclusion so as to end the uncertainty surrounding the

 framework for international trade and investment and to put into effect the

 substantial improvements provided for in that framework. It takes the view

 that, after the conclusion of the current Round, the policy of encouraging

 the adequate enforcement of competition laws by trading countries should be

 complemented with new initiatives to promote international rules dealing with

 private anti-competitive conduct which distorts or restricts international

 compet it ion.

```

```
1.V.§1. 1

 <T2> Chapter V: Application of the competition rules

 <T4> §1. Transparency

```

**71**

```
115. The interest generally paid to competition policy has grown considerably

since the introduction of the Merger Control Regulation. Yet the only way

that this policy will be understood and supported by economic operators,

policymakers and the general public alike is to make it more transparent so

that decisions and policy are better understood. The political events of the

past year have shown that this is a problem affecting all Community policies

as well as the European policies of Member States. The recent

Sutherland report stressed the need to improve information and transparency

in order both to increase the acceptability of Community policies and to make

them more effective. For this, not only the national authorities in the

broad sense but also individuals must be made aware of their rights and

obi igat ions.

Proper information is also a prerequisite if competition policy is to be

decentralized in accordance with the principle of subsidiarity. An

information campaign has, therefore, been running for a long time and is

aimed as much at political and economic circles as at the general public

since, clearly, competition policy must be accorded the broadest possible

measure of support and understanding. In this connection, existing measures

are being continued and new initiatives adopted.

116. All Article 85/86 decisions are published in the Official Journal of the

European Communities and summarized every month in the Bulletin of the

European Communities. This is also the case for each stage of the procedure

followed in cases dealt with under the Merger Control Regulation and for

opinions of the Advisory Committee whenever publication is requested by a

Member State. Also published in the Official Journal are the notices in

which the Commission states the position it proposes to adopt on a case after

a preliminary scrutiny under Regulation No 17 and invites comments from any

Interested parties. An innovation in this area was introduced in 1992 in

```

```
1.V.§1. 2

```

**72**

```
 a particular case* [1] ) when the Commission published a notice informing third

 parties of a notification and requesting them to submit comments. As a

 result, comments were received at the start of the Commission's

 investigation, speeding up the procedure. The intention is to apply this

 method more systematically in cases.involving "structural" cooperative Joint

 ventures.* [2] )

 Lastly, the Commission publishes press releases on all significant events.

 In addition, the annual Report on Competition Policy is designed to provide

 both an overview and a detailed picture of the Commission's activities.

 117. At the request of the European Parliament and the Council, the

 Commission pressed ahead with its efforts to increase the transparency of

 state aid. It adopted its third survey on state aid in the Community,* [3] )

 which covers the period 1981-90 and provides an overall view of all the aid

 granted in the various Member States to manufacturing, the coal industry,

 agriculture, fisheries, railways and inland waterways. It identifies certain

 trends, compares types of aid and objectives by Member State, assesses the

 progress made by the Commission in tightening its policy and maps out future

 areas of activity. It is targeted both at Member States and at any other

 interested part ies.

 118. Most of the Commission decisions on aid are reported in press releases

 as soon as they are adopted, and are also summarized in the monthly Bulletin

 of the European Communities. Aid decisions, like the decisions adopted under

 Articles 85 and 86 of the Treaty, are published in the Official Journal, with

 the exception of the less important ones, which are adopted by accelerated

 procedure. Publication is in the form of a brief description of the main

 facts of cases involving aid approved without a detailed examination and

 should make it easier for third parties to seek redress; all other types of

 decision are published in full.

 (1) CarIsbero/AII led case, see point 131 of this Report.

 (2) See point 122 of this Report.

 (3) See point 350 of this Report.

```

```
1.V.§1. 3
```

**73**

```
 119. Three multilateral meetings on state aid were held in 1992 with experts

 from the Member States.* [4] ) The topics discussed included draft frameworks

on aid for exports to third countries, aid for environmental protection, aid

 to the synthetic fibres industry and aid for the motor vehicle industry.

 Such meetings allow the Commission to take account, wherever possible, of

 Member States' comments and suggestions. They should also help

 Member states' administrations to gain a better understanding of the

 frameworks, thereby enhancing legal certainty.

 The Commission also continued to publish various notices and frameworks

 clarifying the rules applicable in such areas as aid to small and

medium-sized enterprises, the application of Article 85 to cooperative joint

 ventures (Joint venture guidelines) and the application of the de minimis

 principle to beer contracts.* [5] ) It also adopted a notice on the application

 of Community competition law by national courts* [6] ) and is preparing another

 on the application of Article 85 to commercial agents. Lastly, it adopted a

 Regulation amending four existing block exemption regulations.* [7] ) The

 number and variety of texts adopted make a major contribution to improving

 transparency.

 The Commission published its Green Paper on postal services,* [8] ) a subject

 with implications both from a social and general economic standpoint and for

 competition policy. Its investigation into telecommunications also resulted

 in the publication of a document on services and another on equipment. In

 both cases, the documents are based on wide-ranging consultations. The

 Commission also started publishing general explanatory brochures aimed at

 providing the general public with essential information on competition

 policy.* [9] )

 There are also several reference works containing decisions taken pursuant

 (4) See points 339 to 341 of this Report.
 (5) See point 301 of this Report.
 (6) See point 299 of this Report.
 (7) See point 265 of this Report.
 (8) See point 512 of this Report.

 (9) The first is entitled "Competition policy in the European Community", in

    the European File series.

```

```
1.V.§1. 4

```

_**74**_

```
 to Articles 85 and 86 and under the Merger Control Regulation or the relevant

 body of rules. These publications are due to be updated and revised shortly

 as regards state aid.

 The desire to improve transparency is also reflected in the increasing

 presence of Commission officials at information events targeted at various

 audiences and in the number of civil servants and trainees from Member States

 and elsewhere working in the Directorate-General for Competition.

```

```
1.V.§2. 5

 <T4> §2. Subsidiar itv

```

**75**

```
120. The principle of subsidiarity, currently the focus of wide-ranging

discussions, is particularly relevant to competition policy.

It is interesting to note that, well before this concept had acquired such

prominence, it had influenced the drafting of the competition rules of the

Treaty. Thus, Articles 85 and 86 allow the Commission to act only if

competition is threatened in the common market and if the agreement or

conduct in dispute affects trade between Member States. In its 1986

de minimis notice, the Commission considered that the restriction of

competition must be more than insignificant.

The same observation can be made regarding the Merger Control Regulation,

which provides for action by the Commission only where operations have a

Community dimension, this being a function of the size of the enterprise

concerned and the cross-frontier nature of its activities. Furthermore, even

where the thresholds are exceeded, the Regulation allows the Commission to

refer to the national authorities cases it regards as essentially the

responsibility of Member states.

The principle of subsidiarity can also be relevant to the application of the

competition rules. The Commission is already cooperating with national

authorities on the procedures for applying Articles 85 and 86 as well as the

Merger Control Regulation. But it is possible to go further in this

direction. The Commission is, in principle, in favour of the national

authorities dealing with complaints having an essentially national impact

under national or Community competition law. This allocation of

responsibilities would enable the Commission to focus its limited resources

on cases of Community importance while guaranteeing that all other cases were

dealt with appropriately under the competition rules. The Court of

First Instance confirmed that the Commission was entitled to define its

```

```
1.V.§2. 6

```

**76**

```
 priorities on the basis of the Community interest,* [10] ) and the Commission

 has already gained some positive experience in applying this approach.

 It should also be noted that, while the national authorities can assist the

 Commission in carrying out this task, the converse is also possible. The

 Commission can, if necessary, use its specific powers to act in a case

 initially examined by a national authority, as it did in 1992 during an

 investigation into the prices of audiovisual products following contacts with

 the Danish competition authorities.* [11] )

 As noted in the Sutherland report, there are a number of factors currently

 militating in favour of greater involvement by national courts in the

 application of the competition rules. Articles 85 and 86 and the block

 exemption Regulations are directly applicable, and national courts can often

 respond rapidly to complainants' requests for interim measures. They can

 also rule on all aspects of a case at the same time, including any award of

 damages. To facilitate attainment of this objective, the Commission adopted

 a notice on the application of Community competition law by national

 courts.* [12] ) The notice clarifies the various situations that might arise

 before national courts, which can also ask the Commission for assistance in

 obtaining any legal information or facts they require. The Commission has

 already satisfied such requests from national courts and is prepared to

 cont inue doing so.

 121. The control of state aid is an area where, by definition, the principle

 of subsidiarity plays only a minor role. It would be difficult to imagine a

 Member State monitoring in pursuance of the Community interest the aid it

 itself grants on its own territory. The Commission has nevertheless adopted

 certain measures allowing it to devolve responsibility for aid of minor

 importance.

 The Commission argues that, below a certain level, aid cannot affect trade

 between Member States and does not therefore distort competition at

 Community level. It follows that such aid measures are not caught by

 (10) Automec Judgment, see point 323 of this Report

 (11) See point 548 of this Report.

 (12) See point 299 of this Report.

```

```
1.V.§2. 7

```

_**77**_

```
 Article 92(1) of the Treaty and, consequently, it is for the Member States

 alone to decide whether to monitor the aid in accordance with competition

 criteria. The threshold was set at ECU 50 000 per firm over a three-year

 period. It is unlikely that the Commission will be able to develop this line

 of reasoning any further, although the scope of its notice should not be

 underestimated since the Commission acknowledged for the first time in a

 general instrument that certain aid measures were not covered by Article 92.

 In addition, Commission monitoring of aid is crucially strengthened by the

 action of national courts dealing with complaints from firms injured by the

 unlawful granting of aid to a competitor.

 The area of state aid, however, provides a good illustration of the second

 aspect of subsidiarity, namely, that action must be taken at Community level

 if it cannot be taken more effectively elsewhere. It should be noted here

 that the Community is responsible for the completion of the single market and

 that this requires uniform conditions of competition. In the final analysis,

 the only way of creating such conditions is by action that is sufficiently

 centralized. Clearly, therefore, the objectives of Community competition

 policy require that, in accordance with the principle of subsidiarity, the

 Commission should retain a central role in the application and definition of

 competition rules. Another example which comes to mind is afforded by

 horizontal agreements with a Community dimension, in respect of which only

 the Commission is empowered to conduct an investigation and to take the

 appropriate decision. In addition, the application of new Article 130b of

 the Maastricht Treaty will mean that decisions on state aid will have to take

 greater account of the need to strengthen economic and social cohesion.

```

```
1.V.§3. 8

 <T4> §3. Adaptation of procedures

```

**78**

```
122. The policy of transparency both improves awareness and acceptance of the

competition rules and increases their effectiveness. The same applies to the

principle of subsidiarity, according to which those rules are applied by the

authority best placed to perform this task. But the tighter application of

Community law also means taking action at the level of the Commission itself

in order better to equip it to carry out its responsibilities.

123. The Commission intends to expedite the procedures for applying

Articles 85 and 86 of the EEC Treaty. Although a substantial reduction in

workload has been achieved in recent years through a rationalization of

DG IV's activities, these procedures are still considered to be too

time-consuming. This is a general problem and the Commission is looking into

ways of resolving it by improving working methods. Specific measures to that

end have already been adopted for "structural" cooperative joint ventures.

124. This category comprises all forms of cooperation entailing major changes

in the structures of the parties to the agreement. These are joint ventures

pooling a significant number of assets, particularly in the production field

and in connection with the manufacture and marketing of contract goods. Such

arrangements should be dealt with rapidly and as a first priority. Only a

speedy decision by the Commission on the agreement notified gives the parties

concerned the legal certainty they need to carry out their plans.

The new system will be modelled in part on the experience acquired in

applying the Merger Control Regulation. Within two months of the date on

which it received all the information concerning the notified case, the

Commission will inform the parties in writing if their agreement gives rise

to doubts concerning its compatibility with the competition rules.

```

```
1.V.§3. 9
```

**79**

```
 The content of the letter will vary according to the circumstances of the

 case:

    in cases not posing any problems, the Commission will send a comfort

    letter confirming that the agreement is compatible with Article 85(1) or

    (3);

    if a comfort letter cannot be sent because of the need to settle the

    case by formal decision, the Commission will inform the enterprises

    concerned of its intention to adopt a decision either granting or

    rejecting exemption;

    if the Commission has serious doubts as to the compatibility of the

    agreement with the competition rules, it will send a letter giving

    notice of an in-depth examination which may, depending on the case,

    result in a decision either prohibiting, exempting subject to conditions

    and obligations, or simply exempting the agreement in question.

 In cases where a formal decision is envisaged, the Commission will inform the

 parties of the proposed date of adoption of the final decision, and of any

 change in that date caused by the circumstances in which the procedure takes

 place.

 The new system, applicable since 1 January 1993, is based entirely on the

 principle of self-discipline by the relevant Commission departments.

 Internal instructions have been given for the implementation of the rules

 descr ibed above.

 The system should allow the Commission to produce decisions more rapidly, to

 improve the transparency of procedures, and to increase the degree of legal

 certainty. Its application to a specific category of notifications could, at

 the same time, serve as a test of whether procedures could be expedited

 without any increase in staff. The experience gained will also enable the

 Commission to determine whether the system could be extended to other types

of agreement in restraint of competition.

```

```
1.V.§4. 10

 <T4> §4. Commission activities (quantitative description)

```

**8Q**

```
125. On 31 December the Directorate-General for Competition had a staff of

407 (national experts included). Of the available manpower, 44% was

allocated to work under Articles 85 and 86 of the EEC Treaty, 12% to merger

control cases, 3% to work under Article 90 of the EEC Treaty, 21% to state

aid cases, 9% to international relations and coordination and 11% to data

processing, documentation and other horizontal duties.

126. On 31 December there were 1 562 cases pending under Articles 85 and 86

of the EEC Treaty. As compared to the 2 287 cases pending on 1 January of

that year, this represents a reduction of more than 30%; the effort to reduce

the number of cases pending will be continued and is expected to benefit

from more intense application of Articles 85 and 86 by national courts, which

will be made easier by the new notice on the subject.* [13] ) During the year a

total of 399 cases were added to the Commission's workload; they comprised

246 applications or notifications, 110 complaints and 43 own-initiative

procedures; on the other hand, a total of 1 124 cases were terminated in

1992. The Commission's workload under Articles 85 and 86 on 31 December 1992

consisted of 1 064 applications or notifications, 287 complaints and 211

own-in itiative proceedings.

Of the cases terminated, 176 were closed by the sending of comfort letters,

where the undertakings concerned had agreed to a written statement of

position by the Directorate-General for Competition; a notice was published

in accordance with Article 19(3) of Regulation No 17 in eight of these cases.

A further 553 cases were settled because the agreements were no longer in

force, their impact was too slight to warrant further consideration, the

complaints had become moot or because investigation had not revealed any

anti-competitive practices. In 1992 20 agreements or practices led to a

formal decision on their compatibility with the competition rules. In five

cases the Commission found that agreements infringed Article 85(1) without

imposing a fine; in five further cases a fine was imposed. Four decisions

granted a formal exemption to an agreement under Article 85(3) of the

EEC Treaty. Finally, in three cases, the Commission found that an abuse of a

dominant position under Article 86 of the EEC Treaty had been committed and a

f ine was imposed.

(13) See point 299 of this Report.

```

```
(s

```

```
1.V.§4. 11

```

**81**

```
 In addition, the Commission adopted three decisions imposing a fine because

 of an undertaking's failure to comply with a verification decision. It also

 adopted seven formal decisions rejecting complaints.

 127. As regards the implementation of the Merger Control Regulation, 59 new

 cases were notified to the Commission during the year, while 61 cases were

 concluded by a final decision.

 In nine of the 61 final decisions, the Commission found that the notified

 operation was not a concentration within the scope of the Regulation

 (Article 6(1)(a) of Regulation (EEC) No 4064/89). In 47 cases, it found that

 the concentration was compatible with the common market and did not have to

 be opposed (Article 6(1)(b)). It adopted four decisions authorizing

 concentrations under Article 8(2) of the Regulation following the initiation

 of proceedings; in three of these, conditions and obligations were attached.

 Finally, one case led to a decision authorizing the concentration without

 conditions. There were seven cases pending on 1 January 1992 and eight on

 1 January 1993.

 128. The competition provisions of the ECSC Treaty gave rise in 1992 to one

 decision under Article 65 and 10 under Article 66. A further 17 cases under

 Article 65 were settled by means of an administrative letter and

 30 concentrations of minor importance benefited from an exemption under

 Decision 25/67. There is no backlog of cases under the ECSC rules.

 A total of 76 inspections were carried out on the declared production of

 coal and steel undertakings subject to the levy (Articles 49 and 50 of the

 ECSC Treaty).

 129. With regard to state aid, the figures in Table 1 show that the number

 of cases notified by the Member States in 1992 varied only slightly from the

 figure for 1991. On the other hand, the number of procedures initiated under

 Article 93(2) of the EEC Treaty and the number of negative final decisions or

 conditional decisions fell sharply. This confirms the trend noted last year

 and reflects the fact that Member States now take far more account than in

 the past in their notifications of the rules on competition and the case-law

 established by the Commission and the Court of Justice. The Commission's

```

```
1.V.§4. 12

```

**82**

```
 efforts to increase transparency and maintain strict control have thus borne

 fruit. Similarly, the increase in the number of projects notified and later

 withdrawn by Member States shows that they are responsive to the guidelines

 given by the Commission following its scrutiny and prefer, if the Commission

 informs them of its opposition, to avoid the initiation of proceedings and

 the adoption of a negative decision, with the consequences this will have for

 the enterprises concerned.

 In 1992 the Commission also registered 102 cases that had not been notified

 in accordance with Article 93(3) of the EEC Treaty.

 It did not raise any objections in respect of 71 cases of this type and

 initiated the Article 93(2) procedure in respect of 18 cases.* [14] ). The

 number of unnotified aid cases is down on 1991 (145 cases). If the trend

 continues over the next few years, it will reflect better compliance by the

Member States with Article 93(3), and this undoubtedly has something to do

with the Commission's determination and the power to suspend unlawful aid

 conferred on it by the Court of Justice in the Boussac case.

 (14) The number of cases registered in 1992 does not necessarily correspond

    to the number of decisions taken. Certain cases registered in 1991 were

    decided on only in 1992.

```

```
  1.V.§4. 13

Tabla 1 - Activity in the control of «tot* old (excluding old to ogrlculture. f I «hor I •• ond transQ»<3))

                          Act Ion token by the CommissIon I ! J

```

```
Terminât ion of Fi no I decision

proceedings under
under Ar t icIe Art icle 93(2)
83(2) EEC or EEC or
ArtIcle 8(3) Art icle 8(3)
of Dec I s Ion of Decision
2320/81/ECSC< [2] ) 2320/81/ECSC* [3] )

19 14

(of which steel

- 4)

30 13

(of which steel (of which steel

- 13) - 1)

```

```
Ysor Numbsr

       of proposals

       not if led

1981 92

       (of which steel
       - 18)

1982 200

       (of which steel

       - 81)

1983 174

       (of which steel

      - 4)

1984 162

       (of which steel

       - 10)

1985 133

       (of which steel
       -7)

1986 124

1987 326

1988 375

1989 296

1990 429

1991 472

1992 459

```

```
No

objsct ions

rolsed

79

(of which steel

- ID

104

(of which steel

25)

101

(of which steel
- 18)(0

201

(of which steel
- 6 6 ) [4 ]

102

(of which steel
- 2 1 ) [4 ]

98

205

311

254

352

383

393

(N old)

468

(all E/N/NN
 aid)

```

```
In 11 iot ion

of proceedings

undsr Article

93(2) EEC or
Art i d s 8(3)

of Decision

2320/81/ECSC

30

(of which steel

- 9)

86

(of which steel
- 56)

55

58

(of which steel

- 1)

38

(of which steel

-1)

47

27

31

37

33

53

26

+ 2 under

Art icle 6(2)

of Decision

322/89/ECSC

```

```
Proposa I s
not i fled

ond later

wIthdrown

by Member

States

```

```
18

34

31

26

32

32

27

24

25

33

```

```
10

10

13

16

12

9

8

```

```
21 9

(of which steel

- 9)

21(5) 6

```

```
5

1

7

2

21

25

```

```
NB: The figures in the first column do not match those of the next four columns on occount of carry-overs
       from one yeor to the next and because, if proceedings under Article 93(2) EEC or Article 8(3) of
```

**`Decision`** **`2320/81/ECSC`** _**of**_ **`inltioted,`** **`the Commission`** **`has`** **`to take`** **`two`** **`decisions,`** **`one`** **`to`** **`initiate`**
```
       proceedings ond then a finol decision terminating them.

```

(1) For d e t a i l s, see the Annexes to t h i s Report. Actions in respect of
steel include both EEC and ECSC steel products and, because of the
tranche system, the number of actions exceeds the number of
not i f icat ions.
(2) In most cases, a f t e r amendments have been negotiated during the
proceedings to remove those aspects which a pr ior i made the proposal
incompatible w i t h the common market.
(3) Published in the O f f i c i a l Journal.
(4) Including tranches of a i d released under the decisions of 29 June 1983.
```
   (5) Excludes the "conditional" decision on French investment aid (see
```

Fourteenth Competition Report, point 253).

```
2.I.A.§1.a.l

<T1> PART TWO; COMPETITION POLICY TOWARDS ENTERPRISES

<T 2> Chapter I; Main decisions and

              measures taken by the Commission* [1] )

<T3> A. Restrictive agreements

<T4> §1. Horizontal agreements

<T5> - Establishment of Joint ventures

<T6> (a) CarIsberg/Courage

```

**84**

```
130. Carlsberg was among the first foreign brewers to enter the

United Kingdom beer market. Initially it exported its lager beers directly

from Denmark, subsequently establishing its own brewery in the United Kingdom

in Joint ownership with the United Kingdom brewer Grand Metropolitan, and

then in 1980 acquiring full ownership of that brewery. With sales

outweighing its own United Kingdom production capacity, it entered at the

same time into a ten-year partial production/distribution agreement with

Grand Metropolitan. This arrangement was formally exempted by the

Commission.* [2] ) The Commission took into particular account the fact that

Carlsberg did not have its own sales network in the United Kingdom and that,

as a result of the direct ownership of a majority of the pubs by the

United Kingdom brewers, it was practically impossible at that time for an

outsider to supply the on-trade without the cooperation of one of the

United Kingdom brewers. The expiry of this agreement coincided with the

take-over by Courage of Grand Metropolitan's brewing business in 1991.* [3] )

Carlsberg renewed its arrangement (on amended terms), but now with Courage

(the second largest brewer in the United Kingdom).

The arrangement with Courage involved extensive cooperation between the two

parties. Courage acquired the right to brew for ten years some Carlsberg

beer under licence, it received the exclusive distribution right for

Carlsberg beers to the off-trade (supermarkets and other shops) for a period

of five years, and a non-exclusive distribution right to the on-trade (pubs,

(1) The cases not dealt with in this chapter are summarized in the annexes,

   which also give all the references.
(2) Commission Decision in the Carlsberg case, OJ L 207, 2.8.1984.

(3) Twenty-first Competition Report, point 86.

```

```
2.I.A.§1.a.2

```

**85**

```
restaurants) for a period of ten years. Under the arrangement Courage was

required to purchase minimum volumes of Carlsberg beers.

Shortly after the conclusion of this arrangement Carlsberg announced its

intention of amalgamating its entire brewing and beer sales activities in

the United Kingdom - including its arrangement with Courage - with those of

Allied Lyons in a Joint venture CarIsberg-Tetley("CT").* [4] ) As a result of

that transaction Carlsberg would not only jointly control with Allied Lyons

the United Kingdom's third largest brewer, but also achieve direct access for

its beers to the pubs owned by Allied.

The Commission considered the two arrangements incompatible with one another.

It informed the parties that it could not accept the exclusive distribution

right for Courage (neither de Jure nor de facto) for the off-trade, as there

was no justification for granting such a right to a competitor. This

conclusion was further strengthened by the creation of CT, which had itself a

strong position in off-trade sales. Whereas the arrangement for the on-trade

was non-exclusive, in particular the minimum volumes involved - which ensured

privileged access for Carlsberg to the pubs supplied by Courage - required

continued cooperation between the two parties. The Commission considered

that, in view of the position of CT as third largest brewer, Carlsberg would

not require extensive cooperation with Courage for the sales of its beers to

the on-trade. It considered that under these circumstances effectively only

a very limited arrangement would be justifiable, namely only for the supply

of those pubs which would otherwise not be accessible to Carlsberg. The

Commission therefore informed the parties that their arrangement for the

on-trade should be limited to the supply of Carlsberg beers to the pubs that

were tied to Courage. This necessitated a halving of the minimum volume

requirement and a reduction in the duration of the agreement, so that its

termination would coincide with the date at which the pubs tied to Courage

would become free houses.* [5] ) The parties amended their agreements

accordingly. As a result the Commission was able to close the file by way of

an Article 85(3) comfort letter.

(4) See point 131 of this Report.
(5) As a condition to the approval of the Courage Grand Metropolitan

   takeover, the parties undertook to ensure that the supply of their pubs

   would be open to competition after a certain period of time. Those pubs

   continuing to be owned by Grand Metropolitan would become open to

   competition after four years, whereas their jointly owned pubs would be

   released from their tie seven years after the transaction. For further
   details, see point 86 of the Twenty-first Competition Report.

```

```
2.I.A.§1.b.3

<T6> (b) Carisberg/AIIied Lyons

```

**86**

```
131. At the end of 1991 Carlsberg and Allied Lyons publicly announced their

intention of amalgamating their United Kingdom brewing and beer wholesale

activities through the creation of a 50-50% Joint venture CarIsberg-Tetley

("CT"). At the time, the five largest brewers accounted for almost 80% of

United Kingdom beer production and slightly more in the case of lager.

Following the establishment of CT, they would account for some 90% of

United Kingdom lager production. CT would become the third largest brewer in

the United Kingdom.

132. It was envisaged that both parties would transfer to CT all related

assets, business activities and relevant staff and management. Allied Lyons

retail business was not included in the transaction. Its managed and

tenanted retail estate would remain owned and controlled by its subsidiary

Allied Retail. Carlsberg and Allied Lyons would furthermore each retain the

ownership of their respective beer brands in the United Kingdom. CT would

however receive an exclusive licence to brew and sell these products in the

United Kingdom. In addition it would enter into a ten-year exclusive

purchase agreement with Allied Lyons for certain wines and spirits, and with

Britannia Soft Drinks (a joint venture between Allied Lyons, Bass and

Whithread) for certain soft drinks. In turn CT would acquire a seven-year

exclusive right to supply beer, wines, spirits and soft drinks to Allied

Retail's on-trade estate of managed and tenanted houses.

133. The first issue was whether this transaction would fall within the ambit

of Regulation (EEC) No 4064/89 (the Merger Regulation) or Articles 85 or 86

of the Treaty.

134. Because Carlsberg and Allied Lyons would retain the ownership of their

beer brands and have a final say in commercial policy with regard to their

brands, the Commission considered CT would not constitute an autonomous

economic entity, but rather a vehicle through which both parties would

coordinate their market behaviour, and in particular their brand policies.

The joint venture was therefore considered to be of a cooperative nature.

The result of this view was that the British authorities were equally

competent to vet it.

135. The transaction was subsequently notified to the Commission under

Regulation No 17. In view of its importance, and in order to be able to take

```

```
2.I.A.§1.b.4

```

**87**

```
the views of third parties into consideration at as early a stage as

possible, the Commission published a Notice in the Official Journal* [6] )

requesting third parties' comments on the transaction. The Commission

received a number of observations.

136. Following an in-depth examination, the Commission concluded that the

transaction would lead to the strengthening and further foreclosure of an

already oligopolistic market (the United Kingdom lager market). The effects

were considered particularly pronounced in the on-trade, which is

characterized by a high degree of vertical integration (pubs being owned by

breweries). The Commission informed the parties on 28 July of the conditions

which it considered necessary in order for the transaction to be acceptable.

The British authorities announced similar conditions at the same time. The

conditions sought were:

   a reduction in the duration of the exclusive beer supply agreement

   between CT and Allied Retail from seven to five years;

   within two years, the pub tenants and lessees of Allied Retail should be

   free to purchase at least 50% of their total annual lager requirements

   from any supplier.

137. In addition the Commission required that:

   the exclusive purchase agreement between CT and Allied Lyons for

   certain wines and spirits be reduced in duration from ten to five years;

   the exclusive purchase agreement between CT and Britannia Soft Drinks be

   amended so as to enable CT to acquire and resell carbonated soft drinks

   from any supplier, and its duration likewise be reduced from ten to five

   years;

   the exclusive supply agreement between CT and Allied Retail for wines,

   spirits, cider and soft drinks be reduced in duration from seven to five

   years.

The relevant agreements were amended accordingly. However, the second

condition, concerning the opening-up of Allied Retail's on-trade estate to

(6) OJ C 97, 16.4.1992

```

```
2.I.A.§1.b.5

```

**88**

```
competing lager beers, was subject to further negotiations. As a result the

parties undertook instead to release, from the second year, a specific number

of Allied Retail's pubs completely from their tie (for all beers). Since the

estimated volume to be released as a result was equivalent to that under the

second condition, the case was closed. CT and its associated supply

agreements received an Article 85 (3) comfort letter.

```

```
2.I.A.§1.c.6

<6> (c) Fiat/Hitachi

```

**89**

```
138. On 21 December the Commission adopted a decision pursuant to

Article 85(3) of the EEC Treaty with respect to the joint venture set up by

Fiat and Hitachi for the production, distribution and sale of medium to large

hydraulic excavators.* [7] )

The agreements notified by the parties provide for the joint venture to begin

trading by taking over the existing Fiat range of excavators and cylinders

and to develop a new Fiat-Hitachi range using Hitachi technology. The

parties agree not to compete with the JV in Western Europe (including the

whole of the Community), the Mediterranean basin and Africa.

After discussions with the Commission, the parties amended their agreements

in such a way as to allow Hitachi, as far as the Community was concerned, to

carry out passive sales in the Joint venture's exclusive territory. This

means that, although Hitachi will not seek to sell to Community-based

contractors, it will accept orders coming from such purchasers.

The arrangements provide for the joint venture to buy ail its motors from

Iveco (which is part of the Fiat group) and all hydraulics which it does not

manufacture itself from Hitachi. Although these exclusive purchasing

provisions foreclose sales opportunities for third party manufacturers of

motors and hydraulics, this restriction results from the setting-up of the

joint venture and appears to be reasonably necessary to its operation.

(7) OJ L 20, 28.1.1993.

```

```
2.I.A.§1.d.7

<T6> (d) Ford/VW

```

**90**

```
139. The Commission exempted, by a formal decision under Article 85(3) of the

EEC Treaty, an agreement between the car manufacturers Ford and Volkswagen

(VW) to set up a Joint venture (JV) in Portugal for the common development

and production of a multi-purpose vehicle (MPV).

Ford and VW will build a plant near Setubal with a capacity of 190 000 units

annually, which is to commence production in 1995. The MPVs produced by the

JV will be sold in differentiated versions by Ford and VW under their own

trade marks and through their separate sales networks.

MPVs constitute a relatively new and distinctive market segment by virtue of

their specific product features (designed to carry up to seven persons,

considerable space for luggage, car-1 ike handling). The MPV segment in the

Community is characterized by the strong leadership of the Renault 'Espace'

(over 50% of the segment), which was conceived and is assembled by Matra SA

(Matra). All other competing products are Japanese or US-produced vehicles.

The Commission found that the conditions for an exemption under Article 85(3)

of the Treaty were fulfilled as the cooperation will, inter alia, result in

the production of a new, competitively priced, high quality product designed

to meet the needs of the European consumer and enhance competition in the

European MPV segment. Its decision to authorize the JV between two leading

car producers also took into account the exceptional circumstances of this

case, e.g. :

   the low volume of the MPV market segment;

   the fact that neither Ford nor VW have been a significant supplier in

   the MPV segment in Europe;

   the structure of the MPV segment, i.e. having one supplier in a strong

   leading position;

- the fact that the vehicle will be produced in a purpose-built and modern

   plant ;

However, in view of the existing high degree of cooperation in the car

industry, the exemption was made subject to a number of strict conditions and

```

```
2.I.A.§1.d.8

```

**91**

```
obligations, predominantly in order to limit possible "spill-over" effects of

the cooperation which could damage competition between the partners in

neighbouring sectors (e.g. estate cars, light vans) and to ensure that Ford

and VW actively compete against each other by distributing separately.

The Commission also rejected a formal complaint by Matra against the

agreement as being contrary to Article 85.

```

```
2.I.A.§1.e.9

-<T5> - Agreements in the financial services sector

<T6> (e) Assurpol* [8] )

```

**92**

```
140. On 14 January the Commission granted exemption under Article 85(3) of

the EEC Treaty to the EIG Assurpol and its rules of procedure for a period of

seven years.

Assurpol is a co-reinsurance pool for the covering of environmental damage

risks (accidental and gradual pollution) originating in certain industrial

and commercial installations situated, notably, in France. The membership is

made up of 50 insurance companies (the insurer-members) and 14 reinsurance

companies (the participant-members).

Insurer-members are not prohibited from placing reinsurance outside the pool

and are free to withdraw at the end of each accounting year subject to three

months' notice. Entry into the pool is open to any insurance or reinsurance

company authorized to operate in France.

The agreements exempted allow the insurer-members individually to underwrite

the risks of liability for damage to the environment (accidental and gradual

pollution) by providing them with a guarantee of the availability of

reinsurance through the pool.

Each member takes part in the co-reinsurance of the risks ceded to the pool

by the insurer-members (90% of their liabilities) up to the amount of his

share calculated on the basis of his capacity committed in relation to the

total capacity of the pool (currently FF 131 million).

At the Commission's request, a number of amendments were made to the notified

agreements so as to ensure that premiums ceded by way of co-reinsurance no

longer include commissions paid to intermediaries or the administration costs

of insurer-members. Insurer-members therefore remain free to apply different

commercial premiums for the Assurpol policies they underwrite, even if risk

premiums and the contribution towards the co-reinsurance pool's operating

costs are fixed in common.

(8) OJ L 37, 14.2.1992; Bull. EC 1/2-1992, point 1.3.63

```

```
2.I.A.§1.e.10

```

**93**

```
Exemption was possible in the present context of worsening ecological

problems, even though the insurer-members taken together already cover 70 to

80% of potential consumers regarding other liability risks, since Assurpol

policies account for only 3% of the estimated amount of premiums in the

environmental damage liability insurance market in France and since the pool

is only a very minor player in the reinsurance market, which is a worldwide

market. Furthermore, the restrictions of competition resulting from

cooperation within Assurpol are counterbalanced by rationalization, an

increase in financial capacity and the creation and development of a

technique for improving the insurance of risks for which there is only very

limited experience in providing cover.

The decision shows that the setting-up of a reinsurance pool does not

necessarily involve the Joint determination of commercial premiums for direct

insurance contracts and that it is not essential for the participants to be

totally prohibited from covering risks outside the pool.

```

```
2.I.A.§1.f.11

<T6>, (f) Eurocheque: Helsinki Agreement* [9] )

```

**94**

```
141. On 25 March the Commission adopted a decision in the "Eurocheque:

Helsinki Agreement" case imposing a fine of ECU 5 million on the Groupement

des Cartes Bancaires, which represents all the French banks which are members

of the Eurocheque system, and a fine of ECU 1 million on Eurocheque

International for concluding an agreement in 1983 and in force until 1991

under which French banks charged French retailers the same commission for

cashing foreign Eurocheques as they charged for payment by bank card. Not

only did the agreement constitute a pricing agreement caught by the

prohibition in Article 85(1), but it also infringed the Package Deal

agreement of 1980, which the Commission exempted in 1984 on the understanding

that a Eurocheque would be free of charge to the recipient, with the payee's

bank receiving an interbank commission debited to the drawer's bank.

The decision rejects the request for exemption submitted in 1990.

This is the first time the Commission has imposed fines in the banking

sector. The Commission bore this in mind when determining the amounts of the

fines and also took account of the share of responsibility and the profit

earned from the agreement by the participants.

(9) OJ L 95, 9.4.1992; Bull. EC 3-1992, point 1.2.40

```

```
2.I.A.§1.g.12

<T5> - Agreements in the energy sector

<T6> (g) SHG/EDF and ENEL

```

**95**

```
142. The Commission intervened in a dispute between an independent French

generator and the French and Italian electricity monopolies, EDF and ENEL.

143. The independent generator, whose power station was for geographical and

technical reasons linked only to the Italian grid, could not sell its

electricity direct to ENEL because of the exclusive export rights enjoyed by

EDF. It was therefore obliged to sell its electricity to EDF, at the rate

applying to French independent generators, although its output was intended

for Italy.

144. Since the prices paid to independent generators in France were lower

than those in Italy, the owner of the power station was suffering a financial

loss.

145. The Commission's action in the case resulted in a compromise between

the parties under which the French generator will be paid by EDF at rates

based on those granted by ENEL to independent Italian generators, so as to

take account of the power station's very specific situation, namely the fact

that it can be linked up only to the grid of the Member State to which the

electricity is exported.

The Commission has thus made it clear that the competition rules laid down in

Articles 85 and 86 of the EEC Treaty apply fully to the energy sector,

irrespective of the measures taken by the Commission to complete the internal

market in energy.

```

```
2.I.A.§1.h.13

<T6> (h) Jahrhundertvertraa

```

**96**

```
146. In its decision of 22 December approving the "Jahrhundertvertrag", the

Commission again confirmed the applicability of competition rules in the

energy sector. The Commission confirmed that the energy market must not be

excluded from competition and that, against the background of further

development of the internal market, restrictive measures must be limited to

what is necessary to guarantee basic security of supply.

The "Jahrhundertvertrag" (century contract) is a set of agreements by which

private and public German electricity producers are obliged to purchase

stipulated amounts of German coal for the purpose of electricity generation.

The Commission found that these agreements fall under the competition rules

of the EEC and the ECSC Treaty. The exclusive and long-term purchase

obligation for German coal prevents German electricity producers from

importing coal or other primary energy sources from other Member States and

also impedes the import of electricity.

In the decision the Commission again confirmed its policy that the proportion

of input energy used for electricity generation which is obtained on a

priority basis from domestic energy sources and is thus shielded from

competition must be limited to the amount necessary to safeguard basic

electricity supplies. The Commission exempted the agreements since it was

satisfied that such was the case here.

The Commission takes the view that at the end of 1995 this proportion should

not exceed 20% of the input energy used to cover gross electricity

consumption and that it must be reduced to 15% by the end of the millennium.

The Commission emphasized that this decision did not prejudice its assessment

of the compatibility of aid to the German coalmining industry with Community

rules.

```

```
2.I.A.§1.i.14

<T5> - Agreements in the maritime transport sector

<T6> (i) French-West African shipowners' committees

```

**97**

```
147. The Commission found that the "shipowners' committees" set up in

respect of trade between France and eleven West African and Central African

countries* [10] ) constituted agreements which were contrary to the provisions

of Article 85 of the EEC Treaty and that their practices were in breach of

Article 86.* [11] ) The decision followed a number of complaints lodged by

independent shipowners against a whole set of practices the effect of which

was to establish a cartel covering a large proportion of the bilateral trade

between the Community and the West African and Central African countries.

The Commission accordingly initiated procedures against four liner

conferences* [12] ) and the eleven shipowners' committees covered by the

dec is ion.

148. The purpose of the shipowners' committees was to apportion between

their members all the freight carried by liners, with machinery to supervise

this arrangement set up to cover each of the shipping lines. The members of

the shipowners' committees systematically shared out between them, on a

monthly basis, all the traffic between France and eleven African countries.

Competition was accordingly eliminated, leading to excessively high freight

rates.

In addition, after seeking the adoption, by the authorities in the African

countries concerned, of measures intended to reserve all freight traffic for

them, the members of the shipowners' committees took a willing and active

part in the implementation of such measures with a view to denying

shipowners wishing to operate outside the committees access to the traffic

concerned.

149. The Commission pointed out that, in accordance with Council Regulation

(EEC) No 4056/86 of 22 December 1986,* [13)] shipowners are entitled to be

members of liner conferences that have been granted a block exemption.

However, in adopting this decision, the Commission made it clear that it

(10) The countries in question are: Benin, Togo, Congo, Senegal, Mali,

   Guinea, the Central African Republic, Cameroon, Gabon, Niger and Burkina

   Faso.

(11) Decision of 1 April 1992, OJ L 134, 18.5.1992.
(12) The Commission has reached a decision in one case (CEWAL) and is

   continuing to examine the other three.
(13) OJ L 378, 31.12.1986.

```

```
2.I.A.§1.1.15 Û 0

would take action against any attempts to establish a cartel in respect of

the whole of a trade or a number of trades so as to hinder outsiders from

securing access, with the object or effect of eliminating all effective

compet i t ion.

150. The infringement was deemed to be a major and serious breach of the

law, and the Commission decided to impose fines totalling ECU 15 million on

the Delmas Group, Société Navale de l'Ouest, Société Navale Caennaise and the

Hoegh-SWAL Group. In fixing the level of the fine, the Commission took

account of the fact that the Bol lore Group (which had subsequently purchased

the Delmas and Hoegh groups) had given certain important undertakings that

would ensure that active steps were taken to open up the market to intensive

compet it ion.

Lower fines (of between ECU 2 400 and ECU 56 400) were imposed on thirteen

cross-traders who were members of the shipowners' committees; in fixing the

level of these fines, the Commission took account of the fact that such

shipowners, who were not signatories to the agreements setting up the

shipowners' committees, played only an ancillary role within them.

151. Lastly, the Commission emphasized that, leaving aside the decision, it

was ready to enter into talks with the authorities in the West African and

Central African countries with a view to helping those countries' carriers

secure a greater share of the traffic generated by their external trade.

```

```
2. I .A.§1 .J.16

<T6> (j) CEWAL Liner Conference

```

**99**

```
152. The Commission imposed fines totalling ECU 10.1 million on four

shipowners for anti-competitive practices on behalf of the CEWAL liner

conference (Associated Central West Africa Lines). The Compagnie Maritime

Belge (CMB) was fined ECU 9.6 million, while the remainder was imposed on

Woermann Linie, Dafra Line (both currently owned by CMB) and Nedlloyd.

In determining the size of the fines, the Commission took account of the

minor role played by Woermann, Dafra and Nedlloyd, and their small market

share, compared to the CMB. The fines also aimed to reflect certain

mitigating circumstances which came to the Commission's attention.

153. Following complaints from the Danish Government and from several

shipowners, the Commission initiated proceedings against 11 shipowners'

committees and four liner conferences (CEWAL, MEWAC, COWAC and UKWAL).

Regarding the shipowners' committees, the Commission imposed a heavy fine in

April 1992 for infringing the EEC Treaty (Articles 85 and 86) in traffic

between France and 11 West and Central African countries.* [14] )

154. This decision* [1 5] ), the first against a liner conference, primarily

concerned CEWAL, which groups together several shipping companies in order to

provide a regular shipping service between Western European ports and the

ports of Zaïre and Angola. The decision only applied to traffic between

northern European ports (except the United Kingdom) and Zaïre.

155. The Commission found that on these routes the members of CEWAL abused

their dominant market position, in breach of Article 86, in three different

ways in order to eliminate competition from their chief competitor, G & C (a

common service between the Belgian shipowner Cobelfret and the Italian

shipowner Grimaldi):

1. They participated in a cooperation agreement with the Zaïrean maritime

   authorities (Ogefrem: l'Office Zaïrois de Gestion de Fret Maritime)

   under which all cargo on this line would be carried by CEWAL members.

(14) Commission Decision of 1 April 1992, OJ L 134, 18.5.1992.
    See point 147 of this Report.
(15) Decision of 23.12.1992, OJ L 34, 10.2.1993, p. 20.

```

```
2.I.A.§1.J-17

```

100

```
2. They used the "fighting ships" method. If a competitor offered cheaper

   rates than those set by CEWAL, the conference would hold a meeting to

   undercut that competitor, and ensure that CEWAL members scheduled their

   sailings at or around the same time as those of the competitor in order

   to win over its customers. Charges equivalent to the losses incurred by

   the competitor would then be shared out among CEWAL members.

3. CEWAL imposed 100% loyalty rebates, under which members would have to

   surrender all their cargo to the conference in order to qualify for a

   rebate. Blacklists would be drawn up with the names of shippers who

   broke the 100% rebate system. This went beyond the terms of the rules

   (Article 5(2) of the "block exemption" Regulation No 4056/86) exempting

   liner conferences from EC competition rules under certain conditions.

In addition, the Commission found that all three conferences - CEWAL, COWAC

and UKWAL - had infringed Article 85 of the EC Treaty by means of a

market-sharing agreement. Through this agreement, each shipowner refrained

from competing on the geographical territory of the two conferences other

than its own. The Commission decided not to impose a fine for this

particular infringement.

```

```
2.I.A.§1 .k.18

<T5> - Agreements concerning fisheries and

                    agr iculture

<T6> (k) Scottish Salmon

```

101

```
156. The Commission adopted a decision* [16] ) condemning an agreement between

Fiskeoppdretternes Salgslag (FOS - the Norwegian fish farmers' sales

organization), the Scottish Salmon Farmers' Marketing Board Ltd (SSB), the

Scottish Salmon Growers' Association Ltd (SSGA) and the Shetland Salmon

Farmers' Association (SSFA) to fix minimum prices for farmed salmon.

Producers in Norway and Scotland account for over 90% of farmed salmon

supplied in the Community.

157. The Commission's inquiry focused on the period at the end of 1989 when

the salmon industry was in crisis. Despite a significant rise in consumption

of farmed salmon in the Community, prices had been steadily declining. In

December 1989, Community producers lodged a complaint with the Commission in

respect of dumping in the EC of Norwegian salmon.* [17] )

158. At the same time, FOS took steps to restore the effectiveness of its

minimum price system. However, before implementing the new measures, FOS

contacted the Scottish organizations to advise them of the new plan. On

20 December 1989, FOS organized a telephone conference with producers of

farmed salmon in Europe, the purpose of which was to secure their support for

the new measures. Following the telephone conference, SSB/SSGA and SSFA sent

circulars to their members urging them to bring their prices into line with

the new Norwegian minimum prices and giving new Scottish prices based on the

Norwegian minimum price plus the traditional Scottish premium of 5-10%.

159. There were two aspects to the agreement - on the one hand, FOS measures,

i.e. minimum prices backed by a freezing scheme and on the other hand,

supporting measures taken by SSB, SSGA and SSFA to ensure price discipline on

the part of their members. The agreement terminated at the end of 1991.

(16) Decision of 30 July 1992, OJ L 246, 27.8.1992
(17) A Commission Decision taken on 15 March 1991 found that Norwegian salmon
   was being sold in the Community with a dumping margin of 11.3%.

```

```
2. I .A.§1 .k.19
```

102

```
160. The Commission's decision was aimed at establishing principles in

respect of the relationship between anti-dumping proceedings and anti-trust

proceedings, in particular in relation to the agriculturaI/fisheries sector

having regard to the provisions of Council Regulation No 26/62. Undertakings

or associations of undertakings, when confronted by a dumping practice are

not permitted under Regulation No 26/62, either in addition to or instead of

an anti-dumping procedure, to enter into a restrictive private agreement in

order to remedy the situation. The same principle applies with regard to

other similar procedures, such as safeguard clauses which are provided for in

certain Community regulations to prevent market destabi Iization.

```

```
2.I.A.§1.I.20

<T6> ( I ) Mi Ik Market ino Board

```

103

```
161. The Commission has been in discussion with the United Kingdom

authorities about the possible new milk marketing arrangements that could be

put in place following abolition of the current statutory schemes.

162. Under the current statutory arrangements virtually all dairy farmers in

the United Kingdom have to sell their milk to one of the statutory Boards

(one for England and Wales, three in Scotland, and one in Northern Ireland).

Under the reform proposals, which have been submitted by all Boards to the

United Kingdom Government, these constraints would disappear. Dairy farmers

would be free to choose where they sell their milk. Similarly, dairy

companies would be free to decide where they buy their milk and in particular

would be free to negotiate directly with farmers. Each of the five statutory

Boards would be replaced by a single producers' cooperative. Dairy farmers

would be free to decide whether or not to join these new organizations.

163. The United Kingdom Government has sought an indication of the

compatibility of the reform proposals with Articles 85 and 86 of the EEC

Treaty.

164. With respect to the proposal of the Milk Marketing Board for England and

Wales, it has been noted by the Commission that the arrangements now proposed

are considerably less restrictive of competition than were earlier proposals.

In particular, the complete separation of the current commercial subsidiary

of the MMB for England and Wales, Dairy Crest Limited, and a substantial

liberalization of the leaving terms for members of the future new cooperative

are major improvements in the competitive structure of the proposed marketing

arrangements. In the context of a single voluntary cooperative succeeding

the existing England and Wales Board, which accounts for more than 80% of the

total milk production, both aspects are essential elements in creating a

competitive environment, and ensuring the compatibility of the new

arrangements with EC competition rules.

165. It was further noted by the Commission that full details of the new

cooperative were not yet decided, and that it was still uncertain to what

extent farmers will Join it and consequently what the exact competitive

position of the new body on the United Kingdom milk market will be. This

will become clearer only if and when the reorganization has had enough time

to take effect and the industry started to adapt to the new situation. In

```

```
2.I.A.§1.I.21

```

104

```
addition, the proposed leaving terms are significantly more liberal than

those which the EC Commission accepted in the Campina case under Article 85

of the EEC Treaty.* [1 8] )

166. Against this background, it was concluded that there were no grounds for

action under Articles 85 and 86 with regard to the proposed new cooperative,

for an initial period of two years. During this initial period the market

position of the new cooperative, and in particular the effects of the leaving

terms on competition in the market, should be carefully monitored. If market

developments did not sufficiently point in the direction of real competitive

pressures, the Commission would have to decide whether or not the present

proposed contract terms, in particular the 2% penalty payable on 3 months'

notice, could still be justified. On the other hand, if they did, the

Commission would be ready to consider proposals from the new cooperative, to

be allowed greater freedom in the choice of contract terms to offer to milk

producers.

167. With respect to the other proposals relating to the Scottish area and

Northern Ireland, the view has been taken that the competition problems

related to these proposals, although in substance not different from the

English and Welsh ones, did not have a real Community dimension. The future

milk marketing arrangements in Scotland and Northern Ireland are likely to

have only regional effects. In the absence of an appreciable effect on trade

between Member States, these arrangements should be dealt with exclusively by

the competent United Kingdom authorities.

This case exemplifies the opening-up to competition of statutory structures

in the agricultural sector. It has to be seen in parallel with the policy

followed by the Commission concerning trade associations in the same sector,

including the obligation imposed on them not to take discriminatory measures

which deny market access to operators from other Member States.* [1 9] )

(18) Twenty-first Competition Report, points 83 and 84.

(19) See for instance the British Cattle and Sheep Breeders' Associations

   case in Annex I I I.A.1.

```

```
2.I.A.§1.m.22

<T5> - Agreements relating to intellectual property

<T6> (m) Chiquita/Fyffes

```

105

```
168. On 4 June the Commission decided to terminate the proceedings which were

initiated under Articles 85 and 86 of the EEC Treaty against Chiquita

following a complaint by Fyffes PLC.

169. In the past, Chiquita's banana sales in the United Kingdom were made

through Fyffes Group Ltd, an English company which was until 1986 a

wholly-owned subsidiary of Chiquita, trading bananas in the United Kingdom

under the Fyffes name and trade mark. At the same time Chiquita Europe used

the Fyffes trade mark, first as its main brand and after the introduction of

the Chiquita brand as a secondary brand, for the sale of its bananas on the

European mainland. In 1986 Fyffes Group Ltd was sold by Chiquita to the

Irish company FM (now known as Fyffes PLC). In a subsequent agreement (the

"trade mark agreement"), Fyffes Group Ltd granted Chiquita the exclusive

right to use the Fyffes trade mark outside the United Kingdom and Ireland for

a period of three years from 1986. The trade mark agreement also contained a

provision (the "non-use clause") prohibiting Fyffes Group from using the

Fyffes brand for the sale of fresh fruit, including bananas, outside the

United Kingdom and Ireland until the year 2006, or such earlier date as might

be decided solely by Chiquita. After the expiry of the three-year period in

1989, Chiquita no longer used the Fyffes trade mark, but otherwise relied

upon the non-use clause to prevent Fyffes from using the Fyffes trade mark in

continental Europe.

170. In its Statement of Objections of April 1991 the Commission considered

that Chiquita, by preventing Fyffes from selling its bananas under the Fyffes

trade mark on the EC continental banana markets, had infringed both

Article 85 and Article 86 of the EEC Treaty.

171. The Commission concluded that the non-use clause deprived Fyffes of the

competitive advantage to be gained from selling its bananas Europe-wide under

the strong Fyffes label. To the extent that the non-use clause applied

beyond the initial three-year period following the transfer of the Fyffes

Group business, it could not be considered to be a legitimate protection of

Chiquita's continental goodwill attached to the Fyffes name and trade mark.

This clause therefore constituted an anti-competitive agreement prohibited by

Article 85(1) of the EEC Treaty.

```

```
2.I.A.§1.m.23

```

106

```
172. Furthermore, the non-use clause was found to have an important effect on

the structure of competition in the banana market. Although Fyffes was not

restricted from selling bananas on the continental market, provided it used

trade marks different from the Fyffes mark, the prohibition on using Fyffes

as a strong single brand Europe-wide constituted a significant barrier for

Fyffes to effectively compete with Chiquita on that market. Hence, it had

the effect of protecting Chiquita's current dominant position in those EC

Member States with non-protected dollar banana markets i.e. the Benelux,

Denmark, Germany and Ireland. It was therefore concluded that Chiquita, by

agreeing to the non-use clause, and by relying on it since 1989, abused its

dominant position, contrary to Article 86 of the EEC Treaty.

173. The fact that, both before and after 1986, in several of the continental

Member States, Chiquita was the sole registered owner of the Fyffes trade

mark did not affect this conclusion. In fact, the Commission considered

that, having consented to the division of the ownership of the Fyffes trade

mark in different Member States through a partial assignment in favour of

Fyffes Pic, Chiquita would not be allowed under the Treaty rules on the free

circulation of goods to rely on the trade mark legislation of certain

Member States to oppose the importation of bananas which had lawfully been

marketed by Fyffes in another Member State.

174. On this basis, the Commission found moreover, in its supplementary

Statement of Objections of December 1991, that Chiquita had also abused its

dominant position by relying upon the Fyffes trade marks registered in its

name in English legal proceedings, and by threatening Fyffes with the use

thereof, to prevent Fyffes from selling its bananas bearing the Fyffes mark

in continental Europe. This conclusion was all the more justified in this

case since Chiquita had itself ceased using the Fyffes trade mark for the

selling of its bananas by 1989 at the latest and had introduced a new

secondary brand called Consul. Similar to Chiquita's reliance upon the

non-use clause, such behaviour had a serious effect upon the structure of

competition by its tendency to block Fyffes' entry as an effective competitor

on the continental banana market.

175. Following the Commission's objections, Chiquita agreed with Fyffes to

cease blocking access for Fyffes' bananas bearing the Fyffes trade mark to

the EC continental banana market.

```

```
2.I.A.§1.m.24

```

107

```
176. This settlement fully meets the objectives pursued by the Commission's

proceedings. It ensures effective access for Fyffes' bananas to the

continental EC banana market, and hence contributes to an improved structure

of the banana market by strengthening competition between different brands.

The Commission therefore decided to terminate its proceedings.

The case illustrates the limits competition law imposes on the exercise of

intellectual property rights.

```

```
2.I.A.§1.n.25

<T5> - Agreements relating to charges connected

               with environmental protection

<T6> (n) VOTOB

```

108

```
177. Although the Commission welcomes voluntary initiatives to improve the

environmental conditions in a given sector, it has to ensure that

undertakings competing in that sector do not resort to agreements which go

beyond what is necessary to achieve that goal, to the detriment of

compet it ion.

178. This is the position maintained by the European Commission since

commencing proceedings against a Dutch association of companies in the

chemicals storage business.

179. The association, Vereniging van OnafhankeIijke Tankopslag Bedrijven

(VOTOB), groups six undertakings offering tank storage facilities (land

tanks) in Amsterdam, Dordrecht and Rotterdam. They are independent

operators, offering storage services for third parties only. They decided to

increase prices charged by VOTOB members to their customers by a uniform,

fixed amount as from 1 April 1990. This uniform "environmental charge" (to

be applied for an undetermined period) was to cover, albeit in part only, the

costs of investment required to reduce vapour emissions from members' storage

tanks. VOTOB took this decision after concluding a covenant with the Dutch

Government to improve environmental standards. However, this covenant made

no mention of a uniform, fixed price increase, nor was there any obligation

on VOTOB by the Dutch Government to adopt one.

180. The Commission objected to this charge as being incompatible with

Article 85 for three reasons. Firstly, it is fixed. All members are to

apply it regardless of their own considerations. Secondly, it is uniform.

Though varying from product to product, the increase is identical for all

VOTOB members. Thirdly, it is invoiced to customers as a separate item,

suggesting it is a "charge" imposed by the government.

181. When a price or an element of it is fixed, competition on that price

element is excluded. By fixing the charge and thus a source of recovery

members have less incentive to make investments as cheaply and efficiently as

possible. This has a knock-on effect on the market for undertakings

providing reconstruction and improvement services. There will be less

```

```
2.I.A.§1.n.26

```

109

```
incentive for members to contract with those undertakings which can achieve

the best results for the least expenditure or effort.

182. Uniform adoption of the charge ignores differences in each individual

member's circumstances. The covenant with the Dutch Government stipulates an

agenda for vapour emission reduction that spans the period 1990 to 2000. The

first phase is to end in 1994. Some members are already very close to the

1994 objectives, while others are not. Furthermore, members employ different

techniques to reduce emissions, and do not expend investment costs

simultaneously. The charge ignores this. In addition, all VOTOB members

retain the proceeds of the charge individually.

183. The Commission maintains that had there been no horizontal fixing of

this particular cost element, individual members could have calculated the

cost of necessary investment, decided whether to meet it from their own

profit or to pass it on to their customers, and, if they decided to pass it

on to their customers, determined by how much to increase their prices.

This would have been done by the companies independently, having regard to

prevailing market conditions and according to their own competitive position.

184. Prior to the Commission's proceeding to a decision, VOTOB agreed to

renounce its separate charging system as from 1 January 1993, taking account

of the fact that contracts with customers are negotiated on a calendar-year

basis, and to stop invoicing in this manner as from 1 July 1992 for new

contracts. The uniformly fixed charge will no longer be applied as from

1 January 1993.

185. The case makes clear that the Commission is not opposed to the possible

passing on to customers of "polluter pays" investment costs, since this makes

them more aware of environmental problems and their implications. However,

customers should not be barred from challenging price increases and shopping

around for the smallest increase. A system whereby members invoiced a total

price, stating that it included the additional environmental investment cost,

would be acceptable to the Commission. Customers reluctant to accept a

higher price would, while becoming environmentally aware, remain in a

position to negotiate conditions.

186. The Commission agreed to suspend proceedings and review the situation in

the light of VOTOB's undertakings.

```

```
2.I.A.§1.0.27

<T5> - Cartels

```

110

```
<T6> (o) Building «n^. . -"struct ion Industry in the Netherlands

187. On 5 February the Commission adopted a decision imposing fines totalling

ECU 22.5 million on 28 construction associations in the Netherlands for

having operated a cartel in the Dutch building and construction

industry.* [20] )

188. Under the auspices of their Joint federation SPO ("Vereniging van

Samenwerkende Prijsregelende Organisâties in de Bouwnijverheid"

Association of cooperating price-regulating organizations in the

construction industry), a comprehensive set of complex and detailed

regulations was adopted and implemented, their aim being to coordinate the

competitive conduct of building and construction firms in the process of

awarding contracts for projects put out to competitive or successive single

tender, whether by public authorities or private individuals.

189. The regulations include the so-called UPR (Uniform Price-regulating

Rules) and Code of Honour, which primarily aim to arrange for the client to

pay for the tendering costs incurred by all contractors competing for a

particular bid and to designate one from among them as the so-called

"entitled bidder"; this bidder is protected from any attempt by the client

to negotiate or bargain the terms of the contract with other participants.

To this effect, the rules provide for a system of pre-tender meetings, to be

attended by all those building firms interested in competing for a

particular work. During these meetings, the participants exchange

information on the basis of which the costs of the contract are compared,

the collective decision may be taken to increase the offers in order to have

the costs of calculating their bids reimbursed by the client and the

"entitled bidder" may be designated. Each participant at the meeting may

ask for his bid to be given preference or may, upon having been informed of

all intended offers, withdraw his bid. In particular in cases in which the

participants fear strong outside competition, they may refrain from

increasing the tender figures or from designating the "entitled bidder",

thus organizing a collective and effective defence against this outside

competition. The Code of Honour, in force since 1980, lays down penalties

for breaches of the regulations and provides for a quasi-judicial procedure

to examine such breaches.

(20) OJ L 92, 7.4.1992

```

```
2.I.A.§1.0.28
```

111

```
190. The Commission found that the regulations severely restrict competition

as between participants, by effectively prohibiting each bidder from freely

setting the price and other conditions of his offer. Clients are unable to

freely choose between offers of several contractors, which result from

exchange of information among the participants and from collective decisions

as to significant elements thereof. Equally, the Commission found that

competition as between participants and non-participants is severely

restricted, the outside contractor being faced with a concerted and flexible

response by the participants designed to limit or impede its ability to

enter the market.

191. The Commission considered that the regulations do appreciably affect

intra-Community trade, both on the supply side and on the demand side. The

28 member-associations of the SPO represent over 4 000 Dutch builders,

including all of the large and most of the medium-sized firms. The SPO's

rules are binding on these firms, whilst another 3 000 companies participate

on a case-by-case basis. Among them are about 150 firms established in other

Member States. The Commission's inquiry revealed that the implementation of

the SPO's regulations covers virtually all contracts put out to tender in the

Netherlands in the sectors of the construction industry to which the SPO

rules apply. Since these regulations apply to any invitation to tender for a

contract in the Netherlands, any foreign client wishing to put out to tender

a construction contract in that Member State cannot escape the application of

these regulations.

192. The Commission-in i t iated inquiry focused on the period as from the end

of 1980 (entering into force of the first uniform regulation, the Code of

Honour). In the course of the inquiry, the SPO notified the Code of Honour

and the UPR in its version as applied since 1 April 1987, thus replacing

similar ones, adopted by its member-associations. The Commission held that

the regulations did not satisfy the conditions for exemption under

Article 85(3) of the EEC Treaty. Also in the course of the inquiry, the

municipality of Rotterdam filed a complaint concerning some aspects of the

régulât ions.

```

```
2.I.A.§1.0.29

```

112

```
193. In determining the amount of the fines to be imposed, the Commission

took account of the fact that this was the first case in the construction

sector in which A r t U ^ »*(!) of the EEC Treaty had been applied.

Furthermore, the Commission h^id that the Dutch authorities had adopted

certain measures which could lead cartel members to believe that their

activities were condoned by the State. The Commission is currently bringing

separate proceedings against the Netherlands in this matter under Article 169

of the EEC Treaty.

```

```
2.I.A.§2.a.1

<T4> §2. Distr ibut ion

<T6> (a) Newitt/Dunlop Slazenger International* [1] )

```

113

```
194. Dunlop Slazenger International Ltd (DSI), a subsidiary of the UK

conglomerate BTR, is one of the main European and world producers of sports

goods. More specifically, it is the market leader within the EEC for tennis

and squash bai Is.

Newitt Ltd, a UK distribution company, accused DSI of using various means to

block its exports, mainly of tennis and squash balls, to other Community

Member States. It alleged that DSI had first suspended deliveries and then

applied discriminatory new tariffs in order to prevent it from remaining

competitive in export markets.

The investigation carried out following the complaint showed that DSI did

indeed pursue a policy of restricting exports from the United Kingdom with

the aim of protecting its sole distributors in other Community countries.

This policy took the form primarily of a general ban on exporting imposed on

British traders, a ban which dated from 1977 at least.

This general ban on exporting was implemented, as from 1985 at least, by a

series of concrete measures intended to prevent any exports to countries

where DSI had sole distributors. In addition, the investigations showed

that, at least as regards the Netherlands, the implementation of these

measures was undertaken in collaboration with DSI's distributors in that

country, and sometimes at their own instigation.

The concrete measures identified by the Commission during its investigations

were as fol lows:

(1) OJ L 131, 16.5.1992; Bull. EC 3-1992, point 1.2.39

```

```
2.I.A.§2.a.2

1. specific refusal to supply products intended for export;

```

114

```
2. prices imposed on UK traders with a view to preventing them from

   remaining competitive in export markets;

3. buying-in of low-price parallel exports with a view to preventing them

   from exerting pressure on the prices charged by

  Dunlop Slazenger International's exclusive distribution network;

4. the marking of products with a view to establishing their origin and

   final destination;

5. exclusivity for the DSI distributors in the use of the

   Dutch Tennis Federation's quality mark.

These measures were clearly aimed at the implementation of DSI's general

policy of preventing any export bound for a country where it had a sole

distributor.

It should be noted that, at the end of the Commission's investigations, DSI

acknowledged that it had infringed the Community's competition rules in a

number of ways and altered its practices to a large extent.

However, barriers to exports resulting from agreements or concerted practices

between companies have consistently been considered, in the case-law of the

Commission and of the Court of Justice, as serious infringements of

Article 85(1) of the EEC Treaty, as they challenge the free movement of goods

and consequently the objective of economic integration pursued by the Treaty.

The Commission consequently adopted a decision on 18 March prohibiting the

measures under Article 85 of the EEC Treaty and imposing a fine of

ECU 5 million on Dunlop Slazenger International and a fine of ECU 150 000 on

All Weather Sports, its sole distributor of the Dunlop brand in the Benelux

countries.

```

```
2.I.A.§2.b.3

<T6> (b) Mars/Langnese & Schôller

```

115

```
195. On 25 March the Commission imposed interim measures in order to prevent

Langnese-lglo GmbH and Schôller Lebensmittel GmbH & Co. KG from enforcing

contractual rights obliging retailers to purchase single-item ice-cream

exclusively from them. The interim measures were imposed following a

complaint by Mars GmbH, which alleged that these rights were damaging the

sale of its own ice-cream bars in Germany.* [2] )

On 23 December, the Commission gave its final rulings on the outlet

exclusivity agreements operated by the two companies concerned in Germany.

It:

   (a) found that the agreements concluded by Langnese and Schôller

   requiring retailers established in Germany to purchase single-item

   ice-cream for resale only from these undertakings infringe Article 85(1)

  of the EEC Treaty;

   (b) refused an exemption for the agreements referred to above under

  Article 85(3) of the EEC Treaty and withdrew the benefit of the block

   exemption declared by Commission Regulation (EEC) No 1984/83, in so far

   as these agreements would have qualified for that block exemption;

   (c) declared that Langnese and Schôller may not conclude agreements of

   the kind referred to above until after 31 December 1997.

This decision clarifies the Commission's attitude towards exclusive

purchasing agreements. In general, the Commission considers these agreements

to be beneficial to competition in normal market conditions because they

strengthen the position of the undertaking which has concluded the

exclusivity agreement. If, however, access by other suppliers to the relevant

market is impeded as a result of the market structure and other significant

barriers to entry to this market, any further strengthening of that position

by exclusivity agreements cannot be accepted. Such a situation arises in the

present case, where Langnese and Schôller operate a duopoly and where access

to the market is made particularity difficult as a result of freezer

exclusivity arrangements.* [3] )

(2) See point 309 of this Report
(3) See point 309 of this Report

```

```
2.I.A.§2.b.4

```

116

```
The Commission also made clear two important points of law concerning the

application of Article 85 (1) of the EEC Treaty to exclusivity agreements

having a cumulative effect on the market as well as the conditions under

which the benefit of the block exemption under Regulation No 1984/83 will be

withdrawn.

As to the first point, the Commission applies a three-tier test:

  Does the agreement itself have an appreciable effect on competition or

   trade between Member States?

   If not, do all agreements of this kind entered into by the undertaking

  concerned have this effect?

   If not, do all agreements of this kind which exist in the relevant market

  have this effect?

If one of these questions is answered in the affirmative, the conditions for

the application of Article 85(1) are met.

As to the second point, it is clear that the benefit of the block exemption

can only be withdrawn by a decision following proceedings under Regulation

No 17. In the present case it had been coupled with the finding of an

infringement and an order to bring it to an end. In order to prevent the

anticompetitive practices from reoccurring and to allow the opening up of the

market, it was necessary to ban the conclusion of exclusive purchasing

agreements by the undertakings concerned for five years.

```

```
2.I.A.§2.c.5

<T6> (c) Givenchy

```

117

```
196. The Commission adopted a formal decision under Article 85(3) of the

EEC Treaty with regard to a standard-form selective distribution contract

laying down the conditions for the marketing within the EEC of perfume, skin

care and beauty products manufactured by the French company

Parfums Givenchy.* [4] ) The decision applies until 31 May 1997.

197. The decision confirms and supplements the principles which the

Commission had established in its Yves Saint Laurent Parfums decision of

16 December 1991.* [5] )

198. Following a general examination of selective distribution systems in

the perfume sector, the Commission had commenced proceedings against

Parfums Givenchy and against Yves Saint Laurent Parfums with a view to

covering, in two basic decisions, all the pertinent legal issues and

defining the principles of Community competition law applicable to all

companies within this sector.

199. In this context, the Commission decided to revise the position adopted

in 1974*6) and to strengthen the application of the Community competition

rules in this sector. In particular, the Commission challenged the

acceptability of certain contractual clauses which had hitherto been

tolerated in the sector.

200. Compared with the clauses examined in the Yves Saint Laurent Parfums

decision, Givenchy's selective distribution system contained one particular

clause which made the retailer's inclusion or maintenance in the

distribution network subject to his being authorized to sell a minimum

number of competing brands included on a restricted list drawn up by

Givenchy. Several companies in this sector had adopted a similar practice.

(4) OJ L 236, 19.8.1992.

(5) OJ L 12, 18.1.1992.

(6) Fourth Competition Report, point 93.

```

```
2.I.A.§2.C.6

```

118

```
201. The minimum number of four competing brands hitherto imposed by

Givenchy was deemed to be a requirement which, without being excessive, made

it possible to ensure that distribution was based on a variety of competing

brands being sold alongside Givenchy products. However, the Commission

opposed any restriction on the authorized distributor's choice of suitable

brands to make up the required environment. In particular, the Commission

considered that such a clause had the effect of limiting access to the

distribution network for new retailers and, consequently, of restricting

intra-brand competition. Furthermore, it was liable to limit the ability of

new or lesser known brands to penetrate and establish themselves on the

market, thereby also restricting inter-brand competition.

202. Following the Commission's intervention, Givenchy deleted the clause,

replacing it with a new provision which allowed each retailer the freedom to

choose to sell any other luxury perfume brand alongside the contracted goods.

203. Apart from the above-mentioned aspect, the Givenchy decision confirms

the position which the Commission adopted in the Yves Saint Laurent decision

of 16 December 1991 with regard to the abolition of purely quantitative

selection criteria, the conditions for the admission of retailers to the

distribution network, recognition of the freedom of the authorized

distributor to determine its own retail prices, the liberalization of

cross-supplies among authorized retailers and the conditions designed to

ensure that the manufacturer did not impose on retailers excessive

requirements regarding minimum purchases.* [7] )

204. The decision is an example of the Commission's policy on selective

distribution, which aims to ensure that the advantages of selective

distribution are not undermined by the harmful effects of

compartmentaIization of the common market.

(7) Twenty-first Competition Report, points 134 to 136.

```

```
2.I.A.§2.d.7

<T6> (d) Viho/Parker Pen* [8] )

```

119

```
-205. On 15 July the Commission adopted a decision imposing a fine of

ECU 700 000 on the British company Parker Pen and a fine of ECU 40 000 on

Herlitz AG, its distributor in Germany, for having included an export ban in

an agreement concluded between them.

Following a complaint from the Dutch company Viho, it was found that

Parker Pen and Herlitz AG had concluded an agreement in August 1986 on the

distribution of Parker Pen products in Germany, under which all exports that

did not have Parker's written consent were prohibited. The products

concerned were Parker pens and similar articles in the medium price range,

sold mostly in department stores.

The Commission took the view that the infringement was such as to obstruct

the achievement of a fundamental objective of the Treaty, namely the

integration of the common market.

The level of the fine imposed on Parker Pen took account, however, of

Parker's cooperative behaviour during the investigation and the fact that

Parker drew up a programme to ensure compliance with Community competition

law.

In the case of the fine imposed on Herlitz AG, the Commission took account of

the fact that Herlitz's responsibility was less than that of Parker, since it

could be supposed that Herlitz AG was merely complying with Parker's wishes.

(8) 0J L 233, 15.8.1992; Bull. EC 7/8-1992, point 1.3.37.

```

```
2.I.A.§2.e.8

<T6> (e) 1990 Footbal I World C U P

```

120

```
206. On the basis of a complaint made by a travel agency, the Commission

examined the general distribution system for tickets and package tours set up

by the organizers of the football World Cup held in Italy in 1990.

207. The Federazione Italiana Giuoco Calcio (FIGC) was appointed by the

Federation of International Football Associations as organizer of the 1990

cup. The FIGC, acting jointly with FIFA, set up a local "Organizing

Committee" to carry out this task. This Committee established the system for

distributing advance tickets to the event.

208. The concerns of the Commission in this case focused on the method

chosen by the Organizing Committee for distributing tickets to package tour

operators. The Organizing Committee granted to an Italian tour operator,

"90 Tour Italia", the exclusive right to sell entry tickets as part of a

package tour. All other tickets were sold subject to the explicit condition

that they are not resold to travel agencies.

As a result of this, 90 Tour Italia acquired a monopoly in the organization

and sale of package tours to the World Cup. Other tour operators were unable

to compete, as they could not offer alternative packages, even at cheaper

prices. Equally, travel agencies could only offer a limited choice of package

tours to the World Cup, and were unable to "shop" between several tour

operators in order to obtain more advantageous conditions for their

customers.

209. The Commission therefore considered that the agreement concluded between

the organizers and 90 Tour Italia had restricted competition at the expense

of the consumers who purchased package tours, and had thus infringed

Article 85(1) of the EEC Treaty.

210. In reaching this conclusion, the Commission examined very carefully

whether the exclusive distribution system could be justified by the need to

guarantee safety at the matches. However, it was clearly demonstrated that a

number of other tour operators could have fully complied with the Organizer's

requirements and would therefore have been able to offer competing package

tours without in any way undermining safety. It is important to note that

```

```
2.I.A.§2.e.9

```

121

```
this was accepted by the Organizing Committee representatives during the

proceedings in this case.

211. The following undertakings were considered by the Commission to be

responsible for this infringement of the Community's competition rules: FIFA,

the Federazione Italiana Giucco Calcio (FIGC), Col Italia (acting as a Joint

agency of the FIFA and of the FIGC), 90 Tour Italia and CIT Spa/ltal iatour

(as parent companies of 90 Tour Italia).

212. This was the first time that the Commission adopted a formai decision

under its competition rules concerning the sale of tickets at sporting

events. In the light of this, and taking account of the fact that the

infringement was of short duration, the Commission decided not to impose a

fine in this case.

213. However, the Commission intends to ensure that the distribution systems

of major sporting events fully comply with its competition rules in future.

In this way it can guarantee that consumers who wish to attend such events

are able to purchase entry tickets or package tours on advantageous

conditions as a result of competition between several distributors.

```

```
2.I.A.§2.f.10

<T6> (f) UiÇ

```

122

```
214. The Commission adopted a decision against the International Union of

Railways for infringement of the provisions of Article 85 of the EEC Treaty.

The UIC is a worldwide association of railway companies through which its

members cooperate at a technical and commercial level. Within the framework

of this organization the railways acted in concert to lay down the conditions

for granting approval to travel agencies to sell railway tickets, and the

conditions under which the agencies could sell such tickets.

Under the terms of the provisions implemented by the UIC, the appointment of

a travel agency in a Member State could only be made by the national railway

company. Thus the railway could control the number of travel agencies which

could compete with it for ticket sales, even though a higher number of

approved agencies would probably have appreciably improved the service to the

consumer.

The railways also acted in concert to set a single rate of commission paid to

the agencies for ticket distribution as well as uniform conditions for

payment of the commission. These arrangements prevented the agencies from

obtaining better conditions, conditions which might have proved beneficial to

their consumers.

In addition, the provisions adopted by the railways forbade the passing-on by

the travel agencies of part of their commission to their customers. This

infringement was particularly serious because its objective and effect was to

prevent competition both between travel agencies, and between the travel

agents as a group and the railway undertakings. This practice particularly

penalized the consumer who could not benefit from a reduction in price which

would have been possible if the passing on of commission was allowed. It

must be pointed out that this practice was clearly identified as

anti-competitive by the Court of Justice in a 1987 case.

Generally, the Commission considered that the establishment of certain common

conditions by the railways for the approval of travel agencies and for the

sale of tickets by those agencies might indeed improve ticket distribution.

However, in this case the Commission did not believe that the conditions

established, limiting the commercial autonomy of the travel agencies and

competition between ticket vendors, were to the benefit of the consumer.

```

```
2.I.A.§2.f.11

```

123

```
The infringement was serious and took place over a prolonged period.

However, the railway companies undertook to comply with Community law. The

Commission therefore decided to impose only a moderate fine (ECU 1 million)

on the international Union of Railways, the party responsible for the

anti-competitive practices.

This decision is an example of the Commission's determination to ensure the

adoption of a dynamic and effective distribution system for railway tickets,

so that rail will play a greater role in passenger transportation.

```

```
2.I.A.§2.g.12

<T6> (g) Ford Agr icultural

```

124

```
215. The Commission adopted a decision* [9] ) concerning Ford New Holland, which

included in relations with its dealers a prohibition on the import and export

of tractors and a number of other provisions intended to hinder parallel

trade.

These relations formed part of a detailed system set up by Ford to prevent

trade In its tractors. Firstly, Ford established a "tracking" system that

enabled It to identify parallel imports, and to trace their sources. In the

United Kingdom, for example, Ford made considerable use of the Information

contained in the relevant vehicle registration documents, which were made

available to the trade association for statistical purposes.

Once a parallel import, and its source, had been identified, Ford threatened

or carried out one of the following actions:

  - cancellation of the dealership;

  - delaying delivery when it was believed that the tractor was intended

    for export;

  - charged higher prices or reclaimed discounts;

  - made discounts conditional on registration within the territory;

  - made discounts conditional on the dealer obliging the purchaser not to

    re-selI the vehicle;

  - refused to honour guarantees for parallel imports;

  - sought to profit from differing safety regulations by refusing to

    supply operating manuals in the importers language.

The dealership agreements signed by Ford were therefore, in these

circumstances, a clear infringement of Article 85(1).

(9) OJ L 20, 28.1.1993.

```

```
2.I.B.a. 1

 <T3> B. Abuse of a dominant position

 <T6> (a) British Midiand/Aer Li nous

```

/Ï2.5

```
216. Following a complaint by British Midland, the Commission found that Aer

Lingus had abused its dominant position by terminating its interline

agreement with British Midland. The Commission imposed a fine of ECU 750 000

on Aer Lingus and ordered it to resume its interline [1] relationship with

British Midland during a limited period.

Aer Lingus is the dominant airline on the London-Dublin route. After

British Midland announced its intention in 1989 to start its own service on

that route and to compete with Aer Lingus, the latter terminated its

interline relationship with British Midland. As a result of that action,

passengers holding British Midland tickets could no longer change flights on

to Aer Lingus services and travel agents could no longer issue tickets

combining flights by both airlines.

The withdrawal of interline facilities made British Midland's flights less

attractive to travellers - in particular business travellers who prefer thé

higher-priced fully flexible tickets - and to travel agents. By terminating

its interline relationship, Aer Lingus made it more difficult for British

Midland to compete during the initial period of its presence on the route

with an increased number of flights. British Midland was deprived of

   Twentieth Competition Report, points 73-76. Interlining is essentially

   based on an I ATA agreement pursuant to which most of the world's

   airlines have authorized the other signatories to sell their services.

   As a result travel agents can offer passengers a single ticket providing
   for transportation by different carriers (e.g. leaving on the airline

   issuing the ticket and returning on another airline serving the same
   route, or continuing to destinations not served by the issuing airline).

   In addition, airlines recognize each other's authority to change a
   ticket so that passengers can change reservations, routings on airlines
   after the ticket has been issued. These changes would normally require

   the consent of the airline indicated on the ticket for the sector

   concerned ("endorsement"), but most airlines have agreed to waive this
   requirement in practice.

   As a result the interline system benefits airlines, travel agents and
   passengers alike; it enables the issuing of travel documents for complex
   Journeys and allows flexible uses of these documents with minimal
   constraints. It is a very significant part of the worldwide air
   transport system and is of particular value to business travellers.

```

**`2.I.B.a. 2`** _hlh_

```
 significant revenue and forced to incur higher costs in order to overcome the

 handicap imposed on it.

 217. The Commission found that Aer Lingus had infringed the conditions

 governing participation in tariff consultations designed to ensure that they

 are compatible with Article 85 of the EEC Treaty. The applicable block

 exemption [2] requires airlines discussing tariffs with their competitors to

 interline with all other airlines operating intra-European services.

 218. This decision is evidence of the Commission's determination to act

 against airlines holding dominant positions, if they attempt to prevent the

 development or maintenance of competition. At a time when the European air

 transport industry is being liberalized, airlines making use of the new

 opportunities for competition should be given a fair chance to develop and

 sustain their challenge to established carriers.

 Airlines holding dominant positions should not penalize this competition.

 They should not withhold facilities which the industry traditionally provides

 to all other airlines, and they should take care to compete strictly on the

 merits of their own services.

 The Commission consequently took the view that Aer Lingus should resume its

 interline relationship with British Midland. However, it also accepted that

 new entrants should not be able to rely indefinitely on frequencies and

 services provided by their competitors, but must be encouraged to develop

 their own frequencies and services. Therefore the duration of a duty to

 interline should be limited to the time period which was objectively

 necessary for a competitor to become established on the market. Taking into

 account the fact that three years had lapsed since British Midland started

 its new services, the duty to interline imposed by the decision was limited

 to two years, subject to review in the light of the development of

competition on the relevant route.

   Article 4 of Commission Regulation (EEC) No 2671/88 of 26 July 1988,
   OJ L 239, 30.8.1988, since replaced by Article 3 of Commission
   Regulation (EEC) No 8491/90 of 5 December 1990, OJ L 10, 15.1.1991.

```

```
2.I.B.b. 3
## **_m_**

 <T6> (b) B&l/Sealink. Holyhead

 219. Following a complaint by B&l (an Irish ferry operator), the Commission

 found that Seal ink (a British ferry operator which is also the port authority

 at Holyhead, Wales) had, prima facie, abused its dominant position in breach

 of Article 86 of the EEC Treaty. In its capacity as port authority at

 Holyhead, Seal ink permitted changes to its own ferry sailing times which

 might have caused serious damage to B&l. The Commission ordered interim

 measures against Seal ink which obliged it to alter some of its sailing times.

 In this context it is important to stress that a port, an airport or any

 other facility, even if it is not itself a substantial part of the common

 market, may be considered as such in so far as reasonable access to the

 facility is indispensable for the exploitation of a transport route which is

 substantial for the purposes of the application of Article 86 of the EEC

 Treaty. The Commission recalls that, in the case British Midland/Aer Lingus

 (mentioned above), it was the route that was taken into account and not

 solely Heathrow airport.

 Seal ink and B&l use different berths at Holyhead, B&l using a berth in the

 mouth of the harbour. Due to the port's limitations, when a Seal ink vessel

 passes a moored B&l ship, the water in the harbour rises. As a result, the

 ramp to the B&l ship must be disconnected for safety reasons and loading or

 unloading of the vessel is interrupted.

 In October 1991 Seal ink informed B&l that it intended to introduce new

sailing times on 9 January 1992, which would involve the movement of two

ships past the B&l vessel while it was in its berth. In the past only one

vessel passed a B&l ferry while it was loading. B&i asked the Commission to

adopt interim measures to prevent the implementation of Seal ink's new

schedule on the grounds that its services would be severely disrupted due to

the reduced time available in which to carry out its loading and unloading

operat ions.

The Commission considered that a company which both owns and uses an

essential facility - in this case a port - should not grant its competitors

access on terms less favourable than those which it gives its own services.

This consequence of Article 86 is of essential importance in the context of

deregulation, which regularly raises the problem of market access for new

entrants. On 11 June the Commission adopted a decision ordering Seal ink

```

### **2. I.B.b. 4 m**

```
 either' to return to its original schedule or to adopt any other schedule

 which would not lead to two vessels passing a B&l ferry during loading. The

 aim of the interim measures was to prevent irreparable damage to B&l's

 business while the Commission continued its examination of the case, and the

 duration of the interim measures was therefore limited to the peak summer

 season (27 September) or until the date of coming into force of any schedule

 agreed by both parties. The parties subsequently reached an agreement and

 notified the Commission accordingly on 8 July. As a result of this agreement,

 Seal ink withdrew its application for suspension and annulment of the

 decision, which it had made to the Court of First Instance.

```

```
2.I.B.b. 5

 <T6> (c) GlIiette/WiIkinson Sword

```

129

```
220. The Commission adopted a decision under Articles 85(1) and 86 of the

EEC Treaty* [3] ) ordering Gillette, the US razor group, to dispose of its

interest in Eemland, the parent company of Wilkinson Sword and Gillette's

main competitor in the market for wet shaving products. Gillette was also

required to reassign to Eemland the Wilkinson Sword businesses in all the

EFTA countries as well as the former German Democratic Republic,

Czechoslovakia, Hungary, Poland, Turkey and the former Yugoslavia. Gillette

was given a fixed period from the adoption of the decision to carry out the

disposal and reassignment.

Gillette occupies a dominant position in the Community's wet shaving market,

which is a highly oligopolistic market in which the combined market shares of

Gillette and Wilkinson amounted to nearly 85%. The decision found that

Gillette's holding in Wilkinson Sword, its principal competitor in the

Community, constituted an abuse of its dominant position. Gillette, which

had acquired all of Wilkinson's businesses before being obliged to dispose of

them, acquired a substantial equity stake in Eemland as well as becoming one

of its principal creditors. Though lacking many of the usual minority

shareholder's rights, Gillette acquired pre-emption and conversion rights and

options in Eemland, which prompted the Commission to conclude that Gillette

would be able to exercise some influence over the commercial policy of

Eemland. The change in the structure of the wet shaving market brought about

by the link between Gillette and Eemland would weaken competition.

Consequently, Gillette's involvement in the overall arrangement constituted

an abuse of its dominant position.

Furthermore, the agreements between Gillette and Eemland relating to the

geographical separation of the Wilkinson Sword trade mark between the

Community and neighbouring countries would have necessitated commercial

cooperation between the respective owners of the trade mark. There were also

supply arrangements between the parties whereby Gillette would obtain

Wilkinson Sword products from Eemland for sale outside the Community, and

this would have constituted another element of cooperation.

(3) Decision of 10 November 1992, not yet published

   IP(92)909, 11.11.1992.

```

```
2.I.C.§1. 1

 <T3> C. Merger control

```

130

```
221. A number of new points were established this year in implementing the

Merger Control Regulation. As part of its policy of transparency, the

Commission is therefore giving a detailed analysis of the decisions taken in

1992.

222. The analysis of a case implies dealing with two questions: first of all,

one has to assess whether the notified operation falls within the scope of

application of the Regulation; secondly, one has to assess its compatibility

with the common market i.e. to determine whether or not it creates or

strengthens a dominant position as a result of which effective competition

would be significantly impeded in the common market.

<T4> §1. Scope of application

<T5> 1. Community dimension (Article 1)

223. The Commission continued its established practice of considering the

economic substance of an operation rather than accepting the chosen legal

form as decisive. In Eucom/Digita I. the notified operation was the creation

of a new company to be jointly controlled by Digital and Eucom. However,

Eucom is a holding company that develops specific value added network

services by cooperating with other partners or by investing in existing

companies. It is a 50/50 Joint venture between France Télécom and Deutsche

Bundespost Telekom. The Commission therefore looked through Eucom and treated

its two parent companies as undertakings concerned within the meaning of

Article 1. Theirs were therefore the turnovers to be taken into account to

calculate whether the concentration had a Community dimension.

<T5> 2. Calculation of turnover thresholds (Article 5)

224. The Regulation only applies if the undertakings concerned reach a

certain turnover. There are special rules in Article 5(3) for the

calculation of the equivalent of turnover for credit and other financial

institutions and for insurance undertakings. In Torras/Sarr io. the Commission

concluded that the holding of fixed interest securities, which was part of

the investment activity of the Kuwait Investment Office, should be treated as

a means of giving credit to third parties. Consequently, fixed interest

```

```
2.I.C.§1. 2

```

131

```
 securities constitute loans and advances within the meaning of Article 5(3)

 and should therefore be included when turnover is calculated. On the other

 hand, in GECC/Avis. it was held that Article 5(3) does not apply to operating

 leases under which Avis provided full service vehicle contract hire. These

 leases, under which the risk of ownership is retained by the lessor and

 ownership is not transferred to the lessee at the end of the lease term, were

 distinguished from financial leases which function primarily as a loan. For

 interbank lending, the Commission decided in Honk Kong & Shanghai

 Bank/Midland Bank that loans and advances should be attributed geographically

 to the country in which the borrowing bank branch is located even though in

 risk assessment, which is at the heart of lending decisions, banks take into

 account the place of incorporation of the borrowing bank. The location of the

 branch of the bank to which the loan is made is presumptively the place at

 which the loan will be used.

 225. The second subparagraph of Article 5(2) provides that two or more

 transactions which take place within a two-year period between the same

 persons or undertakings are to be treated, for the purpose of calculating

 turnovers, as one and the same concentration arising on the date of the last

 transaction. It was invoked for the first time in the Volvo/Lex(2) case.

 Volvo acquired the operating assets of an Irish subsidiary of Lex, having

 previously acquired the assets of its UK subsidiary.* [1] )

 <T5> 3. Definition of concentration (Article 3)

 226. The Commission has continued to develop its practice in defining a

 concentration. In particular, the Commission has been mindful of the need to

 clarify the distinction between concentrâtive joint ventures which fall under

 the Merger Regulation and cooperative joint ventures which are to be examined

 under Articles 85 and 86 of the Treaty.* [2] ) There is a concentration when an

 undertaking acquires sole control of another undertaking, or of a joint

 venture which it previously controlled jointly with another party; or when

 several undertakings jointly acquire control of an undertaking, or create

 one.

 (1) See Volvo/Lex decided on 21.5.1992 and Volvo/Lex(2) decided on 3.9.1992.
 (2) See the notice on concentrâtive and cooperative joint ventures.
    Twentieth Competition Report, p. 304.

```

```
2.I.C.§1. 3

 <T6> (a) Sole control

```

132

```
227. The acquisition of more than half of the capital of a company is the

usual means of acquiring sole control. However, it is possible for a minority

shareholder to exercise sole control. In CCIE/GTE, the acquiring company

obtained only 19% of the voting rights in the target company, but in addition

it will have a permanent seat on the board and will appoint the Chairman and

CEO. The director appointed by the acquirer will have a veto over all

significant decisions of the target company and it was therefore concluded

that the acquiring company will be able to exercise sole control.

228. In ABB/Brei . sole control was obtained by ABB which had previously had

Joint control of Brel. There was thus a change of control which was treated

as a concentration following established practice.* [3] ) This practice was also

applied in Solvay-Laporte/Interox where the division of a joint venture was

considered to be two concentrations. Each parent company took over a distinct

part of the Jointly controlled business, thereby acquiring sole control of

it. The Commission reached its conclusion notwithstanding that the operation

was governed by one master agreement which related to the division of a

single undertaking (i.e. the joint venture). The economic and legal result of

the operation is that two independent undertakings each move from a position

of joint to sole control for two different sets of specific assets and

products. The Commission noted in its decision that there may be situations

where the division of an undertaking between its owners could give rise to an

operation that might be considered as one whole.* [4] )

229. Several operations were considered as one single concentration in

Mannesmann/Hoesch. The parties brought together their precision steel tube

business through the establishment of a Joint venture to which they

transferred their existing business, and Mannesmann acquired a 50% holding in

an existing Hoesch subsidiary. In addition Hoesch transferred ownership of

one of its subsidiaries to Mannesmann. Since these operations were carried

out by the same parties and relate to the same sectors of an industry with

each operation representing part of an overall agreement between the parties

to restructure their steel tube activities, they were treated as one single

concentrât ion.

(3) See ICI/Tioxide. Twentieth Competition Report, point 149

(4) See Campsa, Twenty-first Competition Report, p.352.

```

```
2.I.C.§1. 4

 <T6> (b) Joint control

```

133

```
230. The most common situation of Joint control is where two undertakings

each hold half of the share capital of a joint venture, and there is no

shareholders' agreement which confers control on either of the undertakings.

If there is an agreement between the shareholders, joint control can be

established despite unequal shareholdings. In Thomas Cook/LTU/West LB. the

two shareholders had respectively 90% and 10% of the shares of Thomas Cook,

but they also entered into a shareholders' agreement which provides that the

consent of both parties is required for important strategic decisions

relating to the joint venture, which the Commission therefore concluded was

jointly controlled. Likewise in Eucom/Digita I. a shareholding of 74.9/25.1%

was accompanied by a shareholders' agreement providing for joint control.* [5] )

By way of contrast a 59.5/40.5% split in Pepsico/GeneraI Mills did not allow

the minority shareholder to exercise joint control. It is possible, of

course, for more than two shareholders to exercise Joint control.*6)

These cases are to be distinguished from a situation where there can be

changing alliances in the decision-making process, as in Eureko and

Koioe-TabacaIera/EIosua. Although the matter was not decisive in either of

these cases, changing alliances are generally inconsistent with the existence

of a mecanism or a procedure guaranteeing joint control.

In a pre-existing Joint venture company where there is a change of control,

as in James River/Rayne. with one shareholder being replaced by a new

shareholder, the transaction constitutes a concentration since the new

shareholder acquires Joint control.

<T6> (c) Concentrâtive loint venture

The two conditions which must be fulfilled under the second subparagraph of

Article 3(2) for a joint venture to be regarded as concentrâtive are that it

must perform on a lasting basis all the functions of an autonomous economic

entity and that it must not give rise to coordination of the competitive

behaviour of the parties amongst themselves or between them and the joint

venture. These two conditions are illustrated below. If they are not

(5) See also Ahold/Jer6nimo Martins. Air France/Sabena. Br it ish Airways/TAT.
   Er icsson/Ascom. Linde/Fiat. Northern Telecom/Matra and Rhône
   Pou lenc/SNI A.

(6) See Avesta/British Steel/NCC/AGA/Alex Johnson.

```

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2.I.C.§1. 5

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 fulfilled, the Joint venture is not a new competitor on the market, but

 rather a vehicle through which two competitors cooperate, and may therefore

 fall under Article 85.

 <T6> (i) Fuli-function loint venture established on a lasting basis

 In Elf Atochem/Rohm & Haas, the parties set up a new Joint venture company to

 which they transferred their activities relating to the production of acrylic

 glass. The operation was treated as a merger because the joint venture

 constituted an autonomous economic entity for the following reasons:

    the physical and human resources necessary for the production and sale

    of the product where transferred to the Joint venture and the

    construction of a new factory was to start soon thereafter;

    the parent companies granted exclusive and irrevocable licences to the

    joint venture in respect of all the intellectual property rights needed

    for the production of the acrylic glass concerned;

 - the joint venture will have its own research and development facilities;

    the joint venture will have its own distribution network;

    there will be a guaranteed supply of raw materials for the joint

    venture, but it will be free to choose its suppliers;

    the agreement is for a period of 99 years.

 By contrast in Flachglas/Vegla. the Commission concluded that the proposed

 joint venture company set up to recycle scrap glass would not be an

 independent buyer or seller on the market in the future. It would only

 perform an auxilliary function for its parent companies and, because it could

 not be considered as an autonomous economic entity, the operation did not

 constitute a merger.

 <T6> * » • ) Absence of coordination

 Where the parent companies setting up a joint venture will not be active in

 its markets, and remain neither actual nor potential competitors of each

other or of the Joint venture, there will normally be no coordination of

 competitive behaviour so the operation can be treated as a concentration. For

 example, in Péchiney/Viag. both parent companies transferred their existing

 cored wire business to the joint venture, including the means of production,

 thereby making their re-entry into this market very unlikely. The Joint

 venture operation was therefore a concentration. Likewise in Saab/Er icsson.

```

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2.I.C.§1. 6

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 both parties pooled their space activity in the joint venture and withdrew on

 a lasting basis from this market. In Ahold/Jerônimo Martins, concerning food

 retailing in Portugal, one of the parent companies, Ahold, retained important

 food retailing operations in other geographic markets (the Netherlands and

 the USA) but had no operations in Portugal. The Commission concluded that

 since there is no interaction between these different geographic markets,

 there was no risk of coordination of competitive behaviour between Ahold and

 the joint venture in the Portuguese food retail market. Furthermore, there

 were no indications that either of the parent companies could enter this

 market independently in the foreseeable future. Their agreement not to

 operate in the Portuguese general food retail market except through the joint

 venture was additional evidence of their permanent withdrawal from this

 market.* [7] ) The operation was therefore a concentration.

 A limited and insignificant presence of the parent companies on the same

 product or geographic market as the joint venture is generally not sufficient

 to bring about coordination and so does not exclude the application of the

 Merger Regulation.* [8] ) The Commission also considers any vertical

 relationships between the parties and any possible spill-over effects on

 markets retained by the parent companies. In James River/Rayne. the joint

 venture was active in the tissue paper market and James River retained small

 subsidiaries in the Community which produce printing and writing paper and a

 50% stake in a joint venture which manufactures table top products (paper

 plates and cups) and Rayne retained a company producing packaging material.

 The Commission took the view that it is improbable that the parties' limited

 presence on different neighbouring markets would result in concerted market

 strategies in the paper sector. In Saab/Er icsson. it was concluded that there

 would be no appreciable spill-over effects from the joint venture in the

 space business even though the parent - companies remain active in the

 electronic industry and the defence sector. Vertical relationships were

 examined in Volvo/At las where between 5% and 11% of the products produced by

 the joint venture were sold to its parent companies, on arm's length terms.

 Since these sales represent less than 0.05% and 0.5% of the purchases of

 Volvo and Atlas respectively, the vertical relationships were considered to

 be insignificant.

 (7) See also Er icsson/Ascom and Thomas Cook/LTU/West LB.

 (8) See Del Monte/Royal Foods/Anglo-American.

```

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2.I.C.§1. 7

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136

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 The Commission has observed in a number of cases that where one parent

 company remains a significant player on the same market as the joint venture,

 and assumes a leading role in the management of the Joint venture, the

 operation will be treated as a concentration. In such cases, it would not be

 appropriate to be concerned about any coordination of the competitive

 behaviour of this parent company and the joint venture because there is no

 room for the coordination of the competitive behaviour of undertakings which

 remain independent. For example, in Linde/Fiat. a joint venture was

 established in the field of forklift trucks and warehouse equipment. It was

 considered highly unlikely that Fiat would re-enter the markets of the joint

 venture since it would not be economically reasonable for it to do so.

 However, Linde continues to operate on these markets and will assume the

 overall responsibility for the commercial strategy and the day-to-day

 management of the joint venture, since it has considerable experience and

 expertise in the markets concerned. Linde and the joint venture are present

 not only on the same product markets but also on the same geographic market,

 but in view of the leading role which Linde will have in the joint venture,

 the operation was considered to be a concentration.

 In Er icsson/Koibe. the parties established a Joint venture in the field of

 public digital transmission. Kolbe transferred all its business in this field

 to the joint venture, but Ericsson remains a competitor of the joint venture

 and will not withdraw from the transmission markets. The Commission came to

 the view that Ericsson will assume the overall industrial responsibility for

 the joint venture, and that Kolbe's interest in the joint venture company

 will become financial rather than commercial in nature over time.

 Consequently, it appears that there is no room for the coordination of the

 competitive behaviour of undertakings which remain independent within the

 meaning of Article 3(2) of the Regulation and the operation was treated as a

 concentrât ion.* [9] )

 The Commission also examined a number of joint venture operations which it

 decided did not fall within the scope of the Merger Regulation because the

 operation had as its object or effect the coordination of competitive

 behaviour. In most of these cases, the parent companies remained actual or

 potential competitors of each other and the joint venture. So in Sunr ise. for

 example, the Commission concluded that the joint venture arrangement would

 (9) See also Air France/Sabena. British Airwavs/TAT. Er icsson/Ascom.

    Fort is/La Caixa, Northern Telecom/Matra.

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2.I.C.§1. 8

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 give rise to coordination in the sale of television advertising between the

 regional broadcaster parents and between them and Sunrise, the joint venture.

 Even at the lowest regional level, the arrangement linked the principal

 commercial broadcasters in the London region.

 In Herba/IRR. the parties established a Joint venture to produce and sell

 rice. One of the parent companies, Herba, remains a competitor of the Joint

 venture in the rice market, but the other parent, IRR, currently has no rice

 interests. However, IRR is part of the Ferruzzi group, which has considerable

 interests in the food sector, where new entry is relatively easy, and

 therefore it was considered to be a potential competitor of the joint venture

 and Herba. For this reason the joint venture was considered to fall outside

 the scope of the Merger Regulation.* [10] )

 In BSN-NestIé/CokoIadovny. the Commission considered the risk of vertical

 coordination between the parent companies and the joint venture. BSN, which

 is a major producer of biscuits, and Nestlé, which has a significant position

 in the production of chocolate, acquired joint control of Cokoladovny, which

 manufactures and markets sugared chocolate biscuits as well as sugared and

 chocolate confectionery in Czechoslovakia. The Commission took into account

 the similarity of the respective products concerned and the prospective

 opening of the markets of the Community and the markets of Central and

 Eastern Europe and concluded that it could not rule out that the parents may

 coordinate their competitive behaviour with that of the joint venture.

 Consequently, the operation did not fall under the Merger Regulation.

 (10) See also Eureko. Koipe-Tabacaiera/EIosua and VTG/BPTL

```

```
2.I.C.§2. 9

 <T4> §2. Appraisal of concentrations (Article 2)

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138

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231. Once an operation has been defined as a concentration within the meaning

of the Regulation, its compatibility with the common market must be

assessed.This generally includes three steps of analysis: the determination

of the relevant product market, the determination of the relevant geographic

market and the assessment of the compatibility of the merger with the common

market, in particular the question of dominance. The relevant product and

geographic markets determine the scope within which the market power of the

new entity must be assessed. The Commission often leaves open the question of

the precise relevant product or geographic market if it can find that, even

on the basis of the narrowest possible market definition, no dominant

position is created or reinforced.

<T5> 1. Determination of the relevant product market

232. The various decisions illustrate that the Commission has employed two

basic criteria for determining product markets: substitutabiIity and

conditions of competition.

<T6> (a) Subst itutabiIity

233. The Commission has employed the 'classical' criterion of demand-side

substitutabiIity whereby a product market comprises "all those products which

are regarded as interchangeable or substitutabie by the consumer, by reasons

of the products' characteristics, their prices and their intended use". In

Du Pont/ ICI. the Commission held that there was a distinct market for nylon

fibres, as against other fibres, for the purpose of carpet manufacture, given

the superior performance characteristics of nylon and its substantially

higher price. Again, in Nestlé/Perr1er. the Commission concluded that the

market for bottled source waters was distinct from that for soft drinks, in

view of substantial differences in consumption patterns and present and

historic price levels, despite a limited substitutabiIity in terms of

funct ionality.* [11] )

234. The Commission has also considered the implications of supply-side

substitutabiIity, that is, in particular, whether suppliers have the facility

to switch production to the product field in question.

(11) See also Torras/Sarrio. Henkel/Nobel. Linde/Fiat and Air France/Sabena.

```

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2.I.C.§2. 10

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139

```
 In some cases, notably Du Pont/ICI and Nestlé/Perr ier. the Commission has

 cited the absence of supply-side substitutabiIity, in conjunction with the

 absence of demand-side substitutabiIity, as evidence of a narrow product

 market.

 In other cases, the Commission has considered situations in which products

 have been substitutable from the point of view of suppliers, but not from the

 point of view of customers (demand). In Torras/Sarr io. coated papers were

 considered to be a separate market from uncoated papers because of limited

 demand-side substitutabiIity, even though it was relatively easy for a

 producer to switch from one to the other,* [12] ) the latter fact being still

 relevant for the assessment of dominance. However, in Steetley/Tarmac,

 despite the fact that substitutabiIity between different types of bricks

 regarding end-use was limited, the Commission held that it was inappropriate

 to distinguish separate markets because technical and marketing costs

 incurred by producers in switching production would not be significant.* [13] )

 <T6> (b) Conditions of competition

 235. Products which are technically substitutable may nevertheless be

 classified as belonging to separate markets in view of different structures

 of supply or demand; conversely, quite heterogeneous products may be

 considered as a group when marketed along the same channel of distribution.

 In Accor/Waoons-L its, the Commission considered motorway restaurants to

 constitute a separate market from other types of restaurant since, on the

 demand-side, customers are restricted to motorway travellers and, on the

 supply-side, quite distinct operating conditions apply.* [14] )

 In Inchcape/IEP. the Commission decided that the product market concerned was

 the wholesale motor vehicle distribution service. Since, for a given marque,

a model range covering different market segments (e.g. small, medium and

 large) is normally distributed along the same channel, the Commission

 (12) See also Péchinev/Viag.

 (13) See also Elf Atochem/Rohm & Haas and Avesta/Br i t i sh SteeI/NECC/AGA/AxeI

    Johnson.
 (14) See also Viroin/EMl and Thomas Cook/LTU/West LB.

```

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2.I.C.§2. 11
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140

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 considered it unnecessary to analyse distribution channels by product market

 segments of vehicles distributed.* [15] )

 <T5> 2. Determination of the relevant geographic market

 236. The Commission has found local, national, regional, Community and world

 markets in the various product markets considered. The determination of the

 relevant geographic market within which suppliers compete is an economic

 assessment. It is important to stress that the assessment to be made is a

 dynamic one, taking into account in particular the effect of market

 intégrât ion.

 237. The Commission has defined the relevant geographic market as 'the area

 where the undertakings concerned are involved in the supply and demand of

 products or services, in which the conditions of competition are sufficiently

 homogeneous and which can be distinguished from neighbouring areas because

 conditions of competition are appreciably different in those areas'.

 In the decisions, emphasis is laid on supply and demand characteristics.

 Factors considered in the analysis of conditions of competition in geographic

 markets include both general indicators, and factors exerting a possible

 determining influence on market delineation:

    geographical distribution of market shares* [16] )

    geographical distribution of relative prices* [17] )

    geographical location of major suppliers* [18] )

    shipment patterns* [19] )

    cross-border imports/exports* [20] )

    barriers to entry (fiscal, technical, regulatory, cultural)* [21] )

 (15) See also Promodes/BRMC.
 (16) See Solvav-Laporte/lnterox. Péchiney/Viag and Nest ié/Perr ier.
 (17) See Nestlé/Perr ier. So Ivav-Laoor te/Interox and Generali/BCHA.
 (18) See Torras/Sarr io. Thomas Cook/LTU/West LB. Linde/Fiat and Sextant/BGT
    VDO.

 (19) See Steetley/Tarmac. Torras/Sarr io. Volvo/At las and Elf Atochem/Rohm &

    Haas.

 (20) See Nestié/Perrier. Du Pont/ICI. Torras/Sarrio. Solvay-Laporte/lnterox.
    Elf Atochem/Rohm & Haas and Rhône-Pou Ienc/SNIA.

 (21) See Du Pont/ICI. Elf Atochem/Rohm & Haas. Rhône-Pou Ienc/SNIA.
    L inde/Fiat. Voivo/Atlas. Accor/Waoons-L its. Thomas Cook/LTU/West LB and
    Waste Management International pIc/SAE.

```

```
2.I.C.§2. 12

    consumer preferences* [22] )

    transport costs* [23] )

    distribution systems* [24] )

    product differentiation (brands)* [25] )

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141

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   the impact of forthcoming changes, e.g. in the technical or regulatory

   environment.* [28] )

238. It may in general be observed that in the decisions the extent of the

geographic market was determined by certain of the above factors, or certain

combinations of these factors.

239. Thus, transport costs or distribution systems were determining factors

in the establishment, of local markets. In Steetley/Tarmac, local markets for

bricks were established, since bricks are both heavy and bulky and transport

represents a signficiant percentage of total selling price, in Promodes/BRMC.

the geographic market for retail distribution of consumer food and related

products was held to be local, since consumers are unwilling to travel more

than a certain distance to make such purchases.* [27] ) In Waste Management

International olc/SAE. the market for the disposal of non-hazardous waste was

deemed to be probably local in nature, given high transport costs, and also

in view of national and local regulatory constraints.

240. Distribution systems and transport costs are also important in the

determination of national markets. In Inchcaoe/1EP (contract hire and leasing

of passenger cars) and Torras/Sarr io (paper distribution), the necessity for

close proximity between supplier and customer was held to indicate markets at

most national in scope.* [28] ) In Nest ié/Perr ier. the fact that bottled water

is a low value/high volume product which cannot bear transport costs over

long distances was among the factors limiting the relevant geographic market

(22) See Nest ié/Perr ier. Solvay-Laoorte/Interox. BTR/Pirel I i . Accor/Waoons   Lits. Promodes/BRMC. Thomas Cook/LTU/West LB. Generali/BCHA.

   Du Pont/ICI. Inchcaoe/IEP and Sextant/BGT-VDO.
(23) See Nestlé/Perr ier. Steetley/Tarmac. Elf Atochem/Rohm & Haas.
   Du Pont/ICI. Torras/Sarr io. Volvo/At las. Péchiney/Viag. BTR/PirelIi and
   Waste Management International pic/SAE.
(24) See Nestlé/Perr ier. Torras/Sarr io. inchaoe/IEP. Generali/BCHA.
   Promodes/BRMC and SPAR/Dansk Supermarket.
(25) See Nestlé/Perr ier and Pepsico/GeneraI Mills.
(26) See Mannesmann/Hoesch.
(27) See also SPAR/Dansk Supermarket and Avesta/Br i t ish SteeI/NCC/AGA/AxeI

   Johnson.

(28) See also Thomas Cook/LTU/West LB and Generali/BCHA.

```

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2.I.C.§2. 13

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142

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 to France, combined with the fact that regulations require the product to be

 bottled at the site of production.

 In the decisions, other factors which determined national markets were

 barriers to entry, consumer preferences and product differentiation (national

 brands). Thus, in Accor/Wagons-L its, the relevant market for motorway

 restaurants was held to be France in view of the regulatory barriers which

 made it more difficult for non-French enterprises to operate in this sector.

 In Nestlé/Perr1er. different consumer preferences for bottled water as

 between different countries was among the factors determining a market

 limited to France.* [29] ) Again, in Nestlé/Perr ier. the existence of

 long-established brands of bottled water indicated a national market.* [30] )

 241. The existence of Community-wide markets was established in several

 decisions, and such markets were normally characterized by a combination of

 some of the following factors:

    a high level of intra-Community shipments,

    the presence of major suppliers in several Member States, with

    significant market shares,

    little variation in price between Member States,

    European-wide purchasing policies on the part of consumers,

    relatively low transport costs,

    relatively low trade levels between the Community and the rest of the

    world, and the existence of an EC external tariff.

 Thus, for example, in So Ivay-Laoor te/1nterox. the Commission found that in

 the persalts market, all major suppliers had significant market shares in

 several Member States, there was a significant degree of market

 interpénétration, large customers had a pan-European centralized purchasing

 policy, there was little price variation between Member States, but there was

 a low level of imports into the Community which levies a 7% external import

 tariff.* [31] )

 (29) See also Thomas Cook/LTU/West LB. Accor/Wagons-L its. Pepsico/General
    Mi I Is and Generali/BCHA.

 (30) See also Pepsico/Genera I Mills.
 (31) See also Torras/Sarr io. Elf Atochem/Rohm & Haas. Péchiney/Viag.
    Volvo/Atlas. Linde/Fiat. Rhône-Pou Ienc/SNIA. BTR/Pirel I i and

    Du Pont/ICI.

```

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2.I.C.§2. 14

```

**14Ô**

```
 242. A world market for equipment for civil aircraft was found in

 Sex t ant/BGT-VDO. given the physical presence or activities of the same

 suppliers throughout the world, and a worldwide purchasing policy on the part

 of aircraft manufacturers.

 243. In its analysis of conditions of competition in geographic markets, the

 Commission has taken into account future structural developments, in

 particular the likely elimination of remaining barriers to trade. This

 dynamic approach must be balanced with the potential damage to competition

 and consumers.

 Thus, in BTR/PirelIi. the Commission held that there was a Community market

 for rubber-based car components despite a transitional import duty currently

 levied by Spain, which will be abolished from the beginning of 1993. However,

 in Accor/Wagons-L its, the Commission decided that the effects of the

 Community public procurement Directive would not be sufficient in the

 short-term to warrant a geographic market definition of motorway restaurants

 wider than France. In Mannesmann/Hoesch. the Commission held that the

 effectiveness of the Community public procurement Directive would increase

 with the completion of the technical harmonization process for gas line

 pipes, but that in the short-term, it was proper to relate the assessment of

 the concentration to the German market.* [32] )

 <T5> 3. Assessment of compatibility

 244. In 1992 the Commission authorized 47 notified mergers in the first phase

 of proceedings (Article 6(1)(b) decisions). In four cases, it had serious

 doubts about the compatibility of the merger with the common market and

 started in-depth examination known as second phase proceedings. Out of the 47

 phase I cases, certain mergers* [33] ) raised serious doubts and were cleared

 only after legally binding and irrevocable commitments were entered into by

 the undertakings concerned vis-à-vis the Commission so as to change the

 factual basis on which the merger could be assessed and declared compatible

 with the common market. In phase II, no prohibition decision was adopted in

 1992. The Commission authorized [one] merger* [34] ) without attaching

 conditions and obligations to its decision (Article 8(2) subparagraph 1

 (32) See also ABB/Brel.
 (33) See Grand Metropolitan/Cinzano. If int/Exor. Elf Aouitaine/Minol.
    Air France/Sabena and British Airways/TAT.
 (34) See Mannesmann/Hoesch.

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2.I.C.§2. 15

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 decision). In three other cases, the Commission concluded that the creat ion

 of a dominant position would result from the merger. Dominant positions were

 found in Accor/Waoons-L i ts (catering services on motorways in France),

 Nestlé/Perr ier (sale of bottled water in France) and Du Pont/ICI (sale of

 nylon carpet fibres in the EEC). However, such dominant positions were

 removed by modifications of the original concentration plan which enabled the

 Commission to adopt a declaration of compatibility subject to certain

 conditions and obligations (Article 8(2) subparagraph 2 decisions). In one

 case (Siemens/Phi Iips). the parties abandoned the transaction after the

 initiation of proceedings.

 245. In the Nestlé/Perr ier case, the Commission interpreted for the first

 time Article 2(3) of the Merger Regulation as covering both single firm and

 Joint obiigopolistic dominance. This interpretation is based on the principle

 that Article 3(f) of the EEC Treaty and Article 2(3) of the Merger Regulation

 pursue the maintainance of effective competition. Effective competition may

 be significantly impeded as the result of the exercise of market power by

 either one firm behaving alone or more firms behaving jointly to an

 appreciable extent independently of other competitors and of consumers. If

 oligopolistic dominance was not covered by the Merger Regulation, this would

 create a loophole in the fundamental Treaty objective of maintaining

 effective competition at all times in order not to jeopardize the proper

 functioning of the common market.

 246. In its assessment of mergers, the Commission generally follows the

 classical four-step analysis, i.e.:

 (i) the market position of the merged firm (market share and other

      advantages over competitors);

 (ii) the structure of supply (the strength of remaining established

      compet it ion);

 (iii) the structure of demand (the buying power of customers);

 (iv) the potential competition (new market entry or entry by the

      manufacturer of a neighbouring product or capacity expansion by

      established competitors).

 247. For the assessment of single firm dominance, the level of the market

 share of the merged firm is a significant, but not determinative factor. The

 importance of the market share varies according to the structure of the

```

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2.I.C.§2. 16
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 market in relation to supply, demand and future potential competition. In

 1992 the highest market share accepted for clearance amounted to 48% in the

 whole of the Community and 79% in one Member State. The lowest market share

 giving rise to a creation of dominance was 43% in the EEC and 53% in one

 Member State.

 248. For the assessment of oligopolistic dominance, market shares are

 relevant for the determination of the degree of concentration of the market

 concerned, which is one important factor in the analysis of the question of

 whether or not, in conjunction with all other market structures and

 conditions, the exercise of joint market power by the merged firm and a

 limited number of other firms is possible and likely to occur.

 249. The Commission also examines the past and likely future evolution of

 market shares. The strength of the merged firm differs according to whether

 its market share is increasing, stable, declining* [35] ) or uncertain, for

 example due to the size of the contracts or to dual or triple sourcing policy

 of buyers.* [38] ) The strength of the merged firm also increases or decreases

 in direct proportion to the gap between its market share and that of the next

 competitor. Equally, the closer the eliminated competitor is in terms of

 competition (identical products, similar or better quality, lower prices,

 high volume of sales), the stronger is the reduction of competition and the

 increase in power for the merged firm.* [37] )

 250. The assessment also has to take into account other competitive

 advantages or disadvantages of the merged firm compared to remaining

 competitors such as: the financial power of the merged firm,* [38] ) scale

 economies,* [39] ) other cost advantages,* [40] ) product range,* [41] ) access to

 technology,* [42] ) position in terms of quality and technology,* [43] ) brand

 image resulting from long standing and high advertising,* [44] ) vertical

 integration,* [45] ) etc. Without holding such competitive advantages against

 (35) See SPAR/Dansk Supermarket. Torras/Sarr io. Accor/Wagons-L i ts.
    Péchiney/Viag. EIf Acgu i ta i ne/M i no I.
 (36) ABB/BREL and Du Pont/ICI.
 (37) See Du Pont/ICI and Nestlé/Perrier.
 (38) See Accor/Wagons-L i ts and Laoorte/Interox.
 (39) See Accor/Wagons-L its.
 (40) See Du Pont/ICI.
 (41) See Nestlé/Perrier. Du Pont/ICI.
 (42) See Laoorte/Interox.
 (43) See Du Pont/ICI.
 (44) See Nestlé/Perrier. Du Pont/ICI.
 (45) See Du Pont/ICI.

```

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2.I.C.§2. 17

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 the merged firm, one has to take into account that they can contribute to the

 erection of entry barriers for other competitors and therefore lead to the

 creation of market power in the hands of the merged firm. If this is not the

 case and barriers to entry are low, these competitive advantages are

 generally pro-competitive and, under the pressure of competition, the merged

 firm will have to allow consumers a fair share of the resulting benefit.

 251. The three factors which can create a countervailing power by bringing

 competitive pressure to bear on the merged firm are remaining established

 competition, buying power and potential competition. These three factors were

 carefully examined in all major cases decided in 1992. They will be

 highlighted in the following summary of individual cases. Hereafter seven

 cases will be described, three which did not create any dominance and four

 which created either single firm or oligopolistic dominance.

 <T6> (a) Cases where no dominance was created

 <T7> . THORN EM I/VIRGIN (Phase I case)

 252. This case concerned the acquisition by Thorn EMI, one of the five major

 record companies worldwide, of Virgin, a competing record company. The main

 effects of this merger lay in the markets of music recording and music

 pub Iishing.

Given the market share of the merged firm and the presence of other major

competitors, the merger raised no problem of single firm dominance in either

music recording or music publishing. However, the structural features of the

market for recorded music (90% pop) could indicate a situation of

oligopolistic dominance among the five major record companies, i.e. Thorn

 EMI, Sony, Polygram, Warner and Bertelsmann (BMG). In order to address this

question, the Commission examined both the intensity of actual and potential

competition between these five companies and the actual and potential

competition from outside that oligopoly.* [48] )

As to competition between the five major record companies, the Commission

considered the following elements:

 (46) See also HenkeI/NobeI and Linde/Fiat

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2.I.C.§2. 18

    On the one hand:

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     High degree of concentration before the merger: the top five

     companies had a market share of 77% for the EEC as a whole and 70 to

      80% in individual Member States. The merger increased this degree of

     concentration to 83% in the EEC and 70% to 95% in individual Member

      States.

     The market shares of the five major companies were fairly

      comparable.

     Their market shares have remained stable over the past and their

      combined market share, as a group, had increased at the expense of

      the smaller record companies.

     There existed a number of cooperative agreements involving the five

     major companies relating to record compilations, distribution,

      electronic ordering and rack jobbing.

   On the other hand:

     The market for recorded music is characterized by the heterogeneous

      nature and short life cycle of its products, the constant change in

      consumer preferences and the significance of individual artists or

      hit records to a record company's profitability rather than the

      development of brand loyalty to individual record labels on the part

     of the consumer.

     The main parameters for competition in the market for recorded music

     are the promotion of records through advertising and the provision

     of a wide variety of artists and types of music through new releases

      and signing up new artists to meet the demand for constant changes

      in music tastes and fashion. Thus, the scope for price competition

      seemed to be limited.

     The Commission also examined past market behaviour of the main

     participants in the market. There was no sign that the market was

     performing in an anti-competitive way.

As to competition from outside the oligopoly, the Commission observed the

following elements:

   The smaller competitors lacked a large and varied collection of titles

   in their catalogues which provides the major record companies with a

   source of income enabling them to make higher investments and to take

```

```
2.I.C.§2. 19

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148

```
    higher risks in the Investment in artists. Only the major companies are

    able to compete for major artists.

    Over the last five years, there had been numerous entrants to the record

    music business in the EEC but none had become a significant market

    force. However, MCA, a major record company, had started business in the

    United Kingdom, Ireland and Germany.

    The music recording industry has grown significantly in value (around

    10% annually) and volume since the introduction of the compact disc.

    This growth rate is expected to continue at least in value terms.

 On the basis of the above factors, in particular the nature of the products

 and the parameters of competition in the market concerned, the Commission

 concluded that the increase in the degree of concentration resulting from the

 merger would not, on its own, imply a perceptible lessening of competition in

 the market.

 <T7> . RHÔNE POULENC/SNIA (Phase I case)

 253. Rhône-Poulenc and SNIA created a joint venture for all their fibre

 activities used for carpets, textile applications and industrial

 applicat ions.

 In the field of fibres for carpets, the combined market share of the joint

 venture in the EEC (below 25%) and the market shares of two other competitors

 (Du Pont and ICI) which were similar in size to that of the joint venture led

 the Commission to the conclusion that no single firm dominance was created.

 However, since the three leading firms held approximately 66% of the EEC

 market for carpet fibres, the Commission also investigated the question of

 oligopolistic dominance. The Commission concluded that the structure of the

 market was such that parallel behaviour resulting from oligopolistic

 interdependency could not be expected for the following reasons:

    existence of a large variety of differentiated products;

    importance of innovation and development of new products to satisfy

    specific demands of carpet manufacturers;

    unequal position of the three leading firms: Du Pont and ICI enjoyed

    clear competitive advantages in R&D, product range and reputation for

    qua Iity.

```

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2.I.C.§2. 20

```

149

```
 As a result of this market structure, oligopolistic interdependency between

 the three leading firms was not likely to occur.

 In the field of fibres for textile and industrial applications, the joint

 venture would in each field of application achieve an important market share

 in the EEC (between 40 and 50%). However, there remained in each market at

 least one strong competitor with a market share of 20 to 30%. Furthermore, in

 both markets potential competition in the form of product substitution was

 very strong. Producers of carpet fibres use the same basic technology as

 producers of textile fibres or industrial fibres. A change of production from

 carpet fibres to these two other types of fibres could be carried out very

 rapidly (within less than one day) and at very low cost. Thus, a price

 increase in textile fibres or industrial fibres by the merged firm could

 provoke quick product substitution and thus make the price increase

 unprofitable. As a consequence, no single firm dominance could be created by

 the merger. Oligopolistic dominance was excluded for the same reasons as for

 carpet fibres.

 <T7> . MANNESMANN/HOESCH (Phase II case)

 254. Mannesmann and Hoesch created two Joint ventures, one for their

 precision steel tube businesses and one for their non-precision steel tube

 businesses. The competition problem only arose in the sector of gas line

 pipes in Germany, the relevant geographic market. In that market, the parties

 held a very high market share (over 70%).

 The next biggest competitor had a market share of below 15% and all other

 competitors were below 5%. However, among these competitors were important

 steel producers such as Klôckner, Hoogovens, I I va, British Steel and Usinor

 Sacilor. The merged firm had no significant competitive advantages compared

 with these large West European competitors.

 The demand was rather fragmented, but, given the high market share of the

 merged firm, the larger customers, e.g. the German gas utilities, have an

 incentive to seek alternative sources of supply by involving the major West

 European suppliers. They will also have an obligation to respect the

 requirements of the Public Procurement Directive, which enters into force on

 1 January 1993 and which obliges the utilities to practise open and public

 tender ing.

```

```
2.I.C.§2. 21

```

150

```
 Entry into the German market of gas line tubes is at present still difficult

 due to legal and technical barriers resulting from different specification

 requirements. However, the incentives for future market entry or increased

 participation of West European suppliers in the German market were considered

 to be significant, in particular for the following reasons:

    high overcapacities for steel tubes throughout Europe,

    very high level of demand on the German market,

    entry into force of the Public Procurement Directive on 1 January 1993

    followed by gradual technical harmonization,

    the potential competitors, i.e. Ilva, British Steel and Usinor Sacilor,

    are amongst the largest steel producers: they are already active in

    Germany on neighbouring tube markets and they already have regulatory

    approval for part of their product range,

    market entry does not involve substantial sunk costs.

 Specific circumstances existed which led the Commission to take into account

 a longer period of time for the assessment of the impact of potential

 competition than in other cases. Although full harmonization of technical

 standards at European level will not be achieved before 1996, the Commission

 considered that the Community steel suppliers would anticipate the

 progressive structural change resulting from the implementation of the Public

 Procurement Directive in 1993 and the following harmonization of standards.

 Given these specific circumstances, the Commission considered that there

 existed a high probability that potential competition from West European

 suppliers would have a perceptible impact on the German market before full

 harmonization was completed.

 On the basis of these elements, the Commission came to the conclusion that,

 even if there was a strong indication that the merger would create a dominant

 position at the outset of the concentration, this position would only subsist

 for a limited period of time because of the high probability of new

 competition which would quickly erode the position of the merged firm on the

 German market for gas line tubes.

 This case exemplifies the importance of the dynamics of the single market,

 the effect of which will be to increase significantly potential competition,

 which is a factor to be included in order to qualify an assessment of

 dom i nance.

```

```
2.I.C.§2. 22

```

151

```
 <T6> (b) Cases where single firm or oligopolistic dominance was created

 <T7> . ACCOR/WAGONS-LITS (Phase II case)

 255. This case concerned a public bid by Accor, a French group active in

 catering and hotel services, for the totality of the shares of Wagons-Lits, a

 Belgian group active in catering, hotel and tourist services. The merger

 created a dominant position of Accor only in the field of catering services

 on French motorways, a field which is composed of two separate markets, i.e.

 catering services stricto sensu and light catering services ("croissanteries"

 and Iight meals).

 256. The merger would have raised Accor's market share to over 80% for

 catering services stricto sensu and to over 60% for light catering services.

 These market shares were not likely to decrease in the near future given the

 limited number of catering establishments on motorways and the long duration

 of the licenses for such establishments. Accor would also have had much

 stronger financial power than its competitors and would have improved its

 purchase power and its coverage of French motorways in terms of subsequent

 catering establishments.

 Competitors were much smaller and very dispersed. No one exceeded a market

 share of 5%.

 Barriers to entry were very considerable: legal barriers for establishment,

 long duration of licenses, heavy administrative burdens for small

 undertakings, limited number of motorways, uncertainty about the development

of the French motorway network and difficulty for foreign firms to penetrate

 the French market.

 Accor claimed that the merger contributed to the development of technical and

 economic progress, in particular through the modernization of certain

 activities. In reply to this claim, the Commission observed that:

    the claim of Accor was too vague;

    possible efficiencies resulting from the merger might be eliminated by

    increased costs resulting from the bigger size of the merged firm;

    the claimed technical and economic progress, if it existed, could be

   obtained by other means, and

```

```
2.I.C.§2. 23

```

152

```
    the dominant position of Accor was so substantial that it would have no

    incentive to pass the claimed efficiencies on to consumers.

 All these elements led the Commission to the conclusion that the new firm

 would acquire a dominant position within the meaning of Article 2(3) of the

 Merger Regulation in respect of catering services on French motorways.

 However, Accor entered into a commitment vis-à-vis the Commission to divest

 all the acquired activities of Wagons-Lits in the field of catering services

 on French motorways. Accor thus modified its original concentration plan in

 such a way that no addition of market shares occurred on the markets

 concerned. Therefore, the Commission declared the merger compatible with the

 common market subject to the obligation to divest within a fixed time period

 according to certain conditions agreed upon with the Commission.

 <T7> . NESTLE/PERRIER (Phase II case)

 257. This case concerned a public bid by the Swiss company Nestlé for the

 acquisition of 100% of the shares of Perrier, the leading supplier on the

 French bottled water market with various famous brands. Nestlé's bid was

 supported by BSN, the second main supplier on the French bottled water

 market. Prior to its bid, Nestlé had granted BSN an irrevocable option to

 acquire one of the main water sources of Perrier, i.e. the Volvic source, if

 Nestlé acquired control over Perrier. The acquisition of Perrier by Nestlé

 led to the elimination of the main supplier of bottled waters on the French

 market and to the sharing of Perrier's activities between BSN and Nestlé who

 were respectively the second and third supplier on that market.

 Given the option granted to BSN, the Commission examined the proposed

 acquisition of Perrier on the basis of two possible situations: one where

 Volvic was not transferred to BSN and one where BSN was to acquire Volvic.

 The Commission came to the conclusion that if Volvic stayed with Nestlé, the

 acquisition of Perrier would create a single-firm dominant position, while if

 Volvic was sold to BSN, the acquisition of Perrier would create an

 oligopolistic dominant position exercised jointly by Nestlé and BSN.

 Without the sale of Volvic to BSN. Nestlé would have acquired the power to

 behave a lone to an appreciable extent independently of its competitors and

 its customers on the French bottled water market for the following reasons:

```

```
2.I.C.§2. 24
```

153

```
    acquisition of the leading supplier on the French water market owning by

    far the biggest capacity reserves and sales volumes and the biggest

    portfolio of well-known brands,

    a combined market share exceeding 50% in value and volume of the total

    French water market exceeding more than twice the market share of the

    next biggest competitor (BSN),

    the only other national supplier, BSN, was facing capacity restraints in

    the medium and long term which limited its ability to respond to an

    increase in demand in the future,

    other water suppliers were small regional suppliers which could not

    significantly constrain the scope of action of Nestlé,

    the buying power of retailers/wholesalers was limited because they would

    have been largely dependent on the well-known brands of Nestlé,

    there was no sign of price-constraining potential competition from

    newcomers which could quickly and effectively enter the French water

    market.

 With the sale of Volvic to BSN. Nestlé and BSN would have acquired the power

 to behave jointly to an appreciable extent independently of their competitors

 and their customers on the French bottled water market. Before coming to this

 conclusion, the Commission examined the existing and likely future

 competition both between Nestlé and BSN and from outside this group of

 suppliers.

 As to the competition between Nestlé and BSN, the Commission considered the

 following elements:

 (a) the very high degree of concentration on the French bottled water

    market: two suppliers would hold 94.1% of the market for all mineral

    waters; their combined market shares were relatively stable over the

    last 5 years;

 (b) the reduction of the number of national water suppliers from three to

    only two (duopoly);

 (c) after the merger, the two remaining national suppliers would have had

    similar capacities and similar market shares: a symmetric duopoly in

    which there was a strong common interest and incentive to maximize

    profits by engaging in anti-competitive parallel behaviour;

 (d) due to a low cross-price elasticity of demand between national mineral

    waters which enjoy a very high consumer loyalty and local spring waters,

    a small but significant price increase (for instance 5%) was not likely

```

```
2.I.C.§2. 25

```

154

```
    to lead to losses in volume which would offset the result of the price

    increase; there was thus an incentive and possibility for Nestlé and BSN

    to Jointly maintain high prices or even further increase prices because

    this would result in the maintenance or increase of total revenue and

    profits; this possibility had already been recognised by Perrier, Nestlé

    and BSN because they had constantly increased their prices in real and

    nominal terms in a parallel way since at least 1987 (past price

    parallelism); there were strong indications that prices for mineral

    water distributed by Perrier, BSN and Nestlé were already at a very high

    supra-competitive price level;

 (e) neither Nestlé nor BSN had a significant cost advantage which could have

    given either one of them an incentive for aggressive competitive action

    vis-à-vis the other;

 (f) in the bottled water market, no significant technological development

    could be expected which might quickly erode acquired market positions

    and reduce the interdependency between the two major suppliers by

    allowing effective competition on parameters other than price;

 (g) the Joint reaction of Nestlé and BSN to the bid of the AgnelIi group and

    the agreement between Nestlé and BSN to share Perrier (sale of Volvic to

    BSN) were signs of cooperative rather than competitive behaviour by

    these two companies on the French water market;

 (h) the high market transparency: there existed various practices which

    permit each supplier to follow and control the evolution of the market

    positions of the others.

 From all these elements, the Commission concluded that already before the

 merger the French water market was characterized by a narrow oligopoly of

 three suppliers between whom price competition was considerably weakened and

 that the elimination of Perrier strongly increased the likelihood of anti
 competitive parallel behaviour between Nestlé and BSN.

 As to competition from outside the duopoly Nestlé/BSN, the Commission

 observed the following:

 (a) imports to the French water market were négligeable (between 1-2%);

 (b) local water suppliers were not able, at least not in the short term, to

    provide significant competition;

```

```
2.I.C.§2. 26

```

155

```
 (c) retailers and wholesalers had some purchasing power due to their

    purchase volumes; however, this was only true to a degree for some of

    them. Moreover, it was counterbalanced by their dependency on the

    well-known brands, built up over years, of Nestlé and BSN;

 (d) there existed significant barriers and risks to entering the French

    bottled water market for the following reasons:

      moderate growth rate of the French water market compared to other

      EEC markets,

      mature market in terms of number of brands and products; difficulty

      of introducing an additional brand in retail stores,

      established suppliers grant volume rebates linking the whole range

      of their products; this strategy raises barriers to entry for

      newcomers which would have to offer much higher rebates to induce

      retailers to sell their products,

      the high reputation of the established brands of Perrier, BSN and

      Nestlé:

      the establishment of a new brand is very costly, time-consuming and

      risky; in case of failure, all the investment is lost; moreover,

      newcomers cannot recuperate these costs on high current sales

      voIumes,

      effective entry could only be made through the acquisition of a

      major source all of which were however foreclosed following the

      acquisition of Perrier by Nestlé and BSN,

      Nestlé and BSN had engaged in clear joint deterrence action

      vis-à-vis newcomers by jointly opposing the public bid of the

      Agnelli group and by sharing Perrier between themselves.

On the basis of all these elements, the Commission considered that there did

 not exist sufficiently strong potential competition from outside the duopoly.

 The Commission stressed that meaningful and effective potential competition

 supposed that entry could and would be likely to take place on a volume and

 price basis which would quickly and effectively constrain a price increase or

 prevent the maintenance of a supracompetitive price. The entry would have to

occur within a time period short enough to deter the companies concerned from

exploiting their market power.* [47] )

 (47) Compare with the test in the decision of
   Aérospatiale-Alenia/de Havilland : "strong evidence of high probability
   of strong and quick market entry."; see also Accor/Waoon-Lits,

    collective catering services in Germany and Spain : new entry was

    possible, likely and successful.

```

```
2.I.C.§2. 27

```

156

```
 Given this market structure, the Commission concluded that the merger between

 Nestlé and Perrier, followed by the sale of Volvic to BSN, would create an

 oligopolistic dominant position enabling Nestlé and BSN to jointly maximize

 profits and to act to an appreciable extent independently of other

 competitors and of customers.

 In order to avoid a prohibition decision, Nestlé entered into a commitment

 vis-à-vis the Commission by which it undertook to divest a number of sources

 and brands, the total of which will amount to 3 000 million litres water

 capacity. This capacity represents approximately 20% of the total capacity

 previously held by Nestlé, Perrier and BSN. The divestiture must be made to a

 strong purchaser to be approved by the Commission and create a viable

 competitor able to effectively compete with Nestlé and BSN on the French

 water market. Subject to the compliance with this commitment, the Commission

 declared the merger compatible with the common market. In case of failure to

 divest to a credible buyer, the Commission may revoke its decision in

 accordance with Article 8(5)(b).

 <T7> . DU PONT/ICI (Phase II case)

 258. This case concerned the acquisition by Du Pont, the world leader in the

 nylon industry, of the nylon activities of ICI, the leading European producer

 of nylon fibres. The merger raised a problem of dominance only in the field

 of nylon fibres used for carpets (EEC market).

 After the merger, the new entity would have had an EEC market share exceeding

 40%, which was about twice that of its next competitor, Rhône-Pou Ienc/SNI A.

 Du Pont and ICI also had a number of other competitive advantages such as:

    leading companies in terms of quality of products and technological

    development: they sell high-value branded fibres;

    both companies have a very large product range;

    both companies are integrated nylon fibre producers;

    Du Pont is the lowest cost producer in the world and one of the world's

    largest chemical companies.

 ICI was Du Pont's closest competitor. The merger would thus lead to a

 considerable reduction of competition, in particular with regard to

 competition in product development.

```

```
2.I.C.§2. 28

```

157

```
 The established competitors of Du Pont/ICI did not cover the whole range of

 fibres supplied by Du Pont and ICI and were not likely to develop a

 significantly broader range of high-quality fibres before a considerable

 period of time. Product differentiation is however a key element of

 competition in this market.

 The customers, the European carpet manufacturers, were said to follow a

 strategy of multiple supply to avoid dependency on one supplier. Following

 the merger between Du Pont and ICI there could thus occur some shift of

 demand to another supplier. Some carpet manufacturers had also integrated

 backwards into nylon fibre production which gave them some buyer

 leverage.* [48] )

 Potential competition from new entrants was unlikely. The industry is

 characterized by overcapacity. Over the last decade, there was no

 significant entry into the EC nylon fibre industry, which has undergone a

 trend of concentration with the exit of a number of firms. There was no

 indication that the very limited imports from outside the EEC (less than 5%)

would increase in the foreseeable future. However, there was a certain

 degree of indirect competitive pressure on the merged firm arising from the

 retail price of carpets made from other fibres, in particular polypropylene

 f ibres.

The Commission concluded on balance that, in spite of some constraint on

Du Pont resulting in particular from Rhône-Pou Ienc/SNIA and the possibility

 for carpet manufacturers to switch to other suppliers, the merger would

considerably reduce competition in product development which had existed

between Du Pont and ICI before the merger. Since this competition is a key

element in the market concerned, the Commission considered that it was

reasonable to assume that the position of Du Pont after the merger would be

such as to enable it to act to an appreciable extent independently of its

competitors and customers.

 In recognition of the Commission's concerns, Du Pont entered into

commitments vis-à-vis the Commission by which it undertook:

(48) See also BTR/PlreiIi.

```

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2.I.C.§2. 29

```

158

```
    to reserve capacity and LO manufacture up to 12 Kt per annum of nylon

    fibre for a period of five years (renewable) for the benefit of an

    independent third party who must be a supplier of nylon fibres;

    to transfer to such third party a free-standing carpet research and

    development facility;

    to license exclusively or assign to such third party ICI's trademark

    "Timbrel le".

 In the opinion of the Commission, the modifications of the original

 concentration plan would enable a third party to replace ICI partially as a

 supplier of high-quality fibres. The transfer of the research and development

 facility would also significantly improve the competitiveness of the third

 party, in particular as regards its product range and future product

 development. This will substantially reduce the likelihood that Du Pont could

 be able to determine alone the degree of product development and innovation

 in the market. The Commission thus cleared the merger subject to the

 fulfilment by Du Pont of its commitments.

 <T7> . AIR FRANCE/SABENA (Phase I case)

 259. This case concerned the acquisition of 37.58% of the shares of Sabena by

Air France giving the latter joint control with the Belgian State over

Sabena. The competition problems arose only in respect of certain air

 transport routes and in respect of the planned creation of a "hub and spoke"

basis at the Belgian airport Zaventem.

The merger would have created a monopoly on three routes between Belgium and

France: BrusseIs-Lyon, Brussels-Nice and Brussels-Paris. This monopoly was

not likely to change in the near future for the following reasons:

    stagnant demand making new entry difficult: new entry would require a

   minimum of frequencies;

    the strong positions held by Air France and Sabena on their respective

    national airports;

   given this situation, the freedom of access established by the third

    package of liberalization measures in Community air transport was not

    likely to lead to effective competition before a long period of time;

    the possible substitution between plane and train on the route

   Brussels-Paris is imperfect and will only be improved by the TGV after a

    long per iod of t ime.

```

```
2.I.C.§2. 30

```

159

```
 The position of Air France/Sabena would further be strengthened by their

 planned introduction of a shuttle service between Brussels and Paris and by

 the creation of a "hub and spoke" basis at the Belgian airport which would

 serve 75 European destinations. These two projects would increase the number

 of flights of Air France/Sabena between Belgium and France and thus make

 entry by newcomers even more difficult.

 However, the Commission received commitments from the parties and from the

 French and Belgian Governments which eliminated the risk of creation of a

 dominant position on the three routes concerned:

    as regards BrusseIs-Lvon and Brussels-Nice: withdrawal from these routes

    by one of the parties if a competitor wants to enter any of these

    routes;

    as regards Brussels-Par is: guarantee to other airlines of a number of

    flights equal to those of Air France/Sabena; this may imply a transfer

    of slots from Air France and Sabena to other airlines; a withdrawal by

    Air France or Sabena from the Bruxelles-Paris route was not possible

    because this would have endangered the creation of the shuttle service

    on that route which was to the benefit of consumers.

 The merger also created very high market shares on certain routes to Turkey

 and Hungary and on certain routes to Africa. These situations were equally

 resolved by commitments to open up these routes to other airlines either by

 "mult ides I gnat ion" or by a reduction in flights by Air France or Sabena to

 the benefit of newcomers.

 Finally, the planned creation of a "hub and spoke" basis at Zaventem would

 have been likely to render access by other airlines to the Belgian airport

 much more difficult by reducing the number of available slots and by

 foreclosing the Belgian airport on a "hub and spoke" basis to competing

 airlines. In order to prevent these effects from occurring, the parties have

 committed themselves to limit their slot share at Zaventem to a certain

 percentage leaving a guaranteed percentage of slots to competitors (35%). In

 addition, the French Government committed itself to allow the creation of a

 competing "hub and spoke" basis at an airport presenting similar advantages

 to that of Zaventem. In the light of these commitments, the Commission

 decided to clear the merger in the first phase.

```

```
2.I.C.§3. 31

 <T4> §3. Restrictions ancillary to concentrations

```

160

```
260. The last sentence of the second subparagraph of Article 8(2) of Council

Regulation (EEC) No 4064/89* [49] ) states that "the decision declaring the

concentration compatible shall also cover restrictions directly related and

necessary to the implementation of the concentration".

261. The Commission considers that this provision, which reiterates the

terms of the twenty-fifth recital in the preamble to the Regulation,* [50] )

applies to both first-stage and second-stage decisions in which the

Commission finds that a concentration is compatible with the common market.

262. The concept of ancillary restriction is also dealt with in a Commission

notice* [51] ) in which, after having explained the principles underlying its

evaluation, the Commission indicates what it considers to be "common

ancillary restrictions" meeting the criteria set out in the Regulation in the

case of transfers of undertakings, joint acquisitions and concentrâtive joint

ventures. This is an important aspect of Commission policy.

263. A look at the 51 decisions adopted by the Commission in 1992* [52] ) shows

three key features in the Commission's decision-making practice regarding

ancillary restrictions.

   Mergers involving ancillary restrictions account for almost half of the

   decisions adopted: 24 out of the 51 decisions included an assessment of

   such restrictions.

   All the mergers involving ancillary restrictions fell within one of the

   categories defined in the notice.

(49) OJ L 395, 30.12.1989.

(50) OJ L 395, 30.12.1989.

(51) OJ C 203, 14.8.1990.

(52) From 1.1.1992 to 31.12.1992

```

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2.I.C.§3. 32
```

161

```
    Only one decision, of a rather specific nature from this point of

    view,* [53] ) concerned a demerger under which an undertaking was divided

    in two and which the Commission broke down into two separate

    operations. Of these, only the Solvay merger fell within the scope of

    the Merger Regulation. It was only the ancillary restrictions

    relating to it that had to be examined by the Commission.

    In its decision, the Commission based itself on point III of the

    notice, which deals with acquisitions, recognizing as constituting

    ancillary restrictions various agreements designed to ensure the full

    value of the acquisitions by ensuring their viability. Such

    agreements included various contracts on the provision of services,

    purchases and supplies, a non-competition clause covering a period of

    three years and an undertaking not to make public or use business

    information or information on the know-how involved in the activity

    retained by the other party. On this latter point, the Commission

    accepted that the term of the agreement should not be limited in time.

    The vast majority of the restrictions ancillary to the mergers examined

    by the Commission relate to one of the "common restriction" categories

    set out in the notice,* [54] ) as may be seen from the breakdown in the

    following table based on the 24 decisions that included an analysis of

    ancillary restrictions.* [55] )* [58] )

 (53) Solvay-Laporte/Interox decision of 30.4.1992.

 (54) OJ C 203, 14.8.1990.

 (55) The total number of ancillary restrictions (51) differs from the number
    of decisions involving such restrictions (24), since each decision deals
    with a varying number of ancillary restrictions.
 (56) Where in one and the same decision a number of agreements deemed to be
    ancillary restrictions related to one and the same category, they were
    counted only once in the table.

```

```
2.I.C.§1. 33

       Non-competition

       cIause

 Transfer

 Joint venture 14

```

162

```
Other

restr ict ions

```

```
Licences of

industr ial

and commercial

property rights

and of know-how

```

```
Purchase

and supply

agreements

```

```
   With regard to the ancillary restrictions falling within one of the

   common restriction categories set out in the notice (i.e. 37 out of 44),

   it should be stressed that, on various occasions, the Commission granted

   the agreements between the parties the status of ancillary restriction

   for only a limited period, less than that for which they had been

   concluded. Examples included the inchcape/lEP case (decision of

   21 January 1992), the Thomas Cook/LTU/West LB case (decision of

   14 July 1992) and the GECC/Avis Lease case (decision of 15 July 1992).

264. The decisions relating to ancillary restrictions not belonging to any

of the categories mentioned in the notice may be classified as follows:

   in three decisions (the inchcaoe/IEP and Solvay-Laporte/Interox

   decisions mentioned above and the BTR/PirelIi decision of

   17 August 1992), the Commission agreed to consider a clause ruling out

   the poaching of employees to be a restriction ancillary to an

   acquisition;

   in the Inchcape/lEP and Solvay-Laoorte/Interox decisions, the Commission

   also considered the ban imposed on the seller, for an unlimited period,

   on making public or using business secrets concerning the entity sold to

   be an ancillary restriction;

   in its BRT/PirelIi decision of 17 August 1992, the Commission considered

   the clause requiring the seller not to change the substance of the

   activity of the entity transferred between the date on which the

   agreement was concluded and that on which it was implemented to be an

   anciIlary restr ict ion;

```

```
2.I.C.§3. 34

```

163

```
    in two decisions relating to the chemicals industry (the

    Elf Atochem/Rohm & Haas decision of 28 July 1992 and the

    Rhône-Pou Ienc/SNIA decision of 10 August 1992), the Commission

    considered that contracts designed to lay down the mutual obligations of

    the parties where the productive capacities of the joint venture are

    integrated within an industrial complex which remains the property of

    one of its parents were acceptable.

    Thus, in the Rhône-Pou Ienc/SNIA decision, the agreements providing for

    the occupation of certain sites and the provision of utilities

    physically linked to the occupation of such sites were considered to

    form an integral part of the concentration;

    this approach fits in with the Commission's general approach of

    distinguishing in each individual case the restrictions ancillary to the

    contractual arrangements forming part of the elements making up the

    concentrât ion.

    Thus, in its CCIE/GTE decision of 25 September 1992, the Commission

    considered various loan, research and development and supply contracts

    assessed together with the concentration under Article 2 of the

    Regulation to be substantial and an integral part of the concentration;

    lastly, in its British Airways/TAT decision of 27 November 1992, the

    Commission agreed to the use of joint computer services between TAT and

    TAT E.A. and the use by the latter of the TAT trade mark. Such

    agreements were regarded as necessary to the viability of the joint

    venture TAT E.A., formerly under the sole control of TAT.

```

```
2.I.C.§1. 35

 <T4> §4. Suspension of concentration (Article 7)

```

164

```
In three cases, the Commission had to adopt a decision pursuant to

Articles 7(2) and 18(2) of the Merger Regulation to continue the suspension

of a notified concentration until adoption of a final decision in the

case.* [57] ) In a number of other cases, the parties voluntarily and

irrevocably agreed to suspend their operation until the Commission's final

decision on the substance of the case.

In two cases, the Commission granted a derogation from the suspensive effect

imposed by Article 7(1) of the Merger Regulation pursuant to Article 7(4) of

the Regulation. In Nestlé/Perr ier. a derogation was requested by Nestlé with

respect to the exercise of the voting rights in the ordinary annual

shareholders' meeting of Perrier. The derogation was granted in relation to

three resolutions which were very specific and limited in scope and in time

because they related only to the previous fiscal year.

In Elf Aou i ta i ne-Thyssen/M i no I . a request was made by Elf Aquitaine which

was acquiring Minol from the Treuhandanstalt. Pending completion of the

acquisition the Treuhandanstalt agreed that Minol should enter into an

agreement under which Elf Aquitaine would assist the board of directors of

Minol in the management of the company. Although the Commission considered

that the management agreement represented the beginning of the implementing

of the proposed concentration, it was satisfied as to the need for

management assistance, and therefore granted the application for a

derogation from suspension of the operation.

(57) See Du Pont/ICI. Ifint/Exor and Nestié/Perrier

```

```
2. I.C.§5. 36

```

165

```
 <T4> §5. Referral to the competent authorities of the Member States

                     (Article 9)

 The Commission received three communications from Member States pursuant to

 Article 9 during the year. The United Kingdom authorities informed the

 Commission that the proposed Joint venture Steetlev/Tarmac threatened to

 create or strengthen a dominant position as a result of which effective

 competition would be impeded on the market for bricks (or sub-markets within

 the brick sector) in local markets in the North-East and South-West of

 England, and in the market for clay tiles in Great Britain. The new joint

 venture would have obtained high market shares in the markets concerned,

 which have significant barriers to entry. The Commission therefore concluded

 that since the brick markets were local in nature and the competition issues

 identified were limited entirely to the territory of the United Kingdom, a

 reference should be made. In. the case of the clay tile market, the Commission

 decided to refer this market too, since although it covered the whole of

 Great Britain, the low level of trade flows for clay tiles between Great

 Britain and the rest of the Community resulted in the economic consequences

 of the merger being materially limited to the United Kingdom. The Commission

 cleared the remaining aspects of the merger in the first phase of

 proceedings.

 In Mannesmann/Hoesch. the German authorities requested a referral, which was

 subsequently amended to include only the market for gas line pipes. The

 Commission did not have to decide on the request because it took in time the

 preparatory steps (communication of a statement pursuant to Article 18) in

 order to deal with the case itself. Following further investigation, the

 Commission resolved the serious doubts which it had had about this

 operation's compatibility with the common market and adopted a final decision

 pursuant to Article 8(2), clearing the merger.

 In Siemens/Phi Iips. the Commision received a request from the German

 authorities in relation to the markets for copper cables for local subscriber

 networks, optical fibre cables, switching cable and broad band communication

 cables. The Commission decided to carry out a detailed second phase

 investigation of the case but the operation was subsequently abandoned by the

 parties, so that no decision was needed.

```

```
2.I.D.§1. 1

 <T3> D. Substantive and procedural rules

 <T4> §1. Block exemptions* [1] )

 <T6> (a) Regulation amending the block exemption Regulations

```

166

```
265. The thinking which prompted the Commission to adopt the notice on

cooperative joint ventures also lay behind its adoption of the Regulation* [2] )

amending Commission Regulations (EEC) Nos 417/85, 418/85, 2349/84 and 556/89

on the application of Article 85(3) of the Treaty respectively to categories

of specialization agreements,* [3] ) research and development agreements,* [4] )

patent licensing agreements* [5] ) and know-how licensing agreements.* [8] )

Like the notice on cooperative joint ventures and the programme for speeding

up procedures, the amending Regulation is intended to facilitate cooperation

between firms and to bring the treatment of cooperative joint ventures,

assessed under Article 85 of the Treaty, as much as possible into line with

that of concentrâtive joint ventures, which are covered by the Merger

Regulation. The amending Regulation accordingly broadened considerably the

scope of application of the block exemption Regulations, to the benefit of

Joint ventures amongst other things. The Regulations on research and

development agreements and on specialization agreements now no longer exclude

from the benefit of exemption cooperative joint ventures that perform all the

functions of a normal enterprise, including selling. Similarly, the

Regulations on patent licensing and know-how licensing agreements now also

apply to the licences granted by the joint venture's parents in respect of

i ts act ivit ies.

266. Regulation (EEC) No 417/85 now also applies to contracts under which a

number of firms forgo manufacture of certain products in favour of a joint

(1) All the new Regulations are published in full in the Annexes.

(2) OJ L 21, 29.1.1993, p. 8.

(3) OJ L 53, 22.2.1985.

(4) OJ L 53, 22.2.1985.

(5) OJ L 219, 16.8.1984; corrigendum OJ L 280, 22.10.1985.

(6) OJ L 61, 4.3.1989.

```

```
2.I.D.§1. 2

```

167

```
 venture which they set up. This arrangement may apply to products already

 being manufactured or to products to be manufactured in the future. The

 setting up and the activity of the joint manufacturing venture are exempt

 from the ban on restrictive agreements provided that the combined market

 share of the undertakings concerned does not exceed 20%.

 Agreements under which the parents also entrust the distribution of the

 contract products to a joint venture are similarly covered by the block

 exemption Regulation, though subject to stricter conditions. The combined

 market share of the undertakings concerned must not exceed a maximum of 10%.

 In addition, for the duration of the contract, the parent companies must

 withdraw from the product market of the joint venture and may not exercise

 any distribution or production activity on it.

 The Commission thought it appropriate to extend automatic exemption to cover

 specialization agreements involving undertakings of a certain size and

 accordingly raised from ECU 500 million to ECU 1 000 million the turnover

 figure linked to the opposition procedure, which will be maintained.

 267. Regulation (EEC) No 418/85 provides for an exemption for joint R&D

 ventures, whose activity may extend as far as including the joint

 exploitation of the results of the research. The concept of exploitation

 includes the manufacture of the new or improved products and the use of the

 new or improved processes, the marketing of the products of the research and

 development activity and the granting of production, utilization or

 distribution licences to third companies.

 This Regulation also makes exemption from the ban on restrictive agreements

 subject to quantitative conditions. Cooperation between the parent

 companies in a joint venture whose activity includes research, development,

 production and licensing policy is allowed up to a limit of a combined market

 share of 20%. However, if the parent companies entrust the distribution of

 the contract products to a joint venture, the block exemption applies only if

 the market shares do not exceed 10%, rather than 20%.

 268. Regulation (EEC) No 2349/84 is also applicable to agreements under

 which a parent company grants a licence to the joint venture in so far as

```

```
2. I . D. § 1 . 3

```

168

```
 such agreements relate to the activity of the joint venture. If the parent

 companies are competitors, the block exemption applies only if the combined

 market shares do not exceed a specified limit. This is 20% if the joint

 venture is entrusted only with production and 10% if it is also responsible

 for distributing the licensed products. The Regulation exempts the granting

 to the joint venture of exclusive production or distribution licences for a

 specified territory, the protection of the territory granted to the Joint

 venture or reserved to one of the parent companies against active or passive

 competition from the partner company throughout the duration of the contract,

 and the protection of the territory granted to the joint venture against

 competition from other licensees.

 269. Regulation (EEC) No 556/89 on the application of Article 85(3) of the

 Treaty to certain categories of know-how licensing agreements contains

 similar rules, but the territorial protection in relations between the joint

 venture and the parent companies is limited to ten years, as from the day on

 which the first know-how licensing agreement entered into in respect of

 territories within the Community is concluded. That day also marks the

 beginning of the period in which the joint venture may be protected against

 active competition (ten years) and passive competition (five years) from

 other Iicensées.

 270. The amending Regulation is one aspect of the overall policy being

 pursued to help Joint ventures, the other two being the speeding up of

 procedures for some of them, namely those involving structural changes, and

 the notice on the treatment of cooperative joint ventures.* [7] ) Thanks to

 the notice and to the amending Regulation, all cooperative Joint ventures

 will now enjoy increased legal certainty. In addition, those which do not

 fall within the scope of a block exemption Regulation and which are notified

 to the Commission will benefit from the accelerated procedure, if they have

 structural effects.* [8] )

 (7) See point 294 of this Report.
 (8) See point 122 of this Report.

```

```
2.I.D.§1. 4

 <T6> (b) Application of the block exemption Regulations

 <T7> Specialization and research and development

```

169

```
271. The Commission received only one notification in 1992 under the

opposition procedure provided for in Article 7 of Regulation (EEC) No 418/85

on research and development agreements.* [9] ) The case is at present still

under examination.

As far as Regulation No 417/85 on specialization agreements* [10] ) is

concerned, the opposition procedure provided for in Article 4 still continues

to be little used. No notifications under Article 4 were received in 1992.

<T7> Patent licensing and know-how licensing

272. During the period covered by the report, the Commission received one

notification in which the parties requested application of the opposition

procedure provided for in Article 4 of Regulation (EEC) No 2349/84 on patent

licensing agreements* [11] ) and one notification under Article 4 of Regulation

(EEC) No 556/89 on know-how licensing agreements and mixed know-how and

patent Iicensing agreements.* [12] )

In the first case, the Commission was not able to agree to the request for

application of the opposition procedure, since the information provided by

the parties in their notification was incomplete and since in particular

there was no indication of which clauses in the agreement were to be covered

by the opposition procedure. In the second case, the six-month period has

not yet ended, and the case is still under examination.

In addition, In two of the cases notified in 1991 under Article 4 of

Regulation No 556/89, the parties amended their agreements in such a way as

to make them compatible with Article 85, so that the Commission was able to

terminate the procedure by sending a comfort letter.

(9) OJ L 53, 22.2.1985.

(10) OJ L 53, 22.2.1985.

(11) OJ L 219, 16.8.1984; corrigendum OJ L 280, 22.10.1985.

(12) OJ L 61, 4.3.1989.

```

```
2.I.D.§1. 5

 <T7> Franchising agreements

```

170

```
273. During the year, the Commission received two notifications asking for

application of the opposition procedure provided for in Article 6 of

Regulation (EEC) No 4087/88.* [13)] In one case, the Commission ruled that the

opposition procedure was not applicable, firstly because the agreement

included a clause explicitly not exempted by the Regulation, namely a

restriction preventing the franchisee from determining the selling prices of

the franchised goods and secondly because the condition provided for in

Article 4(a) of the Regulation, namely that the franchisee should be free to

purchase the products from other franchisees or from another network of

authorized distributors, was not fulfilled. Examination of the case is

continuing on the basis of Regulation No 17. In the other case, examination

is st iI I under way.

(13) OJ L 359, 28.12.1988.

```

```
2.I.D.§1. 6

 <T6> (c) Insurance block exemption

```

171

```
274. The Commission has adopted a block exemption for the insurance sector by

making use of the powers granted to it by the Council, in order to facilitate

certains forms of cooperation which the Commission feels are justified in

this sector.

Council Regulation (EEC) No 1534/91 of 31 May 1991* [14] ) empowers the

Commission to exempt, by means of a Regulation and in accordance with

Article 85(3) of the Treaty, categories of agreements between undertakings,

decisions of associations of undertakings and concerted practices in the

insurance sector which have as their object cooperation with respect to:

(a) the establishment of common risk premium tariffs based on collectively

   ascertained statistics or the number of claims;

(b) the establishment of common standard policy conditions;

(c) the common coverage of certain types of risks;

(d) the settlement of claims;

(e) the testing and acceptance of security devices;

(f) registers of, and information on, aggravated risks, provided that the

   keeping of these registers and the handling of this information is

   carried out subject to the proper protection of confidentiality.

275. The Commission has acquired sufficient experience to make use of such

power in respect of the categories of agreements specified in points (a),

(b), (c) and (e) of the list. It has in particular adopted decisions

concerning tariff recommendations,* [15] ) standard policy conditions* [18] ) and

co-reinsurance pools.* [17] ) It has examined a large number of other cases on

such types of agreements which have been notified to it, but on which it has

not yet taken a decision. It has also made an analysis of agreements

(14) OJ L 143, 7.6.1991.
(15) Decisions of 5 December 1984 in Case IV/30.307 - Fire insurance in
   Germany, OJ L 35, 7.2.1985, and of 20 December 1989 in Case IV/32.265    Concordato Incendio, OJ L 15, 19.1.1990.
(16) Decision of 20 December 1989 in Case IV/32.265 - Concordato Incendio,

   loc. cit.

(17) Decisions of 30 March 1984 in Case IV/30.804 - Nuovo Cegam, OJ L 99,
   11.4.1984; of 16 December 1985 in Case IV/30.373 - P & I Clubs,
   OJ L 376, 31.12.1985; of 20 December 1989 in Case IV/32.408 - TEK0,
   OJ L 13, 17.1.1990; and of 14 January 1992 in Case IV/33.100 - Assurpol,
   0J L 37, 14.2.1992.

```

```
2.I.D.§1. 7

```

172

```
 relating to the approval of security devices in connection with the granting

 and conditions of insurance cover, notably in relation to a petition lodged

 with the European Parliament (No 783/90).

 276. With regard to agreements relating to the settlement of claims

 (point (d)) and registers of aggravated risks (point (f)), the Commission

 does not as yet have sufficiently broad information to make an overall legal

 assessment of the restrictions which they involve and to establish the

 conditions which such types of agreement should comply with in order to

 qualify for automatic exemption. It was therefore not opportune to include

 them within the scope of the Regulation, though appropriate proposals will be

 drawn up once sufficient experience has been gained to allow conclusions to

 be drawn.

 277. The Commission has always recognized that the specific characteristics

 of the insurance sector justified certain forms of cooperation designed to

 improve knowledge of risks and share costs. In many cases, such

 collaboration goes beyond what the Commission, in its notice concerning

 cooperation between enterprises,* [18] ) regarded as not being covered by the

 prohibition in Article 85(1).

 278. This cooperation must therefore be examined from the perspective of its

 compatibility with the four conditions for exemption specified in

 Article 85(3) (improving economic and technical progress, benefit to

 consumers, indispensabiIity of the restriction to the attainment of the

 objective pursued, and maintenance of effective competition in the markets

 concerned). The Regulation spells out these conditions for four of the

 categories of agreement listed above.

 279. The block exemption covers cooperation between insurance undertakings or

 within associations of undertakings in respect of the compiling of statistics

 on the number of claims, total amounts paid in respect of claims or the

 amount of capital insured, and their use to establish indicative pure premium

 tariffs - defined as corresponding to the average cost of covering the

 risks - o r, in the case of insurance involving capitalization, mortality

 tables. Joint studies on the probable impact of extraneous circumstances

 that may influence the number or size of claims are also exempted. The

 Regulation also reflects the case-law of the Court of Justice and the

 previous decisions taken by the Commission by stipulating that concerted

 (18) OJ C 75, 29.7.1968; corrigendum OJ C 84, 28.8.1968.

```

```
2.I.D.§1. 8

```

173

```
 practices on commercial tariffs, i.e. the premiums actually charged to

 policyholders and comprising a loading to cover administrative and commercial

 costs are not exempted and that even a pure premium tariff can have only

 reference value.

 280. The establishment of common standard policy conditions has the advantage

 of improving the comparability of cover for the consumer and of allowing

 risks to be classified more uniformly, which facilitates both the compiling

 of statistics and the sharing of risks by means of co-insurance. However,

 it must not lead either to the standardization of products or to the creation

 of too captive a customer base. Accordingly, the Regulation exempts the

 establishment of common standard policy conditions provided that they are not

 binding, but serve only as models, that they do not contain any systematic

 exclusion of particular types of cover without providing for the express

 possibility of including that cover by agreement and that they do not provide

 for the contractual relationship with the policyholder to be maintained for

 an excessive period or go beyond the initial object of the policy.

 Moreover, the Commission reserves the right to withdraw the benefit of

 exemption when it finds that common standard policy conditions contain

 clauses which create, to the detriment of the policyholder, a significant

 imbalance between rights and obligations.

 281. In addition, so as to ensure that there is real transparency for

 consumers, the Regulation stipulates that the common standard policy

 conditions must be accessible to any interested person.

 282. The establishment of co-insurance or co-reinsurance pools must be viewed

 favourably in so far as it allows a greater number of undertakings to enter

 the market and, as a result, increases the capacity for covering risks that

 are difficult to cover because of their scale, rarity or novelty.

 283. However, so as to ensure effective competition, the Regulation makes

 exemption of such pools subject to the condition that the participants must

 not hold a share of the relevant market in excess of a given percentage. The

 percentage is 15% in the case of co-reinsurance pools. It is reduced to 10%

 in the case of co-insurance pools. The reason for this is that residual

```

```
2.I.D.§1. 9

```

174

```
 competition between members of a co-insurance pool is particularly limited.

 These percentages apply only to the insurance products brought into the

 group, where this group covers catastrophe or aggravated risks. The mechanism

 of co-insurance requires uniform policy conditions and commercial tariffs,

 and the Regulation allows this restriction in respect of pools operating in

 this way.

 284. In the case of co-reinsurance pools, the Regulation covers the common

 determination of the probable cost of covering the risks, the operating cost

 of the co-reinsurance and the remuneration of the participants in their

 capacity as co-reinsurers.

 285. Making pool cover subject to the application of common or accepted

 conditions of cover, the requirement that agreement be obtained prior to the

 settlement of large claims, Joint retrocession, and the ban on retroceding

 individual shares are allowed in both cases. The requirement that all risks

 be brought into the pool is not accepted.

 286. Pools are free to define the conditions governing participation in them,

 their areas of business and their mode of operation. However, the

 Commission reserves the right to withdraw the benefit of exemption if they

 are used or managed in such a way as to give one or more participating

 undertakings the means of acquiring or reinforcing a dominant influence in

 the relevant market or if they result in market sharing.

 287. The Commission recognizes the usefulness of cooperation in the testing

 of security devices, in so far as it removes the need to grant repeated

 approval of individual devices. Accordingly, the Regulation lays down the

 conditions for exempting the establishment of technical standards and the

 procedures for assessing and approving security devices and persons

 installing them. The purpose of such conditions is to ensure that all

 manufacturers may apply for approval and that approval is granted on the

 basis of criteria that are objective, qualitative and in proportion to the

 level of protection sought.

 288. Lastly, such agreements must not result in a limitative list, and each

 undertaking must remain free to accept devices not approved under the common

 procedure.

```

```
2.I.D.§1. 10

 <T6> (d) Sea transport

                     Consort ia

```

175

```
289. As announced in the Twenty-first Competition Report, the Council

adopted the Regulation* [19] ) authorizing the Commission to issue a block

exemption for agreements, decisions and concerted practices between liner

shipping companies; such arrangements, known as consortia, are aimed mainly

at supplying Jointly organized services.

The Commission was authorized under the Regulation to grant a block exemption

to consortia only in respect of their sea transport activities and not in

respect of their land transport activities.

On this basis, the Commission is at present drawing up, for discussion with

the Member States and the parties concerned, an initial draft block exemption

Regulation that will specify the conditions and obligations which consortia

must comply with under Article 85(3) of the Treaty in order to qualify for

the block exemption.

(19) Council Regulation (EEC) No 479/92 of 25 February 1992 on the
   application of Article 85(3) of the Treaty to certain categories of

   agreements, decisions and concerted practices between liner shipping
   companies (consortia): OJ L 55, 29.2.1992.

```

```
2.1.D.§1. 11

 <T6> (e) Motor Vehicle Distribution

 <T7> - Regulation (EEC) No 123/85* [2] °)

```

176

```
290. On 6 May 1992 the Commission published a report on car price

differentials in the common market.* [21] ) This investigation was to measure

the extent of car price differentials in the Community. The report revealed

very large price differentials on certain models over some of the time

periods examined in the investigation. Selective distribution systems, as

they currently operate, contribute to sustaining such differentials, in so

far as they limit trade between Member States and thereby reduce effective

pressure on manufacturers to align prices more closely.

Accordingly, the Commission decided on a twofold strategy of practical action

in order to increase public confidence that the selective distribution system

is compatible with a single market, as well as to reduce price differentials.

Firstly, the Commission has asked manufacturers to confirm to their

distributors that distributors are free - in accordance with

Regulation No 123/85 - to sell to other approved distributors throughout the

single market as well as to end-users in other Member States, and to

intermediaries representing them, and to ensure that cars will be made

available to fulfil such demand. There have already been positive results in

this area. The number of complaints received from individual consumers

wishing to purchase a car in another Member State has decreased over the

months since the report was published. This is especially so in the case of

right-hand-drive models, which in the past were the subject of the most

numerous complaints.

Secondly, the car manufacturers have been asked to publish price lists which

enable consumers to compare prices beween different Member States for models

with the same specification.

The car manufacturers - through their industrial organization ACEA - have now

acknowledged this as a useful step, especially in view of the single market.

The ACEA has agreed for its members to take the following action:

(20) Block exemption Regulation covering the selective distribution system

   for motor vehicles.

(21) See point 121 of Twenty-first Competition Report for details of results.

```

```
di

```

```
2.I.D.§1 . 12

```

177

```
 Every six months car manufacturers will compile, on a standard form,

 comparable pricing data for one widely sold model in each car line. Details

of the recommended retail price will be supplied in local currencies, with

 prices quoted both before and after tax. The relevant conversion rate to

ecus will be given to facilitate comparison between prices in different

Member States.

This form will, in particular, show the prices for right-hand-drive versions

 and for the major options (air conditioning, automatic gearbox, power

 steering and Automated Breaking System), as well as information concerning

 the duration of the warranty. The standard form will state whether roadside

 assistance and delivery costs are included in the recommended retail price.

 The agreed price information will be given, for all Member States, to the

 Commission, which will pass on the information to consumer associations and

 to the specialized motor press. It is hoped that at a later stage the

manufacturers will disseminate the information directly.

The figures which are made public in this way will not include the prices in

 Denmark and Greece, because both these countries levy car taxes of over 100%,

 which tends to drive down pre-tax prices. It was therefore accepted in

 Regulation No 123/85 that cars from these markets would be available for

 trade into other Member States only at the price available in the next

 cheapest market. In these circumstances it would mislead consumers to

 publicize the prices available within Greece and Denmark.

 The Japanese manufacturers have expressed their wish to cooperate fully.

 291. During the year under review the Commission received a number of

 complaints concerning the refusal of dealers to carry out guarantee work on

 cars imported from other Member States. These cases almost exclusively

 concerned the new German "Lander" and were predominantly due to a lack of

 information on the part of dealers in the newly established distribution

 network regarding the relevant provisions of Regulation No 123/85. The

 problems were finally resolved with the car producers concerned.

```

```
2.I.D.§1. 13

```

178

```
 292. Following the Peugeot/Eco System decision* [22] ) and the publication of a

 notice outlining the scope of activity of a car intermediary operating in the

 common market,* [23] ) a substantial improvement in this area has been observed.

 Any difficulties which have since been communicated to the Commission by

 intermediaries were resolved without having to resort to administrative

 proceedings.

 <T6> (f) Air transport

 293. In air transport, Regulation (EEC) No 3618/92 extended until

 30 June 1993 the block exemptions for computer reservation systems and

 agreements between airlines provided for in Regulations Nos 83/91 and 84/91.

 The block exemption for ground handling services provided for in Regulation

 (EEC) No 82/91 expired on 31 December 1992.

 (22) Twenty-first Competition Report, points 104 and 122

 (23) OJ C 329, 18.12.1991.

```

```
2.I.D.§2. 14

 <T4> §2. Not ices

 <T6> (a) Cooperative joint ventures

```

179

```
294. Following intensive consultations with the Member States and

representatives from business and industry, the Commission adopted at the end

of 1992 a notice on the assessment of cooperative as opposed to concentrâtive

joint ventures.* [24] )

According to Article 3(2) of Regulation (EEC) No 4064/89,* [25)] a joint

venture is cooperative in nature if it does not constitute an autonomous

economic entity or if, though constituting such an entity, it gives rise to

coordination of competitive behaviour by the parents in relation to each

other or to the joint venture.

Cooperative joint ventures are outside the scope of the provisions of the

Merger Regulation, but must be assessed under Article 85(1) and (3) of the

Treaty.

In its competition policy, the Commission has always endeavoured to

facilitate cooperative arrangements that make economic sense, provided they

take appropriate account of the interests of consumers, do not impose

disproportionate restrictions on the undertakings concerned and do not

jeopardize the maintenance or development of effective competition. This

basically favourable attitude has been reflected in numerous decisions and

notices in individual cases.

In the new notice, which contains numerous references to its administrative

practice to date, the Commission has tried to specify the categories of

cooperative Joint ventures that are compatible with Article 85, so as to

provide the necessary legal certainty in this area and encourage the setting

up of Joint ventures that have a beneficial economic impact without

significantly affecting competition. The notice forms the counterpart to

the notice regarding concentrâtive and cooperative operations* [28] ) and

(24) OJ C 43, 16.2.1993, p. 2.

(25) OJ L 395, 30.12.1989; corrigendum in OJ L 257, 21.9.1990

(26) OJ C 203, 14.8.1990.

```

```
2.I.D.§2. 15

```

180

```
 the notice on restrictions ancillary to concentrations,* [27] ) which clarify

 the Merger Regulation. Links between undertakings other than joint ventures

 are not dealt with in the new notice, even though they often have the same

 effect on competition in the common market and on trade between

 Member States. On the basis of the Commission's experience to date, however,

 no generally applicable conclusions can yet be drawn.

 295. The Commission begins by referring back to earlier notices in which it

 listed categories of joint ventures that by their nature did not entail

 restrictions of competition* [28] ) or which had no appreciable impact on market

 condi t ions.* [29] )

 As far as other cooperative joint ventures liable to be caught by

 Article 85(1) are concerned, the Commission states that their impact on

 competition must be assessed in the light of various factors, including

 competition between the parent companies, competition between the parent

 companies and the Joint venture, and the effects of the joint venture on the

 position of third parties. Competition will not be restricted if the

 parents are not actual or potential competitors and if the joint venture is

 to operate on a market on which neither of the parents is present. The

 assessment of potential competition must be carried out on the basis of the

 realistic approach set out in the Thirteenth Competition Report.

 However, competition between the parents and the joint venture may be

 restricted if the joint venture carries out its activity on the same markets

 as the parents or if it operates on a market upstream or downstream or on an

 adjacent market. Serious restrictive effects on the position of third

 parties may arise if the joint venture confines itself to selling and

purchasing on behalf of the parents, with the result that the parents no

 longer operate as purchasers or suppliers.

 296. If the joint venture performs only certain auxiliary functions

 vis-à-vis its parents - for example, in the areas of research and

development, purchasing, production or sales - the Commission will apply the

 (27) OJ C 203, 14.8.1990.

 (28) OJ C 75, 29.7.1968; corrigendum in OJ C 84, 28.8.1968

 (29) OJ C 231, 12.9.1986.

```

```
2.I.D.§2. 16

```

181

```
 assessment principles laid down for cooperation agreements having the same

 purpose which do not take the form of a joint venture.

 However, if cooperative joint ventures perform on a lasting basis all the

 functions of an autonomous economic entity, the Commission believes that they

generally represent a factor making for greater competition. Consequently,

 such Joint ventures will qualify for favourable treatment under

Article 85(3).

Such joint ventures are exempted from the ban on restrictive agreements where

 they fulfil the conditions laid down for block exemption. The block

exemption Regulations amended this year by the Commission* [30] ) allow

 cooperation between firms within a joint venture for the purposes of

 specialization and Joint research and development. Under the Regulations on

 patent licensing and know-how licensing agreements, certain restrictions of

 competition in respect of technology transfer by the parents to the joint

 venture are exempted from the ban on restrictive agreements.

 297. Cooperative Joint ventures intended either to develop new technologies,

or to facilitate entry to new markets, or to extend or rationalize existing

production, may be assessed favourably even where they do not fulfil the

conditions laid down by the block exemption Regulations, provided they are

not a cover for price-fixing, quota and market-sharing agreements or do not

serve as an instrument for coordinating the investment policy of the parents.

However, since the cooperation includes distribution in such cases,

particular care must be taken to ensure that the combining of all the

business functions and the simultaneous merging of the resources of the

parents do not create or strengthen a dominant position. Thus, if the

aggregate market shares of the undertakings concerned do not exceed a maximum

of 10%, the Commission considers that full-function joint ventures may be

deemed in general acceptable. Beyond that threshold, a more detailed

examination is necessary.

298. This policy stance adopted by the Commission will help to reduce the

existing imbalance between concentrâtive and cooperative joint ventures

 (30) See point 265 of this Report

```

```
2.I.D.§2. 17

```

182

```
 resulting from the fact that concentrâtive joint ventures are subject to the

 more rapid merger control procedure, whereas cooperative joint ventures are

 subject to the Regulation No 17 procedure. The same result may be expected

 from the Commission's general approach to ancillary restrictions. The

 Commission makes a distinction between restrictions of competition which

 arise from the creation of a joint venture and additional agreements which

 would, on their own, constitute restrictions of competition. Additional

 agreements which are directly related to the Joint venture and necessary for

 its existence must be assessed together with the Joint venture. Thus, if a

 joint venture does not fall within the scope of Article 85(1), than neither

 do any additional agreements ancillary to it. Additional agreements which

 are not ancillary to the joint venture normally fall within the scope of

 Article 85(1), even though the joint venture itself may not. The notice

 lists various restrictions, stating whether or not they may be regarded as

 anciIlary.

```

```
2.I.D.§2. 18

 <T6> (b) Cooperation between the Commission and national courts

```

183

```
299. The Commission also adopted a notice on cooperation between the

Commission and national courts in applying Articles 85 and 86 of the

EEC Treaty.* [31] ) The purpose of the notice is to facilitate the application

of Community competition law by national courts. It sets out the principles

governing relations between national courts and the Commission, proposes

specific cooperative measures and stipulates how the Commission will take

account of the powers of national courts in deciding on its priorities in

deaIi ng w i t h i nd i v i dua i cases.

The powers of national courts in applying the Community competition rules

derive from the direct effect of Articles 85(1) and (2) and 86 and from the

regulations laying down block exemptions under Article 85(3) of the

EEC Treaty. The purpose of such powers is to safeguard the individual

rights of parties subject to Community law.

The Commission, whose actions in the competition area are governed by public

interest considerations, has for a number of years been seeking to encourage

decentralized application of Article 85 and 86, notably by national courts,

which had not hitherto performed their role here in a satisfactory manner.

This objective was spelt out in 1983* [32] ) and was reaffirmed on a number of

occasions thereafter.* [33] ) The new notice marks a first step towards

achieving this policy. Its aim is to get Articles 85 and 86 applied more by

the national courts.

Increasing the role of national courts brings a number of advantages. There

are firstly procedural advantages for individuals. Cases brought before

national courts give individuals the chance to obtain adequate compensation

(31) OJ C 39, 13.2.1993, p. 6.
(32) Thirteenth Competition Report, points 217 and 218.
(33) Fifteenth Competition Report, points 38 and 43, Sixteenth Competition
   Report, points 41 and 42; Seventeenth Competition Report, points 55 and
   56; Twentieth Competition Report, point 4 and introduction, p. 16;
   Twenty-first Competition Report, points 69 to 71.

```

```
2.I.D.§2. 19

```

184

```
 for infringements of Community law through injunctions, interim measures and

 damages. Secondly, a more active and reliable role by the national courts

 enables the Commission to restrict its action to cases involving sufficient

 Community interest and to pursue a more coherent competition policy.

 Lastly, greater effectiveness on the part of the national courts has a

 general advantage in that it reflects the spirit of the principle of

 subsidiarity. Community law will be implemented at a level close to the

 individual. The individual will be more aware that Community law is not

 merely the concern of remote administrative bodies, but something that

 directly confers subjective rights on him.

 The notice will soon be supplemented by an explanatory brochure concerning

 the procedural rules in Member States governing the implementation of

 Articles 85 and 86 by national courts. The Commission intends thus to

 create the conditions for improving the sharing of tasks between the

 Commission and the courts in the Member States, which, in conjunction with

 the planned speeding up in the Commission's internal procedures, should

 improve considerably its speed of action.

```

```
,.,.D.,2.20

 <T6> (c) Contracts with commercial agents

 300. In 1992 the Commission continued its work on updating the notice on

contracts with commercial agents.* [34] ) It drew up a new amended version of

 the draft submitted to government experts in 1990.* [35] )

(34) OJ 139, 24.12.1962.
(35) Twentieth Competition Report, point 4.

```

```
2.I.D.§2. 21

 <T6> (d) Application of the "de minimis" principle in exclusive

                 beer supply arrangements

```

186

```
301. Following its 1990 beer market review* [38] ) and a ruling of the European

Court of Justice,* [37] ) the Commission has now adopted a notice setting out

criteria under which exclusive beer supply contracts may be considered to be

of minor importance and thus not be caught by Article 85(1) of the

EEC Treaty. The notice will clarify the status of agreements concluded by

smaller breweries, thus reducing red tape and providing legal certainty.

302. Such contracts, whether they are "loan ties" or "property ties" (within

the meaning of Articles 6 and 8 of Regulation No 1984/83)* [38] ) will, in

principle, fall outside the scope of Article 85(1) if three conditions are

met :

   the brewery's market share on the national market for the resale of beer

   on premises (i.e. in pubs, hotels, restaurants) is not higher than 1%;

   the brewery does not produce more than 200 000 his of beer per year;

```

**`the duration of the contracts does not exceed`** _**7Yi**_ **`years, if they are for`**

```
   the exclusive supply of both beer and other drinks, or 15 years, if they

   cover only beer.

303. These criteria take account of the case-law of the Court and reflect the

concern to ensure - particularly by setting the 200 000 his threshold - that

not too large a segment of the beer market (i.e. the part represented by

smaller breweries) will be taken out of the scope of Article 85(1) and thus

possibly closed to both domestic and foreign competition.

304. The Commission's intention is to define as precisely as possible - for

all national markets characterized by the existence of networks of similar

agreements having a cumulative effect on competition - those agreements which

do not significantly contribute to that effect and are therefore not caught

by EC competition rules. However, even if larger breweries' beer supply

agreements are caught by Article 85(1) because the thresholds for minor

importance are exceeded, such agreements may still continue to benefit from

(36) Twentieth Competition Report, points 84 and 395.
(37) Case C 234/89 "Delimitis/Henninger Bràu" of 28 February 1991,
   Report 1991, I, p. 935.

(38) 0J L 173 of 30.6.1983.

```

```
2.I.D.§2. 22

```

187

```
 the block exemption provided for in Regulation No 1984/83, so long as the

 conditions it lays down are met.

 305. The same principles apply for beer supply contracts concluded by

 wholesalers, but taking into account the position of the brewery whose beer

 is the main subject of the agreement in question.

 306. Beer supply contracts involving breweries which exceed the above

 thresholds, may, in individual cases, nevertheless be considered to be of

 minor importance, particularly if the number of tied outlets is limited in

 relation to the total number of outlets on the market.

 307. This notice fills a gap in the Commission's 1986 notice on agreements of

 minor importance,* [39] ) which does not apply to agreements which are part of

 networks of similar agreements having a cumulative effect on the market. It

 is clear, however, that agreements concluded by companies - whether breweries

 or wholesalers - which individually exceed the thresholds set in that notice

 (5% market share and ECU 200 million turnover) are liable to be caught

 individually by Article 85(1) to the extent that they contain restrictive

 clauses.

 308. Finally, it should be remembered that, where agreements are considered

 to be of minor importance with no real effect on intra-Community trade and

 therefore to fall outside the scope of Community law, it is up to national

 legislation to provide such measures as appear necessary. The objective of

 the notice is not to give preferential treatment to smaller brewers, but to

 come to a reasonable allocation of responsibility between the Community and

 the Member States in line with the Commission's policy on subsidiarity.

 (39) 0J C 231, 12.9.1986.

```

```
2. I .D.§3. 23

 <T4> §3. inter im measures

 <T5> - Mars I

```

188

```
 309. The Commission imposed interim measures following a complaint by Mars,

which alleged that its access to the German market for single-item ice-cream

was iI legal I y barred.

 310. The relevant product is distributed in Germany through various

channels, including the "traditional" retail trade, comprising small and

medium-sized sales outlets. The marketing of the ice-cream involves two

 types of contractual arrangements. Firstly, there are the freezer

exclusivity arrangements under which a producer provides the retailer with a

 freezer which remains his property and in which the retailer undertakes to

stock only ice-cream manufactured by the producer. Secondly, there are

sales outlet exclusivity contracts under which a retailer undertakes to sell

only the products of the manufacturer with which he has a contract.

311. Mars, which is seeking to penetrate the market using the name of its

well-known chocolate products, based its complaint on the argument that the

two largest undertakings operating on the market, Langnese (Unilever group)

and Schôller, had such a network of exclusivity contracts that Mars was

unable to find a sufficient number of retailers to market its products.

312. The Commission took the view that the contractual arrangements in

question did significantly restrict access to the market and that there was

therefore a presumption of an infringement of Article 85 of the Treaty. In

addition, the Commission considered that, unless it took immediate action,

Mars would suffer serious and irreparable harm, through being prevented from

penetrating the market at a time when competitors were about to introduce, or

had recently introduced, new products comparable to its own.

Since, in the Commission's view, the conditions specified by the Court in its

"La Cinq SA" Judgment were fulfilled, the Commission, having weighed the

interests involved, imposed interim measures that were confined to the sales

```

```
2.I.D.§3. 24

```

189

```
outlet exclusivity arrangements. Langnese and Schôller were prohibited from

 using such exclusivity to prevent retailers thus bound to them from selling

Mars products in competition with their own. By Order of 16 June, the

President of the Court of First Instance, to which Langnese and Schôller made

application concerning the interim measures, limited Mars' access to petrol

stat ions alone.

```

```
2.ll.§1. 1

 <T2> Chapter II: Main cases decided by the Community lawcourts

```

190

```
This Report covers a total of li judgments delivered by the Court of Justice

or the Court of First Instance.* [1] ) With certain exceptions, it does not

cover orders made by the President of either Court.

<T4> §1. Application of Article 85(1) to restrictive

            practices in the polypropylene sector

313. Having delivered seven judgments in the polypropylene case in 1991,* [2] )

on 10 March the Court of First Instance gave judgment on the six remaining

applications (Cases T-9/89 Hiils: T-10/89 Hoechst: T-12/89 Solvay; T-13/89

ICI ; T-14/89 Montedipe; and T-15/89 Chemie Linz). The grounds of the latter

set of Judgments broadly correspond to those of the judgments delivered in

1991. However, a number of new points had to be considered.

One of the applicants denied involvement in the infringement. Shell

maintained that the Decision could not be addressed to it as it was not a

producer capable of fixing polypropylene prices and sales volumes. The

Decision should have been addressed to one of the operating companies in the

Shell group. The Court did not accept this argument; it held that Shell and

the operating companies constituted a single undertaking for purposes of the

Community rules on competition.

Another aspect is the calculation of fines. Where undertakings involved in a

competition proceeding display a cooperative attitude it is the Commission's

practice to take that into consideration in determining the amount of the

fine. That is why the Commission had reduced the fines imposed on ICI by

10%. The Court found that this did not go far enough. At the Commission's

request, ICI had furnished highly detailed information which concerned not

(1) The references are given in the Annexes.
(2) Twenty-first Competition Report, point 143

```

```
2.I I.§1. 2

```

191

```
 only its own conduct but also that of the other undertakings. Without that

 information the Commission's investigation would have been much more

 difficult. ICI had thus contributed to bringing the infringement to an end.

 The Court accordingly reduced ICI's fine from ECU 10 million to

 ECU 9 mi I I ion.

```

```
2.I I.§2. 3

 <T4> §2. Application of Article 85 to a cooperative

```

192

```
314. In its judgment of 2 July ir> Case T-61/89 Dansk PeIsdyravlerforening v

Commission the Court of First Instance set forth the principles governing the

application of Article 85(1) to cooperative associations. The Commission had

by Decision imposed a fine on Dansk Pelsdyravlerforening on account of

various clauses in its Rules and certain concerted practices which restricted

competition between the association, whose business is the sale of skins, and

third parties, and also between the association's members themselves.

After pointing out that the products concerned were not mentioned in Annex II

to the Treaty, which rendered Regulation No 26 inapplicable here, the Court

considered whether the no-competition clauses, the supply obligations and the

concerted practices to which the Commission took objection in its Decision

were actually restrictive of competition.

The Court accepted most of the Commission's arguments, but annulled some of

the articles of the Decision for lack of proof or sufficiently precise

reasoning.

```

```
2.1 I.§3. 4

```

193

```
 <T4> §3. Application of Article 85 to a selective distribution system

 315. In 1985, the French cosmetics manufacturer Vichy notified to the

 Commission its system of distributing its products in France exclusively

 through dispensing chemists.

 In 1988, following various decisions by the French authorities declaring the

 system to be contrary to Article 85 of the EEC Treaty, Vichy revised it,

 thereby rendering the notification null and void.

 In 1989 a new system was notified, applicable to all Member States with the

 exception of Denmark. In France the grant of approval as a distributor of

 Vichy products was subject to possession of a diploma in pharmacy, whereas in

 the other Member States distributors had to be practising dispensing

 chemists.

 The Commission sent Vichy a statement of objections concerning the

 distribution system in Member States other than France, giving it an

 opportunity to submit its observations, and subsequently adopted a Decision

 under Article 15(6) of Regulation No 17. It was that Decision which was the

 subject of the application. It was a preliminary Decision whereby the

 Commission withdrew the benefit of the immunity from fines which attached to

 the not i f icat ion.

 In its Judgment* [3] ) the Court summed up the case law of the Court of Justice

 on selective distribution. It declared that, in the present case, the

 criterion for approval was quantitative in nature and that by all estimates

 it was disproportionate and had affected trade between Member States by

 eliminating parallel imports. As far as Article 85(3) was concerned, the

 applicant had not proved that assistance could be given to customers only by

 practising dispensing chemists and not by a qualified chemist who was not

 practising. To that extent, the consumer would not receive a fair share of

 any benefit.

 (3) Judgment of 27 February 1992, Case T-19/91, not yet reported

```

```
2. I I.§4. 5
```

194

```
 <T4> §4. Non-applicability of Article 85 to statutory restrictions

             on imports and exports of electricity

 316. In Rendo and Others v Commission* [4] ) the applicants asked the Court of

 First Instance to annul in part the Commission Decision in the Iisselcentrale

 case,* [5] ) which concerned restrictions on imports of electricity into

 the Netherlands for supply to the public and on exports of electricity from

 the Netherlands, to the extent that the Commission had refrained from

 applying Article 85 to the import and export prohibitions imposed on

 generators in the area of public supply on the ground that they originated in

 a legislative measure. The Decision did not look into the question whether

 the restrictions on imports were justified in the light of Article 90(2), as

 that would have meant examining the relevant Dutch Act, which was not the

 Decision's purpose. The Commission had, however, indicated that proceedings

 would be brought under Article 169 of the Treaty against the Dutch Government

 for the latter's failure to fulfil its obligations.

 317. The Court found that, although Rendo's complaint concerning electricity

 imports had not been rejected but had remained pending during the Article 169

 proceedings, the application was admissible. The complainants' procedural

 rights would be more circumscribed in Article 169 proceedings, so that their

 legal position had indeed been affected, which was sufficient grounds for

 them to be able to bring an action for annulment.

 The application was, on the other hand, inadmissible as far as it related to

 the restrictions on exports in the area of public supply. Although the

 question had been raised in the Decision's recitals, the substantive

 provisions, which were the only part that was relevant, did not give any

 indication as to what the Commission's definitive position was.

 The fact that the complainants were mentioned in the Decision did not allow

 them to contest it as a whole when the scope of their complaint was narrower,

 as they were not individually concerned by matters outside their complaint.

 (4) Judgment of 18 November 1992 in Case T-16/91, not yet reported

 (5) Decision of 16 January 1991, OJ L 28, 2.2.1991, p. 32.

```

```
2. I I .§4. 6
```

195

```
 The Court stressed it had no power to issue direct orders to the Commission.

 On the substance of the case, the Court held that the Commission was not

 obliged to act on a complaint that an infringement had been committed unless

 the subject of the complaint fell within its exclusive jurisdiction. That

 was not the case with Article 90(2), which could be applied by national

 courts. Moreover, where a complaint concerned an undertaking entrusted with

 the operation of services of general economic interest, the Commission was

 a fortiori not obliged to act if the investigation of the complaint led to a

 national law's compatibility with the Treaty being assessed.

 Where a restriction stemmed from the existence both of a national law and of

 an agreement between undertakings, the law had to be examined first, applying

 the procedure for failure to fulfil an obligation, as the agreement could not

 have any practical effects except in so far as the restrictions it laid down

 exceeded those arising from the law. In that event, the complainant might,

 of course, be adversely affected, but the priority given to the failure to

 fulfil the obligation meant that the complaint would remain pending before

 the Commission and hence would be investigated subsequently.

 In the present case, the Commission had not considered whether the

 restrictions on imports were justified under Article 90(2). They therefore

 constituted an infringement of Article 85 as long as that question had not

 been settled. The Court did not accept the complainants' argument that the

 agreement was provisionally valid as long as Article 90(2) had not been

 dec Iared i nappIi cab Ie.

```

```
2.II.§5. 7
```

196

```
 <T4> §5. Refusal to exempt a net price system for imported books

 318. In Publishers Association v Commission* [8] ) the Court of First Instance

 had to consider whether the Commission's refusal to exempt a set of

 agreements notified by the Publishers Association was justified. The

 Association, which represents the vast majority of publishers in the

 United Kingdom, had introduced a system for the sale of books in the UK at

 collectively fixed prices. The Commission had taken the view that, in so far

 as they applied to trade in books between Member States, the agreements were

 contrary to Article 85(1) of the Treaty and did not qualify for exemption as

 they involved restrictions which were not indispensable.* [7] )

 The applicant's main contention was that the reasoning on which the Decision

 was based was incorrect. This contention was rejected by the Court, which

 upheld the Decision in its entirety.

 In its judgment, the Court stated that it was for those making a notification

 to prove that their agreement satisfied all the conditions laid down in

 Article 85(3) of the Treaty, whereas the Commission was entitled at any time

 before the definitive adoption of the Decision to find that any one of the

 conditions was not met.

 The Commission had been right to maintain in the present case that there was

 no need for the net price system to be collective. Both publishers and

 booksellers could carry on their activities in a system where each publisher

 formulated individually its own conditions of sale.

 (6) Judgment of 9 July 1992, Case T-66/89, not yet reported.
 (7) Decision of 12 December 1988; Eighteenth Competition Report, point 52

```

```
2.I I.§6. 8

 <T4> §6. The concept of effect on trade between Member States

```

197

```
319. In the flat glass case,* [8] ) the Court of First Instance held that an

agreement between the leading Italian flat-glass producers dealing with

prices and conditions of sale was necessarily capable of affecting trade

between Member States.

320. In the context of criminal proceedings against a driving instructor who

had broken a law prohibiting the giving of driving lessons in a district

other than that in which the driving school was situated, the Lisbon Court of

Appeal asked the Court of Justice to give a preliminary ruling on the

question whether Article 85(1) of the Treaty precluded such a restriction.

The Court replied in the negative,* [9] ) ruling that, although Member States

were required under the second paragraph of Article 5 of the Treaty to

refrain from enacting or maintaining in force any measure capable of

rendering the competition rules ineffective, Article 85 applied only to the

extent that the anti-competitive practices were capable of affecting trade

between Member States. This condition was fulfilled only if it was

established that the national legislation had the effect of denying new

entrants access to the market, which was not the case with the legislation

in quest ion.

(8) Judgment of 10 March 1992, Joined Cases T-68/89, T-77/89 and T-78/89
   Société Italiano Vetro. Fabbricca Pisana et PPG Vernante Pennitalia v

   Commission. not yet reported.
(9) Judgment of 19 March 1992, Case C-60/91 Batista Morais v Ministério
   Publico, not yet reported.

```

```
2.II.§7. 9

 <T4> §7. Abuse of a collective dominant position

```

198

```
321. The fiat glass case* [10] ) concerned a Commission Decision of

7 December 1988.* [11) ]

In its Decision the Commission had found that three Italian flat-glass

producers were infringing Article 85 of the Treaty by participating in

concerted practices relating to their prices and conditions of sale to the

principal Italian wholesalers, the Fiat group and another customer, by fixing

quotas for the last two customers and by exchanging products with a view to

sharing the market. The Commission had also found that the firms occupied a

collective dominant position in so far as they denied customers the

possibility of bringing price competition into play between suppliers and

fixed quotas for the automotive market.

The main lesson to be learned from the Judgment delivered by the Court of

First Instance (paragraphs 357 to 360) is that the Court has acknowledged

that Article 86 can be infringed by a collective dominant position. This can

be the case where two or more independent economic entities are united by

such economic links in a specific market that together they hold a dominant

position vis-à-vis other operators. The Court cited as an example of such

links the case where such undertakings jointly have, through agreements or

licences, a technological lead over their competitors. The Court found

support for its interpretation in the wording of Regulation (EEC) No 4056/86,

which provides that liner conferences are incompatible with Article 85(1).

However, to establish an infringement of Article 86 of the Treaty, it is not

sufficient to "recycle" the facts constituting an infringement of Article 85.

In the present case the Court found that not all the infringements that were

alleged to have taken place had been established, and it annulled the

Decision in its entirety in respect of one undertaking and partially in

respect of the other two, reducing the fines accordingly. There is another

lesson to be learned from this judgment, namely the extreme importance of

documentary evidence and the way it is presented in a Commission decision.

(10) Referred to above.
(11) Eighteenth Competition Report, point 48

```

```
2.1 I.§8. 10

 <T4> §8. Procedure

 <T6> (a) Non-existence of a decision

```

199

```
322. The PVC cases* [12] ) turned on the interpretation of the Commission's

Rules of Procedure. Article 12 of those Rules provides that acts adopted by

the Commission are to be authenticated in the language or languages in which

they are binding by the signatures of the President and the

Executive Secretary.

The Court of First Instance held that the Rules had been infringed in these

cases.

Firstly, the draft Decisions submitted to the Commission on 14 December 1988

in English, French and German differed from the Decisions ultimately served

upon the companies. The differences were more than just linguistic and

affected both the reasoning on which the Decisions were based and the

Decisions' substantive provisions. They therefore violated the principle

that a measure was unalterable once it has been adopted, and infringed

Article 190 of the EEC Treaty.* [13] )

Secondly, the Member of the Commission responsible was not competent to issue

the contested Decisions. It was clear from the minutes of the Commission

meeting that the Decisions had not been adopted in Dutch and Italian, which

were authentic texts within the meaning of Article 12 of the Rules of

Procedure. In the Court's view, Article 27 of the Rules did not allow the

Commission to delegate the preparation of such instruments. The Member of

the Commission therefore had no authority to sign the Decisions in those

languages. Nor was he competent to sign rat lone temporis. When, on the last

day of his term of office, he signed the letters notifying the contested

measures, the various language versions of those measures had not yet been

finalized and could therefore not be notified. This defect could have been

remedied had the Commission proved that he had signed only copies of the

Decisions notified to the undertakings and that the originals had been

signed by a duly authorized person. However, the Commission was unable to

produce the original versions.

(12) Judgment of 27 February 1992, Joined Cases T-79, 84, 86, 89, 91, 92, 94,
   96, 98, 102 and 104/89; E.C.R. I I-499 seq..
(13) Case 131/86 United Kingdom v Council [1988] ECR 905.

```

```
2.1 I.§8. 11
```

200

```
 The textual alterations and the lack of competence of the authority issuing

 the measures could have been considered grounds for annulling the Decisions.

 However, the Court examined instead the applicants' arguments as to the

 measures' non-existence. In the Court's view a measure may be declared non
 existent where it is vitiated by particularly serious and manifest defects.

 The plea of non-existence concerns a matter of public interest which may be

 relied upon at any time during the proceedings and which a court must raise

 of its own motion. In the light of the serious defects already found to

 exist, the Court called upon the Commission to produce the Decisions in their

 original, authenticated form. The only documents submitted by the Commission

 were the draft Decisions in the three languages, two extracts from minutes

 and a letter dated 5 January 1989 signed by a Member of the Commission.

 The Court held that, under the circumstances, it could not be established

 that Article 12 had been complied with. That provision was of fundamental

 importance as a means of creating legal certainty for those subject to

 measures adopted by the full Commission, because only adoption by the full

 Commission and authentication by the minutes of the meeting made it possible

 to be certain of a measure's existence and of its content and to be sure that

 it corresponded exactly to the Commission's intentions. The importance of

 authentication was borne out by the fact that natural and legal persons could

 rely upon the institution's Rules of Procedure in so far as the provisions

 thereof created rights and contributed to legal certainty for such persons.

 The Court referred in this connection to Article 192 of the Treaty, which

 empowers national courts to verify the authenticity of Community measures.

 The Court considered that, as a result of the lack of authentication in the

 present case, it was impossible to determine precisely the date and content

 of the measures and the authority issuing them. It concluded that the

 measures could not be regarded as decisions within the meaning of Article 189

 of the Treaty. Hence the applications had been made in respect of non
 existent decisions and were dismissed as inadmissible.

 The Commission disagrees with virtually all the Court's findings and has

 appealed against the judgment.

```

```
2.I I.§8. 12

 <T6> (b) Commission's power to reject complaints

```

201

```
323. Underlying the Automec case* [14] ) is a decision by BMW Italia not to

renew its agreement with Automec for the distribution of BMW vehicles in the

Italian province of Treviso. Automec complained to the Commission, alleging

that BMW's conduct infringed Article 85 of the Treaty. Automec considered

that BMW's distribution system was a selective distribution system within the

meaning of Regulation (EEC) No 123/85 and that Automec fulfilled the criteria

laid down. As a result, Automec asked the Commission to issue an injunction

requiring BMW to execute the orders Automec had placed and to authorize

Automec to use the BMW trade marks.

The complaint was rejected on 28 February 1990 by decision of the Member of

the Commission responsible for competition matters, on the ground inter alia

that the case was one which could be dealt with by a national court. It was

against that decision that Automec lodged this application, which the Court

of First Instance dismissed as inadmissible.

The Court had first of all to decide whether the Commission had a

discretionary power to reject complaints submitted to it, or, on the

contrary, whether it was required to open an investigation whenever it

received a complaint.

The practical significance of this question is considerable.

The Court found that the Commission was not obliged to investigate every

complaint. Complainants were not entitled to a decision as to the existence

or otherwise of the infringement they alleged had been committed, except

where the subject-matter of the complaint fell within the Commission's

exclusive jurisdiction, as was the case, for example, with the withdrawal of

an exempt ion.

The Commission was therefore free to define priorities in dealing with

complaints.

Of course, it had always to examine carefully the points of law and fact to

which the complainant had drawn its attention. In the present case the

Court held that this condition had been satisfied.

(14) Judgment of 18 September 1992, Case T-24/90, not yet reported

```

```
2.1 I.§8. 13

```

202

```
 The second question which the Court considered in this context was no less

 important: was the Commission, in determining the degree of priority to be

 applied to the examination of alleged infringements, Justified in referring

 to the Community interest of the case?

 The Court answered this question too in the affirmative: the Commission was

 an administrative authority which had to act in the public interest.

 The Court said that such reference to the Community interest could not be

 made in an abstract manner. The Commission was required to set forth the

 factual and legal considerations which prompted it to conclude that there was

 insufficient Community interest. It should take into account inter al ia the

 impact of the alleged infringement on the functioning of the common market,

 the probability of being able to establish its existence and the extent of

 the necessary investigation measures.

 The Commission was also entitled to take into account the real possibility

 that the intervention of a national court might enable proper effect to be

 given to Article 85(1).

 Lastly, the Court pointed out that the existence of a block exemption

 Regulation, assuming it was applicable, was a factor the Commission could

 take into account in assessing the Community public interest in carrying out

 an investigation. The principal objective of block exemptions was to limit

 the need for notification and individual scrutiny of the contracts employed

 in the area of activity concerned. The existence of such Regulations also

 facilitated the application of competition law by national courts.

 The Court's detailed analysis of the Commission's power to reject a complaint

 afforded it an opportunity to reaffirm, in the light of previous judgments,

 in particular that in Delimitis.* [15] ) the major role national courts could

 play in applying Community competition law. This development is taken fully

 into account by the Commission in its Notice on the subject.

 (15) Case C-234/89 [1991] ECR I-935

```

```
2.II.§8. 14

```

203

```
 <T6> (c) Application for a finding that, by rejecting a complaint, the

            Commission had improperly failed to act

 324. In Asia Motor France the Court of First Instance pronounced on the

 admissibility of an action for failure to act, with an application for

 compensation for that failure.* [18] ) The applicants claimed that the

 Commission was at fault for not acting on their complaint concerning the

 existence of a restrictive agreement between the French importers of five

 makes of Japanese car. The agreement, which had been concluded under the

 auspices of the French Government, sought to prevent the importation into

 France of other makes of Japanese car. The Commission had rejected the

 complaint on the ground that the undertakings whose conduct was put in

 question had no operational leeway in the matter. But the Commission's

 rejection of the complaint had come after the action for failure to act had

 been brought. The Court held that the nature of such an action was to

 require the defendant institution to act, in pursuance of Article 176.

 Consequently, the action became devoid of purpose if, as in the present case,

 the institution had acted after the commencement of proceedings but before

 delivery of the judgment.

 The Court dismissed the claim for compensation as the applicants had not

 substantiated the loss they alleged they had sustained. On the other hand,

 it ordered the Commission to pay most of the costs owing to the lateness of

 its act ion.

 <T6> (d) Commission's power to adopt interim measures

 325. By its Judgment of 24 January in Case T-44/90 La Cine the Court of

 First Instance annulled the Decision whereby the Commission had refused to

 take interim measures in response to a complaint by a French television

 channel, La Cinq, alleging that the conduct of the European Broadcasting

 Union (EBU) infringed Articles 85 and 86.

 La Cinq submitted that it satisfied the criteria for membership of the EBU

 (which would have afforded it access to the Eurovision network for news and

 sport), but that the EBU had rejected its application in a discriminatory

 manner.

 The Commission had refused to act upon the complaint on the grounds, firstly,

 (16) Judgment of 18 September, Case T-28/90 Asia Motor France and Others v

    Commission, not yet reported.

```

```
2.1 I.§8. 15

```

204

```
 that it did not appear prima facie from a summary consideration of the facts

 that any infringement had been committed, and secondly, that no irreparable

 damage had been suffered by La Cinq, which had at all events been able to

 join the EBU network on a contractual basis.

 In its judgment the Court made the preliminary observation that only two

 conditions had to be met before interim measures could be granted: the

 existence of practices which were prima facie likely to constitute a breach

 of the competition rules, and a risk of serious and irreparable damage. In

 the Court's view, the concept of urgency was included in the second

 condit ion.

 The Court went on to state that, in the present case, the Commission had

 committed two errors of law.

 Firstly, contrary to what the Commission had maintained, the first condition

 did not mean that the existence of a clear and flagrant infringement had to

 be established at the stage of the mere prima facie assessment. The

 requirement of a prima facie infringement could not be equated with the

 requirement of certainty which a final decision had to satisfy.

 Secondly, the second condition should not be interpreted as meaning that only

damage which could not be remedied by a subsequent decision could be regarded

 as irreparable. It was sufficient that it should no longer be possible to

 remedy it by any decision which the Commission might take at the end of the

administrative procedure. The Commission had also committed a manifest

error of Judgment when it considered that the possibility for La Cinq to

secure contractual access to Eurovision film was equivalent to membership of

 the EBU. It followed that the Commission had failed to fulfil its

obligation to take into account all the relevant facts in the present case in

order to determine the existence of a risk of serious and irreparable damage.

Although it annuls the Commission Decision, the judgment actually increases

the scope for Commission interim measures in future, in that it interprets

the conditions laid down in the Camera Care Judgment* [17] ) less restrictively

than the approach which the Commission has followed so far.

(17) Case 792/79R Camera Care Ltd v Commission [1980] ECR 119.

```

```
2.1 I.§8. 16

 <T6> (e) Cooperation with national authorities

```

205

```
326. In its Judgment in the Spanish banks case,* [18] ) which was delivered in

response to a reference for a preliminary ruling from the Spanish Competition

Court, the Court of Justice set forth the conditions under which national

competition authorities may use information supplied to them by the

Commission under Article 10 of Regulation No 17.

That Article provides that the Commission shall forthwith transmit to the

competent national authorities a copy of the applications and notifications

lodged with it by undertakings in accordance with Articles 2, 4 and 5 of

Regulation No 17, together with copies of the most important documents sent

to it and of any requests for information addressed to the undertakings under

Article 11 of the same Regulation.

In the present case, the Spanish banks considered that the competition

authority, the DGDC, had initiated proceedings against them for infringing

Spanish law on the strength of information obtained, not by that body itself,

but by the Commission.

The court making the reference asked whether the national authority

responsible for applying Articles 85 and 86 could use information obtained by

the Commission following a request for information or a notification where

the authority applied either national competition law or Community

competition law, or both national and Community competition law.

In its reply the Court did not draw any distinction based on the nature 
whether national, Community or both - of the rules applied.

Basing its considerations on the general scheme of Regulation No 17, it

replied in the negative in all three cases. It pointed out in particular

that the information furnished to national authorities by the Commission was

communicated under a Regulation which was not concerned with proceedings

conducted by Member States' competent authorities, even where the purpose of

those proceedings was to implement Articles 85(1) and 86. The proceedings

(18) Judgment of 16 July 1992, Case C-67/91 Direcciôn de Defensa de la
   Competencia (DGDC) v Asociaciôn Esoanola de Banca Privada and Others,

   not yet reported.

```

```
2.I I.§8. 17
```

206

```
 conducted by those authorities were distinct from those conducted by the

 Commission and the gathering of evidence by those authorities was governed by

 national law. Even the implementation of Articles 85(1) and 86 by national

 authorities was subject to national procedural rules.

 Regulation No 17 required Member States' competent authorities and their

 officials to refrain from communicating confidential information. That

 provision thus implemented in its field of application the general obligation

 of professional secrecy imposed by Article 214 of the Treaty. In addition,

 the rights of the defence would not be observed if an authority other than

 the Commission could use information acquired under Regulation No 17 as

 evidence in proceedings which were not governed by that Regulation.

 The Court moderated the force of its prohibition, however, by acknowledging

 that such information could be treated by the national authorities receiving

 it as evidence capable of justifying the initiation of a national proceeding.

 But in order that facts mentioned in such material might validly form the

 subject of a national proceeding, proof of their existence had to be

 established, not by the documents gathered by the Commission, but by evidence

 which was appropriate to national law and which observed the guarantees laid

 down by that law.

 <T6> (f) Conditions governing the application of Article 15(6)

                  of Régulât ion No 17

 327. The Judgment of the Court of First Instance in Vichy* [19] ) confirmed the

 extent of the Commission's power under Article 15(6), while clarifying in

 certain respects the procedures for applying that provision.

 The Court held that the measure adopted on the basis of Article 15(6) was

 indeed a decision capable of forming the subject of an action for annulment.

 The application of Article 15(6) to the only company to have notified its

 agreement, while other producers operated the same system without informing

 the Commission, was in no way discriminatory. The only effect of the

 (19) Referred to above.

```

```
2. I I.§8. 18

```

207

```
 decision taken under Article 15(6) had been to restore Vichy to the position

 in which it would have remained had it not notified its agreement.

 The opinion of the Advisory Committee did not have to be sought before a

 decision was taken under Article 15(6), as that body had to be consulted only

 during the final stage of the proceeding (paragraphs 1 and 3 of Article 10 of

 Regulation No 17, read together).

 The fact that any consultation of the Advisory Committee had necessarily to

 be preceded by a hearing did not mean that, conversely, any hearing had to be

 followed by consultation of the Advisory Committee.

 Similarly, the fact that a decision was involved did not automatically mean

 that the Advisory Committee had to be consulted.

 A decision based on Article 15(6) had to respect the company's fundamental

 rights, and in particular its right to a fair hearing. A statement of

 objections therefore had to be sent to the company. Consultation of the

 Advisory Committee served a different purpose, and did not form part of that

 body of fundamental rights. Vichy had been granted a hearing, so the

 question whether a hearing was obligatory did not arise in this case. The

 judgment stated only that the company must be given an opportunity, as

 required by Article 19(1) of Regulation No 17, to defend its viewpoint

 regarding the Commission's objections.

 In checking whether there had been a serious and manifest infringement of the

 competition rules which justified a decision under Article 15(6), the

 Commission could rely on a combination of factors, even if each of them on

 its own might be insufficient to establish the serious and manifest nature of

 the infringement.

 <T6> (g) Commission's lack of power to issue an injunction

              on the basis of Regulation No 17

 328. Automec afforded the Court of First Instance an opportunity to answer

 the question whether the Commission had the power to enjoin an undertaking to

 execute orders placed by an intending distributor. Such a power might have

```

**.....I..»** **2 0 8**

```
 been based on Article 3(1) of Regulation No 17, which authorizes the

 Commission to require undertakings to bring any infringements it establishes

 to an end, read in conjunction with Article 85(1). The Court answered the

 question in the negative. The Treaty provided only that an agreement which

 infringed Article 85(1) was null and void, this being laid down in

 Article 85(2). The further consequences flowing from a breach of Article 85

 were a matter to be determined by the national courts. Consequently, only

 national courts could oblige an economic operator to contract with another

 economic operator, if that was appropriate and in accordance with national

 law.

 This judgment is also based on the principle that freedom of contract has to

 remain the rule. The principle is all the more essential where there are

 other means of bringing an infringement to an end, as is the case with

 infringements resulting from the operation of a distribution system.

 <T6> (h) Procedure before the Court of First Instance

 329. Before the Court delivered judgment in the polypropylene cases, the

 applicants requested that the oral procedure be reopened so that an inquiry

 could be conducted. They argued that the contested Decision was non-existent

 within the meaning of the Court's Judgment in PVC. as the Commission's

 decision-making practice in the present case was the same as that described

 in that judgment. It therefore had to be determined whether the Commission

 had actually adopted a Decision concerning them. The Court held, however,

 that there were no grounds for ordering the reopening of the oral procedure

 for that purpose.* [20] ) Only if the parties furnished sufficient evidence of

 the non-existence of the contested measure did it have to consider the

 question as a matter of course. In the present case the applicants'

 arguments were not sufficiently compelling. An alleged breach of the rules

 on languages and a general presumption that the Commission had amended its

 Decision after the event were not enough to refute the measure's apparent

 legality.

 330. The Dutch banks case* [21] ) involved a Commission Decision of

 19 July 1989 relating to several agreements and provisions adopted by Dutch

 banking associations.

 (20) Order of 26 March 1992, Case T-4/89 Rev. BASF v Commission and Order of
    4 November 1992, Case T-7/89 Rev. DSM v Commission, not yet reported.
 (21) Judgment of 17 September 1992, Case T-138/89 NBV and NVB v Commission.

    not yet reported.

```

```
u:

```

```
2.I I.§8. 20

 The Decision had granted both negative clearance and an exemption.

```

209

```
The associations concerned were not satisfied, however, and sought the

partial annulment of the Decision pursuant to Article 173 of the Treaty.

The application was directed more specifically at the Commission's reasons

for finding that there were no grounds for taking action under Article 85(1)

against an agreement concerning bank charges for handling certain charitable

transactions. In the Commission's opinion, the agreement was restrictive of

competition but had no appreciable effect on trade between Member States.

The applicants challenged the view that their agreement restricted

compet i t ion.

The Court of First Instance held, firstly, that an action under Article 173

could be brought only against a measure liable to affect a specific legal

position. Only the substantive provisions of a Decision were capable of

having such a legal effect. The reasons on which the Decision was based

could be subject to judicial review, but only inasmuch as they formed the

essential basis for the contested substantive provisions.

Secondly, the Decision in question gave satisfaction to those requesting it

and was therefore inherently incapable of changing their legal position.

Negative clearance, on the other hand, could adversely affect the economic

interests of a third party. Such a measure could therefore be contested by

a third party with a legitimate interest. The position of the interested

third party and that of the addressee of the Decision should therefore not be

confused.

Thirdly, an economic operator had to show evidence of a real and immediate

interest in having the contested measure annulled. That was not the case

here, for two reasons. Firstly, the applicants had only a hypothetical

interest, that is to say the possibility of an action before a national court

and the supposition that that court might reach a different conclusion from

the Commission concerning the effect on trade between Member States.

Secondly, should a change in circumstances result in the agreement in

question affecting trade to an appreciable extent, that change might Justify

a review of the case and prompt the Commission to reconsider the grant of

negative clearance. The applicants could still assert their right in that

eventual i ty.

```

`2.II.§8.` `21` _JL^O_

```
 In the light of these considerations the Court declared the application

 inadmissible.

 331. In flat glass* [22] ) the Court of First Instance stated that it did not

 have Jurisdiction to remake a contested decision (except, of course, with

 regard to fines): it could only annul it, In whole or in part. The

 assumption by the Court of such Jurisdiction could disturb the inter
 institutional balance established by the Treaty and would risk prejudicing

 the right of defence.

 332. Actions for the suspension of a contested act or for the grant of

 interim measures have been numerous this year. They have been brought not

 only against final decisions adopted by the Commission, but also against

 procedural steps and provisional measures taken by it.

 The President of the Court of First Instance was asked to order interim

 measures under Articles 185 and 186 of the EEC Treaty in connection with an

 action for the annulment of a Commission decision; the Commission had

 refused to communicate various documents requested by the applicants with a

 view to their exercising their right of defence against a Statement of

 Objections (Order of 23 March 1992 in Joined Cases T-10/92, T-11/92, T-12/92,

 T-14/92 and T-15/92R cement). The President rejected the requests

 essentially on the grounds that the application was manifestly inadmissible

 in so far as it was directed against a purely procedural act (a statement of

objections which was notified solely to the parties as those concerned) and

 in addition because no irreparable harm existed because, if the Court were to

 find in favour of the applicants in the main action the Commission would be

obliged to recommence the administrative procedure, paying due regard to the

requirements relating to access to the file. Such an approach is probably

valid for most actions brought against procedural measures taken by the

Commission before it adopts a final Decision. It was confirmed, moreover,

by the Court in its Judgment on the substance of the case, in which it

declared the applications lodged inadmissible on those grounds.* [23] )

(22) Referred to in point 321 of this Report.
(23) Joined Cases T-10/92, T-11/92, T-12/92 and T-15/92 SA Cimenteries CBR.

   Blue Circle Industries pic. Syndicat National des Fabriquants de Ciments
   et de Chaux. and Fédération de l'Industrie Cimentière asbl v Commission.

```

```
2.I I.§8. 22
```

211

```
 The Langnese and Schol1er case involved an application for the suspension of

 interim measures adopted by the Commission (Order of 16 June 1992, Case T
 24/92R). The President of the Court of First Instance weighed the balance

 of interests at stake in the same way as he would have done on an application

 for interim measures against a final Commission Decision.

 In an Order made in SPO and Others v Commission* [24] ) the President of the

 Court of First Instance dismissed most of an application for interim relief,

 but suspended the operation of part of the contested Decision so as to enable

 the applicant association SPO to continue functioning. The SPO amended its

 rules following delivery of the Order.

 (24) Order of 16 July, Case T-29/92R, not yet reported.

```

```
2.I I.§9. 23

 <T4> §9. Art icle 90

 <T6> (a) Commission's powers under Article 90

```

212

```
333. The Court of Justice delivered its second judgment in a case involving a

Directive adopted by the Commission under Article 90(3) in the

telecommunications field,* [25] ) namely Directive 90/388/EEC of 28 June 1990 on

competition in the markets for telecommunications services.

The Court basically reaffirmed the position it had already taken in its first

télécoms Judgment.* [28] ) This may be summed up as follows.

Article 90(3) gives the Commission the power to lay down general rules

specifying the obligations incumbent on Member States with respect to the

undertakings referred to in that Article. This power is not confined to

simply monitoring the application of existing Community rules, and is not

restricted by the fact that the Council has acted or may act under

Articles 100a and 87. This holds true even if the Directive at issue gives

further substance to Article 59 of the Treaty and no instrument has been

adopted by the Council concerning freedom to provide services in the

telecommunications sector. For the Commission to be able to act, it is

sufficient that Article 59 be directly applicable.

The Commission did not exceed its powers by laying down a rule of law

relating to Article 86 (the requirement that the person exercising the powers

of authorization, control and supervision be distinct from the

telecommunications organizations) while leaving Member States free to choose

the means of complying therewith.

It was not necessary for the Commission to carry out a detailed inquiry into

the conduct of telecommunications organizations before adopting the

Directive. An extension without any objective reason of the monopoly over

the establishment and operation to telecommunications services is in itself

incompatible with Articles 90 and 86.

(25) Judgment of 17 November 1992, Joined Cases C-271/90, C-281/90 and C   289/90 Spain and Others v Commission, not yet reported.
(26) Judgment of 19 March 1991, Case C-202/89 France and Others v Commission.
   not yet reported; Twenty-first Competition Report, point 153.

```

```
2.I I.§9. 24

```

213

```
 The Court nevertheless partly annulled the Directive, inasmuch as it did not

 define in detail the special rights to which it related and inasmuch as it

 applied to certain behaviour which in reality was adopted by undertakings on

 their own initiative.

 334. In another case the applicants sought the annulment of a Commission

 Decision of 20 December 1989 concerning the provision in the Netherlands of

 express delivery services.* [27] ) The Commission had considered that the Dutch

 Act which reserved to PTT Post BV the express delivery of letters weighing up

 to 500 grammes at a price below a set level was contrary to the Treaty.

 Consequently the Commission Decision, which was adopted under Article 90(3)

 of the Treaty, stated that the Act was incompatible with Article 90(1) read

 in conjunction with Article 86.

 The applicants argued first of all that the Commission did not have the power

 to establish infringements of the Treaty by means of decisions under

 Article 90(3).

 The Court rejected this argument on the following grounds.

 Article 90(3) authorized the Commission to act by way of directives, that is

 to say to lay down general rules specifying the obligations which the Treaty

 imposed on Member States in relation to the undertakings referred to in

 Article 90(1). It also authorized it, however, to take decisions finding

 that a particular national measure was incompatible with the Treaty and

 specifying the measures which the addressee state had to adopt in order to

 comply with its obligations under Community law.

 The Court compared this power to take decisions with those which the

 Commission had under Article 93. In both cases the Commission had the power

 to intervene, not vis-à-vis the undertaking which had been placed in a

 position where it could flout the competition rules, but vis-à-vis the

 Member State responsible for the impairment of competition.

 (27) Judgment of 12 February 1992, Joined Cases C-48/90 and C-66/90 Kingdom

    of the Netherlands. Koninklilke PTT Nederland NV and PTT Post BV v

    Commission, not yet reported.

```

```
2.I I.§9. 25

```

214

```
 It is important to note that the Court clearly confirmed here the

 Commission's power to take decisions under Article 90(3) to bring to an end

 specific infringements of the Treaty.

 <T6> (b) Procedure to be followed in taking a decision

                  under Art icle 90(3)

 335. In the same case* [28] ) the applicants maintained that the Commission had

 not respected the general principle of the defendant's right to a fair

 hearing. The Court of Justice agreed with them on this point and

 consequently annulled the Commission's Decision.

 The Court held that the principle required that, before a Decision was

 adopted, the Member State in question be sent a precise and full summary of

 the objections the Commission intended to formulate regarding it, and that it

 be given an opportunity to make known its views on any comments submitted by

 interested third parties. These two conditions had not been met in the

 present case, and the Dutch Government's right to be heard had therefore been

 infr inged.

 This also applied to the franchisees. As the direct beneficiaries of the

 contested national measure, being named therein and expressly mentioned in

 the Commission Decision, the economic consequences of which they bore

 directly, they likewise had a right to be heard. Despite this, they had had

 only informal talks with the Commission, and the latter had never told them

 precisely what it was in the national measure that it objected to.

 (28) Referred to above.

```

```
3.I.A.§1. 1

 <T1> PART THREE - COMPETITION POLICY AND STATE INTERVENTION

```

215

```
<T2> Chapter I - Main decisions and measures taken by the Commission

<T3> A. State aid

<T4> §1. General policy questions

<T5> - Main developments

336. The completion of the single market programme and a series of other

developments, imminent or longer-term, are making increasing demands on state

aid policy. In the single market, the control of aid needs to be tighter.

This is necessary not only to prevent distortions of competition between

firms and industries, but also to foster balanced development of the

Community's regions, in the interests of economic and social cohesion, a key

objective of the Community. Aid to public enterprises must also be dealt

with. Other demands arise from the constantly widening coverage of state aid

work to newly deregulated sectors, especially services,*D the moves towards

economic and monetary union, the European Economic Area Agreement and the

prospective enlargement of the Community to new countries.

In all these areas, mentioned in last year's Report,* [2] ) further progress was

achieved in 1992. In May the Commission issued Community guidelines on aid to

small and medium-sized enterprises,* [3] ) which codify and somewhat tighten up

policy towards this widespread type of aid. A revised framework was issued

for aid for synthetic fibres,* [4] ) while work continued on a revision of the

framework for environmental aid* [5] ) and on guidelines for aid to

capital-intensive investment projects* [8] ) and export credit insurance.* [7] )

The Commission dealt with many cases of capital injections into public

enterprises, monitored privatizations in the former eastern Germany, Greece

and Portugal,* [8] ) and analysed the first year's batch of reports on financial

transfers to state-owned firms under the reporting system introduced in

(1) See points 438 to 447 of this Report.
(2) Twenty-first Competition Report, point 158
(3) See point 342 of this Report
(4) See point 401 of this Report
(5) See point 448 of this Report
(6) See point 480 of this Report
(7) See point 339 of this Report
(8) See points 464 to 466 of this Report

```

```
3.I.A.§1. 2
```

216

```
 1991.* [9] ) With a view to the future constraints of EMU, the Commission kept

 up the pressure on Member States with large budget deficits to reduce their

 aid spending. The third survey on state aid in manufacturing, published in

 July,* [10] ) again showed how large a factor aid expenditure is in such

 deficits. With the agreement setting up a European Economic Area between the

 European Community and the EFTA countries due to enter into force in 1993,

 the Commission prepared for its wider responsibilities under the agreement.

 These will include taking into account the effects of aid in the EC on EFTA

 countries and vice versa and for this purpose consulting and providing

 information to its counterpart, the EFTA Surveillance Authority.* [11] )

 Finally, the Commission analysed the state aid situation in the EFTA and

 other countries that have applied for membership of the Community. Reports on

 the aid situation in Austria, Finland, Sweden and Switzerland were

 Incorporated in the opinions on their accession applications which the

 Commission has sent to the Council.

 337. To cope with the increasing demands on its resources, the Commission is

 following two main routes codification of rules and simplification of

 procedures. The first route is reflected in the frameworks and guidelines,

 which cover a growing proportion of state aid control work. The second is

 shown in moves to reduce the work generated by minor aid schemes that have

 little, if any, effect on competition and trade and by minor amendments of

 existing authorized schemes. Following its adoption of the SME aid

 guidelines in May, the Commission issued a revised notice on the accelerated

 clearance of aid schemes for SMEs and of amendments of existing schemes.* [12] )

 The notice widens the scope of the accelerated procedure, under which

 following a pro forma notification, clearance is obtained virtually

 automatically within 20 working days of notification, to many more schemes

 for SMEs than previously as the limits on the size of businesses covered have

 been raised to those in the SME aid guidelines.* [13] )

A more far-reaching simplification of procedures has been introduced by the

 SME aid guidelines themselves. A de minimis facility removes altogether the

obligation on Member States to notify to the Commission aid schemes which

 (9) Twenty-first Competition Report, points 167 to 172, and points 528 to
    531 of this Report.
 (10) See points 350 to 353 of this Report.
 (11) See points 82 to 84 and 343 and 344 of this Report.
 (12) OJ C 213, 19.8.1992. This procedure was formerly referred to as "aid of
    minor importance", see OJ C 40, 20.2.1990.
 (13) See point 342 of this Report.

```

```
3.I.A.§1. 3
```

217

```
 limit a firm to ECU 50 000 of aid for a particular broad class of expenditure

 (such as investment or training) over three years. Like the accelerated

 procedure, the de minimis facility is a move towards subsidiarity as well as

 a means of concentrating the Commission's resources on the more important

 cases. However, further relaxations of state aid control are not considered

 appropriate at present. This is an area, par excellence, where a strong

 central control authority is required.

 338. The Commission continued to improve the transparency of the state aid

 rules. Three multilateral meetings were held at which the Commission

 discussed policy papers with Member States.* [14] ) Progress was made on

 standardizing notification forms and reporting obligations and on preparing a

 new edition of the collection of source materials on the state aid

 rules,* [15] ) which will come out in 1993. The new edition will, for the first

 time, contain a simple guide to procedures in state aid cases.

 <T5> - Multilateral meetings

 339. A multilateral meeting between experts from all the Member States'

 Governments and Commission officials was held in February to discuss two

 sets of draft guidelines on export aid.* [18] ) One of the papers proposed

 stricter controls on aid to public or state-backed export credit insurers

 that are in competition with private insurers for business in underwriting

 "marketable risks" (i.e. short-term commercial risks) within the Community;

 the other laid down rules for the level of interest subsidies on export

credits in extra-EC trade. Reactions to the short-term export credit

 insurance paper were broadly favourable, but were more mixed towards the

export subsidies proposal. Therefore, the Commission is considering

pursuing only the former proposal under Article 92 of the EEC Treaty and

 leaving the latter area to a Council directive under Article 113. Action on

 interest subsidies was in any case much less urgent as a tightening of the

OECD Consensus had much reduced the scope for such subsidies in trade with

developed countries.

 (14) Twenty-first Competition Report, point 162.

 (15) EC Commission, Competition Law of the European Communities,
   Volume II: The State aids rules, Brussels/Luxembourg, 1993.
 (16) Twenty-first Compétition Report, point 166.

```

```
3.I.A.§1. 4
```

218

```
 340. In October a second multilateral meeting was held on a draft revised

 framework on aid for environmental protection and revised guidelines for aid

 to the synthetic fibres industry. The new environmental aid framework will

 replace the framework that has been in force in virtually unchanged form

 since 1974. The new rules are not merely a continuation of the existing

 framework, but take account of new developments in Community environmental

 policy and of experience gained in dealing with environmental aid cases that

 were not covered by the previous framework. The draft was discussed again at

 a third multilateral meeting in December, where disagreements emerged on some

 issues. In view of this, the Commission decided to extend the current

 framework for a further six months until 30 June 1993. The revised synthetic

 fibres aid code, however, received broad support at the October meeting and

 was adopted by the Commission in December.* [17] )

 341. The third meeting, in December, was mainly devoted to the future of the

 car aid framework, including the question whether the rules should be

 extended to certain basic components. However, it was decided simply to renew

 the framework.* [18] ) The Commission also discussed with Member States how the

 de minimis facility should be used and monitored.* [19] ) It plans to issue

 guidance on these technical matters early in 1993.

 <T5> - Aid to small and medium-sized enterprises

 342. In May the Commission issued guidelines on state aid to small and

 medium-sized enterprises.* [20] ) The guidelines, the first-ever detailed

 codification of policy on aid to the vitally important SME sector, were

 finalized after further consultations with the Member States in February
 March through correspondence and at bilateral meetings. The rationale of the

 Commission's policy towards aid for SMEs was described in last year's Report.

 In the guidelines, a number of basic rules have now been established and will

 be applied to all SME aid schemes.

 The def init ion of small and medium-sized enterprise is an enterprise which:

 (17) See point 401 of this Report.
 (18) See point 405 of this Report.
 (19) See point 337 of this Report.
 (20) OJ C 213, 19.8.1992; Twenty-first Competition Report, point 165.

```

```
3.I.A.§1. 5

    - has no more than 250 employees and

      either

         an annual turnover not exceeding ECU 20 million,

        or

         a balance sheet total not exceeding ECU 10 million,

         and

```

219

```
      is not more than 25 % owned by one or more companies not falling

      within this definition, except public Investment corporations,

      venture capital companies or, provided no control is exercised,

      institutional investors.

"Small" enterprises, which receive preferential treatment under the

guidelines with respect to the permissible levels of investment aid in

non-assisted areas, are similarly defined as firms with up to 50 employees,

turnover of up to ECU 5 million or a balance sheet total of up to

ECU 2 million, and a maximum 25 % dependence on a larger company.

Besides the definition, the guidelines set maximum permissible intensities of

aid to SMEs for investment in both non-assisted and assisted areas and for

consultancy, training and similar activities that are relatively distant from

the market place ("soft aid"). For the maximum levels of aid for other

purposes, such as R&D, the guidelines refer to the relevant special

framework, which likewise allow higher rates of aid for SMEs.* [21] ) The

maximum levels of investment aid in non-assisted areas, i.e. areas not

eligible for national regional assistance independently of Structural Fund

programmes, are 7.5 % gross for all SMEs and 15 % gross for small

enterprises. In areas which are eligible for national regional aid, the rule

is that in Article 92(3)(c) areas up to 10 percentage points of aid can be

added to the prevailing rate of regional aid, and in Article 92(3)(a) areas

15 percentage points. However, the absolute ceiling on investment aid in the

two areas is 30 % and 75 % net respectively. In parts of the Community that

have been designated as eligible for aid from the Structural Funds under

Objective 2 or 5b but are not areas eligible for national regional aid, the

Commission will decide the level of investment aid allowed for SMEs on a

case-by-case basis until the end of 1993. "Soft aid", that is aid to

encourage firms to enlist the help of consultants or to obtain training in

areas such as management, finance, new technology and pollution control, can

generally be authorized at rates of up to 50 %.

(21) See R&D framework, OJ C 83, 11.4.1986.

```

```
3.I.A.§1. 6
```

220

```
 Existing SME aid schemes authorized in the past will remain valid until

 reviewed by the Commission under Article 93(1) of the EEC Treaty. Such

 reviews have already commenced.* [22] )

 <T5> - The European Economic Area agreement

 343. The agreement on the European Economic Area (EEA), which should enter

 into force between the EC and the EFTA States except Switzerland in 1993

 after renegotiation, covers the field of state aid in its Articles 61 to 64

 and in a number of Annexes and Joint declarations and provides that the same

 rules on state aid as are applicable within the Community will also be

 applied by the contracting EFTA States. The agreement will be without

 prejudice to the existing Treaty rules on state aids, but as soon as state

 aid granted by an EC Member State affects or can affect trade and competition

 within the EEA, the EEA agreement provisions are applicable. This also

 applies for the EFTA, which through an independent EFTA Surveillance

 Authority will be responsible for dealing with all state aid granted by the

 EFTA member countries to their industries.

 344. Before the EEA agreement entered into force, state aid cases continued

 to be dealt with under the bilateral EC/EFTA country agreements. Thus, in

 November, a compromise was agreed between the Commission and the Austrian

 Government on aid for an automobile plant at Graz building a Chrysler

 multi-purpose vehicle. The Austrian Government agreed to reduce the aid

 intensity to 14.4% from the 33% originally proposed.

 <T5> - Lessons to be drawn from Commission practice and the

              case-law of the Court of Justice

 <T6> (a) Questions of substance

 <T7> * Aid in connection with sales of factory or office building sites

 345. The aid involved in the sale of land on preferential conditions by a

 local authority is difficult to quantify. Recent decisions show that, in

 examining individual cases, the Commission now systematically asks

 (22) See point 468 of this Report

```

```
3.I.A.§1. 7
```

221

```
 Member States to send it an independent expert's report on the market value

 of the land so that it can determine whether the price does not contain an

 aid element.

 <T7> * Guarantees provided by public authorities

 346. The Commission has traditionally been opposed to operating aid,

 particularly that which artificially allows ailing firms to stay in business

 without any prospect of a return to viability. It does not therefore accept

 guarantees granted to credit institutions by public authorities where such

 guarantees have no other purpose than to prop up firms which would otherwise

 be obliged to shut down. However, the Commission's current practice is to

 accept such guarantees where they are limited to six months and are intended

 to allow the firm to draw up and implement a restructuring plan, provided

 that the general rules on public guarantees are complied with. This approach

 is soon to be codified in the guidelines on aid for rescuing and

 restructuring firms in difficulty.

 <T6> (b) Procedural Questions

 <T7> * Scope now available to Member States to apply to the Court of Justice

             for annulment of decisions initiating

                Article 93(2) proceedings

 347. The main development this year as far as procedures are concerned was

undoubtedly the two judgments delivered by the Court of Justice on 30 June

declaring admissible appeals lodged against decisions to initiate proceedings

under Article 93(2) of the Treaty.* [23] ) The Court held in its Judgments that

 the decision to initiate proceedings involved a choice on the part of the

Commission as to the nature of the aid and hence the procedure relating to

 it, since such a decision had different effects depending on whether the aid

was deemed to be new aid within the meaning of Article 93(3) or existing aid

subject to the rules of Article 93(1).

 (23) See point 532 of this Report

```

`3.I.A.§1` `.` `8` 222 `_ _`

```
 <T7> * Accelerated procedures for aid schemes for SMEs and for

               amendments to existing schemes

 348. The Commission extended to SMEs, as defined in the new SME aid

 guidelines, the benefit of the accelerated examination procedure (20 working

 days), leading virtually automatically to clearance, for certain aid

 schemes.* [24] )

 <T7> * Derogation from the procedural deadlines for certain aid

               granted by the Treuhandanstalt

 349. So as to take account of the difficult socio-economic situation in the

 former German Democratic Republic and of the specific nature of the

 Treuhandanstalt's activity, the Commission agreed that some of the aid

 granted by the TreuhandstaIt* [25] ) should be examined within shorter

 deadlines than usual. The aid proposals will normally be decided on within

 15 working days of being notified, though in exceptional cases the German

 Government may request that the period be reduced to ten working days.

 Similarly, the Commission may exceptionally indicate that it needs an

 additional five working days to analyse the notification. If the

 notification proves to be incomplete, a request for supplementary

 information can be sent. Every effort will be made to avoid sending such a

 request. Once it has received the information, the Commission will have

 15 further working days. These deadlines are appreciably shorter than the

 30 working days that apply to individual aid awards notified under approved

 schemes.

 (24) See point 337 of this Report.

 (25) See point 19 of this Report.

```

```
3.I.A.§2. 1

 <T4> §2. Third survey on state aid

```

223

```
350. In July the Commission published its third survey on state aid in the

Community. The survey covers aid to manufacturing industry, agriculture,

fisheries, coal-mining and transport (railways and inland waterways). It

updates for the period 1988-90 the data compiled in the previous surveys,

which covered the period 1981-88.* [1] )

351. The main purpose of the survey is to describe, in as transparent a

manner as possible, the present structure of state aid to firms in the

Community, to make an overall assessment of the progress achieved in the

Commission's tightening of its state aid policy, and to identify the areas on

which the Commission's future policy could focus more.

352. Total aid granted in the twelve Member States averaged ECU 89 billion

in the period 1988-90 as against ECU 92 billion in the period 1986-88. Of

this total amount, 40% went to manufacturing industry, detailed analysis of

which is central to the survey; its amount also remained considerable, with

annual expenditure between 1988 and 1990 amounting to ECU 36 billion.

Although the figures show that, at Community level, aid to manufacturing

industry decreased between 1986 and 1990, a slight increase at the end of the

period, in 1990, suggests that the Commission must keep a very close watch on

its trend, so that it does not Jeopardize the general downward trend in state

aid in the Community.

Leaving aside Greece, for which the figures available are only provisional,

the highest aid levels (expressed as a percentage of value added) in

manufacturing industry are found in Italy, Portugal and Ireland. The lowest

levels are in Germany, Denmark and the United Kingdom. Taking the four

largest European economies, the level of aid in Italy measured as a

percentage of value added is three times as high as in the United Kingdom,

more than twice as high as in Germany and more than one and a half times as

high as in France. This shows clearly that the disparities between

Member States remain considerable.

(1) Eighteenth Competition Report, points 162 and 163; Twentieth Competition

   Report, points 188 to 192.

```

```
3.I.A.§2. 2
```

224

```
 In addition, the figures show that the total amount of aid per person

 employed granted in the peripheral regions with limited budgetary resources

 remains relatively low compared with that granted in the four most prosperous

 countries in the Community. The ratios for Greece, Spain, Ireland and

 Portugal are below the Community average and much lower than in most of the

 richer and more central countries. Similarly, in manufacturing, government

 aid granted in the four largest Community economies accounted for 75% of the

 aid granted to industry in the Community between 1986 and 1988. This figure

 rose to 79% between 1988 and 1990.

 353. The fact that the relative level of support for industry in the most

 prosperous Member States is increasing to the detriment of the peripheral

 countries must be seen as a serious danger to cohesion. The Commission will

 therefore continue to do all it can to limit the adverse effects of this

 trend on competition and on economic convergence and if possible to reverse

 it. Through its policy on state aid, it will thus help to ensure greater

 cohesion in the Community.

```

```
u<

```

```
3.I.A.§2. 3

    State aid to manufacturing industry
    Annual averages 1988-90 and 1986-88 (in brackets)

```

225

```
I 1 1 1 1

| | as a percentage of | ECU per person | ECU million* |

| | value added | employed | |

I I I I I I I I

| | (1986-88) | 1988-90 | (1986-88) | 1988-90 | (1986-88) | 1988-90 |

| Belgium | (4.3) | 4.1 | (1606) | 1655 | (1175) | 1211 |

| Denmark | (1.9) | 2.1 | (593) | 634 | (316) | 333 |

| Germany | (2.7) | 2.5 | (994) | 984 | (7869) | 7865 |

| Greece | (24.3) | 14.6 | (2983) | 1502 | (2074) | 1072 |

| Spain | (6.8) | 3.6 | (1749) | 936 | (4491) | 2499 |

| France | (3.8) | 3.5 | (1437) | 1380 | (6479) | 6106 |

| Ireland | (6.4) | 4.9 | (2114) | 1734 | (447) | 368 |

| Italy | (6.2) | 6.0 | (2139) | 2175 | (10760) | 11027 |

| Luxembourg | (2.3) | 2.6 | (988) | 1270 | (37) | 48 |

| Netherlands | (3.1) | 3.1 | (1215) | 1327 | (1101) | 1225 |

| Portugal | (2.2) | 5.3 | (302) | 758 | (245) | 616 |

| United Kingdom | (2.6) | 2.0 | (770) | 582 | (4101) | 3133 |

| EUR 12 | (4.0) | 3.5 | (1325) | 1203 | (38835) | 35503 |

* 1986-88 averages at 1989 prices

Source: Third survey

```

```
3.I.A.§3. 1

 <T4> §3 - Aid for research and development

 <T7> General policy developments

```

226

```
354. The Commission still bases its assessments of national R8cD programmes

and projects on the criteria laid down in the Community framework for state

aid for research and development,* [1] ) which was adopted in 1986.

355. Point 8.2. of the framework stipulates explicitly that R&D aid must have

as its effect the encouragement of additional effort in the R&D field over

and above the normal operations which firms carry out in their day-to-day

operations or must enable them to respond to exceptional conditions for which

their own resources are too limited. In other words, the Commission must

ensure that the aid does not simply replace the firm's own R&D expenditure,

i.e. it should have an incentive effect.

The Commission's view is that, as a result of the aid received, firms should

carry out more research than they would have done if they had not received

the aid.

In order to verify this criterion in the case of individual projects, the

Commission examines the structure and the evolution of the R&D costs of a

given company over the past years, notably R&D expenditure, R&D as a

percentage of the turnover and, when the information is available, the

number of employees working on R&D.

356. On 17 July the Agreement concerning the application of the GATT

Agreement on trade in civil aircraft for large capacity planes (over 100

seats) was signed between the United States and the European Community. The

core of the Agreement is the possibility of granting direct government

support (in the form of repayable advances) for the development of future

large civil aircraft programmes up to 33% maximum when a reasonable

expectation of recovering the outlay within 17 years from the date of first

disbursement is established. Repayments have been made dependent upon the

actual delivery of aircraft.

(1) OJ C 83, 11.4.1986

```

```
3.I.A.§3. 2
```

227

```
The Article 92(3)(b) exemption was used only for Eureka projects HDTV (EU95),

 Jessi (EU127), ESF (EU43) and Eurolaser (EU 226), since the aid given to

 companies participating in these projects promotes the execution of an

 important project of common European interest.* [2] )

 Some of the more interesting*3) decisions are described below.

 <T8> Denmark

 357. In October the Commission authorized the Danish Government to allocate

 ECU 132 million to a fund to finance product development. The fund, called

 the Industrial Development Fund, will be managed by an independent board and

will be self-financing after the initial capital injection, as it will cover

 the losses on its lending operations - the loans are only repayable if the

 project is successful - from income from financial investments. The

 authorized intensity of aid is 40% in case of failure of the research.

Otherwise the loans have to be repaid with interest at market rate.

 <T8> Germany

 358. A major programme was approved by the Commission in February. It

 concerns the "Fôrderungsprogramm Biotechnologie 2000" with a budget of

 ECU 749.3 million for the years 1990-95. The aid, in the form of outright

 grants, will go to industry (ECU 163.3 million of the total budget) and to

universities and research institutes. Public research institutions

 conducting fundamental research may be financed at 100%, no state aid being

 involved in such cases. For basic industrial research an intensity of 50%

was approved and for applied research 25%. An enhancement of 10% was

 considered to be allowable for the former GDR in line with point 5.4 of the

 Community framework for state aid for research and development,* [4] ) which

 a I lows for a

 (2) Twenty-first Competition Report, point 180 and 0J C 83, 11.4.1986.
 (3) The full list of the aid decisions adopted by the Commission this year
   is given in the Annexes. The list is broken down by type of decision.
   The Official Journal reference of each decision or decision summary is
   given where it was available when the Report went to press, as is the
   number of the aid so as to enable the reader to obtain the relevant

   press release if there was one. Some of the decisions are summarized in
   one of the Annexes.

 (4) 0J C 83, 11.4.1986.

```

**`3.I.A.§3.`** **`3`** 228

```
 higher aid intensity for projects taking place in the least favoured regions.

 The latter three percentages refer to companies as well as to research

 institutes, in so far as they are engaged in collaborative research.

 359. For the programme "PhysikaIische Technologien" the German Government

 notified a budget of ECU 233.2 million, of which ECU 103.1 million was meant

 for industry. The Commission found in February that the aid intensities for

 the different stages of research were in line with its policy and

 consequently raised no objections to the aid under the exemption provided for

 in Article 92(3)(c) of the EEC Treaty.

 360. The same exemption was used in March in the case of the notified

 programme "Materialforschung" with a budget amounting to ECU 376.8 million

 for 1989-94. The aid intensity of 50% for basic industrial research by firms

 and research institutions with an extra 10% for the former GDR*5) was

 approved.

 361. In July, the Commission decided to terminate the procedure provided for

 in Article 93(2) of the EEC Treaty with regard to the German aid for research

 into solid-state lasers (Eureka project 226)* [6] ) and it allowed the aid under

 the exemption provided for in Article 92(3)(b) of the EEC Treaty. The

 Commission was able to do so since it became clear that the intensities

 calculated on the basis of new information were in line with the limits which

 are laid down by the R&D guidelines.

 362. The aid programme "Luftfahrtforschung und Luf tfahrttechnologie" was

given the green light in October. The programme has a budget of

ECU 86 million for 1989-91 and supports applied research conducted by

companies and research institutes. Taking into account the particular

 features of the aerospace industry, the Commission applied point 5.4 of the

Community framework for state aid for research and development, which allows

 for a higher aid intensity in cases of very high specific risks. The aid

 intensity amounted to 50% gross.

 (5) See point 5.4 of the Community framework for state aid for research and
   development (OJ C 83, 11.4.1986), which allows for a higher aid
   intensity for projects taking place in the least favoured regions.
 (6) Twenty-first Competition Report, point 185.

```

```
3.I.A.§3. 4

 <T8> Spain

```

229

```
363. In March the Commission granted authorization under the derogation

provided for in Article 92(3)(c) of the EEC Treaty for an aid scheme to

encourage research and industrial development by firms in the Valencia

region.

The programme, which has a four-year budget of ECU 15 million, provides for

grants of 50% in net grant equivalent of eligible costs for basic research

and 25% for applied research and development. An increase of 10% is allowed

for SMEs in line with point 5.4 of the Community framework for state aid for

research and development. The Commission took the view that the regional

authorities were right to encourage cooperation between firms, create the

necessary infrastructures and develop a policy that would broaden research,

development and innovatory activities in firms, given the nature of the

industrial base in the Valencia region, consisting of small firms producing

low-technology, labour-intensive consumer goods.

<T8> France

364. In the period from January to July the Commission examined the 1992

refinancing of the research aid schemes Anvar, "Major Innovative Projects",

Puma and the Research and Technology Fund, which are the main schemes in

force in France. These schemes were allocated a total budget of

ECU 490 mi I I ion in 1992.

365. In July the Commission decided to terminate the Article 93(2)

proceedings initiated against Bull in respect of aid put at ECU 380 mi I I ion

which the French Government proposed to provide to finance its R&D

programme.* [7] ) The programme, labelled a "technical project", covers a

period of four years with a budget of some ECU 2 billion.

The aid intensity amounts to 27% in net grant equivalent of the eligible

costs.

(7) Twenty-first Competition Report, point 259.

```

```
3.I.A.§3. 5
```

230

```
 It was verified that the aid met all the criteria relating to aid intensity,

 additionality and eligibility of expenditure.* [8] )

 <T8> Italy

 366. In June the Commission terminated the Article 93(2) proceedings

 initiated against the pharmaceuticals company Sigma-Tau.* [9] ) The effective

 aid rates (31.6% net grant equivalent for the project as a whole) proved to

 be much lower than the Commission had thought when the procedure was

 initiated and were in line with the framework on research aid.

 367. In July, applying the derogation provided for in Article 92(3)(b) of

 the EEC Treaty regarding the execution of an important project of common

 European interest, the Commission authorized aid by the Italian Government

 for SGS-Thomson Microelectronics Sri, which is participating in the

 Eureka 127/T1 project (Jessi), for the development of 16 megabit programmable

 memories (Eprom). The project, covering a period of four years, represents

 an investment of ECU 96 million for the Italian participant and comprises

 aid, in the form of a capital grant, of ECU 36.6 million.

 The grant will be provided under Laws 46/82 (Fondo Spéciale Ricerca

 applicata) and 22/87 (Eureka projects), and its intensity (38.2% net grant

 equivalent) is in line with the Community framework for state aid for

 research and development.

 The aid intensity, bearing in mind very strong intra-Community competition in

 the sector, seemed too high for the research project, in view of its distance

 from the market.

 Additional information received by the Commission showed that basic research

 accounted for around 30% of the project and that, consequently, the intensity

 of the aid was permissible.

 (8) The capital injections into Bull approved with the research aid are
    dealt with in point 425 of this Report.
 (9) Twenty-first Competition Report, point 184.

```

**"•'•*•••••** **231**

```
 The project, which is in the medical field, provides for investment of

 ECU 30 million, a six-year research period and aid of ECU 9.4 million In the

 form of a capital grant and low-interest loan.

 <T8> Netherlands

 368. In May the Commission approved the Dutch industrial R&D programme for

 the gasification of coal. The objective of the programme is to enlarge

 technological knowledge in the field of electricity generation by means of

 coal gasification in combination with steam and gas turbines.

 The budget up to the end of 1996 amounts to approximately ECU 13 million. The

 mixture of 36% basic industrial research and 64% applied research is funded

 at an aid intensity of 31% gross.

 369. The Dutch D2TV foundation received aid amounting to ECU 15 million for

 the period up to and including 1996. The Commission approved in May the aid

on the basis of Article 92(3)(c) of the EEC Treaty because of its permissible

 intensity of 10.8% gross but also because it allows development activities

 aimed at broadcasting, decoding and receiving transmissions in the HD-MAC and

D2-MAC standards. The decision was in line with the Commission's policy on

 high-definition television.

370. In September the Commission used the exemption of Article 92(3)(b) of

 the EEC Treaty to clear the way for around ECU 20 million granted to Philips

 in 1992 for its participation in Eureka projects JESSI (EU 127) and HDTV

 (EU 95).

371. The Dutch steel enterprise Hoogovens participates in the Eureka project

CARMAT (EU 13). It carries out specific parts of basic industrial research

for which the Netherlands Government proposed a subsidy of ECU 1.23 million.

As the aid intensity was 25% gross, the Commission in October did not raise

any object ions.

The aid was also assessed under Commission Decision No 3855/91/ECSC of

27 November 1991* [1u] ) which established Community rules for aid to the steel

 industry.

 (10) OJ L 362, 31.12.1991.

```

```
 <T8> United Kingdom

372. In July the Commission raised no objections to the refinancing of four

UK R&D aid schemes. ATP, LINK and GICP encourage projects of collaborative

research between companies, universities and research institutions. The

Eureka Initiative stimulates British participation in Eureka projects. The

total amount of the budgets was ECU 139 million.

373. The UK authorities also notified state aid in the form of an outright

grant to different companies, research organizations and universities

participating in the Eureka project 194 (Industrial application of evaluation

of high power lasers). The budget for the period 1991-96 amounts to around

ECU 2.5 million. The aid was found to be compatible with the common market

under Article 92(3)(c) of the EEC Treaty, the intensity being 37.9% for basic

industrial research and 13.9% for applied research.

374. In December the Commission raised no objections to the aid scheme

"collaborative research in the construction sector". The aid is tied to an

R&D contract concluded with industrial firms on the basis of a competitive

bidding procedure. All rights in the results are vested Jointly in the Crown

and in the contractor. Since the results do not accrue exclusively to the

State but also to the participating firms, the Commission considered the

scheme to fulfil the conditions of Article 92(1) of the EEC Treaty. On the

basis of aid intensity, additionaIity and common interest, the scheme was

approved under the exemption of Article 92(3)(c) of the EEC Treaty.

```

```
,.,.*.*... i 2 3 3

 <T4> §4 - Aid to industrial sectors

          subject to a Community framework on state aid

 <T5> - General

 375. A number of industrial sectors are covered by frameworks on state aid.

These are sectors which are undergoing or have undergone major restructuring

 that has resulted or is liable to result in the short term in considerable

 Job losses. In addition, all of them are subject to particularly intense

 international competition.

 In view of this situation, the Commission felt that even stricter control of

aid was necessary and that certain or indeed all aid proposals should be

notified, even where the aid was to be granted under schemes that had already

been approved. The Commission considers that with such a system it is

better able to assess the sectoral impact of aid granted and to prevent

competition between Member States for mobile investment projects. The

guidelines and rules laid down in the frameworks also give greater legal

certainty to Member States and firms.

Except in the sectors covered by the ECSC Treaty, which are dealt with by

Commission decisions requiring the assent of the Council, and shipbuilding,

where directives have been adopted by the Council on the basis of

Article 92(3)(d) of the Treaty, the Commission makes use of Article 93(1).

This allows the Commission to recommend to Member States as an "appropriate

measure" a framework amending the schemes approved in the sector concerned.

 In the event of disagreement, the Commission can initiate Article 93(2)

proceedings culminating in a decision requiring the Member State to comply

with the framework, subject to any derogations which the national authorities

have been able to obtain during the proceedings.

The utility of these frameworks could be reexamined if guidelines on aid to

highly capital-intensive investments were adopted.

```

```
3.I.A.§4.a. 2

 <T6> (a) Shipbuilding industry

 <T7> . Amendment to the Seventh Directive (ex-GDR)

```

234

```
 376. On 20 July the Council adopted Directive 92/68/EEC amending the Seventh

 Directive 90/684/EEC* [1] ) on aid to shipbuilding. Whereas the Seventh

 Directive forms the general framework for such aid, the new Directive creates

 a special transitional arrangement for the former German Democratic Republic

 in order to allow it to restructure and become competitive. Under the new

 Directive, up until 31 December 1993 operating aid for the shipbuilding and

 ship-conversion activities of these yards may not exceed a ceiling of 36% of

 the yards' reconstructed turnover before aid. This ceiling is considerably

 higher than the one prevailing for other Community yards. In exchange, the

German Government, before 31 December 1995, has to achieve, according to a

 timetable accepted by the Commission, a genuine and irreversible net capacity

 reduction amounting to 40% of the capacity of 545 000 cgt existing in the

 former German Democratic Republic on 1 July 1990. The implementation of the

above will be closely monitored by the Commission and reported to the Member

States.

The Commission also decided to maintain in 1993 the shipbuilding aid ceilings

that appl ied in 1992.

<T7> . Specific aid schemes

<T8> Germany

377. In July the Commission decided to prohibit a development aid package

proposed by Germany for the Chinese shipping company C0SC0, after having

 initiated, in October 1991, the procedure provided for by Article 93(2) of

the EEC Treaty to enquire whether development aid proposed by Germany should

be treated as permissible development aid to China or as operating aid to the

German shipyards where the ships would be built. The Commission found that

the proposed aid did not constitute genuine development aid but rather

operating aid to the Bremer Vulkan (West Germany) and Mathias-Thesen (former

German Democratic Republic) yards where the orders were to be placed and that

the notified aid should be prohibited.

(1) OJ L 380, 31.12.1990; Twentieth Competition Report, points 181 to 183.

```

```
3.I.A.§4.a. 3
```

235

```
 378. In December the Commission decided to approve the release of a first

 tranche of aid for the Meeres-Technik-Werft, former Mathias-Thesen-Werft

 (MTW) in Wismar, Mecklenburg-Western Pomerania (former German Democratic

 Republic). The first tranche consists of ECU 93.2 million operating

 aid,ECU 46.2 million investment aid and ECU 8.8 million closure aid. The

 release of further tranches is conditional on the German Government

demonstrating to the Commission's satisfaction that the aid will continue to

 respect the rules laid down in the Seventh Directive on aid to shipbuilding

and more specifically the new Directive 92/68/EEC providing a derogation from

 the Seventh Directive to allow the extra aid needed for the restructuring of

 the yards in the new Lander.

<T8> Greece

379. In December the Commission decided to terminate Article 93(2)

proceedings on the aid schemes on operating aid in Greece for repairs and on

aid granted to the Neorion shipyard.

At the same time, under Article 10 of the Seventh Directive on aid to

shipbuilding, the Commission approved aid in the form of debt write-offs for

financial restructuring linked to the sale of four publicly owned shipyards.

The Greek Government undertook to ensure that if all the yards were not

disposed of by sale by 31 March 1993 the yards would be closed and that this

closure would be irreversible as provided for by Article 7 of the Directive.

One of the yards, Shipyards of Elefsis, had already been sold. The other

 three yards, Neorion Shipyards of Syros, Hellenic Shipyards and Nafsi

Shipyard, were all under special liquidation proceedings according to

existing Greek legislation. For Neorion, an open bidding procedure had

resulted in an agreement for sale to the highest bidder, but it was still to

be finalized. For Nafsi an open bidding procedure was under way. Hellenic is

expected to close down its commercial shipbuilding activities. It will

continue its naval shipbuilding activities which represent no more than 51%

of the value of the company as provided by Article 10(3) of the Seventh

Direct ive.

```

```
3.I.A.§4.b. 4

 <T6> (b) Steel covered by the ECSC Treaty

 <T7> Steel aid code

```

236

```
 380. On 1 January the new steel aid code (Decision No 3855/91/ECSC) entered

 Into force for a five-year period expiring on 31 December 1996,*2) with

certain amendments as compared to the previous code. Apart from the

modification of Article 2 (aid for research and development), the main

amendment relates to aid granted under general regional Investment aid

schemes to steel undertakings in the territory of the former German

Democratic Republic.

381. Under Article 2, aid granted for R&D may be deemed compatible with the

common market if it is in compliance with the rules laid down in the

Community framework for state aid for research and development, thus bringing

the provisions for the steel sector more into line with those for other

sectors.

382. Under Article 5 of the code, investment aid may be allowed to steel

undertakings in the former German Democratic Republic, provided that the aid

is accompanied by a reduction in the overall production capacity of that

territory. In the Commission's decision in the first major aid case involving

"Walzwerke llsenburg GmbH", the Commission more closely specified its

interpretation of Article 5. It decided to require an overall reduction in

capacity of hot-rolled finished products in the order of 10% of the capacity

Installed in 1990 (the year of German unification), and to take this

condition into account in the examination of each individual case of state

aid to steel undertakings in the former German Democratic Republic.

383. In this respect, Article 5 equally stipulates the period within which

such regional aid may be granted in the former German Democratic Republic

(until 31 December 1994 and until 31 December 1995 for the special tax

concessions), which departs from the general period of validity of the code.

This is due to the exceptional character of regional investment aid and the

appropriate period for the modernization of the steel plants concerned, which

is set at three years.

(2) Twenty-first Competition Report, point 208

```

```
3.I.A.§4.b. 5

 <T7> C02~tax in Denmark and the Netherlands

```

237

```
384. In July, after obtaining the Council's assent, the Commission amended

the steel aid code in order to allow aid to Danish and Dutch steel firms in

the form of relief from new C0 2 /energy taxes introduced in the two

countries.

385. Both countries had notified these tax arrangements to the Commission in

accordance with Article 93 of the EEC Treaty. The Commission decided not to

oppose the granting of the aid* [3] ) in general. However, aid for this purpose

is not provided for by the steel aid code and is therefore prohibited under

Article 4(c) of the ECSC Treaty. Because the additional costs incurred by

Danish and Dutch steel firms as a result of the tax will affect their

competitiveness vis-à-vis foreign competitors, which would be an unjustified

effect, the Commission also decided to authorize the aid in these sectors by

an amendment to the steel aid code.

<T8> Germany

386. In February the Commission approved the application of several regional

aid schemes to the ECSC steel industry in the territory of the former German

Democratic Republic. The decision concerns the largest regional scheme, the

Joint Federal Government/Lander programme for improving regional economic

structures (20th outline plan), giving the possibility of granting an

investment subsidy. The Commission also approved the application of the tax

allowance for investment (InvestitionszuI agengesetz 1991) and the use of the

special depreciation schemes to the steel industry in the former

German Democratic Republic.

387. Within this framework, it has become possible to use regional aid to

assist productive investment in the steel sector up to an intensity of 23%

gross. This aid may be combined with different forms of investment aid or

other assistance, up to a maximum of 12%, so that the aggregate assistance

for a single investment project may not exceed an intensity ceiling of 35%,

as approved by the Commission in accordance with the provisions of the EEC

Treaty.

(3) See point 451 of this Report

```

```
3.I.A.§4.b. 6
```

238

```
 388. The Commission examined the sale by the Treuhandanstalt of the Stahl-und

 Walzwerk Brandenburg GmbH and the Hennigsdorfer Stahl GmbH, two steel

 companies in the forme. —^sn Democratic Republic, to the Italian steel

 group Riva. The purpose of the investigation was to establish the

 compatibility of the operation both with the Commission's decision of

 September 1991 on the activities of the Treuhandanstalt, and with the

 Community's steel aid code. However, in April the Commission cleared the

 privatization, considering that the operation contained no aid elements,

 given the ample international publicity that preceded the sale and the fact

 that Riva had submitteu the best offer.

 389. In June the Commission took a decision on the first important investment

 project in the East German steel industry involving public aid, approving the

 granting of investment aid to Walzwerke IIsenburg GmbH under two regional aid

 schemes which it had approved in February. The Commission considered the

 proposed aid in the light of Article 5 of the steel aid code, and established

 that the investment did not increase production capacity of the IIsenburg

 plant and was accompanied by a sharp reduction in capacities for crude steel

 and hot-rolled finished products as compared to 1990. This reduction was

 achieved through definitive closures of some plants in 1990, and through the

 gradual reduction of old capacities which would not be fully replaced by new

 ones.

 390. In September the Commission approved the extension of the 21st outline

 plan of the Joint Federal Government/Lander programme for improving regional

 economic structures to the steel industry in the new German Lander.

 391. In December the Commission approved the extension of the application of

 the "Invest itionszulagengesetz 1992" (tax allowance for investment), which

 replaces the "Investitionszulagengesetz 1991", to the ECSC steel industry in

 the territory of the former German Democratic Republic. In particular, this

 approval covers the possibility of granting a tax allowance with an intensity

 of 8% for investments in that territory started before the end of June 1994

 and terminated before the end of 1996, and a tax allowance with an intensity

 of 5% for those investments started and terminated within the period from

 1 July 1994 to 31 December 1996. The Commission has requested the German

 authorities to ensure that each individual aid applied for under the said

 scheme is notified to the Commission pursuant to Article 6 of the steel aid

```

```
3.I.A.§4.b. 7
```

239

```
 code (Decision No 3855/91/ECSC of 27 November 1991). Each individual aid

 project notified will have to be evaluated by the Commission as to its

 compatibility with the provisions, and in particular Articles 5 and 1 of the

 Decision.

 <T8> Spain

 392. In July 1991 the Commission initiated the procedure under Article 6(4)

of the steel aid code to investigate certain aid granted to the Spanish

special steels producer Acenor enabling the company to continue to operate

despite its financial difficulties.

393. In November the Commission sent a communication to the Council

recommending that aid totalling up to ECU 505 million in support of a

restructuring plan for Sidenor, incorporating Acenor and Foarsa, be approved

under Article 95 of the ECSC Treaty. The restructuring involved a 31%

reduction in capacity and a 39% reduction in the workforce.

394. At the same time the Commission sent a communication to the Council

concerning the proposed restructuring plan for the Spanish public integrated

steel company, Corporaciôn de la Sidérurgia Integral (CSI), incorporating

Ensidesa and Altos Hornos de Vizcaya. The Commission considered that the plan

was viable and represented a courageous and constructive approach to the

restructuring of the Spanish steel industry. However, in the light of the

difficulties on the Community steel market, the Commission took the view that

the relation between the aid intensity (aid totalling up to

ECU 3 986 million, most of which was incompatible with the steel aid code and

could only be approved through recourse to Article 95 of the ECSC Treaty) and

the extent of the restructuring proposed needed to be improved. The Industry

Council, at its meeting on 24 November 1992, was not prepared to agree to the

Spanish proposals and further discussion was deferred until early 1993.

<T8> Italy

395. In July the Commission decided to initiate the procedure set out in the

steel aid code (Article 6(4) of Decision No 3855/91/ECSC* [4] ) in order to

investigate possible aid to the publicly owned Italian steel company llva.

Ilva's shareholder, the state-owned holding company IRI, has decided to

increase Ilva's capital by ECU 421 million in two instalments. The first

(4) OJ L 362, 31.12.1991.

```

240

```
capital increase of ECU 227 million will take the form of the inclusion of an

IRI company, Sofin Spa, into llva, while the second increase will come

directly from IRI .

396. The capital increases are part of a wider plan to improve the financial

situation of the company. Under a plan put to the Commission earlier this

year llva would sell off a variety of assets which are not part of Its core

business thereby raising at least a further ECU 421 million and would raise

ECU 647 million by selling shares on the stock exchange.

397. However, since in June 1992 llva announced a loss on its 1991

operations, the raising of ECU 554 million from Ilva's flotation on the stock

exchange could not take place as previously envisaged since in Italy only

companies which have made profits in three consecutive years prior to

flotation can be quoted on the stock exchange. The Commission considered

that IRI could have known, at the time it put forward its plan, that the

company risked making a loss in 1991 and that it would not be possible to

sell Ilva's shares on the stock exchange in 1993 as envisaged.

398. In these circumstances, it is doubtful that a commercial investor would

go ahead with the rest of the plan or without developing a better alternative

before committing further capital to the company. Therefore the Commission

considered that the capital increase could contain state aid.

```

```
3.I.A.§4.C. 9

 <T6> (c) Non-ECSC steel sectors

```

241

```
399. In March the Commission approved the granting of investment aid to

Mannesmann-Rôhrenwerke Zeithain/Sachsen, a producer of seamless steel tubes

in the former German Democratic Republic, under two regional investment aid

schemes (investment subsidy and tax allowance) it had approved in February.

```

```
3.I.A.§4.d. 10

 <T6> (d) Aid to the coal industry

```

242

```
400. In 1992 the Commission continued its examination of aid in the light of

Decision No 2064/86/ECSC establishing Community rules for state aid to the

coal industry* [5] ) and the provisions of the ECSC Treaty.

Financial measures planned by Member States for the coal industry were

authorized only where they were in line with the objectives and application

criteria of the Decision and with the specific objectives laid down in

Articles 2 and 3 of the ECSC Treaty.

The Commission made its authorization subject to the requirement that the

Member States' planned aid for the Community coal industry should be

sufficiently degressive and accompanied by restructuring, modernization and

rationalization plans.

By decisions of 11 December 1991 and 30 September 1992 the Commission

authorized the 1992 aid proposals for Belgium* [6] ) and France.* [7] ) By

decision adopted on 30 September 1992,* [8] ) the Commission authorized a number

of direct financial measures to assist the coal industry in the

Federal Republic of Germany.

On 25 November 1992* [9] ) the Commission authorized for 1991 and 1992 the

financial assistance provided by Germany in the form of compensation to

electricity generators under the third Law on electricity produced from

Community coal. In its decision, the Commission also ruled on supplementary

financial assistance under the above mentioned Law for 1989 and 1990 and on

financial measures in the form of compensation between mining areas and

compensation for coal with a low volatile matter content for 1990, 1991 and

1992. For the compensatory payments the Commission restricted its

(5) 0J L 177, 1.7.1986.
(6) 0J L 22, 31.1.1992.
(7) 0J L 310, 27.10.1992
(8) 0J L 310, 27.10.1992
(9) OJ L 21, 29.1.1993.

```

```
3.I.A.§4.d. 11

```

243

```
 authorization to the payment intended to cover current expenditure both for

 1991 and 1992 and for the amount of 1990.

 On 23 December 1992* [1] °) the Commission authorized for 1992 financial

 compensation to electricity generators under the Spanish Ofico scheme. In

 another decision adopted on the same date* [11] ) the Commission also decided on

 various other financial measures taken by the Spanish Government for 1991,

 1992 and 1993.

On 23 December 1992* [12] ) the Commission authorized for 1992 financial

 measures to assist the Portuguese coal industry.

 Lastly, the Commission adopted a general decision setting out the new rules

 for aid to the coal industry, which it sent to the Council for assent.

 (10) Awaiting publication.
 (11) Awaiting publication.
 (12) Awaiting publication.

```

```
                                   Stote oid to the cool industry

                                Aid for current production in 1991 ond 1992

                                                                         (ECU million)

I I 1 1 1 1 1 1 I
| | Belgium | Germany | Spain | France | Portugal | United kingdom | Community |
| j, 1, 1, 1, 1, j, 1, 1
| | 1992 | 1991 | 1992 | 1991 | 1992 | 1991 | 1992 | 1991 | 1992 | 1991 | 1992 | 1991 | 1992 | 1991 |

| Aid under Decision I I I I I I I I I I I I I l I
| No 2064/86/ECSC I I I I I I I I I I I I I I I

| 1. Di rect aid | | | | | | | I I I I I I I I
j - Article 3 j 33.5 j 53.4 j 177.7 j 209.6 j 379.7 j 390.0 j 186.9 | 165.3 j 5.0 j 4.5 j - j - j 782.8 j 822.8 j
j -Article 4 j - j - j 1624.6 j 1656.7 j - j - | - j - | - j - | - j - I 1624.6 j 1656.7 j
| -Article 5 j - j _ j - j - j - j 11.3 j _ j _ | _ j _ j _ | _ j - j 11.3 j
j - Article 6 j - | - j 65.6 j 66.8 j - j | - | - | - j j j - j 65.6 j 66.8 j

| -Other j j j - j - | 66.3 j 217.6 j - j - j 0.8 j j j - j 67.1 j 217.6 j

| Total j 33.5 j 53.4 j 1867.9 j 1933.1 j 446.0 j 618.9 j 186.9 j 165.3 j 5.8 j 4.5 j - | - j 2540.1 j 2775.2 j

j ECU/Per tonne j 90.54 j 84.36 j 25.73| 26.55 j 23.47 | 34.00 j 19.27j 16.36 j 21.48 j 19.40 j - j - j 13.62j 14.37 j

j 2. Indirect aid j 7.4 j 7.8 j 2466.7 j 2569.6 j 17.3 j 48.50 j - j - j - j - j - j - j 2491.4 j 2625.9 j

j Total j 40.9 j 61.2 j 4334.6 j 4502.7 j 463.3 j 667.4 j 186.9 j 165.3 j 5.8 | 4.5 j - j - | 5031.5 j 5401.1 j

j ECU/Per tonne j 110.54 j 96.68 j 59.71j 61.85| 24.38 j 36.66| 19.27| 16.36 j 21.48 j 19.40 j - j - j 26.98| 27.95 j

```

```
CO

ro

```

```
3.I.A.§4.e. 13

 <T6> (e) Aid to the synthetic fibres industry

                Extension of the aid code

```

245

```
401. In the synthetic fibres industry, the Commission, after having extended

until 31 December 1992 the framework that was to have expired on

18 July 1992, drew up a new framework that will be applicable from

1 January 1993 to 31 December 1994. The new guidelines develop and

reinforce the rules which have been applied since 1977.

The scope of the new guidelines as regards industrial processes is extended

to include polymerization where this is integrated into production in terms

through the machinery used.

In assessing aid proposals, the Commission will focus on the requirement that

prospective recipients of aid must reduce their production capacity

significant ly.

The reduction will be assessed in the light of the specifics of each

proposal, including the intensity of the aid, the amount of the investment,

its location, its contribution to regional development and the trend of the

average rate of capacity utilization of the industry, the firm and the group

to which the firm belongs.

<T8> Germany

402. The Commission examined aid to firms situated in the new Lander. It

adopted decisions approving the aid in view, in particular, of its regional

impact:

     by decision of 30 September it authorized two aid proposals for

     Hoechst Guben and Màrkische Faser, both situated in Brandenburg;

   - by decision of 28 October the Commission similarly approved aid

     proposals for Thiiringische Faser/Schwarza, in Thuringia.

```

```
3.I.A. §4.6. 14

 <T8> Italy

```

246

```
403. In May the Commission decided to initiate Article 93(2) proceedings in

respect of proposed aid of ECU 80 million for SNIA-Fibres.

The Commission took the view that the positive impact of the proposed aid in

terms of its expected regional effects (job creation in the Mezzogiorno)

could be cancelled out by its sectoral implications. The synthetic fibres

industry is faced with growing overcapacity, prompting the Commission to

assess aid proposals for firms in the industry in the light of the trend of

their productive capacity and their rate of capacity utilization.

As the firm is to reduce its productive capacity by 10% by 1995, the

Commission authorized the proposed aid in a final decision adopted in

December.

<T8> Luxembourg

404. In September the Commission terminated the proceedings initiated in

October 1991* [13] ) in respect of proposed aid of ECU 370 000 for

Technofibres SA. It took the view that the proposed aid was aimed at

improving product quality without leading to an increase in the firm's

output, which would have been contrary to the requirements of the framework.

The Commission also took the view that the aid would contribute to the

development of the region concerned.

(13) Twenty-first Competition Report, Annex III.B.1.

```

```
3.I.A.§4.f. 15

 <T6> (f) Aid to the motor vehicle industry

```

247

```
405. In December 1988 the Commission first introduced, on the basis of

Article 93(1) of the EEC Treaty, the Community framework on state aid to the

motor vehicle industry for a period of two years with effect from

1 January 1989, at the end of which its activity and scope would be

reviewed.* [1 4] ) In December 1990 the Commission decided to renew the

framework without setting a time-limit on its application. However, the

Commission undertook to review it after two years and decide on possible

amendments, or its repeal, following consultation with the

Member States.* [1 5] )

As promised in December 1990 the Commission reviewed the framework with the

Member States during a multilatéral meeting which took place on

8 December 1992. During the meeting a large majority of Member States

expressed their satisfaction with the present application of the framework

and wished to see it continuing over the years ahead. Member States had,

however, opposing views as to the Commission's proposals for amendment or

extension of the present framework.

Therefore, the Commission decided in December not to amend the framework.

It will remain in force until next reviewed by the Commission.

406. The Commission took the following decisions pursuant to the framework

on state aid to the motor vehicle industry.

<T8> Be I g i urn

407. In February the Commission decided to approve aid for innovation

(ECU 0.6 mi 11 ion grant and exemption from property tax) and for

environmental protection (ECU 1.7 million grant and exemption from property

tax) for investment by Volvo Europe Car NV in Ghent. The overall intensity

of the aid, to be provided under the 1959 Law on Economic Expansion by the

Flemish Regional Government, is around 6.5% in net grant equivalent. In the

case of aid for innovation, the gross rate is 8%. The projects involve

innovation at European level with a high commercial risk. In the

(14) Nineteenth Competition Report, point 127
(15) Twentieth Competition Report, point 251.

```

```
3.I.A.§4.f. 16
```

248

```
 case of the aid for environmental protection, the gross rate of 15% is in

 line with the Community framework on environmental aid. The Commission took

 account of the fact that the project will not entail any increase in

 capacity, but will improve the firm's flexibility and productivity.

 <T8> Germany

 408. In April, following the initiation of Article 93(2) proceedings on

 27 February 1991,* [16] ) the Commission took a decision on the purchase by

 Daimler-Benz AG of a site in Berlin.* [17] ) It found that the difference

 between the price at which the site was sold by the Berlin Senate and the

 valuation made by an independent expert, i.e. ECU 43.8 million, constituted

 aid within the meaning of Article 92(1) of the EEC Treaty. Some of the aid,

 i.e. ECU 26.8 million, qualified for the derogation in Article 92(2)(c) ("aid

 granted to the economy of certain areas of the Federal Republic of Germany

 affected by the division of Germany, in so far as such aid is required In

 order to compensate for the economic disadvantages caused by that division"),

 since it was granted before German unification and compensated for the

 additional costs borne by Daimler-Benz because of the urban planning

 requirements implicitly imposed by the local authorities as a result of the

 division of the city. The remaining aid, i.e. ECU 17 million, qualified for

 none of the derogations provided for in the Treaty and had to be repaid.

 This decision, following that on the establishment of Toyota in the

 United Kingdom in 1991,* [18] ) shows that the Commission is paying growing

 attention to aid for the purchase of land and tends to take its decisions

 after having asked the national authorities to send it a report, drawn up by

 an official and independent valuer, on the market value of the land.

 409. In December the Commission terminated the Article 93(2) proceedings

 initiated in December 1991* [1] ^) in respect of proposed aid for investment by

 Opel AG in Eisenach (former German Democratic Republic). The regional

 (16) Twenty-first Competition Report, point 255.

 (17) OJ L 263, 9.9.1992.

 (18) Twenty-first Competition Report, point 239.
 (19) Twenty-first Competition Report, point 235.

```

```
3.I.A.§4.f. 17
```

249

```
 assistance involved, which had an intensity of 28.9% in gross grant

 equivalent, was acceptable as it served to cover the extra cost due to the

 location. It should also have a substantial impact on the new Lander, where

 the socio-economic situation is difficult, most notably by creating 2 000

 Jobs directly and a further 2 500 indirectly. Environmental aid intended to

 reduce pollution from the paintshop was likewise acceptable as the project

 went further than previous efforts in this field.

 <T8> Italy

 410. In September the Commission decided to approve state aid to Iveco for

 the development of its new truck engine and transmission series, codenamed

 Elena. The aid was notified by the Italian Government under the Community

 framework for state aid to the motor industry and will be awarded under

 Law 46/82 on aid for industrial innovation. Elena is a Joint venture Eureka

 project being carried out mainly by Iveco in association with a pan-European

 network of manufacturing companies, mainly motor component suppliers, and

 laboratories. The project will take place over the period 1990 to 1995 at a

 total cost - to Iveco - of ECU 144.9 million.

 The proposed aid will take the form of a soft loan of ECU 80.1 million. The

 state aid element entailed in the loan is estimated to be equivalent to 17.4%

 of the eligible cost in gross grant equivalent terms.

 In approving the aid the Commission took account in particular of the highly

 innovative nature - by Community standards - of the development expenditure

 entailed in the project. The proposed aid also meets the criteria set out in

 the Community framework on state aid for research and development. A further

 positive aspect of the project is that the results of the research and

 development being carried out should be disseminated widely considering that

 a broad range of motor component firms are involved in the joint venture.

 411. In December the Commission decided to terminate the Article 93(2)

 proceedings which it initiated in October 1991* [2] °) in respect of aid to the

 Fiat group in support of its second Mezzogiorno investment plan. The

 (20) Twenty-first Competion Report, point 236

```

```
3.I.A.§4.f. 18
```

25û

```
 regional aid component amounted to ECU 2 903 million (an intensity of 30.5%

 in gross grant equivalent), and the R&D aid was in the form of a low-interest

 loan of ECU 455 million (17% in gross grant equivalent). The regional aid

 was acceptable as it corresponded to the extra cost to Fiat of building

 plants in the south rather than in the north of Italy. It should also have

 a substantial impact on one of the least developed regions of the Community

 where regional aid ceilings run from 59% to 74% in gross grant equivalent.

 The R&D aid was likewise acceptable given the highly innovative and ambitious

 nature of the project.

 <T8> Netherlands

 412. In February the Commission decided to initiate proceedings to

 investigate possible aid elements contained in agreements between the

 Dutch State, Volvo Car Corporation and Mitsubishi Motor Corporation on the

 ownership, development plans and future financing of Volvo Car BV (VCBV).

 The aspects to be investigated during the proceedings were to include the

 price and terms on which Mitsubishi would acquire a holding in VCBV, the

 interest-free loan by the Dutch State to VCBV and a number of clauses in the

 agreements between the parties.

 <T8> United Kingdom

 413. The Commission decided to initiate Article 93(2) proceedings in respect

 of aid to British Aerospace for its purchase of the Rover Group in 1988.

 The decision was in response to the Judgment of the Court of Justice of

 4 February 1992* [21] ) annulling the Commission Decision of 17 July 1990,* [22] )

 which required British Aerospace to repay ECU 60 million to the

 United Kingdom Government.* [23] ) The Court found in particular that before

 deciding that an aid measure was incompatible with the Treaty, the Commission

 always had to initiate proceedings under Article 93(2) of the

 (21) See point 533 of this Report.

 (22) Twentieth Competition Report, point 260.

 (23) 00 C 21, 29.1.1991.

```

```
3.I.A.§4.f. 19
```

251

```
 EEC Treaty in order to give interested parties the opportunity to submit

 their observations to it or to bring the case before the Court of Justice.

 The Commission took the view that the ECU 60 million constituted state aid

 granted in breach of the terms of Decision 89/58/EEC,* [24] ) and was

 consequently incompatible with the common market.

 (24) OJ L 25, 28.1.1989; Eigthteenth Competition Report, point 233.

```

```
3.1.A.§5. 1

 <T4> §5. Aid to other industrial sectors

```

252

```
414. The decisions adopted this year by the Commission confirm its basically

unfavourable attitude to sectoral aid, which creates significant distortions

of competition, while being of highly doubtful effectiveness.

<T8> Be I g i urn

415. In June the Commission took a final negative decision on unnotified aid

granted by the Government of the Region of Brussels to Siemens SA. This

decision was the result of the investigation under Article 93(2) initiated in

July 1991 in respect of 17 awards of grants totalling ECU 8 million by the

regional government under the general aid scheme established by the Economic

Expansion Law of 1959.* [1] ) None of the awards in question had been notified

to the Commission pursuant to Article 93(3) of the EEC Treaty.

The grants were made to assist several items of expenditure by Siemens.

After detailed examination of the aided expenditure programmes, the

Commission came to the following conclusions:

   aid of ECU 1.9 mi 11 ion granted towards investments of Siemens in

   equipment for internal use and in building acquisition was legally

   awarded within the limits authorized by the Commission for the operation

   of the Economic Expansion Law; accordingly, the Commission had no

   further comments on these aids;

   aid of ECU 500 000 towards expenditure on training was illegally awarded

   in breach of Article 93(3) since such expenditure was not eligible for

   aid under the Economic Expansion Law; however, after examination of the

   aided programmes, the Commission decided to approve the aid pursuant to

   the exemption laid down in Article 92(3)(c);

(1) Twenty-first Competition Report, Annex I N . B . 3

```

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3.1.A.§5. 2

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253

```
    aid of ECU 6.3 million towards expenditure on equipment rented to

    clients, publicity campaigns and market surveys, was also illegally

    awarded in breach of Article 93(3) since such expenditure was not

    covered by the Economic Expansion Law; after detailed appraisal of this

    operating assistance, the Commission concluded that it did not meet any

    of the conditions for such aid to be compatible with the common market.

    The Commission therefore took a negative decision on this aid and asked

    the Belgian authorities to recover it from the company.

    The Economic Expansion Law of 1959 was repealed by the Belgian

    authorities, with effect from 31 July 1991, as proposed by the

    Commission pursuant to Article 93(1) of the EEC Treaty.* [2] )

 <T8> Germany

 416. In December the Commission decided to initiate Article 93(2) proceedings

 against aid granted by the Treuhandanstalt (THA) to Buna AG for its

 production and marketing of butac (butyl acetate), a product used by the

 paint industry.

 Following complaints by another manufacturer of butac, the Commission

 investigated the prices at which Buna sold butac in the Community, and the

 financing of the company by the THA, to which it belongs.

 On the basis of information provided by the German Government, the Commission

 concluded that guarantees and loans provided by the THA to Buna had been

 misused, allowing this company to continue to produce and sell butac on

 conditions that would not be profitable even to its more modern and efficient

 compet itors.

 A request by the Commission to the German Government to cease this misuse not

 having been replied to, the Commission decided to initiate proceedings under

 Article 93(2).

 (2) Twentieth Competition Report, point 247.

```

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3.1.A.§5. 3

 <T8> Spain

```

254

```
417. In March the Commission took decisions on capital injections made to

three companies (Imepiel, Hytasa and Intelhorce) by the state agency,

'Patrimonio del Est ado', during the period 1986 to 1989, and upon the

companies' privatization in 1989 and 1990. The Commission had initiated

Article 93(2) proceedings against Imepiel in December 1989 (extended in

July 1990), and against Hytasa and Intelhorce in July 1990.* [3] )

418. Imepiel, a footwear manufacturer, is located in the Valley d'Uxo and

received ECU 46 million between 1986 and 1988 and a further ECU 65 million

on privatization. The price at which it was sold by the State was

ECU 0.75 mi I I ion.

419. Hytasa, a cotton and wool textiles producer, has its production

facilities at Seville. The company received ECU 55 million before

privatization; a further capital increase of ECU 33 million was made in

July 1990 when the company was privatized. This company also was sold for

ECU 0.75 mi I I ion.

420. Intelhorce, a cotton textiles producer, is based at Malaga and received

ECU 60 mi 11 ion before privatization with a further ECU 45 million in

August 1989, the date of its sale into private ownership at a price of

ECU 9.3 mi I I ion.

421. All three companies operate in sectors where there is intense

competition. These industries are also characterized by the presence of a

growing number of producers from developing countries.

Before reaching final decisions, the Commission analysed data supplied by the

Spanish authorities and took account of submissions by various Member States

and interested parties.

The Commission employed the market economy investor principle in assessing

whether the various capital injections involved aid; in addition, it

reviewed the various restructuring plans submitted by the Spanish authorities

to ascertain whether the proposed changes to the companies' operations would

lead to their long-term viability. The Commission decided that aid

(3) Twentieth Competition Report, points 270 and 272

```

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3.1.A.§5. 4
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255

```
 was involved in all three cases. The aid was to be considered as "rescue

 aid", i.e. money paid to a company in difficulty which simply enables it to

 continue trading without carrying out comprehensive restructuring in order to

 return it to commercial viability.

 In its decisions the Commission took account of the fact that since 1986 many

 sectors of Spanish industry have been faced with the need to carry out

 restructuring in order to adjust to the requirements of Community membership.

 Consequently, it found the capital injections into the three companies prior

 to privatization compatible with the Treaty under Article 92(3)(c).

 However, the capital injections at the time of privatization were

 incompatible with the Treaty since they were not accompanied by restructuring

 plans which ensured the viability of the companies. Moreover, production

 levels in the companies were maintained, which increased the risk that the

 aid would distort competition to the detriment of competitors. Consequently,

 the Commission requested the Spanish Government to recover this part of the

 aid granted to the companies.

 An appeal against the decisions has been lodged with the Court of Justice.

 422. In July the Commission decided to initiate proceedings against a

 proposal by the Basque authorities to provide aid for the restructuring of

 La Pape I era Espanola, a group of companies producing and processing pulp and

 paper. The aid was to be given in the form of a guarantee for seven years on

 loans totalling ECU 34 million. The Commission took particular account of the

 fact that the restructuring plan would increase the group's sales and its

 market share in Spain and that the plan did not take account of the group's

 worsening performance.

 423. In July the Commission opened Article 93(2) proceedings against a loan

 guarantee granted by the Basque Government to Esmaltaciones San Ignacio, SA

 (ES I SA). ESISA is a producer of cookware and gas bottles located at Vitoria

 (Alava).

 The guarantee covered a credit line of ECU 7.5 million at market interest

 rates that would be available for

```

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3.1.A.§5. 5 _ _
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256

```
 nine years (1992-2000) with a three-year grace period.

 The restructuring planned by ESISA appeared to be aimed at reviving the

 company's operations, but the Commission doubted whether the programme would

 return it to long-term viability.

 The Commission therefore decided to initiate proceedings against the

 nine-year loan guarantee, but not to object to a loan guarantee limited to

 six months. This second decision was based on the Commission's present

 approach on rescue and restructuring aids. This allows Member States to

 grant rescue aid in the form of loan guarantees during a limited period of

 six months while the beneficiary draws up necessary and feasible recovery

 measures. This period should enable the Basque Government and ESISA to submit

 a revised restructuring plan that may be assessed by the Commission while the

 proceedings are pending.

 424. The Commission decided in September not to object to aid granted in 1991

 by the Spanish Government to Grupo de Empresas Alvarez (GEA), a manufacturer

 of crockery in Galicia. The Commission found that the sale of GEA by the

 state-owned industrial holding company INI in that year involved aid of

 ECU 24 mi 11 ion which had not been properly notified pursuant to

 Article 93(3). This aid had served to clean up GEA's balance sheet and to

 facilitate its restructuring and privatization. On the basis of GEA's

 restructuring plan, which significantly reduced the company's production

 capacity while restoring its profitability, and taking into account the

 regional problems in Galicia, the Commission decided that the aid was

 compatible with the common market.

 <T8> France

 425. In July the Commission decided to terminate the Article 93(2)

 proceedings in connection with Bull, the French state-owned computer

 manufacturer, which had been initiated in July 1991.* [4] )

 (4) Twenty-first Competition Report, point 259; OJ C 202, 1.8.1991

```

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3.1.A.§5. 6
```

257

```
 In its decision the Commission assessed both the capital injections of

 ECU 570 million and the aid of ECU 380 million for research and development.

 It concluded that both these amounts represented aid but that in both cases

 the aid was compatible with the common market.

 It was clear that the capital injections involved aid because the historic

 performance of Bull, its future prospects and level of indebtedness would not

 have led a private investor to make this investment. However, Bull's

 restructuring plan allowed for reductions in capacity through the closure of

 production facilities and cuts in the workforce. The reductions should lead

 to a fall in Bull's future market share. Moreover, Bull's future prospects

 were enhanced by the acquisition of minority stakes by NEC and IBM. On this

 basis the Commission decided that the capital injections were compatible with

 the state aid rules.

 The research and development aid was assessed in relation to the Commission's

 guidelines. It met all of the criteria with regard to intensity,

 additionality and eligibility of expenditure. It was therefore approved.* [5] )

 France has appealed the decision to the Court of Justice.* [6] ) The appeal

 alleges that the Commission was wrong to consider the capital injections to

 involve aid and that it also exceeded its powers in calling for the

 notification of all future capital injections.

 In December the Commission approved the aid granted by the French Government

 to the VEV group in view of the financial and industrial restructuring

 undertaken by the group in order to restore its competitiveness.

 <T8> Italy

 426. in March the Commission decided to open an investigation under

 Article 93(2) of the EEC Treaty against the injection of ECU 22 million of

 new capital by the state-owned group lta I imp i ant i into its subsidiary

 (5) See point 365 of this Report
 (6) Court case 367/92.

```

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3.1.A.§5. 7
```

258

```
 Costruzioni Metalliche Finsider (CMF) SUD SpA. CMF SUD is a wholly-owned

 subsidiary of the I ta I impi ant i Group, which in turn is a wholly-owned

 subsidiary of the Italian public holding IRI. CMF SUD designs and builds

 steel products and structures and also operates as a construction company.

 The capital injection, decided in May 1991, was intended to cover all the

 company's accumulated operating losses and to reconstruct the company's

 capital base so that it could continue operating. The Commission employed

 the commercial investor principle in assessing whether the capital injection

 was aid. It found that CMF SUD had a very poor record of profitability with

 an average return on net assets of minus 42% during the period 1986-90. In

 these circumstances, the Commission doubted whether a private investor would

 have invested ECU 22 million of new money in the company without taking

 remedial action to restructure its activities or to reduce its exposure to a

 level commensurate with the risk and potential return on its investment.

 The Commission also took into consideration several complaints received from

 Community competitors reporting prices allegedly charged by CMF SUD for

 public contracts, which were considered unrealistic and below normal cost
 based prices. In this connection, the fact that the capital injection was

 partially to cover operating losses could mean that the Italian State was in

 fact covering negative margins on construction projects undertaken by the

 company .

 In the light of the observations submitted by the Italian Government during

 the Article 93(2) proceedings, in September the Commission decided to extend

 the investigation to cover new aid to CMF SUD. This included capital

 injections of ECU 33 million that had been used to offset 1991 operating

 losses and a proposed new injection of ECU 10 million to reconstruct the

 company's capital base again.

 427. In April the Commission decided to terminate the Article 93(2)

 proceedings initiated in June 1991* [7] ) against aid the Italian Government had

 granted to Vifan, a manufacturer of oriented polypropylene

 (7) Twenty-first Competition Report, point 258

```

```
3.1.A.§5. 8
```

259

```
 fibre. The Italian authorities had provided sufficient data to demonstrate

 that the aid to Vifan fell within the scope of Law 183/76 concerning regional

 aid.

 428. In May the Commission closed the Article 93(2) proceedings initiated in

 April 1991 against the REL scheme.* [8] ) The investigations had shown that the

 temporary maintenance of shareholdings and other measures had supplemented

 the restructuring plan approved in 1984 and in 1985 and had not entailed any

 increase in the budget. The Commission therefore no longer had any

 object ions.

 429. In December the Commission opened Article 93(2) proceedings against a

 scheme introduced by the Lazio region in Italy to assist the ceramics sector.

 The scheme financed promotion of sanitaryware and crockery produced in Lazio

 and also offered grants covering 25% of investment costs for the

 manufacturers of the products to improve quality. The budget of the scheme

 was ECU 3.5 mi 1 1 ion.

 The Commission felt that the scheme, which had not been properly notified to

 the Commission before it was adopted by the regional authorities, would

 distort competition and affect trade to the detriment of manufacturers of

 ceramic sanitaryware and crockery elsewhere in the Community. On the basis of

 the information available to it, the Commission could find no justification

 for the aid, and therefore decided to carry out a full investigation.

 <T8> Portugal

 430. In December the Commission closed Article 93(2) proceedings against aid

 to the public-sector petrochemicals company CNP. The proceedings were

 initiated in October 1991.* [9] )

 (8) Twenty-first Competition Report, point 253; OJ C 184, 16.7.1991
 (9) Twenty-first Competition Report, point 262.

```

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3.1.A.§5. 9
```

260

```
 The aid was intended to remedy a situation which predated Portugal's

 accession to the Community. It formed part of an overall restructuring plan

 which should allow a return to viability. The company is of major

 importance in employment and regional terms, being located in the province of

 Alentejo, one of the worst-off parts of Portugal and of the Community as a

 whole. The aid was accordingly deemed to be compatible with the common

 market.

 <T8> United Kingdom

 431. In July the Commission opened Article 93(2) proceedings against a

 proposal of the UK Government to provide ECU 28.5 million of investment aid

 to SCA Aylesford, a manufacturer of newsprint. The Commission noted that

 Aylesford was not in an assisted area and considered that the UK Government

 had failed to demonstrate that the investment would not take place without

 the aid.

 432. In December the Commission closed the proceedings. It had established

 that SCA intended to set up and finance the collection of 350 000 tonnes of

 post-consumer waste paper annually, in addition to 100 000 tonnes of pre
 consumer waste. Most of this would be collected by SCA Recycling Maybank, the

 remainder being purchased from other waste paper merchants. The Commission

 noted that all the cost of this operation would be financed by SCA itself,

 whereas in many Member States local authorities contributed to waste paper

 collect ion costs.

 The Commission also noted that the investment project, involving the

 refurbishment of one paper making machine and the installation of a new

 machine, both of which would exclusively use waste paper as raw material, had

 been on hold for several years in view of the cost and risk involved. Other

 sites in assisted regions in the Community had been considered and rejected

 by the company, because the additional commercial risk there outweighed any

 regional aid offered. Aylesford had the advantage of being located in the

 vicinity of large potential supplies of waste paper and a major concentration

 of newspaper publishers. Consequently, the proposed ECU 25 million aid under

 the Assistance for Exceptional Projects scheme was necessary for the project

 to take place at all.

```

```
3.1.A.§5. 10
```

261

```
 The Commission also took into consideration the fact that SCA had shut down

 two newsprint machines in Sweden in 1990, the capacity of which will be

 replaced by part of SCA's additional production capacity.

 The Commission concluded that the aid proposed by the UK Government qualified

 for the derogation provided for in Article 92(3)(c) of the EEC Treaty in

 favour of aid to facilitate the development of certain economic activities,

 without adversely affecting trading conditions to an extent contrary to the

 common interest.

 <T5> Aid to the energy sector

 433. In July the Commission authorized the Government of Saxony-Anhalt in the

 former German Democratic Republic to pay an ECU 291 million subsidy to Veba

 Kraftwerke Ruhr to build an 800 MW ECU 1310 million power station at Schkopau

 which will use locally-mined lignite. The grant will cover the bulk of the

 extra cost of the lignite station by comparison with the coal-fired plant

 that the operators originally intended to build on the site. Originally a

 grant of ECU 334 million had been offered. The Commission considered that the

 reduced subsidy was Justifiable on environmental and technological grounds,

 because the continuation of active lignite mining would facilitate the

 extensive reclamation work needed in old lignite workings and the advanced

 power station would have technological spin-offs. However, it made it clear

 that it would not allow any further aid in Germany that directly or

 indirectly subsidized the use of lignite for electricity generation in

 preference to other fuels. Such aid would be an obstacle to the integration

 of the Community electricity market. The Commission aims to limit the

 protection of indigenous fuels in each Member State to a maximum of 20% of

 final electricity demand. In Germany this quota is taken up by the

 protection for hard coal.* [10] ) This principle is reflected in a provision of

 the Commission's proposal for opening up the electricity market.* [11] )

 (10) Point 146 of this Report.

 (11) C0M(91) 548 final - SYN 384-385

```

```
3.1.A.§5. 11

 <T8> Netherlands

```

262

```
434. On 7 April 1984 the Commission terminated the Article 93(2) proceedings

initiated in respect of a special tariff known as tariff F for supplies of

gas to Dutch nitrate fertilizer producers. It took the view that the

savings achieved by Gasunie, the Dutch gas distributing company, on gas

supplies to large consumers exceeded 5 cts/m [3] and justified the

introduction of tariff F. Following an appeal to the Court of Justice

lodged by the French competitors of the Dutch nitrate fertilizer producers,

the Court of Justice annulled in July 1990 the Commission's decision

terminating the proceedings. On the basis of a report drawn up by experts,

the Court found that the savings on supplies achieved by Gasunie under

tariff F amounted to 0.5 cts/m [3] at the most and that consequently the

Commission had made a clear error of assessment.

435. The Commission accordingly had to reexamine the case and take a new

decision with regard to tariff F. It again concluded that tariff F did not

fall within Article 92(1) and decided in December to terminate the

proceedings. It found that tariff F was justified on commercial grounds.

436. The Commission found that the prices of gas to Dutch nitrate fertilizer

producers were no lower than those at which other Community producers could

obtain gas supplies in the other Community countries. Tariff F did not

therefore place the Dutch producers at an advantage over producers in other

Member States.

437. On 1 January 1992 Gasunie introduced new tariffs that no longer

included tariff F. The Commission has not for the time being opposed the

introduction of the new tariffs, but has decided to reexamine a review clause

which they contain.

```

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3.I.A.§6. 1

 <T4> §6. Aid in the services sector

 <T5> - Mail and special delivery services

```

263

```
438. Following the adoption of the Green Paper on the development of the

single market for postal services* [1] ) the Commission is continuing to monitor

developments in the various segments of the market, notably as regards the

public monopolies' activities in the sectors subject to competition. It

commissioned a general study on the problem of cross-subsidization, which

should be available in 1993 and will allow the problems in this sector to be

ident if led.

The Commission examined and rejected two complaints by competitors of the

French Post Office concerning the transport of valuables in armoured

vehicles, which is managed by the Post Office subsidiary Securipost, and

express delivery services, managed by the Post Office subsidiary SFMI.* [2] )

After the decisions rejecting the complaints were appealed to the

Court of Justice,* [3] ) the Commission decided, in view of certain elements in

the appeals, to withdraw the decisions and to examine the matter further.

The cases are currently under examination.

<T5> - Banking and insurance

439. Numerous articles in the press and a number of cases brought to its

attention by operators in the sectors concerned prompted the Commission to

examine the situation of the various actors on the market for financial

services and in particular those enjoying special status as subsidiaries of

state monopolies or public institutions governed by provisions exempting them

from ordinary law. This includes in particular post office banking services

and public credit institutions.

Since this is an area in which experience in applying the rules governing

state aid is limited, work on an appropriate approach to the problems that

(1) C0M(91) 476, 11.6.1992.
(2) The express courier services have now been reorganized through the
   setting-up of a joint venture by the German, Canadian, French, Dutch and
   Swedish Post Offices, which was authorized by the Commission on
   2 December 1991 under Regulation No 4064/89.
(3) Cases C 117/92 (Securipost) and C 222/92 (SFMI).

```

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3.I.A.§6. 2
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264

```
 arise must necessarily take account of the interests of all the actors

 involved and of changes in competitive conditions, arising in particular from

 Community legislation to establish a single market in financial services.

 Consequently, the Commission has not yet taken any formal decisions on these

 cases; it is, however, continuing to study the situation and to seek new

 information to enable it to take up a position on some of the issues in the

 near future.

 440. The Commission did, however, adopt an initial decision in this area in

 May, finding that the recapitalization of the Banco di Sicilia and of the

 Cassa Centrale di Risparmio ("SiciIcassa") did not involve aid under

 Article 92(1) of the Treaty. Applying the commercial investor principle,

 the Commission noted that the banks concerned had never been in financial

 difficulty and that the recapi tal izat ion was required by the change in the

 banks' status to ordinary companies.

 <T5> - Aid to the audiovisual industry

 441. The decisions taken in 1992 reflected the Commission's long-standing

 practice that aid schemes can only be approved if they comply with all

 aspects of Community law (and, in particular, if they do not contain

 discrimination based on nationality) and do not affect trading conditions and

 competition in the Community to an extent contrary to the common interest.

 <T8> Germany

 442. In January the Commission initiated proceedings under Article 93(2) of

 the EEC Treaty against a bill amending the Film Industry Support Act

 ("FiImfôrderungsgesetz"). The Act governs support for film productions and

 film distribution which is financed from a levy on the turnover of cinemas,

 television stations and video distributors. Objection was taken not to the

 aid scheme itself - the Commission has always had a favourable view of

 financial support for the European film industry, given its cultural

 importance - but solely to the discriminatory provisions of the draft

 legislation. Contrary to an understanding reached with the Commission in

```

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3.I.A.§6. 3
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265

```
 1986 that the last discriminatory conditions would be abolished by the end of

 1992, the German Government wished to maintain a requirement, for example,

 that the director of an aided film must be a German national or from a

 "German cultural background". Similar nationality restrictions were imposed

 for coproductions. To continue to accept such restrictions would run counter

 to the established policy of the Commission.* [4] ) In October the Commission

 was able to terminate the proceedings as the German Government had agreed to

 do away with all discrimination by treating nationals of other EC countries

 like Germans for the purposes of funding under the amended legislation, which

 has applied since 1 January 1993.

 <T8> France

 443. In March the Commission agreed to an injection of ECU 45 million of new

 public funding into the Société Française de Production, which provides

 audiovisual services and produces films and television programmes. The

 Government had already written off the debts of SFP in 1990-91. The

 Commission took the view that the capital injection was aid in view of the

 company's financial situation, but that the aid, like that given the previous

 year, was compatible with the common market as it would help finance a

 restructuring plan intended to return the company to viability. The French

 Government undertook that it would not step in to help the company again.

 444. In July the Commission approved the support arrangements for film and

 television programmes production. The schemes subsidize the production of

 films and high-quality television programmes through the proceeds of special

 levies on cinema admission tickets and on television station revenue. The

 Commission considered that the eligibility conditions for the aid were

 consistent with Community law, and in particular the principle of non
 discrimination. However, it felt that the requirement that the first

 broadcasting rights for an aided production must be held by a French

 television station that had contributed to the levy was liable to retard the

 integration of the Community's audiovisual production industry, and the

 announced that it would keep the situation under review.

 (4) Nineteenth Competition Report, points 191-194; Twenty-first Competition

    Report, Annex III.B.1. (Netherlands).

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3.i.A.je. 4 ^55

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267

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 <T8> United Kingdom

 445. In December the Commission closed an investigation into the promotion on

 BBC television of magazines published by the BBC's publishing subsidiary, BBC

 Enterprises. The publishers of rival magazines had claimed that the free

 advertising was an unfair subsidy to BBC Enterprises magazine titles. Under

 pressure from the Commission and the United Kingdom competition authorities,

 the BBC agreed to curtail its promotion of the magazines and the complainants

 settled legal proceedings pending in the United Kingdom and withdrew their

 complaint to the Commission.

 <T5> - Aid for tourist and craft activities

 446. In line with the position it has consistently adopted in this sector,

 the Commission approved various Spanish and Italian aid schemes to promote

 tourist and craft activities. The Commission takes a favourable view of such

 schemes because they are important for diversifying and maintaining economic

 activity and for increasing employment, notably in less favoured areas, and

 are usually intended for SMEs. Most of the schemes approved in these sectors

 help to finance projects that may be part-financed by the ERDF within the

 framework of Community regional development programmes.

 <T5> - Aid for the cooperative, mutual and non-profit sector

 447. The Commission continued in 1992 to support the cooperative, mutual and

 non-profit sector by approving various Spanish aid schemes to promote

 investment, training and technical assistance for cooperatives and limited

 companies whose shares are mainly held by their employees. Such aid

measures, which help job creation (notably among the worst-off sections of

 the population), are in line with the Commission's objectives set out in its

communication on businesses in the "Economie Sociale" sector.* [5] )

 (5) SEC(89)2187 final.

```

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3.I.A.§7. 1
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268

```
 <T4> §7. Horizontal aid schemes

 <T5> - Aid for environmental protection and energy conservation

 448. The current framework on aid for environmental protection was extended

 until 30 June 1993, pending the adoption of a new code next year.* [1] )

 449. The Commission continued its policy in favour of aid schemes to

 encourage use of renewable energies. Among the schemes authorized in 1992

 was a scheme to stimulate investment in wind power in Denmark. The scheme

 guarantees private windmill operators a price of 85% of the local electricity

 companies' pre-tax selling price to domestic consumers. Together with a grant

 amounting to ECU 0.02 per kWh authorized by the Commission as part of the

 C0 2 tax package in April,* [2] ) the private windmill operators will receive

 an average price subsidy of around 55%. The total annual budget is expected

 to be ECU 15.8 million in 1992. The scheme also provides that the costs

 connected with the enlargement and/or reinforcement of the grid are to be

 borne by the electricity companies. At present private windmills with a total

 capacity in 1992 of 670 MW produce only approximately 2.5% of total Danish

 electricity production.

 450. In March the Commission took a final decision on a scheme to promote the

 recycling of surplus manure. Article 93(2) proceedings had been initiated in

 May 1991.* [3] ) The Dutch authorities had set up a national manure bank

 (Stichting Landelijke Mestbank), which was to collect manure from farmers,

 store it and deliver it to processing plants. Part of the cost was to be met

 from a levy charged to farmers on surplus manure. The Commission considered

 that the protection of the environment, which was, the main objective of the

 scheme, justified a compulsory levy to meet the manure banks' fixed costs.

 Variable costs, however, should be met out of the fee paid by farmers, as the

 scheme would otherwise

 (1) See point 76 of this Report.
 (2) See point 451 of this Report.
 (3) 0J C 189, 20.7.1991; Twenty-first Competition Report, Annex I N.B.3

```

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3.I.A.§7. 2

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269

```
 subsidise their operating costs. The Commission therefore made its approval

 of the scheme subject to the condition that the variable costs should not be

 met from the levy after 1994. For the period 1992 to 1994 the Commission

 agreed that variable costs could also be covered by the levy in view of the

 innovative character of the scheme and the need to allow farmers to become

 famiIiar with it.

 451. In April the Commission authorized Denmark and the Netherlands to

 introduce new C0 2 /energy taxes with partial relief for energy-intensive

 firms. The relief counted as state aid as it was targeted at particular

 firms and went against the logic of the tax, which is of course intended to

 reduce energy consumption and C0 2 emissions. However, the tax relief was

 exemptible because the overall tax burden had been increased and without

 relief the firms concerned would have suffered a sharp loss of

 competitiveness. Similar reliefs or exceptions are proposed in the

 Commission's proposal for a Community-wide C02/energy tax.* [4] ) As the steel

 aid code does not allow such aid for the steel industry, the Commission

 obtained the Council's assent to grant the necessary exemptions from the code

 for the two countries' steel firms* [5] ). In addition, the Commission approved

 in December, also in Denmark, a scheme offering incentives to private firms

 to carry out energy conservation measures. The scheme is part of the package

 of measures to reduce energy consumption and C0 2 emissions. The level of

 subsidy for energy conservation is between 30 and 50% and the annual budget

 of the scheme is ECU 25 million.

 452. In May the Commission approved the draft contract between the city of

 Wiesbaden (Germany) and Apura. Over a five-year period, Apura will qualify

 for a reduction in the waste-collection tax paid to the city of Wiesbaden in

 return for its commitment to purchase from the city, at current market

 prices, all waste paper collected. The Commission regarded the tax reduction

 as aid, but as compatible with the common market given the commitments made

 by Apura to the city of Wiesbaden.

 (4) C0M(92)226 final.
 (5) Commission Decision 92/411/ECSC of 31 July 1992, OJ L 223, 8.8.1992; see
    points 384 and 385 of this Report.

```

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 453. The Commission approved, also in May, pending a review in relation to

 the new environmental aid framework,* [6] ) the German SME aid schemes for

 effluent treatment, waste management, air pollution control and energy

 conservation that are operated as part of the ERP (European Recovery

 Programme) subsidized loans programme.* [7] )

 <T5> - General investment aid

 <T6> (a) Review of existing schemes under Article 93(1) of the EEC Treaty

 454. The benefits of reviews were described in last year's Report.* [8] ) The

 current exercise continued to receive high priority, but was widened from

 general investment aid schemes to investment aid schemes for SMEs following

 the issue of the guidelines for SME aid.* [9] ) Progress on the main investment

 aid cases is reported below.

 <T6> (b) Main decisions

 455. The Commission considered the separate aid programmes proposed by the

 Flanders, WalIonia and Brussels regions to replace the Economic Expansion Act

 which was repealed in 1991.

 456. In November the Commission terminated the proceedings under

 Article 93(2) of the EEC Treaty which it initiated in respect of the draft

 order of the Brussels Region providing for various types of aid to promote

 economic growth, some of the aid having been deemed incompatible with the

 common market. As a result of the substantial amendments made to the initial

 draft, the Commission authorized its implementation on the basis of the

 derogation provided for in Article 92(3)(c) of the EEC Treaty.

 457. Aid under the Brussels scheme may now be granted only where it is for a

 project that is co-financed by Community aid, fulfils the conditions laid

 down by the Community frameworks on state aid, notably the guidelines on aid

 for SMEs, or supports participation

 (6) See point 76 of this Report.

 (7) See point 468 of this Report.
 (8) Twenty-first Competition Report, points 240-241
 (9) See point 342 of this Report.

```

**......p..** **2 7**

```
 in important projects of common European interest within the meaning of

 Article 92(3)(b) of the EEC Treaty.

 458. The provision for R&D aid was withdrawn from the draft order.

 459. The Flemish and WalIonian programmes are stiI I under consideration.

 460. The Commission terminated the proceedings initiated in July 1990* [1] °) in

 respect of the Italian scheme providing interest subsidies for SMEs and

 various measures. However, it began a review under Article 93(1) of the aid

 to ailing firms under Law No 95 of 1979 ("legge Prodi"). The review may

 result in the Commission's proposing appropriate measures required by the

 development or functioning of the common market.

 461. The Commission completed its review of the activities of the Luxembourg

 state-owned banking institution, the Société Nationale de Crédit et

 d'Investissement. Closing the case in February, the Commission found that

 the low-interest loans arranged by the bank mainly for small and medium-sized

 companies involved only a low degree of subsidy. Its other activities were

 on a fully commercial basis.

 462. In December the Commission authorized the implementation by the

 Luxembourg Government of a draft framework-1 aw intended to replace the Law of

 14 May 1986 and comprising four aid schemes.* [11] ) Two of the schemes are new

 (scheme for SMEs and scheme relating to environmental protection), while the

 third is an amended form of the existing aid scheme for research and

 development; the fourth scheme is an unamended codification of the regional

 investment aid scheme already authorized by the Commission.

 After examining the new and amended aid schemes in relation to the

 requirements of Articles 92 and 93 of the EEC Treaty, and, in particular,

 their compliance with the Community codes on aid for SMEs, research and

 (10) Twentieth Competition Report, Annex I 1.2.

 (11) Twenty-first Competition Report, point 247

```

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3.I.A.§7. 5

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272

```
 development and environmental protection, the Commission concluded that the

 schemes qualified for the exemption under Article 92(3)(c).

 <T6> (c) Other general investment aid schemes

 463. In July the United Kingdom Government agreed to reconsider its

 notification of a new budget allocation for the Assistance for Exceptional

 Projects scheme first authorized in 1989. The Commission had indicated that

 it would be unlikely to be able to authorize the scheme again, given its

 general investment character, although the United Kingdom authorities would

 be free to notify proposed awards of aid individually under Section 8 of the

 Industrial Development Act 1982.* [12)] However, proceedings under Article

 93(2) of the EEC Treaty were opened against one proposed award.* [13] ) There

 was no objection to the R&D part of the AEP scheme.

 <T5> - Aid examined in the context of privatizations

 464. The Commission this year again examined a number of cases of aid granted

 in connection with the privatization of companies. It applied the criteria

 established over recent years and set out in last year's Report:* [14] ) aid in

 such cases does not qualify for preferential treatment and no specific

 exemption is applicable to it; the sale of public enterprises may give rise

 to aid if it is not carried out in a fully transparent manner and in

 particular if bids are not invited or if conditions are imposed on the sale

 by the public authorities.

 465. The Commission examined Law 11/90 of 5 April 1990 relating to the

 Portuguese privatization programme. It decided in December not to raise any

 objections to the Law, which provides, in most instances, for a transparent

 transfer procedure based on public bids in which the highest bidder is

 accepted and the principle that the value of the enterprises should be

 established by independent consultants. However, it:

 (12) Twenty-first Competition Report, point 242.
 (13) See points 431 and 432 of this Report.
 (14) Twenty-first Competition Report, point 248.

```

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3.1.A.§7. 6

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```
      asked the Portuguese authorities to notify it of all cases covered

    by Article 6(3)(a) and (c) of the Law, which provide for specific and

    non-transparent procedures;

      initiated Article 93(2) proceedings in respect of Article 13(3) of

    the Law, whose nationality clause appears to be in breach of Articles 52

    and 67 of the Treaty.

 466. Throughout the year the Commission closely followed the operations of

 the Treuhandanstalt (THA) in the former German Democratic Republic on the

 basis of the decision of September 1991.* [15] ) It also took a general

 decision under Article 93(1) of the Treaty, discussed earlier in this

 Report.* [16] )

 Apart from the cases described elsewhere in this Report,* [17] ) the Commission

 investigated various other privatizations and also looked at the financing

 of certain companies still held by the THA.

 <T5> - Aid to small and medium-sized enterprises

 467. Schemes to aid the development of small and medium-sized firms

 continued to account for a large proportion of the Commission's state aid

 control work. In future the work generated by them should decline as many

 of the smaller schemes are no longer notifiable or can be cleared rapidly

 and virtually automatically.* [18] ) However, major schemes will still require

 close scrutiny under the new guidelines for state aid to SMEs approved this

 year,* [19] ) especially to check their conformity with the limits for

 investment aid in non-assisted areas.

 <T8> Germany

 468. In July the Commission reviewed the detailed conditions of the various

 ERP (European Recovery Programme) schemes in Germany in the Iight of the

 guidelines on state aid to SMEs. The schemes provide loans at a low aid

 intensity mainly for business start-ups, pollution control and energy

 (15) Twenty-first Competition Report, point 249.

 (16) See points 19 and 349 of this Report.
 (17) See points 388, 417 et seo. and 424 of this Report.
 (18) See point 337 of this Report.
 (19) See points 78 and 342 of this Report.

```

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3.I.A.§7. 7

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```
 conservation investment, and venture capital. Since reunification the bulk

 of the funds (ECU 4.85 billion out of ECU 6.8 billion in 1992) has been spent

 in the new eastern German states. In terms of the intensity of aid for

 investment in non-assisted areas, the schemes were found to be well within

 the guideline limits. The German Government undertook to bring the

 definitions of small and medium-sized enterprises into line with the

 guidelines by 1993 and duly did so in the 1993 programme which the Commission

 approved in December.

 <T8> France

 469. In February the Commission approved a large package of tax reliefs and

 other measures for SMEs, some of which did not involve state aid. The main

 measure, a tax credit of up to 25% on capital increases of up to ECU 290 000

 for firms that reinvest profits in the business, was authorized for 1992

 only, although it was due to be offered also in 1993, because firms larger

 than the Commission's then definition of SMEs - later broadly confirmed in

 the SME aid guidelines - were eligible, namely those with sales of up to

 ECU 71 mill ion.

 <T8> Ireland

 470. In November the Commission approved a scheme providing temporary help to

 SMEs to adjust to the currency changes that had taken place in the ERM since

 mid-September and had caused the Irish pound to appreciate sharply against

 the pound sterling. The Commission considered that the heavy dependence of

 Irish manufacturers on sales in competition with United Kingdom firms on the

 United Kingdom and Irish markets justified one-off temporary support to

 maintain employment white the Irish firms were adjusting to the new

 situation. The development of Ireland would suffer a serious setback if many

 of these firms went bankrupt, pushing up the rate of unemployment, which was

 already the highest in the Community. The scheme, time limited to the end of

 March 1993, had a budget of ECU 66 million.

 <T8> Italy

 471. In December the Commission initiated Article 93(2) proceedings against

 the package of SME aid measures provided for by Law 317 of

 5 October 1991.* [2] °) The Italian Government had continued to grant

 (20) Twenty-first Competition Report, point 269

```

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3.I.A.§7. 8
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275

```
 investment aid under the legislation after the Commission's authorization

 expired at the end of April, and the level of aid, at 20% or 25%, was above

 that permitted in non-assisted areas by the SME aid guidelines. The

 Commission also had insufficient information on several of the other schemes

 to judge whether they were in line with its policy on aid for SMEs.

 <T5> - Aid for employment and training

 472. As in previous years, the Commission took a generally favourable view of

 the aid schemes introduced or extended by a number of Member States to

 promote the employment of certain categories of workers experiencing

 particular difficulties in entering the labour market, either as employees,

 self-employed, or workers in the cooperative, mutual and non-profit sector.

 473. Member States have developed a variety of active labour market policies,

 programmes and measures to raise the quality of their labour forces and

 improve the flexibility of their labour markets. The growth problem in the

 last two years following a period of improvement in the late 1980s, has also

 resulted in a series of special measures targeted on the unemployed.

 It is accepted within Community competition policy that vocational training

 is eligible for public financial support in all regions. However, some of the

 labour market schemes developed by governments - for example, assistance to

 the unemployed to become self-employed, or support for particularly

 disadvantaged categories of people such as the long-term unemployed - have

 raised issues which need to be resolved in order that they do not,

 inadvertently, create distortions.

 The Commissions's review of such schemes would aim at a more coherent

 approach to the treatment of the wide range of manpower measures currently

employed by the Member States and supported through the Structural Funds in

many cases, so as to ensure that the wider objectives of economic and social

 cohesion can be pursued, both between and within Member States, and any

 competition problem avoided.

```

```
3.I.A.§7. 9

 <T8> Italy

```

276

```
474. The Commission initiated Article 93(2) proceedings against of a draft

Italian Law providing for aid to any firm managed by a majority of women and

to bodies providing advice, technical assistance or training mainly for

women. Since the aid could be combined with any other national, regional or

Community aid, it was possible for the assistance for a project to cover as

much as 80% of costs.

Although not having any objections in principle to aid to promote women's

employment, the Commission felt that, except for the aid for training, the

legislation was not exemptible because it was too broad in scope and offered

levels of aid that were too high. Provided the minimum percentage of women

was complied with, the aid was available to any firm irrespective of size or

location and could reach considerable sums. The scheme was therefore liable,

in the Commission's view, to have adverse effects in the Community by

counteracting regional aid schemes both in Italy and in other Member States

in the competition for mobile investment.

<T5> - Rescue and restructuring aid

<T8> Italy

475. In July the Italian State holding company, EFIM, was placed in

liquidation by the Amato Government. Subsequently, several Decree Laws were

issued which introduced a number of measures to assist EFIM. These included

an advance of ECU 120 million from the Cassa dei Deposit i e Prestiti, a

guarantee for the totality of the group's debts and a reduction in

electricity tariffs for Alumix. Most importantly, the Decree Laws did not

include any indication as to how transparency would be ensured in the

liquidation process.

```

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3.I.A.§7. 10
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277

```
 476. EFIM was in liquidation before the above assistance was granted, leading

 the Commission to conclude that aid was involved in these measures. Moreover,

 the presence of the group in both Community and world markets, and

 specifically the SIV, Alumix and Agusta operations, would mean that such

 measures would distort trade.

 477. Consequently, due to the lack of information with which to assess the

 measures' compatibility, the Commission decided to initiate Article 93(2)

 proceedings in December.

 478. At the same time the Italian Government notified further measures to

 assist EFIM, including an increase in the advance to ECU 2.3 billion.

 Therefore, the Commission decided, in January 1993, to extend the proceedings

 to take account of these subsequent measures.

```

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3.I.A.§8. 1
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278

```
 <T4> §8 - Regional aid

 <T5> - General developments

 <T7> . Cohesion

 479. The Commission continued to direct its regional aid policy towards the

 strengthening of cohesion.* [1] ) Its reviews of national regional aid schemes

 were aimed at increasing the concentration of aid and its decisions reflected

 the need to improve the coherence between economic and social cohesion policy

 and competition policy, in accordance with the general approach pursued by it

 since December 1991.* [2] )

 480. It also continued to study the impact on intra-Community trade of aid

 towards capital-intensive investments. It will consider whether to propose

 measures to the Member States in this respect.

 <T8> Belgium

 481. In May the Commission approved a scheme for the redevelopment of

 derelict industrial sites in the Brussels Capital Region.

 The aid is granted to the owners of such land, either in the form of a

 contribution to the cost of studies and redevelopment work or in the form of

 an exemption from property tax for five years following site rehabilitation.

 It is available only to small and medium-sized enterprises and must not

 exceed the aid intensities provided for in the Commission rules on aid to

 SMEs.* [3] )

 (1) See point 80 of this Report.

 (2) Twenty-first Competition Report, point 56

 (3) See point 342 of this Report.

```

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3.I.A.§8. 2

 <T8> Germany

```

279

```
482. The policy of the Commission is essentially to concentrate aid in the

new Lander and to limit aid in regions that are not in urgent need of

assistance, notably West Berlin.

483. In December the Commission initiated the procedure under Article 93(2)

of the EEC Treaty in respect of certain provisions of the Investment

Allowance Law aimed at promoting investment in the new Lander and in

West Berlin ("Invest itionszulagengesetz 1991").* [4] ) The Law, which has an

budget of some ECU 6 billion, offers aid for investment in plant and

machinery begun before the end of 1992 and completed before the end of 1994.

The German authorities had implemented the Law without complying with the

obligation to give prior notification pursuant to Article 93(3) of the

EEC Treaty.

In June, in view of the difficult socio-economic situation in the new Lander.

the Commission decided to close the case as far as the investment allowances

in the former GDR were concerned.

However, in July the Commission prohibited investment allowances in

West Berlin altogether in respect of investments made after 31 December 1992

and limited the allowances to 8% for investments made there after

31 December 1991. It required the allowances in excess of 8% to be repaid.

In its decision, the Commission considered that West Berlin did not meet the

criteria set out in its method for the application of Article 92(3)(a) and

(c) to regional aid* [5] ) and was not therefore eligible for regional aid under

those two exceptions, and that no other exceptions provided for in the

EEC Treaty could be applied. It also took the view that the granting of new

aid to West Berlin would have the effect, given the considerable advantages

the city enjoyed in terms of infrastructure and skilled manpower and its

(4) Twenty-first Competition Report, point 290

(5) OJ C 212, 12.7.1988.

```

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3.I.A.§8. 3

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280

```
 unique geographical position, of attracting new businesses and stimulating

 the expansion of existing firms. This would make it more difficult for

 firms in the new eastern German states to adjust and would simply slow down

 the catching-up process.

 484. in December 1991 the Commission had initiated Article 93(2) proceedings

 in respect of Section 6 of the Assisted Areas Law ("Fôrdergebietsgesetz"),

 which provides for tax-exempt reserves to promote investment in West Berlin

 and in the new Lender.. The scheme had been put into effect without prior

 not if icat ion.* [6] )

 As in the case of the "Invest itionszulagengesetz", and for the same reasons,

 the Commission decided in June to terminate the procedure as regards the aid

 to the new Lander and declared in July that the parts relating to the

 creation of tax-exempt reserves for investments in West Berlin were illegal

 and incompatible with the common market. The aid already granted would have

 to be recovered within two months.

 485. In May, and again for the same reasons as set out above, the Commission

 decided to initiate proceedings in respect of the application in West Berlin

of a regional soft loan scheme ("ERP-Aufbauprogramm") for investments in the

 new Lander and in West Berlin. This scheme, too, had been put into effect

 before authorisation, contrary to Article 93(3) of the EEC Treaty.

 486. In November the Commission decided to authorise an amendment and

extension of the investment allowance scheme in the new eastern German

 states. Application of the scheme to the new Lander had been approved in

 June. The old scheme covered investments begun before the end of 1992 and

 completed before the end of 1994 and provided for allowances of 12% for

 investments completed before the end of June 1992 and of 8% for later

 investments. As a result of the change in the Law, an allowance of 8% will

 also be available for investment in the new Lander begun before the end of

 June 1994 and

 (6) Twenty-first Competition Report, point 291.

```

```
3.I.A.§8. 4
```

281

```
 completed before the end of 1996, and investment begun and completed in the

 period from 1 July 1994 to 31 December 1996 will qualify for an allowance of

 5%. The extended scheme involves additional aid of ECU 8.85 billion on top

 of the ECU 5.5 billion earmarked initially.

 487. In July and September, the Commission approved the 21st Outline Plan

 for the Joint Federal Government/Lander scheme for improving regional

 economic structures. The list of assisted regions and the arrangements

 for granting the aid had already been approved in 1991 for the period from

 1 January 1991 to 31 December 1993.* [7] )

 The 1992 budget for the scheme totals ECU 3 415 million in payment

 appropriations and ECU 4 400 million in commitment appropriations, of which

 ECU 2 730 million and ECU 4 100 million are earmarked for the former GDR,

 reflecting the priority given at Federal level to the development of the

 former GDR. The part of the scheme relating to the former GDR is part
 financed by the structural Funds, providing an additional ECU 500 million a

 year.

 <T8> Spain

 488. In July the Commission approved a regional aid scheme run by the

 national Government for Objective 1, 2 or 5(b) areas in which employment in

 textiles accounts for at least 10% of industrial employment. The aid takes

 the form of grants for training, studies, R&D, design and quality, and the

 setting-up of associations. It covers the period from 1992 to 1996 and has

 a total budget of ECU 129 million.

 As well as the scheme's contribution to regional development, the following

 other factors influenced the Commission's decisions: the R&D aid complied

 with the Community framework; the impact of the other aid

 (7) Twenty-first Competition Report, point 289

```

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3.I.A.§8. 5

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282

```
 measures on competition was limited; some of the aid to firms larger than

 SMEs could not be granted after 31 December 1993; the scheme provided only

 for certain aid for the acquisition of equipment which was limited to SMEs

 and would be discontinued by 31 December 1993 in areas not covered by

 national regional aid schemes.

 <T8> France

 489. In April the Commission decided to initiate the Article 93(2) procedure

 in respect of aid apparently granted illegally in the canton of Modane.

 490. The aid had not been notified to the Commission and consisted chiefly

 in a reduction granted by the Savoie General Council of up to 25% of the

 price of electricity for a period of not more than five years.

 491. The procedure was terminated in December, the Commission having

 determined that most of the aid in question came under schemes that had

 already been approved. As regards the electricity price reductions, the

 French authorities communicated to the Commission a draft decree stipulating

 that the reductions could not exceed ECU 50 000 per enterprise and per three
 year period, in accordance with the de minimis rule laid down in the

 Commission communication on aid for small and medium-sized enterprises.* [8] )

 The new decree must be implemented by 1 March 1993.

 492. In September the Commission decided to approve a diversification scheme

 for areas dependent on the textile and clothing industry. In its scrutiny

 of the scheme, the Commission checked in particular that the terms of its

 recent communication on aid for small and medium-sized enterprises* [9] ) had

 been met, in particular as regards aid intensity and the size of eligible

 enterpr ises.

 493. In November the Commission decided to approve a draft law providing for

 the creation of two special investment areas in Nord/Pas-de-Calais. Firms

 setting up in one of these areas will benefit from a tax credit on profits of

 (8) See point 337 of this Report.
 (9) 0J C 213, 19.8.1992; see point 342 of this Report.

```

```
3.I.A.§8. 6
```

283

```
 up to 22% of the investment made during their first three years in operation.

 The scheme is to apply for five years from the creation of the area.

 The Commission noted that the areas in question were eligible for regional

 aid. It checked that the scheme did not involve operating aid and that the

 aid intensity did not exceed the ceilings applicable to central regions of

 the Community.

 <T8> Italy

 494. In May the Commission initiated the Article 93(2) procedure against

 grants provided under an agreement between Val le d'Aosta and the

 Société di Servizi (SDS SpA). However, the procedure was terminated in

 December, the Italian authorities having informed the Commission that they

 had withdrawn the agreement in view of the initial position taken by the

Comm i ss i on.

495. The Commission also decided in May to propose appropriate measures

under Article 93(1) of the EEC Treaty in respect of the aid scheme applicable

 in the free zone of Gorizia which had been in existence since before the

EEC Treaty.

The scheme provided in particular for various tax exemptions for both private

 individuals and firms in Gorizia. As regards aid to individuals, the

Commission considered that the entire population of Gorizia could not be

regarded in view of the socio-economic indicators for the area as in need of

social aid. Aid to firms in the nature of operating aid can be granted only

 in the least-favoured areas of the Community, yet the economic indicators for

Gorizia did not allow it to be classified among those areas.

The Commission reached the preliminary conclusion that the scheme was not

compatible with the common market and proposed that the Italian Government

abolish it.

 In December it nevertheless decided to approve the scheme under

Article 92(2)(a) and (3)(c) after the

```

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3.I.A.§8. 7

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284

```
 Italian authorities had made certain changes which will enter into force on

 1 January 1994. The changes consist in limiting the quotas of tax-free

 products reserved for the population and bringing the rules on aid for firms

 into line with the Community frameworks in force, thereby abolishing all

 operat ing aid.

 496. In June the Commission decided to initiate the Article 93(2) procedure

 against the proposed new budgets for:

    the scheme of regional investment incentives provided for by

    Mezzogiorno Law (ECU 14.35 billion);

    the general reductions in firms' social security contributions in the

    Mezzogiorno provided for in the same Law (ECU 4 393 million);

    the selective higher relief of social security contributions for

    enterprises in the Mezzogiorno (ECU 2 727 million).

 The Commission has traditionally taken a favourable view of development aid

 for the Mezzogiorno and in 1988 approved the aid scheme under the Mezzogiorno

 Law until the end of 1993 in view of the clearly defined conditions for

 grant ing the aid.

 However, the Italian authorities had failed to comply with the obligation

 imposed by the 1988 decision to provide the Commission with a report on all

 the tax reliefs granted. The Commission was therefore unable to assess

 their impact and, consequently, to assess the compatibility of the proposed

 new budgets.

 The Commission also considered that the provisions of the Decree-Law

 allocating the new budgets were vague as regards both the duration of the

 scheme and the precise budget allocated. It also found that the reductions

 in social security contributions exceeded those authorized and that the

 scheme would in future be targeted at specific sectors and had been

 implemented before the Commission had taken a decision.

 For these reasons, the Commission felt that on the basis of the information

 in its possession it was unable to determine whether the measures in question

 were compatible with the common market.

```

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3.I.A.§8. 8

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285

```
 The Italian authorities subsequently informed the Commission that the

 provisions governing the continuation of the general reductions in social

 security contributions and the special higher rates of relief had lapsed and

were now contained in a new draft law. The Commission therefore closed the

 proceedings opened in June against these two provisions and in October opened

 proceedings under Article 93(2) in respect of the new draft law.

On the other hand, in December the Commission was able to terminate the

 proceedings against the new ECU 14.35 billion budget for regional incentives

 for 1993. The Italian Government had adopted a new approach in this matter

which was set out in Decree-Law No 415 of 22 October 1992. The new

 legislation limits the aid to certain ceilings depending on the degree of

 development of the region and the size of the recipients, in line with the

 rules in other Community regions with a similar level of economic

 development. In addition, the tax exemptions will be converted into tax

 credits. Up to ECU 6 billion of aid can be granted under the old rules for

aid applications pending on 14 August 1992.

497. In September the Commission approved under Article 92(2)(b) of the EEC

Treaty various aid granted for the reconstruction of La Valtellina and to

compensate firms that suffered damage during the 1987 flooding.

However, it opened Article 93(2) proceedings against other aid (grants, low
 interest loans, tax reductions and exemptions, etc.) providing general

support for business activity in the region and going beyond the mere

restoration of firms damaged by natural disasters.

498. In November the Commission examined Law No 19/91 on the development of

Friuli-Venezia Giulia and other areas adjacent to the former Yugoslavia.

On the basis of the information in its possession, the Commission considered

that the tax measures concerning the Trieste Financial and Insurance

```

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3.I.A.§8. 9

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286

```
 Services Centre were incompatible with the common market and initiated the

Article 93(2) procedure. It considered that the measures involved operating

 aid and were not justified by the economic situation of the region, that

 financial and insurance services did not normally require aid and that the

 intense competition in these sectors meant that aid would have a particularly

 distort ing effect.

 <T8> United Kingdom

 499. In March the Commission approved the setting-up of an enterprise zone

 in North Lanarkshire, Scotland. New investment in this area will enjoy the

 same advantages as in other enterprise zones in the United Kingdom, such as

 accelerated tax depreciation for industrial buildings, exemption from local

 taxes and charges, and more streamlined administrative procedures. Like the

others, the enterprise zone has been set up for ten years. The specific aid

granted to it does not constitute operating aid and complies with the

 regional aid ceilings for the region.

The region in question is a development area with a very high level of

unemployment due to the decline of traditional industries, in particular the

steel industry.

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287

```
<T4> § 9. Aid in the transport sector

<T6> (a) Land transport

500. The bulk of the aid granted in the land transport sector is still that

allocated to national railways, either as compensation for public service

obligations under Regulation (EEC) No 1191/69,* [1] ) as amended by Regulations

(EEC) Nos 1893/91* [2] ) and 1192/69,* [3] ) or as aid within the limits laid down

by Regulation (EEC) No 1107/70.* [4] ) Most member countries are considering a

fresh definition of the financial relationship between the State and the

railways, within the framework of Directive 91/440/EEC of 29 July 1991 on the

development of the Community's railways. The Commission informs the Council

of the scale of such aid in the two-yearly reports provided for in Council

Decision 75/327/EEC. As a result of the new possibilities created by that

Directive, the Commission is currently considering the position for the

future.

On 10 June 1992 the Commission adopted a communication to the Council

concerning the creation of a European combined transport network and its

operating conditions (C0M(92) 230), Annex 4 to which contains the latest

report on the granting of aid for combined transport under Regulation (EEC)

No 1107/70 and a proposal amending that Regulation. On 7 December 1992 the

Council adopted Regulation (EEC) No 3578/92.* [5] ) The Regulation, which amends

Regulation (EEC) No 1107/70, extends the period for granting aid until

31 December 1995 and increases the scope of admissible aid.

The opening-up of the transport market as from 1 January 1993 will have

consequences for competition in the road transport sector. The Commission

will have to increase its monitoring of subsidies that could unfairly benefit

particular operators. At the same time, the assessment of specific state aid

measures is becoming increasingly complex.

(1) OJ L 156, 28.6.1969.
(2) 0J L 169, 26.6.1991, p. 1.
(3) 0J L 237, 24.8.1991.

(4) OJ L 130, 15.6.1970
(5) 0J L 364, 12.12.1992, p. 11

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3.I.A.§9. 2
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288

```
 The Commission initiated the Article 93(2) procedure in respect of an Italian

 Decree of 28 January 1992 introducing a tax credit for Italian road hauliers.

The procedure should enable the Commission to determine whether the aid in

 question is compatible with the common market.

 In the inland waterway sector, the scrapping operation begun in 1989 under

Council Regulation (EEC) No 1101/89 of 27 April 1989 on structural

 improvements in the industry was supplemented in 1991 by measures involving

vessels in the new German Lander and was completed in 1992. All the vessels

available for withdrawal from the market were scrapped before

 1 December 1992.

```

```
3.I.A.§9. 3

 <T6> (b) Sea transport

```

289

```
501. The Commission ex... -d a number of state aid cases and continued its

work on adjusting the "Guidelines for the examination of state aids to

Community shipping companies", which it had adopted on 3 August 1989 to take

account of market developments.

In addition, it intensified its efforts to develop further its proposal for

the establishment of a Community ship register (EUROS).* [6] ) This register

would provide a transparent, common framework for state aid to Community

shipowners, thereby eliminating the need for Member States to introduce or

maintain national schemes, including second registers, which risk distorting

competition between Community fleets. In-depth discussions on EUROS are being

held within the Council. The Commission intends to reassess its proposal in

the light of these discussions.

As regards ports, the Commission authorized state aid of ECU 115 million for

workers made redundant in connection with the restructuring of ports in the

United Kingdom. The restructuring was provided for in the Dock Work Act

1989, which the United Kingdom authorities notified to the Commission.

The question of transparency of financial relations between public

authorities and ports will be the subject of a study being commissioned from

an independent expert.

The intention is to recommend a form of financial statement which ports will

be required to complete and to include in their annual accounts.

(6) OJ C 19, 25.1.92, p. 10

```

```
3.I.A.§9. 4

 <T6> (c) Air transport

```

290

```
502. The Commission presented to the Council and Parliament a report on the

evaluation of aid schemes for Community air carriers (SEC(92) 431 final).

The document summarizes inter alia the main features of the liberalization

process and competition policy in the aviation sector, as well as the

criteria, set out in Memorandum No 2 on the common transport policy, for

assessing aid schemes under the rules of the Treaty.

The report also contains a table showing aid granted by Member States to the

air transport sector and lists the aid measures being closely scrutinized by

the Commission.

The aid in question is granted in a variety of forms, and not just in the

form of the usual financial injections by the state such as capital

increases, preferential tax schemes or general guarantee schemes for loans to

carriers. The Commission found that certain carriers benefited from aid

specific to the sector in question, such as grants for the operation of

certain routes. It requested the Member States concerned to provide further

information on all these aid measures so that it could assess their

compatibility with the Treaty rules.

In the light of the third air transport package, the Commission has started

work on updating the guidelines, in accordance with Articles 92 and 93 of the

Treaty, for the assessment of aid to air carriers.

The Commission took a decision on the second and third tranches of the

capital increase for Air France, namely the issue of convertible bonds and

undated subordinated loan instruments. Following a thorough examination, it

decided that the operations could be regarded as normal financial

transactions.

The Commission decided not to raise objections to the increase in the capital

of Iberia in view of the firm undertakings given by the Spanish authorities

to the effect that :

```

**`3.1.A.§9.`** **`5`** 291

```
    it would be the last capital injection involving state aid;

    the resources would not be used to acquire shares in other Community

    air Iines;

    the Spanish Government would replace the nationality clause in Iberia's

    statute with a Community clause conforming to the provisions of the

    third air transport package.

 The Commission did not raise any objections, pursuant to Article 92(3)(c), to

 a proposal to grant aid to two United Kingdom airlines, New Air and

 Cumbria Aero Club, operating out of Carlisle Airport. The aid for New Air

 would be in the form of a grant, while that for Cumbria Aero Club would be in

 the form of a low-interest loan.

```

```
3.I.A.§10. 1

 <T4> §10. Aid in the agricultural sector

```

292

```
503. The scope of Commission activity under Articles 92 to 94 of the EEC

Treaty continues to be determined, in the agricultural sector, by the Council

(Article 42 of the EEC Treaty). For most products in Annex II, Articles 92 to

94 apply. Any aid which is liable to disturb Community market mechanisms

(for example, aid per unit of input or output) is considered not to be only

at variance with state aid provisions but also illegal under the terms of the

Council Regulations establishing the common market organizations. Recent CAP

reform has not changed this situation.

A number of instances of such aid were encountered, and in all cases the

Commission decided to initiate Article 93(2) proceedings. The Italian

authorities proposed aid for a supplementary harvest in the nuts sector, the

total cost of which was to be ECU 7 million. The Commission was of the view

that it appeared to constitute an operating aid to which none of the

exceptions of Article 92 of the EEC Treaty apply and at the same time an

infringement of the common market organization for fruit and vegetables and

Council Regulations (EEC) Nos 789/89 and 2159/89 concerning specific measures

for nuts and carobs. The Italian authorities subsequently withdrew the aid

plan. A similar position was adopted by the Commission with regard to Italian

aid for the private storage of a maximum total of 45 000 tonnes of carrots

for a period of four months. The Commission thereafter adopted a final

negative decision on this measure. Article 93(2) proceedings were initiated

in respect of further Italian aid for short-term private storage of table

wine and grape must, whereupon the measure was withdrawn. Italian aid for

producer groups and unions in the olive oil sector - total budget of

ECU 4 million for a period of one year - was also considered by the

Commission to be in breach both of state aid rules and of the common market

organization for fats and oils. A final negative decision was taken on

Italian aid for exports of citrus fruit to the countries of Eastern Europe

and the former USSR. In the sugar sector, the Italian authorities notified

aid totalling ECU 50 million to beetgrowers. One part of the measure sought

to compensate growers for loss of income as a result of lower prices paid to

them by industry than those laid down in Community rules. A second aspect

concerned aid designed to contribute to the financing of storage costs by

compensating for the effects of exchange-rate fluctuations in Italy. The

common market organization for sugar provides facilities in this area under

precise conditions, which appeared not to be respected in this instance.

```

```
3.I.A.§10. 2
```

293

```
 Turning to France, aid was notified for preventive distillation of wine to

 supplement that authorized by the Community. Although the French authorities

 argued that, in their view, a level playing field no longer existed in

 Community wine production, the Commission deemed that the objective of the

 measure was to increase incomes of producers in France to a level above that

 provided for by virtue of the common market organization for wine. The

 Commission came to the view that the aid constituted a breach of Treaty

 provisions and was in conflict with the common market organization for wine;

 it initiated Article 93(2) proceedings and called upon France not to grant

 the aid. It may be noted that the Council subsequently decided to allow this

 aid under the terms of the third subparagraph of Article 93(2) of the EEC

 Treaty on the grounds that exceptional conditions were present - a criterion

 which the Commission is not permitted to invoke in its assessment of state

 aid.

 German aid for the distillation of wine in the Rhine land-Pa I atinate region

 was the subject of a negative decision. The Commission came to the view,

 which was not contested by the German authorities under Article 93(2)

 proceedings, that the aid, payable per litre of wine distilled, constituted a

 breach of Treaty provisions and was in conflict with the common market

 organization for wine. The Commission also initiated Article 93(2)

 proceedings in respect of further aid of this nature planned by Rhine land
 Palatinate and called upon Germany not to grant the aid.

 Although it has been Commission policy systematically to rule out state aid

 for activities provided for in Community Regulations laying down common

 market organizations, a particular case arose in Italy concerning aid for

 producer groups handling nuts where, although aid for such groups is laid

 down in the relevant common market organization, the Commission raised no

 objections. The Commission took this position on the grounds that the aid,

 which involved improved marketing arrangements, was of a structural and not

 an operational nature and that the provisions of the relevant market

 organization are not exhaustive with respect to producer groups.

 504. With regard to operating aid to state-owned or parastatal enterprises in

 the agricultural sector, Article 93(2) proceedings were initiated in one

 instance and a final negative decision taken in another in respect of two

 Spanish grants of aid to the Merco Group. The policy issue arising from them

 is whether the state, in providing equity capital or debt relief, is acting

 in the same way as would a private investor in the market. Only if the

```

**3.I.A.§IO.** **3** **2 9 4**

```
 Commission comes to the view that this is the case will the measures in

 question, in principle, be considered not to constitute state aid. In

 determining how a private investor would be likely to behave, the Court of

 Justice has specified that the Commission's assessment must take account

 inter al la of the situation of the company, the restructuring to be carried

 out and market prospects.

 The Commission decided to initiate Article 93(2) proceedings in respect of

 aid in the form of a capital injection which was apparently decided upon, and

 in part granted, by the Spanish authorities to the Merco Group in 1992. On

 the basis of the information available to the Commission, this measure was

 considered to be operating aid having no durable effect on the sector in

 question. A final negative decision - with the requirement to refund the

 aid - was taken against an earlier injection of capital totalling

 ECU 44 million awarded by the Spanish authorities to the Merco Group in 1990.

 Not only had the Spanish authorities failed to notify this aid under Article

 93(3) of the EEC Treaty, but the Commission held, as to the substance, that

 the aid served exclusively to absorb losses which the group had accumulated

 and thus fulfilled the conditions of Article 92(1) of the EEC Treaty without

 qualifying for any of the exceptions of Articles 92(2) and (3).

 505. In agricultural structures policy, as in market policy, the scope of

 Commission intervention under Articles 92 to 94 of the EEC Treaty is

 determined by the Council. In the case of aid at holding level, Council

 Regulation (EEC) No 2328/91 authorizes such intervention only in specified

 areas laid down in Article 35 of that Regulation. Those areas include,

 amongst others, per hectare aid for the introduction or maintenance of

 farming practices which are compatible with environmental protection.

 The Commission decided not to raise objections to a sweeping programme of

 environmental aid measures in the German region of Baden-WUrttemberg designed

 to provide comprehensive protection for the agricultural landscape, the water

 table and certain endangered species of livestock. In contrast to previously

 authorized programmes to compensate farmers for pegging agricultural

 activities at low levels of intensity, this package was not focused on a

 strictly circumscribed area within the region nor on certain specific farming

 activities, but was broader in scope and ambition. Individual headings

 include aid, granted on a per hectare basis, for preserving pastureland and

```

```
3.I.A.§10. 4 ^ ^
```

295

```
 characteristic, naturally extensive orchards, and aid to compensate for use

 of certain low-output crop production techniques.

 Environmental measures are part and parcel of the CAP reform agreed by the

 Council in May 1992. Council Regulation (EEC) No 2078/92* [1] ) sets new

 parameters for Community intervention in this area whilst permitting Member

 States, as under Regulation (EEC) No 2328/91, to propose alternative

 conditions of aid under Articles 92 to 94 of the EEC Treaty. In this

 connection, Commission state aid policy continues to be determined by

 fundamental criteria governing the award of Community aid. In the event that

 these criteria were to be modified in relation to those of Regulation (EEC)

 No 2328/91, due account would be taken in the assessment of state aid. The

 Commission is also aware of the need to strike a balance between competition

 policy considerations and environmental constraints and objectives. In this

 context, the Commission has noted the observations made by Parliament's

 Committee on Agriculture, Fisheries and Rural Development in its opinion on

 the Twenty-first Report on Competition Policy.* [2] )

 506. In structures policy for investments at processing and marketing level,

 Council Regulation (EEC) No 866/90 allows Member States in principle to

 introduce unilateral measures, under the terms of Articles 92 and 93, in all

 areas covered by the Regulation.

 In practice, this freedom is circumscribed by the Commission policy of

 excluding from state aid the same investments which are excluded from

 Community cofinaneing under point 2 of the Annex to Commission Decision

 90/342/EEC of 7 June 1990.

 It should be noted that, for investments where the Commission Decision of

 7 June 1990 does not exclude or limit aid (and the rate of aid does not

 exceed the maximum permitted by the Commission), it is Commission practice

 not to raise objections even when the scale of investment is large. Thus, the

 Commission cleared Portuguese aid to Laprovar-Pepsico for the manufacture of

 snacks falling within Annex II of the EEC Treaty, involving aid of

 ECU 8 million for the products in question.

 (1) OJ L 215, 13.7.1992

 (2) PE 202.500.

3. I .A.SIU. *

```

```
3.I.A.§10. 5

 507. With regard to parafiscal charges (levies), the Commission took a

 decision which represents a change in the application of its policy. It

 decided that French aid financed through parafiscal charges levied also on

 products imported from other Member States was compatible with the common

 market subject to strictly defined conditions being observed. In the case in

 point, the yield from the charge is used to finance marketing controls

 imposed by Community directives and therefore serves to achieve objectives

 that are of Community interest and not exclusively national in character.

 In the various cases it has examined to date, the Commission has taken the

 view, in accordance with the Court's case law, that aid financed through

 parafiscal charges levied also on products imported from other Member States

 is in principle incompatible with the common market because the charge levied

 on imported products has a protective effect which goes beyond aid properly

 so-called. Even if equality of treatment is assured between national and

 imported products on a legislative level, such aid is more favourable to

 national operators on a practical level since the measures taken inevitably

 stem from national specializations, needs and deficiencies. The case

 referred to above concerned aid for financing controls imposed by Community

 directives for the marketing of seeds and seedlings, irrespective of their

 origin. Aid for controls carried out under such conditions pursues a

 Community objective; its aim is therefore not to benefit national operators

 alone. For that reason, the Commission accepted that in this case parafiscal

 charges could be applied also to seeds and seedlings imported from other

 Member States for the purpose of financing marketing control measures imposed

 at Community level. The Commission's approach takes account of the Court's

 judgments which show that Member States cannot be denied scope for levying a

 charge on products from other Member States for financing controls provided

 two conditions are met: the controls must be imposed by Community

 legislation and the amount of the charge levied on products imported from

 other Member States should not exceed the real cost of such controls. The

 French aid for 1991 meets these two conditions, and the French authorities

 have undertaken to ensure that they are met in subsequent years and to

 provide the Commission each year with a financial report on the preceding

 year.

```

**`3.I.A.§10.`** **`6`** 297

```
 The Commission decided to initiate Article 93(2) proceedings in respect of

 Belgian aid measures financed through parafiscal charges in the cattle,

 sheep, goat and horse sectors. The aid was granted for promoting the sale of

 products of the sectors in question (advertising, fairs, exhibitions, etc.).

 While the Commission had no comment to make on the purpose of the aid, it

 judged it to be incompatible with the common market because of the method of

 financing it. That method involved the imposition of compulsory levies on

 animals imported from other Member States at the slaughtering stage, on the

 purchase of beef, veal and sheepmeat, on the recording of horses in stud
 books, and on semen imported from other Member States for the initial

 insemination of cattle.

 The Commission also initiated Article 93(2) proceedings in respect of Belgian

 aid for promoting the raising of poultry and small livestock, not because of

 the purpose of that aid but because of the method of financing it. This

 involved the imposition of a compulsory levy at the slaughtering stage which

 was also imposed on live animals imported from other Member States.

 Furthermore, it involved the imposition of a compulsory levy also on

 specialist importers of compound feedingstuffs imported from other

 Member States; "specialist importers" are those whose business activity is

 restricted to importation and which import compound feedingstuffs only from

 the Member States. The notification concerned a draft royal decree amending

 the Royal Decree of 31 July 1989 and designed, on the one hand, to extend the

 existing arrangements to the products of laying birds and table fowl and, on

 the other, to prolong the period of application of the Royal Decree

 indefinitely. The Commission decided to initiate Article 93(2) proceedings

 with respect to the extension of the aid for an indefinite period in view of

 its incompatibility with the common market as previously demonstrated by the

 fact of the charge applying also to products imported from other

 Member States. The Commission took the view that the extension of the

 parafiscal charge to laying birds and table fowl did not alter the positive

 assessment of the aims of the aid provided for in the Royal Decree of

 31 July 1989, since the purpose of the aid financed in this way has not

 changed. Furthermore, the method of levying the charges on these two

 products does not raise problems as regards imported products since they are

 levied only on the basis of national productive activity. However, the

```

```
,.,.*.,10.7 •

 charges levied are paid into a common fund which is also fed by compulsory

 levies imposed on products imported from other Member States. Aid financed

 through this fund is therefore regarded by the Commission as not being

 consistent with Community legislation.

 With regard to Danish aid and parafiscal charges channelled to business funds

 In the milk and poultry sectors, the Community decided not to raise any

 objection regarding aid for insurance covering product liability. This is a

 collective insurance scheme covering the liability of producers and traders

 in each of the two sectors. In adopting its position, the Commission took

 into account the collective nature of this type of insurance and the large

 number of producers concerned by liability for any harm suffered by final

 consumers. It also took into account the fact that the aid is funded

 entirely by the business sector as a whole from the yield from earmarked

 charges levied exclusively on Danish products.

 508. With regard to the aid scheme provided for farmers in Germany since 1984

 to compensate for losses sustained as a result of monetary changes in the

 1980s, Parliament's Committee on Economic and Monetary Affairs and Industrial

 Policy, in its report on the Twenty-first Competition Policy Report,* [3] )

 requested the Commission to examine whether this aid scheme had caused

 distortions of competition between farmers in Germany and those elsewhere in

 the Community. On this point, the Commission would invite the Committee to

 refer to its reports to the Council and to Parliament regarding application

 of the aid paid to farmers in Germany through the VAT system. As stated at

 point 4.2 of the report relating to 1985,* [4] ) it is virtually impossible to

 assess the effect of the dismantling of German MCAs on 1 January 1985 and of

 compensation by means of VAT in isolation from other factors affecting the

 market. Subsequent Commission reports record that examination of agricultural

 prices and trade indicated that trends in Germany have been in line with

 those in other Community countries and that the Commission possesses no

 evidence to suggest that the granting of special aid in Germany has affected

 the functioning of Community agricultural markets. The Commission is not in a

 position to give a more comprehensive assessment than that given in these

 (3) PE 202.323.

 (4) C0M(87)292 final

```

```
3...A.J10. 8 2 9 9

 reports. However, it is clear that the justification for any form of aid to

 compensate for the effects of monetary events in the 1980s diminishes over

 time. This factor will be taken into account by the Commission in any

 subsequent proposals it may make in this area.

 509. The same report of the Committee on Economic and Monetary Affairs and

 Industrial Policy observes that the agricultural sector has been the victim

 of differential treatment in that, until a few years ago, this sector was not

 mentioned in the Commission's annual reports on competition policy. A link

 is also established by the Committee between the erstwhile absence from

 competition reports of a section relating to agriculture and the vigour with

 which competition rules are applied in this sector. Whilst the nature of any

 such link is not clear to the Commission, it should be noted that the

 Committee itself, in its report on the Commission's Nineteenth Competition

 Policy Report,* [5] ) called for the exclusion of agriculture from the

 competition report. In the Commission's view, any such exclusion would be

 deleterious to the necessary transparency in this area, it will endeavour to

 respond positively to suggestions which add to this transparency.

 (5) PE 144.495

```

```
    3.I.A.§11. 1

```

300
```
     <T4> §11. Aid in the fisheries sector

     510. In 1992 the Commission registered 33 new aid schemes and one aid scheme

     notified after its adoption by the Member State in question.

     The Commission decided not to oppose the implementation of 28 aid schemes.

     During 1992 the Commission initiated Article 93(2) proceedings in relation to

     ten aid measures (nine in France and one in Italy). During the same period,

     the Commission decided to terminate Article 93(2) proceedings with regard to

     nine aid measures introduced by France, the Netherlands and Italy.

     The table below gives an indication of the evolution of the number of aid

     schemes adopted in the fisheries and aquaculture sector which have been

     examined by the Commission and the number of decisions taken by the

     Commission concerning the compatibility of these aid measures with the

     competition rules and Community fisheries legislation. The data are based on

     the date of the decision and do not necessarily reflect the number of aid

     measures registered or examined.

I 1 I I
| | | Decision by the Commission |

```

l l I 1 1 1 1

```
| Year | Total | No objection |Initiation of Article 93(2)| Termination |Negative decision)

| | | | proceedings | of | |
| | | | | proceedings | |
```

I H 1 H— 1 1 1

```
| 1990 | 23 | 12 | 2 | 2 | 1 |

| 1991 | 45* [1] ) | 18 | 7 | 4 | - |

| 1992 | 33* [2] ) | 28 | 10 | 9 | - |

I I I I I I __J

     The new guidelines for the examination of state aid in the fisheries sector

     were published in Official Journal C 152, 17.6.1992.

     (1) Seven registered aid measures were subsequently withdrawn from the

        register of aid before the examination process commenced.

     (2) One registered aid measure was subsequently withdrawn from the register

        of aid before the examination process commenced.

```

```
3.1.B.§1 1

 <T3> B. Public enterprises and state monopolies

 <T4> §1. Telecommunicat ions

 <T5> Community legislation

```

301

```
511. On 21 October the Commission adopted a review of the situation in the

telecommunications services sector* [1] ) as provided for in Council

Directive 90/387/EEC and Commission Directive 90/388/EEC. This review,

which is contained in a communication to the Council and to Parliament,

identifies current problems in the sector and examines a number of possible

options for future legislation as well as the justification for existing

exclusive and special rights.

The options considered are as follows:

(i) maintenance of the present regulatory environment;

(ii) Community regulation of tariffs and investments;

( M i ) opening-up to competition of voice telephony services;

(iv) opening-up to competition of voice telephony between Member States.

The review concludes that the last option would seem to be the one most

likely to achieve the objectives of the Community.

All interested parties are, however, requested to make known their

observations so that the Commission is able to take a final decision and to

draw up the necessary regulatory measures.

(1) SEC(92)1048 final.

```

```
3.I.B.§2 2

 <T4> §2. Postal services

 <T5> Green Paper

```

302

```
512. The Commission adopted the Green Paper on the development of a single

market for postal services on 13 May.* [2] ) The Green Paper examines the

current situation of the Community's postal services and presents a series of

options for their future development.

The Green Paper accepts as an absolute policy fundamental the need to ensure

the continuation of the universal service, which must be provided at an

affordable price, have good quality of service and be accessible to everyone.

In order to preserve the universal service, a set of reserved services may

need to be established for which special or exclusive rights may be granted

to particular enterprises. However, the scope of the reserved area must not

exceed what is strictly necessary to achieve the universal service objective.

Outside this reserved area, all services should be provided under conditions

of free competition.

The Green Paper proposes a balanced approach comprising both harmonization

and liberalization measures. It proposes a free market in express and

publications services, parcels services having already been liberalized in

all twelve Member States. The liberalization of cross-border mail and

a or ior i direct mail is envisaged on the basis of the analysis contained in

the Green Paper, which does, however, accept that their liberalization should

not undermine the universal service.

The publication of the Green Paper on 11 June launched a period of public

consultation during which the Commission invited the comments of all

interested parties on its policy options. At the end of this process, it is

intended to put forward a plan of action for the Community's postal services.

(2) C0M(91) 476 final. See also Twentieth Competition Report, point 61, and
   Twenty-first Competition Report, point 325.

```

```
3. I .B.§3 3

 <T4> §3. Energy

 <T5> Gas and electricity

```

303

```
513. The Commission examined the replies to the letters of formal notice

concerning exclusive rights to import or export gas and electricity.* [3] ) It

decided to continue proceedings under Article 169 of the EEC Treaty and to

send reasoned opinions to the six Member States whose legislation allows

exclusive rights (Denmark, Spain, France, Ireland, Italy and the

Netherlands).

The Commission is convinced that the abolition of exclusive import and export

rights in these sectors is an essential step in the process of establishing a

genuine single market in energy.

514. At the same time, the Commission continued its efforts to secure

adoption of its proposals for harmonization directives based inter ai ia on

Articles 57(2), 66 and 100a of the EEC Treaty.

<T5> Oi I

<T8> Greece

515. In January Greece adopted new legislation which resolves the bulk of the

problems previously identified.* [4] )

516. Doubts persist, however, regarding the compulsory storage arrangements

provided for in the new legislation. This problem is being examined in the

light of Article 30 of the EEC Treaty.

<T8> Spain

On 22 December Spain adopted new regulations abolishing the exclusive legal

rights in favour of CAMPSA (the company operating the monopoly) in the

monopoly service-station network. Meanwhile, existing exclusive rights,

particularly for fuel oil and LPG, have been adjusted in accordance with the

(3) Twenty-first Competition Report, point 328.

(4) Twenty-first Competition Report, point 330.

```

```
3.I.B.§3 4

 obligations incumbent on Spain under Article 37 of the Treaty.

```

304

```
These new regulations represent a significant adjustment in the legal Spanish

oil monopoly, which has existed since 1927.

However, the Commission is now examining, on the basis of Articles 85 and 86

of the Treaty, the conditions governing access by the various independent

operators to the CAMPSA logistical network and the exclusive agreements

concluded by Spanish refineries with service-station owners in the old

monopoly network.

<T8> Portugal

517. The exclusive rights granted to the public corporation Petrogal for the

distribution of diesel fuel for farmers, which had been the subject of a

complaint,* [5] ) were finally amended by the Portuguese authorities to allow

any distribution company access to this sector of the market.

(5) Twenty-first Competition Report, point 331

```

```
3.I.B.§4 5

 <T4> §4. Transport

 <T5> Air transport

```

3C5

```
518. The Commission continued to examine the various arrangements concerning

existing exclusive or special rights in the Member States for the provision

of services to assist passengers, aircraft and goods at public airports, in

this connection, the Commission considers it vital that - as recommended by

I ATA - at the very least the right of airlines to organize their own

assistance services either individually or jointly (system of self-help)

should be respected. Moreover, it is studying the opening-up of this market

to effective competition as a means of improving quality and reducing the

costs of services while respecting national regulations where these are

strictly necessary to guarantee a complete and permanent service, airport

security and the protection of users.

519. As a result of a number of complaints, the Commission noted numerous

instances of restrictions on competition in connection with the provision of

assistance during stopovers at airports in several Member States. The

replies by the Member States to the questionnaire sent by the Commission

allowed it to make a preliminary examination of the legal position in this

field in the Community.

It transpires that there are in a number of Member States restrictions on

competition resulting from the granting to certain companies of exclusive or

special rights to provide assistance to third parties during stopovers. In

some cases, these restrictions also prevent airlines from organizing

assistance themselves during stopovers.

These obstacles restrict competition in the provision of assistance during

stopovers and, indirectly, in the air transport sector. It is, therefore,

essential that the liberalization of air transport should not be impeded by

the continued unjustified existence of monopolies in this related sector.

The Commission is examining how far the above-mentioned legal restrictions

are compatible with Article 90(1), read in conjunction with a number of

other provisions of the EEC Treaty. In the light of the outcome of this

process, during which consultations will be held with Member States and with

```

```
(i

```

```
3.1.B.§4 6
```

**`7`** **"06** **`P.`**

```
 the operators in question, it might decide to take measures under the powers

 granted by Article 90(3).

 <T8> Germany

 520. The airline British Midlands has submitted a complaint against the

 refusal by the German authorities to allow SAS to provide assistance to the

 plaintiff during stopovers at Frankfurt Airport.

 This ban allegedly results from national provisions stipulating that foreign

 companies can provide such services only if reciprocal treatment is granted

 to German carriers in the country of origin. The German authorities point

 out in this connection that Lufthansa is subject to similar restrictions in

 Denmark and the other Scandinavian countries. Since such a rule on

 reciprocal treatment may be incompatible with Article 90(1), read in

 conjunction with a number of other provisions of the EEC Treaty, the

 Commission asked the German authorities for an explanation.

 <T8> Spain

 521. As regards a number of complaints submitted on behalf of various Spanish

 charter companies and relating to exclusive rights granted to Iberia which

 allegedly prevented them from organizing their own assistance,* [6] ) the

 Commission, after being informed by the Spanish authorities that

 self-assistance is a legai activity subject to prior authorization and that

 they were not aware of any refusal to grant authorization to the airlines in

 question and after unsuccessfully requesting the plaintiffs to provide proof

 of such refusal by the authorities, decided to file the complaints in

 question because of a lack of evidence.

 In spite of a formal undertaking by the Spanish authorities, the reduction of

 65% in the charges for assistance at airports granted to Spanish airlines* [7] )

 (6) Twenty-first Competition Report, point 335
 (7) Twenty-first Competition Report, point 336

```

```
3.I.B.§4 7

```

**30/**

```
 was only partly abolished from 1 November. The Commission is studying the

 measures that need to be taken to do away with this discriminatory reduction

 completely.

 <T5> Sea transport

 <T8> Denmark

 522. Following a complaint lodged by a private shipping line concerning the

 refusal by the Danish Government to grant it access to Rtfdbyhavn* [8] ) to

 operate a regular ferry service between that port and the German port of

 Puttgarden, the Commission sent a letter of formal notice to that Government

 on the basis of Article 90(3) of the EEC Treaty.

 In the Commission's opinion, the effect of this refusal is to protect the

 monopoly enjoyed by Danish (DSB) and German (DB) railways, which jointly

 operate a ferry link on this route. Such a refusal would be incompatible

 with Article 90(1), read in conjunction with Article 86 of the Treaty.

 <T8> Spa i n

 523. As regards the complaint against further discrimination on grounds of

 nationality on the part of Transmediterranea, the public-sector sea transport

 company,* [9] ) the Commission held that, contrary to the view taken by the

 Spanish Government, the existence of a 20% reduction in the company's fares

 for certain trips made by pensioners and people over the age of 60, provided

 they are of Spanish nationality, is not based on strictly commercial

 cr iter ia.

 In reality, through the conduct of its public company, the State was

 continuing to pursue the social, but discriminatory objective (fare

 reductions only for elderly people of Spanish nationality) that it had set

 itself in the legislation which had already formed the subject of the

 Commission decision on 22 June 1987.* [1] °)

 (8) Twenty-first Competition Report, point 337.
 (9) Twenty-first Competition Report, point 334.
 (10) Boletin Oficial del Estado No 312, 30.12.1981; Law amended by the
    Finance Act, No 33/1987; Boletin Oficial del Estado, 24.12.1987.
    Eighteenth Competition Report, point 309.

```

```
3.I.B.§4 8

```

3C8

```
 This led the Commission to conclude that the Spanish State, which has a 95%

 holding in Transmediterranea, at the very least failed to act to put an end

 to a measure within the meaning of Article 90(1) of the EEC Treaty which

 clearly conflicts with Article 7 of the Treaty.

 The Commission therefore felt compelled to initiate infringement proceedings

 against the Spanish Government under Article 90(3) of the EEC Treaty.

```

```
3.I.B.§5 9

 <T4> §5. Other industries

 <T8> Italy

```

309

```
524. In its judgment of 10 December 1991 (Case C-179/90, Porto di Genova).

the Court of Justice held that the monopoly of port handling operations in

Italy was incompatible with Article 90(1) of the Treaty, read in conjunction

with Articles 30, 48 and 86.

By letter dated 31 July the Commission, in accordance with Article 90(3),

gave the Italian Government notice to communicate within two months the

measures it intended to adopt in order to bring the laws and regulations

governing the monopoly of port handling operations in Italy into line with

Community law. The Commission made specific reference to the major ports

where, in its view, the volume of trade was liable to affect trade between

Member States.

In the course of the procedure, the Commission was informed that the Italian

Council of Ministers had adopted on 15 October new provisions on dock work in

the form of a decree-law.* [11] )

The decree-law abolishes both the last paragraph of Article 110 of the

Shipping Code, which had established the dock-work monopoly, and the last

paragraph of Article 11 of the Code, which requires the firm holding the

concession to use a port company composed exclusively of nationals to carry

out dock work.

The new provisions thus immediately abolish the main points condemned by the

Court (Judgment of 10 December 1991) and challenged by the Commission in its

letter of 31 July.

However, certain provisions of the decree-1 aw, which must be converted into

law within sixty days, still give cause for concern, in particular as

(11) Decree-Law No 409 of 19 October 1992, Gazetta Ufficiale del la Repubblica

   Italiana. General Series No 246 of 19 October 1992.

```

```
3.I.B.§5 10 3 / ( 0

 regards possible obstacles to freedom of establishment and freedom to provide

 services. The Commission called on the Italian Government to amend those

 provisions.

 <T8> Portugal

 525. The Commission examined whether Portuguese authorities had adopted and

 published all the measures necessary to ensure that, in accordance with

 Article 208 of the Act of Accession, no discrimination exists between

 nationals of the Member States regarding the conditions under which goods

 subject to the monopoly in alcohol (ethyl alcohol of agricultural origin,

 ethyl alcohol of non-agricultural origin and wine spirits for use in the

 making of port wine) are procured and marketed.

 The Commmission initiated proceedings against the Republic of Portugal on

 10 December 1990, i.e. before the end of the transitional period, seeking to

 establish that by failing to carry out the gradual adjustment of this

monopoly from 1 January 1986, the Portuguese Republic had failed to comply

with its obligations pursuant to Article 208(1) of the Act of Accession of

 the Kingdom of Spain and the Republic of Portugal (case C-361/90); the same

monopoly was subsequently the subject of a request for a preliminary ruling

 from the Portuguese Supremo Tribunal Administrative

On January 19, 1993, the Court of Justice has given Judgement in these two

cases. The Court rejected the application of the Commission on the grounds

 that the Portuguese Government had effectively begun the process of

progressively adjusting the monopoly and that the Commission had not

demonstrated that the measures taken by the government were not of such a

nature to achieve the objectives set out by Article 208 of the Act of

Accession.

Both in the framework of case C-361/91 and in reply to the request for a

preliminary ruling in case C-76/91 the Court stated that the opening of

quotas for import was not the only way to proceed to the adjustment of the

monopoI y.

```

```
3.I.B.§6 11

 <T4> §6. Other aspects

```

311

```
526. With a view to the forthcoming entry into force of the Agreement on the

European Economic Area, the Commission decided to remind Member States of

their obligations concerning monopolies of a commercial character and

undertakings granted special or exclusive rights.

All the Member States were therefore asked to inform the Commission whether

they had maintained in force, in relation to the EFTA countries, any

monopolies of a commercial character and, if so, to specify the products

covered by such monopolies, the exclusive rights concerned (in particular

exclusive rights to import, export, market or sell) and any adjustment

measures already taken or planned.

Without prejudice to the provisions of the Agreement granting temporary

derogations to certain EFTA countries, monopolies must in principle be fully

adjusted not later than the date of entry into force of the Agreement.

527. At the same time, as regards the "undertakings granted special or

exclusive rights" referred to in Article 59 of the Agreement and in Section H

of Annex XIV, the Member states were asked to confirm that the measures

already taken to comply with the requirements of Commission

Directives 88/301/EEC of 16 May 1988 and 90/388/EEC of 28 June 1990 on

competition in the market for telecommunications terminal equipment and for

telecommunications services did not require the adoption of further measures

in order to comply with the obligation arising out of the Agreement (see

Chap. XIV).

```

```
3.I.B.§7 12

 <T4> §7. Communication concerning public undertakings

                in the manufacturing sector* [12] )

 <T5> Background

```

312

```
528. Following the adoption of this communication in 1991, the Commission has

endeavoured to apply it, firstly, as a general instrument in the

identification of aid measures in routine cases and, secondly, as the tool it

was designed to be in ascertaining the existence of aid on the basis of the

review of undertakings' financial and related statements.

<T5> Appeal to the Court of Justice

529. In December 1991 the French Republic appealed* [13] ) to the Court of

Justice against the communication.

The Court is expected to hand down its ruling in 1993.

<T5> Implementat ion

530. Data were received in respect of 1989 and 1990 for undertakings covered

by the communication. For the financial year 1991, information was provided,

to a greater or lesser extent, by the Member States concerned.

<T5> ADD Iication

531. The principles set out in the communication were applied consistently

during the vetting of state aid cases, a leading case being the Bull decision

adopted by the Commission in July.* [14] )

The principles were also applied in a number of cases concerning public
sector undertakings: e.g. the proposed privatizations of ENI and IRI; the

liquidation of EFIM;* [15] ) asset acquisitions and disposals by Péchiney and

the capital increase in Aerospatiale.

(12) OJ C 273, 18.10.91.
(13) Case C 325/91 French Reoublic v Commission.

(14) OJ C 244, 23.9.1992.

(15) The Commission decided to initiate the Article 92(2) procedure in
   respect of EFIM on 23 December 1992. See points 475 et sec, of this

   Report.

```

```
3.I.B.§7 13
```

313

```
 The Commission analysed much of the data received in respect of 1989 and 1990

 and identified a number of cases of aid granted to public undertakings

 without prior approval. Accordingly, it is anticipated that, in the coming

 months, the Commission will take formal action under Article 93(2) of the EEC

 Treaty in respect of those cases.

```

```
3. I I. 1
```

314

```
 <T2> Chapter II: Main decision of the Court of Justice

 <T4> §1. Admissibility of applications lodged against decisions

           to initiate proceedings under Article 93(2)

 532. In two judgments delivered on the same day* [1] ) the Court of Justice

 ruled on the admissibility of two applications lodged against Commission

 decisions to initiate proceedings under Article 93(2) of the EEC Treaty.

 The Court rejected the Commission's plea of inadmissibility based on the

 claim that the letter initiating proceedings in each case was only a measure

 forming part of the preparatory investigation leading up to the adoption of a

 final decision, and as such was not an act adversely affecting the applicant

 capable of being contested under Article 173 of the EEC Treaty.

 The decision to initiate proceedings implied a choice on the part of the

 Commission, which had to classify the aid and determine the procedure

 appropriate to it, as such a decision had different effects according to

whether the aid was considered new aid within the meaning of Article 93(3) or

 existing aid subject to Article 93(1).

The Court stated, however, that when it came to consider the substance of the

 two cases it would confine itself to establishing whether aid granted in the

 circumstances constituted new aid in respect of which the Commission could

 have initiated the Article 93(2) procedure.

 (1) . Judgment of 30 June 1992, Case C 47/91 Italy v Commission
      (Italgrani), not yet reported.
      Judgment of 30 June 1992, Case C 312/90 Spain v Commission

      (Cenemesa and Others), not yet reported.

```

```
3.11. 2

 <T4> §2. Failure to comply with a decision

                  under ArtIcle 93(3)

```

315

```
533. In the Rover Case* [2] ) the Court had to consider the relationship between

two successive Decisions.

The second Decision, which had been adopted without first initiating the

procedure provided for in Article 93(2) and which was challenged by the

applicants, found that an additional UKL 44.4 million of aid had been paid to

Rover and British Aerospace in breach of the earlier Decision of

13 July 1988, and called upon the United Kingdom authorities to recover it

from the recipients.

The Court accepted the applicants' main contention, namely that the only two

options open to the Commission were:

   the adoption of a new decision to initiate Article 93(2) proceedings on

   the ground that the UKL 44.4 million of financial concessions

   constituted new aid; and

   the institution of proceedings directly before the Court, by virtue of

   the second subparagraph of Article 93(2), for the failure of the

   United Kingdom authorities to comply with the Decision of 13 July 1988.

(2) . Judgment of 4 February 1992, Case C 294/90 British Aerospace and
     Rover Group v Commission, not yet reported.

```

```
4.I.§1. 1
```

316

```
 <T1> PART FOUR: CONTACTS WITH COMMUNITY AND OTHER INSTITUTIONS

 <T2> Chapter I: The contribution from socio-economic and political circles

 <T4> §1. European Parliament

 534. During the year Parliament continued to pay lively attention to

 competition matters. Its support and constructive remarks are greatly

 appreciated by the Commission, which effectively seeks to maintain a regular

 dialogue with, and to inform, Parliament on important competition policy

 issues.

 535. It adopted its resolution on the Twenty-first Competition Report on

 17 December 1991. This resolution and the Commission's response are annexed

 to the present Report.* [1] )

 536. On 17 December Parliament also adopted an own-initiative resolution on

 the Commission's proposal for a block exemption in the insurance sector.* [2] )

 in this resolution, Parliament welcomes the presentation of the proposal,

 which is generally considered to be on the right lines.

 However, it also raised a number of specific questions relating to individual

 provisions of the block exemption and asked for clearer definitions of

 certain terms. In its revised final version of the Regulation, the

 Commission has taken account of a large number of these observations.

 537. In the air transport sector, Parliament adopted on 8 April a resolution

on the Commission's proposal amending Regulation (EEC) No 3975/87* [3] ) and on

 10 July a resolution on the amendments to Regulation (EEC) No 3976/87.

538. Several other resolutions were adopted which have a bearing on

 competition.

On 9 July Parliament adopted a resolution on the proposed changes to the

Seventh Shipbuilding Directive.* [4] ) It adopted on 29 October a resolution on

 (1) See Annex I.A to this Report.
 (2) OJ C 207, 14.8.1992, p. 2.
 (3) OJ C 225, 30.8.1991, p. 9.
 (4) OJ C 155, 20.6.1992, p. 20.

```

```
4.l.§1. 2
```

317

```
 the situation of the steel industry in Europe and on 19 November a resolution

 on the situation of coal-mines in the United Kingdom. At committee level,

 several important meetings were held, including a discussion on 13 April with

 the then President of the Bundeskartellamt within the Economic and Monetary

 Affairs Committee and a conference in Dresden on 18-20 May on the work of the

 Treuhandanstalt.

 539. In the field of international relations, Parliament gave its assent on

 12 March to the Agreement on Civil Aviation concluded between the Community,

 on the one hand, and Norway and Sweden,* [5] ) on the other, and on 28 October

 to the Agreement on the European Economic Area, which also includes

 substantive rules on competition.* [6] ) it further gave its assent to the

 Europe Agreements concluded by the Community with Poland and Hungary on

 16 September.* [7] )

 540. During the year Members of Parliament submitted 141 written questions on

 competition to the Commission (169 in 1991); a further 66 questions were

 submitted for oral reply (75 in 1991).

 (5) See point 100 of this Report.

 (6) See point 85 of this Report.

 (7) See point 101 of this Report.

```

```
4.I.§2. 1

 <T4> §2. Economic and Social Committee

```

318

```
541. On 25 November the Economic and Social Committee delivered its opinion

on the Twenty-first Report on Competition Policy. The opinion and the

Commission's response are reproduced in the annex.

The Commission will take these observations into account.

542. Also on 25 November the Committee delivered an additional opinion on the

Commission's proposed block exemption in the insurance sector.* [1] ) While

endorsing the Commission's initiative, it raised a number of more specific

questions. The Commission took these comments into account in the final

version of the block exemption proposal.

543. The Committee took a position on a number of other competition-related

issues. On 29 April it adopted an opinion on the proposed amendment* [2] ) to

Regulations (EEC) Nos 3975/87 and 3976/86 in the field of air transport. On

1 July, it delivered an opinion on the proposal* [3] ) for a Council Directive

providing for changes to the Seventh Council Directive on aid to shipbuilding

and on 19 November on the proposal* [4] ) for new Commission block exemptions in

the field of air transport.

544. The Commission welcomes the constructive remarks made by the Economic

and Social Committee and looks forward to continued good working relations

with the Committee.

(1) OJ C 207, 14.8.1992, p. 2.

(2) OJ C 225, 30.8.1991, p. 2.
(3) OJ C 155, 20.6.1992, p. 20.
(4) OJ C 253, 30.9.1992, p. 5.

```

```
4.I.§3. 1

```

319

```
 <T4> §3. Advisory Committee on Restrictive Practices and Dominant Positions

 545. The Advisory Committee met nineteen times to examine preliminary draft

 Commission decisions in individual cases involving the application of

 Articles 85 and 86 of the EEC Treaty, of which three were preliminary draft

 decisions granting interim measures. The meetings included one meeting of

 the committee specializing in land transport, four meetings of the committee

 specializing in sea transport and one meeting of the committee specializing

 in air transport.

 In its various compositions, the Committee delivered a total of twenty-six

 opinions. It was also consulted in eight cases where the Commission was

 considering sending comfort letters to enterprises following publication of a

 notice pursuant to Article 19(3) of Regulation No 17. It was also kept

 informed of progress in several major cases.

 In addition, one meeting was devoted to questions of procedure.

 The Committee held six meetings on matters concerning legislation. Two of

 them (17 July and 13 November) dealt with preliminary draft Commission

 regulations amending, as regards Joint ventures of a cooperative nature, four

 block exemption regulations relating to patent licensing and know-how

 agreements and to specialization and R&D agreements. On the same dates, the

 Committee also studied the draft Commission regulation on a block exemption

 in the insurance sector. Also on 13 November the three specialized advisory

 committees on transport gave their views on the draft Commission regulation

 amending inter al ia the regulations on land, sea and air transport, the

 purpose being to modify the application forms for negative clearance and

 notification so as to reflect the new situation created by the entry into

 force of the Agreement on the European Economic Area. On 31 August the

 appropriate specialized committee examined the draft block exemption

 regulations in the field of air transport.

```

```
4.I.§4. 1

 <T4> §4. Report on the Advisory Committee on Concentrations

```

320

```
546. The work of this Committee represents the culmination of the close and

constant liaison with Member States as regards the application of the Merger

Control Regulation. The Committee met six times to discuss four cases* [1] ) and

twice to discuss general policy issues. In all the cases in which a decision

was taken, the Committee requested that its opinion be published together

with the final decision, and the Commission acceded to its requests.

For the first time, the Committee was recalled at very short notice in two

cases, Nestlé/Perrier and Du Pont/ICI, to consider revised final decisions

that were proposed following offers by the companies concerned to modify

their proposed merger in order to remove anti-competitive elements which the

Commission had analysed. These offers were made at a late stage in the

procedures after proposed final draft decisions had been examined by the

Advisory Committee. As these changes substantially altered the original

draft decisions, further consultation with the Advisory Committee was

considered desirable.

The formal consultation of the Advisory Committee on Concentrations is in

addition to the ongoing contact and exchange of information between the

members of the Merger Task Force and the relevant officials in the

Member States.

Lastly, the Committee examined on 13 November the draft Commission regulation

amending inter alia its 1990 Regulation on the notification of concentrations

and aimed at adapting the annexed form (form CO) to the new situation created

by the entry into force of the Agreement on the European Economic Area.

(1) Accor/Wagons-Lits, Nestlé/Perrier, Du Pont/ICI, Mannesmann/Hoesch.

```

```
4.I.§5. 1
```

321

```
 <T4> §5. Conference of National Government Experts

 547. During the year, the Commission called five meetings of the national

 government experts in competition. The first, held on 29 September, was the

 annual meeting of the Directors-General for Competition of the Member States,

 which dealt with the activities of the Commission relating to mergers in

 1991-92, the international dimension of Community competition policy, the

 European Economic Area (enterprises and state aid), and agreements with

 certain central European countries.

 On 20 January, at a more technical level, the government experts gave their

 opinion on the draft Commission notice modifying the notice on its 1983 block

 exemption regulations on exclusive distribution and exclusive purchasing in

 connection with brewery agreements of minor importance.

 They also discussed cooperative joint ventures on two occasions. On 6 and

 7 February their deliberations were based on a Commission paper on the future

 treatment of such enterprises; on 20 November they exchanged views on a draft

 Commission communication on the treatment of such enterprises pursuant to

 Article 85 of the Treaty.

 On 19 November the experts examined a draft Commission regulation amending

 inter al ia Regulation No 27/62 and aimed at adapting form A/B, used for

 applications for negative clearance and notifications, to the new situation

 created by the entry into force of the Agreement on the European Economic

 Area.

```

```
(2

```

**`4.I.§6.`** **`1`** 322

```
 <T4> §6. Other forms of cooperation with

             the authorities of the Member States

 548. Having been informed by the Danish competition authorities that, in

 their view, Danish prices for audiovisual products were high because of

 restrictive practices on the European market, the Commission carried out a

 survey of prices of audiovisual products on the EC market.

 In the autumn of 1989, the Danish Monopoly Supervision Authority published a

 report on the market in audiovisual products. The report referred to an

 investigation carried out by the EBCU, which showed that Denmark was by far

 the dearest country in the EC for audiovisual products. The investigation

 took account of the rates of VAT and tax in the various countries. The

 Authority followed this up with an examination of import prices in four

 European countries, which tended to indicate that Danish import prices were

 generally higher than import prices in the United Kingdom or West Germany for

 instance.

 Informed by the Danish authorities, the Commission carried out a survey in

 the course of which it examined data from a number of major producers

 relating to prices of selected audiovisual products in five Member States

 (Denmark, Belgium, Germany, the United Kingdom and Italy) for the years 1989,

 1990 and 1991. The examination encountered difficulties in that the models on

 the various markets were different and were marketed at different times, but

 the Commission did not discover any evidence of a consistently higher level

 of prices for imports to Denmark.

 The Commission concluded that the reason for the high level of prices in

 Denmark is to be sought in the conditions prevailing on the Danish market and

 that subsequent surveys of differences in price levels between Denmark and

 other countries should focus on Danish factors.

 This case provides an illustration of the possibilities of cooperation

 between the Commission and national authorities in the enforcement of

 competition rules. The Commission expects its cooperation with national

```

**`4.`** **`I.`** **`§6.`** **`2`** 323

```
 authorities, as well as its assistance to national courts, to intensify

 considerably in the wake of both the Automec II case* [1] ) and its notice on

 the application of Community competition law by national courts.* [2] ) This

 trend should enhance the effectiveness of the implementation of the Community

 compet it ion rules.

 (1) Judgment of 18 September 1992, in Case T-24/90, Automec v Commission

    Not yet reported.
 (2) See point 299 of this Report.

```

```
4.I.§7 1

 <T4> §7. Other contacts

```

324

```
549. In connection in particular with the preparation of its legislative

work, the Commission continued in 1992 to have close contact, in addition to

the institutionalized contacts described above, with the organizations

representing consumers, employers and other relevant groups. Such contacts

were about the Commission's preliminary drafts of new Council regulations and

new interpretative notices, and general competition policy.

<T5> EBCU

550. On 4 June a meeting was held between Commission officials and members of

the European Bureau of Consumers' Unions (EBCU). The meeting allowed the

EBCU to put across the point of view of consumers on subjects of particular

importance to them, including the state of competition in the motor vehicle

industry, air transport, insurance and telephone and postal services,

competition and intellectual property, and the international dimension of

competition policy.

<T5> UN I CE

551. Written and oral contacts took place with the Union of Industrial and

Employers' Confederations of Europe (UNICE) on the Commission's main

legislative projects, including insurance, cooperative joint ventures

(regulations and notice) and the draft notice on cooperation between national

courts and the Commission in implementing Articles 85 and 86.

<T5> ICC

552. Written and oral consultations took place with the International Chamber

of Commerce on the drafts relating to Joint ventures and cooperation with

national courts.

```

**`4.I.§7`** **`2`** 325

```
 <T5> National representative organizations

 553. For the first time, the Commission officials met a delegation from the

 "Conseil national du patronat français" (CNPF). The matters discussed

 included the drafts on cooperative joint ventures, the Commission's policy on

 merger control and its practice in implementing the various regulations in

 force.

 A meeting was also held with the "Bundesverband der Deutschen Industrie"

 (BDI). It covered the same subjects as those discussed with UNICE.

 Meetings were also held with the United Kingdom and Spanish employers'

 organizat ions.

```

```
4.II.§1. 1
```

326

```
 <T2> Chapter II : International contacts

 <T4> § 1. Implementation of the EC/US Agreement on the

             application of their competition laws

 554. The second semestrial meeting under the Agreement took place on

 23 September 1992 in Washington, between the Commission's Directorate-General

 for Competition, the US Federal Trade Commission and the Antitrust Division

 of the US Department of Justice. The parties discussed the operation of the

 agreement and in particular joint studies which could be carried out, for

 example to explore how cooperation between competition authorities might be

 enhanced.

 In this context, the meeting also reviewed progress with a study co-financed

 by the Community, the United States, Canada and the OECD, into the scope for

 cooperation in merger control. Information on recent cases and policy

 initiatives of the parties was exchanged as well as views on present and

 future initiatives to promote the strong enforcement of competition rules

 internat ionally.

 The heads of the three authorities (FTC and Antitrust Division on the US

 side) also met informally in January in Washington and in December in Paris.

```

```
4.1 I.§2. 1
```

327

```
 <T4> § 2. Countries of Central and Eastern Europe

 555. A growing number of steps were taken in the competition area both in the

 context of the entry into force of the Europe Agreements (Interim Agreements)

 and in connection with the assistance which the Community provides for the

 countries of Central and Eastern Europe.* [1] )

 As part of the technical assistance in this field, the Commission's

 Directorate-General for Competition (DG IV) welcomed trainees from various

 antitrust offices in the Central and Eastern European countries, DG IV

 experts took part in an international seminar in Warsaw on the control of

 state aid and programmes were drawn up, using external consultants, to help

 various countries with economies in transition adopt legislation and

 administrative structures to ensure the proper functioning of competition.

 (1) See point 101 of this Report.

```

**`4.I`** **`I.§3.`** **`1`** 328

```
 <T4> § 3. Contacts with other countries

 556. Formal bilateral meetings were organized with the Canadian Bureau of

 Competition (Ottawa, 27 January) and with the Japanese Fair Trade Commission

 (Brussels, 6 October and Paris 2 December). In addition a number of informal

 contacts took place with these and other countries, including Indonesia and

 Mex ico.

 557. The talks with Canada covered a range of issues including discussions on

 current enforcement practices, on strategies towards the creation of an

 international framework for competition policy enforcement and on the

 relationship between trade and competition policies. The main topic of

 discussion with the Canadian authorities was, however, on ways and means of

 strengthening cooperation and coordination between the two authorities;

 agreement was virtually reached on an administrative arrangement between the

 Commission and the Canadian Government along the lines of the Agreement

 concluded with the US authorities on 23 September 1991.* [2) ]

 558. During the meeting with the Japanese Fair Trade Commission exchanges

 were held on current enforcement activities and priorities, changes in the

 legal frameworks on both sides, structural issues and responses to

 developments in the competition policies of third countries.

 559. The increase in the number of contacts with other countries shows the

 growing interest in the principles of competition and more generally of

 market economy around the world. The Commission is fully aware of its

 responsibility in helping these countries, a responsibility which flows from

 its status as one of the main competition policy authorities in the world.

 However, its capacity to provide technical assistance in such cases is

 restricted by its limited personnel resources.

 (2) Twenty-first Competition Report, point 64.

```

```
4.I I.§4. 1

 <T4> § 4. Mult ilateral

 <T5> - OECD

```

329

```
560. The Committee on Competition Law and Policy met in May and

December 1992. Additional sessions at working party level also took place in

February and September. The work of the Committee can mainly be placed under

the headings of convergence and cooperation and of inter Iinkages between

competition and trade policies. Under the former, the Committee in

particular launched a study into process convergence in merger control. This

is looking at a number of mergers or acquisitions which were considered by

the competition authorities of several countries, with a view to ascertaining

to what extent they cooperated or could have done so. In connection with

inter Iinkages, the OECD commissioned an empirical study on the extent to

which anti-dumping action in a number of countries and sectors may be

regarded as having protected competition. The Committee also undertook work

with the OECD's Trade Committee, at working party level. Joint meetings

considered specific instances of interaction between trade and competition

policies, as well as a general framework document on the subject.

The Committee also adopted a report on competition policy and broadcasting,

considered legislative initiatives in several countries and held seminars on

the objectives of competition policy and on strategic alliances.

561. The General Working Party of the Industry Committee continued its work

on subsidies and structural adjustment. The Commission contributed to this

work in furnishing all necessary information on the Community's financial

support to industry and in making available, in the meetings held by the

Experts Group on Subsidies, its expertise in questions of defining and

calculating subsidies.

<T5> - UNCTAD

562. The work of UNCTAD VI I I (February 1992 - Cartagena de las Indias,

Colombia) resulted in new tasks being set for UNCTAD and in corresponding

institutional changes.

However, it was agreed to maintain the status quo for the International Group

of Experts on Restrictive Business Practices as regards both its terms of

reference and status.

```

```
4.I I.§4. 2

```

330

```
 it was also decided to set up a working group on comparative experience with

 privatization.

 At its first meeting following the conference in Cartagena de las Indias

 (Geneva, 23 to 27 November), the work of the Intergovernmental Group of

 Experts on Restrictive Business Practices took on new impetus. This was due

 in large part to two factors, namely the abandonment of the system of

 regional groups and the increased interest of several countries, notably from

 the former group of 77, in developing a serious and active competition

 poIi cy.

 The Commission welcomes these developments, which will allow greater

 liberalization of trade, notably between the developing countries and between

 such countries and the countries of the industrialized world. This will

 allow fuller application of the approach advocated in the "Set of

 multilateral agreed principles and rules for the control of restrictive

 business practices", namely the elimination of restrictive business practices

 impeding or cancelling out the advantages created by the liberalization of

 tariff and non-tariff barriers.

```

331

A N N E X E S

```
Annex lll.A.1. 1

 <T2> ANNEX III: Decisions, notices and Judgments

                relating to individual cases

 <T3> A. Competition policy towards enterprises

 <T4> 1. Case summar ies

 <T5> - Restrictive agreements

 <T6> * Horizontal agreements

 <T7> a) UTC (Pratt & Whitney)/MTU

```

332

```
562. On 28 October the Commission published a notice pursuant to

Article 19(3) of Council Regulation No 17 concerning a collaboration

agreement between United Technologies Corporation (Pratt & Whitney Group)

(P&W) and MTU Motoren- und Turbinen-Union, which, through Deutsche Aerospace

(DASA), forms part of the Daimler-Benz group, in the area of commercial

aircraft engines.

P&W is one of the world's three largest full-range aircraft engine

manufacturers, while MTU is mainly a manufacturer of aircraft engine parts

and components.

Under the agreement, the parties undertake to coordinate and extend their

cooperation agreements in respect of specific engine programmes, providing in

particular for risk and revenue sharing.

The Commission considers that the collaboration between the two manufacturers

is beneficial to competition because of the degree of technology transfer

involved. However, it made it clear that it intends to exempt only specific

cooperation projects and not general, non-specific collaboration schemes.

This is the first time the Commission has given an assessment of cooperation

in this sector. The situation with regard to the agreement in question will

accordingly be reviewed after ten years.

```

```
Annex III.A.1. 2

 <T7> b) GEC Alsthom - Fiat Ferroviaria

 563. The agreement in question is a framework agreement between GEC Alsthom

 and Fiat Ferroviaria relating to broad cooperation on railway rolling stock

 and covering technical, industrial and commercial matters.

 A joint standing committee is responsible for taking any operational

 decision, thus committing not the joint subsidiary which it is planned to set

 up, but which does not yet exist, but the parties to the agreement directly.

 The Commission refused to take a decision on the grounds that the

 notification covers only the framework agreement, which is so vague that the

 Commission cannot tell what the companies are going to do; it therefore

 asked them to notify individually any agreement taken or decision or

 concerted practice adopted by the committee.

```

**`Annex`** **`111.A.1.`** **`3`** 334 **`_`**

```
 <T7> c) Quantel Internat ional-Cont inuum/Quantel* [1] )

 564. On 27 July the Commission decided to refuse to exempt agreements

 ancillary to a demerger between two companies supplying lasers for scientific

 research.

 The agreements, which contained market-sharing provisions, prevented the US

 company Continuum over a long period from having access to the Community

 market, which Quantel SA, its former parent company, had reserved for itself.

 Altough some protection of their respective markets might have been justified

 for a limited time after the sale, to prevent the unfair contracting away of

 each other's customers for example, the Commission considered that the length

 of the protection (eight to nine years depending on the products) was

 unjustified. The agreement on the sale of the company and the protocol

 attached to It therefore constituted a barrier to entry to the common market

 for a company outside the Community, which would isolate the Community

 technologically and commercially, as far as laser products were concerned,

 from a non-Community country.

 (1) OJ L 235, 18.8.1992; Bull. EC 7/8-1992, point 1.3.38

```

**`Annex III.A.1. 4`** 335

```
 <T7> d) The National British Cattle and Sheep Breeders' Associations

 565. The Commission achieved identical undertakings from the British National

 Sheep and the British National Cattle Breeders' Association to ensure non
 discriminatory access to the economic activities of their 200 affiliated

 Breeders Societies.

 566. The Commission, acting on a complaint by a French sheep breeder of the

 Bleu du Maine variety, came to the conclusion that the relevant UK Sheep

 Breeders' Society had sought to restrict the import of such pure-bred

 breeding sheep. The Society, being the recognized holder of that breed's

 flock-book in the UK, forbade the resale of imported pure-bred breeding sheep

 which it had registered, for a period of 18 months after such registration.

 Moreover, it rejected, without explanation, the French breeder's request to

 become a member of the British Society. This was significant, since all

 functions fulfilled and economic activities organized by the Society were

 open only to its members. Therefore, a membership bar effectively meant that

 those rejected could not register their sheep in the UK* [2] ) as being pure
 bred, nor sell them at the special pure-bred auctions, which were organized

 by the Society.

 567. Following the intervention of the Commission the 18 months' rule was

 repealed by the Society. In addition, the two Associations agreed to impose

 on their affiliated Breeders' Societies the obligation to establish objective

 membership criteria; to ensure that reasons for a rejection of any

 application would be given, and that such rejections could furthermore be

 subject to appeal. The Associations confirmed that such appeal would cover

 the application of the principle of non-discrimination.

 (2) This issue was resolved by Commission Decision 90/255/EEC which laid

    down the criteria governing entry in flock-books for pure-bred breeding

    sheep and goats, OJ L 145, 8.6.1990.

```

`Annex` `III.A.1.` `5` 336

```
 <T7> e) Infonet* [3] )

 In the Infonet case, the Commission terminated proceedings by sending a

 comfort letter stating that the agreement satisfied the conditions for

 individual exemption. However, the agreement, a summary of which was

 published pursuant to Article 19(3) of Regulation No 17, could not be deemed

 compatible with Article 85(3) until Infonet's shareholders, which include

 Community telecommunications organizations enjoying exclusive and special

 rights on certain markets, had undertaken not to grant it any cross
 subsidies or any terms and conditions that would discriminate against

 possible competitors. In general, the Commission will watch closely to see

 whether the various forms of technical and commercial cooperation in the

 telecommunications sector are compatible with the competition rules, notably

 in the case of agreements concluded between telecommunications organizations

 enjoying exclusive and special rights.

 (3) OJ C 7, 11.1.1992.

```

**`Annex`** **`III.A.1.6`** _**1**_ _**~?**_ _**n**_

```
 <T7> f) Closure of examination of the situation regarding interest rates

 568. In its decisions adopted in 1986* [4] ) and 1989* [5] ) on agreements

 concluded within various national banking associations, the Commission

 reserved its position on interest rates.

 However, at the end of 1989, * [6] ) it took the view that interest rate

 agreements between banks restricted competition in the same way as agreements

 on prices and should therefore be avoided or abandoned.

 In this context, the Commission began in June 1991* [7] ) an examination of the

 situation in each Member State, sending the national banking associations

 and, in certain cases, other credit institution associations formal requests

 for information so as to update its information in this matter.

 In the spring of 1992, the Commission completed examination of the sometimes
 lengthy replies to its letter and drew the following conclusions* [8] ):

   all the organizations questioned confirmed that no agreements or

   recommendations on interest rates existed among them;

   some associations (for example, the Belgian and Italian banking

   associations) took advantage of the opportunity provided by the

   Commission's requests for information to end legally, of their own

   accord, agreements which were virtually no longer applied, but still

   ex isted on paper ;

    lastly, at the Commission's request, another association (the Luxembourg

   banking association) abandoned a system of recommended debtor and

   creditor interest rates.

 (4) Concerning Irish, Belgian and Italian banks
 (5) Concerning Dutch banks.
 (6) IP (89) 689, 16.11.1989.
 (7) IP (91) 520, 5.6.1991.
 (8) IP (92) 625, 24.7.1992.

```

**`Annex`** **`III.A.1.`** **`7`** 338

```
 Examination of the answers also revealed, in the case of the Belgian banking

 association, the dangers that may be involved in the standardized

 presentation of banking terms and conditions, even if such presentation may

 in general help the customers of banks to choose between comparable services.

 in the case in point, the association had sent its members a standardized

 list of charges in which the amounts had been left blank, except for

 Eurocheques drawn abroad, with the result that, in the case of such

 Eurocheques, the indication of the charge could be regarded as a

 recommendation amounting to a price agreement.

 As soon as it had received the statement of objections sent to it, the

 association in question sent a corrigendum to its members and assured the

 Commission that what was involved was an error on its part, and the matter

 was accordingly considered closed.

```

```
Annex I I I.A.I. 8
```

339

```
 <T7> g) UK Agricultural Tractor Registration Exchange* [9] )

 569. On 17 February the Commission adopted a decision prohibiting a system

 for exchanging information on retail sales and market shares in respect of

 agricultural tractors sold in the United Kingdom. The Community's main

 tractor manufacturers participated in the information exchange, which was set

 up in 1975.

 The Commission took the view that exchanges of information identifying the

 sales of each competitor in a highly concentrated market in which there was

 no significant competition from outside the Community, restricted

 compet it ion.

 The prohibited information exchange system posed two major risks to the

 maintenance of effective competition:

    the elimination of any hidden competition through the creation of an

    artificial and undesirable degree of transparency in a highly

    concentrated market;

 - an increase in barriers to market entry for non-members, since the

    exchange allowed its members effectively to keep out new entrants and

    check any expansion by suppliers who were not members of the exchange.

 The decision follows the guidelines on information exchanges published in the

 Commission's Seventh Competition Report and provides an illustration of the

 application of those guidelines.

 It should be emphasized that the oligopolistic structure of the

 United Kingdom tractor market cannot be compared with the motor vehicle

 market, where imports from non-Community countries are an important source of

 competitive pressure and the heterogeneity of products is appreciably

 greater.

 An appeal against the decision has been lodged with the Court of First

 instance.

 (9) OJ L 68, 13.3.1992; Bull. EC 1/2-1992, point 1.3.62

```

```
Annex III.A.1. 9

 <T7> h) DSB-SFL and DSB-SJ agreements

 570. The agreements, notified in accordance with the opposition procedure

 provided for in Article 12 of Regulation No 4056/86, concern the joint

 operation of a ferry service between the Danish port of Helsingor and the

 Swedish port of Helsingborg. They provide that Scandinavian Ferry Lines

 (SFL), owned by the Statens Jërnvager (SJ) group, and Danske Statsbaner (DSB)

 will set up a joint venture, owned in equal part by them, to operate the

 route. This involves Joint operation of the ferry services previously

 provided on the route, separately by SFL on the one hand and jointly by DSB

 and SJ on the other.

 571. The Commission took the view that, although the Joint operation of the

 ferry service under the agreements imposed restrictions of competition on the

 parties, it would help to improve the services provided and promote technical

 and economic progress while allowing consumers a fair share of the resulting

 benefit. Passengers would be offered more frequent sailings on new, larger

 vessels, thus allowing an improvement in the quality of service compared with

 that currently provided. The arrangements would also allow capacity to be

 better matched to demand, leading to a reduction in costs and in prices

 charged.

 The Commission further considered that the agreements did not afford the

 parties the possibility of eliminating competition in respect of a

 substantial part of the products in question, since the parties remained

 subject to sufficient competition on the relevant market. Though noting that

 the parties held a very strong position in the northern Oresund, the

Commission considered that the relevant geographic market for the purpose of

 assessing the real effect on competition of the notified agreement was wider.

 A large proportion of the traffic between Sweden and Denmark was through
 traffic going to Germany, so that the position of the parties had also to be

 assessed in the light of both the ferry links between Sweden and Denmark,

 i.e. in the Kattegat and the southern 0resund, and the direct ferry links

 between Sweden and Germany.

```

```
Annex III.A.1. 10

 At the request of the Commission, which was anxious to prevent any further

 increase in their cooperation, the parties deleted from their agreements a

 clause requiring them to cooperate if one of them set up or operated a new

 ferry service between Sweden and Denmark.

 572. The Commission therefore decided to allow the ninety-day period in

 which the agreement could be opposed to expire. The agreements notified were

 thus exempted under Article 85(3) of the EEC Treaty for a maximum period of

 six years. The Commission reserved the right, however, to review the

 situation after two years and to require the parties to notify it annually of

 the fares charged on the link so as to enable it to monitor the effect of the

 agreements on such fares.

 This is the first time Community competition law and Regulation No 4056/86

 have been applied to ferry services.

```

```
Annex III.A.1. 11

 <T7> i) Procter & Gamble / Finaf

```

342

```
573. The Commission examined the Joint venture agreements between Procter &

Gamble and Finaf S.p.A notified in December 1990. They concerned the creation

of Joint ventures in Italy, Spain and Portugal in the sector of sanitary

protection products as well as the acquisition by P&G of a Finaf company

producing baby nappies in the UK. Following complaints from another

manufacturer, the Commission took initially a cautious attitude and requested

the parties to suspend implementation of the agreements.

574. The Commission found that the agreements, as notified, contained clauses

that could allow the parties involved to coordinate their competitive

behaviour and could lead to market-sharing liable to restrict competition and

affect trade between EC countries. The Commission made its doubts known to

the parties and requested them to modify the agreements. After taking into

account the amendments to the initial agreements and the undertakings offered

by the parties, the operation in question could qualify for exemption under

Article 85(3). A notice pursuant to Article 19(3) of Regulation No 17/* [1] °)

invited interested third parties to comment on this.

575. In response to the notice the Commission received a significant number

of observations emanating from national authorities of certain Member States,

a European consumer association and several competitors of the parties. Fears

were expressed that due to P&G's steady growth in this market over the last

three years and the continuing positive trend in its favour, the operation

with Finaf would create serious competition problems. The Commission, whose

figures corroborated that view, made public its intention to proceed

accordingly unless the parties came up with satisfactory proposals.

576. After negotiations the parties announced their intention to withdraw

Finaf's baby nappies from the operation in question and to proceed to the

sale of its activities in this sector as soon as possible and in any case

within a reasonable period of time taking into account the specificity of the

divestiture. To this effect a deadline has been agreed with the Commission.

In case it would not be possible to complete the divestiture of Finaf's baby

nappies activities in the EC within the agreed period of time, the parties to

(10) OJ C 3, 7.1.1992.

```

```
Annex III.A.1. 12

 the agreements, P&G and Finaf Spa, undertook to exclude baby nappies

 completely from the transaction within the same period of time.

 577. During the transitional period before the divestiture of Finaf's baby

 nappies activities, from 1 June 1992 and up to the above-mentioned deadline

 agreed with the Commission, the parties undertook to submit a detailed time

 schedule for the total separation of the baby nappies activities of Finaf

 from those of the joint ventures. They gave further undertakings designed to

 ensure that competition would not be jeopardized on the babies nappies

 market. The Commission will monitor implementation of the undertakings and of

 the separation and divestiture measures by the parties.

 578. Following this solution the complaint against the operation was

 withdrawn. As it has been modified, the operation between P&G and Finaf can

 benefit the consumer without restricting competition in the relevant market .

 Given the parties' commitment to the above changes, the Commission confirmed

 its favourable attitude regarding the restructured operation. Nevertheless,

 the Commission reserves its final position, which will depend on the outcome

 of the divestiture and the definitive form the P&G/Finaf transaction will

 take at the end of the transitional period.

```

```
Annex III.A.1. 13

```

^ ^ 344

```
 <T7> J) Lloyd's Underwriters' Assocation and the Institute

                 of London Underwriters* [11] )

 579. On 4 December the Commission adopted a decision approving certain

 arrangements entered into and notified by Lloyd's Underwriters' Association

 (LUA) and the Institute of London Underwriters (ILU). These agreements are

 known as the Joint Hull Understandings (JHU) and the Respect of Lead

 Agreement (RLA). They both relate to marine hull and machinery insurance.

 ILU and LUA represent the majority of underwriters active in marine insurance

 in London accounting for approximately 90% of the UK's total marine insurance

 capacity.

 The JHU as notified consisted for the most part of a series of guidelines

 on the technical detail of policy renewals. Three clauses were found to be

 unacceptable because they limited the freedom of the members of ILU and LUA

 to determine their own prices. At the request of the Commission these clauses

 were deleted. A fourth clause required that, unless specifically agreed,

 reinsured business should be restricted to vessels whose country of

 registration, ownership, and management was the same as that of the

 reinsured. This clause was satisfactorily amended at the request of the

 Commission.

 The RLA provided essentially that the same leaders who first underwrote hull

 business should be allowed to continue as leaders when the policy came up for

 renewal. In other words other underwriters could not compete for renewal

 business. This agreement was also abandoned by LUA and ILU at the

 Commission's request and has been replaced by a new text which allows for a

 competing team to bid for renewal business.

 (11) OJ L 4, 8.1.1993.

```

```
Annex III.A.1. 14

 <T7> k) ASTRA* [12] )

 580. This decision taken on 23 December concerns joint venture agreements

 between British Telecommunications pic (BT) and Société Européenne des

 Satellites S.A. of Luxembourg (SES) for the sale of capacity on SES's Astra

 IA satellite to UK television programme providers.

 Until December 1988, the satellite sector in Europe was the sole domain of

 the telecommunications organizations (TOs). The advent of the privately-owned

 Astra IA meant that television programme providers would for the first time

 have had an alternative source of supply to the TO-run satellites. However,

 with respect to the UK market, SES did not offer its new product directly to

 customers, but in 1987 entered into arrangements with BT whereby BT would

 conclude contracts with UK television programme providers comprising both the

 uplink to and the capacity on the Astra IA satellite. These arrangements were

 notified to the Commission, which found that SES and BT were direct

 competitors in the markets for both satellite capacity and uplinking

 services. The arrangements with BT denied UK customers the possibility of

 having direct contracts with SES covering the satellite capacity only and

 furthermore contained provisions which served to align the pricing policies

 of the two competitors, and restricted their commercial freedom with respect

 to other, future satellites. For these reasons, Article 85(1) was applicable.

 The conditions for exemption under Article 85(3) were not fulfilled, in

 particular as SES could have entered the UK market independently of its

 competitor, BT. With regard to SES's concern that its customers would not be

 assured of the necessary upl inking services by BT, then the only de facto

 uplink provider in the UK, the general principle expressed in the "Guidelines

 on the application of the EEC competition rules in the telecommunications

 sector" applies: any satellite owner whose satellite fulfils technical

 requirements should be assured that customers will get the necessary

 uplinking service from the licensed operator which enjoys a monopoly for that

 service.

 During the course of the procedure in this case, BT and SES terminated the

 joint venture agreements between themselves. The Commission's decision is

 thus declarative for the past and furthermore indicates that customers who

 (12) OJ L 20,28.01.1993, p. 23

```

**`Annex`** **`I 1`** **`I.A.1.`** **`15`** 3Zt6

```
DG IV-B

 concluded still existing contracts with BT for the transmission of their

 television programmes via the Astra IA satellite during the period the Joint

 venture arrangements were intact may if they wish readjust their position to

 take account of this decision. This decision has been appealed by BT.

```

```
Annex I I I.A.1. 16

 <T6> * Distr ibut ion

 <T7> I) Agreements between tour operators and travel agents

                    (Center Pares)

```

347

```
581. Following the Commission's intervention, the tour operator Center Pares

has agreed to change its contracts with travel agents.

If they wish to do so, holiday-makers can now book a vacation in one of

Center Pares' villages through a travel agent or through a Center Pares

reservation office in another Member State than their own at the prices which

are applicable in that other Member State. A booking cannot be refused on

the grounds that the customer should go to his local travel agent or

reservations office. This will enable holiday-makers to shop for lower prices

than those which are charged in their own Member State.

The Commission has also ensured that travel agents who wish to do so can pass

on part of their commission to customers.

These changes bring Center Pares' contracts in line with Community

competition law.* [13] ) Under these rules, tour operators are not allowed to

stop travel agents from selling to customers in other Member States. Travel

agents must also be authorized to discount holidays or travel by splitting

commission with customers.

(13) Case 311/85 Vereniglng van Vlaamse Reisbureaus v Sociale Dienst voor de

   Plaatseliike en GewesteliJke Overheidsdiensten. 1987 [ECR] 3801.

```

```
Annex I I I.A.1. 17

 <T7> m) Magneti Mare I Ii/STEA

```

348

```
582. STEA, which is an n.^..^«ndant distributor of carburettors, mainly Weber

and So lex carburettors manufactured by subsidiaries of the Magneti Mare I Ii

group, lodged a complaint against the group on the grounds that it was

pursuing a discriminatory pricing policy. Magneti Marelli, which is Europe's

leading carburettor manufacturer, had organized its distribution system in

France by separating sales to motor vehicle manufacturers, which were direct

sales at preferential prices, from sales to distributors, which were handled

by another of its suosidiaries specializing in distribution and charging

higher prices. While the Commission was examining the system,

Magneti Marelli reorganized its distribution so as to include STEA, and STEA

accordingly withdraw its complaint.

```

```
Annex III.A.1. 18

 <T7> n) Halifax/Standard Life* [14] )

 On 22 May the Commission published an Article 19(3) notice regarding a "tied

 agency" agreement between Halifax Building Society and the Standard Life

 Assurance Company. By virtue of the agreement Halifax becomes an agent of

 Standard Life and agrees to deal exclusively in the latter's products.

 Under the Financial Services Act (FSA) 1986 anyone wishing to sell Insurance

 policies was (and is) required to obtain authorization. This requirement

 did (and does) not apply to those who opted to become the appointed

 representative of a person or company which is already authorized under the

 Act. This was the option chosen by Halifax and by many other banks and

 building societies in the UK. An appointed representative may act

 exclusively for one principal only. This exclusivity produces anti
 competitive effects in that this exclusive agent will not endeavour to find

 the best insurance product for his client from among the range available

 among all insurance companies.

 By contrast the independent agent who does make such a selection from across

 a range of insurance companies helps to promote competition between

 insurance companies. The decision by Halifax to become tied had therefore an

 ant i-competitive effect on the insurance market in the UK. This decision,

 taken by the largest building society in the UK, was but one example of some

 100 such decisions taken by other banks and building societies in the few

 years after the adoption of the FSA. The decision as manifested in the

 agreement between Halifax and Standard Life, therefore fell within

Article 85(1). However, an exemption was considered to be merited in view of

 the efficiency benefits involved in becoming "tied" to a single insurance

 company, which benefits could be passed on to the consumer in the form of

 lower costs.

The notified agreement contained two clauses which the Commission considered

 to be restrictive of competition within the meaning of Article 85 and to be

unjustifiable under Article 85(3). The first was a clause which prohibited

Standard Life from appointing other building societies as its agent. The

second clause contained a prohibition against rebating its commissions. At

 the request of the Commission these restrictive clauses were deleted.

Consequently the Commission was able to inform Halifax by administrative

 letter that the agreement did not run counter to Article 85.

 (14) OJ C 131, 22.5.1992, p.2

```

**Annex** **I I I . A . 1 .** **19**

_wm_

_~_
350

```
 <T7> o) Parker Pen Ii

 583. In the Viho/Parker r „. ' ' case, the Commission adopted a formal decision

 rejecting a complaint.

 In its Decision of 15 July 1992 in the Viho/Parker Pen I case,* [15] ) following

 a complaint for refusal to sell lodged by Viho (Netherlands), the Commission

 found that Parker Pen and Herlitz AG (its distributor in Germany) had

 infringed Article 85(1) of the EEC Treaty by including an export ban in an

 agreement they had concluded, and it imposed fines on the two companies.

 However, the complainant claimed that the requirement imposed on Parker

 subsidiaries that, in distributing Parker products, they must confine

 themselves to the territory allocated to them was caught by the loan laid

 down in Article 85(1). It thus raised the problem of the application of the

 ban on restrictive agreements to internal agreements within a group.

 The Commission took the view that Parker's various European subsidiaries were

 strictly controlled by their parent company and were bound to comply with its

 instructions. This meant that the subsidiaries formed, with the parent

 company, a single economic unit within which they could not determine

 independently their conduct on the market. The conduct of the subsidiaries

 was therefore the responsibility of the parent company.

 The Commission considered that the integrated distribution system for the

 sale of such products in Spain, France, Germany, Belgium and the Netherlands

 through the wholly-owned subsidiaries established in those countries

 satisfied the conditions laid down by the Court of Justice for the non
 application of Article 85 (see Centrafarm v Sterling Drug 1974 [ECR] 1147,

 Hvdrotherm v Compact 1984 [ECR] 2998 and Bodson v Pompes funèbres des régions

 Iibérées 1988 [ECR] 2479).

 (15) OJ L 233, 15.8.1992, p.27

```

```
Annex 111.A.1. 20

 Subsidiaries are particularly dependent where, as in this case, the parent

 company gives them specific business policy instructions which they then

 apply through their actions. The fact that all of Parker's subsidiaries are

 wholly and not partially controlled by the parent company reinforces this

 argument. For the rest, it is sufficient for the parent company to have the

 right to give instructions to its subsidiary or for it to have other equally

 effective means at it disposal (for example, control or decisive influence

 over the staffing policy of subsidiaries) to be able to impose its will.

```

```
Annex III.A.1. 21

 <T7> p) Br it ish Gypsum

 584. Four notices pursuant to Article 19(3) of Regulation No 17 were

 published in the Official Journal* [16] ) in cases concerning rebate schemes

 operated by British Gypsum and, in the case of two of them, by

 Gypsum Industries. The notices reflect the result of negotiations with the

 parties concerned that made it possible, at least in one of the cases, to

 avoid adopting a formal decision banning the scheme.

 In the case relating to the "Super Stockist Scheme", a statement of

 objections had been sent to British Gypsum. The Commission's objections

 related essentially to the fact that the rebate scheme as notified by

 British Gypsum in October 1988 was discriminatory, hybrid in character

 (covering quantities purchased and quantities stocked) and tended to make for

 a captive clientele. Following the hearing which took place on the case in

 February, three new rebate schemes having also been notified, the Commission

 thought it appropriate to conduct negotiations with the parties Jointly on

 the four cases.

 Certain practices engaged in by British Gypsum and its parent company

 BPB Industries had earlier been prohibited under a Decision of

 5 December 1988* [17] ) which imposed fines of ECU 3 million on British Gypsum

 and ECU 150 000 on BPB for infringements of Article 86 of the EEC Treaty.

 The Commission took the view that it was necessary in the four new cases to

 get British Gypsum and Gypsum Industries to bring their rebate schemes into

 line with Community competition law rather than to adopt immediately a formal

 decision prohibiting them.

 The Commission was particularly aware of the economic backcloth to the four

 cases. While BPB's market share in plasterboard in 1985 and 1986 fluctuated

 between 98% and 96% in Great Britain and between 100% and 92% in the

 Republic of Ireland and Northern Ireland, the situation has changed in recent

 years. In particular, in its 1990 report on plasterboard supplies in

 Great Britain, the Monopolies and Mergers Commission stated that BPB's market

 (16) OJ C 321, 8.12.1992.

 (17) OJ L 10, 13.1.1989.

```

```
Annex II I.A.1. 22

 share in the United Kingdom had fallen from 96% to 65% in two years and found

 that there was now competition on the market with the entry of two new

 competitors, Knauf and Lafarge.

 Substantial amendments having been made to the schemes as a result of the

 negotiations, the Commission expressed its intention of taking a favourable

 view of the four rebate schemes as amended and invited third parties to

 submit their comments by 8 January 1993.

```

```
Annex III.A.1. 23

 <T5> - Abuse of a dominant position

 <T7> q) BEMIM and others/SACEM* [18] )

```

354

```
585. In line with the principle of decentralization in monitoring compliance

with the competition rules, the Commission dismissed and referred back to the

French courts and administrative authorities a number of complaints lodged

several years ago by discotheque proprietors against SACEM (Société des

Auteurs, Compositeurs et Editeurs de Musique), the performing rights society

for the French music business. In their complaints, the discotheque

proprietors alleged that SACEM was abusing its dominant position by charging

excessive fees for the public performance of music on their premises. In

1989 the Court of Justice of the European Communities, which had been

requested to give a preliminary ruling on the matter, stated that, in order

to determine whether there was any abuse, a comparison had to be made with

the fees collected by performing rights societies in other Member States.

The Commission carried out such a comparison, but since the effects of any

abuse by SACEM would be felt chiefly in France, it decided, in the interests

of cooperation and burden-sharing with the national courts and authorities,

to refer the complaint back to them together with its report comparing the

fees charged. Under Council Regulation No 17, national authorities are

competent to deal with abuses of dominant positions as long as the Commission

has not initiated any proceedings. In the grounds of its decision, the

Commission stressed that it had considerable discretion, as confirmed by the

Court of First Instance of the European Communities in the "Automec II"

case,* [19] ) in deciding on the priority to be attached to matters brought to

its attention, in the light of their importance for the Community.

The Commission also stressed that it mattered little whether the national

courts, rather than itself, carried out the comparison of fees and drew the

appropriate conclusions as to whether or not the rules had been breached,

since the national courts were not in any case bound by the Commission's

opinion.

Lastly, it underlined the fact that it had no powers under Community law to

award damages where an infringement of the competition rules had been

established; only the national courts had such powers.

(18) IP(92) 977, 27.11.1992.

(19) See point 323 of this Report.

```

```
Annex I I I.A.1. 24

 <T7> ' r) Howden/MT Group

 586. The case is about a contract obtained by MT Group for construction of a

 road/rail link in Denmark - The "Storebslt Project" - which involves, in

 particular, boring a tunnel of some 14 km. MT awarded a contract to Howden

 for supply of four tunnel boring machines (TBM) and the two groups are now in

 dispute over the delivery and performance of those TBMs. MT wishes to call

 two performance guarantee bonds lodged by Howden and claims damages of some

 ECU 100 mi I I ion.

 MT Group consists of four of the largest European construction companies

 (Denmark, France and Germany) together with one US company. Some thirty

 companies worldwide are capable of this type of work.

 Howden is a UK-based engineering group with a turnover of some UKL

 300 million UKL, which has tunnelling machinery subsidiaries in Scotland and

 Germany.

 Howden lodged a complaint under Article 86 and a request for interim

 measures.

 Howden alleges that MT Group is using its (supposedly) dominant position to

 ensure that Howden obtain no further contracts worldwide for TBMs, and that

 MT seeks to call the bonds in order to destroy Howden. The bonds account for

 some 4% of Howden's turnover, or a little over half last year's profits. The

 Commission has still to take a definitive position on the complaint.

 In view of the relatively small percentage of turnover represented by the

 bonds and doubts as to the situation on the market in question, the

 application for interim measures was rejected.

```

```
Annex III.A.1. 25

```

_mm_ ^ 356

```
 <T5> - Decisions relating to investigations

 <T7> s) The United Kingdom West Africa Lines Joint Service (UKWAL)

 587. On 6 April, the Commission adopted a decision imposing a fine of ECU

 5 000 on the shipping liner conference United Kingdom West Africa Lines Joint

 Service (UKWAL) for having refused to submit to an investigation pursuant to

 Article 18(3) of Council Regulation (EEC) No 4056/86 of 22 December 1986

 laying down detailed rules for the appl icat ion of Articles 85 and 86 of the

 Treaty to maritime transport.

 The decision was adopted following a number of complaints concerning the

 activities of UKWAL in the liner trade between ports situated in the United

 Kingdom and the Republic of Ireland on the one hand and West Africa on the

 other. A preliminary examination of the complaints and the serious nature of

 the alleged infringements (behaviour incompatible with Article 85(1), not

 covered by the block exemption and not exemptable under Article 85(3); a

 breach of the provisions of Article 86) led the Commission to consider an

 investigation without prior notice.

 On 28 June 1989 the Commission proceeded to carry out the investigation but

 was unable to go ahead owing to UKWAL's refusal to allow the investigation to

 take place. The national authorities were requested to assist the Commission

 officials and an order was obtained from the High Court in London. The

 investigation was carried out on 29 June at the offices of UKWAL.

 The Commission considered that the above facts constituted a serious

 infringement of Article 18 of Regulation No 4056, obstructing the

 effectiveness of the investigation, which could not be carried out on UKWAL's

 premises on the day envisaged. The level of the fine, the maximum permissible

 (ECU 5 000) reflects the intentional nature of the infringement and the

 behaviour of UKWAL during the investigation.

```

```
Annex III.A.1. 26

 <T7> t) The Mediterranean Europe West Africa Conference (MEWAC)

 The Commission imposed a fine of ECU 4 000 on the shipping liner conference

 Mediterranean Europe West Africa Conference (MEWAC) in a decision which found

 that MEWAC had refused to submit to an investigation in accordance with

 Regulation (EEC) No 4056/86, which applies the EC competition rules to

 maritime transport.

 In 1987, the Commission received a number of complaints concerning the

 activities of MEWAC in the liner trade between Europe and West and Central

 Africa. A preliminary examination of the complaints and the serious nature of

 the alleged infringements led the Commission to organize an investigation

 without prior notice.

 On 28 June 1989 the Commission proceeded to carry out the investigation.

 Having produced the necessary decision and documents, explaining the rights

 and duties of MEWAC, the Commission officials were not allowed to go ahead

 with the investigation. MEWAC said the investigation could not take place

 until its Secretary General returned from Paris to Marseille, the location of

 the conference's secretariat. MEWAC was informed that this amounted to a

 refusal to comply with the Commission decision, thereby obstructing the

 effectiveness of the investigation, which could not be carried out on MEWAC's

 premises on the day envisaged.

 With the assistance of the French authorities, appropriate steps were taken

 to seal the premises of MEWAC and the investigation started the next day in

 the presence of the Secretary General.

 MEWAC is an association of undertakings within the meaning of Article 18 of

 Regulation No 4056. It is therefore obliged to submit to an investigation

 ordered by decision of the Commission pursuant to Article 18(3) and to comply

 with the date and time fixed therein.

 In determining the amount of the fine to be imposed, the Commission took

 account of the fact that while MEWAC objected to the investigation being

 carried out without the presence of the Secretary General, it did consent to

 the investigation the following day. Therefore, its refusal was not outright

 and the maximum amount of fine (ECU 5000) was not imposed. MEWAC was fined

 ECU 4 000.

```

```
Annex 11I.A.1. 27

```

" " • 358

```
 <T7> u) CSM

 588. During an investigation ordered by the Commission under Article 14(3) of

 Regulation No 17, the Dutch company CSM prevented the Commission's inspectors

 from making copies of documents on the first day, and allowed copies to be

 made of only some of the documents on the fol lowing day. It was not until

 after it had imposed periodic penalty payments (Article 16(1) of No 17) that

 the Commission was allowed to copy the remaining documents.

 589. The reason given by CSM for its refusal was that the documents had no

 bearing on the investigation. In its decision of 7 October the Commission

 drew attention to the powers conferred on it by the rules governing

 investigations and the obiigation on undertakings to submit to investigations

 ordered by decision.

 590. A company which is being investigated is in no position to Judge whether

 a document should or should not be handed over and may not therefore obstruct

 Commission officials in the performance of their duties as they alone know

 which documents they need to see straight away. Companies that are subject

 to investigations can appeal to the Court of First Instance of the European

 Communities, which monitors the Commission's conduct.

 591. The Commission imposed a fine on CSM under Article 15(1) of Regulation

 No 17 for infringement of Article 14 of that Regulation.

```

Annex I I I . A . 1 . 28

_mmmm_ 359

```
 <T5> - Decisions relating to interim measures

 <T7> v) EBU-Eurovision System

 592. On 31 July the Commission rejected a request for interim measures

 submitted by the television channel TESN (The European Sports Network)

 concerning access to broadcasting rights for the summer Olympic games

 acquired by members of the EBU (European Broadcasting Union). Within the

 Eurovision system, EBU members purchase jointly exclusive broadcasting rights

 for major sporting events such as the Olympic games. The Eurosport channel,

 which is a joint subsidiary owned by a consortium of EBU members and by the

 French channel TF 1 (which is also an EBU member), participates in this

 system and has direct access to a I I the rights acquired.

 TESN, which is not a member of the EBU and is in direct competition with

 Eurosport, requested access to the relevant broadcasting rights on an equal

 footing with Eurosport. Although the Commission took the view that the EBU

 rules on the joint purchasing of broadcasting rights infringed Article 85(1)

 of the Treaty, it nevertheless rejected the request for interim measures on

 the grounds that there was insufficient evidence of serious and irreparable

 damage.

```

**`Annex`** **`III.A.1.`** **`29`** 360

```
 T7> w) Phoenix/IBM

 593. Phoenix International (Computers) Ltd lodged a complaint, together with

 a request for interim measures, against IBM for infringement of Article 86,

 alleging that IBM had abused its dominant position on the market for the

 maintenance of its 3090 series computers.

 According to the complainant, IBM had unlawful I y suddenly refused to cover,

 under the standard maintenance contract concluded with its customers,

 "reworked" memory cards marketed by Phoenix, on the pretext that they

 Infringed the IBM trade mark.

 The 3090 memory cards which Phoenix sold as original IBM products had been

 modified by third parties so as to increase their memory capacity, without

 IBM's prior agreement. This practice involves major re-assembly of the cards

 produced by IBM, a process which is liable to damage them and over which IBM

 has no control. However, the request for interim measures was based in part

 on the allegation that IBM had for years been aware of the existence of the

 reworked cards in general and of the 3090 series cards in particular and that

 IBM had knowingly maintained them under its standard maintenance contract.

 IBM had thus, it was alleged, given its tacit acquiescence to the reworked

 cards.

 Without entering into the question of whether such a refusal of maintenance

 might have constituted an abuse of a dominant position, the Commission

 rejected the request for interim measures due to a lack of any "prima facie"

 evidence of infringement of Article 86.

```

```
Annex III.A.1. 30

 <T7> x) TESN/FootbalI authorities

```

361

```
594. On 2 December the Commission rejected a request for interim measures

submitted by the television channel TESN (The European Sports Network)

concerning the application of Article 14 of the UEFA statutes, which seeks to

protect attendance at football matches by allowing the national football

associations (UEFA members) to prohibit the televising of foreign matches on

their territory. The Commission examined the substance of the case but

rejected the request for interim measures on the grounds that there was

insufficient evidence of serious and irreparable harm suffered by the

complainant.

```

```
III.B.1. 1
```

362

```
<T3> B. Competition policy and government assistance to enterprises

<T4> §1. Case summaries

<T5> - Aid cases in which the Commission raised no oblection

<T6> a) Aid to the service sector - Tourism

<T8> Spain

605. The Commission approved two central government programmes introducing

aid for investment projects and promotion campaigns by SMEs in tourism.

Totalling ECU 25 million for 1992, the planned assistance forms part of an

overall plan to boost the competitiveness of the Spanish tourism industry.

<T6> b) Horizontal aid - Aid to small and medium-sized

                    enterprises

<T8> Denmark

606. The Industrial Development Fund which the Commission authorized in

October* [1] ) also provides conditionally repayable loans for SMEs seeking to

build up a capability for exporting to new markets in or outside the EC. As

 the aid was limited to preliminary planning and training, it was deemed to

qualify for "soft aid" treatment under the SME aid guidelines.

<T8> Spain

607. The Commission authorized a programme to improve industrial design in

SMEs. Under the programme, which is to run for four years (1992-95) and

which had a budget of ECU 17.9 million in 1992, grants will be made towards

 investments and towards training and advisory services with a view to

 introducing and improving design technologies in Spanish SMEs.

608. The Commission approved a scheme with a budget of ECU 155.5 million

under which guarantees are available for ailing industrial enterprises (SMEs

with a maximum of 250 employees and a turnover of ECU 20 million or, by way

of exception, enterprises with up to 500 employees the closure of which would

(1) Point 357 of this Report.

```

363

```
have a damaging social Impact in the areas in which they are located) to

enable them to raise the funds they need to devise a detailed rescue and/or

restructuring plan.

<T8> Italy

609. in keeping with its favourable attitude towards measures to improve the

environment in which SMEs operate, the Commission authorized several schemes

provided for under Italian regional legislation, including two in Marche and

Liguria designed to encourage joint initiatives by cooperatives and

associations of SMEs to improve their efficiency and marketing.

<T6> c) Horizontal aid - Employment aid

<T8> France

610. In March the Commission approved a scheme to encourage businesses to

relocate away from the Paris area into the provinces. It offers grants of

ECU 3 600 per employee recruited at the new location. A separate scheme

subsidizes the removal costs of employees moving with the firm. In assisted

areas, the regional planning grant ("PAT") ceilings would be applicable. For

1992 the relocation scheme had a budget of ECU 14.5 million.

<T5> - Aid cases in which the Commission decided to close the

               Article 93(2) EEC procedure

<T6> a) Horizontal aid - Investment aid

<T8> Italy

611. The Commission opened Article 93(2) proceedings against low-interest

loans under Italian laws which had lapsed and which had not been notified to

the Commission under Article 93(3). It found, however, that the aid

intensity was not sufficient to affect market conditions and accordingly

considered that the schemes qualified for exemption under Article 92(3)(c)

and closed the procedure.

```

**`7`** **64**

_<TG>_ `b) Horizontal aid - Aid to` `small` `and medium-sized`

```
                  enteror ises

<T8> Italy

612. Various Sicilian provisions introducing aid for SMEs enagaged in

retailing and the advertising of typical products of the region were approved

following their scrutiny under Article 93(2), the Commission having received

an assurance that they would be applied in a manner consistent with the

Treaty and the relevant guidelines.

<T6> c) Regional aid

<T8> Spain

613. In July the Commission decided to close the procedure it had opened In

October 1991 in respect of aid granted by the autonomous government of
Catalonia.* [2] ) The aid, totalling ECU I5*. t 8 million, was granted between 1988

and 1990 on the basis of the following regional provisions: Order

of15 April 1988, Law 9/1989, Order of 27 July 1989 and Order of 19 June 1990.

The Commission took the decision after checking, in the light of information

furnished by the Spanish authorities, that the aid qualified for exemption

under Article 92(3)(c).

<T5> - Aid cases in which the Commission decided to open

            the Article 93(2) EEC procedure

<T6> a) Horizontal aid - General investment aid

<T8> Italy

614. A decision was taken to open the Article 93(2) EEC procedure In respect

of a number of special measures to assist Sicilian industry, the opacity of

the legal provisions notified to the Commission having given rise to doubts

as to the measures' compatibility with the Treaty.

(2) Twenty-first Competition Report, point 293.

```

_h£S_

```
<T2> Annex IV: The development of concentration.

              competition and competitiveness

<T3> A. Mergers and acouisitions involving

              Communitv-scale firms in 1991/92

615. Annual reports on competition policy have traditionally included this

section presenting statistical information on mergers, acquisitions of

majority and minority holdings and joint ventures. The raw information for

the compiling of these statistics has been provided by an internal database

of the European Commission called DOME. This will be the last year in which

this section will be based on DOME data as this database has been stopped.

Next year's edition of the annual report on competition policy will maintain

this section, but its structure and the source of statistical information

will be different. The DOME database was started in 1971 and its basic

methodology was last modified in 1981. The main objective of the database was

to provide realistic information about the changes in the pattern of

competition. The database was drawn from information on mergers, takeovers,

acquisitions of minority holdings and joint ventures published in the

specialist economic press. For each entry, information regarding the combined

turnover and nationality of the firms involved, relevant industrial sector,

type of operation and publicized reasons for the operation was collected. The

tables presented in this section of the Annual Report were drawn up using the

data corresponding to those operations involving the 1 000 leading industrial

firms of the Community (ranked according to their turnover) and the 500

largest industrial firms worldwide and the largest firms in the distribution,

banking and insurance sector. The annual data presented in each report

included all the operations which had taken place in the twelve-month period

ending on 1 June of each year.

<T4> §1. Overview (Tables 1 and 2)

616. Following the trend started after 1990, the total number of financial

operations fell from 1009 in 1990/91 to 871 in 1991/92. However, this

downward trend has slowed down with respect to the previous year. The

decrease in the number of operations between 1990/91 and 1991/92 was just

14%, while one year before, between 1989/90 and 1990/91, the number of

operations fell by 27% with respect to 1989/90 figures. The recent trend in

the total number of operations shows a cycle with a peak in 1990/91 and

relatively similar figures in 1986/87 (708) and in 1991/92 (871). It is

```

**366**

```
important to notice that the maximum reached in 1989/90 almost doubled the

number of operations for 1986/87. Several reasons have been put forward to

explain this remarkable upsurge in the number of financial operations. The

wave of corporate acquisitions that these figures show is not exclusive to

Europe. However, there are some reasons that can help to explain the

specific features of the European case. As stated in the Twenty-first

Competition Report, the 1992 programme must be considered as an important

factor stimulating the external growth of corporations, both internal and

external to the EC. Internal firms were compelled to expand their Community

basis to enable them to compete in the European market opening up to them on

1 January 1993. Foreign firms were also interested in reinforcing their

European presence before that date. In both cases the booming markets of the

second half of the 1980s provided the necessary liquidity which enticed firms

to opt for external growth as a fast way of achieving the goals created by

1993 and the single market.

The entry into force of the Merger Regulation in September 1990 could have

had an influence on the peak figure attained in 1989/90, as one could argue

that firms might have been prompted to consummate the operations before the

date of entry into force of the Regulation so as to avoid being caught by it.

However, the data that we have for the two years since the Merger Regulation

entered into force do not seem to confirm that hypothesis. The number of

large mergers, acquisitions and joint ventures falling under the scope of the

Regulation (i.e. those involving firms with a turnover greater than

ECU 5 000 million) has decreased by less than the number of smaller

operat ions.

It is important to notice that the trend of large operations after 1989/90 is

not the same for national, Community and international operations. The number

of Community-scale operations fell quite sharply after 1989/90 to around two

thirds of the figure reached in that year. The number of national operations

kept on growing after 1989/90, decreasing slightly in the last year. However,

international deals grew considerably after 1990/91 compared with the

previous year and then dropped drastically in 1991/92 to barely 50% of the

1990/91 level.

```

```
(2

```

```
TABLE 1: National, Community and international mergers, acquisitions of minority holdings and joint ventures in the Community in
     1991/92

```

```
    International [3 ]

     Minor Joint

Mergers Acquis it. Ventures

 49 27 41

  1 0 1

  7 8 3

  3 3 1

 60 38 46

```

```
      Total

     Minor Joint

Mergers Acquis it. Ventures

 343 121 103

 36 8 7

 97 66 19

 31 24 16

 507 219 145

```

```
   COMMUNITY [2 ]

     Minor joint

Mergers Acquis it.Ventures

 119 34 33

  4 0 4

  17 22 10

  19 13 7

 159 69 54

```

```
Total

number of

Operations

  567

   51

  182

   71

  871

```

```
Industry

Distribution

Banking

Insurance

Total

```

```
      NATIONAL [1 ]

      Minor Joint

Mergers Acquis it. Ventures

 175 60 29

 31 8 2

 73 36 6

  9 8 8

 288 112 45

```

```
Source : Data gathered by the Commission from the specialist press

    1) Operations of firms from the same Member States.
    2) Operations of firms from different Member States.
    3) Operations of firms from Member States and third countries with effect on the Community market

```

```
Table 2 : Breakdown of national, Community and international majority acquisitions (including mergers), in industry, distribution, banking and
       insurance (combined turnover greater than ECU 1. 2, 5 and 10 billion)

```

```
International [ 3 ]

  >2 >5 >10 >1 >2

   3 2 0 171 118
  40 28 15 268 185
  60 38 24 373 288
  109 56 26 513 384
  89 60 37 397 314
  45 30 16 305 245

   0 0 0 21 14
   2 2 0 22 16
   1 1 0 23 19
   2 2 1 21 16
   1 1 0 19 16
   0 0 0 18 15

   7 5 3 20 15
   5 4 2 36 29
   8 5 4 41 32
   4 1 0 37 32
   4 2 1 31 28
   0 0 0 27 23

   1 0 0 8 4
   3 1 0 16 10
   3 2 0 12 11
   1 0 0 12 7
   1 1 1 11 9
   1 1 1 9 8

  11 7 3 220 151
  50 35 17 342 240
  72 46 28 449 350
  116 59 27 583 439
  95 64 39 458 367

  46 31 17 359 291

```

```
 National [1 ]

>1 >2 >5 >10 >1

```

```
Industry
86/87
87/88
88/89
89/90
90/91
91/92
Distribution
86/87
87/88
88/89
89/90
90/91
91/92
Banking

```

```
19 12 6 1 2
15 11 6 2 5

21 17 8 0 1

13 11 3 2 6

14 11 6 1 4

17 14 12 5 1

9 6 5 3 2
19 14 7 4 10
22 15 3 1 11
22 19 14 10 10
15 12 9 3 12
15 13 8 4 12

 5 3 2 2 1
 1 1 0 0 7
 5 5 3 0 3
 1 0 0 0 9
5 4 2 1 4
 1 1 1 1 7

```

```
111 73 42 18 52
135 84 48 24 86
163 118 60 29 148
183 117 66 44 212
158 118 75 42 145
155 114 72 36 102

```

```
Community [2 ]

>2 >5 >10 >1

42 24 13 8
61 34 22 47
110 72 53 62
158 102 70 118
107 65 37 94
86 57 37 48

 2 2 0 0
 3 1 0 2
 1 1 0 1
 3 3 1 2
 4 3 1 1
 1 0 0 0

 2 1 1 9
 10 8 4 7
 9 4 2 8
 9 7 2 5
 12 10 8 4
 10 9 5 0

 0 0 0 2
 6 1 0 8
 3 2 0 4
 6 3 1 2
 4 1 1 2
 6 4 1 1

46 27 14 19
80 44 26 64
123 79 55 75
176 115 74 127
127 79 47 101
103 70 43 49

```

```
Total

  >5 >10

  68 31
  110 61
  170 106
  224 140
  200 116
  159 89

   8 1
   9 2
   10 0
   8 4
   10 2
   12 5

   11 7

   19 10
   12 7
  22 12
  21 12
   17 9

   2 2
   2 0
   7 0
   3 1
   4 3
   6 3

  89 41
  140 73
  199 113
  257 157
  235 133
  194 106

```

```
86/87
87/88
88/89
89/90
90/91
91/92
Insurance
86/87
87/88
88/89
89/90
90/91
91/92
Total
86/87
87/88
88/89
89/90
90/91
91/92

```

```
144 94 55 24 57
170 110 61 30 108
211 155 74 30 163
219 147 83 56 237
192 145 92 47 165
188 142 93 46 122

```

```
Source : Data gathered by the Commission from the specialist press.
    1) Operations of fins from the sane Member States.
    2) Operations of fins froa different Member states.
    3) Operations of fIris froi Member States and third countries with effect on the Community market.

```

369
```
<T4> §2. Takeovers (including mergers and majority acquisitions),

       minority acquisitions and Joint ventures in industry

Tables 1 and 2 show that the impact of the 1992 programme on merger and

takeover activities has been important from a structural point of view. Now

that 1991/92 figures show levels similar to the period previous to the Single

European Act, we can see that the present structure of mergers, acquisitions

and Joint ventures according to their national, Community or international

dimensions resembles more closely the 1989/90 structure than that of 1986/87.

International and, in particular, Community-wide operations have increased

their importance considerably while national operations have lost ground. In

1986/87, over 63% of operations took place within national borders, in

1991/92 that percentage fell to 51%. Operations of Community dimensions went

from 20% to 32% in the same time interval. Although the percentages for

extra-national operations were even higher in 1989/90, it seems that the

changes introduced by the 1992 programme will persist somewhat over time.

```

```
 < T 4 >

TABLE 3: National, Community and international acquisitions of majority holdings (including mergers) in the Community (Breakdown by industrial sector)

Sector (1) National Community International Tota

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

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```

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IT IF TF TS 27 TF TF TT IT If 13 31 3T T7 4T

```

**`F0`** **`T`** **`7`** **`TF`** **`T5`** **`4`** **`F`** **`~F`** **`T`** **`T`** **`T`** **`""21`** _**ft**_ **`21`** **`T5`** **`TF`**

```
F0 T 7 TF T5 4 F

```

```
TF T5

```

```
IF T

```

**11** _**ft**_ **T9** _**ft**_ **TF**

**"TO** **21** _**ft**_ _**ft**_ **—TF**

```
TT

```

```
TT

TT

```

**`T`** **`""21`** _**ft**_ **`21`** **`T5`** **`TF`**

```
T

```

```
TF

```

```
TF TT IT

```

```
TS 27 TF

 4 F ~F

```

```
If

T

```

**`"ToTÂT`** **`I T ! — 2 3 1 — 2 T T — T I B — T 7 F`** **`TT!`** **`T9T—557`** **`170`** **`119`** **`FF`** **`[1 5 — T 2 l ]`** **`91`** **`4T`** **`1 8 1 — 4 1 6 —`** _**m**_ **`4 1 5 — 3 T F`**

```
I T ! — 2 3 1 — 2 T T — T I B — T 7 F

```

```
TT! T9T—557 170 119 FF [1 5 — T 2 l ] 91 4T

```

```
Source: Data gathered by the Commission from the specialist press.

(1) Key:

```

```
Food
Chem.
Elec.
Mech.
Comput.
Metal.

```

```
Food and drink.
Chemicals, fibres, glass, ceramic wares, rubber.
Electrical and electronic engineering, office machinery.
Mechanical and instrument engineering, machine tools.
Computers and data-processing equipment.
Production and preliminary processing of meta is, metal goods.

```

```
Transp.
Paper
Extrac.
Textile
Constr.
Other

```

```
Vehicles and transport equipment.
Wood, furniture and paper (Including printing and publishing)
Extractive industries.
Textiles, clothing, leather and footwear.
Construction.
Other manufacturing industry.

```

```
<

>

to*

```

```
TABLE 4: Breakdown of national, Community and international acquisitions of majority holdings by Industrial sector In 1991/1992 and
      by combined turnover of fins involved (ECU >1, >2, >5, >10 billion)

```

**`Sector`** **`(1)`** **`National`** **`(2)`** **`Community`** **`(3)`** **`International`** **`(4)`** **Total**

**10**

**>5** **>10**

**>5** **>10**

**>1**

**>1** **>2** **>5** **>10** **>1**

**>1**

**>2**

**>5**

**1.** **Pood** **I F** **I F** **TF** **"T** **I F** **TF** **T5** **TF** **"5T** **TT** **13** **2T**

**>2**

**TT**

**"5T**

**I F**

**I F**

**TF**

**I F**

**"T**

**T5** **TF**

**"21** _**TT**_

**2.** **Chem.** **T8** **TF** **TF**

**I F**

**T**

**TF**

**IF**

**T** **TF**

**T**

**T** **TT** **TT** **I F**

**TF**

**3.** **Elec.** **T** **T** **T** **TF** **TF** **I T** **I T** **12** **TF**

**TT**

**I T**

**T**

**I T**

**T**

**T**

**TF**

**T**

**IF**

**4. Mech.**

**TF**

**TF**

**m — T F**

**5. Comput,** **T**

**6. Metal.**

**I F**

**T**

**I F**

**"T**

**TF** **TF** **TF** **IF**

**TF**

**7. Transp.** **T** **"T** **TF** **TF** **1** **F**

**TF**

**8. Paper** **TF** **TT**

**`9.`** **`Extrac.`** **"T** **TF**

```
10. Textile T

```

```
T

TT

```

```
10. Textile T T T T

11. Constr. TT TF

```

```
IT TF TT IF

```

```
T

TF

```

_**IT**_

```
12. Other

```

```
TF

```

```
 TOTAL 155 114 72 36 102 86 58 37 48 45 30 16 305 245 160 89

Source: Data gathered by the Commission from the specialist press.

(1) Key: See Table 3, note 1.
(2) Mergers of firms from the same Member State.
(3) Mergers of firms from different Member States.
(4) Mergers of firms from Member States and third countries with effects on the Community market.

```

```
^ 3

```

```
<T6> a) Takeovers (see tables 3 and 4) J

<T7> General

Mergers and acquisitions of majority holdings remained the main type of

operation in 1991/92. However, the number of mergers and takeovers has

fallen more sharply than the total number of operations and consequently,

their relative importance has been reduced in the last year. Mergers

accounted for 45% of the total number of operations in 1989/90 and in

1990/91, while in 1991/92 they accounted for 39,4% of the operations carried

out in that year.

The total number of mergers and acquisitions of majority holdings in industry

decreased in 1991/92 at a slightly lower rate than in 1990/91. However,

national, Community and international operations did not behave in the same

way. Community operations continued falling at a rate similar to the 1990/91

rate (over 30%). On the other hand, international operations decreased more

sharply in 1991/92 (50%) than in 1990/91 (20%). However, the reduction in

the number of national operations was very small compared to the previous

year (23% in 1990/91 and 6% in 1991/92).

This trend seems to indicate that cross-border operations are more sensitive

to variations in the level of takeover activity than national operations. It

is worthwhile mentioning, though, that the moderate fall in the number of

national deals reflects an important increase in takeover activity in the

five new German Lander which we will see below.

For the first time since 1987/88, the number of operations involving firms

from different countries was smaller than the number of national operations.

However, extra-Community takeover activity seems to be more volatile than

intra-Community cross-border activity.

<T7> Big operations

The distribution of takeovers and mergers by size has remained remarkably

stable with respect to last year. As one should have expected, cross-border

operations tend to involve firms of larger size than national operations.

The only thing to notice in this respect is a small relative increase in the

proportion of Community-wide operations involving firms with a combined

```

```
V.A.§2. 9

```

373

```
   turnover greater than ECU 5 000 million. The opposite occurs in the case of

   operations involving firms from third countries. As in previous years, large

   operations tend to concentrate in a few sectors only. The food, electrical

   engineering, chemical and metal sectors account for almost two thirds of the

   operations with a combined turnover above ECU 5 000 million. It is important

   to notice that this concentration is more acute in Community and

   international than in national deals. For instance, the food and drink

   sector accounted for 40,5% of the Community deals involving firms with a

   combined turnover above the ECU 10 000 million threshold. A similar

   phenomenon occurs with international deals, where the chemical group accounts

   for 37,5% of transactions in the same size bracket. In the national category

   concentration ratios were below 20% in all size groups.

   <T7> Sectors

   For the first time in many years the food and drink sector has replaced the

   chemical group as the leading sector in takeover activity. The relative

   importance of the food sector has been increasing steadily since 1987/88

   while the number of operations in the chemical sector has been decreasing at

   a high rate during the last three years. Takeover and mergers in the food

   sector have a more domestic profile than in the chemical sector. Over 50% of

   the operations in the food sector were of a national nature while Community

   and international deals were a majority in the chemical group.

   Construction has become the third sector in terms of total number of deals.

   While takeover activity declined in all the other sectors in the last two

   years, it continued increasing in the construction sector in 1990/91,

   accounting for a total of 48 operations in 1991/92. Those deals are

   predominantly national and Community-wide. Electrical and electronic

   engineering and computers and data-processing equipment showed the sharpest

   reduction in takeover and merger activity in 1991/92. These sectors were

   particularly active during 1990/91 but the number of operations was reduced

   to one half last year. This reduction was concentrated in trans-national

   operat ions.

   In textiles, clothing, footwear and leather and in the metal sector, takeover

   activity remained more or less the same. All the other groups followed the

   general downward trend in the number of mergers and acquisitions of majority

   holdings.

```

```
.V.A.12.10 3 7 4

   <T7> Activities in Member States (see Table 5)

    In 1991/92 Germany and France continued to be the two countries where most of

    the mergers, takeovers and acquisitions of majority holdings took place. The

    level of geographic concentration has increased considerably and in 1991/92

    63% of the operations took place in those two countries. However, while the

    number of operations of this kind fell sharply in France, it increased

    considerably in Germany, which in fact increased the degree of geographic

    concentration. The number of firms acquired in France fell from 115 to 64

    between 1990/91 and 1991/92. In the same period, the number of firms

    acquired in Germany grew from 111 to 155 i.e. three times more than in

    1987/88. German firms also replaced French companies as the most active in

    acquiring firms elsewhere, going from 88 operations in 1990/91 to 181 in

    1991/92.

    This upsurge in takeover activity by German firms is mainly due to the

    process of acquisition by German firms of companies privatized in the five

    new German Lender. This process was already started last year and increased

    considerably in 1991/92, taking the total number of internal operations in

    Germany from 60 to 93 in just one year. It is important to notice too that

    the number of German firms acquired by non-German firms has also increased

    with respect to last year, but on a smaller scale. In this regard, the

    increase in takeover activity by French companies in Germany is remarkable,

    reaching a total of 19 operations in 1991/92. Two thirds of these were

    acquisitions and 6 out of those 19 took place in Eastern Germany.

    The process of privatization of firms located in the former GDR has had an

    important influence on the profile of takeovers and acquisitions carried out

    by German firms. While in 1990/91 37% of the German operations had their

    target company beyond German borders, this percentage was drastically reduced

    to 15% in 1991/92.

    The UK has had an important decrease in takeover and acquisition activities,

    cutting down by half the number of operations with origin or target in the

    UK. This reduction of activity has been quite balanced across the board

    affecting domestic and external operations in similar proportions.

    Other countries which were important as targets for these types of operations

    in the recent past such as Spain and Italy have also experienced important

    reductions in takeover activity. The decline has been more remarkable in the

    case of Spain where the number of acquired firms went from 74 in 1989/90 to

```

```
IV.A.§2. 11
```

375

```
   just 18 last year. This number is equivalent to the 1986/87 figure. A

   similar trend is seen in Italy where the 1986/87 level has been

   re-established. However, that level remains higher in absolute terms in the

   case of Italy with 38 operations as against only 18 in Spain. Another

    important difference between these two countries is the relatively high

   number of domestic operations taking place in Italy, which is not the case in

   Spain.

   <T7> International operations (see Table 5)

   The acquisition of majority holdings and takeovers in which the purchasing

   firm was of non-EC origin also fell by half during last year. The

   United States maintained its leading position with 25 operations in which EC

   firms were targeted. This represents an important reduction with respect to

    1990/91 figures. Japanese firms have cut down drastically their activity,

   going from 13 operations last year to 2 operations only in 1991/92.

   Countries integrated in the EFTA group have maintained their EC takeover

   activities, which were already noticeable last year.C)

    It is also worthwhile mentioning that there has been a substantial

   modification in the nationality of the companies targeted by these non-EC

    firms. The UK was the preferred destination in 1990/91 with 27 operations.

   Last year, only 7 UK firms were bought by non-EC firms. This was not the

    case with France and, even less, Germany, which are now second and first

   choice respectively. By industrial sector, chemicals and electrical and

   electronic engineering were the favourite targets for operations of non-EC

   origin. Those two sectors accounted for 33 of the total 52 operations.

    (1) It should be noticed that these figures exclude establishment of new

       subsidiaries in the EC by non-EC companies.

```

IV.A.§2. 12

376

TABLE 5 : Breakdown of majority acquisitions (incl. mergers) by Member State and for 1991/92 by
nationality of acquiring firm in industry

```
acquired/
acquiring firm

      TOTAL

1986/87 303

1987/88 383

1988/89 492

1989/90 622

1990/91 455

1991/92 347

B 4

DK 4

D 109

E 2

F 71

GR 0

1 30

IRL 2

L 0

NL 24

P 0

UK 48

Total 294*

AUSTRIA 1

FINLAND 2

JAPAN 2

S. AFRICA 1

SWEDEN 8

SWIT. 14

USA 25

Total 53*

Total 347*

```

```
B

 3

11

18

21

 9

5

 0

 0

 2

 0

 0

 0

 0

 0

 0

 1

 0

 2

5

 0

 0

 0

0

 0

0

0

0

5

```

```
D

69

51

 90

124

111

155

 1

 0

 93

 0

 19

 0

 2

 0

 0

 9

 0

 9

133

 0

 0

 1

 1

 2

 9

 9

22

155

```

```
GR

 0

 0

 0

 3

 8

 3

 0

 0

 0

 0

 0

 0

 2

 0

 0

 0

 0

 1

 3

 0

 0

• 0

 0

 0

 0

 0

 0

 3*

```

```
DK

 1

 2

 2

 16

 14

 3

 0

 0

 0

 0

 0

 0

 1

 0

 0

 2

 0

 0

 3

 0

 0

 0

 0

 0

 0

 0

 0

 3

```

```
E

20

27

65

74

35

18

 0

 1

 1

 2

 9

 0

 1

 0

 0

 3

 0

 1

18

 0

 0

 0

 0

 0

 0

 0

 0

18*

```

```
F

63

122

112

101

115

64

 3

 0

 4

 0

 33

 0

 3

 1

 0

 2

 0

 5

51

 1

 1

 0

 0

 1

 4

 6

 13

64

```

```
UK

 90

106

111

168

 82

 44

 0

 2

 5

 0

 4

 0

 0

 0

 0

 3

 0

 23

 37

 0

 0

 1

 0

 0

 1

 5

 7

 44*

```

```
I

35

40

49

73

51

38

 0

 0

 3

 0

 4

 0

19

 0

 0

 0

 0

 3

29

 0

 0

 0

 0

 5

 0

 4

 9

38

```

```
IRL

 2

 6

 8

 3

 2

 5

 0

 0

 0

 0

 0

 0

 0

 1

 0

 0

 0

 3

 4

 0

 0

 0

 0

 0

 0

 1

 1

 5

```

```
L

 1

 0

 4

 3

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

```

```
NL

19

16

23

28

21

11

 0

 0

 1

 0

 2

 0

 2

 0

 0

 4

 0

 1

10

 0

 1

 0

 0

 0

 0

 0

 1

11

```

```
P

 0

 2

10

 8

 7

 1

 0

 1

 0

 0

 0

 0

 0

 0

 0

 0

 0

 0

 1

 0

 0

 0

 0

 0

 0

 0

 1

 1

```

Source : Data gathered by the Commission from the specialist press.

   - Difference to above due to take-overs by j o i n t ventures j o i n t l y owned by
firms from d i f f e r e n t c o u n t r i e s .

```
IV.A.§2. 13
```

377

```
   <T6> b) Detailed analysis of two industrial sectors

   As in the previous year, the chemical and food sectors have been chosen for

    this analysis due to their high level of activity in mergers, takeovers and

    acquisitions of majority holdings.

    <T7> Food

    In 1991/92 the food and drink sector registered the highest figure of

    takeovers, mergers and acquisitions of majority holdings, replacing the

    chemical sector which traditionally has held that top position. Mergers and

    takeovers accounted for the large majority of operations of this kind with 52

    out of a total of 61 deals.

    Compared with the previous year, the most important development was the sharp

    decline in the number of operations in which the purchasing company was of

    non-EC origin. The drop in the number of international operations was in

    itself sufficient to explain the fall in the level of activity, since

    national and Community-wide deals remained practically unchanged.

    Switzerland remains the main non-Community country of origin of mergers and

    takeovers in this sector.

    One of the unusual characteristics of merger and takeover activities in this

    sector is the homogeneous geographic distribution that they show across the

    board. With the sole exception of Luxembourg, there was at least one

    operation in each Member State during 1991/92. Furthermore, there is not a

    high level of concentration of operations in just one country and the three

    largest countries of the Community, Germany, France and the United Kingdom

    have similar levels of activity (between 18 and 12 operations).

    Nevertheless, there are substantial differences in the nature of operations

    carried out in the three largest Member States. In Germany, most of the

    takeover activity that took place in the food and drink sector during last

    year was related with the former GDR. Eight out of the thirteen cases

    registered in Germany during that period had as their target a company

    located in the five new Lander. It is interesting to note that the

    purchasing company was often a German subsidiary of another company of

    non-German origin. Nestlé and Unilever are examples of this. In the case of

    France, two thirds of the deals were domestic operations. The domestic

    character of the transactions in this sector was even more clear in the case

    of the United Kingdom. Only one of the 12 mergers and takeovers which

```

```
•v...,,." 3 ? 8

    targeted UK-based companies had an international dimension. It is also

   worthwhile mentioning here the great activity deployed by British holding

   companies in the food and drink sector. Three British companies, Grand

   Metropolitan, Hillsdown Holdings and Northern Foods, accounted for 14 of the

   52 takeovers and mergers registered in the EC in 1991/92. Grand Metropolitan

   by itself was the acquiring company in 7 out of the 19 takeovers and mergers

   of Community dimension which took place last year. Hillsdown Holdings and

    Northern Foods accounted for almost two thirds of the domestic operations

    registered in the United Kingdom.

   As regards the size of the operations in this sector, the high number of

   operations registered in which the combined turnover of the companies

    involved was above the ECU 10 000 million mark is noteworthy.

    <T7> Chemicals

    The general reduction in the level of takeover activity affected the chemical

    sector in a very significant way. We have to go back to 1985/86 to find a

    figure comparable to the number of operations which took place last year.

    This is equivalent to one third of the activity which was registered in

    1989/90.

    However, this reduction did not take place evenly across the board. For

    instance, the number of operations in Germany remained virtually unchanged in

    the last two years with 21 operations in 1990/91 and 20 in 1991/92.

    Something similar occurred in Italy with 13 and 11 operations and in Spain

   where no operations were registered last year, while in 1990/91, 2 operations

    took place. The United Kingdom and the Netherlands also experienced

    important reductions in activity. As a result of this, takeover activity was

    highly concentrated in the four largest countries of the Community with less

    than 5% of the operations taking place elsewhere.

    International activity remained quite important during 1991/92 with the

    United States maintaining its leading position as an investor in chemicals in

    Europe. As a matter of fact the number of international takeovers and

   mergers fell less than national and Community operations. It is this latter

    group which experienced the most important reduction.

    The relatively lesser importance of national operations was more remarkable

    in France, Italy and the United Kingdom than in Germany where one half of the

    20 operations registered took place within German borders. None the less, we

```

**`IV.A.§2.`** **`15`** 379

```
   have to point out that the five new Lander were once more the primary target

   of those operations.

   The average size of takeovers and mergers in the chemicals sector as measured

   by the combined turnover of the companies involved was smaller than in the

   food and drink sector. Only 12 operations were above the ECU 10 000 million

   threshold.

   <T6> c) Acquisitions of minority holdings (see Table 6)

   The decrease in the total figure of operations compared with last year was

   relatively smaller for acquisitions of minority holdings than for joint

   ventures and majority acquisitions. The relative weight of this particular

    type of operations has remained quite stable over the last five years

    (between 21 and 23% with the exception of 1987/88 when it reached almost 27%

   of the total of industrial operations).

   The food and drink sector more than doubled the number of minority

   acquisitions in 1991/92 compared with the previous year's figures, which

   could be considered atypical ly low if we look at the time series for this

   sector. The construction and metal sectors rated second and third

    respectively. The biggest fall took place in chemicals with only one third

   of the previous year's figure.

   The country where the acquisition of minority holdings was most frequent was

   France with a total of 44 operations, which accounts for 35% of the European

    total. Approximately half of these operations were of a domestic nature, but

   a significant 32% of the total were of non-Community origin, the

   United States being the main country in this type of operation. France was

   also the main protagonist acquiring minority holdings in 17 firms located in

   other Member States, which represented 50% of the total. Germany, Italy, the

   United Kingdom and Spain were also important as target countries for

   acquisitions of minority holdings in 1991/92.

    In all these countries minority acquisition activity was widespread over many

    sectors. In France, food and drink and construction were the most active

    sectors. In the other four countries there was a wide dispersion of

    acquisition activity by sector. The same applies to the distribution by

   sector of the deals in which the acquiring company was of non-EC origin.

```

```
TABLE 6: National, Community and international acquisitions of minority holdings in the Community in industry by sector

```

Sector (1)

1. Food

2. Chera.

**3.** **Elec.**

**4.** **Mech.**

**5.** **Comput.**

**6. Metal.**

7. Transp.

**8. Paper**

**9.** **Extrac.**

**10.** **Textile**

**11.** **Constr.**

**12.** **Other**

**Total**

National

1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

17 15 13 8 12

9 10 7 5 4

8 18 7 11 5

10 7 4 - 2

1  - 1

11 6 9 10 7

6 4 3 2 3

19 15 Ô 7 9

5 11 8 1 2

5 5 4 1 2

15 6 8 13 13

7 5 1 2 1

115 102 73 60 60

Community

1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

9 4 9 2 6

6 5 5 4 4

4 5 8 15 3

1 3 1 2

1

2 7 3 6 4

1 1 3 8 2

7 9 5 10 1

2 2 4 1 4

1  - 2 3 5

5 2 20 5 3

  -  -  -  -  

37 37 62 55 34

Total

1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

31 21 26 10 22

17 18 23 14 14

15 25 24 30 10

**13** **8** **10** **5** **7**

1 2 3  - 2

**15** **16** **13** **20** **15**

9 8 12 14 8

**29** **25** **18** **21** **10**

**12** **14** **13** **2** **8**

**6** **6** **7** **8** **7**

**21** **10** **30** **19** **16**

8 6 1 3 2

181 159 180 146 121

International

1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

9 2 4   - 4

2 2 11 5 6

3 2 9 4 2

3   - 3 4 3

1 2      - 2

2 3 1 4 4

3 6 4 3

3 1 5 4   

A$|5 1 1 - 2

1 1 4

1 2 2 1

1 1   - 1 1

29 20 45 31 27

```
Source : Data gathered by the Commission from the specialist press.

(1) Key : see Table 3, note 1.

```

```
IV.A.§2. 17

   <T6> d) Joint ventures (see Table 7)

```

381

```
The number of industrial joint ventures has declined more slowly than

takeovers and mergers in the last year. The sectoral distribution of new

Joint ventures created during 1991/92 did not show many substantial

variations compared with the previous year's distribution. The most

remarkable change took place in the electrical and electronic engineering

sector where there was a substantial decline after the high figures attained

in 1988/89 and 1990/91. This decline was to some extent offset by the sharp

increase in the number of Joint ventures registered in the metal sector after

an abnormally low level reached in 1990/91.

As already indicated in previous reports, joint ventures have a predominantly

cross-border character. Community and international operations still

accounted for 72% of the total in 1991/92. France is the country in which

most operations of this type took place last year. Out of the 32 operations

concluded in that country only 12 were national. Germany was the country

with the second-highest number of joint ventures (29) followed by the

United Kingdom and Italy each with 16.

The United States was the non-Member State having the most active role in the

field of joint ventures with European firms. It should also be noted that

Japan rated second in this group with 13 agreements. This seems to be the

type of deal clearly preferred by Japanese firms to increase their presence

in Europe by external growth. In both cases, the chemicals sector was

preferred by United States and Japanese firms to enter into joint venture

agreements with European firms. The electronics sector rated second in the

group of international Joint ventures. It is also worthwhile mentioning that

the small reduction in the number of international deals is not due to a

slowdown in joint venture activity having its origin in Japan and the

United States. On the contrary, the number of deals originating in those two

countries increased slightly compared with the previous year's figures.

In Community Joint ventures, the chemicals sector was still the field of

preference for this type of operations between Community firms.

```

```
TABLE 7: Joint ventures In the Community in Industry by sector

               Nationa Community Internationa Tota

```

```
<

>

ro

```

```
Sector (1) oo

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1. Food 10 11 10 10

```

```
2. Chem

3. Elec,

```

```
12 14 13 12 2F

                T

```

```
12 11 12 12 11 16 13 24 28 37 28 21

```

```
29 23 27 14

```

```
4. Mech. 10 12

```

```
5. Comput

6. Metal.

7. Transp.

8. Paper

9. Extrac.

```

```
                       ~F

                            10 TF 16 10 14

12 22 TT 12

                                  14 10

```

```
 10. Textile "5T

 11. Constr.

 12. Other 11

   Total 45 56 41 33 29 31 36 55 49 33 35 37 60 45 41 111 129 156 127 103

Source : Data gathered by the Commission from the specialist press

(1) Key : see Table 3, note 1.

```

```
Ch4

OO

```

**`IV.A.§2.`** **`19`** 383

```
   <T6> e) Main motives for mergers and Joint ventures

                   (see Graph 1 and Table 8)

   The information presented in Table 8 and Graph 1 has been gathered from the

   publicized motives given by the companies or by the specialist press. In

   some cases, the real motive of the operation may not be revealed by the

   companies. Moreover, the aggregate data presented here could in fact include

   under the same category quite different motives. Finally, several reasons

   are given in many operations and it is not possible for us to assess their

    relative importance. For all these reasons, it is necessary to interpret

    these data with some caution.

    <T7> Mergers

    The main structure for the motives leading to mergers, takeovers and

    acquisitions of majority holdings which is reflected in Table 8 is basically

    similar to last year's. The strengthening of market positions, expansion of

    commercial activities and synergy are the three main motives behind these

    types of operations. This seems to confirm the existence of some regularity

    underlying the declining trend started after 1989/90. However, there has

    been a relatively important increase in the frequency of motives such as

    rationalization. Although this is still taking place on a small scale, if

    this tendency is confirmed in the future, rationalization and restructuring

    could take on a more important role among the motives for takeovers, mergers

    and acquisitions of majority holdings.

    <T7> Joint ventures

    The ambiguity of the concept of Joint venture makes even more difficult the

    task of trying to determine the motives behind them. As in the case of

    mergers and takeovers, Table 8 and Graph 1 show a profile quite similar to

    last year's. However, there are some significant differences between the

    motives for these two groups of operations.

    Cooperation between firms, synergy and the sourcing of new technology are

    very important reasons for the creation of joint ventures, while their

    importance for the creation of more permanent links such as those resulting

    from takeovers or mergers is smaller.

```

Graph 1 **o** **<**

**< un**

**> •**

**OJ** **o**

Acquisitions of Majority Holdings Joint Ventures

Other

k Synergy

Rationalisation

Expansion

Other

Expansion

Rationalisation

Synergy
Integration

Non specified
Strengthen m.p.

Diversification

Cooperation

Non specified

R&D
Strengthen m.p.

OJ
CO

Source: Data gathered by the Commission

```
IV.A.§2. 21
```

385

```
 Table 8: Main motives for mergers and joint ventures in industry
      in 1991/92

```

```
Motive Acquisitions
             of majority
             holdings Including
             mergers
              (in % of replies)

```

```
Joint ventures

   24

   11

    1

   0

   4

   21

    3

   14

   3

   31

```

```
Strengthening of
of market position

Expansion

Diversification

Integration

Research and
Development

Cooperation

Rationalization

Synergy

Other

Not specified

```

```
107

 78

 5

 7

 0

 3

 9

 30

 2

123

```

```
Total*) 364 112

*) In some cases, more than one motive was given

```

```
IV.A.I3. 22 386

   <T4> §3. Mergers, acquisitions and Joint ventures in services

   Contrary to what happened in the industrial sector, there was an upsurge in

   takeover and acquisition activities in the service sector compared with the

   previous year's figures. This is in sharp contrast with the change that took

   place between 1989/90 and 1990/91 when there was an important fall in the

   number of financial operations registered in the service sector.

   As Table 1 shows, the banking sector was responsible for most of this

    increase, which did not take place in the distribution sector. It is

   worthwhile mentioning that the insurance sector maintained the level of

   activity of 1990/91. Although the banking sector is still below the all time

   peak of 239 operations registered in 1989/90, the 182 financial operations

    registered in 1991/92 are comparable to the already high figure attained in

    1987/88 (189) and double the 1986/87 figure.

    It is clear from these figures that the industrial and distribution sectors

   showed a similar trend in the period under consideration, while the sectors

   providing financial services, i.e. banking and insurance, followed a separate

    trend of their own.

   Looking back at Table 1 we can see that national and, in particular

   Community-wide operations increased in importance considerably compared with

    the previous year. The importance of international operations has been

   steadily decreasing since 1989/90, but this decline has been more than offset

   by national and Community operations. Despite the high proportional increase

    in Community operations, national deals account for most of the operations in

    the service sector.

   <T6> a) Takeovers (including acquisitions of majority holdings and mergers)

                    in services (see Table 9)

   With the exception of the distribution sector, takeover activity increased

   considerably in the service sector in 1991/92. The number of financial

   operations involving a firm of non-EC origin declined considerably, but there

   were very significant increases in mergers and takeovers at Community level.

    It is worthwhile mentioning the variations that took place in insurance at

   Community level and in banking at national level.

```

```
V.A.§3. 23
```

387

```
   In the banking sector, there was very intense domestic activity in France and

   Italy in 1991/92. Italy alone accounted for more than one third of the total

   number of national deals that took place in the banking sector in that period

   of time. France and Italy together accounted for 60% of that total.

   However, there was a basic difference with regard to the type of operation

   most frequently used in each of these two countries. In Italy mergers were

   the preferred type of operation while in France two out of three of the deals

   were acquisitions of majority holdings.

   Another country with significant activity in this area in 1991/92 was Spain

   with 9 national transactions (mergers and takeovers). Spain was also the

   country with the highest number of Community-wide transactions in that year.

   However, these types of operations were evenly distributed across all the

   Member States.

   In the insurance sector, there was a fall in the number of national

   operations. In this sector, Community-wide operations are more than twice as

   numerous as national deals.. There is quite a lot of geographical dispersion

   of Community deals, although Spain had quite a high level of activity in this

   area in 1991/92.

   As was pointed out above, the distribution sector experienced a generalized

   drop in takeover activity in 1990/91, and this continued in 1991/92.

   Although the number of deals remained practically unchanged last year,

   cross-border operations were reduced to a minimum (one out of seven).

```

```
TABLE 9: National, COM unIty and International acquisitions of Major ity holdings (including lergers) In the ComunIty in services

              Nationa Community Internat ional Total

Sector

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1. Distribution 4(5 53 3l 28"

```

```
31 17 57 58 52 38 36

```

```
2. Banking 3 3 5 1 65 51 73 12 16 23 13 17 13 16 25 11 78 83 113 75 97

  insurance 14 15 16 15 14 18 19 12 10 12 40 33 46 28 31

 TOTAL 107 119 112 94 113 34 28 58 28 40 34 27 41 19 11 175 174 211 141 164

Source ; Data gathered by the Commission from the specialist press

TABLE 10: National, Community and international acquisitions of minority holdings In the Community in services

              National Community International Total

Sector

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
  <

  >

  to»

 ro

```

_**<J4**_

```
CO

OO

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
"T

15"

```

```
T

```

`1.` `Distribution—` _ft_ `8"`

```
2. Banking 55 3T

3. Insurance

```

_**IT**_ `T0"`

_**TT**_

_**IT**_

_**~T**_

```
"55"

```

_**TT**_

```
TT

```

_**T**_

_**IT**_

_**TT**_

```
"8T

```

_**W**_

```
  T

```

_**TT**_

```
T3^ 7 77JTT 29(*) 44 3T "2T

```

```
  "TT
```

_**IT**_

```
"2T

```

_**IT**_

_**IT**_

_**^T**_ `15"` _**IT**_ `"55"` `"2T` _**IT**_ `"TT` _**TT**_ `"8T` _**W**_

_**IT**_ `75` `2T` _**IT**_ `T3^` `7` `77JTT` _-ft_ `29(*) 44` `3T`

```
"5T

```

```
TOTAL 59 49 68 48 52 23 38 59 36 35 40(*) 26 34 17 11 122(*)113 161 101 98

(*) Figures In the Eighteenth Competition Report amended.
Source : Data gathered by the Commission from the specialist press,

```

```
IV.A.§3. 25 7 0 Q

   <T6> b) Acquisitions of minority holdings in services (see Table 10)

   Acquisitions of minority holdings in services remained almost constant in

    total number compared with the 1990/91 figures. However, the behaviour of

    the three service sectors was not the same. There was a sharp decline in the

   number of deals in distribution, in which no cross-border operation was

    registered. Banking showed an increase from 57 to 66 operations between

    1990/91 and 1991/92. While there was no major change in cross-border deals,

   national acquisitions of minority holdings increased considerably. In

    insurance, there was a drop in the figure of national and international

   operations, with Community-wide operations remaining practically unchanged.

    <T6> c) Joint ventures in services (see Table 11)

    The total number of joint ventures in the service sector is relatively small

    and has not shown any substantial change in the last few years. In 1991/92

    there was a slight increase compared with the previous year. Community-wide

   operations accounted for 50% of the total, and 1991/92 registered the highest

    frequency in this type of operations for the last five years.

    By sector, banking accounted for the greatest number of deals closely

    fol lowed by insurance.

```

```
TABLE 11: Joint ventures in the Community in services

```

```
<

>

to>

```

```
Sector

```

```
                                                                       w
Nationa Community Internationa Tota
                                                                        ro
                                                                                       0)

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1987/ 1988/ 1989/ 1990/ 1991/
1988 1989 1990 1991 1992

```

```
1. Distribution 14 13

2. Banking 16 11 10 7 6 12 7 10 30 24 30 16 19

3. Insurance 10 8 16 16 11 14 16

 TOTAL 30 26 20 17 16 13 15 20 16 21 10 13 14 53 54 54 39 42

Source : Data gathered by the Commission from the specialist press

```

```
NO

```

**o**

```
IV.A.§4. 27
```

391

```
   <T4> §4. Conclusions

   617. On the basis of the information provided by the DOME database and

   presented above, the following main conclusions can be drawn:

    i) The downward trend which began after 1989/91 continued this year with a

      significant fall in the total number of operations. This seems to

      complete a cycle which started in 1986/87 and which was very probably

       influenced by the Internal Market project.

    ii) The upsurge in financial activity as measured by the total number of

      operations seems to have had an important impact on the structural

      profile of mergers, takeovers, joint ventures and other forms of

      external growth. At the present stage in the cycle, national operations

       have decreased their relative weight in the total while Community-wide

      operations have become more important.

    iii) In 1991/92, financial operations having as targets companies located in

       the five new German Lander increased considerably, thus confirming a

       trend initiated last year. Most of these operations were domestic, with

      Western German companies acquiring facilities in the East. However,

       there were also cases in which the company making the investment came

       from another Member State, France in particular, or from a non-Community

      country. There were also cases in which non-EC companies carried out

       the investment through a subsidiary based in Western Germany or another

      Member State.

    iv) The takeover and merger behaviour of companies providing financial

      services was quite distinct from industry and distribution. 1991/92 saw

      an important upsurge in takeover and acquisition activities. This was in

      contrast with the downturn suffered the previous year. This activity was

      heavily concentrated in France, Italy and Spain. From this evidence it

      seems apparent that the reasons motivating takeover activity in these

      sectors differ from those underlying the trend in the manufacturing

      sector.

```

```
                                             ^
,V. A . § 4 .23 2

    v) It is very difficult to assess the impact of these trends on

       competition. One might be tempted to think that the smaller the number,

       the smaller the impact on competition. However, we must bear in mind

       that, as these figures show, the process of external growth which has

       taken place in Europe during the last few years has been heavily

       influenced by the 1992 programme. As a result, an important number of

       operations may have been motivated by efficiency considerations. In the

       last two years, when the economic boom of the late 1980's gave way to

       the present recession, rationalization may have been the explanation for

       a good number of operations. Finally, the significant acquisition

       activity which is taking place in Eastern Germany is just part of a

       process of economic normalization of the economic situation in the new

       Lander, and it will be possible to assess the impact of these deals on

       competition only when the process is completed.

```

```
Annex IV.B.1

 <T3> B. The programme of studies and its results

 <T4> §1. The 1992 programme of studies

```

```
J / J

```

```
618. Every year, the Directorate-General for Competition commissions a

limited number of studies from external and independent consultants. The

main purpose of these studies is to provide technical support for the

implementation of competition policy. In most cases, the studies are

necessary to provide technical and economic information required to take

decisions concerning antitrust or state aid cases. This is for instance the

case with the studies carried out to assess the viability of the

restructuring of the Spanish steel companies CSI and Sidenor commented on

below. None the less, in other cases, the studies are needed to facilitate

the internal management and decision-taking process of the

Directorate-General. Two studies of this nature were completed in 1992: the

Guide to procedures in State aid cases and the study on the Steel Databases.

619. Two of the studies completed in 1992 will be published. The rest of the

studies carried out last year are not intended for publication, either

because of the confidentiality of the information they contain or because of

their instrumental nature.

```

```
Annex IV.B.2 _ ^
```

394

```
 <T4> §2. Studies published or intended for publication

 <T5> - New entrant airlines - a case study

 620. This study relied on interviews with the managers of a number of

 existing and failed new entrants in the airline industry, backed up by

 interviews with industry organizations and regulatory authorities.

 621. The purpose of the study was to identify the various obstacles

 encountered by small and medium-sized airlines opening up new services.

 * In practical terms regulatory and financial fitness requirements remain

    a difficult obstacle to new entry. The timescale and costs associated

    with the licensing process can be significant. Gaining and maintaining

    investor confidence is viewed as a key factor in the early stages of

    development of a new entrant airline and it is important that it is seen

    an integral and critical part of the process.

 * New entry in air transport will remain virtually impossible for those

    entrants that want to establish scheduled services on dense routes

    between major European capital cities. Some form of intervention will be

    necessary for the provision of slots and suitable ground handling

    facilities if new entry at major hub airports is to take place.

 * Although there are notable exceptions many new entrants do not seek

    competitive confrontation with national carriers. They are seeking to

    develop niche markets either independently or in conjunction with a

    major carrier. Many are also trying to identify partners and would not

    be averse to this being a national or foreign airline. This type of

    consolidation appears to be a process gathering momentum.

 * The dominance of the national carriers, particularly where they remain

    state owned, and their influence on the market-place should not be

    underestimated in any way. Their abilitity to swamp with capacity and

    sandwich with frequency the new entrant is considerable, as is their

    ability to develop commercial arrangements with the travel trade that

    disadvantage the new entrant.

```

```
Annex IV.B.3

                                           T O. r
 * Most airlines feel that they are vulnerable to hostile takeovers,

    particularly from national carriers. They believe that in the absence of

    a clear EC airline merger policy this adds to the general feeling of

    uncertainty.

 * As the market differentiation between scheduled and charter is reduced,

    the charter airlines are seeking to develop scheduled services in

    conjunction with their leisure traffic. Changes in consumer behaviour

    and new aircraft types with longhaul capability are providing a new

    market opportunity that the charter airlines believe the EC should

    support in order to promote real competition.

 <T5> - The geographical dimension of market dominance

               in the European single market

 622. One of the main problems in the assessment of market competition in one

 antitrust case is the proper delimitation and definition of the relevant

 market, both from the point of view of the product and its geographical

 dimension. The importance of geographical market definition is enhanced by

 the process of economic integration of European markets which was started by

 the Single European Act in 1987 and which has reached its maximum momentum

 after 1 January of 1993. The objectives of this study are to examine the

 geographical dimension of market dominance as interpreted in European

 Community competition policy, and to design a framework for analysis of the

 geographical dimension in applications of this policy. Therefore, this study

 aims at the definition of criteria to be used in practice for the analysis of

 cases arising from the application of Articles 85 and 86 of the Treaty as

 well as the Merger Control Regulation.

 623. The study suggests a different approach for the analysis of:

    a) cases of abuse of dominance (Article 86) and Article 85 cases

      relating to concentration or collective restriction of competition

      in the past ;

    b) cases of re-notified agreements (Article 85);

    c) the application of the Merger Control Regulation.

```

```
Annex IV.B.4

 624. The study defines and discusses the relevance for the geographical

 definition of markets of a series of factors which must be analysed in each

 case. Based on this ana.,..'*», t^e study proposes a checklist of factors to

 be considered at each stage. Tnese include (in correlative order):

    1. the definition of the market in terms of current demand

      subst itut ion;

    2. price tests as direct measurement of market interdependence;

    3. the consideration of potential competition-,

    4. the effects of single-market legislation on obstacles to trade and

      barriers to entry in geographically segmented markets-,

    5. barriers not directly affected by single-market legislation.

```

```
Annex IV.B.5

```

^ " ^ 397

```
 <T4> §3. Summaries of studies not intended for publication

 <T5> - Guide to procedures in State aid cases

 625. The Guide sets out the procedural law governing the control of State aid

 by the EC Commission in a simple, easily digestible form for the use of

 governments, businesses and legal practitioners. The sources of this law,

 judgments of the European Court of Justice and notices issued by the EC

 Commission, are fully referenced. This study will be the basis of a new

 section on procedures in the new edition of Competition Law of the European

 Communities. Volume II the State aid rules which is to be published in 1993.

 The chapters of the Guide deal with :

 1. Notification : scope of the notification requirement, the prohibition

    against granting aid without authorization by the Commission, the time

    limit for the Commission to make its determination on a case, and the

    requirements of decisions to authorize the aid without opening the

    procedure under Article 93(2) of the EEC Treaty;

 2. Formal investigations under Article 93(2) procedure, "due process"

    rights of Member States and interested parties, and final decisions

    closing Article 93(2) proceedings;

 3. Unnotified aid definition of "unnotified aid", powers of the

    Commission, including injunctions, recovery orders and the charging of

    interest ;

 4. "Existing aid" : definition of "existing aid", proposal of "appropriate

    measures", subsequent use of the Article 93(2) procedure;

 5. Finally, the Guide contains a chapter on complaints, the practice of the

    Commission in publishing its decisions, judicial review of Commission

    decisions by the Court of Justice (types of decisions appealable,

    standing, time limits), and the reporting obligations of Member States

    following the Commission's approval of an aid scheme.

 The Commission believes that the Guide will help clarify the law and practice

 in what is becoming an increasingly important and litigious area of Community

 law.

```

```
Annex IV.B.6
###### ^ ™• 398

 <T5> - Study on the Steel Data Base (SDB)

 626. The Commission exan,. - mergers in the steel industry in terms both of

 production and of distribution.

 627. The Commission's information on ECSC undertakings derives from the ECSC

 questionnaires received by Eurostat and the Directorate-General for Credit

 and Investments with figures on production, supply, capacity and investment;

 in addition, the Directorate-General for Competition has information on the

 holdings of financial groups in steel companies.

 628. In the context of the SDB project, the aim of which is to assemble

 complete and coherent information in a Steel Data Base, it was necessary to

 analyse the functions of the base in order to meet the specific needs of

 application of the competition rules laid down in the ECSC Treaty.

 629. The information contained in the SDB of relevance to the application of

 the competition rules is as follows:

    the SDB's information unit is the steelworks. The management of the

   direct or indirect links between groups, companies and steelworks with

    their holdings and the definition of control parameters are two functions

    that can be included into the base;

   the figures in the ECSC questionnaires, recorded by individual

   steelworks, are available at company, group, country or European level

   through permanent or dynamic aggregation of the base data;

   the real or hypothetical market share of the various groups involved in a

   merger can be quantified through new search table options.

 Following analysis, the SDB has been modified to include new functions

 allowing the structure of steel groups to be displayed, the tonnage produced

 by a group to be calculated (for example, in order to establish whether the

 merger is exempt from the prior authorization requirement) and the percentage

 which such tonnage represents in respect of a country, a group of countries

 or the Community to be determined.

```

```
(2

```

```
Annex IV.B.7

 <T5> - Study of the shipbuilding market in 1992

 630. The objective of this study is to compare the cost structures of the

 most competitive Community yards and world market prices (with particular

 regard to the market segments in which the Community yards remain relatively

 most competitive). The study findings are used to inform the Commission of

 the prevailing cost/price gap for the purposes of setting the maximum ceiling

 of aid to shipbuilding under the Seventh Council Directive, which must be

 reviewed at least every 12 months.

 631. As in previous years, the study, which was conducted with full

 collaboration from the EC industry, concentrates on ship types which are most

 commonly constructed within the Community and for which EC yards are in most

 direct competition with international producers. II ship types were covered

 in this year's study and 22 EC shipyards participated in the cost quotations.

 World market prices were established on the basis of data collected from

 var ious sources.

 632. The conclusion of the study is that there has been a general widening of

 the cost/price difference compared with last year. However, according to the

 consultant, the effects of differences in world inflation rates and currency

 fluctuations have been significant factors in the apparent decline in

 competitiveness of EC shipbuilders.

 <T5> - Monitoring study of the restructuring plan

             for the shipbuilding industry in Spain

 633. As provided by Article 9 of the Seventh Council Directive on aid to

 shipbuilding, an independent consultant has been jointly commissioned by the

 Commission and the Spanish Government to submit six-monthly monitoring

 reports on implementation of the restructuring plan for the Spanish

 shipbuilding industry during the period 1991-92.

 634. In October a report was submitted covering the first six months of 1992

 which raises doubts whether the industry will attain the planned level of

 competitiveness. Article 9 provides that in such circumstances the Spanish

```

```
Annex IV.B.8

```

400

```
 Government will take measures to reinforce the restructuring of the sector

 which are accepted by the Commission as capable of rectifying the situation.

 The Spanish Government is expected to submit its proposals shortly.

 <T5> Studies of Restructuring Plan

         for Spanish Integrated Steel Company CS1 and Sidenor

 635. Three studies related to restructuring plans for the Spanish steel

 industry, as follows:

 - a study conducted by an independent consultant jointly appointed by the

    Spanish Government and the Commission to assess the viability of the

    proposed restructuring plan for the Spanish integrated steel company

    CSI, incorporating Altos Hornos de Vizcaya and Ensidesa;

    a study conducted by an independent consultant Jointly appointed by the

    Spanish Government and the Commission to assess the viability of the

    proposal restructuring plan for the Spanish special steels company

    Sidenor, incorporating Acenor and Foarsa; and

 - a study carried out on the Commission's behalf by an independent

    consultant to examine possible alternatives to the CSI plan.

 The purpose of the studies was to provide information to the Commission to

 help it decide whether to recommend to the Council that it should give its

 assent for the aids involved in the restructuring plans to be authorized

 under Article 95 of the ECSC Treaty.

 On the basis of the consultants' findings, the Commission concluded that the

 CSI plan was viable aut that the relation between the aid intensity and the

 extent of the restructuring needed to be improved. The Commission also

 concluded that the Sidenor plan was viable and decided to propose that the

 aids should be authorised subject to certain conditions.

 The Commission's views were presented to the Industry Council at its meeting

 on 24 November. The Council was not prepared to agree to the Spanish

 proposals and further discussion was deferred pending bilateral contacts.

```

```
IV.C.1

  <T3> C. Statistical note on concentration operations

          notified under Council Regulation (EEC) No 4064/89

  <T4> §1. Introduct ion

  636. Council Regulation (EEC) No 4064/89 on the control of concentrations

  entered into force in September 1990. The Twenty-first Competition Report

  included a short statistical notice of the cases analysed during 1991. This

  section has the objective of presenting a more detailed statistical analysis

  of all the cases dealt with in the application of the Regulation to

  September 1992.

  637. Under the Regulation only large concentrations have to be notified to

  the Commission. Only those cases in which the combined aggregate worldwide

  turnover of all the companies involved is above ECU 5 000 million, the

  aggregate Community-wide turnover of each one of them is more than

  ECU 250 mi I I ion and no more than two thirds of this aggregate Community

  turnover come from just one Member State, have to be notified. These strict

  criteria have limited the number of cases handled by the Commission to

  approximately fifty per year.

  638. The tables presented below give a statistical description of the cases

  dealt with under the Regulation and the decision taken until now. The cases

  have been classified by the type of concentration, their geographic

  dimension, the economic sectors involved and the nationality of the firms

  concerned.

  639. Cases officially notified to the Commission but. not falling within the

  scope of the Regulation have been excluded from the sample. Cancelled or

  withdrawn notifications have also been excluded.

  640. Cases have been grouped in two periods of time (1990-91 and 1991-92).

  Each group covers not if icat ions (or decisions) made (or taken) from September

  to September. This grouping, which is determined by the date of entry into

  force of the Regulation, does not coincide exactly with the periods used in

  part A of this annex.

```

```
IV.C.2 _

  <T4> §2. Type of operation and geographic dimension

                of the concentrations (Table 1)

  641. Table 1 shows the breakdown of the operations that took place in 1990-91

  and 1991-92 by type of operation and by the geographic dimension of the deal.

  With respect to this latter criterion, four groups have been defined:

  national deals, which are those involving two or more companies from the same

  country (not necessarily a Member State), deals of Community dimension are

  those involving companies from at least two different Member States; the

  third category includes deals between at least one company from one

  Member State and at least one company from a non-EC country; finally,

  extra-Community deals are those involving companies from at least two

  different non-EC countries and without any participation of companies from

  any Member State.

  642. In Table 1, cases have been grouped under six different types of

  concentrations. The heading "Joint ventures" includes joint ventures of a

  concentrâtive nature, i.e. those which do not give rise to coordination of

  the competitive behaviour of the parties involved. The heading "Mergers"

  includes Just "pure" merger cases in which at least two independent companies

  merge into a new one leaving no residual entities from the merging companies.

  "Majority acquisitions" includes cases in which one or more undertakings

  purchase securities or assets by contract or by any other means, thereby

  acquiring direct or indirect control of the whole or parts of one or more

  undertakings. However, those cases where the acquisition takes place under

  the form of a public offer for the securities of the acquired company have

  been excluded from the "Majority acquisitions" heading. Those public-bid

  cases have been further divided into those in which the bid has been

  contested by the acquired firm and those cases in which the bid was commonly

  agreed. The group "Others" includes a cross-shareholding deal in 1990/91 and

  one demerger case in 1991/92.

  643. In the first year of enforcement of the Regulation, Community-wide

  agreements were the most frequent ones (38% of total), but closely followed

  by mixed agreements between EC and non-EC firms (34%). This order was

  inverted last year however (33% and 35% respectively). Notified deals

  between firms of the same nationality and concentrations between firms from

  different non-EC countries were less important and accounted for a constant

  but not insignificant proportion of the total number of operations notified

  in both years (17% and 14% respectively in 1991/92).

```

```
IV.C.3
```

403

```
  644. Acquisitions of majority holdings and concentrâtive joint ventures were

  by far the most frequent types of operations in 1990/91 and 1991/92. In

  fact, the number of concentrâtive Joint ventures notified during 1991/92 was

  particularly high. Meanwhile, the number of notified acquisitions of

  majority holdings dropped during the second year of the implementation of the

  Regulation. Pure merger cases were reduced to a minimum level. It is

  remarkable though that two out of the three cases of this type examined in

  the two years concerned foreign firms only.

```

```
IV.C.4

```

**mmiim»»** **404**

```
  <T4> §3. Economic sectors of the operations (Table 2)

  645. Notified cases are classified by the NACE code of the main economic

  activity of the concentration resulting from the operation. This sectoral

  breakdown is further analysed by the geographic dimension of the

  concentration.

  646. As Table 2 shows, although most of the notified cases of concentrations

  took place in the manufacturing sectors (61%), there were significant numbers

  of cases notified in areas such as transportation, commerce and financial

  services (with 11% each).< [1] >

  647. In 1990/91, the broad categories 2 and 3 of the NACE classification

  accounted for about 50% of the cases. The two-digit level of the NACE,

  sector 34 - Manufacturing of motor vehicles - had the highest frequency with

  four cases in 1990/91 (8%). Three out of these four cases involved firms

  from inside and outside the EC. The nationalities of the companies involved

  in those cases were France, Japan, Germany and Sweden.

  648. There were several two-digit subsectors with 3 operations involved in

  1990/91. Those could be found in refining, machinery and equipment, office

  machinery and computers, electrical machinery and computer-related

  act ivit ies.

  649. In 1991/92, manufacturing activities still maintained their leading

  position (57%), but followed very closely by financial services (21%). There

  were six operations in the chemical sector and five in motor vehicles. Four

  operations were registered in the manufacture of food and beverages.

  However, four operations were also, registered in insurance and pension funds

  and three in financial intermediation.

  (1) All percentages for 1990/91

```

```
IV.C.5
```

_m_ _^_ _m_ 405

```
  T4> §4. Operations by nationality of the companies involved

  650. Table 3 includes information regarding the nationality of the firms

  involved in the operations. Given that two or more companies of the same or

  different national origin can be involved in the same deal, this information

  can be presented in different ways. In Table 3 we present the frequencies of

  the different "couples" or combinations of nationalities. The upper

  right-hand side of the matrix shows the data corresponding to 1990/91 and the

  lower left-hand side gives the information for 1991/92. The main diagonal of

  the matrix shows the frequencies of cases in which two firms of the same

  nationality took part in a certain deal (either alone or with other

  companies), separating with a "\" the 1990/91 figure (right-hand side) from

  the (left-hand side) 1991/92 figure.

  651. The last column in the table gives the frequency with which a firm of a

  certain nationality was involved in one deal in 1990/91. For instance if two

  firms of the same nationality merged in that year, and there were no more

  operations involving firms of the same nationality, the frequency for that

  country would be two. The last row in the matrix gives the same total for

  the 1991/92 per iod.

  652. This table shows that French companies were by far the most active

  during the 1990/91 period with 32 operations with at least one French company

  involved. These concentrations were not concentrated geographically. They

  took place in four EC countries other than France as well as in four other

  non-Member States. Behind France, three countries show approximately the

  same frequency in the number of deals involving firms from that national

  origin and it is interesting to note that there is one non-EC country among

  them: Germany (18), USA (17) and the United Kingdom (16)i *?

  653. This seems to indicate that the Regulation has had an important impact

  not just on European firms but also on large companies operating worldwide

  and with a non-European origin.

  654. This high level of internationalization of the activities failing under

  the scope of the Regulation was continued in 1991/92, although there was less

  concentration by nationality in that year. For instance, in this second

  year, there were more cases involving Swedish firms than cases affecting

  Italian firms. It is also interesting to point out the high diversity of the

  countries included in the group of those affected by the enforcement of the

  régulât ion.

```

```
IV.C.6
```

406

```
  655. It is also interesting to note that in 1991/92, the frequency of cases

  involving French companies is similar to those of the other large

  Member States. Finally, in 1991/92, there were no cases involving Japanese

  firms. This fact, together with the very low frequency of 1990/91 (5 cases)

  seems to reflect a strategy of Japanese firms quite different from that shown

  by USA or Swedish firms for instance.

  656. In terms of "pairs" or binary combinations, it is important to mention

  the high frequency of cases in which a French and a Germany company were

  involved (six in 1990/91 and five in 1991/92). In 1991/92 it is also

  worthwhile mentioning the number of times in which two firms of the same

  nationality took part in the same deal, particularly for the cases of Germany

  and the UK.

```

```
IV.C.7

  T4> §5. Statistical analysis of the decisions

```

407

```
657. Most of the notified cases falling under the scope of the Regulation did

not reach the second stage of the procedure. In 1990/91, 43 out of the 47

cases notified falling under the scope of the Regulation were declared

compatible with the common market after the first stage of the investigation.

In 1991/92 that figure rose to 54 out of 57 cases.

658. The four cases reaching the second stage of the investigation in 1990/91

were later on cleared as it was found that they did not significantly impede

effective competition in the common market. However, in three of these cases

conditions were imposed by the Commission on the undertakings to ensure that

the agreement was not going to imply restrictions of competition in the

common market or in a significant part of it. The three cases cleared

subject to conditions did not involve any company from any Member State while

in the case cleared without conditions all the companies were from non-EC

countries (Sweden and Switzerland). The sectors concerned were machinery,

electrical machinery and radio, television and communications equipment.

659. In 1991/92 a smaller percentage of notified cases reached the second

stage of the procedure, but only in one case did the Commission declare the

concentration incompatible with the common market. This was the proposed

acquisition of the Canadian aircraft manufacturer De Havilland by the French

Aerospatiale and the Italian Alenia.

That year there were two clearances of concentrations subject to conditions.

Contrary to the previous year, these operations were acquisitions, not joint

ventures, with one agreed and one contested bid.

The legal analysis of all these decisions can be found in the Twenty-first

Competition Report and in Chapter I.C. of Part II of this Report.

```

```
IV.C.8

```

408

```
 Table 1 Operations by type of concentration and geographic dimension

```

```
                1990/91

Type of concentration A B C D Total

Acquisition of majority

holding 5 11 8 2 26

```

**1991/92**

**A** **B** **C** **D** **Total**

6 6 9 1 22

**0** **2** **1** **0** **3**

0 0 1 0 1

3 10 9 6 28

1 0 0 1 2

0 1 0 0 1

10 19 20 8 57

Agreed pub I i c bid

Contested p u b l i c bid

0 0 1 1 2

0 0 1 1 2

Joint venture/Control 2 7 5 1 15

Merger

Other

Total

A* nat ional

B- Community

C» Community plus non-EC

D- extra-Community

Source: **MTF** Database

0 0 0 1 1

0 0 1 0 1

7 18 16 6 47

```
IV.C.9

 Table 2 Operations by economic sector and geographic dimension

```

409

```
  1991/92

A B C D Total

```

**0** **2** **1** **1** **4**

**3** **5** **7** **3** **18**

**2** **2** **5** **2** **11**

**1** **0** **0** **0** **1**

**2** **5** **1** **0** **8**

**1** **4** **5** **2** **12**

**1** **1** **1** **0** **3**

**0** **0** **0** **0** **0**

**0** **0** **0** **0** **0**

**10** **19** **20** **8** **57**

```
NACE code

1. Food, textiles and

  clothing

```

```
  1990/91

A B C D Total

 2 1 2 0 5

```

```
2. Wood, paper, refining 3 6 1 1 11

  chemicals, metal &

  machinery

3. Elect, and transport 2 3 6 2 13

  equipment & furniture

4. Public utilities and 0 1 0 0 1

  construct ion

5. Wholesale, trade 0 4 1 0 5

  hotels & restaurants

6. Transport, commun. 0 3 0 2 5

  & financial services

7. Real estate, computer 0 0 5 0 5

  services and prof.

  services

8. Education and public 0 0 0 0 0

  health

```

```
9. Community, social

  and personal serv.

Total

A- nat ional

B- Community

C- Community plus non-EC

D- extra-Community

Source: MTF Database.

```

```
0 0 1 1

7 18 16 6 47

```

```
Table 3 Operations by nationality of the companies involved
      (1990/91 in upper right-hand side of the main diagonal and in 1991/92 lower left-hand side)

91-2\90-1

```

```
  <

4^

O

```

```
Gr Irl I L

```

```
                               Total

UK Can Fin Jap Swe USA Swi Au I Aus SAf Hok Vir Kuw 90/91

```

```
2

1

4 1

5\2

3 1

4

1

  1

1

1

29 6

```

```
0\1 2
  3\0 1
    3\2
  1 1\1
  1 \

  16 17 5

```

```
B

DK

D

E

F

Gr

Irl

L

NI

P

UK

Can

Fin

Jap

Swe

USA

Swi

Au I

AUS

```

```
B DK D

\

  \

```

```
1 6\3 6
    2\1 3
    1 2\4

```

```
NI P

1

  1

\

1 \

1

7 2

```

```
1

```

```
\

1 \

3 1

```

```
SAf

Hok

Vir

Kuw

Total 3 1

91/92

```

```
 1

 0

18

 6

32

 0

 0

 7

 0

 3

 0

16

 2

 1

 5

 3

17

 5

 0

 0

 0

 0

 0

 0

```

```
  1

29 10 26 0

```

```
1\1

1

11 1

```

```
\
  \

2 1

```

```
Source: MTF Database.

```

```
<

o

```

```
Table 4 Breakdown of final decisions resulting from proceedings Initiated under Article 6(1)(c) of Council Regulation 4064/89

```

```
Article 8(2) decisions

```

```
1991/92

```

```
Article 8(2) decisions

```

```
1990/91

    Article 8(3) decisions

```

```
Article 8(3) decisions

      1

    Acq. maj.

  CoM/non-EC (1)

     35

    Can/F/lt

```

```
Without cond.

   0

```

```
With cond.

    2

Agreed bid

Contest, bid

CoMunlty (1)
CoM/non-EC (1)

   15

   55

   B/F

   F/Swl

```

```
No of cases

Type of
operation

Geographical

Dimension

NACE code

Nationality

of fins Involved

```

```
 Kith cond.

     3

 Acq. maJ. (2)

 JV/control (1)

   Nat. (1)

   C O M . (2)

    31 (2)

    32 (1)

   F/l (2)

   0/0

NACE codes

```

```
Without cond.

    1

  Acq. maj.

  Extra-EC

   29

 Swe/Sw1

```

```
0

```

```
15 Manufacturing of food products and beverages
29 Manufacturing of machinery and equipment N.E.C.
31 Manufacturing of electrical machinery and apparatus N.E.C.
32 Manufacturing of radio, television and communications equipment
35 Manufacturing of other transport equipment

55 Hotels and Restaurants

Source: MTF Database.

```

**ISSN 0254-1475**

COM (93) 162 final

##### **DOCUMENTS**

EN 08

Catalogue number : CB-CO-93-185-EN-C

ISBN 92-77-54813-4

**Office for Official Publications of the European Communities**

**L-2985** **Luxembourg**