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Language: en
Format: md

**COMMISSION OF THE EUROPEAN COMMUNITIES**

COM(94) 161 final

Brussels, 05.05.1994

XXIIIrd COMPETITION REPORT FROM THE COMMISSION

                    - 1993 

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XXIMrd COMPETITION REPORT - TABLE OF CONTENTS Pages

INTRODUCTION and STRUCTURE OF THE REPORT <|

PART ONE: MAIN DEVELOPMENTS IN COMPETITION POLICY 6

Chapter I - Maintaining a competitive environment 6

§1 . The contribution of competition policy to growth, competitiveness 6

    and employment

§2. State aid 13

§3. Liberalization and privatization 16

§4. Merger control 22

§5. Restrictive agreements and abuses of dominant positions 32
§6. Consequences of the Maastricht Treaty 40

Chapter II - The international dimension of competition policy 43

§1. General 43

§2. Promoting competition policy enforcement throughout Europe 44
§3. A more daunting task: encouraging competition policy enforcement in 49
    non-European countries
§4. Cooperation on enforcement in specific cases 52
§5. The impact of the Uruguay Round on competition policy. 54

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Chapter III - Developments in the application of the competition rules to 56
         particular industries
§1. Financial services - Insurance 56

§2 Telecommunications and postal services 59

§3 Energy 65

§4 Transport 68
§5 Audiovisual industry 72

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56

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Telecommunications and postal services 59

Energy 65

Transport 68
Audiovisual industry 72

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Chapter IV - Competition policy and other Community policies 75

§1 Completion of the internal market 75
§2 Industr iaI poI icy 73
§3 Environment §2

§4 Culture 37
§5 Commer c i a I poI i cy 90

Chapter V - Application of the competition rules 92
§1 . Transparency 92
§2. Subsidiarity and decentralized application 95
§3. Improvement of procedures 98
§4. Commission activities (quantitative description) 111

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PART TWO: COMPETITION RULES APPLICABLE TO ENTERPRISES 115

Chapter I - Main decisions and measures taken by the Commission 115

A. General 115

§1. Horizontal agreements 115

§2. Vertical agreements 117

§3. Abuse of a dominant position ^ ç

B. Analysis of individual decisions and measures 120

§1. Setting-up of joint ventures and other forms of cooperation 120

       Phi I ips-Thomson-Sagem

         Alenia-HoneyweI I

    - International Private Satellite Partners (IPSP)

    - Intrax

§2. Service sector 127

    - CNSD

§3. Audiovisual sector ^29

    - EBU

    - Aud i te I

§4. Energy 1 31
       Electricidade de Portugal/Pego project
       Logistical collaboration agreement between REPSOL and BPMED in

       the Canary Islands

    - D i sma

    - Texaco Ltd

    - Service station agreements in Spain
    - Service station agreements in the Canary Islands

§5. Motor vehicles 142

       Cooperation agreements between Peugeot and Fiat involving the
       Sevel joint venture

       Rover Group
       Distribution of Fiat spare parts in Italy
§6. Transport 1^7
    (a) Sea transport

         - East African Conference

         - Trans-Atlantic Agreement

         - Ir ish Club Rules

    (b) Port services

         - Sea Containers/SeaI ink
    (c) Ra i I transport
         - Decision on tariff structures in the combined transport of

          goods
    (d) Air transport
         - IATA - Currency Rules

         - IATA - Cargo Surcharge
         - SABRE/Air France and Iberia

§7. Protection of the environment 158

       Spa Monopole/GDB
§8. Case concerning intellectual property 160
       Becton-Dickinson/Cyclopore

§9. Other sectors 161

    - Zera Montedison/Hinkens Stahler

    - Grundig's selective distribution system
    - Papeteries de Golbey

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`Merger control` _*,j_

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§1 . Scope of application
                                              167
    (a) Community dimension (Article 1)
    (b) Calculation of turnover thresholds (Article 5)
    (c) Definition of concentration (Article 3)

§2. Appraisal of concentrations 179
    (a) Determination of the relevant product market
    (b) Determination of the relevant geographic market
    (c) Assessment of compatibility

§3. Application of Articles 9, 21 and 22 194
    (a) Application of Article 9
    (b) Application of Article 21(3)
    (c) Application of Article 22(3)

§4. Application of Article 223 of the Treaty 197

D. Main decisions in the steel industry 198

§1. Main developments 198

§2. Mergers . 199

§3. Financial arrangements 201

E. Substantive and procedural rules 203

    Application of the block exemption Regulations

    (a) Motor vehicle distribution
    (b) Application of the other block exemption Regulations
Chapter II - Main cases decided by the Community lawcourts 208

§1 . Interpretation of Article 3(f), the second paragraph of Article 5 208
    and Article 85(1) of the EC Treaty
                                              211
§2. Definition of an undertaking
§3. Application of Article 85 to a horizontal agreement on prices 212
§4. Interpretation of Commission Regulation No 1984/83 214
§5. Interpretation of Commission Regulation No 123/85 215
§6. Abuse of a dominant position 217
§7. References for preliminary rulings 219
§8. Procedure 221
§9. Case-law relating to the Merger Control Regulation 228

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PART THREE: PUBLIC ENTERPRISES AND STATE MONOPOLIES 231

Chapter I - Main developments 231

§1 . Telecommunicatrons and postal services 231

§2. Energy 234

§3. Transport 235

Chapter II - Main decisions of the Court of Justice 239

§1. Court Judgments concerning Article 90 of the EC Treaty 239

§2. Interpretation of the Directive on telecommunications terminal 242

    equipment

§3. Public enterprises and state aid 244

PART FOUR: STATE AID 245

Chapter I - Main decisions and developments in the policy of the Commission 245

§1. General policy questions (including guidelines, procedural questions 245
    and international aspects)
§2. Public enterprises and privatization 262

§3. Horizontal aid: 273

        Investment aid

       Aid for environmental protection and energy conservation
       Export aid
       Aid to small and medium-sized enterprises
       Employment aid
       Aid for rescuing and restructuring firms in difficulty
§4. Aid for research and development 287

§5. Regional aid 291
§6. Aid to sectors of industry subject to special Community rules on 298

    state aid

    (a) Aid to the steel industry

         - Steel covered by the ECSC Treaty

         - Non-ECSC steel sectors

    (b) Aid to shipbuilding
    (c) Aid to the motor vehicle industry
    (d) Aid to the synthetic fibres industry
    (e) Textile and clothing industries
    (f) Aid to the coal industry

§7. Aid to other industries (including energy) ' 323
§8. Aid in the transport sector 325

§9. Aid to other service sectors 331

§10. State aid in the agricultural sector 335

§11. Aid in the fisheries sector 341

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Chapter II - Main decisions of the Court of Justice

PART FIVE: I NTERNAT I ONAL DIMENSION

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342

345

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§1 . EFTA countries 345

§2. Central and Eastern Europe 34g

§3. North America 35g

§4. Japan and Korea 351

§5. Multilateral organizations 352

PART SIX: CONTACTS WITH COMMUNITY INSTITUTIONS AND EXTERNAL ORGANIZATIONS 353

§1. European Parliament 353

§2. Economic and Social Committee 354

§3. Advisory Committee on Restrictive Practices and Dominant Positions 355
§4. Advisory Committee on Concentrations 356
§5. Conference of national government experts 357
§6. Contacts with the competition authorities in the Member States 358

    (a) Restrictive agreements, dominant positions and mergers

    (b) Aid

§7. Competition law in the Member States 360

§8. Other contacts 364

                     ANNEXES

Annex III : Decisions, notices and Judgments relating to individual cases 365

    A. Competition policy towards enterprises 365

       1. Case summaries 365

    B. Public enterprises and national monopolies 399

Annex IV : The evolution of concentration and competition 401

    Introduct ion 401

    A. Takeovers (including mergers and majority acquisitions), 402
       minority acquisitions and joint ventures in 1992/1993

    B. The 1993 studies programme 433

    C. Statistical note on concentration operations notified under 441
       Council Regulation (EC) No 4064/89

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Intro, p. 1

<T4> Introduct ion

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#### ooi

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1. The Annual Competition Report gives the Commission an opportunity to

explain the main developments and cases of competition policy to the

different Community institutions - the Parliament, the Economic and Social

Committee, the Member States - as well as industry at large, which is

directly concerned by its application, and the general public, which

indirectly is the main beneficiary of its application. By presenting this

Report in as non-technical language as possible, transparency is enhanced, a

factor fundamental in any democratic society for the successful application

of pol i cy.

2. This year's activities have been marked by several major events in the

Community's development - the entry into force of the Treaty on European

Union, completion of the ratification of the European Economic Area

Agreement, and the White Paper on growth, competitiveness and employment.

This has given the opportunity in this Report, in addition to describing

developments and activities during the year, to explore both how these three

major landmarks will influence competition policy and conversely how

competition policy is necessary to achieve the objectives these landmarks set

out for the Community. This link between Community objectives and competition

policy is a two-way process. It is inconceivable that competition policy

could be applied without reference to the priorities fixed by the Community.

But it is also important to realize how an effective competition policy will

help to attain these goals.

3. Whilst this principle is not in dispute, the application of policy in

practice will require careful consideration. In fact all the policy

implications of the abovementioned major events have not yet been worked out

and it is hoped that this Report will contribute towards the rich debate on

how to achieve the correct balance in the application of competition policy

and priorities which usually follows its launch. In this respect, this year's

Report is a little more forward-looking than usual, in that in a by no means

exhaustive summary, it suggests some of the ways in which competition policy

may be adapted to meet the new Community priorities. The full details of

these implications and the adaptation of policy to a rapidly changing world

is an on-going and continuous process. Of course there are underlying

principles that remain, and these are enshrined in the Treaty, but they

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Intro, p. 2
###### 002

cannot be applied mechanically without reference either to the context within

which they have their impact or the main objectives and priorities of the

Community.

4. This reference to the context within which competition policy is applied

is not a new phenomenon, but stems from the 'fact that competition is an

instrument of Community policy. Since the beginning of the Community,

competition policy has helped pursue fundamental Community goals. It has

helped create, for example, a common market, a harmonious development of

economic conditions and an accelerated raising of the standards of living.

This role received a further boost with the Single European Act establishing

the programme for a real internal market, where increased competition was

seen as the mechanism by which many gains of this programme would be realized

once the fiscal, administrative and other barriers were eliminated. Its role

was further enhanced with the Communication of 1990 on industrial policy in

open and competitive markets that gave an important role to competition

policy in improving productivity of European industry in a rapidly changing

world with increasingly globalized markets.

5. The Maastricht Treaty has added new goals. Inter alia, it introduced and

deepened industrial, cultural and environmental goals. It also made explicit

the principle of subsidiarity. In fact these three objectives and the

subsidiarity principle are discussed separately and in depth in this report.

The White Paper clearly laid out the policies to achieve growth,

competitiveness and, even more importantly, employment. The need for

competition policy to achieve these objectives and how these objectives

affect the application of competition policy are also discussed. These

developments do not devalue competition policy, rather they enhance it and

give it renewed vigour and importance. A competition policy that did not have

an impact on these policies or was not influenced by them would be

marginalized and of less relevance.

6. In any year it is difficult and even dangerous to pick out any single

points or policies to highlight in addition to the general and important

considerations outlined above. The following remarks do not therefore in any

way imply that any points not mentioned are not important. Rather they are

meant to focus attention on arças that are seen as of growing relative

importance.

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ntro. p. 3
###### 003

  The first of these is the introduction of competition to monopolized

  sectors, where a major advance has been made in the field of

   telecommunications, but where steady progress in liberalization was made

   in other monopolized sectors. This is mentioned because of the gains

   that can be made from introducing for the first time competition into

   these sectors and the positive impact on competitiveness and employment

  of trans-European networks highlighted so clearly in the White Paper.

  Second is the introduction of competition into other sectors, notably

  services, previously to a large degree sheltered. Whilst there has been

  no single event to compare with the liberalization in

   telecommunications, the advance in policy in this area has been

  maintained. Again the White Paper stressed the employment potential in

   the serv ice sector.

  Finally, the third area of growing relative importance to highlight is

   the international dimension of the Community's competition policy. This

   is particularly important this year because of the conclusion on

   15 December of the Uruguay, round in the GATT framework and the

  completion of the ratification process of the Agreement on a European

  Economic Area and hence its entry into force at the beginning of January

   1994. These developments, taken together with continuing negotiations

  with countries in East and Central Europe, constitute major steps to

   freeing international trade and therefore changing the competitive

  environment in which the Community's competition policy is applied.

  On the other hand it should also be stressed that the elimination of

  governmental barriers to trade such as tariffs and non-tariff barriers

  has made considerable progress in the past and that this pace is

   therefore unlikely to be maintained in the future. Further

   liberalization of regional or international trade flows therefore has to

  come in particular from the elimination of private obstacles to trade

  and other distort ions'of competition.

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Intro, p. 4

<T4> Structure of the Report

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###### 004

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7. The Report comprises six parts and a large number of annexes. This

structure should enable readers to find readily the information they are

looking for.

8. Part One concerns the main developments in competition policy and is more

general in scope than the other parts. It highlights developments in

competition law in the year under review and also endeavours to forecast

future trends. It covers all the aspects of competition policy and points up

the cohesion that exists between these various aspects and between

competition policy and other Community policies.

9. Part Two examines the application of the competition rules to

enterprises. These rules are Articles 85 and 86 of the EC Treaty,

Articles 65 and 66 of the ECSC Treaty and the Merger Control Regulation.

Whilst this part is more descriptive, it does not discuss all the cases dealt

with by the Commission but only those of particular interest for one reason

or another. Other cases are also summarized in the annexes. In addition,

Part Two not only provides an analysis of Commission decisions but also

examines the decisions of the Court of Justice and the Court of

First Instance.

10. Part Three is an innovation. Previously, developments concerning public

enterprises and state monopolies were presented in the part dealing with aid.

It seemed more appropriate to separate the two subjects, first because of the

growing importance of competition policy towards such enterprises and,

second, because the matters dealt with in this part are very mixed, relating

to both the behaviour of the State and the behaviour of enterprises.

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 Intro, p. 5
###### 005

11. Part Four deals with the monitoring of aid and also discusses the main

decisions of the Court of Justice on this subject. A traditional part of the

Report, its importance needs no emphasis.

12. Part Five is also new. It covers the international aspects of

developments in competition policy, an area that is gaining in importance and

must therefore be given greater prominence.

13. Lastly, Part Six gives an account of the Commission's contacts with

other Community institutions and with other international bodies. A

traditional part of the Report, it describes the important part played by the

primary addressees of the Report, the European Parliament and the Economic

and Social Committee, in formulating Community competition policy.

14. There are a number of annexes to the body of the text. The Commission's

aim is that the Report provide as full a picture as possible of developments

in competition law in the past year. The full text is therefore supplied of

all legislation or documents of particular relevance such as the resolutions

of the European Parliament and the Economic and Social Committee concerning

the preceding report (Annexes I and II). Annex III, as stated above,

contains a summary of the most interesting cases decided on the basis of

Articles 85 and 86 of the EC Treaty. Point 2 of Annex III provides a list of

press releases on competition issues. In the field of aid, the list of press

releases is supplied together with the list of decisions. No references are

given in the body of the text in order not to overload it. Readers seeking a

text or a document should simply turn to the Annexes.

15. Lastly, Annex V contains an analysis of the main developments in

competition law in the Member States.

16. To conclude, it should be noted that DG IV has decided to appoint an

"information officer" to deaJ with public requests for information on

compet i t ion poI icy .

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**1 . I . § 1 . p . 1**

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<T5> Part One

<T1> Main developments in competition policy

<T4> Chapter I

<T2> Maintaining a competitive environment

<T3> §1 . The contribution of competition policy

            to growth, competitiveness and employment

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##### 006

```
17., The present context of slower growth, a loss of competitiveness in

certain sectors of the European economy and, especially, the particularly

high level of unemployment calls for combined action on all Community policy

fronts to meet these economic and social challenges. Competition policy has

a central role to play in the Community's strategy for achieving a lasting

recovery in growth and employment. The priorities which the Commission has

set itself as regards competition are, therefore, largely determined by the

contribution which competition policy can make to the Community's objective

of growth, competitiveness and employment, as set out in the White Paper

adopted by the Commission and presented to the first Council of the European

Union in December 1993. [( 1 ) ]

18. The White Paper sets out as a policy priority for the European Union the

creation of 15 million new jobs. It recognizes that there is no miracle

cure. It identifies the different areas where action is needed to tackle

this problem. One of the main themes running through the White Paper is the

need for fundamental restructuring of the European economy if it is to meet

the objectives laid down. In this respect, the White Paper stresses the need

for the resolute application of the rules of competition including those for

state aid and highlights the role this policy plays in eliminating market

rigidities and improving flexibility in an "increasingly dynamic economic

context. This vigorous application of competition policy was also stressed

by the summit of Heads of State or Government in December.

(1) White Paper on "Growth, Competitiveness and Employment. The Challenges
   and Ways Forward into the 21st Century", COM(93)700 final,

   5 December 1993.

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1.l.§1.p.2

###### 007

19. The stimulation of growth, competitiveness and employment has in fact

always been one of the raisons d'être of competition policy. Competition

encourages the efficient allocation of resources and stimulates research and

development, innovation and investment. It is the mechanism by which

resources and jobs are redirected towards growing sectors and away from ones

with less promising futures. The importance of this traditional role of

competition policy has been reinforced in recent years in two ways.

Firstly, its part in making a reality of the internal market which will

create jobs and stimulate growth and competitiveness is widely

recognized.(2) Secondly, it is central to the Community's industrial

policy.(3) The completion of a genuine internal market and an effective

industry policy have received first priority in the White Paper. This in

itself implies the need for renewed vigour in competition policy in areas

where it complements and enhances these objectives.

Even though this firm competition policy needs to be maintained, the White

Paper throws down a new challenge. It is essential to examine how

competition policy can be applied even more effectively in helping to create

growth and employment and how it can enhance [s] or complement the other

Community policies set out in the White Paper. This chapter will examine

the link between competition policy and the major structural changes that

are necessary in the European economy if it is to meet the objectives of the

White Paper. This Report does not present a definitive statement - this

will have to await a full in-depth review - but instead some preliminary

ideas of the future direction of thinking.

20. One of the Commission's priorities is, by pursuing a clearly defined

policy and reaching rapid decisions, to facilitate mergers and cooperative

arrangements between firms that do not jeopardize effective competition and

the dynamics of the market. Mergers can contribute to the restructuring of

the economy, while cooperative arrangements may, for example, allow

considerable economies of scale. These facilitate improved product quality,

technological research and implementation of its results, and the entry of

firms onto new markets. The White Paper emphasizes the efficiency-enhancing

qualities as well as the fillip to research, innovation and product

development that can come from cooperation between companies and can add to

the competitive pressures on the market. It notes in particular how the

(2) See points 149 to 154 of this Report.
(3) See points 155 to 161 of this Report.

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1.I.§1.p.3
###### 008

structure of competition must be seen in many sectors in an increasingly

global context. This balance between the efficiencies of cooperation and the

real competitive context within which cooperation takes place are essential

elements to be taken into account in the assessment of this cooperation under

the rules of competition.( [4] )

21. If they are to become more competitive, European firms must also reduce

costs and gain access to more efficient services in key sectors such as

financial services and public services, particularly telecommunications,

transport and energy. Only through liberalization will the full positive

effects on productivity be achieved that stem both from the encouragement of

private capital to participate in the construction of infrastructure and from

the reduction of the price of goods and services offered via such

infrastructures. These infrastructures, which need to be expanded into

trans-European networks, will be able to contribute fully to the

restructuring of the European economy and to bring about fundamental changes

in investment and services only within a liberalized framework. In fact,

trans-European networks are assigned a central role by the White Paper and

the progressive introduction of competition in these fields remains a

priority objective for the Commission.^) However, it should be noted that,

when competition is first introduced in previously monopolized sectors, the

prices of some goods and services may increase as hidden or cross-subsidies

are eI iminated.

Policy in this area and the reasons for the emphasis placed on it are best

illustrated by the review of telecommunications which was completed this year

and highlighted the growth potential of this sector, its importance to the

competitiveness of the rest of industry as a vital input, its importance in

terms of current jobs and job-creating potential, its demand for huge

investment and advanced technology (hardware and software inputs) and,

lastly, its social role via the universal service provisions.

If successful, the bottlenecks relieved by investment in this and other

trans-European networks will have a large and positive effect on growth,

competitiveness and employment. This challenge can be met only if

competition policy is coordinated with the other Community policies that must

be implemented.

(4) See points 74 to 89 of this Report.

(5) See points 36 to 42 of this Report.

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1.l.§1.p.4
##### 009

22. Another area highlighted in the White Paper as central to the creation

of employment and the encouragement of flexibility is SMEs. SMEs have long

received favourable treatment from the application of competition policy.(6)

Further enhancement of this policy may be necessary to exploit even further

both their job-creating potential and their ability to take up readily new

and innovative technologies and to be quick to seize new market

opportunities. Already, and in line with the White Paper, the state aid

policy towards SMEs, as expressed in the aid framework, puts emphasis on

"soft" aid designed to improve both labour flexibility (e.g. aid for

training) and their technical and marketing potential ("soft" aid to

technical and other knowledge-based inputs^ [7] )). SMEs are also accorded

preferential treatment in regard to investment incentives and aid for R&D and

the env ironment.

23. State aid policy in general has an important role to play in

encouraging and facilitating the major structural changes identified in the

White Paper. (8) i n the first place, a firm policy must continue to be

pursued in order to prevent individual Member States from using aid

defensively and negatively to resist the necessaYy structural changes and

from shifting the cost of adjustment in terms of output and jobs onto other

Member States. On the other hand, aid can play a positive role in this

restructuring. It can speed up change, encourage R&D and innovation, and

alleviate the social consequences of large and sudden changes. Europe is

often accused of having good basic research but a disappointing record of

innovation, having a rigid labour market and poor job-creating potential

despite long-term overall economic growth. State aid policy needs to be

examined in the light of the White Paper to see whether it is working

effectively and in particular whether there is a need to correct the bias in

favour of capital investment and against investment in human, organizational

and knowledge-based resources.

Particular attention will have to be paid to ensuring that aid, in whatever

form or for whatever factor of production, does not artificially prop up

untenable jobs with no long-term future, but rather that it helps to

restructure the economy in the direction of investment-generating viable

jobs. Aid must not be used to second-guess the market because state

intervention in this area has not always been successful. Rather, policy

(6) Twenty-second Competition Report, points 78 to 79

(7) See points 430 to 432 of this Report.
(8) See points 27 to 35 of this Report.

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1.I.§1.p.5

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##### 010

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needs to concentrate on horizontal measures and on areas where there is a

failure of the market either to invest enough or to invest quickly enough

(notably R&D, the environment, innovation and training). Central to the

White Paper is the role of research, development and technology, and

investment in human and non-physical capital in changing the growth,

competitive and employment pattern of the Community. Competition policy in

all its aspects must continue to play its role.

24. Aid policy, along with policy towards enterprises, will have to be

coherently developed and applied in areas where the competition rules are not

yet applied in a fully effective manner. This is not only true for the

regulated sectors mentioned above, but even more so for many service sectors,

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`e.g. financial services and the audiovisual` `sector.` _(^)_

```
The fact that these sectors have long been sheltered from competition means

that the gains from introducing effective competition are all the greater not

only in terms of reducing prices to consumers but in terms of underpinning

the competitiveness of the rest of industry, which needs as an input

reasonably priced and innovative services from these sectors. Neither should

the job-creating potential of these service sectors be ignored. For a long

time, their contribution as a percentage of gross domestic product and to

employment growth has been greater than that of industry. An increasingly

dynamic service sector, underpinned by the effective application of

competition policy, will inevitably continue to be one of the major sources

of employment generation. This is best illustrated by a example from the

White Paper. The audiovisual sector is thought to employ at least 1.8 million

people. Recent estimates point to a doubling in the medium term of the share

of household expenditure given over to audiovisual software products. If

this growth is translated into jobs in Europe, it could create 2 million new

jobs by the year 2000. Application of the competition rules in this sector

must, however, take account of other Community policy objectives, notably as

regards pluralism in the media and the promotion of cu I ture. ( [1<] -*)

25. Lastly, the White Paper underlines the international dimension of the

problem of improving Europe's growth, competitiveness and employment. Europe

is an integral part of an increasingly global economy. As trade is freed

from governmental constraints and barriers, a movement given renewed impetus

(9) See points 117 to 122 and 143 to 146 of this Report.

(10) See points 90, 143 to 146 and 172 to 177 of this Report.

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1.I.§1.p.6 ^ ^
##### 011

by the successful conclusion of the GATT Uruguay Round, the role of

competition policy at international level becomes even more crue i a I . ( [1] "• )

This development of the Community itself illustrates the point that

competition policy can facilitate economic integration.

Whereas in most countries competition policy has traditionally been seen as a

purely national prerogative, the Community was the first to practise a policy

which tried to deal with the impact that distortions of competition had on

trade. Originally only applied within the Community, this approach has been

gradually extended to trade with the Community's main trading partners in

Europe as well. Thus, competition policy has played a major role in

furthering international trade and in particular the scope for our companies

to export to other markets, hitherto sealed off by anti-competitive

practices, state aid or public monopolies.

Not all of the Community's main trading partners have followed a similar

approach of applying their competition policies to open their markets to

imports, however. Such policies are lacking in particular in a number of

countries in East and South-East Asia, whose markets are closed not so much

by tariffs and non-tariff barriers but mainly by anti-competitive practices.

The "Keiretsu" in Japan and the closed distribution systems in several

countries are but two important examples of this phenomenon.

It is a Community priority to seek to establish rules governing these

competition problems. Ideally, such rules should be agreed mu 11i lateraIly in

order to give them the broadest coverage possible. The present GATT Round

does not deal with the issue, even though certain codes (in particular the

TRIPS and Services Codes) include provisions on restrictive business

practices. The World Trade Organization, created as part of the Round's

package, should cover competition policy issues as part of its immediate

agenda, focusing especially on restrictive business practices and cartels.

The aim should certainly be to agree on minimum substantive rules but, more

importantly, to lay down procedures to ensure enforcement of these rules by

each of the contracting parties. For it is only through their enforcement

in individual cases that the positive market-opening effects can be achieved..

The right of recourse to GATT panels should be strengthened, as should the

effectiveness of their adjudications. Bringing in effective rules of this

(11) See points 96, 97 and 114 to 116 of this Report

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1. I .§1.p.7
###### 012

kind will be difficult and time-consuming but it is high time to begin the

process.

26. In the short term, the first step is to agree on a system of

consultation and cooperation with the competition authorities in

non-Community countries so as to prevent any potential conflict. The

Commission has concluded an agreement with the US competition authorities to

limit any conflicts through a consultation, cooperation and coordination

process.

If the agreement, currently being examined by the Court of Justice, is

accepted, it can serve as a model in other negotiations. Discussions along

these lines have already been held with the Canadian authorities, and other

countries could follow suit. Since one of their main objectives is to limit

any conflicts to which their implementation might give rise, such agreements

can be concluded only with those authorities that actually implement

compet i t ion rules.

```

```
1.1.§2.p.8

<T3> §2. State aid

```

##### 013

```
27. The control of state aid is part of the essential regulatory framework

which will underpin and facilitate achievement of the objectives of the White

Paper on growth, competitiveness and employment. It is a measure of the

acceptance state aid control at Community level has gained that in the White

Paper it is taken for granted. The Heads of State or Government at the

Brussels European Council on 10 and 11 December emphasized the importance of

state aid policy in the context of the White Paper strategy. The year's

developments in the state aid sphere bear this out.

28. The control of state aid at Community level is vital, first of all, for

the success of the single market programme, one of the factors that will

improve the Community's competitiveness. Opening markets and keeping them

open has always been one of the main functions of state aid control, as of

competition policy genera I I y.( [1] 2) | n a more integrated market, the

distortive effect of certain types of aid is magnified and so control of aid

is even more important. This is especially obvious in industries with chronic

structural problems, the so-called "sensitive sectors", which are subject to

stringent aid frameworks. The policing of the aid rules in the steel,

shipbuilding, synthetic fibre and motor industries was a high priority in the

recession year 1993.^ [13] ^ Increased attention also has to be paid to

potentially distortive aid in other sectors. The Commission was reminded by

the Court of Justice that when in doubt it must check the market situation

carefully before rejecting complaints from competitors.^ [14] ^ The concern to

keep markets open and indeed to foster integration is also seen in many other

areas of state aid work. National regional aid is controlled in such a way as

to counteract the pull towards the most prosperous regions and encourage

inward investment in the underdeveloped areas or in areas faced with

industrial decline, in order to integrate these regions into the mainstream.

Clearly, state aid also needs to be controlled closely in markets only now

being opened up to competition such as energy and telecommunications.

29. The White Paper sees resistance to structural adjustment from declining

to expanding industries as part of the reason for Europe's poor recent record

of growth and job creation. The sluggishness of European economies in

(12) See point 157 of this Report.

(13) See points 480 to 533 of this Report.

(14) See point 533 of this Report.

```

```
1...*.P.. Q

adapting supply to demand has many causes: closed markets, a bloated public

sector, labour-market rigidities, subsidies, etc. Fortunately, on many of

these points the situation has vastly improved in the last ten years and is

still improving. Trade barriers have been dismantled in the Community and are

now falling between the Community, the rest of Europe and the rest of the

world. Governments have rolled back state involvement in industry or are now

doing so. As for subsidies, the Commission has always campaigned against

state aid that simply allows firms to put off restructuring. This approach

has been vindicated. Aid may be legitimate to ease restructuring,

particularly its social consequences. Access to aid for this purpose can

facilitate restructuring. But aid must not delay restructuring indefinitely.

The events of the past year - the steel industry restructuring and the

struggle over automatic guarantees of public-sector companies' debt^" [15] ) 
underlined this message but only confirmed how hard it is sometimes to apply

in pract ice.( [16] ^

30. Stopping the waste of public money on businesses in need of

restructuring has beneficial macroeconomic effects. It helps reduce budget

deficits. As the White Paper points out, achieving the macroeconomic criteria

for EMU, especially reduction of deficits, is an important condition of the

growth strategy. This and the diversion of income from private consumption

to investment will release the huge resources needed for trans-European

networks and investment in growth sectors.

31. The Commission has always emphasized its positive attitude towards

certain kinds of aid as long as they remain within certain limits and

contribute to Community objectives. Incentives for small and medium-sized

enterprises are one such category. The White Paper places great hope in SMEs

for Europe's development. In its state aid policy the Commission has long

recognized this contribution. Its guidelines on aid to small and medium-sized

enterprises of May 1992 are quite explicit about, for instance, the financing

handicap of SMEs - a point emphasized at the 1992 Edinburgh and 1993

Copenhagen summits with the proposed launch of loan guarantee and soft loan

facilities - and the value of "soft" aid for training and consultancy. The

Commission discussed the subject of aid for training and dissemination of

information to SMEs at a multilateral meeting with Member States in

(15) See point 374 of this Report

(16) See point 23 af this Report.

```

```
1 . I .§2.p.10
###### 015

December.( [17] ) In its new aid guidelines for environmental protection, the

Commission also adopted a more favourable attitude towards support for SMEs.

32. It is also the Commission's long-standing policy to look favourably on

support for research and development (R&D) and protection of the environment,

two more areas to which the White Paper attaches priority. The Commission

allows national support to cover a relatively high proportion of the costs of

projects, depending on the distance of the R&D from the market, which partly

determines the risk, and on the form in which the support is provided.( [1] ^)

33. The policy towards aid for environmental protection was reviewed in

1993. In the new aid guidelines,^ [19] ) further progress is made towards a

wider application of the "polluter pays" principle and the Commission builds

on experience which has shown the importance of incentives for investment

that goes beyond mandatory requirements. Such investment may in future be

aided at a higher rate than that which merely helps firms to adapt plant to

new standards. Subsidies for buying environmentally friendly products, relief

from new environmental taxes, and aid for recovery and recycling of waste are

also now covered. The guidelines should contribute to realizing the hope that

the White Paper has placed in environmental progress by increasing

transparency and providing a broad policy framework for environmental

subs idies.

34. The Commission normally takes a positive attitude towards state aid for

the audiovisual sector, another growth area identified by the White Paper. It

has never objected to film industry support schemes, except those designed

to remove discrimination. Discrimination against EC nationals cannot be

allowed even for cultural reasons. New Article 92(3)(d), inserted by the

Treaty on European Union, provides a specific exception for aids to cultural

activities and the arts.

35. It can be seen, therefore, that the Commission's state aid control is

already furthering the objectives of the White Paper and the Treaty on

European Union. By holding firm against distortive- and wasteful aid and by

controlling other subsidies only to the extent necessary to avoid abuse, the

Commission is helping to create the necessary conditions for this strategy to

succeed.

(17) See points 383 and 430 to 432 of this Report

(18) See points 160 and 414 to 464 of this Report

(19) See point 384 of this Report.

```

```
1.I.§3.p.11
##### 016

<T3> §3. Liberalization and privatization

36. There are two aspects to the Community competition rules. On the one

hand, they are intended to maintain a competitive environment undistorted by

firms or by state involvement. This is the role of Articles 85 and 86 of the

EC Treaty, Regulation (EC) No 4064/89 on merger control, Articles 65 and 66

of the ECSC Treaty, Articles 92 and 93 of the EC Treaty and, to some extent,

Article 90 of the EC Treaty. On the other hand, they may also be used to

introduce greater competition into certain sectors in which Member States

have conferred monopolies on certain enterprises. Article 90 of the EC Treaty

also allows the Commission to take action against such Member States where

they grant exclusive or special rights to certain firms in breach of the

rules laid down in the EC Treaty. Article 90(3) provides the Commission with

two possible courses of action: either it can adopt directives, i.e. acts

that are generally applicable, or it can address individual decisions to

specific Member States. The provisions of the Treaty that may be infringed in

this context are, for example, those governing the freedom to provide

services, those relating to freedom of establishment and, once again,

Art icles 85 and 86.

However, the EC Treaty does not concern itself with the question of whether

the enterprises enjoying such exclusive or special rights are publicly or

privately owned. Article 222 of the EC Treaty stipulates clearly that the

Treaty does not in any way prejudice the rules in Member States governing the

system of property ownership.

Parallel to such action vis-à-vis Member States, Article 90(2) provides that

public undertakings and undertakings on which the state has conferred

exclusive or special rights are not entitled to any preferential treatment in

the implementation of the competition rules. The only exception concerns

restrictions of competition that may be authorized where they are necessary

for the performance of the particular tasks assigned to the undertakings.

This is because certain undertakings are required to perform specific tasks

on behalf of all consumers. Such tasks in the general economic interest may

justify the granting of exclusive or special rights. The nature of the

particular task varies according to the type of activity

```

`1` `. I .§3.p.12` 017

```
concerned and, in practice, poses difficult problems of definition.(20) -r ne

exception provided for in Article 90(2) of the EC Treaty reflects the

Community's intention of not obstructing the performance of such particular

tasks.

37. A look at the sectors in the Community in which such exclusive or

special rights exist shows that the prices charged are often higher than

those charged in countries in which such sectors are open to the forces of

competition. This is particularly the case with transport, telecommunications

and energy. Furthermore, the lack of competitive pressure means that there is

sometimes no incentive to pursue technological innovations and, in

particular, it deprives consumers of the ability to choose between different

technologies. This sort of situation is prejudicial to the competitiveness of

Community industry as a whole since firms in such sectors cannot take

advantage of the benefits of a genuine internal market. As the Commission has

pointed out in its White Paper on growth, competitiveness and employment,

this has probably resulted in job losses in Community industry. Moreover, the

effect is twofold: over and above the actual job losses borne by industry as

a whole, the situation prevents more firms from operating in the relevant

sectors, which arc themselves sources of employment. The introduction of

competition will have beneficial effects in the medium and long term.

However, in the short term, the introduction of competition, often

accompanied by privatization, and the ensuing rationalization may cause a

reduction in employment as a result of the shake-out associated with the

anticipation of increased competitive pressures.

Furthermore, consumers as a whole are certainly penalized by the lack of

effective competition in such sectors. On the one hand, the costs of such

services are higher for them and, on the other hand, they suffer the

consequences of the loss of productivity for Community industry as a whole.

It is for this reason that the Commission considers that the introduction of

greater competition is essential if the productivity of Community industry as

a whole is to be improved. A more detailed analysis of developments in these

sectors is given in Part One, Chapter I I I of this Report.

(20) See points 123 to 135 of this Report.

```

```
1...S3.P.13 Q 1 8

38. In addition to the specific features mentioned, a number of other

general points should be highlighted. Firstly, although the Commission has

far-reaching powers under Article 90(3) of the EC Treaty, it prefers to adopt

a consensual approach and pursue gradual liberalization, taking particular

account of the time required to adapt the price structure and to ensure that

the task of providing a universal service (i.e. one which is essential to all

consumers) is fulfilled. The pace at which this is carried out will depend

closely on the specific features of the relevant sector. The best example of

this differentiated approach is telecommunications. Here, technological

developments have made the de jure monopolies that exist in most

Member States obsolete. Consequently, liberalization will take place more

rapidly in this sector.

39. Secondly, the gradual introduction of greater competition does not mean

that all rules will eventually be abolished. Account must also be taken of

the major objectives that have to be pursued in these sectors, objectives for

which rules and regulations must be adopted. Thus, in transport, competition

must not be to the detriment of passenger safety, and rules must be laid down

to cover this. Similarly, in telecommunications and the postal sector, a

universal service must be provided, without neglecting the social aspects of

telecommunications, such as the help they provide for the elderly or the

handicapped. In the energy sector, security of supply must be maintained, as

must the universal service in the case of electricity. In all these

instances, the aim must not be to replace one kind of bureaucracy by another,

operating at Community rather than national level. If Community industry is

to become more competitive, it must not be constrained by an over-rigid

environment. However, basic standards designed to safeguard these objectives

must be worked out at Community level.

Lastly, in all these sectors, the major difficulty is to establish the

dividing line between activities that can continue to be reserved for a given

undertaking and those which must be freely accessible to other undertakings,

```

```
1.1.§3.p.14 0 1 9

without undermining the objective of market integration. The Commission

recognizes that objectives legitimately pursued by Member States mean that,

some activities must be shielded from all competition, at least temporarily.

If this were not the case, there would be a risk that firms acting on the

basis of strictly commercial criteria would carry out only the most

profitable activities at the expense of the public-interest task which the

Member States wished to see performed. This dividing line, and the duration

of any protection granted, must be decided on a case-by-case basis in the

light of the characteristics of each of the sectors concerned. However, the

Commission considers that any areas thus reserved must be confined to what is

strictly essential in order to perform such public-service tasks.

40. The competition rules laid down in the EC Treaty will still have an

important role to play once these sectors are liberalized. Steps must be

taken to ensure that enterprises operating on these markets do not, through

restrictive practices, abuses of dominant positions or mergers, deprive

consumers of the benefits resulting from de-monopolization. The Commission

will be particularly alert to any risks of infringement of Article 86 of the

EC Treaty, which prohibits abuse of a dominant position. Even where there is

de Jure liberalization of access to infrastructures, undertakings previously

granted exclusive or special rights will undoubtedly remain in a de facto

position of strength on such markets, at least for some time to come. It

must therefore be ensured that they do not use this position to restrict

competition either on the market in question or on others.

As regards the first of these two concerns, the Commission will, in cases

where infrastructure access is liberalized, certainly have to see to it in

particular that third-party access to existing infrastructures does not

entail any unwarranted restrictions. If competition is to be established,

other undertakings must be able to benefit from such infrastructures on

non-discriminatory terms. The Commission is aware that it may, in some

instances, be difficult to draw up fair prices for infrastructure access.

There may be grounds for requiring other undertakings enjoying access to

existing infrastructures to pay the owner of the infrastructure. The owner

has incurred and continues to incur certain costs for maintaining it.

Furthermore, the owner has to continue to perform its universal service task,

which imposes additional costs on it not borne by other undertakings.

However, the price charged must not be such as to prevent any scope for real

```

```
1 . I .§3.p.15
###### 020

access by other undertakings. In addition, such other undertakings will be

endeavouring to penetrate a market which had hitherto been closed. One of

the sectors within which the Commission is at present looking into such

questions is telecommunications.

Furthermore, there is certainly a risk that such undertakings may use their

position of strength in the sector in which they had or still have a monopoly

to subsidize their activities in other markets where they face fiercer

competition. This danger of cross-subsidization is undoubtedly greater in

the sectors to be deregulated, since transparency has rarely been a feature

of the accounts of such undertakings. The reverse situation, in which

profits earned in non-regulated sectors are used in part to comply with the

universal service requirement, is not in principle objectionable.

Lastly, the rules laid down in the Merger Control Regulation should ensure

that undertakings to which exclusive. rights have been granted do not, through

acquisitions, create situations in which competition from other firms is not

in fact possible. However, the Commission does not intend to oppose such

regroupings where their real purpose is to allow firms to cope with the new

competitive environment, which may sometimes be worldwide.

41. As stated above, the EC Treaty does not in any way prejudice the

ownership of such undertakings. Nevertheless, the fact remains that the

entry of new competitors onto the market, combined with the limited margin

for growth in public expenditure in the Member States, will probably result

in some privatization of these sectors, particularly if private enterprises

can hope to benefit from an open environment. This is indeed one of the

reasons why the Commission intends to promote the creation of genuine

trans-European networks in certain sectors. The amount of investment

required to gain effective access to such sectors will very probably entail

forms of partnership between private-sector firms or between the public

sector and the private sector. Such forms of cooperation will undoubtedly

have to be examined in the light of the Community competition rules, either

on the basis of Article 85 of the EC Treaty or on the basis of the Merger

Control Regulation, so as to ensure that they do not result in the creation

of new monopolies. Subject to this reservation, the Commission will very

```

```
1 . I.§3.p.16
```

**02 1**

```
probably promote agreements of this kind if they help to meet its

fundamental objective of introducing more competition into such sectors and

allowing them to develop.

42. In the case of privatizations, it is essential to ensure that any aid is

strictly controlled. Aid can give the business privatized an unfair

competitive advantage which prevents real competition developing and defeats

the purpose of liberalization. Privatizations by stock-exchange flotation or

open unconditional tender with the business being sold to the highest bidder

do not normally raise state aid concerns. In all other cases, the Commission

requires notification of the proposed sale to enable it to check whether aid

is being granted. The purchaser must not receive the assets at a price below

their true value. Nor must a business be kept going artificially with aid

when it is in need of restructuring or indeed should be closed down. The

principles the Commission applies in vetting privatizations under the state

aid rules are described in the state aid chapter.( [2 1] )

(21) See points 402 and 403 of this Report

```

###### 1 . I .§4.p.17 022

```
<T3> §4. Merger control

<T5> (a) Background to the review exercise

43. After arduous negotiations, the Merger Control Regulation was

unanimously adopted by the Council on 21 December 1989 and entered into force

nine months later. The Regulation was to be reviewed after four years, i.e.

in 1993. However, the review has not taken place, for the reasons set out

below. Within the framework of the single market, it was essential to have an

adequate legal instrument available both for maintaining effective

competition that might be removed through acquisitions having cross-border

effect and for facilitating the economic integration process. This objective

is certainly still relevant, since the achievement of the internal market,

and thus the need for firms to operate on much larger markets, is a

phenomenon that will continue in future because of the various measures taken

by the Community to extend the internal market in all sectors of activity.

Some of the relevant measures are described in this report.

44. Subject to certain exceptions reflecting the application of the

subsidiarity principle and the justified need for Member States to be able to

protect legitimate interests compatible with Community law, the essential

feature of the Regulation is that it establishes an exclusive Community

jurisdiction for the competition-based assessment of all concentrations where

certain turnover thresholds are satisfied. On the one hand, the thresholds

must not be so high that concentrations having a genuine Community dimension

are excluded but, on the other, they must not be so low that operations of

primarily national interest are caught. The subsidiarity principle does not

mean that all mergers must be dealt with at national level but rather that

each merger should be examined by the most appropriate authority, which may

be a national authority in some instances but the Commission in others. In

accordance with this «appI icat ion of the subsidiarity principle, there is a

concomitant requirement to find the right level of thresholds for striking

the best balance in the difficult exercise of allocating institutional

jurisdiction. At the same time, having regard to the desirability of a

relatively simple rule for establishing jurisdiction in the interests of

transparency and legal certainty, it must be recognized that, even if the

```

```
1 . I .§4.p.18
###### 023

ideal balance is struck, there will inevitably be some borderline cases

falling outside Community jurisdiction that would be better handled under the

Regulation and vice versa.

45. The technical difficulty of setting thresholds was compounded by the

absence of experience as regards practical application of the Regulation.

Consequently, the Council recognized this uncertainty by adopting a two-stage

approach to the determination of thresholds and agreed to review the initial

thresholds within four years of adoption of the Regulation, i.e. before the

end of 1993.^22) Furthermore, the thresholds were to be reviewed on the

basis of a Commission proposal requiring qualified-majority voting.

46. At the time of the adoption of the Regulation, the Commission itself

declared that, at the end of this initial stage of implementation, the main

(i.e. world) turnover threshold should be reduced from ECU 5 000 million to

ECU 2 000 million and that the Community turnover threshold of

ECU 250 million should also be revised in the light of experience and any

change in the main threshold. If the same proportionate reduction is applied

to the Community threshold as to the main threshold, this would imply a

revised Community threshold of ECU 100 million instead of the existing

threshold of ECU 250 million. This is not to say that there would be no

significant operations below these thresholds. Rather, the assumption is that

below this level concentrations would principally have a national impact and,

in accordance with the subsidiarity principle, would therefore be better

handled at that level.

47. As any change in the threshold would affect the jurisdictional

allocation between the Member States and the Commission, it was also

appropriate at the same time to review Article 9 of the Regulation, which

governs the terms on which a Member State can ask that cases falling under

the Regulation are nevertheless referred by the Commission to the competent

national competition authorities.(23) Referral under Article 9 reflects the

practical application of the subsidiarity principle although this finds its

(22) Art icle 1(3).

(23) Art icle 9(10) .

```

```
1 . I .§4.p.19
```

024

```
principal expression in the level of the turnover thresholds, and in

particular in the two-thirds exclusion rule for national turnover.( [24] )

48. In addition to turnover thresholds and referral procedures, both the

Council and the Commission had declared that other aspects of the Regulation

should be examined, including turnover allocation for joint undertakings, a

more precise concept of banking income and the arrangements for the

publication of the opinions of the Advisory Committee.

<T5> (b) Progress on implementation to date

<T6> Summary of decisions and economic profile of cases

49. In the three years and three months that the Regulation has been in

force, 193 notifications have been received. Since the individual decisions

arising from these notifications are commented on either in previous

competition reports or in this year's report, only the essential features are

summar i zed be low.

                 1990 1991 1992 1993 Total

Number of notifications 12 63 60 58 193

```

```
Article 6(1)(a) decisions 2 5

Article 6(1)(b) decisions 5 50

Article 6(1)(c) decisions 0 6

Article 8(2) decisions

 without conditions

 with cond i t ions

Article 8(3) decisions

Art icle 9 referra I

```

```
 9

47

 4

```

```
 4

49

 4

```

```
 20

151

 14

```

```
(24) The Regulation provides that a merger does not have to be notified under
   it where each of the undertakings concerned achieves more than

   two thirds of its turnover in one and the same Member State.

```

```
1 . I .§4.p.20
###### 025

50. A total of 6 requests have been received under Article 9(2) and in one

case a Member State has requested the application of Article 22(3), which

permits the assessment under the Regulation of a concentration having no

Community dimension.

51. The majority of cases notified were in the manufacturing sector, e.g.

food and drinks, chemicals and motor vehicles, although there was also a

large number of operations in service activities such as retailing and

wholesaling, computing, banking and insurance. By far the greatest number of

notifications concerned undertakings from Germany, the United Kingdom and

particularly France.

52. Reflecting the aims of the Merger Control Regulation, nearly

three quarters of notifications concerned undertakings from different

Member States or from a non-member country. A similar number of cases related

to geographical reference markets that were either Community-wide or extended

over more than one Member State.

<T6> Effectiveness and efficiency of application

53. Over the last three years, the Commission has applied the Regulation in

conformity with its fundamental objectives: allowing concentrations which

bring about necessary corporate reorganizations in the Community as a result

of the opening of national markets to Community and world markets, while

prohibiting or modifying concentrations which are likely to produce lasting

damage to effective competition in the common market or in a substantial part

of i t.

54. Although the Commission has taken only one prohibition dec i s ion(25)' anC j

although, in one other case,(26) the notification was withdrawn as a result

of Phase II proceedings being initiated, the scope of Commission intervention

is much wider than suggested by these bald statistics.

55. The very existence of EC merger control legislation, supplemented by the

considerable amount of informal guidance given to undertakings by the

Commission's departments, has had a significant preventive effect on

ant i-compet i t i ve business strategies >i,n the Community. Moreover, of the

(25) IV/M.052 - Aerospatia le/A I enia/De Havilland.
(26) IV/M.238 - Siemens/Philips.

```

```
1 . I .§4.p.21
##### 026

Phase II cases, closed by means of a decision under Article 8, eight were

cleared only after the Commission had attached conditions and obligations

modifying the original concentration plan. Furthermore, in an additional

seven Phase I cases, the Commission cleared the concentration only after the

parties had entered into commitments to remedy identified competition

problems.

56. In these cases, effective competition was preserved and developed mainly

through three types of remedy, namely, the removal of entry barriers, the

ending of capital, personal or structural links and the divestiture of assets

or shares.

57. If parties had not been willing to modify the original concentration

plan, then inevitably there would have been a greater number of cases where

proceedings would have been initiated or a prohibition decision taken.

58. Current implementation of the Regulation has been widely regarded as

successful. The speed, legal certainty and one-stop regulatory control

provided by Commission decisions have been greatly valued by the business

community and by legal practitioners. At the same time, the Regulation

creates a level playing-field for major acquisitions in the Community since

these operations are subject to the same rules applied on a Community-wide

basis. This is a further example showing that the establishment of a genuine

internal market requires uniform and effective competition rules.

<T6> Link between Community and national merger control policies

59. With the growing integration of EC markets, there are fewer and fewer

markets of purely national dimension. This trend towards integration of

national markets is in itself pro-competitive and is reflected partly in the

high number of clearance decisions. Nearly all Member States have introduced

national merger control for mergers below the threshold set by the

Regulation. This development is welcomed by the Commission since it

guarantees a complete system for maintaining effective competition both at

the national and at the Community level.

```

**I . ' . K P . »** **0** **2** **7**

```
60. However, the greater the degree of integration, the more desirable it is

that business should be able to conduct its corporate acquisition strategy on

a Community-wide basis subject to a common set of rules. It is therefore

essential that the objectives, methodology and procedures of national and

Community merger policies converge as far as possible. Even if the turnover

thresholds of the Merger Control Regulation are reduced, there remains an

enduring need for increasing harmonization in a single market. It is not

feasible for all mergers to be made subject to a single control procedure.

National laws will therefore at all events still have a role to play.

<T5> (c) Scope for revising the Regulation

<T6> Thresholds and Article 9 referrals

61. In accordance with the requirements laid down in the Regulation, the

Commission has examined the case for revision of turnover thresholds and

referral procedures. It considers that there are strong arguments in favour

of threshold reduction.

62. One consequence of the advent of additional national systems of merger

control is that the number of regulatory stops has increased for

concentrations having a genuine Community dimension but falling below the

existing thresholds. At the same time, the single market programme has

triggered an unprecedented wave of cross-border merger activity within the

Community, while the crisis situation confronting Community industry has led

to restructuring operations between firms that may take the form of mergers.

Although the level of merger activity since 1985 has fluctuated in line with

the overall level of economic activity, analysis of the general data

collected by DG IV shows there has been a doubling in the number of

cross-border mergers in the Community. Indeed, in pre-notification meetings,

the Commission has encountered many cases having a strong impact on

competitive conditions in the Community but falling below the existing

thresholds. Consequently, the advantages of the one-stop shop and the need

for a level playing-field caused by increasing integration are even greater

today than in 1989.

63. In order to investigate the practical impact of threshold reduction, the

Commission conducted a special survey among nearly 300 of the Community's

largest businesses as well as among associations representing the business

```

```
1. I .§4.p.23
###### 028

community. Although merger activity fluctuates a great deal, the survey

results indicated that, if the world and Community thresholds were lowered to

ECU 2 000 million and ECU 150 million respectively, the Commission would have

to handle some 110 cases per year compared to about 60 per year so far. More

significantly, the great majority of extra cases would also have genuine

cross-border effects.

64. There is also institutional support for threshold reduction from

Par Iiament( [27] ) and the Economic and Social Committee.(28) Although industry

is broadly in favour of lower thresholds, views in Member States differ

signficantly, with the national industry associations in northern Europe

generally in favour but those in southern Europe holding a more reserved

opinion.

65. In particular, among national competition authorities there is

considerable hesitancy not only as regards threshold reduction but also as

regards any legislative change to the Regulation at the present time. They

consider that insufficient experience has been acquired with the application

of what is admittedly still a relatively new Regulation and that cases

currently falling below existing thresholds could be adequately dealt with by

the national authorities. Moreover, they point to the fact that in the period

since adoption inflation has already reduced the real level of thresholds and

to the impact of the future enlargement of the Community.

66. Bearing in mind these differing views, the Commission considers it

premature to propose a reduction in,. thresholds at the present time. It is

especially concerned that, without more broadly based support from national

authorities and business, a proposal requiring substantive changes in the

balance of jurisdiction between the Member States and the Community may

jeopardize the existing consensus and commitment built up around the

Régulât ion.

67. With regard to the referral procedure, since it is now the general

position of the Commission either to refer a case to the national authorities

or to open Phase II proceedings where a justified request has been lodged, it

(27) Point 26 of the Resolution on the Nineteenth Report on Competition
   Policy, 24.1.1991. See Annex I to the Twentieth Competition Report.

(28) Point 1.3.2 of the Opinion on the Twenty-first Report on Competition

   Policy, 25.11.1991. See Annex I to the Twenty-second Competition Report.

```

```
1.I.§4.p.24
###### 029

is generally considered that the current terms of Article 9 provide an

adequate instrument if existing turnover thresholds are maintained, although

these terms would have to be re-examined if thresholds were lowered.

68. Given that no change is proposed at this stage to the principal

substantive issues of the review (i.e. threshold and referral procedures),

the Commission considers that the examination of other possible improvements

requiring an amendment of the Regulation, including the implementation of the

concept of banking income for threshold calculation, should be deferred and

re-examined in the context of any proposal for amendment that the Commission

may make, in particular in relation to thresholds, between now and the end of

1996.

<T5> (d) Cone lus ion

69. Although the Commission holds the view that there are sound

administrative, economic and legal arguments in favour of threshold

reduction, it considers that a proposal to lower thresholds at the present

time would be inappropriate and might prove counter-productive. Furthermore,

some additional experience with the application of the ReguI at ion would be

useful and helpful.

70. Nevertheless, the Commission is of the opinion that the case for

threshold reduction will become stronger. The advantages of the one-stop shop

will be highlighted in future cross-border mergers and, with further

integration in the single market, the need for and logic of lower thresholds

can only strengthen and become increasingly visible.

71. Therefore, although no proposal has been submitted, the Commission has

invited the Council to undertake the formal review provided for in Article

1(3) and Article 9(10) of the Merger Control Regulation by the end of 1996 at

the latest.

72. The report on the implementation of the Merger Control Regulation

prepared by the Commission has been submitted to the Council, Parliament and

the Economic and Social Committee.

```

```
1.1. §4.p.25

<T5> (e) Improvements in transparency and procedures

               under the existing Regulation

```

###### 030

```
73. Within the scope of the review report and aided by the case-experience

already acquired, the Commission has been able to identify some improvements

that would promote greater transparency and procedural efficiency. These

improvements, which will be implemented by the Commission without any change

to the Merger Control Regulation, concern the following areas:

   - Phase I commitments: In the past, the Commission has accepted

     commitments made by the notifying parties to remedy clear-cut

     competition problems within its initial one-month (Phase I)

     examination. While this remains an efficient course of administrative

     action, it tends to result in some loss of transparency. In

     particular, other competitors and undertakings do not enjoy an

     opportunity to comment on the adequacy of the commitments offered.

     Transparency can be improved by the prior publication of proposed

     commitments, although the commitments will be required to be offered

     early in the procedure if the original deadline is to be maintained;

   - Phase II commitments: Similarly, subject to the protection of valid

     business secrets, commitments offered by parties in Phase II cases

    will also as a general rule be subject to prior publication;

   - Commission guidance statements: To improve transparency, the

     Commission intends to issue guidance statements covering technical and

     legal aspects such as jurisdiction (including a new notice on

     cooperative and concentrâtive joint ventures), calculation of turnover

     and the concept of concentration;

   - Less stringent notification requirements for mi nor joint ventures:

     Some minor joint ventures fall under the Regulation merely because of

     the size of the parents, while others have no direct or indirect

    effects on markets in the Community. The Commission proposes to accept

    substantially reduced notifications for such operations that are

     consistent with the need to demonstrate that there is no impact on

    competitive conditions in the Community. However, the information

     requirements waived will generally have to be first agreed with the

```

##### `„ § 4 „e Q`

```
    Commission, through the now normal practice of pre-notification

     information meetings;

    Advisory Committee: The Advisory Committee, which is composed of at

     least one representative of each competent national authority, is

    obliged to deliver an opinion on all draft Commission decisions

     closing cases where Phase II proceedings have been initiated. Unlike

     the regulations implementing Articles 85 and 86 of the EC Treaty, the

    Merger Control Regulation provides for the possibility of publishing

     such opinions at the Committee's request. While the Commission is not

     legally required to publish the opinion, current practice has been to

     follow the request made by the Committee and to publish it

    simultaneously with the formal decision in the Official Journal. Owing

     to the need for translation, such publication normally takes place

     several months after the date of the binding Commission decision, by

    which time the case may have lost some of its initial interest.

    Transparency can be promoted by making the opinion of the Advisory

    Committee public at the same time as the Commission's decision, and

     this would also place greater emphasis on the importance of the views

    of the Member States.

```

1...55.P.27 0 3 2

```
<T3> §5. Restrictive agreements and abuses of dominant positions

74. A large number of cases described in Part Two of the report were

examined under Articles 85 and 86 of the EC Treaty. This reflects the

fundamental role which the competition rules have to play as an instrument

underpinning other Community policies. Thus, the achievement of a genuine

internal market means ensuring that private-sector obstacles to trade do not

replace the previous public-sector ones. Furthermore, anti-competitive

practices must not be allowed to damage the productivity of Community

industry and thus penalize European consumers, while at the same time

preventing employment from growing normally. The role which competition

policy is thus called upon to play is described in Part One, Chapter IV, of

the report.

75. A number of trends can be highlighted. Some of them are a continuation

of developments noted previously.

76. The first is the increasingly generalized application of the competition

rules in all sectors of economic activity. The transport sector is

particularly significant in this respect, with the Commission having for the

first time applied the competition rules to rail transport and once again

taking action in several instances against restrictive practices by sea

transport operators. While the application of the competition rules in this

sector can take some of its specific features into consideration, the fact

remains that the advantages of a genuine system of competition must also be

available, particularly since the sector is important to Community industry

as a whole. The same applies to the energy sector, where several cases

provided the Commission with an opportunity of clarifying its approach to

this sector. Certain types of conduct in the professions were also the focus

of the Commission's attention. Lastly, the competition rules played an

important role in the audiovisual sector. The role of competition policy

will probably increase here because of the importance of this sector for the

Community and because of its rapid, steady development.

77. Decisions were taken this year on the first cases involving cooperative

joint ventures covered by the new procedure adopted at the end of last year.

The Commission has made clear its intention of dealing with such cases

```

**`1.1.§5.p.28`** **0 3 3**

```
within a period of two months following their notification and has

endeavoured to honour this undertaking.( [2Q] ) This change must be seen in a

wider context. While cartels must clearly be strictly prohibited, many forms

of cooperation between undertakings must be encouraged since they increase

the efficiency of Community industry by promoting the dissemination of new

technologies. For the Commission, however, the important point is the effect

such cooperation may have on the market rather than the legal arrangement

used by the parties. As long as certain types of operation were eligible for

rapid processing under the Merger Control Regulation while others remained

subject to the slower procedure under Article 85 of the EC Treaty, there was

a risk that firms would organize their cooperation merely to suit their own

interests but also in such a way as to benefit from certain procedural

advantages. This was certainly something to be avoided since it could lead

to situations that were in some ways artificial. It is for this reason that

the Commission considers that, over and above the legal structures chosen by

the parties, which must not be neglected, it is important above all to place

such operations in their context and to look at their effects on competition

in the relevant markets. If they have the object or effect of reducing

competition, they must be prohibited. Conversely, the Commission intends to

encourage all those which allow cooperation that is beneficial to all.

78. The third phenomenon is the number of cases in which the undertakings

concerned decided to abandon practices deemed anti-competitive by the

Commission without awaiting any formal Commission decision on the matter.

This situation explains the relatively small number of decisions. The aim of

an effective competition policy is to have a direct effect on the conduct of

undertakings rather than to create a multiplicity of lengthy procedures.

This does not mean that the rights of the defence are not fully observed,

since the undertakings in question can always refuse to alter their conduct

in the absence of any decision.

(29) See points 193 and 194 of this Report.

```

```
1.I.55.P-.29
```

0 Ô 4

```
79. The fourth feature is that the globalization of markets and the

existence of worldwide competition in many sectors are being taken into

account. The Phi I ips/Thompson/Sagem case is particularly illuminating in

this respect. Although the parents of this joint venture were the main

Community producers of the relevant product, their agreement was authorized

because the product market was clearly worldwide and there were major

competitors in non-Community countries. Each type of conduct should be seen

in context, taking all the economic and factual aspects into consideration.

Technological developments and the gradual opening-up of markets outside the

Community, notably because of the liberalization resulting from the bilateral

or regional agreements concluded by the Community or from the GATT

negotiations, mean that many markets are expanding. The Commission is aware

of this and is determined to take account of it in analysing the agreements

or restrictive practices it has to deal with. By thus placing the conduct of

Community firms in this wider context, the Commission is able to judge

whether agreements can be accepted on the ground that they allow Community

industry to improve its competitiveness.

80. Lastly, a feature shared by a number of cases dealt with this year was

that they related to situations involving access to infrastructure. There

are many instances in which a firm or a group of firms enjoys preferential

access to an infrastructure that is essential to its competitors. As

explained above, this question is particularly sensitive in sectors where

exclusive or special rights were previously granted to certain undertakings,

but it also arises in other circumstances. If genuine competition is to

exist in such situations, infrastructure access must be open in an objective

and non-discriminatory manner to all the competing firms. This question is

obviously important in cases where the undertaking owning the infrastructure

is in a dominant position, but it is also relevant in cases where Article 85

of the EC Treaty applies. The Disma case is an example of the second

category. The Commission took action in this case in order to ensure that

all oil companies could enjoy non-discriminatory access to the equipment for

transferring fuel direct from the depot to aircraft, via underground

pipelines, that had been installed by Milan/Malpensa airport in cooperation

```

```
1.I.§5.p.30
###### 035

with certain oil companies, through the Disma joint venture.

81. Quite apart from these trends in Community competition law, developments

in national competition law should also be noted. As part of the policy on

subsidiarity, the Commission encourages decentralized application of the

competition rules. However, there is no obligation on Member States to adopt

national competition legislation that is in line with the rules laid down in

the EC Treaty. Even so, it is evident that the most recent legislative

provisions are modelled to a great extent on the principles contained in

Articles 85 and 86 of the EC Treaty. This is notably the case with the

Belgian Law that entered into force this year. The Commission can only

welcome such spontaneous harmonization of competition laws. Even though

similar texts may be interpreted differently by the Community authorities and

by the authorities in the Member States, the fact remains that closer

aj ignment of laws makes for greater coherence for firms and thus for a more

clearly defined environment in which they have to operate. This phenomenon

does indeed extend beyond the frontiers of the Community, and similar trends

are evident in countries which have concluded with the Community agreements

in which competition rules feature prominently, such as the Agreement

establishing the European Economic Area or the Europe Agreements, concluded

with the countries of central and eastern Europe.

It is thus no longer unrealistic to believe that, in the not too distant

future, a huge area will exist in which corporate conduct will be assessed on

the basis of common principles. However, if we wish to ensure that Community

industry continues to grow, we must go beyond this stage. The White Paper on

growth, competitiveness and employment observes that, if the productivity of

Community industry is to improve, Community firms must be able to operate on

non-Community markets without being subject to any discrimination there. For

its part, the Community is open to firms from outside the Community since, on

the one hand, it complies with the rules laid down under GATT and, on the

other, it applies its own competition rules effectively to conduct aimed at

compartmentalizing markets. The architects of the EC Treaty were aware that

the creation of a genuine internal market meant eliminating both

public-sector and private-sector obstacles to trade. At international level,

```

### 1.I.§5.p.31 036

```
leaving aside the above-mentioned agreements concluded by the Community, the

only approach adopted has been that of eliminating government obstacles. The

example of the Community shows that this is not enough and that there must

also be rules governing corporate conduct whose object or effect, direct or

indirect, is to ensure the protection of national industry. Furthermore, as

explained in the following Chapter, such rules must be applied effectively.

In other words, a genuinely level playing-field must also be created at

international level so that Community industry can enjoy effective access to

markets outside the Community without coming up against private-sector

obstacles with which firms in such countries do not have to contend when they

wish to penetrate the Community market.

<T4> - Cr is is carte Is

82. One of the consequences of the current crisis has been the renewed

interest in crisis cartels (which were last seen in the early 1980s following

the second oil shock) as a way of dealing with structural overcapacity. In

some industries the problems of structural overcapacity with fundamental

reductions in demand have been exacerbated both by the current recession and

by increased global competition, which not only increases supplies on the EC

market but often takes away traditional markets outside the Community. In

many cases, the individual firms involved, when faced with substantial

structural as opposed to cyclical reductions in demand, unilaterally reduce

capacity. In a free-market economy this is, in fact, the most common way of

dealing with such significant reductions in the rates of capacity utilization

and with falls in output accompanied by substantial operating losses. In

some industries, however, such mechanisms do not necessarily guarantee

elimination of the least efficient capacity. Not only has competition often

been distorted by state aid (e.g. regional aid) aimed at creating capacity

but, when industries have high fixed costs and relatively low operating

costs, old and inefficient, but fully depreciated, plant can continue

operating as long as its operating costs are covered. This can cause very

large reductions in price, which may be good for consumers in the short run,

but it undermines the capacity of the industry in the long and medium term to

invest and undertake R&D. The consumers may therefore suffer in the long

term.

```

```
1.I.§5.p.32
###### 037

83. Some sectors therefore would like to conclude either bilateral or

multilateral restructuring deals to reduce capacity and put the industry on a

healthy long-term footing. Such agreements are usually caught by Article 85.

The Commission's policy in such matters is clearly laid out in earlier

competition reports( [3] °) but the principles remain valid and are worth

repeating in extenso.

84. The Commission may be able to condone agreements in restraint of

competition which relate to a sector as a whole, provided they are aimed

solely at achieving a coordinated reduction of overcapacity and do not

otherwise restrict free decision-making by the firms involved. The necessary

structural reorganization must not be achieved by unsuitable means such as

price-fixing or quota agreements, nor should it be hampered by state aid

which leads to artificial preservation of surplus capacity.

85. The Commission will be able, however, to authorize sectoral agreements

where it is satisfied that the other conditions of Article 85(3) of the EC

Treaty are met, notably in the following circumstances:

(i) production can be considered to be improved if the reductions in

    capacity are likely in the long run to increase profitability and

    restore competitiveness and if the coordination of closures helps to

    mitigate, spread and stagger their impact on employment. For this

    purpose, the agreement must contain a detailed and binding programme

    of closures for each production centre which ensures, on the one hand,

    that overcapacity is irreversibly dismantled and, on the other, that,

    while the plan is in operation, no new capacity is created, except for

    replacement capacities provided for in the reorganization programme;

(ii) consumers can be considered to enjoy a fair share of the benefits

    resulting from the agreement if, at the end of the agreement, they are

    able to rely on a competitive and economically healthy structure of

    supply in the Community, without having been deprived during its

    operation, despite the effects of the capacity cutbacks, of their

    freedom of choice or the benefit of continued competition between the

    part i c i pat i ng f i rms;

(30) Thirteenth Competition Report, points 56 to 61;
   Fourteenth Competition Report, points 80 to 85.

```

```
1.1.§5.p.33 _ -,
```

0ô8

```
(iii) the restrictions of competition which the agreement involves can be

    considered to be indispensable to the objective of the planned

    restructuration if the agreement is concerned solely with reducing

    surplus capacity and is limited from the outset to the period

    necessary for the technical implementation of the planned programme of

    cutbacks. The creation of a system for exchanging information in

    order to check that promised reductions of capacity are being

    implemented is admissible provided it does not in any way help to

    coordinate policy on the utilization of remaining capacity or to align

    condi t ions of sa le;

(iv) the parties to the agreement will not be afforded the possibility of

    ultimately eliminating competition for the following reasons: firstly,

    since the orderly reduction of excess capacity is only one element,

    albeit an important one, of the competitive strategy of the

    participating undertakings, they will not have surrendered all freedom

    of action in the marketplace with the result that a degree of internal

    competition will be maintained. Secondly, the presence in the market

    of firms not party to the agreement and the fact that the Community is

    open to imports from third countries will usually provide a source of

    external competition. Lastly, as the agreement is from the outset to

    run for a limited period only, the certainty of a return to completely

    unfettered competition in the near future will prompt the undertakings

    concerned to take account, in the decisions they make even during the

    course of the agreement, of the fact that in due course they will

    again become full competitors.

86. As an alternative to such sectoral agreements, the Commission can also

envisage agreements between a small number of firms providing for reciprocal

specialization which would enable them to close down excess capacity.

87. Whatever type of solution is chosen, the Commission will always have to

satisfy itself that, after the reorganization programme is completed, there

will still be a sufficient number of Community manufacturers left to maintain

effective competition in the Community. This condition is necessary to

ensure that the economy as a whole, and users and consumers in particular,

will also benefit from the positive results of the arrangements.

```

```
1.1.§5.p.34 Q 3 9

88. Reorganization operations should also be such as to stabilize and secure

the employment situation within the sector concerned.

89. This Commission has in fact maintained the policy in the two cases under

consideration. The first case concerns steel.( [31] ^ In the second case, it

has published a notice under Article 19(3) of Regulation No 17 announcing its

intention of adopt a favourable opinion for a crisis cartel among brick

producers in the Netherlands.

In the Netherlands there has been a structural reduction in the demand for

bricks, in particular common bricks, which have been replaced by a wide range

of alternative building and finishing materials, in particular concretes,

aluminium, steel, plastics and wood. Although the cyclical situation in the

construction industry had exacerbated the reduction in demand, several

indicators clearly pointed to long-term, underlying structura I overcapacity.

The fall in price and resultant losses were accentuated by the cost structuré

of production with relatively high fixed costs. The original agreement

notified to the Commission contained, in addition to the measures proposed to

remedy the structural overcapacity, several restrictions of competition which

went beyond what was necessary and beyond the conditions set out above. In

particular, there were arrangements to fix production quotas backed by a

system of fines and resulting in a quantitative share-out of virtually the

entire output of bricks in the Netherlands.

In response to a statement of objections by the Commission, the parties

agreed to drop these further restrictions. The Commission was therefore able

to adopt a preliminary favourable opinion because the parties limited their

agreement to what was strictly necessary to reduce capacity without agreeing

on price or output. The new agreement was therefore in line with the

principles laid out above.

(31) See points 481 and 482 of this Report

```

```
1.1. §6.p.35

<T3> §6. Conséquences of the Maastricht Treaty

```

###### 040

```
90. The Maastricht Treaty entered into force on 1 November 1993. It

provides for only two changes to the competition rules laid down in the

EC Treaty, both relating to the control of state aid. First, the Commission

may now in principle declare compatible with the EC Treaty "aid to promote

culture and heritage conservation where such aid does not affect trading

conditions and competition in the Community to an extent that is contrary to

the common interest". Second, the European Parliament will have to be

consulted by the Commission if it intends to propose to the Council any

appropriate regulations for the application of Articles 92 and 93 of the

EC Treaty. These changes do not fundamentally alter the structure of the

EC Treaty, so that the Commission's role as the institution responsible for

applying the competition rules is not challenged by the new Treaty. Nor is

this surprising since the establishment of a genuine European Union calls for

a neutral arbiter to monitor the behaviour of business. This does not mean,

however, that the Maastricht Treaty does not have any other implications for

compet i t ion pol icy.

91. In the first place, the Treaty is more explicit on certain objectives

than the EC Treaty was. The first of these is environmental policy.

Although it was mentioned for the first time in Article 130r of the

Single Act, the Maastricht Treaty extends its scope. This raises the

question of the extent to which the application of the competition rules will

be affected.

The new guidelines on aid for environmental purposes issued by the Commission

in 1993 already reflect this increased emphasis on the environment. In the

guidelines the Commission recognizes the place of subsidies in environmental

policy, a fact brought home by its recent experience in dealing with aid

schemes in Member States, which the old framework dating from 1974 did not

cover. The new guidelines thus place aid control at the service of

environmental policy while ensuring that such aid does not distort

competition to an extent contrary to the common interest.

Furthermore, it must be emphasised that the Commission can exempt an

agreement restricting competition but having a favourable impact on

environmental policy only if the agreement meets the

```

```
1.1.§6.p.36 04 I

four conditions laid down in Article 85(3) of the EC Treaty. Article 85(3)

was not amended to include any specific environmental considerations. The

fact remains, however, that the terms of Article 85(3) are sufficiently broad

to include other policy objectives, and more specifically environmental

protection objectives. This question is discussed in greater detail

be low.(32)

Cultural policy is one of the new provisions contained in the

Maastricht Treaty. This actually involves a direct change to the

competition rules since, as indicated above, express provision is made for a

new exception to the ban on aid.

92. The Maastricht Treaty expressly refers to industrial policy for the

first time. As explained below,(33) the concept of industrial policy was,

however, already inherent in the approach adopted by the Community in

general and by the Commission in particular.

93. However, the consequences of the Maastricht Treaty go beyond the

changes in Community policies which have just been described. The

Maastricht Treaty also marks a step towards greater involvement of

Parliament in the decision-making process, with the co-decision procedure,

and hence greater democratic control. Competition policy cannot ignore this

development.

The Commission is aware that it is necessary to get Member States,

businesses and other relevant parties to accept the need for an effective

competition policy. In order to achieve this, the Commission must take

certain measures. It must firstly define its priorities and be consistent

and effective in applying them. Clearly, the principles set out in the

Maastricht Treaty will have a major influence on the choice of such

priorities. The Commission must then inform the public of its priorities.

For this purpose, it has continued to organize annual meetings with the

national competition authorities at which such objectives are explained and

discussed. Furthermore, one of the objectives of this Report is to inform

(32) See points 162 to 171 of this Report
(33) See points 155 to 161 of this Report

```

```
1 . I .§6.p.37
```

042

```
Parliament and the Economic and Social Committee, and subsequently the

public at large, of the Commission's priorities.

Secondly, the Commission's policy must be as transparent as possible so that

economic agents are fully aware of the framework within which they are

supposed to operate. The Report contains a more detailed analysis of the

measures which the Commission has taken or intends to take in pursuit of this

objective.(3 [4] )

Lastly, there must be optimum cooperation between the Commission, the

national authorities and the courts in the Member States.

94. The concept of subsidiarity is often cited as one of the changes

introduced by the Maastricht Treaty. It was in fact already applied in

Community competition law, as explained below.(35) it must continue to

guide the Commission's work, which must concentrate on cases involving a

genuine Community interest, leaving it to the national authorities or law

courts to decide the other cases.

95. In conclusion, the Maastricht Treaty will certainly have important

repercussions for. competition policy. However, this is not a one-way

process: competition policy will also play a fundamental role in the

implementation of other Community pol icies.(36)

(34) See points 182 to 188 of this Report

(35) See points 189 to 191 of this Report

(36) See points 149 to 181 of this Report

```

```
1.11 .§1. p. 1

<T4> Chapter I I

<T2> The international dimension of competition policy

<T3> §1. Genera I

```

043

```
96. During the year under review the international dimension of the

Community's competition policy was marked by three main events, all of which

took place in December. The Community and its Member States completed the

ratification process of the European Economic Area Agreement. Because the

five participating EFTA States had already done so, this enabled the EEA to

enter into force on 1 January 1994. On 15 December, after seven years of

often complicated negotiations the contracting parties of the GATT managed to

conclude the so-called Uruguay Round of Multilateral Trade Negotiations.

Finally there was the presentation by the Commission of its White Paper on

growth, competitiveness and employment. As described above, this White Paper

contains an important statement on the international dimension of competition

poI i cy.

97. These three events can be seen as marking the end of an era where the

Community's policy on international competition issues focused essentially on

the inclusion in international trade agreements of rules against

anti-competitive practices, structures and state aid. They also marked the

beginning of a policy which is based much more on taking steps to ensure that

such rules are actively enforced and that enforcement is carried out in a

manner similar to the way in which the Community has used the competition

rules as a tool to foster intra-Community trade.

Thus there has been a certain shift from an essentially rules-based approach

to a policy-based approach. This has affected the Community's relations with

all of its trading partners, regardless of the actual rules governing them.

Thus the Commission has used the rules of the 1972 Free Trade Agreements with

countries in Europe to ensure enforcement of the competition rules in trade

with the Community. It has also worked towards the creation of enforcement

practices by the EFTA Surveillance Authority (ESA) similar to those of the

Commission. But even with countries such as Japan, with which at present no

specific rules on competition policy have been concluded, it has put in

efforts to promote effective competition policy enforcement .in order to open

up trade opportunities.

```

1.M.§2.p.2 0 4 4

```
<T3> §2. Promoting competition policy enforcement throughout Europe

<T4> - EFTA

98. The Commission has strengthened its efforts to bring about changes in

state aid granted by EFTA countries in violation of the competition rules

included in the Free Trade Agreements concluded in 1972. After the successful

resolution of the state aid case involving the Eurostar joint venture between

Chrysler Motors Company and Steyr Nutzfahrzeuge, ( [1] ) the Commission's

attention was brought to four further state aid cases involving Austria and

one involving Finland.

99. On 22 July the Comission found that the aid which the Austrian federal

and regional authorities proposed to grant to General Motors Austria and the

aid granted to Steyr Nutzfahrzeuge AG, like the subsidy which the Vienna

municipal council had paid in May 1991 and June 1992 to Grundig Austria GmbH,

were incompatible with Article 23 of the Agreement. Article 23(1)(iii) of

the Agreement provides that any public aid affecting trade between the

Community and Austria which distorts or threatens to distort competition by

favouring certain undertakings or the production of certain goods is

incompatible with its proper functioning. In accordance with a statement

made by the Community when the Agreement was signed, the assessment of such

practices is based on the criteria applied in implementing Article 92 of the

EC Treaty.

Tha Austrian authorities planned to grant General Motors Austria public aid

amounting to 15% for investment intended to extend the production of

gearboxes, camshafts and cylinder heads at its Asperne/Vienna plant.

Gearboxes alone are exported to the Community for assembly by General Motors,

while the engine components are exported to Hungary. In the case of Steyr

Nutzfahrzeuge AG (a subsidiary of MAN), Steyr, public aid amounting to 15.1%

is granted for the rationalization and extension of its heavy goods vehicle

production at Steyr, most of which is intended for the Community market. As

far as Grundig Austria GmbH is concerned, the public subsidy granted for the

rationalization and extension of the production of television sets is 10%,

(1) Twenty-second Competition Report, point 344

```

```
1.11.§2.p.3
```

045

```
with a ceiling of OS 100 million for an OS 1 billion programme at its Vienna

factory.

In each of these cases, the firms receiving the aid are in competition with

Community firms. In the Commission's view, the aid would not be acceptable

on the basis of the criteria applied in implementing Article 92(3)(a) and (c)

of the EC Treaty, notably because the Vienna conurbation, within which

Grundig and General Motors are situated, would not be deemed eligible for

regional aid.

Since no mutually satisfactory solution could be found between the Community

and Austrian authorities within the Joint Committee or after discussions

between experts by a deadline which had been set, the Commission sent the

Council, on 22 September, three proposals on the withdrawal of tariff

concessions on the relevant General Motors, Steyr Nutzfahrzeuge and Grundig

products, pursuant to Article 27(3) of the Agreement. In the case of General

Motors and Grundig, the Commission proposed that duties at a level equal to

that of the customs duties which would have been applicable if the Free Trade

Agreement had not entered into force be reintroduced. Such duties would be

maintained until such time as the Council concluded that the aid in question

was no longer having any harmful effects on competition and trade, or at the

very most for a period equivalent to the average tax depreciation period. A

fourth case, relating to an investment project in the motor vehicle industry

(BMW) in the Steyr region, is being examined.

As part of the close contacts entertained with the Austrian authorities, a

solution was found for the Steyr Nutzfahrzeuge case in the context of the

Austrian regional aid scheme being examined in preparation for enlargement.

In the Grundig case, the Council decided by a qualified majority, on

21 December, to adopt the Regulation proposed by the Commission. The next

day, the Austrian authorities agreed to recover the OS 67 million as

requested by the Commission, prompting the Community to waive introduction of

the abovementioned duties.

In the General Motors case, the Council also decided by a qualified majority

to adopt the Regulation proposed by the Commission. Accordingly, a 4.9%

```

```
1.11.§2.p.4 A 4 '
###### 04b

duty will be charged on imports from Austria of F15 gearboxes produced by

General Motors Austria.

100. All of the cases which have been dealt with so far under the

competition provisions of the 1972 Free Trade Agreements have demonstrated

the difficulties which are inherent in the procedural rules of those

agreements. In the case of five of the EFTA countries these difficulties

should be solved for future competition cases with the entry into force of

the European Economic Area on 1 January 1994. However, with regard to other

countries the Community has decided that an efficient competition policy

requires more viable procedures.

<T4> - Countries in Central and Easten Europe

101. In the case of the Europe and Interim Agreements concluded with a number

of countries in Central and Eastern Europe/ [2] ) this new approach has not

only led to adoption of more elaborate substantive competition rules. The

most innovative aspect of the competition provisions of these Agreements is

that they also provide for the establishment of implementing rules within

three years of the entry into force of the Agreements. These implementing

rules should bring effective and reasonably efficient enforcement procedures.

Thus, the Commission and the competent authorities in the relevant countries

have begun drawing up such rules within joint committees set up under each of

the Interim Agreements. It should be stressed that, as stated in the

previous Report,(3) it is not considered necessary to adopt competition

rules that would be superimposed on the parties' existing legislation.

102. As regards the competition rules applicable to enterprises, cases should

be dealt with mainly on the basis of the rules existing in the Community and

in the associated country by the authorities responsible for their

application. Situations might therefore arise in which each of the two

authorities would have jurisdiction in one and the same case. It is also

probable that, in cases where only one authority is competent, the measures

taken by it might affect major interests of the party whose national

(2) See points 563 and 564 of this Report.

(3) Twenty-second Competition Report, point 103.

```

```
1.11.§2.p.5
```

047

```
authority is not competent. Equally, a case might fall outside the

competence of the authorities of both parties. It is mainly to deal with

such situations that the adoption of enforcement rules is necessary.

A draft has been drawn up jointly by the Polish authorities, and more

particularly by the Polish Antimonopoly Office, and by the Commission in

accordance with the above guidelines. The draft has been sent to the

co-chairmen of the Community-Poland Joint Committee for examination and

discussion. The Commission intends to adopt the same approach in working

with the other countries concerned so as to draw up similar procedural rules

with them.

103. As regards state aid, work has not yet progressed very far. The

Commission considers that the procedural rules could be based oh a

classification of aid into three categories: aid subject to the requirement

of financial transparency, aid which should be notified to the other

contracting party and aid which is not subject to the notification

requirement, but on which discussions could be held at the request of the

other party. During the period under review, work began on drawing up aid

inventories in some of the countries in question. The inventories should

help the parties in formulating the implementing rules.

104. Since the Europe Agreements contain a provision on the approximation of

laws, the six countries began bringing their competition law provisions into

line with those in the Community. No deadline has been set for doing so, but

it must be regarded as a matter of priority, notably in order to facilitate

the establishment of the rules for enforcing the agreements, since their

implementation is based principally on the national rules. For this purpose,

technical assistance must be provided to the countries in question.

Technical assistance is also being considered for the drawing-up of a report

on the situation regarding state aid, national monopolies, public enterprises

and enterprises granted special or exclusive rights. The report will

facilitate the implementation of the agreements and the provisions on the

gradual adjustment of state monopolies of a commercial nature and

implementation of the principles laid down in Articles 90 and 92 of the

EC Treaty.

```

```
                                        ^
```

**`1.11.§2.p.6`** _**a**_
###### 048

```
Frequent contacts have been held between the Commission and the authorities

of the relevant countries on such technical assistance. Some of the

countries have asked that the assistance be provided under the Phare

programme and accordingly be financed out of its budget. However, faced with

a growing number of requests for technical assistance which it does not have

the necessary staff to deal with, the Commission has had to entrust the task

in part to outside consultants. Technical assistance clearly offers a unique

means of assisting the relevant countries in the implementation of an active

compet i t ion policy.

```

```
, M . § 3 . P . 7 0 4 9

<T3> §3. A more daunting task: encouraging competition policy enforcement

                 in non-European countries

105. In Europe the Community's wish to promote competition policy enforcement

has greatly benefited from the fact that new agreements have been negotiated

or are currently being negotiated with almost all European non-member states.

Most, if not all of those agreements have included provisions on trade

aspects and have allowed the Community to follow through on its two-track

approach to trade liberalization. This approach consists in eliminating not

only state obstacles to trade, but also obstacles stemming from private

business practices.

106. The same situation has not existed with regard to most of its non
European trading partners. Trade relations with those countries will be

affected of course by the new GATT agreement. However, this agreement will

still not endow the GATT with a two-track approach to trade liberalization.

During the year under review there have therefore been renewed calls for the

inclusion of competition rules in GATT as part of the post-Uruguay Round

agenda. Such calls have come from private groups such as the "International

Antitrust Code Working Group", consisting of competition policy experts from

Europe, the US and Japan, which published a "Draft International Antitrust

Code as a GATT-Multi latera I Trade Organization Plurilateral Trade Agreement"

in Munich in July. They can also increasingly be heard in governments. Thus

the OECD Committees on Competition Law and Policy and on Trade have organized

a series of joint meetings to discuss the convergence of trade and

competition policies.

107. Although a multilateral competition policy instrument concluded in the

GATT framework seems to offer the best chances for dealing with

anti-competitive practices which restrict international trade, it seems

obvious that such a solution will require complicated, and therefore possibly

time-consuming discussions. In its White Paper the Commission has recommended

that establishing such multilateral rules be a Community priority, but it

does not plan to sit idly by while waiting for their results. This is why, in

the meantime, it is concentrating on certain of the Community's major trading

partners in order to find ways of addressing anti-competitive practices and

structures which create obstacles to trade with those countries.

```

```
 1....J3.P-. 0 5 G

 108. The agreement concluded in 1991 between the Commission and the US

Government already contained a provision aimed at dealing with this type of

problem. Article V of that agreement lays down a so-called positive comity

rule. Under this rule a Party whose important interests are affected by

anti-competitive practices within the other Party's territory may request the

 latter to examine those practices. The Party on whose territory the practices

are allegedly taking place may investigate the matter and take any measure it

deems appropr iate.

This procedure can obviously be applied in particular when anti-competitive

practices in one country create market access barriers for imports from

another country. Such practices may otherwise not be dealt with because the

country where the alleged problem exists is not aware of its existence, or if

 it is, has not ranked it high on its list of priorities.

109. The procedure is therefore intended not just to promote competition

policy enforcement in general, but also try to focus such enforcement

specifically on those cases in which other countries are particularly

interested. This is especially important when a country has an elaborate set

of competition rules as well as an active policy of enforcing them, but is

concentrating on anti-competitive practices whose main impact is domestic,

leaving unsolved problems which are being felt mainly in other countries. The

reason for this is often that a country sees the objective of its competition

policy in terms of maximizing its national rather than global welfare.

Although the Commission has not, for the time being, concluded agreements

similar to the one with the US with other countries, it is not entirely

deprived of the positive comity tool in relation to other major trading

partners. Indeed, a positive comity type provision has been included in the

Revised Recommendation of the Council of the OECD of 21 May 1986, concerning

international trade. The Commission has therefore invited any person affected

by anti-competitive practices in other OECD countries to inform the

Commission thereof so that it can raise the issue under the positive comity

prov is ions.

110. In other cases the Commission has used even less formal means to promote

competition policy enforcement in its trading partners. Thus on 4 November

the Commission organized a seminar on competition policy in Tokyo, together

with the Japanese Fair Trade Commission, which is responsible for competition

policy enforcement in Japan. Its purpose was to compare EC and Japanese

```

##### 1.11.§3.p.9 051

```
approaches to a number of competition issues which have a particular

relevance to international trade. Thus discussions took place on

distribution, mergers and acquisitions, deregulation and on the international

dimension of competition policy. The Commission speakers underlined in

particular the way in which competition poI icy had been used in the Community

to eliminate private obstacles to intra-Community trade and to establish a

level playing field within the EC. They argued that similar policies should

be followed with regard to international trade. It has been decided to

organize a follow-up conference in Europe in the course of 1994.

111. Finally one should mention that in a number of countries, and in

particular in the US and Japan, there have been political developments during

the period under review which have led to increased enforcement. Since the

new US Administration took office at the beginning of the year, US antitrust

policies have seen a return to more stringent enforcement, including in areas

which for 12 years had all but disappeared from the agenda. Thus the US

Assistant Attorney-General decided to once again start enforcing the

antitrust laws against vertical restraints.

In Japan the new government which came into office halfway through the review

period made deregulation one of the cornerstones of its economic policies.

This deregulation will be accompanied by increased enforcement of the

Anti-Monopoly Act, inter alia, through a reduction in the number of excluded

sectors.

Similar developments are taking place in a number of other countries,

including Turkey, the Republic of Korea, Taiwan and several countries in

Central and South America. The Commission welcomes these developments and

tries to encourage them where it can. It firmly believes that it is through

active competition policies that markets can be successfully opened around

the world and a level playing field created for Community and other firms

a I ike.

```

```
1.11 .§4.p.10

<T3> §4. Cooperation on enforcement in specific cases

```

052

```
112. All of the policy initiatives mentioned above which were taken during

the period under review should help bring about more enforcement of

competition rules in the Community's main trading partners, especially

against private practices which affect trade with the Community. In a number

of cases such private practices or structural changes may also be caught by

the Community's own competition rules. It would seem to be important,

therefore, to try and cooperate with the competition authorities of the third

countries concerned in order to ensure that a coherent approach is taken on

both sides. Such cooperation is in the interest of the enforcing authorities,

as it may avoid duplication of cost and effort. It is also in the interest of

the companies which are the subject of the enforcement action as cooperation

may avoid the imposition of two sets of remedies whose combined effect would

be larger than strictly required to solve whichever competition problems

ar ise.

Both the EC-US Agreement of . 23 September 1991 and the 1986 OECD

Recommendation on Cooperation on Restrictive Business Practices offer a

framework for such cooperation. However, confidentiality requirements such as

those contained in Article 20 of Regulation No 17 greatly reduce the

possibilities for a useful exchange of information and thus for cooperation

between the authorities concerned.

113. This is why the Commission and the US Department of Justice took the

initiative in December of the year under review to ask an undertaking which

was being investigated by both authorities whether it agreed to waive the

benefit of the confidentiality requirements and thus to allow DG IV and the

Antitrust Division of the Department of Justice to exchange information and

to cooperate in this particular enforcement case.

In its request the Commission pointed out that information which it might

receive from the Department of Justice would not be used directly in the

proceedings based upon Regulation No 17. However, the Commission reserved the

right to obtain such information by using its own means of investigation. The

Commission also indicated that it would ask the Department of Justice to

undertake that any information which the Commission might send to the

Department would not be disclosed to third parties, except where such

information could be disclosed had it been obtained by the Department itself.

```

```
1.11 .§4.p.11

```

053

```
The Commission intends to use this procedure for requesting specific waivers

of confidentiality in other appropriate cases. It is convinced that, as long

as the existing confidentiality requirements are not amended, such waivers

form a very useful tool to enable cooperation with other competition

authorities, in the interest both of the companies in question and the

enforcing authorities themselves.

```

```
1. I I .§5.p.12
```

054

```
<T3> §5. The impact of the Uruguay Round on competition policy

114. As indicated above, the Uruguay Round did not really offer an overall

solution for the problems in international trade which result from private

practices and structures. This does not mean, however, that the Round was

without significance for the application of competition rules. The Final Act

which was agreed in principle in December in Geneva contained an important

Agreement on Subsidies and Countervailing Measures, which brought the GATT

rules in this area more closely into line with the Community's state aid

provisions even though differences between the two regimes still remain. In

addition, the General Agreement on Trade in Services contains a positive

comity clause, which was included at the initiative of the Community.

115. Particular mention should be made of the Uruguay Round negotiations

re I at ing to state aid.

The final version of the Agreement comprises new elements in this area,

mainly as regards the "green list" of subsidies deemed to be

"non-actionable". In the case of aid for research and development, the

Agreement regards as non-actionable aid whose intensity is substantially

higher than that allowed by the Community guidelines both for basic research

and for applied research and development.

Aid for environmental protection is included in the green list only where it

relates to investment for the adaptation of plant and equipment to new

regulations, subject to certain conditions relating to the intensity of the

aid (20% of the adaptation costs).

Aid for the development of the least prosperous regions is also included in

the "green I ist".

116. The General Agreement on Trade in Services is the first mu11iIateraI I y

agreed legal instrument which contains a positive comity clause. Article IX

of the Agreement first entails the recognition that certain business

practices of service suppliers may restrain competition and thereby restrict

trade in services. It then goes on to provide for a procedure under which

each member shall, at the request of any other member, enter into

```

```
1.11.§5.p.13

```

055

```
consultations with a view to eliminating restrictive business practices.

Although the only further obligation is to "accord full and sympathetic

consideration to such a request" and to "cooperate through the supply of

publicly available non-confidential information", this procedure still seems

to offer an interesting opportunity to help bring about more enforcement in

the services area, in the markets of the Community's trading partners.

```

```
1.111.§1.p.1

<T4> Chapter I I I

```

### 056

```
<T2> Developments in the application of the competition rules

                to particular industries

<T3> §1. Financial services - Insurance

117. In the European Community, like almost everywhere else, markets for

services, which should particularly benefit from being opened up to

competition, have long remained sheltered from competition, due to lack of

mobility of services across markets and firms within markets.

Market services play a considerable role in the economy. Today they

represent the most important sector of economic activity, accounting for over

50% of Community GDP. A substantial proportion of market services is made up

of financial services, which are thus a major contributor to general wealth.

The competition rules are consequently bound to play an increasingly

important role. Leg islation( [1] ) has helped to change the position of the

sector: a true internal market is gradually taking shape.

118. The low degree of competition in services appears to have two causes:

the intrinsic nature of services and government regulation.

According to a recent Commission study,(2) prior to the launching of the

1992 programme competition was particularly weak in banking and insurance

owing to the two factors described above. In addition, the high degree of

imperfection in the transmission of information about quality and reliance on

established reputation confer advantages on those already present.

This general assessment of the sector naturally masks differences between the

types of transaction concerned: within the financial system, some markets

(e.g. mortgage credit) are more competitive than others.

(1) Twenty-second Competition Report, points 42 to 48.

(2) "Market Services in the Community Economy", European Economy,
   Supplement A, May 1993.

```

```
1 . I I I . § 1 . p . 2
###### 057

Since the mid-1980s, service markets in the Community have undergone

important changes as a result not only of the internal market programme

(freedom of establishment and liberalization of the movement of factors of

production) but also of technological change. The impact of the changes is

particularly strong in banking.

119. As regards the practical application of the competition rules to the

financial sector, it should be borne in mind that this sector has special

features and that :

   its economic importance is not limited to its direct economic weight.

   Firstly, through cross-effects, the performance of the financial sector

   is crucial to the competitiveness of the other productive sectors and to

   the well-being of consumers. Secondly, from a macroeconomic standpoint,

   the institutional role of the banking sector is that of a conduit for

   monetary poI icy;

   in the case of certain products, the operation of the market can bring

   financial operators into contact independently of their will: operators

   carry out the orders of their customers, and there is consequently no

   direct relationship between supply and demand; for instance, when an

   operator issues a cheque, the creditor's bank is obliged to have

   dealings with the debtor's bank;

   operators can participate in the market for a given product both on the

   demand and the supply side. To take any means of payment as an example,

   banks act in the market both as creditors and debtors. Thus each

   operator contributes at any moment to the determination of both supply

   and demand.

120. Correct assessment of these factors is crucial if a competition policy

is to be developed that is effectively based on the realities of this

part icular market.

```

```
1 . I I I . § 1 . p . 3
```

058

```
Several cases are currently being investigated to determine whether certain

banking practices are compatible with the competition rules. The Commission

is also looking into the question of bank payment cards and will be defining

its position on this subject.

121. State aid cases frequently involve state banks either as lenders,

investors(3) or as deposit-taking institutions in competition for savings

with private banks.( [4] )

122. In the insurance sector, Commission Regulation (EEC) No 3932/92 of

21 December 1992 exempting(5) certain categories of agreements in the

insurance sector from the ban in Article 85(1) was adopted at the end of 1992

and entered into force on 1 April 1993. The Commission wrote to the

associations or enterprises which had notified a little over 200 agreements

within these categories before the Regulation entered into force, and gave

them six months to check that their agreements conformed. The parties were

told that if the Commission did not receive any specific applications within

that period, it would consider that the associations or enterprises did not

wish their original notifications to be followed up individually. Several

associations have already informed the Commission of their decision to

discontinue their agreements.

Other agreements are being amended to satisfy the conditions for exemption

laid down by the Regulation. As no replies were received, the files on a

large number of notifications have been or will be closed.

(3) Twenty-first Competition Report, point 221.

(4) See points 540 and 541 of this Report.

(5) OJ L 398, 31.12.1992; points 274 to 288 of this Report

```

```
1 . I I I .§2.p.4

<T3> §2. Telecommunications and postal services

<T4> Telecommun icat ions

```

###### 059

```
123. In October 1992 the Commission publ ished the "1992 Review of the

situation in the telecommunications service sector"(6) called for by

Commission Directive 90/388/EEC.( [7] ) The publication set in motion a period

of intensive consultations. The aim of the consultations was to see whether

the remaining exclusive rights for the provision of public voice telephony

were still justified and how best to create the required competitive

environment for telecommunications services.

During the consultations the Commission heard the views of more than

130 organizations and businesses at five different hearings and received more

than 80 written comments on the "1992 Review". The participants in the

consultation included Community telecommunications operators, users, service

providers and potential market entrants, equipment manufacturers, trade

unions and consumer organizations.

The "1992 Review" had proposed four options( [8] ^ and the Commission had

expressed a preference for opening up to competition voice telephony between

Member States (Option Four). However, as a result of the consultation,

Option Three, opening-up to competition of all voice telephony services, was

chosen as the preferred one. This new approach therefore goes much further

than was originally anticipated, but requires more time for preparation and a

larger framework of supporting measures.

This represents considerable progress along the path to a true internal

market in a sector whose importance has already been underlined elsewhere in

this Report. The first to benefit will be European consumers, all of whom

are telecommunications users. In addition, Community industry will benefit

from more efficient and cheaper means of communication. Finally, the sector

is set to expand considerably and will thus generate employment, whilst

requiring major technological development.

(6) SEC(92)1048 final .

(7) Twenty-second Competition Report, points 33 to 36

(8) Twenty-second Competition Report, point 511.

```

```
1.NI.§2.p.5 Q 6 Q

124. Based on the conclusions flowing from the consultations the Commission

adopted its "Communication to the Council and the European Parliament on the

consultation on the review of the situation in the telecommunications service

sector" (C0M(93) 159 final) on 28 April 1993. In the week prior to this the

European Parliament debated the matter and adopted a resolution which

supported the position of the Commission on further liberalization.

In this Communication the Commission set out a timetable for the full

liberalization of telecommunications services by 1 January 1998 in all

Member States. An additional two-year transition period, where justifiable,

would be available to those countries experiencing specific difficulties. A

Green Paper on mobile/personal communications was scheduled for the end of

1993 and another on public network telecommunications infrastructure before

1995.

The Communication addressed all the issues raised in the consultation, in

particular those related to universal service; the necessary adaptations

required for a competitive market; and the situation in the peripheral

regions and small or less-developed networks.

It proposed special measures in the context of Community support frameworks,

complementing funding from own resources, to accelerate network development

and universal service in peripheral regions. The Communication emphasized

the need for the rapid adoption of pending proposals on the application of

Open Network Provision to voice telephony; the mutual recognition of

licences; and satellite communications which were previously excluded from

compet i t ion.

The Communication proposed the use of alternative infrastructure and cable TV

infrastructure for telecommunications services already liberalized. Such a

development would strengthen the implementation of existing legislation,

which itself was identified in the consultation as a major objective.

125. At its meeting on 16 June 1993 the Council adopted a resolution, which

largely supported the proposals of the Commission's communication of

28 April 1993, on the main policy goals, principles and timetable for the

necessary legislation. The most important point of the resolution adopted by

```

#### 1. I I I .§2.p.6 061

```
the twelve Member States was the agreement to liberalize public voice

telephony by 1 January 1998 at the latest, as proposed by the Commission.

However, the Council considered that four countries - Spain, Portugal, Greece

and Ireland - should be granted, if necessary, the possibility of an

extension of the deadline to 2003. The Commission has undertaken to help

these countries develop their networks and to implement the necessary

adaptations. At the request of Luxembourg, the Council considered that very

small networks should be granted an extension until the year 2000 where this

i s just i f ied.

The Commission's proposal on the use of alternative infrastructure for

telecommunications services already liberalized did not figure in the

Council's resolution although four Member States - France, Germany, the

Netherlands and the United Kingdom - supported the Commission's position.

The Commission is studying the impact of its proposed liberalization of

alternative infrastructure, including cable television networks.

The Council resolution recognized the importance of maintaining the financial

stability of the sector, preserving jobs, developing training, channelling

Community resources into the peripheral regions, promoting the creation of

trans-European networks in the interests of strengthening economic and social

cohesion, and formulating a coherent approach to infrastructure. It also

addressed the issue of the financing of universal service with the option of

charging for access. The Council also foresaw the necessity of progressively

rebalancing tariffs, maintaining the balance between liberalization and

harmonization, recognizing the importance of cooperation between

telecommunications operators, demanding equivalent market access to third

countries, and coordinating national and Community measures in accordance

with the principle of subsidiarity.( [Q] )

The overall approach adopted, which combines liberalization and

harmonization, shows that the liberalization of an economic sector does not

require the removal of all rules but, on the contrary, calls for a regulatory

framework so as to avoid harmful distortions.

(9) Council Resolution of 22 July 1993, OJ C 213, 6.8.1993

```

```
1 . I I I .§2.p.7
##### 062

126. The Economic and Social Committee gave its support to the broad thrust

of the positions of the Commission and the Council, whilst questioning

whether the date of 2003 was not too late for full liberalization in certain

Member States.( [1] °)

127. At the request of the Belgian Presidency, the Commission prepared a

communication on universal service which emphasized its fundamental

importance whilst recognizing the positive contribution of competition to the

fulfilment of universal service.^ [1] ) It paid particular attention to the

need for tariff rebalancing.

The communication also addressed two further issues. Firstly, drawing on

Open Network Provision legislation, it defined the scope of universal

service. Secondly, it addressed the central issue of how to finance

universal service where a service would not normally be provided to a

particular customer on a commercial basis by the operation of market forces

alone. Tariff and access charges paid by new operators were all seen as

having a role to play. Lastly, it proposed funding under the Community

support framework from the Structural Funds, subject to national priorities,

for the particular problems of the peripheral regions with respect to

universal service issues.

On 7 December the Council adopted a Resolution on the principles of universal

service in telecommunications which is based essentially on the Commission

Communication. The Resolution stresses that the development of universal

service is a key factor for the future development of telecommunications in

the Community and calls on the Member States to establish an appropriate

regulatory framework and set appropriate targets in order to ensure universal

service throughout their territory. It recognizes that, in numerous cases,

market forces would be expected to lead to universal service being provided

on a commercial basis. Where voice telephony can be provided only at a loss,

it should be possible to finance it through internal transfers, access

charges or other mechanisms compatible with the competition rules of the

Treaty.

(10) ESC Opinion No 1166/93 on documents C0M(93)159 and SEC(92)1048 of

   24 November 1993.

(11) C0M(93) 543.

```

```
 1 . I I I .§2.p.8
### 063

 128. By 1998, the Commission will take the measures necessary to bring about

 the scheduling and structural adjustments in the peripheral regions required

 in order to achieve full liberalization, decide on the regulatory framework

for public infrastructure and implement the measures necessary to ensure the

full liberalization of public voice telephony.

129. The liberalization of the sector has prompted established firms or those

seeking access to conclude agreements in order to adapt to the new situation.

The agreements set up various forms of cooperation, from strategic alliances

to cooperative joint subsidiaries and, sometimes, even mergers. The

competition rules, especially Articles 85 and 86 of the EC Treaty, and the

Merger Control Regulation, are essential instruments in distinguishing

between transactions resulting in more competition in the sector and those

aimed at maintaining the status quo and slowing down the process of

I iberaIizat ion.

<T4> Postal services

130. In the postal sector, the Commission has sought to maintain the momentum

created by the adoption of the Green Paper on the development of the single

market for postal services last year. The importance to the Community of

achieving high quality services, through a combination of harmonization and

liberalization measures, has been the motivating force. Here too the

sector's vital role in achieving economic and social cohesion within the

Community cannot be overlooked.

131. Following the publication of the Green Paper on the postal sector in

1992,( [12] ) the Commission adopted a Communication to the Council and to the

European Parliament [13] ) on 2 June 1993, entitled Guidelines for the

development of postal policy.

The Communication takes account of the trends which emerged during the course

of the public consultation following the publication of the Green Paper and

sets out a series of guidelines for the further development of the

Community's postal services.

(12) Twenty-second Competition Report, point 38.

(13) C0M(93) 247 final .

```

```
1 . I I I .§2.p.9
#### 064

By the end of the formal public consultation, over 200 written submissions

had been received by the Commission departments and a summary of these

contributions is annexed to the Communication.

In general terms, the Guidelines relate to the definition of the universal

postal service at Community level; the maintenance of a reserved area-, the

establishing of quality of service standards; measures to encourage

harmonization; the separation of regulatory powers and operational functions;

terminal dues and the international aspects of the postal sector.

More specifically, the Guidelines reflect the consensus reached on the basic

concept of the universal service and propose a definition which reflects the

obligations of the Member States under the Universal Postal Union Convention.

They record agreement on the need to maintain a reserved area for the benefit

of the universal service but note the divergence of views on the effect that

specific liberalization measures, such as inward cross-border and direct mail

services, will have on the economic viability of the universal service as

well as problems relating to control.

132. In this regard, the Commission, while maintaining its preference for

liberalization, has undertaken to carry out a more detailed analysis of the

implications of the latter measures for the provision of the universal

service.

The Guidelines also reinforce the Green Paper position as regards, firstly,

the need to broaden and deepen the separation of regulatory and operational

functions in the postal sector and, secondly, the importance of introducing a

cost-based system of terminal dues into the rational development of postal

policy in the Community.

The Commission's harmonization proposals received support during the

consultation, and the Guidelines pay particular attention to the need to

introduce measures to improve quality of service through the fixing of

standards at Community level, the monitoring of progress in this regard and

the publication of results. They also propose that the harmonization of

conditions of sale should be reinforced as well as technical standardization

in the handling, transport and delivery of mail.

```

**`1.1`** **`M.§3`** **`p.10`** **06** **`5`**

```
<T3> §3. Energy

133. The establishment of a single energy market, in accordance with

Article 7a of the Union Treaty, continues to be a Commission priority despite

the difficulties of introducing the dynamics of competition into a sector

that has long been shielded from competition and the application of the

Treaty rules.

The proposals for Directives which the Commission put forward in 1992 under

Articles 57(2), 66 and 100a concerning common rules for the internal market

in electricity( [14] ^ and gas( [15] ^ continued to be the subject of wide-ranging

d i scuss ions.

At its meeting on 30 November 1992, the Council concluded that it was

essential to work towards "more open, transparent, efficient and competitive"

electricity and gas markets. Whilst noting that obstacles to the single

market had yet to be eliminated and further progress achieved, the Council

invited the Commission "to consider modifications to its proposals in the

light of the Council discussions and of the Opinion of the European

Par I iament".

The Council meeting on 25 June 1993 confirmed these conclusions. Parliament

delivered its opinion at its plenary sitting on 17 November 1993. On

10 December 1993, on the basis of the Council discussions and the numerous

amendments proposed by Parliament, the Commission presented the Council with

amended proposals for Directives on electricity and gas. The main changes

are as fol lows:

   first, gas and electricity generators will have the right to negotiate

   access to the network. This replaces the regulated access envisaged in

   the initial proposals. Provision is made for dispute resolution

   procedures in the event of difficulties in negotiating or performing

   contracts, although the procedures may not take the place of the redress

   available under Community law;

(14) Proposal for a Council Directive, OJ C 65, 14.3.1992, p. 4.

(15) Proposal for a Council Directive, 0J C 65, 14.3.1992, p. 5.

```

```
 1 . I I I .§3 p . 1 1
##### 066

    second, the proposals now include a detailed work schedule which will

   enable the Commission to draw up the necessary harmonization proposals

    for the smooth operation of the market without prejudice to the

   application of Community law.

The amended proposals also introduce, in the electricity sector, tendering

procedures for the award of new network transmission and generating

capacities as an alternative to the licensing system originally envisaged.

An open and non-discriminatory .system for the grant of licences to

own-generators and independent producers is also established. Lastly, the

network operating rules have been simplified. In its White Paper on growth,

competitiveness and employment, the Commission undertook to encourage, where

appropriate by mobilizing Community funding (grants and loans), the

construction of new interconnected gas and electricity networks in the

European Union. It will, however, see to it that the conditions governing

access to and use of these new networks, as well as existing ones, are

consistent with the principles deriving from the EC Treaty and, where

applicable, the abovementioned proposals for Directives.

133a. The Commission is pressing ahead with its policy of creating a more

competitive and open intra-Community energy market through the application of

the competition rules. Thus it authorized an agreement, notified on

26 January 1993, between E lectricidade de Portugal, National Power Pic (UK),

Empresa Nacional de EIectricidad, SA (Spain) and Electricité de France

concerning the acquisition and operation of a coal-fired power station at

Pego (Portugal) made up of two units. The agreements, chiefly as a result of

amendments incorporated at the Commission's request, is in line with the

liberalization of electricity generation provided for in the abovementioned

proposals for Directives.

134. The Commission is also pressing on with its policy of liberalizing the

oil industry, in particular the transport, distribution and sale of motor and

jet fuels. To that end, it checked the conformity with the relevant rules of

service station agreements between Spanish refineries and service station

operators from the recently abolished monopoly network, C 6 ) anc [j] 0 [f] a

franchise system in the United KingdomC [17] ) for service stations

incorporating retail outlets for consumer goods.

(16) See point 226 of this Report.

(17) See point 225 of this Report.

```

i.iii.§3 p.12 0 6 7

```
The Commission also authorized an agreement on the joint operation by British

Petroleum and Repsol SA of logistical facilities for storing and handling oil

products in the Canary Islands,( [18] ^ and another agreement on the setting-up

of a joint venture to deal with fuel-distribution logistics at Milan's new

airport. In assessing these cases, the Commission looked into whether

interested third parties had access to the network under objective and

non-discriminatory conditions, in so far as access was a prerequisite for

participation in the market.

135. In December, after long negotiations in the Council and the Parliament

which had led it to amend its initial proposal presented in

December 1992,C [9] ) the Commission adopted a Decision unanimously agreed by

the Council laying down new rules for the authorization of aid to the

Community coal industry in the per iod 1994-2002, when the ECSC is due to

expire.. The new aid code( [2] °) is closer to the code it replaced than the

original proposal as it no longer sets an upper limit on the production

costs on which subsidies can be paid to bridge the gap vis-à-vis world

market prices. Originally it was proposed that production aid should be

limited to the gap between average Community production costs and world

market prices. However, an innovation introduced by the code is the

requirement for notification and approval of aid before it is granted. Apart

from coal, the other state aid decisions by the Commission in the energy

sector all concerned aid for renewable energy. (21) The promotion of energy

from renewable sources received fresh impetus with the adoption of the

ALTENER programme.(22)

(18) See point 226 of this Report.

(19) Twenty-second Competition Report, point 400.

(20) See Annex II to this Report.

(21) See points 532 and 533 of this Report.
(22) Council Decision 93/500/EEC of 13 September 1993, 0J L 235, 18.9.1993

```

### 1 . I I I .§4.p.13 068

```
<T3> §4. Transport

<T4> Air transport

136. Since 1 January 1993, air transport in the Community has constituted a

single market from the regulatory standpoint in a largely liberalized

system.(23) Carriers now have access to virtually all intra-Community

routes, and fares are no longer subject to prior control, thus considerably

increasing the opportunities for dynamic commercial strategies and enhancing

competition in this sector.

Although liberalization of the internal market encourages the development of

competition, certain forms of cooperation between airlines have their place

in the new structure. A favourable view is still taken of cooperation where

it benefits users and improves the competitive position of the firms taking

part, especially smaller carriers without a large network. The Commission

also adopted new block exemptions^ [4] ) for the joint planning of schedules,

the joint operation of air services on new or less busy routes, slot

allocation at airports and tariff consultations on fares with a view to the

granting of interline fac i I. i t i es.C25) it has, however, made it clear that

it will be closely monitoring the development of the interlining system to

see whether tariff consultations should continue to be exempted. Lastly,

the block exemption concerning computer reservation systems was amended(26)

following the adoption by the Council of new rules on the operation of such

systems.(27)

137. The Commission also noted that increased competition in air transport

revealed more clearly the existence of ground handling monopolies in most

European airports. The associated restrictions of competition are liable to

jeopardize some of the beneficial effects of transport liberalization.

Having received a fair number of complaints, the Commission decided to

initiate wide-ranging consultations, on the basis of a working paper it had

adopted on 15 December 1993, with Parliament, national authorities, air

carriers and the institutions and parties concerned. The consultations

(23) Twenty-second Competition Report, point 58.
(24) Commission Regulation (EEC) No 1617/93, OJ L 155, 26.6.1993 and

   OJ L 177, 29.6.1993.

(25) Twentieth Competition Report, points 73 and 74.
(26) Commission Regulations (EEC) Nos 1618/93 (OJ L 155, 26.6.1993) and
   3652/93 (OJ L 333, 31.12.1993).
(27) Council Regulation (EC) No 3089/93, OJ L 278, 11.11.1993.

```

### 1 . I I I .§4.p.14 069

```
should enable the Commission to identify the measures required and the type

of legal instrument to be used. The Commission is currently examining within

the framework of the goals set out on this subject in the 22nd Report, the

observations received during the process of consultations.

The measures could consist, on the one hand, in the abolition of the

monopolies for the various services provided (and full liberalization of some

of them) and, on the other hand, in measures guaranteeing effective

competition, e.g. impartial approval and tendering procedures, or transparent

and non-discriminatory conditions of access for new entrants.

This important sector provides an illustration of the principles underlying

the action taken by the Commission in areas which are in the hands of

monopolies.

138. Norway and Sweden concluded an agreement with the Community which makes

them part of the Community single market in civil aviation and also entails

application of the competition rules.(28) The agreement was updated in order

to bring it into line with developments in Community legis I at ion.(29)

139. With the airline industry in Europe and elsewhere in recession and often

loss-making, the Commission had to deal with several major cases of state aid

to national flag-carrying airlines. These cases, notably Air France and

Aer Lingus, are reported below.(30)

<T4> Sea transport

140. The Commission continued to apply Articles 85 and 86 of the EC Treaty in

this sector, which enabled it in particular to clarify the scope of block

exemption Regulation (EEC) No 4056/86. It may also prepare a document next

year setting out the principles it regards as fundamental to the application

of the competition rules in this sector.

(28) OJ L 200, 18.7.1992.

(29) OJ L 212, 23.8.1993.

(30) See points 536 to 539 of this Report

```

###### 1. I I I.§4. p. 15 070

```
141. The Commission approved a draft block exemption regulation which

specifies the categories of consortium agreements in the liner trade likely

to be authorized under Article 85(3). The draft will now be discussed with

the parties concerned in accordance with the procedures laid down in the

enabling Regulation^ [31] )

Consortia are agreements between liner shipping companies for the joint

operation, to varying degrees, of maritime transport services involving

various technical, operational and/or commercial arrangements.

For the reasons given in its communication of June 1990,(32) the Commission

is in favour of this modern form of organizing liner services, a response to

conta iner izat ion.

The growth of container services and the scale of the investment needed

(mostly in ships) to operate such services has increased the need for

cooperation between shipowners. This cooperation usually takes the form of

consortia agreements.

These agreements vary considerably as the degree of cooperation and extent of

the joint activities they cover differ according to operators' needs and the

situation prevailing on a particular route, and so the Commission was anxious

to prepare a balanced and flexible framework for a block exemption instrument

which took account of the special features of maritime transport. The

Regulation should allow shipping lines to operate under the various

agreements in full legal certainty and ensure that shippers receive a fair

share of the resulting benefits.

Under the draft Regulation, the block exemption will apply for an initial

period of five years and covers both consortia operating within a liner

conference and non-conference consortia.

The conditions set out in the new Regulation are modelled on previously

published guideI ines,(33) adjusted to ensure that consortia operate under

conditions of effective competition.

(31) OJ L 55, 29.2.1992.

(32) C0M(90)260, 18.6.1990.

(33) Twenty-first Competition Report, Annex I 1.4.

```

```
1.III.§4.p.16

To that end, the Regulation specifies the maximum share of the trade that

makes consortia qualify automatically for block exemption.

The draft Regulation, examined for the first time in December by the

Member States at Advisory Committee level, was published at the beginning of

1994 with a view to obtaining the comments of other interested parties.

<T4> Rai I transport

142. This has traditionally been a highly regulated sector with each national

railway holding a monopoly in its territory. On 1 January 1993 Council

Directive No 91/440 of 29 July 199l( [34] ) on the development of the

Community's railways entered into force. It represents a very important

stage in the liberalization of railways since it authorizes railway

undertakings, under certain conditions, to use rail infrastructures in other

Member States in order to operate international passenger and goods trains.

Thus it is no longer possible to reserve rail infrastructure, which is just

as much an essential facility as a seaport or an airport, solely for the

nat ionaI operator.

These new market operation arrangements clearly facilitate competition

between existing railways and should make it easier for new operators to

enter the market.

Nevertheless, certain forms of cooperation between railway undertakings may

still be necessary. The Commission Decision of 24 February 1993 granting an

exemption in the field of the combined transport of goods fits into this

context; it has allowed the Commission to clarify certain principles which

it will reinforce in its decisions On other cases pending.

More generally speaking, the Commission intends to apply an active policy

over the next few years in order to encourage this form of transport and make

it more competitive, especially in relation to road transport.

(34) OJ L 237, 24.8.1991., p. 25

```

```
1 . I I I .§5.p.17

<T3> §5. Audiovisual industry

```

###### 072

```
143. The audiovisual industry is undoubtedly a key area in the improvement of

the productivity of Community industry. It is, however, necessary to

distinguish between the situation in television and that in film production

and distr ibut ion.

Television is in full expansion with an ever-growing number of channels; new

channels may differ from the traditional channels in that they take the form

of single-subject channels, subscription channels or "pay per view" channels,

where only what is watched is paid for. These developments have been made

possible by constant technological progress. The arrival of digital

compression should greatly increase the number of satellite TV channels. A

further consequence of technological progress is that competition is

increasingly becoming worldwide.

In the case of films, most Community countries are experiencing a decline in

the number of cinema-goers and very strong competition from non-Community

producers and distributors. Here, the trend in television feeds through to

developments in the film industry.

Worldwide competition clearly makes it more necessary than ever to establish

a level playing field to ensure that the conditions applied to the Community

industry in third countries are not worse than those enjoyed by those

countries' industry in the Community.

144. Whilst the growth of television is itself a source of employment, it

also has repercussions on the whole of Community industry. As the

White Paper on growth, competitiveness and employment noted, the

dissemination of information is essential in enabling enterprises to adjust

rapidly to a competitive environment.

Yet television is also a special sector, inasmuch as its openness to

competition is recent, the emergence of modern technology having allowed

television programmes to be broadcast over far larger areas. Current

technical progress could indeed mean that viewers will soon be able to select

their own menu of programmes.

```

`1` `. I I I .§5.p.18` 073

```
145. Finally, it is also necessary to consider the aspects relating to

pluralism in the media. A Green Paper(35) adopted by the Commission formed

the basis in 1993 for a vast consultation programme with all the parties

concerned. The purpose of the Green Paper is to consider whether, taking

account of the objectives of the single market, it is necessary to propose

Community-1 eve I approximation of the rules on media ownership as laid down by

the Member States to ensure pluralism. The Commission will decide on the

need for Community action by the spring of 1994. It should be noted that the

Merger Control Regulation is certainly an effective instrument for monitoring

developments in this sector, even though none of the cases notified this year

under the Regulation concerned the audiovisual industry. It should also be

remembered that one of the exceptions to the "one-stop shop" principle

concerns the media-, although in theory mergers meeting the threshold criteria

are examined only under the Merger Control Regulation, Article 21(3) of that

Regulation allows Member States to take measures against concentrations that

jeopardize the plurality of the media, even if they would not be creating a

dominant position liable to restrict competition within the meaning of the

Regulat ion.

146. The desire to give real impetus to competition in television in its new

environment explains the attitude the Commission has adopted in the year

under review and intends to take in the future. On several occasions it had

to decide on agreements between television stations aimed in practice at

giving the parties to the agreements exclusive rights whilst preventing

others from re-transmitting or distributing their pictures. In each case,

the Commission required the parties to amend their agreements to allow third

parties non-discriminatory access to the markets concerned. The EBU
Eurovision System case is particularly interesting in this connection. It

concerned the joint acquisition of the radio-broadcasting rights to certain

events. Initially, the agreement granted such rights only to members of a

body named Eurovision. However, only public or private stations with public

(35) "Pluralism and media concentration in the internal market - An

   assessment of the need for Community action" C0M(92)480 final.

```

```
1 . I I I .§5.p.19

```

074

```
service obligations could join that body. The machinery thus completely

prevented private channels from retransmitting the events in question. The

Commission eventually exempted the agreement only after the parties had

agreed partially to open their agreement to third parties.

This approach was similar to that taken in other areas where the question of

access to essential infrastructures arises.

147. The situation in the cinema industry, on the other hand, is more

difficult. In the past, the Commission had approved the setting-up by three

US producers of a joint venture, United International Pictures (UIP), for the

joint distribution of their films. An application for renewal of the

exemption was received in 1993. But the Commission's concern in this

industry too is to ensure that third parties have equal access to markets on

equitable terms, and at the same time to maintain a level playing field.

<T4> State aid

148. As stated above, the Commission has always taken a sympathetic approach

to state aid for the audiovisual industry (feature films and television

productions) because of the difficulties facing it and because of its

particular cultural importance. It intervened only in respect of

infringements of other provisions of the Treaty such as discrimination

against the nationals of other Member States.(36)

Following complaints from a number of private television channels, the

Commission is investigating the financing of public channels in several

Member States (Spain, France and Portugal). To enable it to assess the

various rights and obligations that determine the financing of public and

private broadcasters in the Member States, together with their transnational

repercussions, if any, it has commissioned a study from outside consultants.

(36) Twenty-second Competition Report, points 441 to 444

```

```
1.IV.§1.1

<T4> Chapter IV

<T2> Competition policy and other Community policies

```

075

```
149. Competition policy is an instrument which complements the Community's

other policies. This chapter of the Report therefore looks at the role which

competition policy can play in the implementation of such other policies.

However, the links described below are not the only ones that exist, since

competition policy is also relevant to the pursuit of policies not dealt with

in this Report, such as regional policy and consumer protection. The

policies highlighted in this Report have thus been selected to reflect

significant developments during the year, but this does not mean that the

links between competition policy and other policies not mentioned are of any

lesser importance.

<T3> §1. Completion of the internal market

150. The 1993 year marked the beginning of a new stage in the development of

the internal market. In accordance with Article 7a of the EC Treaty

(formerly Article 8a of the EC Treaty, as added by the Single European Act),

virtually all the measures aimed at establishing the internal market by

1 January 1993 were adopted. This legislative work led to the removal of

internal frontiers to the free movement of goods, services and capital.

Nevertheless, the Commission is aware that it is not sufficient to adopt such

a legislative framework for an area to emerge in which there is free

competition across internal frontiers. Recognizing the need for ongoing

monitoring of the way in which the basic rules function, the Commission

adopted the Strategic Programme on the Internal Market. ( [1] )

151. The strategic programme identifies the guidelines and measures that are

necessary for the internal market to operate and to allow competition between

                                                         i

operators at Community level.(2) Key importance is attached to developing

(1 ) C0MC93) 632 final .

(2) The annual report on the internal market describes the main Community
   measures affecting the operation of the internal market. The first
   report was published in March 1994.

```

```
1.IV.§1.2

##### 076

the interaction between competition policy and establishment of the internal

market. Such interaction springs from the fact that these Community policies

serve the same fundamental objective - reinforcing the wealth-creating

capacity of the Community economy through improved allocation and more

efficient use of productive resources. Strict application of the competition

rules is an essential complement to the drive to remove legal and

administrative obstacles to trade within the Union. It will help to ensure

that any anti-competitive practices by companies or national authorities do

not inhibit the dynamics of competition that must be the key to achieving the

economic advantages which completion of a single market should bring. A

strong competition policy will ensure that firms trying to tap the openings

created by the internal market do not see their efforts frustrated by such

pract ices.

152. First of all, Member States may be tempted to grant aid to firms that

are facing greater competition as a result of the single market programme.

This may provoke similar measures in other richer Member States that wish to

protect their firms. This type of chain reaction inevitably leads to an

escalation in aid that in the end benefits the richest Member States, i.e.

those that were the most developed in the first place. It is therefore

essential that the Commission continue to play its role of arbitrator and

that it applies strictly the principles laid down in the Treaty so as to

maintain aid discipline and ensure cohesion.

There may also be some resistance to the non-discriminatory liberalization of

competition at national and Community level' in sectors which were

traditionally managed on the basis of exclusive or special rights. This is

particularly true of those sectors that involve certain basic infrastructures

such as transport, energy and telecommunications. This policy is, however,

prejudicial in the long run to the interests of such Member States and thus

to the Community as a whole. If there is no competitive pressure,

enterprises will not necessarily be induced to improve their productivity.

The result is inefficiencies that are harmful to such enterprises, and hence

to society as a whole. Furthermore, other businesses in such Member States

which often depend on access to such infrastructure will be penalized in

```

```
1. IV.§1 .3
```

077

```
their competitive relationships with firms in other Community or

non-Community countries. Here again, the Commission's intention, in ensuring

gradual liberalization in such sectors, is to give everyone a greater chance

of benefiting from the advantages of a genuine internal market.

153. Secondly, firms may be tempted to protect themselves against competition

from firms in other regions. What is involved here is not government action

but private practices. Firms may attempt to achieve these ends by entering

into agreements or by abusing dominant positions. Such types of conduct must

be banned, since they do not allow firms to capitalize fully on their

competitive advantages. They act moreover as a brake on the development of

certain regions by obstructing improved exploitation of regional comparative

advantage. Once again, by penalizing severely such practices, competition

policy can help in ensuring economic and social cohesion, without which the

internal market cannot function properly in the long term. Merger control

pursues the same objectives, since it seeks to prevent firms from acquiring,

through mergers, positions such that they no longer have to fear competition

from other f i rms.

154. Competition policy will therefore remain an essential means of ensuring

that completion of the internal market brings Community industry as a whole

and consumers all the benefits which a Community-wide market affords.

Another example is provided by the various block exemption regulations

adopted in respect of exclusive distribution and exclusive purchasing

agreements. This is not a new idea, since one basic reason why the EC Treaty

includes competition rules is the desire to ensure that private obstacles to

trade do not replace the government obstacles which the EC Treaty set out to

eI iminate.

```

```
1.1V.§2.4

<T3> §2. Industr iaI policy

```

###### 078

```
155. Competition policy and industrial policy have sometimes been portrayed

as opposites. However, to understand the real extent of this supposed

conflict, it is important to define first what is meant by industrial policy.

All Member States have an industrial policy, but the term covers a wide

variety of situations. At one end of the spectrum are those Member States in

which government intervenes in life all the time, while at the other are

those in which the state's role is confined to basic functions, such as

education and the maintenance of law and order. Clearly, competition policy

is not possible in a completely interventionist state. Yet all the other

types of organization of the economy provide a role for competition policy,

some greater, some smaller, that links up with industrial policy.

156. The Commission first expressed its position on industrial policy in its

communication entitled "Industrial policy in an open and competitive

environment".(3) Similar ideas found their way into the Maastricht Treaty.

It contains a new Title XIII entitled "Industry" (Article 130). From the

Community's viewpoint, as defined in the Maastricht Treaty, industrial policy

rather seeks to create the essential conditions for the rapid development of

an efficient Community industry. The idea is not therefore for the Community

to take the place of businesses themselves, but to act as a catalyst in

encouraging innovation and creating an appropriate and stable environment.

Seen in this way, the main achievement is certainly the completion of the

internal market, which should allow Community industry to benefit from

economies of scale, while at the same time exposing it to greater competitive

pressures, which can only boost its productivity.

This general approach shows up in more specific measures. Thus, the

Commission has adopted documents relating to various sectors that stress the

role of competition. Furthermore, several measures are mentioned in the

White Paper on growth, competitiveness and employment. Examples include

(3) COM(90)556

```

```
1.1V.§2.5

```

079

```
measures to promote the development of infrastructure, such as the creation

of trans-European networks, the speeding-up of technological advances,

notably in biotechnology, and the opening-up of markets to non-Community

countries.

157. Against this background, the Commission considers that, far from being

the direct opposite of industrial policy, competition policy is an essential

instrument, with clear complementarity between the two policies. The

approach in the Maastricht Treaty is no different. On the one hand,

competition policy continues to be a fundamental objective, as Article 3(g)

makes clear. On the other, the newly added Article 130 states that Community

action to promote the competitiveness of Community industry must be "in

accordance with a system of open and competitive markets". Lastly,

Article 3a confirms that Community economic policy must be conducted in

accordance with the principle of an open market economy with free

competition. The Treaty lists a number of measures that may be taken,

notably by the Commission. Competition policy therefore has an important

role to play with respect to each of them.

158. The Treaty calls firstly for a speeding-up of industry's adjustment to

structural change. Such adjustment requires firms to take advantage of the

existence of a large internal market by way of integration. Such integration

may take place through mergers. The Merger Control Regulation is a valuable

instrument which enables the Commission to control corporate mergers so as to

ensure that they do not result in situations that are prejudicial to the

market and, above all, to authorize all mergers that do not pose any such

danger. The discussions on the lowering of thresholds have shown that firms

would prefer to deal with a single competition authority rather than having

to meet the requirements of several national authorities.

Other forms of cooperation between firms may prove beneficial without

necessarily resulting in a full merger. Thus, firms may decide to set up a

joint venture, or indeed simply to conclude a cooperation agreement. Such

forms of cooperation may enable the partners to become more efficient and to

```

```
1.IV.§2.6

##### 080

stand up to competition, which is increasingly worldwide. These types of

agreements may be authorized under Article 85(3), despite the fact that they

restrict competition. Use was made of this possibility on numerous occasions

this year. However, the Commission must in all cases react speedily: if

firms cannot implement their decisions rapidly, they risk being overtaken by

events in a changing environment. It is because it is aware of this

requirement that the Commission has undertaken to work to tight deadlines in

cases involving structural changes.

159. The Maastricht Treaty also provides for the encouragement of small and

medium-sized businesses. As noted elsewhere in this Report, the Commission

gives preferential treatment to small and medium-sized businesses in its

control of state aid.

In handling the competition rules applicable to firms, the Commission has for

many years given preferential treatment to small and medium-sized businesses

and has decided that it will not normally concern itself with the conduct of

smaller businesses. More generally, the application of the competition rules

has often resulted in the prohibition of agreements or practices that were

harmful to small and medium-sized businesses.

160. Lastly, Community industrial policy also comprises all the measures to

encourage research and development. A clear and supportive policy towards

aid for R&D was laid down by the Commission in its 1986 guideI ines.( [4] )

Acting under Article 85 of the EC Treaty, the Commission is ready to

authorize agreements involving a restriction of the parties' freedom of

action if such restriction is necessary in order to achieve technological

innovation that is beneficial to all. One case decided on this year,

Becton-Cyc lopore, is a good example of this approach. It should also be

remembered that, in 1984, the Commission adopted a block exemption Regulation

authorizing certain joint research and development agreements. The

Regulation was followed up by another which entered into force this year and

which, subject to certain conditions, exempts such agreements where the

parties decide to exploit jointly the results of their research by setting up

a joint subsidiary to market the products.

(4) OJ No C 83, 11.4.1986. See also points 454 to 464 of this Report

```

```
1. IV.§2.7

##### 081

161. An important part of the business environment are services, such as

transport and telecommunications which are discussed elsewhere in this

Report, and the availability of a trained labour force. This makes

we I I-developed infrastructures and efficient constantly updated training

systems major instruments of industrial policy. The public financing of

infrastructure that is to be accessible to all service providers is generally

not considered state aid.

```

```
1.IV.§3.8

<T3> §3. Env i ronment

```

###### 082

```
162. This year has been an important one for the relationship between

environment and competition policies. With the entry into force of the

Maastricht Treaty the environment has been given greater prominence.

Article 130r(2) provides that "environmental protection requirements shall be

a component of the Community's other policies". This principle of

integrating environmental considerations into other Community policies was

also a basic element in the fifth Community action programme on the

environment "Towards sustainabiIity"( [5] ) and was given substance in the

Communication in June on "Integration of environmental objectives into other

policies".( [6] ) Competition must therefore, as much as any other Community

policy, take account of environmental considerations.

163. However, this effect of environmental considerations on competition

policy is not a one-way street. Competition policy when put into its proper

framework has a very important role to play in achieving environmental

object ives.( [7] )

164. In the first place, one of the fundamentals of Community environmental

policy is the "polluter pays" principle. When applied, this allows the price

mechanism, which ought to translate into costs the negative effects of a

particular process or good on the environment, to perform its signalling

function which forms the basis of a market economy. This pushes firms to

convert environmental costs into financial terms. The pressure of competition

will therefore be one of the mechanisms which will prompt businesses to

reduce emissions in particular by using less polluting production and

disposal techniques. In the longer term these price incentives stimulate

research to develop environmentally friendly products or production

technologies, thereby putting the economy on a structurally less polluting

path.

165. This approach of relying on' competition and the market mechanism is

found in all environmental policy. In its Communication on "Industrial

competitiveness and protection of the environment",(8) the Commission

(
(6) SEC(93) 785/5 of 28.5.1993.

(7) Twenty-second Competition Report, points 75 to 77

(8) SEC(92) 1986 final.

```

**`1.IV.J3.9`** **0 8 3**

```
clearly calls for a vigilant competition policy. It states that "whenever

possible [integration of competitiveness and the environment requires a

strategy that] should be built around solutions based on the competitive

functioning of markets. This implies in particular emphasis on

market-related instruments of environmental policy". A similar philosophy

underlies other recent policies in the environmental field. The Green Paper

on civil liability for environmental damage^) puts the responsibility for

environmental damage on the polluter and consumer . The draft Directive on the

prevention of pollution and integrated pollution control [1 0] ) leaves a role

for competition in determining the Best Available Technology (B.A.T.) to meet

established standards.

166. The "polluter pays" principle is taken a step further in the new

environmental aid guidelines which set out the principles by which the

Commission will judge state aid for environmental protection.^ [1] ) Clearly

subsidies towards the cost of dealing with pollution are not a

straightforward application of the principle, which would require all such

costs to be borne by the polluter. But they may be a second-best solution.

The difficulty of applying the "polluter pays" principle fully and at once

has been recognized ever since the first framework was issued in 1974, but

over time the levels of subsidy have been progressively reduced. The new

guidelines further cut back on aid for adapting existing plant, but, again in

recognition of the "second-best" solution that subsidies may represent,

allows a higher rate of aid (up to 30 %) for investment that goes

significantly beyond current environmental requirements. By establishing

clearer rules in these and other areas, the new guidelines will contribute to

a more effective conduct of environment policy in the Member States.

167. Just as important as state aid policy is cooperation between companies

that can have effects that need to be analysed with respect to the

competition rules. For example, an increasing number of Member :.^ato-;;; a [r] 3

legislating in the field of packaging waste to take them out of the public

waste disposal system for household waste. This objective is to ensure that

(9) C0M(93) 47.

(10) C0M(93) 423 of 14.9.1993.

(11) See points 419 to 426 of this Report.

```

1-iv.§3.10 0 8 4

```
waste or other products at the end of their useful life need to be either

recycled or reused. C [2] )

168. Cooperation between companies is often the only way for them to meet

these norms and run collection and retrieval systems privately. Several

important cases are currently under investigation. The DSD (Duales System

Deutschland) allows participating companies who pay a fee to place a "Griiner

Punkt" on their products, showing that the packaging will normally be sorted

and can be recycled. This case has been the object of a number of complaints

which raise several important issues. In particular the question must be

asked whether it is necessary that there be only one system, which gives rise

to risk of monopoly power, and whether participation in the system is a

de facto necessity for producers, particularly from outside Germany, to enter

the German market, in other words whether the system could be used as a

barrier to entry to new competition.

Similar issues are raised in another case under investigation relating to

re-usable plastic crates for the transport of fresh fruit and vegetables. In

return for a fee, IFCO (International Fruit Container Organization - set up

by food traders) undertakes to produce, supply, take back and clean these

crates so as to permit their re-use. The food traders informed their fruit

and vegetable suppliers they would "whenever possible, buy only goods

delivered in I FCO crates". They also notified the system to the Commission.

National and European association groupings, on the one hand, of producers

of carton board packages and, on the other hand, of fruit and vegetable

producers complained against the IFCO system. The Commission is still

examining the case but in early June 1993 it issued a press release in order

to clarify one specific 'quest ion. The letter by which the traders had

informed their suppliers of the existence of the IFCO system differed from

the notification of that system in so far as it created the impression that

the traders would only accept IFCO crates. According to the notification,

the traders merely committed themselves to promoting the IFCO-crates by using

the minimum number of such crates judged necessary for the safe start-up of

the IFCO system. In its press release the Commission informed the public at

(12) The Court of Justice has confirmed that obstacles to free movement of

   goods within the meaning of Article 30 can be justified on environmental
   grounds in particular where no Community measures have yet been adopted
   (Case 240/83 [1985] ECR 531 and Case 302/86 [1988] ECR 4607).

```

I.IV.§3.II, 0 8 5

```
 large that, at its request, the traders had written a second letter to their

suppliers clarifying this point.( [13] )

169. Another case that was decided this year is very interesting in showing

the Commission's thinking in this complicated area. It concerns agreements

between water bottlers to standardize bottles so as to enable them to comply

with legislation requiring these bottles to be re-usable if a system for

their recycling did not exist.( [14] ) A standard bottle has efficiency

advantages, notably at the retail level for sorting. With the introduction of

the new German legislation, membership of this system of standard bottles,

whilst not a de jure requirement for access to the German market, became a

de facto necessity. Following a statement of objections in which the

Commission highlighted the discriminatory conditions of access to the system

for non-German mineral water producers, which seriously impeded their entry

into the German market, the system was changed. This contrasts with the

situation several years earlier when the Commission rejected a similar

complaint because at that time other possibilities for distributing mineral

waters existed and membership of the system was not necessary to have access

to the market.

170. This case shows clearly that the Commission will examine carefully all

agreements between companies to see if they are indispensable to attain the

environmental objectives. It will be particularly vigilant to ensure that

such agreements do not foreclose market entry to outsiders and that where

membership of the system is necessary for market access because there is no

viable alternative, then this membership will be given on non-discriminatory

terms. In this respect membership is treated in a similar way to access to

essential facilities in regulated sectors or transport (e.g. ports).( [15] )

The Commission in its analysis of individual cases will have to weigh the

restrictions of competition in the agreement against the environmental

objectives that the agreement will help attain, in order to determine

whether, under this proportionality analysis, it can approve the agreement.

(13) Press release IP(93)430, 3.6.1993

(14) See point 240 of this Report.

(15) See point 234 of this Report.

```

##### 1.IV.§3.12 086

```
171. Finally as regards the environment, the White Paper gives it a

prominent place in the new development model for the Community. The underuse

of labour-based resources is contrasted with the overuse of environmental

resources and capital-intensive methods of production. The development path

laid out builds on elements already being established in environmental policy

but with renewed vigour and focus. The necessary role of competition policy

in carrying out the policy of sustainable development and the impact of this

latter on the application of competition policy will therefore be a further

enhancement of the two-way influence between environment and competition

described in this chapter.

```

#### 1 . IV.§4.p.13 087

```
<T3> §4. Culture

172. The Maastricht Treaty introduced an innovation by devoting a specific

title to culture. This new Community policy has direct consequences for the

competition, rules: Article 92(3) of the EC Treaty now provides that, where

aid to promote culture and heritage conservation does not affect trading

conditions and competition in the Community to an extent that is contrary to

the common interest, it may be considered to be compatible with the common

market and therefore authorized. This important new provision will enable the

Commission to strike the necessary balance between the requirements of

cultural and heritage promotion and the openness of trade and competition in

the s ingle market.

173. While the provision of an explicit legal basis in trie Treaty for state

aid policy in the cultural field is welcome, this should not be taken to

imply that the Commission pursued a different policy in the past. The

Commission's consistent practice has been to authorize state aid to promote

culture and heritage conservation as long as competition is not unduly

distorted and that the other single market rules a*e fully complied with. The

Commission position with regard to cinema and television was set out in last

year's Report.( [16] )

There are many local, regional and indeed national cultural subsidies which

do not distort competition or affect trade between Member States to any

significant extent, in such cases, Article 92 of the EC Treaty does not apply

and the Commission has no cause to intervene. Where a subsidy does have

distortive effects, those effects are analysed in the light of the national

and Community policies being pursued and the impact on the beneficiaries'

competitors. This analysis pays particular attention to the principle of

proportionality. The Commission must ask whether the subsidy does no more

than is necessary to meet the objectives of the policy being pursued and

whether the harm to competitors outweighs the benefit of meeting the relevant

policy object ives.

(16) Twenty-second Competition Report, points 64 to 66.

```

1 -,v - §4 - p - 14
0 8 8

```
174. Culture, it is often said, is not a vulgar product like any

other. This may be so, but artists, producers, distributors and indeed all

the participants in the process of cultural creation and heritage

conservation frequently find themselves in competition with each other for

audiences, advertisers and outlets. Accordingly, it is as important in this

field as in any other that the Commission should ensure that competition is

not unduly distorted and that wasteful subsidy races are avoided.

In recent years, the Commission has taken a number of decisions which

clarify its position on cultural aid. Maintaining culturaI diversity has been

accepted as a justification for support of the film industry, for subsidizing

production of television programmes in regional languages, for promoting the

plastic arts and for supporting the export of books to countries where the

language of the book is not widely spoken. Ways of reconciling cultural

preservation and non-discrimination have been found. Now that the EC Treaty

has been amended in the way described above, further clarifications may be

expected without, however, any fundamental shift in policy.

175. Protection of culture is also a concern that has always been borne in

mind in applying the competition rules that affect businesses. Although

culture is not mentioned by name in Articles 85 and 86 of the EC Treaty, the

Commission takes account of the cultural dimension when investigating cases

in the light of those provisions. Yet the aim is not to frame a policy on

culture or to make value judgments in applying the provisions, but rather to

assess business practices with due regard to the repercussions they could

have on the Community's cultural policy.

176. One example of this concern has already been mentioned in the part of

this Report devoted to the audiovisual industry. Here, as elsewhere, the

Commission's action is of course aimed in the first place at ensuring that

competition between firms is not distorted and that some firms do not try to

oust others through anti-competitive practices. The Commission's action thus

also has the effect of preserving some plurality in the media, and this is

undoubtedly an effective means of promoting European culture. By stopping,

for example, certain operators restricting others from transmitting certain

pictures, the Commission wishes to see them disseminated as .widely as

```

##### 1.IV.§4.p.15 089

```
possible and is thus contributing indirectly to their distribution across

the Community.

177. To take another, perhaps more striking example, the Commission is

currently investigating several cases involving resale price maintenance

systems for books. This is machinery set in place by publishers in several

Member States to prevent active price competition between publishers and

between booksellers. Without at all prejudging its final conclusions in

these cases, the Commission has in the past repeatedly stated that it could

regard such resale price maintenance arrangements for books as compatible

with the competition rules provided that they are individual and purely

vertical. In other words, while the Commission cannot agree to prices,

pricing methods or conditions of sale being established collectively by all

publishers, it can, on the other hand, countenance a system whereby an

individual publisher lays down the conditions of sale and retail prices of

his books in the bookshops. In taking such a stance, the Commission is of

course conscious of the need to afford some form of protection to publishers

of books produced in smaller print runs, a consideration which influences its

analysis of the conditions of competition. A system of individual resale

price maintenance protects booksellers offering ranges of books of more

limited appeal, and therefore produced in smaller print runs. This is

another important example of how the Commission reconciles the concerns of

cultural policy with application of the competition rules.

```

```
1.1V.§5.p.16

<T3> §5. Commere i a I poI i cy

```

##### 090

```
178. The links between competition policy and commercial policy, and more

specifically anti-dumping measures, have long been the subject of

discussions. It has even been proposed on occasion that the anti-dumping

rules be replaced by the competition rules. This means, however, that the

latter are viewed only in terms of their application to business practices

within the Community.

The Commission does not share this view. In its White Paper on growth,

competitiveness and employment, it stresses the need to protect Community

industry against unfair practices in the Community by firms based in

non-member countries, by tightening application of the anti-dumping rules.

There are therefore no moves at present to replace the instruments of

commercial policy with the competition rules.

179. This does not mean, however, that the competition rules will not have to

play a key role in future in this area. Application of anti-dumping measures

does not enable Community industry to gain access to markets in certain

non-member countries where domestic manufacturers often organize themselves

in such a way that foreign firms are to all intents and purposes excluded.

Furthermore, anti-dumping measures in the form of undertakings secured from

manufacturers or import quotas can even backfire by boosting the profits of

non-Community firms, because the products are sold in the Community at higher

prices. If a lasting solution is to be found to the difficulties facing

Community industry in this area, other instruments must therefore be used.

180. In the Commission's view, the competition rules can constitute such an

instrument. The example of the Community itself serves to show that

competition rules form an essential complement to the removal of state

barriers to trade. This is why the Community has always made it a special

point to challenge business practices that hinder market integration.

However, at the present time, the efforts to liberalize world trade concern

only state barriers and not private barriers to trade. In the Commission's

view, it is therefore essential that global competition rules be developed,

and above all effectively applied, if Community firms are to be able to

operate under similar conditions to their competitors.

```

##### **1.IV.§5.p.17 09 I**

```
181. There are many possible approaches, and they are not mutually exclusive

in the Commission's view. The most ambitious solution would undoubtedly be

the adoption of an international competition code, backed up by effective

means of enforcement. The Commission is also anxious to see competition

rules included in agreements it concludes with non-member countries. Lastly,

it has concluded or is planning to conclude certain specific agreements in

the competition field with the competition authorities of some

non-member countries. These are essential preconditions if Community

industry is to gain unhindered access to third country markets. The new

situation would stop firms in those countries earning the large profits they

currently make because their domestic market has been closed off. An end

would thus be put in the long run to the economic conditions that allow them

at present to engage in unfair competition within the Community: if they

were to continue to sell at extremely low prices, either their products could

be re-exported to their country of origin, or Community firms could sell more

cheaply than them on their home markets. The economic conditions allowing

dumping to take place would thus disappear.

```

```
1.V.§1. p.1

<T4> Chapter V

<T2> Application of the competition rules

<T3> §1. Transparency

```

### 092

```
182. The Commission has for a number of years been making special efforts to

ensure that businesses and the public can gain easy and effective access to

the information they need to understand the Community's competition policy

and, in the case of businesses, comply with its requirements on a day-to-day

basis. With respect to state aid in particular it is vital that the

Member States' governments and local authorities have access to the

information necessary to ensure that any plans they elaborate regarding the

grant of aid comply with the Community's relevant procedural and substantive

rules. This need for clear information is regarded as one of the Commission's

priorities in the area of competition policy. The Community's competition

policy will be fully supported by business, policymakers and the general

public only if it is widely understood. To achieve this aim the Community's

approach in this area must be fully transparent.

In 1993 the Commission continued to take a number of measures to ensure that

this policy remains effective.

183. First, it appointed an information officer within the

Directorate-General for Competition, to whom companies and Community citizens

may address enquiries. The information office aimé to present an accessible

information point both for general enquiries on competition policy and for

specific questions on points of law. The unit can be contacted by telephoning

Brussels (32) 2-295 00 94 or by fax, Brussels (32) 2-295 54 37.

184. Second, the Commission has continued its efforts to increase the range

of publications and other sources of information that can be made available.

In addition to the publication in the Official Journal of the full texts of

formal decisions taken by the Commission pursuant to Articles 85 and 86, all

major developments in individual cases and on questions of general policy are

reported by press release. These press releases are generally available, and

can be consulted through an on-line database, named RAPID, accessible by

subscription with the Commission. Furthermore a summary of these press

```

```
1.V.J1.P.2 .

releases appears monthly in the Bulletin of the European Communities, as

well as annually in the Competition Report. The Commission published for the

first time in 1993 a long press release outlining its activities in applying

the competition rules over the first half of the year. Another press

release, covering the second half of the year, was also published in early

1994.

A number of other projects are also nearing completion. A variety of

brochures on the Community's competition policy are under preparation and

will be available during the course of 1994. Furthermore, a quarterly

newsletter is planned, which will update the business and legal community on

recent developments in an easily readable format.

185. Third, the Commission has been taking a number of measures aimed at

increasing the input from industry and consumers on cases under active

consideration by the Commission. Thus, in merger cases and cases regarding

structural joint ventures falling under Article 85(1), the Commission

publishes a short notice in the C series of the Official Journal as soon as

it receives the notification, outlining the operation in question, and

inviting third parties to comment. In cases where the Commission is

considering the adoption of a formal exemption or negative clearance

decision, it continues to publish a fairly detailed notice under

Article 19(3) of Regulation No 17 outlining the proposed transaction and its

likely effect on the market in question and inviting third parties to comment

before it adopts a final decision.

186. Fourth, the Commission has been furthering its policy of inviting

companies and their representatives to contact the Directorate-General for

Competition for consultations on individual cases prior to notification or

the lodging of a complaint. Such contacts are now standard procedure for

cases falling under the Merger Control Regulation, and the practice has been

widely welcomed by those involved. The Commission has therefore been

informing companies of this facility, in particular in cases involving

structural joint ventures, where the new internal deadlines followed by the

Commission make close collaboration between the Commission and the companies

in question indispensable.

```

```
1.V.§1. p.3
```

094

```
187. Lastly, special mention should be made of transparency in the

field of state aid. A new set of policy guidelines was issued in 1993 laying

down the principles that will guide the Commission when assessing the

compatibility of state aid for environmental protect ion.C ) The Commission

also adopted a notice which standardizes the formats of notifications and the

reporting requirements on authorized aid schemes.( [2] ^ Commission staff met

twice with experts from all twelve Member States in multilateral meetings.

188. The Commission also took practical steps, by issuing instructions to its

departments, to make legislative work more transparent. If there is to be an

active dialogue with the sectors and interests concerned and, more generally,

with European citizens, all these groups must be more thoroughly informed of

preparatory work prior to the adoption of legislative instruments.

The Commission is under a legal obligation to publish draft legislation it is

preparing only in the case of block exemption regulations.(3) it has

undertaken to publish in future all proposals for Council directives or

regulations and all draft directives, regulations or interpretative or policy

notices which it intends to adopt in the field of the competition rules

applicable to enterprises.

These drafts will normally be published in the Official Journal; texts other

than draft block exemption regulations will be published at the same time as

they are sent to the Member States. This will enable the Commission already

to take account of the reactions of 'interested parties when it holds

consultations with the national authorities.

(1) See point 384 of this Report.
(2) See point 385 of this Report.

(3) See the Council enabling regulations: Articles 5 and 6 of Regulation
   No 19/65/EEC (OJ 36, 6.3.1965, p. 533) and Articles 5 and 6 of
   Regulation (EEC) No 2821/71 (OJ L 285, 29.12.1971, p. 46).

```

#### 1.V.§2. p.4 095

```
<T3> §2. Subsidiarity and decentralized application

189. The principle of subsidiarity, which is enshrined in the new Article 3b

of the EC Treaty, has from the outset been at the heart of the rules designed

to ensure that fair, effective and undistorted competition is maintained and

developed both in the Member States and at Community level. In the field of

restrictive agreements and dominant positions, Articles 85 and 86 of the

EC Treaty have always existed alongside similar provisions of national law.

The agreements and practices concerned are caught by the Community rules only

where they are liable to affect trade between Member States. A similar

approach has been taken by the Community legislator in allocating

responsibilities for merger control between the Community and the

Member States: Regulation (EEC) No 4064/89 provides for control by the

Commission only where the operations have a Community dimension.( [4] )

While the principle of subsidiarity is well established in competition

policy, the way it is put into practice is not always satisfactory, because

the demarcation between matters that should be the responsibility of the

Commission and those that should be dealt with by the Member States is not

always ideal. This applies particularly to the dividing line drawn by the

Merger Control Regulation between the respective fields of application of

Community law and the domestic law of the Member States. Experience in

applying the Regulation has shown that very many operations which fall below

the current thresholds do have a genuine European dimension and therefore

ought to be subject to control by the Community.( [fi] )

The Commission will accordingly continue to press for a revision, in 1996, of

the turnover thresholds laid down in Article 1 of the Merger Control

Regulation, which determine whether a merger is deemed to have a Community

dimens ion.

190. As far as action under Articles 85 and 86 is concerned, the actual

wording of the provisions prevents the Commission investigating restrictive

agreements or abuses of dominant positions whose foreseeable effects do not

(4) Twenty-second Competition Report, point 120.

(5) See the part of this Report on merger control.

```

```
1.V.§2. p.5 n o [ -]

extend beyond the confines of a single Member State: this is an area

reserved for the national authorities, which apply their domestic laws. On

the other hand, neither the Community nor the Commission is exclusively

competent to deal with restrictive agreements and abuses of dominant

positions that produce their effects in several Member States and

consequently affect intra-Community trade. The national authorities can

apply their domestic law in such cases; as long as the Commission has not

initiated any proceedings, they can even apply the prohibitions laid down in

Article 85(1) and Article 86. The power to grant individual exemptions under

Article 85(3) is nevertheless reserved for the Commission (Article 9 of

Régulât ion No 17).

This pattern of responsibilities requires constant close cooperation between

the Commission and the national authorities to prevent overlapping

investigations that might lead to inconsistent or even conflicting

decisions. It also points to the need for a better division of labour

between the Community and the national competition authorities. The

Commission takes the view that restrictive agreements and abuses of dominant

positions which, albeit appreciably affecting intra-Community trade, produce

most of their effects on the market of a single country should be dealt with

by the competition authorities of the Member State concerned under the

subsidiary powers conferred on them by Article 9(3) of Regulation No 17. In

accordance with that provision, the national authorities could apply the

prohibitions laid down in Article 85(1) and Article 86, either on their own,

or in conjunction with similar provisions of their domestic law. Conversely,

cases with a significant impact on competition either throughout the

Community or in a part of it that extends well beyond the confines of a

single Member State would be dealt with by the Commission alone.

Such a division of labour would not impinge on the Commission's exclusive

powers under Article 9(1) of Regulation No 17 to grant individual exemptions

in pursuance of Article 85(3). National courts and authorities may be

allowed to apply Article 85(3) only for types of agreement that do not

greatly jeopardize effective competition and are covered by block exemption

regulations. In other cases, which must be examined individually, the grant

```

```
1.V.§2. p.6
```

**U9/**

```
of a derogation from the ban on restrictive agreements requires assessment

of complex economic situations and the exercise of considerable discretionary

power, particularly where different objectives of the EC Treaty are involved.

This task can only be performed by the Commission.

191. The so lut ion advocated above is fully in line with the policy of further

decentralizing the application of Articles 85 and 86 which the Commission has

been pursuing for several years. A first step in this direction was taken

with the adoption of a notice on cooperation between national courts and the

Commission.(^) The Commission will henceforth endeavour to step up

cooperation with the competent national authorities in order to prepare the

ground for their regular application of Community law. The annual conference

of the Directors-General for Competition of the Member States, held in

Brussels on 15 October, was devoted exclusively to this topic. Discussions

are continuing within an ad hoc working party composed of representatives of

the national authorities and of the Commission, which has the task of

examining what steps should be taken in order to:

   make competition policy towards enterprises more effective throughout

   the Community;

   involve the competent national authorities more closely in implementing

   that pol icy ;

   improve Community procedures; and

   share out the case load more satisfactorily between the Commission and

   the Member States.

The Commission is convinced that these aims can be achieved without amending

Regulation No 17. The practical steps to be taken in this area will be set

out in a notice published in the Official Journal.

(6) OJ C 39, 13.2.1993, p. 6; Twenty-second Competition Report, point 299

```

```
1.V.J3.P.7 Q 9 8

<T3> §3. Improvement of procedures

192. The Commission is continuing to look for ways of streamlining and

speeding up its procedures. This involves, firstly standardizing the

requests, notifications and reports submitted by the parties and the letters

dispatched by the Directorate-General for Competition and, secondly,

improving the flow of information on which the Commission bases its

decisions. During the year, considerable progress was made along these lines

in connection with both the monitoring of state aid( [7] ) and the application

of Art icles 85 and 86.

<T4> "Structural" cooperative Joint ventures

<T5> (a) Aims

193. On 23 December 1992 the Commission adopted new internal procedures to

speed up its handling of "structural" cooperative joint ventures.( [Q] ) These

are cooperative joint ventures (JVs) whose creation entails major changes in

the structure of the participating firms. The joint venture must therefore

be more than a mere legal arrangement chosen in order to coordinate the

parties' commercial policies: it must have an existence in its own right

because it pools a significant number of assets transferred to it by the

parent companies, particularly in the production field and in connection with

the manufacture and marketing of certain goods.

It was necessary to speed up the Commission's procedures in these cases in

order to give the firms concerned the degree of legal certainty they need

when making major investments as part of a medium- or long-term industrial

and commercial strategy. Under the Commission's new internal rules, DG IV

will therefore, within two months of full notification of the agreement,

inform the parties of the outcome of its initial analysis and the probable

duration of any administrative procedure it intends to initiate.

(7) See point 385 of this Report.

(8) Twenty-second Competition Report, points 122 to 124.'

```

###### 1.V.§3. p.8 099

```
194. This extremely short deadline can be met only if in-house measures taken

by the Commission are backed up by other rules on dealings between the

relevant Commission departments and businesses. The basic aim is to ensure

that "structural" cooperative JVs notified to the Commission are handled

efficiently. This is all the more necessary as the number of such

notifications is on the increase. A sound economic and legal assessment can

be made within two months only if the Commission has, right from the start of

its investigation, full information on a number of factors to be taken into

account, in particular the activities of the firms taking part and of the

groups to which they belong, their, size and market shares, the nature, role

and importance of the joint venture and the structure of competition on the

relevant markets.

<T5> (b) Planned measures

195. These aims cannot be achieved through normal administrative practice

developed under the procedural rules currently in force (and followed up to

the end of 1992 in the case of "structural" cooperative JVs too).

The present version of form A/B is drafted too imprecisely to guide notifying

firms towards the essential questions on which a joint venture is assessed in

the light of Article 85(1) and (3). The administrative procedure is all too

often prolonged unnecessarily because DG IV has to draw up additional

questionnaires for the firms concerned and await their replies.

In order to make a correct analysis of the structure of the relevant markets

and the conditions of competition prevailing on them, DG IV often has to

request information also from third-party firms, which causes further delays.

Publication of the main points of the notification under Article 19(3) of

Regulation No 17 does not provide a solu'tion to the problem: it cannot take

```

```
1.V.§3. p.9
#### 100

place until the end of the investigation, since it presupposes that the

Commission has already come to an (albeit provisional) view of the case.

Publication of this notice, which is intended to elicit comments from

competitors and business partners of the firms concerned and from consumers

and consumer associations, therefore falls too late to help the case officer

in his preliminary investigation.

196. The answer to the problem lies in changes both to administrative

practice and to some of the underlying rules. The procedure for handling

"structural" cooperative JVs should be modelled on the merger control

procedure, which also requires a swift economic and legal analysis. Much

depends here on the firms concerned showing an open and cooperative attitude.

In the interests of speeding up procedures, the Commission is prepared to

allow contacts between its departments and firms even before a notification

is made. Where appropriate, preparatory meetings can prove useful in

enabling DG IV to plan its investigation more effectively. The Commission

has also extended to "structural" cooperative JVs its practice of publishing

in the Official Journal a summary of the notification shortly after receiving

it. The publication of such summaries is modelled on that required by

Article 4(3) of the Merger Control Regulation and is intended to prompt third

parties to react: it is important for DG IV to have any comments from them

at the beginning of its investigation. The legitimate interests of the firms

concerned must of course be protected; the notice will therefore be confined

to a short factual description of the agreement, without any comment on its

merits, and will be published only with the consent of the parties.

Other measures need to be taken to ensure that notifications fully serve

their purpose and to streamline the administrative procedure. To those ends,

the current rules must be changed. The Commission intends to adopt a new

regulation to replace Regulation No 27, which will be broadly similar to

Regulation (EEC) No 2367/90 on merger notifications, and to draw up a new

version of form A/B based on form CO.

```

`1.V.§3.` `p.10` 101

```
197. In view of the importance of these measures both for the business

community and for the competition authorities, the Commission is currently

engaged in extensive consultations with the Member States and the interests

concerned. It has also requested the EFTA Surveillance Authority (ESA) to

give its opinion. An initial exchange of views with the Member States was

held in early December at a meeting of the Conference of National Government

Experts, which representatives of the ESA attended as observers. Parallel

consultations are continuing with business and trade interests. The

Commission hopes to be able to adopt the new regulation together with the

revised form A/B during the first half of 1994, after second reading of the

texts by the Conference of National Government Experts.

The Commission intends to streamline its procedures in areas other than

cooperative joint ventures too. DG IV's experience in applying the planned

rules will be decisive in determining to what extent the new system for

handling "structural" link-ups can be extended to other individual cases.

<T4> The right to be heard

198. As part of an ongoing review of its procedures in applying the

competition rules the Commission has given special consideration in 1993 to

those that guarantee the right to be heard. The Commission has been examining

how its existing procedures can be improved, and has had three principal

objectives in mind. F i rst. to ensure that undertakings that are the subject

of proceedings under the competition rules have the fullest possible

opportunity of expressing their views on any objections raised by the

Commission; second. to ensure that the Commission is fair and objective in

carrying out these procedures and is seen to be fair and objective by the

undertakings concerned; and third, to reduce to the minimum the

administrative burden placed both on' the companies concerned and the

Commission.

```

#### 1.V.§3. p.11 102

```
Although the existing procedures have worked well in the past, and problems

have arisen in very few cases, areas have been identified where there is room

for improvement. These areas concern the information given to parties on

documentary evidence in the Commission's possession (access to information)

and the role of the Hearing Officer.

<T4> Access to information

199. The disclosure to the parties of any relevant information is an

essential part of the procedure that guarantees the right to be heard.( [9] ) In

a number of cases over the years the European Courts have emphasized the

importance, when granting access to such information, of

   ensuring that all the documents on which the Commission relies in its

   Statement of Objections are disclosed to the interested parties;( [1] °)

   ensuring that, as part of the effective exercise of the right to be

   heard, the Commission not only reveals the documents that are used as

   evidence against the undertaking, but also those in its favour^ [1 1] )

   the need to take particular care in handling confidential

   informat ion.C2) Article 20 of Council Regulation No 17 requires that

   "without prejudice to the provisions of Articles 19 and 21, the

   Commission and the competent authorities of the Member States, their

   officials and other servants shall not disclose information acquired by

   them as a result of the application of this Regulation and of the kind

   covered by the obligation of professional secrecy".

   The Commission( [1] 3) has highlighted the difficulty in reconciling this

   requirement in certain cases with that of access to all relevant

   information. The Commission notes that confidential information

   includes not only documents containing business secrets but also other

(9) Case 85/76 Hoffmann-La Roche [1979] ECR 461, paragraphs 9 to 11.
(10) For example, Cases 43 and 63/82 VBVB and VBBB v Commission [1984]
   ECR 19; Case 62/86 AKZO [1991] ECR I-3359.
(11) Case T-7/89 Hercules v Commission [1991] ECR 11-1711, paragraph 54;
   Case T-10/89 Hoechst v Commission [1992] ECR II-629, paragraph 54.
(12) Case 53/85 AKZO/professionaI secrecy [1986] ECR 1965 paragraphs 26 to
   30-, Sixteenth Competition Report, point 126; Joined Cases 142 and 156/84
   BAT v Commission [1987] ECR 4487, paragraph 21.
'13) Eighteenth Competition Report, point 43.

```

```
1.V.§3. p.12 103

   proprietary documents belonging to an undertaking which may not wish to

   make them accessible to third parties or parties involved in the

   proceedings. It was emphasized that extensive protection for

   confidential information is necessary, but, exceptionally, that the

   confidential nature of documents does not preclude their disclosure

   where the Commission relies upon the information in question as

   necessary evidence of an alleged infringement of the Community

   rules.( [14] ) In principle, therefore, given the need to ensure the

   confidentiality of the information supplied to it, the Commission

   considers that documents it receives pursuant to its powers under

   Regulation No 17 should be disclosed only where they are necessary to

   enable the undertakings in question effectively to exercise their right

   to be heard. Such documents include those containing information

   favourable to the party concerned.

200. In the Eleventh Competition ReportC [5] ) the Commission indicated its

willingness to allow undertakings access to the file on the case, and in the

Twelfth ReportC [6] ) clarified the rules applicable to such access:

"Undertakings are informed of the contents of the Commission's file by means

of an annex to the statement of objections or to the letter rejecting a

complaint, listing all the documents in the file and indicating documents or

parts thereof to which they may have access.

They are invited to come and consult these documents on the Commission's

premises. If an undertaking wishes to examine only a few of them the

Commission may forward copies. However, the Commission regards the documents

listed below as confidential and accordingly inaccessible to the undertaking

concerned:

 (i) documents or parts thereof containing other undertakings' business

     secrets;

 (ii) internal Commission documents, such as notes, drafts or other

     working papers;

(14) Case 85/76 Hoffmann-La Roche [1979] ECR 461, paragraphs 13 to 14

(15) Points 22 to 25.

(16) Points 34 to 35.

```

```
1.V.§3. p.13 -] Q 4

 (iii) any other confidential information, such as documents enabling

     complainants to be identified where they wish to remain anonymous,

     and information disclosed to the Commission subject to an obligation

     of conf ident iaI i ty.

Where an undertaking makes a justified request to consult a document which is

not accessible, the Commission makes a non-confidential summary available."

 In the Eighteenth Report the Commission further developed these rules with

respect to multi-handed cartel cases, specifying that documents "can be made

accessible to parties to proceedings, either by access to the file or by the

sending of copies, according to the circumstances".

In CBR and others v Commiss ion^ [7] ) the Court of First Instance stated that

the "procedure for access to the file in competition cases is intended to

allow the addressees of a Statement of Objections to examine evidence in the

Commission's files so that they are in a position effectively to express

their views on the conclusions reached by the Commission in its Statement of

Objections on the basis of that evidence".

201. In the light of its experience in individual cases since the

Eighteenth Report and recent Court judgments on this matter, the Commission

has decided to consolidate and clarify its practice.

First, it has found that the practice of sending copies of all the documents

or information that are to be made accessible to undertakings which are

subject to Commission proceedings with the Statement of Objections offers

advantages over the examination of the file at the Commission's premises.

Undertakings in any event almost invariably take copies of all the documents

available to them, and thus the procedure of sending a copy of the documents

that are to be made available saves time and expense. This practice will

therefore be the general rule in future.

Second, the practice of sending a list of all the documents in the

Commission's file with an indication of documents or parts thereof to which

the undertaking in question may have access, whilst not indispensable to

ensure that companies receive all the documents necessary for them to make

their views known on the Commission's objections, is useful. Thus, in all

(17) Joined Cases T-10, 11, 12 and 15/92 [1992] ECR II-2667, paragraph 38

```

```
1.V.§3. p.1 [4 ]
#### 105

future cases the Statement of Objections will be accompanied by the

documents available to the undertaking in question, together with a list of

all documents on the Commission's file. This list will indicate the number of

the document on the file, identify its nature and state whether access to the

document is being given.

Third, the Commission has found that the description of the documents that

can be disclosed to the undertakings contained in the Twelfth Competition

Report is insufficiently precise, and has led to a degree of confusion,

particularly in cases involving a number of different undertakings. This

confusion has resulted partly from the imprecision of the term "the file".

When access to files was introduced, in 1982, "the file" consisted of the

documents passed from the Inspection Directorate within DG IV to the

operational Directorate, responsible for further processing the case. The

file therefore contained only the information considered necessary and

relevant for further scrutiny of the case in question. Access to files

therefore related to a limited number of documents; the documents irrelevant

or unnecessary to the Commission's case had already been separated from "the

file" by the Inspection Directorate. In 1984 this system changed, and the

operational Directorates within DG IV became responsible for all aspects of

preparing cases. The term "the file" thereafter applied to all the documents

in the possession of the Commission that were collected during the

invest igat ion.

202. In almost all infringement cases the Commission collects a large amount

of documentation during its investigation. Only a small fraction is normally

used as evidence of an infringement, and much of it may be irrelevant to the

case in question. Furthermore, much of the information in the file, having

been gathered using the Commission's powers under Regulation No 17, is

confidential in nature. Many of the documents will be confidential vis-à-vis

some of the undertakings in question, but not others. Experience over the

last few years has shown that since the nature of "the file" has

fundamentally changed, as it now contains a number of irrelevant documents,

it is no longer practicable to apply the categorization of documents that can

be disclosed to undertakings during access to file set out in the Twelfth

```

```
1.V.§3. p.15 .,
```

**1 Ob**

```
Competition Report. This applies particularly to cases involving a

significant number of undertakings^ [18] )

In such cases, therefore, the Commission has been following the guidelines

set by the European Courts regarding access to files in the cases mentioned

above. With the Statement of Objections the Commission sends a copy of all

the documents on which it is relying to establish the existence of an

infringement. It also sends any documents that, on the basis of a careful

examination of the file, appear to go against or contradict the Commission's

case (known as "exculpatory" documents). If an undertaking thereafter makes a

reasoned request that the Commission re-examine its file to determine whether

it has any further documents which concern a specified matter that the

undertaking considers useful to its defence, the Commission will do so, and

forward any such documents. In any case, before granting access to files, the

Commission will have particular regard to the legitimate interest of

undertakings in the protection of their business secrets. As to other

confidential information, the Commission will ensure that the identity of

informants who wish to remain anonymous vis-à-vis the parties is kept secret,

and that sensitive commercial information is not disclosed if disclosure

would have a significant adverse effect on the supply of such information.

Given this experience, and the need to apply a single procedure, the

Commission will henceforth adopt the abovementioned practice in all cases.

The Commission is convinced that this procedure, whilst being efficient and

practical, will give undertakings all the necessary opportunities to exercise

fully their right to be heard.

<T4> The role of the Hearing Officer

203. The post of Hearing Officer was created in 1982.( [1Q] ) This has been

widely welcomed, and is generally seen as an important addition to the

mechanisms that ensure the fairness and objectivity of the handling of cases

by the Commission and also reassure undertakings that they will be treated

(18) The Commission's right to exclude irrelevant documents was expressly
   recognized by Advocate-General Warner in Case 30/78 Dist i Ilers Company

   [1980] ECR 2229.

(19) Twelfth Competition Report, points 36 to 37. The mandate of the Hearing

   Officer was revised in 1990 to take account of the adoption of the

   Merger Control Regulation (Twentieth Competition Report, Annex).

```

```
1.V.§3. p.16
#### 107

objectively and fairly. This point was repeatedly emphasized by

participants at the conference on procedures held by the Commission in

September 1993.

In the light of the views expressed during the conference, and of the

modification in the procedure for granting access to file explained above,

the Commission has reconsidered the role of the Hearing Officer.

204. Although the rules ensuring that the firms concerned and third parties

have the right to be heard have worked satisfactorily on the whole, the fact

remains that there is still room for improvement. By transferring

decision-making powers concerning the rights of the defence to the most

appropriate level, namely the Member of the Commission with special

responsibility for competition, who would in turn delegate them to the

Hearing Officer, the Commission could lend greater efficiency to its

procedures in the competition field and enhance legal certainty for

businesses.

205. The role of the Hearing Officer should therefore be significantly

extended, to cover the following areas:

   Deadline for reply to the Statement of Objections. An undertaking may

   consider that the deadline imposed upon it for reply to the Statement of

   Objections is too short. In such a case, the Hearing Officer should

   decide whether or not an extension to this deadline should be granted.

   Access to relevant information. It is important that undertakings should

   be confident that the Commission carries out its responsibilities

   regarding access to information carefully, fairly and objectively, and,

   subject to the obligations imposed upon it regarding confidentiality,

   discloses all documents that may be favourable to the undertakings

   concerned in preparing their defence. The Hearing Officer can play a

   useful role in this respect. Whilst it is neither possible nor

   appropriate that the Hearing Officer should carry out the initial

   examination of the file to determine which documents can and should be

   sent to the undertakings concerned,(20) he or she should exercise the

   functions of an arbiter once these documents have been sent, and access

   to the file has therefore taken place. If, on the,basis of the list of

(20) See points 199 to 202 of this Report

```

```
I.V.JS.p.1.7 1 0 8

   documents in the Commission's file sent together with the Statement of

   Objections and of its own knowledge of the case, the undertaking has

   reasonable grounds to believe that it should receive additional

   documents, the Hearing Officer should examine any such request and

   decide on its merits. Requests would, however, need to be reasoned and

   sufficiently specific to enable the Hearing Officer to carry out this

   function.

   Right of third parties to be heard. The Hearing Officer should also be

   given the right to decide whether third parties should be allowed to

   intervene in procedures concerning individuals, businesses or

   associations of businesses. Under the present rules, natural or legal

   persons proving sufficient interest have the right to be heard. The

   Hearing Officer is undoubtedly in the best position to decide on their

   requests.

   Hear ings. The right to be heard is one of the fundamental principles of

   Community law. However, the different legislative instruments laying

   down the organizational arrangements^ [1] ) start from the principle that

   those concerned and third parties must submit their comments in writing

   within the period specified by the Commission; hearings are only an

   additional possibility. Except where the Commission intends to impose

   fines or periodic penalty payments, the persons, businesses or

   associations of businesses concerned by the procedure must supply proof

   of a specific interest in support of their request to be given an

   opportunity to put their case orally. This means, conversely, that

   cases can arise where there is no longer any point in granting the

   parties such a possibility, particularly where they have already had

   ample opportunity to explain their position in writing and there has

   since been no significant change in the facts of the case or the legal

   position. As regards the right of third parties to be heard, it is

(21) See Article 7 of Regulation No 99/63/EEC, Article 7 of Regulation (EEC)
   No 1630/69, Article 11 of Regulation (EEC) No 4260/88, Article 10 of
   Regulation (EEC) No 4261/88, and Articles 13(1) and 15 of Regulation
   (EEC) No 2367/90.

```

```
1.V.§3. p. 18
##### 109

   usually sufficient to give them an opportunity to submit written

   comments.(22) These may, however, exceptionally have a legitimate

    interest in developing their views orally; the Commission is

   furthermore fully entitled to grant of its own initiative interested or

   third parties an opportunity to make oral statements at a hearing.

   Since the Hearing Officer is responsible for organizing hearings, logic

   dictates that he should also have the task of deciding who is to be

   allowed to speak at hearings.

   Business secrets and other confidential information. In performing the

   abovementioned tasks, the Hearing Officer should also be able to decide

   which items of information supplied by a firm and contained in the

   Commission's file can be communicated to other firms or published.

   Access for interested and third parties to the information contained in

   files held by the Commission is limited by its obligation to protect

   firms' legitimate interest in their business secrets not being divulged.

   This is a general principle of Community law which has been given

   practical expression in all the competition regulations. Other

   information of a confidential nature provided by firms is made available

   by the Commission only in so far as it is essential to enable other

   persons or firms fully to exercise their right to be heard. The

   Commission endeavours above all to protect sensitive commercial

   information which, if divulged, would cause significant prejudice to its

   originator.

The Hearing Officer is seen as the most appropriate person to decide what may

be divulged to third parties, while compI ying with the procedure laid down by

the Court of Justice in AKZO.(23)

206. It is expected that the mandate of the Hearing Officer will be amended

in early 1994 to reflect these changes.( [24] )

(22) Joined Cases 209 to 215 and 218/78 Fedetab [1980] ECR 3125, 3232.

(23) Case 53/85 [1986] ECR 1985.

(24) On ... 1994 the Commission did decide to amend the mandate of the

   Hearing Officer along these lines. The new mandate was published in

   OJ C 1994, p. .. .

```

```
1.V.§3. p.19

<T4> Standardization of deadlines for replies

```

###### 110

```
207. In order to strike a reasonable balance between, on the one hand,

sufficient protection of the rights of the defence and the Commission's

obligation to have infringements ended swiftly and, on the other hand, the

need to make allowance for the Commission's staffing shortage and also the

availability of executives of the firms involved and their lawyers, DG IV has

now decided to "standardize" the deadlines for replying to statements of

objections.

The first situation concerns the main procedure. In cases of average

importance, a general period of two months will be granted, and for

complicated cases, a period of three months. An extra two weeks will

automatically be allowed when these general periods fall at Christmas or

Easter, and an extra one month will be granted automatically where the

periods include all or part of the month of August. At the most, then, a

maximum period of four months will be set from the outset in complicated

cases that fall within the holiday period. Nevertheless, unlike practice

followed in the past, these fairly long periods will not normally be

extended.

The second situation concerns expedited procedures, for example where interim

measures are being considered. These cases must be handled extremely quickly

in the interests of the parties concerned. Only the minimum period of two

weeks provided for in Article 11 of Regulation No 99/63 will therefore be

granted here, and without any extension.

```

```
1.V.§4. p.20

<T3> §4. Commission activities (guantitative description)

```

#### 111

```
208. On 31 December 1993 the Directorate-General for Competition had a staff

of 411, of which 51% were A grade staff (including 24 national experts

seconded to the Commission). Of the manpower available, 44% was allocated to

work under Articles 85 and 86 of the EC Treaty, 12% to merger control cases,

3% to work under Article 90 of the EC Treaty, 21% to state aid cases, 9% to

international relations and coordination and 11% to data processing,

documentation and other support duties. The total number of staff employed

had increased by 1% from its level on 31 December 1992, as a result of the

allocation of new posts and a new procedure for converting appropriations

into posts.

<T5> (a) Articles 85 and 86 of the EC Treaty

On 1 January 1994 there were 1 231 cases pending under Articles 85 and 86 of

the EC Treaty: over 300 less than on 1 January 1993. The reduction is due to

DG IV's continued efforts to clear the backlog. Of the "backlog" cases, all

of which had been pending for several years, half had been overtaken by

events (for example, because the agreement notified was no longer in force),

and the other half were notifications of insurance agreements that proved

compatible with the block exemption regulation adopted by the Commission in

late December 1992. Now that the backlog-clearing exercise is more or less

complete, the number of cases pending cannot be expected to fall in future-,

it may even rise. Speedier handling of notifications, particularly in the

case of "structural" cooperative joint ventures, could, for example,

encourage firms to notify their agreements more frequently.

The reduction in the number of cases pending chiefly concerned notifications;

the proportion of complaints and own-initiative procedures grew slightly.

The Commission's workload on 1 January 1994 consisted of a little over 60%

notifications (749) and slightly more than 25% complaints (335), while the

remainder (147) were the subject of an own-initiative procedure. The number

of complaints has remained roughly at the 1992 level and has therefore not

been affected by the judgment of 18 September 1992 in Automec I I

(Case T-24/90), in which the Court of First Instance stated that the

Commission has considerable discretion to reject complaints. The Commission

```

```
1.V.§4. p.21
###### 112

uses this discretion with moderation; it admittedly refers complainants to

national authorities or courts more often than before, particularly where

is sure that these channels will enable their problem to be solved, but

does continue to handle with all fhe necessary care complaints in which

sees an important Community dimension. Complaints, being necessariI

controversial, also normally take longer to deal with than notifications: i

is revealing to note that while the total number of cases concluded in 1993

(832) was twice as high as the number of new cases registered (404), the

proportion is reversed as far as complaints are concerned, since 37 cases of

this kind were terminated (of which five by formal decision) and 107 new

complaints were received.

A total of 12 cases were closed in 1993 by formal decision. Apart from the

definitive rejections of complaints already mentioned (five in all), these

comprised three prohibitions (Zera/Montedison-Hinkens/Stah1er, AICAI/CNSD and

Auditel), three exemptions (Eurovision, charging structures for combined

transport and. Grundig) and one negative clearance (Institute of London

Underwriters). A request for interim measures was rejected in the Seal ink

case.

Since the beginning of 1993, some 25 notifications of "structural"

cooperative joint ventures have been handled by means of an expedited

procedure. Under this procedure, DG IV informs the parties concerned of its

(provisional or definitive) assessment within two months of receiving the

notification. (The two-month period does not start to run until the

notification is complete.) The new version of notification form A/B, a draft

of which is currently being discussed with the national authorities and

business circles, is intended to enable firms to submit all the necessary

information to DG IV immediately on notification. Along the lines of the

standard practice followed in cases falling within the scope of the Merger

Control Regulation, notifications of "structural" cooperative joint ventures

will systematically be summarized in a notice published in the Official

Journal, inviting comments from third parties.

```

`1.V.§4.` `p.22` 113

```
Some of the 25 cases notified since the beginning of 1993 are still pending

because DG IV requested the notifying parties to supplement the information

they had already supplied. Most of the other cases were settled within the

two-month period. In six cases, however, DG IV made only a provisional

assessment within the period: in three of these, it had to send a warning

letter to the parties (Potacan, Pasteur-Mérieux and Coca Cola/Nestlé); in two

other cases, it published a notice in the Official Journal under

Article 19(3) of Regulation No 17, announcing that it intended to take a

favourable view of the notified agreements (Eurosport Mark III and

International Private Satellite Partners); in a sixth case, it informed the

parties of its intention to publish such a notice (Fujitsu + AMD).

<T5> (b) Mergers

As far as work under the Merger Control Regulation is concerned, a total of

58 cases were closed during the year (60 in 1992). The vast majority of

mergers (50) were cleared at the end of the first phase (46 in 1992). Three

mergers were given the go-ahead at the end of the second phase (5 in 1992):

while authorization of the Pi Ikington/SIV merger was not subject to

conditions or obligations, the Commission attached conditions to its decision

to allow the KNP/Buhrmann/URG and KaI i+SaIz/MDK/Treuhand operations. The

four remaining cases were found not to constitute concentrations within the

meaning of the Regulation (9 in 1992), but three of these were subsequently

examined in the light of Article 85 under the expedited procedure

(Phi I ips-Thomson-Sagem, Pasteur-Mérieux/Merck and BT/MCI). One case was

referred to the national authorities (McCormick).

Of the 50 cases closed at the end of the first phase, 24 were found to be

concentrâtive joint ventures, a number comparable to that of the structural

joint ventures examined under Article 85 of the EC Treaty.

Lastly, the Commission authorized nine mergers under Article 66 of the

ECSC Treaty.

```

```
1.V.§4. p.23

<T5> (c) State a id

```

**1** **I** **4**

```
In the state aid field, some 435 cases were concluded by a decision (502 in

1992). These can be broken down into 399 decisions to raise no objection

(455 in 1992) and, of those cases in which the Article 93(2) procedure had

been initiated, 19 positive final decisions (31 in 1992) and seven negative

final decisions, including two partly negative or conditional decisions (6 in

1992). The remaining ten measures (the same number as in 1992) include

decisions to refer matters to the Council under Article 95 of the

ECSC Treaty, one injunction under Article 88 of the ECSC Treaty (llva) and

one appropriate measure under Article 93(1).

The Commission initiated the Article 93(2) procedure in some 30 cases (as in

1992).

The Commission registered 561 new cases during the year (558 in 1992), of

which 475 concerned notified aid (452 in 1992), 85 non-notified aid (102 in

1992) and one an existing aid scheme (8 in 1992). The reduction in the

number of unnotified aid cases is heartening because it shows that the

Member States are fulfilling more scrupulously their obligation under

Article 93(3) of the EC Treaty to notify all planned aid to the Commission.

The above figures of course relate only to aid cases handled by DG IV.(25)

(25) For a table giving overall statistics on the work of DG IV and the other
   departments handling aid cases (DGs VI, VII and XIV), see Annex I I I,C to
   this Report.

```

```
2.I.A.§1. p. 1

<T5> Part Two

<T1> Competition rules applicable to enterprises

<T4> Chapter I

<T2> Main decisions and measures taken by the Commission

<T9> A. Genera I

<T3> §1. Horizontal agreements

```

###### 115

```
209. Horizontal agreements, i.e. those concluded between firms at the same

production and marketing stage, may take many forms. They may range from

price-fixing or market-sharing agreements between manufacturers to agreements

designed to promote joint research and development of new products. The

Commission is determined to take vigorous action against genuine cartels, the

effect of which is to deprive consumers of the benefits of undistorted

competition. This attitude has been reflected once again this year in the

investigations being carried out in a number of economic sectors against

firms that have been involved mostly in market sharing. It should be noted,

however, that the identification and combating of such practices requires a

major effort on the part of the Commission, notably in terms of manpower. It

is for this reason that such procedures are sometimes very lengthy. None the

less, since cartels must be eliminated completely, the Commission is resolved

to deploy all the resources necessary to take effective action against them.

210. The Commission takes a different attitude to agreements designed to

establish forms of cooperation between firms that allow them to improve their

productivity, while at the same time benefiting society as a whole. The

clearest example of such cooperation is agreements under which the parties

set up a joint venture. While it is aware that, in certain instances, this

type of operation may be a means of concealing a cartel, the Commission is in

favour of such agreements because of their advantages. It has moreover

```

```
2.I.A.§1. p. 2
```

116

```
introduced an accelerated procedure for dealing with such cases.( [1] ) As

explained earlier, the aim was also to ensure that parties did not opt for a

particular legal structure because of the procedural advantages they could

derive from it in their dealings with the Commission, rather than basing

their decision solely on the operation in question. The key element in

assessing the compatibility of such forms of cooperation with the Community

competition rules must be their effects on the relevant market rather than

the nature of the agreement.

(1) See point 77 of this Report

```

```
2.I.A.§2. p. 3 1 1 7

<T3> §2. Vertical agreements

211. Article 85(1) of the EC Treaty does not make any distinction between

horizontal and vertical agreements. Vertical agreements are agreements

between firms at different stages in the production and marketing process.

From the very outset of the implementation of Regulation No 17, the

Court of Justice has made it clear that vertical agreements could infringe

Article 85 of the EC Treaty. Since then, numerous Commission decisions have

been taken against such types of agreements. However, a number of block

exemption regulations have also been adopted for agreements of this type.

There is no disputing that vertical agreements are an appropriate instrument

for enabling certain firms to enter new markets. Distribution agreements may

help to increase competition between different brands, without requiring

massive investments by the new entrant. The benefits which vertical

agreements can provide explains the support given to them in the block

exemption regulations. However, they can also be used to restrict market

access for other firms. The Commission has accordingly always adopted a

cautious attitude to such agreements. The Grundig case dealt with this year

illustrates this approach. In this case, the Commission agreed to renew an

individual exemption for the selective distribution network set up by Grundig

for the sale of certain electronic equipment. In its analysis, the

Commission took account of the impact which the agreement could have on

consumers, but also of the fact that there was competition on this market

between the various brands.

212. To get a clear understanding of this attitude, which has been endorsed

by the Court of Justice, it is important to see the competition rules laid

down in the EC Treaty in their overall context. They are aimed not only at

protecting an economic system, but they are also an instrument for promoting

the establishment of a genuine internal'market. Their purpose is to ensure

that private obstacles to trade do not replace the government obstacles that

have gradually been removed. As far as vertical agreements are concerned,

the Commission's approach has accordingly always been based on a two-stage

analysis under Article 85 of the EC Treaty. Firstly, the exclusive nature of

a contractual relationship between a producer and a distributor is viewed as

restricting competition, since it limits the parties' freedom of action on

```

```
2...M2.P.4 1 1 8

the territory covered. Secondly, the agreement may normally be exempted

under Article 85(3) of the EC Treaty if it does not contain any provisions

that create absolute territorial protection for the distributor or, at any

rate, does not objectively have such an effect. This reflects the

fundamental concern of the Treaty to ensure genuine freedom of movement for

goods in the single market. The analysis carried out by the Commission thus

goes beyond discussion of the merits of vertical agreements in terms of

competition. One of the cases dealt with this year is particularly revealing

in this respect. In the Zera-Montedison case, an exclusive dealing agreement

together with national approval procedures resulted in the prevention of all

parallel imports into Germany. The Commission took action in the case

because the situation created ran counter to the achievement of a genuine

internal market, since, through their agreement, the parties wanted to use

the differences between national legislative provisions to prevent any scope

for consumers to take advantage of cheaper prices in other Member States.

```

```
2.I.A.§3. p. 5 1 1 Q

<T3> §3. Abuse of a dominant position

213. A review of the decisions taken by the Commission and of the judgments

delivered by the Court of First Instance confirms a trend noted earlier.

There is increasing evidence that conduct which is in principle accepted when

it relates to firms having limited market shares may become objectionable

where the relevant firms are in a dominant position. Such firms must

therefore be particularly careful if they are to avoid infringing the rules

laid down in Article 86 of the EC Treaty.

The point might even be made that, in certain situations, a firm in a

dominant position is actually under an obligation to cooperate with its

competitors. As explained earlier,(2) the owner of essential infrastructure

must, in certain cases, allow other firms non-discriminatory access to the

infrastructure so that effective competition can take place. Any other

arrangement would mean that the dominant firm would maintain its privileged

position, making it virtually impossible for other firms to obtain market

access. Consequently, while it is true that Article 86 of the EC Treaty does

not challenge the existence of dominant positions, it is also true that the

concept of abuse is defined broadly, which restricts appreciably the types of

action in which a dominant firm can engage.

Though it draws a distinction between firms in a dominant position and those

which are not, this approach cannot be described as discriminatory. If one

looks at the effects which such behaviour can have on competition, it is

clear that the behaviour of a dominant firm, because of its market power, can

have a much greater impact than that of a smaller firm. There are therefore

grounds for requiring dominant firms to be more cautious in their conduct.

(2) See point 40 of this Report

```

`2.I.B.§1.p.1` `.` _ÎJi)_

```
<T9> B. Analysis of individual decisions and measures

```

`< T 3` `>` `§1.` `Setting-up of joint ventures and other forms of` `coopérat` `ip` _n_

```
214. The first cases covered by the new accelerated procedure for assessing

cooperative Joint ventures were dealt with this year. It will be recalled

that, in addition to the amendments made to a number of block exemption

regulations last year, the Commission stated that it would endeavour to give

firms an indication of whether or not their agreement was compatible with

Article 85 of the EC Treaty within two months of notification. A number of

the cases mentioned below benefited from such accelerated processing. As
indicated earlier, 25 cases were handled this way.( [1] ) Only some of them are

discussed in this chapter, but others are summarized in Annex III.A.1.

<T6> Phi Iips-Thomson-Sagem

215. The Commission cleared the creation of a joint venture company caI led

Flat Panel Display BV (FPD) under Article 85 of the EC Treaty. The parents of

the joint venture are Philips Electronics N.V., Thomson Consumer

Electronics S.A. and Sagem.

FPD will be active in the development, design, manufacture and sale of active

matrix liquid crystal displays (AM-LCD). AM-LCDs are used inter alia for

direct view TV modules, consumer and professiona I project ion displays and

datagraphic modules.

AM-LCDs belong to a family of technologies currently referred to as Liquid

Crystal Displays (LCD), which, in turn, are one of the alternative

technologies, under various degrees of development, generally known as flat

screen technologies.

FPD will be the first European company capable of producing very large series

of screens. It was expected FPD would start mass-production in 1993. It will

have its own process and product development departments, facilities and

personnel. Its production will be made available to third parties worldwide.

 1) See point 208 of this Report

```

```
«...M1.P.2 1 2 1

The share capital of FPD will be held by Philips (80 % ), Thomson (10 %) and

Sagem (10 % ) . However, in spite of its majority, Philips alone will not be in

a position to adopt a number of strategic decisions without the support of at

least one of the other shareholders. In addition, the parties envisage other

companies joining as new shareholders in FPD.

The agreement establishing FPD was originally notified under the provisions

of the Merger Control Regulation on 8 December 1992. However, by formal

decision issued on 18 January 1993, the Commission decided that FPD did not

constitute a concentration within the meaning of Article 3 of the Merger

Control Regulation. Subsequently, and at the request of the parties, the

notification was converted into a notification within the meaning of

Article 4 of Council Regulation No 17.

The Commission, therefore, assessed the proposed joint venture from the

point of view of the application of Article 85 of the EC Treaty and came to

the conclusion that the notified cooperative joint venture fell under the

scope of Article 85(1).

This conclusion was mainly supported by the fact that the parent companies,

given their remaining activities within the AM-LCD field, in the LCD field in

general and in respect of other types of flat screens, as well as in respect

of cathode ray tubes (where Thomson and Philips are very important players on

a worldwide basis), have to be considered as being potential and even actual

competitors either among themselves or in respect of the joint venture.

However, the Commission considered that the conditions for the granting of an

individual exemption to FPD were fulfilled in the present case.

In particular, the Commission ascertained that the joint venture is going to

be a means for the parent companies to develop and sustain mass-production in

Europe of new high technology products in a field where competition from

foreign suppliers (mainly Japan) is strong, where production and marketing

within a tight time schedule on an economically viable scale is essential and

where the technical and industrial framework is uncertain.

```

#### 2.I.B.§1.p.3 122

```
In addition, screens manufactured by FPD will be sold to sophisticated

buyers (i.e. consumer electronics manufacturers, car manufacturers and

telecommunications equipment manufacturers) to be integrated either in

existing families of products or in completely new ones that will enlarge the

range of products offered to consumers.

This aspect is also important because such purchasers can represent an

effective counterweight to the joint venture.

Finally, the Commission was convinced that the joint venture is not a means

for the parent companies to eliminate competition either in respect of

displays in general or AM-LCDs in particular. In respect of the latter, it

can be said that a new technology will be put into production in the EC.

More importantly, this is a sector in which the market is worldwide.

Consequently, the important position acquired by the joint venture in the

Community must be seen in a global context. In this instance, it is apparent

that the new entity will not have a dominant position on the market.

For the reasons mentioned above and given the urgency of the case, which is

part of a wider programme supported by the Commission under the ESPRIT III

programme, the case was closed by means of a comfort letter sent to the

part ies.

This important case was one of the first in which the new internal rules for

the assessment of cooperative joint ventures of a structural nature were

appI ied.

```

```
2.I.B.§1.p.4

<T6> AI en ia-HoneyweI I

```

#### 123

```
216. Under the new internal procedure for the accelerated assessment of

cooperative Joint ventures of a structural nature, the Commission also

cleared the setting-up of a cooperative joint venture company created in

 Italy between AIenia Spa, an Italian company specialized in aeronautics, and

Honeywell Inc., a US enterprise manufacturing computers, under Article 85 of

the Treaty of Rome. The new company, Space Controls AI enia-HoneyweI I (SCAH)

will design, develop, manufacture, sell and support four space control

products based on Honeywell's technology. Those products will be sold to

subcontractors who will integrate them into subassemblies. These will then be

further integrated by prime contractors to form a complete satellite.

The share capital of SCAH will be held 60 % by Alenia and 40 % by Honeywell.

The management board of SCAH will consist of 5 members, 3 appointed by Alenia

and 2 by Honeywell. Although decisions on the ordinary course of business

will be adopted by simple majority, unanimity will be required in respect of

the business plan and the operational and R & D budgets.

The Commission considered that although the joint venture had all the

characteristics of a normal firm, it was mainly an instrument in the hands of

the parent companies to serve a number of strategic purposes. Alenia will

become a more vertically integrated prime contractor in the field of

satellites, and Honeywell will break into the European space market.

The Commission, therefore, assessed the joint venture under Article 85 of the

EC Treaty and came to the conclusion that the creation of SCAH qualified for

negative clearance because the parent companies were not actual or potential

competitors either in the satellites field in general or in the components

market in particular. In fact, they operate at different levels in the market

place.

However, the Commission raised objections against a number of very stringent

non-compete post-termination obligations and asked the parties to modify

and/or delete them. Indeed, these obligations were not ancillary to their

agreement since they were not necessary to the realization of the operation.

Once they did so, a comfort letter was sent to them.

```

```
2...B..1.P.. 1 2 4

<T6> International Private Satellite Partners (IPSP)

217. The Commission sent a letter of intent to the parent companies of IPSP,

a joint venture company that was set up in the form of a limited partnership

organized under US Law. The parent companies of ISP are, on the one hand,

subsidiaries of companies specializing in the manufacture or launching of

satellites and, on the other, subsidiaries of telecommunications companies.

IPSP's aims are twofold. Firstly, it provides international business

telecommunications services to businesses in Europe and North America using

its own satellite system on a "one-stop shop" basis. Secondly, it offers bulk

transmission capacity to third parties, to the extent that the capacity of

the satellites is not fully utilized by IPSP or its partners.

The first of these markets has developed because of the need of multinational

firms to have rapid telecommunications between their various subsidiaries.

IPSP will operate on the second market only if demand for services on the

first is lower than anticipated.

In its letter of intent, sent in the framework of the new accelerated

procedure for the assessment of cooperative joint ventures of a structural

nature, the Commission informed the parties of its preliminary conclusion

that the notified agreements might qualify for negative clearance under

Article 85 of the EC Treaty. Subsequently, it published a notice pursuant to

Article 19(3) of Regulation No 17.

```

```
2.I.B.§1. p.6

<T6> INTRAX

```

##### 125

```
218. The Commission cleared the arrangements whereby PTT Telecom B.V., the

public telecommunications operator (TO) in the Netherlands, and Nederlands

Omroepproduktie Bedrijf N.V. (NOB), the main television facilities house in

the Netherlands, have set up a joint venture company, Intrax B.V., to provide

"Satellite News Gathering" services both within and outside the Netherlands:

satellite news gathering involves the use of transportable equipment allowing

for the rapid audio-visual registration and transmission of television

signals via satellite from remote locations not served by the terrestrial

network. This case was notified before the new procedure for accelerated

decisions was set up by the Commission.

This case illustrates an increasingly common phenomenon whereby TOs join

together with companies not operating in the telecommunications area in order

to venture into new, not strictly telecom-related business activities. In

each case of this type, on top of the traditional analysis of cooperative

joint ventures under the competition rules, the Commission must examine

whether the still existing special and/or exclusive rights of the TO in

question cause its participation in the joint venture company to place the

latter in an unjustifiably favourable position vis-à-vis competitors.

In the case at hand, the Commission found that satellite news gathering

service providers who wish to compete with Intrax on the Dutch market are not

faced by any major barriers to entry.

   The uplinking of signals to satellites, traditionally an activity

   reserved exclusively for the TOs, was I iberaIized in the Netherlands in

   1991 as far as satellite news gathering is concerned.

   Furthermore, as far as capacity on satellites is concerned, PTT Telecom

   has assured the Commission that as Signatory to international TO-run

   satellite-operating consortia such as Eutelsat, it will deal with Intrax

   on the same footing as competing companies.

   Even when upl inking in the Netherlands these companies are free to

   acquire capacity on Eutelsat satellites via the Signatories in at least

```

```
2. I .B.§1. p.7
##### 126

   France, Germany and the United Kingdom. As a third possibility,

   capacity is available on independent satellites not belonging to the T0
   run consort ia.

    In countries other than the Netherlands, Intrax will be subject to the

   same operational constraints relating to uplinking and satellite

   capacity as its competitors.

In view of these circumstances, the Commission published its favourable

attitude to the operation in the Official Journal which did not give rise to

any comments. The Commission has now closed the file by means of an

administrative "comfort" letter (negative clearance type), after consultation

of the national competition authorities.

```

**`2.I.B.§2.`** **`p.8`** _**A**_ **`r)`** _**j**_

```
<T3> §2. Service sector

<T6> CNSD

219. On 30 June the Commission took for the first time a decision finding

that the adoption by a trade association of a tariff that had to be applied

by its members when they provided services, even if their activity is

considered to be a profession, constitutes an infringement of the Community

compet i t ion rules.

The Commission received several complaints from Community firms in respect of

difficulties encountered in Italy in carrying out customs clearance

operations. One of the complaints related to the decision by the "ConsJglio

Nazionale degli Spedizionieri Doganali" (CNSD-NationaI Council of Customs

Agents) of 21 March 1988 setting the tariff to be applied by customs agents

when providing services linked to customs clearance operations.

The occupation of customs agent is regulated in Italy by Law No 1612 of

22 December 1960 and by various implementing measures.

In order to operate as a self-employed customs agent, authorization is

necessary and registration in the national register is compulsory.

Administration of the national register is entrusted to the CNSD, which draws

up the agents' tariff. It thus established, on the basis of suggestions from

the departmental Councils, the tariff of 21 March 1988, which replaced the

tariff approved on 16 April 1970, and all the increases made to that tariff

between 1970 and 1988 through a coefficient of increase.

The restrictions of competition resulting from the CNSD decision of

21 March 1988 on the market for the services provided by customs agents to

firms importing or exporting in Italy are as follows:

   the setting of a tariff of fixed minimum and maximum rates, from which

   individual operators may not derogate, for each transaction carried out

   by customs agents;

```

###### B.§2. p.9 128

```
   the imposing of mandatory invoicing arrangements, such as separate

    invoices.

Although the tariffs set by the CNSD are subsequently approved by ministerial

decree, such approval does not in any way alter the fact that the CNSD's

decisions are decisions by an association of undertakings. Decisions

derogating from the tariff, for example, do not require the Minister's

approval, which shows that the tariff is set autonomously.

An appeal against this decision has been lodged before the Court of First

Instance.

The Commission is now examining the conformity of Italian Law No 1612 of

22 December 1960 with Community law and, in particular, with Articles 3(f)

and 5 read in conjunction with Article 85 of the EC Treaty and has decided to

send a letter of formal notice to Italy on the matter. The aim is to verify

the extent to which the Law might have infringed the provisions of the

EC Treaty by obliging the CNSD to conclude anti-competitive agreements.

```

```
2.I.B.§3. p.10 12 9

<T3> §3. Audiovisual sector

<T6> EBU

220. The Commission granted an exemption under Article 85(3) of the EC Treaty

to the Eurovision system operated by the European Broadcasting Union (EBU).

The EBU is the association of European broadcasters entrusted with providing

a service in the public interest. Its members are mostly public-sector

television or radio broadcasting organizations. Although some private

broadcasters belong to it, they are subject to a number of obligations

reflecting the public interest task assigned to them. Purely commmercial

broadcasters are not admitted as members.

The Eurovision system operated by the EBU and its members consists of

exchanges of television programmes, especially sports programmes, and the

joint purchasing of the relevant broadcasting rights. The joint purchasing

of broadcasting rights for international sporting events restricts

competition, because of the combined purchasing power enjoyed by EBU members

in joint negotiations. However, the system makes for a number of

improvements, notably rationalization and cost savings, which benefit members

from small countries in particular, allowing them to show more sports

programmes and programmes of better quality than would otherwise be the case.

In addition, cooperation between members facilitates cross-border

broadcasting, which contributes to the development of a genuine European

broadcasting market.

The EBU members also agreed to grant non-member channels contractual access

to the sports programmes in question under a new scheme of rules submitted to

the Commission on 26 February 1993. The new scheme allows non-member

channels access not only for deferred transmissions and the broadcasting of

extracts, but also for live transmissions of sporting events which the EBU

members do not themselves broadcast live. More restrictive clauses in a

previous scheme which had given rise to criticism from non-members were

removed at the request of the Commission. As a result, access is now easier

for th i rd part ies.

```

```
2.I.B.§3. 11 13 0

<T6> Audi te I

221. On 24 November the Commission adopted a decision finding that the

agreement between Auditel's shareholders to use only the Italian television

audience ratings measured by the company infringed the Community competition

rules.

The decision was adopted in response to a notification by Auditel of the

system it had established in Italy for measuring and disseminating television

audience ratings. Auditel's shareholders are divided into three groups:

   the public television channel,

   the private television channels,

   the associations of the following operators: advertisers, advertising

   agencies and organizations dealing in advertising techniques.

The cost of the operation is borne by the first two groups.

Article 11 of the agreement setting up Auditel provided that shareholders

must, in their activities, with regard to overall audience ratings (audience

share figure for a specific time period), use exclusively Auditel's

measurements, the sole aim being to avoid disagreements on audience shares

and distortions in the information provided to the public by the press, radio

or television. In practice, Article 11 seemed to be intended to prevent a

ratings war between the main Italian television channels.

This requirement constituted a restriction of competition in that it deprived

shareholders of any freedom to use other figures. The ratings are the basis

on which advertisers and operators decide on the size of their advertising

budgets, how to allocate them between the different media and for which media

of the same type to opt.

The exemption requested was refused because the restriction contained in

Article 11 was not indispensable and led to the total elimination of

competition. Auditel deleted Article 11 of the agreement shortly before the

decision was adopted.

```

```
2.I.B.§4. p.12 1 3 1

<T3> §4. Energy

<T6> Electricidade de Portugal/Pego project

222. On 26 January E lectr icidade de Portugal S.A. (EDP) notified to the

Commission a number of agreements concluded in 1992 between EDP, National

Power PLC, Electricité de France and Empresa Nacional de Electricidad S.A.

and their respective subsidiaries, concerning the purchase and operation of a

coal-fuelled station at Pego.

The notification concerned a project for the purchase and operation - on a

build, own, operate and transfer basis - of a coal-fuelled power station

(consisting of two units) at Pego, Portugal, whereby the Generator, to be

jointly owned by National Power PLC (United Kingdom), Electricité de France,

Empresa Nacional de Electricidad S.A. (Spain) and Electricidade de Portugal

S.A., agreed to purchase the project from EDP and to supply power from units

1 and 2 to EDP.

The power station is expected to have an installed capacity of 614 megawatts

and each of units 1 and 2 to have a capacity of 307 megawatts. The selection

of the Generator has been the result of a call for tenders at an

internat ionaI level.

After having examined the notified agreements, the Commission informed the

parties in March that it was unable to accept the clause providing for an

exclusivity of supply for 28 years on the ground that for the full duration

of the contracts the Generator would be prevented from delivering electricity

to consumers other than EDP either in Portugal or in other Member States.

The exchange of views that followed that letter resulted in EDP proposing

significant modifications which it subsequently agreed to implement.

The principal changes were:

   the capacity and output of the power station will be provided

   exclusively to EDP for the first 15 years;

```

```
2.I.B.§4. p.13
#### 132

   there will be a "first option" system for the remaining 13 years of the

   contract, allowing the Generator to sell to third parties outside the

   franchise system if there is surplus capacity which is not required by

   the Grid. Under this "first option" system the Generator will compete

   with the Grid in seeking to find an outside market (either in the

   Portuguese free system or in another Member State) for its capacity.

On 30 September 1993 the Commission published a notice pursuant to Article

19(3) of Council Regulation No 17 announcing that as a result of these

modifications and having regard to the expected development of electricity

supply conditions in Portugal stemming from Decree Laws 99/91 and 7/91, the

Commission intended to take a favourable position in respect of the

agreements. No observations from third parties were received.

The result of the examination by the Commission's Directorate-General for

Competition was that the parties had provided sufficient justification for an

exemption to be granted by the Commission in accordance with Article 85(3) of

the EC Treaty taking into account the significant modifications introduced

into the agreements originally notified and the legal possibilities for the

introduction of competition in the energy sector offered by the new

regulation in force in Portugal for the electricity sector (Decree Laws 99/91

and 7/91).

The arrangements reflect Portugal's policy of introducing competition in

electricity generation through a competitive bidding process.

The new legal framework distinguishes between two types of electricity

systems, one serving a franchise market and one serving a free market.

Franchise customers (who may buy electricity from only one source) will be

differentiated from free market customers (who may purchase from any

available source) by an electricity consumption threshold.

At present in the franchise system EDP (which has a public supply obligation)

carries out the functions of generation, transmission, distribution and

supply. The Generator under the Pego agreements wi I I be fully integrated in

the franchise system.

```

```
2.I.B.§4. p.14
#### 133

The free market system envisages free access to the transmission and

distribution systems. A free market system is developing. Since the

adoption of Decree Law 99/91 establishing the broad lines of the future

organization of the electricity sector in Portugal, a number of small

producers and auto-producers have managed to gain a total market share of

around 5%. In the very long term, the free market system is expected to

cover 20-25% of the market. The possibility of establishing the free market

system would result essentially from the fact that other producers could be

in a position to supply energy under better conditions than EDP.

It should be noted that customers will be free to leave one system in favour

of the other. Initially only the largest consumers will be allowed to move

from the existing system to the free one. The distribution companies will be

entitled to buy a percentage of their needs (initially 10-15%) on the free

system. It will also be possible for generators to build their own

transmission lines. This system offers competition in both the generation

and the supply of electricity. Free market customers are entitled to

contract freely for their electricity supplies with different generators or

other suppliers who can compete for their custom. Moreover, free market

customers will have the possibility of open and transparent access to the

existing transmission and distribution grids.

Under the "first option" system introduced into the agreement the Generator

would not be prevented from delivering electricity to consumers other than

EDP either in Portugal or in other Member States after the first 15 years and

for the remaining 13 years of the contract.

It was considered that the notification under consideration could be dealt

with by means of an administrative letter based upon the conditions of

Article 85(3) of the EC Treaty.

```

#### .B.§4. p.15 134

```
<T6> Logistical collaboration agreement between REPSOL and BPMED

                  in the Canary Islands

On 14 April, by standard comfort letter, the Commission authorized an

agreement notified on 2 March by REPSOL S.A. and BPMED S.A. on the joint

operation by them of logistical plant for the storage and handling of

petroleum products. Through the intermediary of a new company, Terminales

Canarios S.A., in which REPSOL S.A. and BPMED S.A. each have a 50% stake, new

facilities for the storage and transport of petroleum products are available

in the Canary Islands, not only for these two companies, but also for any

other companies that might be interested.

In view of the particular characteristics of this market, which is supplied

almost exclusively by the Canary Islands' only refinery, the Commission took

the view that the agreement made it easier for new operators to set up there,

by increasing the logistical facilities available and, in particular, imports

of petroleum products from the Spanish mainland and/or other Member States.

```

```
2.I.B.§4. p.16
#### 135

<T6> Disma

223. Under an agreement between certain oil companies and the managing

company of Milan's Malpensa Airport, a joint venture was created under the

name Disma for the installation and operation of equipment for storing jet

fuel and transferring it to supply points on the site of the new airport.

The Commission demanded, and obtained, certain changes needed to guarantee

non-discriminatory access for the companies operating on this market.

The agreement envisages the creation on the site of the airport of a new

fixed aircraft-refuelling installation essentially comprising a fuel and

lubricant depot directly linked via underground pipelines to supply points.

This will enable fuel to be transferred direct from the depot's pipelines and

pumping equipment without the use of the traditional tankers. Once it has

been completed, this equipment will be the only means of refuelling aircraft

at the new a i rport.

224. At the outset, the Commission acknowledged that the technological

characteristics of the Disma installations would enable jet fuel to be stored

and transported advantageously in terms of Community environmental

legislation, particularly with regard to traffic and air pollution.

Moreover, the advantages benefit not only the oil companies but also the

customer airlines and their users.

However, the initial version of the agreements notified to the Commission

contained clauses preventing non-Disma companies from having access on

non-discriminatory terms to the joint venture's services. For one thing, the

almost insurmountable obstacles making impossible in practice the transfer of

holdings in Disma to third parties prevented the latter from gaining access

to the market. The founding members had also agreed to impose significantly

higher charges on non-members. Some users of Disma's installations and

services were thus forced to accept unequal conditions for equivalent

services, and this placed them at a competitive disadvantage.

```

```
2.I.B.§4. p.17
##### 1o6

In view of the foregoing considerations, and given the more important role

that Milan Malpensa Airport is likely to play as regards air transport in the

Community, a sector which is gradually being liberalized, the Commission

initiated proceedings with a view to eliminating these unjustified barriers

to access and ensuring neutrality and equality of treatment for all users of

Disma's installations, it being borne in mind that all oil companies, whether

or not members of the joint venture, have to use these installations to

supply their customers. The members of Disma have therefore proposed a

uniform tariff although actual charges are on a sliding scale according to

the quantities of jet fuel supplied. The principle of a sliding scale can be

justified by the existence of fixed costs associated with the services

supplied to each customer.

The parties to the agreement finally agreed that access by firms not

participating in the capital of Disma should be made easier once Malpensa's

static refuelling system is operational.

The Commission took the view that the agreements concerning the Disma joint

venture were then compatible with the common market. Accordingly, it adopted

a favourable position in their regard and terminated the proceedings by

standard comfort letter.

```

```
2.I.B.§4. p.18

<T6> Texaco Ltd

```

#### 137

```
225. In November 1992 Texaco Ltd notified an agreement establishing a service

station franchising system. It requested that agreements concluded with

managers for the operation of service stations and integrated on-site shops

be cleared under Regulation (EEC) No 4087/88 granting block exemption for

franchising agreements.

Texaco wanted not only to sell fuels and petroleum products marketed under

its name, to which Regulation (EEC) No 1984/83 on the application of

Article 85(3) of the Treaty to categories of exclusive distribution

agreements could have applied, but also to organize a network of service

stations and shops that would distribute foodstuffs, tobacco, newspapers and

car-related articles using a common name and presenting the contract premises

in a uniform manner, would possess know-how and would receive commercial and

technical assistance.

The Commission took the view that the contracts complied with all the

conditions laid down in Article 1 of Regulation No 4087/88. The contract

provides in particular for obligations relating to the use of a common name

or shop sign, a uniform presentation of contract premises and the

communication by the franchisor to the franchisee of substantial know-how,

including training and substantial information relating to management,

administration and finances and to the promotion, storage and presentation of

products to consumers. The requirement laid down in the contracts that only

Texaco fuel be sold is also in line with the exemption criteria provided for

in the Regulat ion.

With regard to the on-site shops, the Commission took the view that the

requirement that the franchisees must always have available certain brand

products specified by Texaco was lawful. For each category of product sold,

the franchisee is required to sell Texaco's specified brand product, while

remaining free to sell competing products of his choice, provided that such

products comply with minimum quality criteria. The franchisor may require

part of the shop's shelf-space to be reserved for the display of such brand

products.

```

```
a [...B.] S [4.p.] 1 9

Texaco has also set up a centralized purchasing system for the designated

products. Under the system, Texaco negotiates purchasing terms with

manufacturers and wholesalers and identifies those with the lowest prices.

It can obtain much cheaper purchasing terms than those which could be offered

individually to franchisees. If franchisees decide to participate in this

system, they are then required to purchase all the products selected from

Texaco's designated suppliers. However, they are free to purchase other

products from suppliers of their choice.

Following discussions with the Commission, Texaco made it clear that the

purchasing system was optional and that it was not automatically linked to

the franchising contract. The system has advantages in terms of discounts

and rebates, but the franchisee is free to participate in it or not as he

wishes and can withdraw from it at any time.

On the basis of these clarifications the Commission took the view that the

agreement notified by Texaco, including its motor vehicle fuel distribution

aspect, complied with the provisions of Regulation (EEC) No 4087/88/CEE.

```

```
2 . I . B . §4. p.20

<T6> Service station agreements in Spain

```

#### 139

```
226. With regard to the application of Regulation No 1984/83 (concerning

exclusive purchasing agreements) to service stations, the Commission was

able, on several occasions, to clarify and define more closely certain

aspects of the scope of the exemption and, in particular, the restrictions of

competition that ruled out its application.

In the particular context of the recent abolition of the Spanish oil

monopoly,(2) the Commission examined the contracts negotiated by the

Spanish refineries with service station operators under the former

monopolized network when it was still legally reserved to Spanish refiners'

products. The contracts were exclusive supply contracts entered into for a

period of ten years as from the date of abolition of the monopoly.

The Commission took the view that the contracts were not compatible with

Regulation (EEC) No 1984/83: as the service station operators were legally

and economically dependent, the entry into force of the contracts at a

different time from that at which they were signed meant de facto that they

were concluded for an indefinite duration or for a period of more than the

ten years provided for in the Regulation. The Commission also challenged the

arrangement whereby the exclusive supply requirement covered not only motor

vehicle fuels, but also lubricants sold in the service stations concerned.

Since the Spanish refineries demonstrated their willingness to amend their

agreements so as make them compatible with the Regulation and since, for this

purpose, the ten-year period for the exclusivity arrangements will commence

on the date the agreement was signed and will apply only to motor vehicle

fuels, except in cases where the supplier has made a lubrication bay or other

lubrication equipment available to the service station operator, the

Commission decided that it would probably close the case, by means of a

standard comfort letter.

(2) See point 362 of this Report.

```

```
2. I .B.§4. p.21

<T6> Service station agreements in the Canary Islands

```

**1** **4** **U**

```
226(a). In response to a complaint lodged by the Association of

Petroleum Product Distributors in the Canary Islands against Texaco

Petrolifera S.A., challenging the compatibility with the relevant Community

rules(3) of the exclusivity agreements signed by that company in the^Canary

Islands, the Commission sent Texaco Petrolifera S.A. a statement of

objections on 23 December 1991. In the Commission's view, the exclusive

purchasing agreements negotiated by the company with service station owners

in the Canary Islands constituted an infringement of Article 85(1) of the

EC Treaty, since some of the clauses (notably those concerning the duration

and scope of the exclusivity arrangements relating to the sale of motor

vehicle fuels and the arrangements for setting the pump prices of the

products) went beyond the limits set by Regulation (EEC) No 1984/83.

On 28 January 1992 Texaco Petrol ifera S.A. replied to the Commission's

statement of objections.

At the same time, the Commission sent requests for information pursuant to

Article 11 of Council Regulation No 17 of 6 February 1962( [4] ) to all the

established oil companies that had negotiated exclusive purchasing agreements

with service station operators in the Canary Islands similar to those

negotiated by Texaco Petrol ifera S.A. These included Shell Espana S.A.,

Distribuidora Industrial S.A. (DISA) and Mobil Oil Espana S.A.

As a result of the Commission's representations, both Texaco Petrolifera S.A.

and the other companies that had signed exclusive purchasing agreements

indicated that they were prepared to bring their agreements into line with

the Community rules applicable. For this purpose, the companies proposed

(and the service station operators agreed) that addenda be signed to adjust

the clauses in the agreements that the Commission had objected to.

Since most of the service station operators concerned signed such addenda and

since, consequently, they had once again demonstrated their willingness to

(3) Commission Regulation (EEC) No 1984/83 of 22 June 1983 on the

   application of Article 85(3) of the Treaty to categories of exclusive

   purchasing agreements.

(4) First Regulation implementing Articles 85 and 86 of the Treaty, amended
   and supplemented by Regulation No 59, by Regulation No 188/63/EEC and by
   Regulation (EEC) No 2822/71.

```

```
2.I.B.§4. p.22

```

**14**

```
continue their business relationships with the company of their choice for a

period not exceeding ten years in accordance with the conditions provided for

in Regulation No 1984/83, it was decided on 8 February 1993 to close the

case. In the situation described there was less need to continue examining

the case at Community level, and so the competent national authority took up

the complaint.

It is thus the Spanish competition authority that will deal with the case of

the small number of station operators who have refused to renew the

agreements put forward by the companies. Furthermore, since Article 85(1)

has direct effect, there is nothing to prevent the complainant from raising

before the national judicial authorities the problems of compatibility with

Community law of exclusive purchasing contracts that are not exemptable under

Regulation (EEC) No 1984/83. This case provides a good illustration of the

subsidiarity and decentralization policy pursued by the Commission.

```

```
2. I.B.§5. 23

<T3> §5. Motor vehicles

<T6> Cooperation agreements between Peugeot and Fiat

              involving the SeveI Joint venture

```

#### 142

```
227. The Commission continued its scrutiny of the agreements concluded by

Fiat and Peugeot for the joint production of vehicles intended for specific

segments of the automobile market. The agreements concern the manufacture

at two plants of three types of vehicle. Sevel Val di Sangro produces

medium commercial vehicles, while Sevel Nord produces light commercial and

multi-purpose vehicles.

The medium commercial vehicles are the fruit of an initial collaborative

venture agreed on 29 June 1978, to build the Peugeot J5, Citroën C25 and

Fiat Ducato, with the vehicles still to be marketed separately through the

parties' own distribution networks. The Commission approved this agreement

by administrative letter on the ground that it was aimed at promoting

research into and the development of a new product. A subsequent agreement

was concluded to enable the firms to replace the abovementioned vehicles with

new products better suited to a changing market. The Commission proposes to

approve the extension of the collaborative venture to include thé new

products by a formal decision, to which it intends, however, to attach

conditions designed to ensure the maintenance of genuine competition between

Fiat and Peugeot in the distribution of such vehicles throughout the common

market. It has already published a notice in the Official Journal seeking

the views of interested parties.

The joint production of multi-purpose vehicles and of light commercial

vehicles is a new venture covered by a more recent agreement. It concerns

not only the chassis, which is common to all models, but also the engines and

bodies. Following a detailed examination of the notification which was made

by the two parent companies as a precautionary measure, the Commission found

```

#### .B.§5. 24 143

```
that the agreement was covered by Regulation (EEC) No 418/85, which exempts

under Article 85(3) of the EC Treaty certain agreements concerning joint

research and development: the two firms can therefore continue the research

undertaken jointly, and subsequently entrust to Sevel Nord the manufacture of

the vehicles in question.

```

```
   B.55. 25 H

<T6> Rover Group

228. Between 1986 and 1990 Rover Group operated a system in the

United Kingdom by which it set a ceiling on the amount of discount that a

customer should receive on some of its models. Rover Group's authorized

Rover dealers were allowed the normal dealer margin of 15%, but a further 2%

margin (payable for compliance with dealership standards) was not paid over

in the event of the dealer exceeding fixed discount levels. This practice

was a clear breach of EC competition rules because it restricted price

competition between dealers.

Rover's senior management terminated the practice, following which they

voluntarily notified the changes they introduced to the United Kingdom's

Office of Fair Trading and subsequently to the Commission. In order to

remedy the situation Rover informed its dealers that the discounting policy

previously pursued had been abandoned. Furthermore, the Rover Group undertook

to reimburse dealers any margin which had been withheld from them. Finally,

after discussions with the Commission, Rover agreed to contribute the sum of

UKL 1 million to the funding of two projects designed to benefit consumers

who purchased motor vehicles in the United Kingdom. However, this does not

affect the rights of individual consumers to claim compensation against Rover

or any Rover dealer, or prevent the UK authorities from taking action under

nat ionaI law.

Under the circumstances the Commission does not propose to initiate official

proceedings in this case.

```

```
2. I.B.§5. 26 ...
##### **1 4s**

<T6> The Commission sees to reorganization of the distribution of Fiat

                  spare parts in Italy

229. Acting on a complaint from Cicra, the Italian association of

manufacturers of spare parts and accessories, the Commission contacted

Fiat Auto to lead it to modify its system of distributing spare parts for its

cars in Italy.

Under Italian law a motor manufacturer may obtain a legal monopoly over body

parts for which it seeks registration as industrial designs. Fiat Auto

availed itself of this opportunity and was therefore entitled by law to the

exclusive supply of certain parts. Moreover, the discounts granted to

distributors of spare parts for all Fiat products were closely bound up with

the discounts offered on spare parts covered by the monopoly. These

discounts also depended on a purchasing threshold accepted by each

distributor.

Alongside its motor vehicle distribution network, organized in conformity

with Commission block exemption Regulation (EEC) No 123/85, Fiat had set up a

system of exclusive distribution through a network of 315 dealers

specializing in the distribution of spare parts. The Regulation covers the

distribution of parts only in so far as it is linked to the distribution of

motor vehicles. Fiat had ceased to have such a homogeneous system of

exclusive and selective distribution and therefore lost the benefit of the

block exemption, at least as regards the spare parts sector.

Following the Commission's intervention, Fiat decided to modify its system of

discounts as from 1 January 1994 to bring it into line with the competition

rules. In particular, it proposed to abandon the discount intended to deter

distributors from selling to customers from outside their area, scrap the

LIT 99 million purchasing threshold that distributors had to reach before

they qualified for discounts, and abolish any link between the discounts

granted on parts covered by an industrial design right and the discounts

granted on other spare parts. The effect of these discounts was to limit

access by third parties to the market in spare parts for Fiat vehicles.

```

##### 2. I.B.§5. 27 146

```
Fiat also decided to abolish the network of distributors specializing in the

sale of spare parts. There are some 750 such distributors in Italy, 315 of

whom have been appointed "authorized Fiat distributors" in return for their

agreeing to tie themselves to Fiat through an exclusive dealing agreement

known as the "CSR". Because of their number the Commission granted Fiat a

five-year grace period in which to terminate these exclusivity agreements as

and when they come up for renewal. This new policy of Fiat's will mean more

competition in the market for spare parts because independent spare parts

manufacturers will be able to sell to a group of customers to which they were

hitherto denied access.

```

```
2.I.B.§6. p.28 147

<T3> §6. Transport

<T5> (a) Sea transport

<T6> East African Conference

230. In September the Commission terminated the proceedings it had initiated

in 1991 against the liner conference operating in trade between Europe and

East Africa (the EAC) and member shipping companies in respect of the length

of notice companies wishing to leave the conference had to give.

The Commission had acted originally in response to a complaint lodged in

June 1989 by Compagnie Maritime Belge (CMB) against the EAC in respect of the

obstacles the conference had placed in the way of CMB's introduction of a

non-conference service. The dispute between the parties dates back to the

time when CMB decided it was not going to serve the trade in question any

longer as a member of the conference, and offered a new liner service

competing directly with that provided by the EAC.

The EAC thereupon went to court and also referred the matter to arbitration

in an attempt to prevent the service from being introduced before

31 December 1990, the date on which it considered that the notice given by

CMB could have the effect of releasing that company from the various

obligations and geographical restrictions contained in the conference

agreement.

CMB argued that the clause in the agreement relating to the length of notice

to be given in order to leave the conference was not covered by the block

exemption granted to liner conferences.(5) The clause provided for a

minimum period of notice of 12 months, such notice to expire only at the end

of a calendar year.

The Commission found that the current arrangements for giving not ic'; :.'

restrict, for a period of up to two years less one day, the freedom u; a

(5) Article 3 of Council Regulation No 4056/86, OJ L 378, 31.12.1986

```

```
  B.§6. p.29 148

member shipping company wishing to leave the conference in order to offer a

non-conference service as an outsider.

It acknowledged that the requirement of the giving of notice to leave a

conference was a normal contractual provision: conferences involved a certain

amount of coordination of schedules and capacity, and the withdrawal of one

of the members could cause disruption. It found, however, that in the

present case the period of notice provided for in the conference agreement

was unreasonably long and constituted a restriction of competition. As the

provision in question did not satisfy the conditions necessary for it to

benefit from the block exemption granted to liner conferences or from an

individual exemption, it was therefore automatically void under Article 85(2)

of the EC Treaty.

231. In the Commission's view, the notice-giving clauses in conference

agreements are closely linked to effective non-conference competition from

outsider companies, which constitutes the main counterweight to the block

exemption granted to liner conferences. The Commission must ensure not only

that existing outsiders are not hampered by restrictive practices on the part

of conferences benefiting from exemption, but also that a company belonging

to a conference can become, within a reasonable period, an outsider offering

a service competing directly with that offered by the conference.

The Commission considers that the maximum period of notice required of a

member before it can leave a conference without incurring any penalty should

not as a rule exceed six months and in some cases might even be shorter, and

that it should be possible for such notice to be given at any time.

The EAC having amended its conference agreement as requested by the

Commission, the Commission decided to terminate the proceedings without

adopting a formal decision.

<T6> Trans-Atlantic Agreement

232. Almost all shipping lines in the Europe/US trade are parties to this

agreement, which has the objective of freezing capacity on that trade.

```

```
2.I.B.§S. p.30 .
## `149`

According to these lines, the trade has suffered during the last two years

from overcapacity and heavy losses for most members.

The agreement entered into force on 31 August 1992. It allows the members of

the TAA to fix prices in common in relation not only to the sea transport

segment but also to the land-based segment. In addition, the TAA established

a management programme for the capacity offered by members which enables them

to reduce by up to 25% the amount of capacity previously offered to shippers

by the non-utilization of some of the space available on their vessels. The

programme extends only to westbound traffic and therefore mainly covers

Community exports to the United States.

The Commission has received numerous complaints from shippers (transport

users) regarding this agreement. Following the announcement by the members of

the TAA of substantial rate increases for 1993 (between 30% and 100%), the

British and French shippers' councils lodged applications for interim

measures asking the Commission to suspend implementation of the agreement.

On 14 April the Commission sent a statement of objections to the TAA's

members with a view to adopting interim measures such as suspension of the

agreement. Following the written reply and the hearing it became apparent

that the elements of serious and irreparable harm to the complainants were

insufficient to justify such a decision.

On 10 December the Commission sent to the TAA's members a statement of

objections on the substance of the case. This statement of objections is

based on presumed infringements of Articles 85 and 86 of the EC Treaty and

envisages a prohibition of the agreement.

```

```
2.I.B.§6. 31

<T6> Irish Club Rules

```

#### 150

```
233. The Commission received a request for individual exemption under

Article 12 of Regulation (EEC) No 4056/86 for an agreement known as the Irish

Club Rules concluded by six small and medium-sized shipping companies

providing liner services for the carriage of cargo between the Continent, on

the one hand, and Ireland and Northern Ireland, on the other. According to

the parties, the agreement was neither a conference nor a consortium

agreement.

As part of the scrutiny procedure, the Commission published in June 1991,

pursuant to Article 12(2) of Regulations (EEC) Nos 4056/86 and 1017/68, a

notice summarizing the essential content of the agreement and of the request

for exemption.

Following publication of the notice and the receipt of numerous comments from

interested third parties voicing their opposition to the granting of an

individual exemption to the agreement as it stood, in September 1991 the

Commission sent, in accordance with Article 12(3), a letter to the shipping

companies concerned expressing serious doubts as to the applicability of

Article 85(3) of the EC Treaty to the Rules. Its main objection was that

the Rules' scope included the land-based segment of the transport service.

During subsequent talks between it and the parties, the Commission pointed

out that the Rules could not be exempted on the strength of any stabilizing

effect they might have, as this was acknowledged by Regulation 4056/86 as

being a sufficient ground only in the case of liner conferences (eighth

recital of the Regulation); such an effect was produced primarily by

cooperation between shipping companies on freight rates leading to the

adoption of a common tariff, a feature lacking here.

In May 1993 the parties again notified their agreement, as amended to take

account of the serious doubts and other points raised by the Commission.

```

```
2. I.B.§6. 32 . (- .

Subsequently, the Commission, in accordance with Article 23(3) of

Regulation 4056/86, published a notice^) announcing its intention of

adopting a favourable decision on the Rules. The notice contained a summary

of the serious doubts raised, of the amendments made to the agreement and of

the main reasons why the Commission considered it could grant the Rules an

individual exemption.

Since no new factor capable of modifying the Commission's assessment was

brought to its attention following publication of the second notice, the

Commission closed the file on the case.

An Article 85(3) comfort letter was accordingly sent to the parties.

(6) OJ C 263, 29.9.1993, p. 6

```

#### B.§6. p.33 152

```
<T5> (b) Port services

<T6> Sea Containers/SeaI ink

234. The Commission rejected an application by Sea Containers (a company

which, amongst other activities, operates high-speed ferries between

Great Britain and France and Ireland) for interim measures against Stena

Seal ink (a British ferry operator which is also the port authority at

Holyhead, Wales), after the companies had come to an arrangement following

Commission intervention.

Sea Containers complained to the Commission in April that Stena Seal ink was

refusing to grant it access to the port of Holyhead for the purpose of

commencing a high-speed ferry service, thereby protecting its own ferry

service from competition. Sea Containers asked the Commission to adopt

interim measures against Stena Seal ink obliging it to grant access to the

port. In July the Commission issued a statement of objections to

Stena Seal ink in which it said that it considered that Seal ink's behaviour

constituted an abuse of its dominant position as owner and operator of the

port, contrary to Community competition rules, in particular Article 86 of

the EC Treaty. The Commission indicated that it intended to order interim

measures against Stena Seal ink obliging it to grant access to Holyhead to

Sea Containers.

In October Stena Seal ink offered Sea Containers access to the port on terms

which the Commission considered to be reasonable and non-discriminatory.

Sea Containers later accepted the offer, after the Commission had indicated

that it considered that the necessary conditions for ordering interim

measures were no longer fulfilled (i.e. urgency, arising from the likelihood

of serious and irreparable harm to the applicant).

The Commission decided to adopt a formal decision in the case in order to

clarify the legal position for the benefit of the companies and other

interested parties. In its decision the Commission said that Sea Containers

was not entitled, by way of interim measures, to more than Seal ink had

offered. However, it made clear that it considered that Seal ink had

prima facie abused its dominant position at the port of Holyhead. In its

```

##### 2. I .B.§6. p.34 153

```
view, a company which both owns and uses an essential facility such as a

port, and which refuses its competitors access to that facility, or grants

access only on terms less favourable than those it gives its own services,

infringes Article 86 of the EC Treaty if there is an effect on trade between

Member States.

The Commission believes that, when a company is in a position such as that of

Seal ink in this case, it cannot normally expect to fulfil satisfactorily its

duty to provide non-discriminatory access and to resolve its conflicts of

interest unless it takes steps to separate its management of the essential

facility from its use of it. This could involve, for example, having

different employees responsible for the management of the port than for the

management of the ferry service, the establishment of a non-discriminatory

code of practice, a consultation procedure involving other port users, and

arrangements for independent arbitration in the event of disputes.

```

```
2.1.B.§6. p.35 15 4

<T5> (c) Ra i I transport

<T6> Decision on tariff structures in the

                combined transport of goods

235. The Commission adopted a decision authorizing an agreement establishing

a common tariff structure to be applied by the main railway companies in the

Community. Railway companies only exceptionally sell combined transport

services (i.e. services involving more than one means of transport such as,

for instance, rail and sea transport) direct to consignors. In the vast

majority of cases, such transport services are sold through specialized

operators, which may be either subsidiaries of railway companies or

independent f i rms.

The agreement establishes a tariff price structure for the sale of rail

haulage to these operators. It defines a grid of coefficients to be used in

calculating prices, but it does not lay down the prices themselves.

236. The Commission took the view that the agreement would restrict

competition, because without it each railway company could adopt its own

tariff to attract traffic operating on competing combined transport routes.

In addition, the agreement was not a technical agreement within the meaning

of Article 3 of Council Regulation (EEC) No 1017/68, which authorizes

agreements the sole object and effect of which is to apply technical

improvements or to achieve technical cooperation.

The Commission nevertheless came to the conclusion that the negative effects

of the agreement would be offset by the fact that it would be easier to set

international prices and by the fact that operators purchasing haulage from

the railways could compare different international routes more readily and

thus take advantage of competition between them. A common tariff structure

that would be in force for several years also gave operators the stability

they needed to invest.

The Commission accordingly decided to authorize the agreement for five years

but attached conditions to its authorization to protect combined transport

operators from abuse of the agreement by the railways.

```

```
2. I.B.§6. p.36

<T5> (d) Air transport

<T6> IATA - Currency Rules

```

##### 155

```
237. The rules governing the terms and conditions for the issue of airline

tickets are contained in a number of resolutions by IATA Tariff Coordination

Conferences. One of these resolutions restricted the freedom of passengers

to purchase tickets outside the country of travel origin.

 IATA was informed that, in the Commission's view, the rule amounted to a form

of market segmentation and appeared to prevent the consumer from obtaining

the best terms for his or her transport arrangements. The adoption of the

.resolution by IATA airlines therefore appeared to restrict competition in the

Community, and would thus fall within the scope of Article 85(1) of the

EC Treaty.

Following discussions with IATA, the resolution was modified by an IATA

conference so that the provisions were no longer applicable to t rave I., wi th in

the EC, Norway and Sweden.

<T6> IATA - Cargo Surcharge

238. The annual round of talks on cargo tariffs between airlines within IATA

Tariff Coordinating Conferences is permitted under Commission Regulation

(EEC) No 1617/93 on the ground that the discussion of, but not the agreement

on, tariffs may contribute to general acceptance of interlining to the

benefit of carriers and air transport users alike.

On two separate occasions during the course of the year IATA adopted

resolutions providing for the imposition of a worldwide fixed surcharge of 15

US cents per kilo on all air freight movements. The increase in the intra-EC

revenues of carriers applying the surcharge was estimated at ECU 100 million.

IATA considered that the adoption of the surcharge fell within the scope of

the block exemption because the surcharge formed part of an inter Unable

tar iff.

The Commission did not accept that a global surcharge, the main purpose of

which was to raise revenue and not to facilitate interlining and which failed

to take account of the different impact of cost trends of individual

```

```
2.I.B.§6. p.37 1 5.^

carriers, could benefit from block exemption. Even if it could, it appeared

to have effects that were contrary to Article 85(3) of the Treaty.

IATA abandoned its first attempt to impose a surcharge following the

Commission's expression of concern that the IATA resolution did not meet the

conditions for exemption or for an individual exemption.

At a subsequent conference IATA again adopted a surcharge resolution, but

this time it was slightly different. The new resolution allowed individual

carriers more discretion in applying the surcharge. However, evidence in the

market-place indicated that most carriers were treating the surcharge as

binding, and the main purpose was to increase revenue rather than

interlining. In these circumstances, the Commission's view remained

unchanged, and IATA was informed accordingly. In the light of the

Commission's reaction, IATA withdrew the surcharge.

<T6> Sabre/Air France and Iberia

239. The Commission received a complaint from the Sabre computerized

reservation system (CRS) concerning the refusal of the subsidiaries of two

major airlines (Air France and Iberia) in the Community to participate to an

adequate extent in its distribution facilities. It considered that a CRS

could not provide effective competition in the national markets in which it

operated, if it was not able to distribute the services of the domestic

airlines. CRSs provide information on schedules, availability and fares for

air transport. The two national carriers are shareholders of a rival CRS.

The airlines considered that their own CRS, which held over 80% of their

respective national markets, provided all the distribution facilities they

required. Furthermore, they considered that Sabre, which is a "hosted" system

(the internal reservation system of the owner, American Airlines, is

integrated in the CRS itself), discriminated against them in that it provided

a better quality of service for American Airlines than for non-hosted

carriers.

Eventually, a settlement was reached between the various parties which led to

the domestic subsidiaries of Air France and Iberia participating in Sabre.

```

```
2. I .B.§6. p.38 15 7

As a result of the above complaints, in both the amendment to the Code of

Conduct for CRSs( [7] ) and the revised block exemption for CRSs,( [8] ) the

requirements for parent carriers to participate in rival CRSs and the non
discriminatory operation of hosted CRSs have been strengthened.

(7) Council Regulation (EEC) No 3089/93, OJ L 278, 11.11.1993, p. 1.
(8) Commission Regulation (EC) No 3652/93, OJ L 333, 31.12.1993, p. 37

```

```
2.I.B.§7. p.39 15 8

<T3> §7. Protection of the environment

<T6> Spa Monopole/GDB

240. Following the unanimous decision of the general assembly of the

Genossenschaft Deutscher Brunnen (GDB) on 29 April to afford access to its

pool of multi-way glass bottles to mineral water producers from other

Member States, the Commission decided to terminate the proceedings initiated

under Articles 85 and 86 of the EC Treaty in 1989 against the GDB in response

to a complaint by a Belgian water producer which wanted to use GDB bottles to

sell its products in Germany. The complaint has now been withdrawn.

The Belgian mineral water producer Spa submitted a formal complaint in 1989

against the GDB's refusal to grant access to a pool of standardized

refi liable glass bottles and crates which operates in Germany. A similar

complaint by Belgian and French mineral water producers was rejected by the

Commission in December 1987. According to the Commission at that time the GDB

agreement and the ensuing exclusion of foreign water producers did not have

an appreciable negative effect on the position of third parties or on

inter-state trade in particular because alternative packaging, such as PVC or

one-way glass, had free access to the German market. In fact, up to 1988

mineral water exports to Germany particularly from France and Belgium were

increasing rapidly.

Nevertheless, the Commission at that time stated its intention of

reconsidering the situation if compulsory legislation were to be adopted with

regard to the use of disposable bottles for mineral water. Plastic PVC/PET

bottles were in fact the most popular packaging used for exports of mineral

water to Germany until the end of 1989.

By means of a statement of objections in December 1992, the Commission asked

the GDB to open its pool to mineral water producers from the rest of the

Community. It was argued essentially that conditions in the German market for

mineral water had been changed to such an extent that the only way for

non-German producers to remain competitive in that market was for them to be

able to bottle their products in GDB bottles. Access to the pool was

therefore essential to them. What had happened was that German waste

management legislation which entered into force in 1989 had resulted in the

removal of plastic one-way bottles from the market. Alternative packaging

```

```
2. I.B.§7. p.40 1 59

such as recyclable plastic or one-way glass bottles had not shown itself to

be a viable substitute for one-way plastic bottles. Moreover, following the

entry into force of the new "packaging" regulation (VerpackVO) at the

beginning of 1993, disposable glass bottles (one-way glass) and other one-way

packaging are no longer permitted either if a system for their recycling does

not exist. The use of any non-ref i I lable container is subject to the

obligation on the part of the producer/distributor to take a deposit. On the

other hand, refiIlable glass bottles compete directly with the GDB. Starting

a new pool of such bottles is not, however, a realistic proposition for

those outside the GDB, since most water wholesalers and supermarkets do not

wish to introduce a second pool besides the GDB. This would result in

considerable additional handling and stocking costs for them.

It must be noted that in this case the Commission did not question the German

anti-pollution legislation. It stated however that, in view of the evolution

of the German mineral water market since 1990 - particularly the adoption of

compulsory legislation concerning the use of disposable bottles for mineral

water and the reaction of the retail trade to this legislation and its

effects on EC exports to Germany - the GDB agreement and its operation in

practice was capable of acting as a barrier to entry. Thus, the agreement

hindered access by foreign water producers to the German market, restricting

competition and appreciably affecting inter-state trade within the meaning

of Articles 85 and 86 of the EC Treaty. Furthermore, in view of the dominant

position of the GDB in the market for mineral water containers, its refusal

to grant foreign EC water producers access to its pool, despite the fact that

such access was essential in order to be able to compete effectively in the

mineral water market, constituted an abuse of a dominant position within the

meaning of Article 86 of the EC Treaty.

Under the amended system, water producers from other Member States .who wish

to enter the GDB pool must sign a contract ("Beitrittsvertrag" ) with the GDB.

The contract stipulates among other things that the new member accepts the

existing rules and regulations of the GDB and will use the bottles for

exports to Germany only. Foreign water producers should use labels which make

clear to the German consumer the origin of the mineral water and the place

where it was bottled. The Commission believes that this is enough to avoid

any confusion which might otherwise result from the utilization of GDB

bottles by producers in other Member States.

```

```
2.I.B.§8. p.41 1 g Q

<T3> §8. Case concerning intellectual property

<T6> Becton Dickinson/Cyclopore

241. The Commission issued an Article 85(3) comfort letter for a licensing

agreement with exclusive supply and purchasing obligations between Cyclopore,

an independent Belgium-based firm which has close links with the Université

Catholique de Louvain (UCL), and the US medical supply company Becton

Dickinson and Company Inc.

Cyclopore produces membranes based on a patent licence granted by UCL. The

membrane is a very thin transparent film with over 100 000 pores per square

centimetre. Becton Dickinson has developed a technique to weld these

membranes into tissue culture products. These products are used specifically

for culturing mammalian and insect eel Is in vi tro.

Under the agreement Cyclopore grants Becton Dickinson the exclusive worldwide

right to manufacture and sell its membranes for use in tissue culture

products for as long as Becton Dickinson purchases a minimum quantity, and

Becton Dickinson undertakes to purchase exclusively from Cyclopore all its

microporous track-tech membranes for use in tissue culture. Furthermore, the

agreement contains an exclusive supply obligation on Cyclopore. This

obligation has been limited, following intervention by the Commission, in

order to permit Cyclopore to sell its membranes for use in tissue culture

also to other parties after five years.

The agreement is interesting since it ensures the commercialization of

university spin-off technology, whilst enabling, after a transitional period,

access by competitors to this innovative product.

```

```
2.I.B.§9. p.42

<T3> §9. Other sectors

<T6> Zera Montedison/Hinkens Stahler

```

###### **16 1**

```
242. By a decision under Article 85 of the EC Treaty, the Commission ruled

that it is an infringement of competition law for a manufacturer to grant a

distributor absolute territorial protection by seeking, under the agreement

between them, to have products which often differ only slightly from one

another approved in the various Member States. Such differentiation between

products requiring national approval makes parallel imports impossible if the

imported products do not meet the approval requirements of the Member State

of importation.

In the present case, two firms, Farmoplant and Montedison Deutschland, used

the method described above to grant absolute territorial protection for the

herbicide Digermin to their German exclusive distributor (Stàhler) between

1983 and 1988. In this way, they prevented German parallel imports of

Digermin, which is sold at much lower prices in other Member States (but not

approved in the same composition by the German authorities).

Under German law on product approval, a product can be imported only if the

importer provides the authorities with proof that it is identical to the

product approved in Germany. Any changes, however slight, in the

composition of the product thus mean that it cannot be imported, despite the

fact that it was obtained lawfully in another Member State.

In the Commission's view, the parties had infringed Article 85 of the Treaty

by agreeing to grant absolute territorial protection in Germany for Digermin

through product differentiation in order to protect themselves against

parallel imports from other Member States.

The case will serve as a landmark since product differentiation is also

practised in other sectors where official product approval is required.

```

`2.I.B.§9.` `p.43` `.` _,_

```
Until such time as there is mutual recognition of national approval or a

uniform approval system at European level, national provisions can be used by

firms to impede and indeed prevent trade in a product between Member States

through a slight change in the product's composition or brand name. As a

result, price differences between Member States cannot be exploited to the

benefit of the consumer.

```

#### 2. I .B . §9. p.44 163

```
<T6> Grundig's selective distribution system

243. On 21 December the Commission adopted a decision extending, under

Article 85(3) of the EC Treaty, an exemption for Grundig's selective

distribution system.

Grundig, which is incorporated in Germany, is one of Europe's largest

manufacturers of consumer electronics equipment. Since 1984 Grundig's

manufacturing operations have been managed by the Dutch company

Philips Electronics, which recently took full control of Grundig by buying

out the other shareholders.

Grundig operates a system of selective distribution, that is to say it

distributes its products through specialist wholesalers and retailers whom it

selects on the basis of certain criteria (availability of trained sales

personnel, ability to advise customers and to display and demonstrate

products, provision of an after-sales service, etc.). In the present case,

the agreement contained two clauses already considered restrictive of

competition in the original exemption decision of 10 July 1985. One

concerned the obligation on wholesalers and retailers to stock the entire

range of Grundig products, and the other, the obligation on retailers to

display a representative selection of those products.

As established by past Commission decisions and the case law of the

Court of Justice, such systems are nevertheless compatible with Community

competition law where they are justified by the specific nature of the

products concerned. The original exemption granted on this basis expired on

28 March 1989. At Grundig's request, it has now been extended until 1999.

However, in the interests of better consumer protection, the Commission asked

Grundig to amend its warranty terms so that, even where a defective item was

purchased in another Member State, a consumer could have it repaired under

```

#### B.§9. p.45 164

```
warranty in the Member State in which he lived. To that end, Grundig

intends to introduce a uniform, Europe-wide, contractual comprehensive

warranty and has begun building up an appropriate network of repair shops.

It has undertaken, pending completion of the network, to honour all

cross-border warranty claims on an ex gratia basis.

```

#### B.§9. p..46 165

```
<T6> Papeteries de Go I bey

244. The Commission examined a number of agreements notified by Norske

Skogindustrier AS, E. Holtzmann & Co AG, SA Papeteries Matussière et Forest

and Papeteries de Golbey SA, relating to the setting-up of a joint venture

(Golbey) for the construction and operation of a greenfield paper-mill in

Golbey., France, the distribution of the paper (i.e. newsprint) produced by

the joint venture, and the purchase of raw materials (i.e. waste paper and

wood) by the joint venture.

In the form in which they were originally notified, the agreements conferred

on the joint venture all the functions of an undertaking, placed at its

disposal all the existing resources of the parents for the marketing and

distribution of its products, and provided for a long-term territorial

division of the market for Golbey's products between Norske Skogindustrier

and Holtzmann (through exclusivity clauses).

The Commission found that the agreements could allow the parties to

coordinate their competitive behaviour and could lead to market sharing

liable to restrict competition and affect trade between EC countries. It

made its misgivings known to the parties and reguested them to change the

arrangements for the marketing and distribution of Golbey's products. In

view of the Commission's opposition, the parties finally undertook to change

the distribution model and Papeteries de Golbey will function in future as a

mere production Joint venture.

If anything, the joint venture is likely to offer more effective competition

to existing European groupings; the additional capacity will increase supply

relative to demand and will help keep prices down.

As far as production is concerned, the operation will be of benefit both to

the parties and to the consumer. Through the exchange of technical know-how

between the parties, the new mill at Golbey uses highly sophisticated waste

paper de-inking technology and the manufacturing processes have been rendered

"environmentally friendly".

```

```
2. I .B.§9. p.47
#### 166

After taking into account the notified amendments to the original

agreements, which limit the risk of market sharing and minimize the

restrictive effects on competition, the Commission was able to inform the

parties by comfort letter that the operation qualified for exemption under

Article 85(3).

```

#### 2.I.C.§1.a.p.1 167

```
<T9> C. Merger control

245. This chapter begins by looking at the operations which were declared to

be caught by Regulation (EEC) No 4064/89 on the control of concentrations

(the Merger Control Regulation). It then goes on to examine how the criteria

for assessing the compatibility of such operations with the Regulation have

been appI ied. C )

<T3> §1. Scope of application

246. For an acquisition to be caught by the Merger Control Regulation, the

parties must first meet certain conditions as to their turnover, particularly

their turnover within the Community.(2) Second, the transaction must amount

to a concentrât ion.

<T5> a. Community dimension (Article 1)

247. One of the fundamental aims of the turnover thresholds in Article 1 of

the Regulation is to act as a screen to identify transactions with a

Community interest. For example, in Fletcher ChaIlenge/Methanex where a

New Zealand and an EC company moved to a position of joint control over a

Canadian one, the turnover obtained by the parties in the EC was none the

less sufficient to trigger the Article 1 thresholds. This case illustrated

the need for the Commission to examine such operations because in fact the

joint venture had significant effects in the EC.

248. The rules set out in Article 1 are also intended to draw a clear

dividing line between cases that should be dealt with by the Commission on

the one hand and by Member States on the other, in order to safeguard the

one-stop shop principle. A refinement of this principle is contained in

Article 22(3) of the Regulation which provides that a Member State may ask

the Commission to examine the effects in its territory of a concentration

(1) A complete list of the decisions taken under the Merger Control
   Regulation is given in the Annex.

(2) Under the current figures, the combined aggregate worldwide turnover of
   all the undertakings concerned must be more than ECU 5 billion, while
   the Community-wide turnover of at least two of the undertakings

   concerned must be more than ECU 250 million.

```

##### 2.I.C.§1.a.p.2 168

```
without a Community dimension, insofar as the concentration also affects

trade between Member States. Thus the Commission may, on request, act for the

competent authority of a Member State and apply the Merger Regulation in

assessing the impact of a non-notifiable transaction within that

Member State's territory.

249. For the first time since the entry into force of the Regulation a

request pursuant to Article 22(3) was received in the case of Br i t ish

Airways/Dan Air. Since British Airways acquired only the non-charter

operations of Dan Air, the turnover attributable to the latter did not attain

the EC threshold and this was therefore a case to be dealt with by the

national authorities concerned. Following, however, the request from the

Belgian Government, the Commission examined the effects of the transaction in

the territory of Belgium.

```

#### 2.I.C.§1.b.p.3 169

```
<T5> b. Calculation of turnover thresholds (Article 5)

250. Article 5(4) sets out the method for determining the economic grouping

to which an undertaking concerned belongs for the purposes of calculating

turnover. In respect of state-owned enterprises, Article 5's provisions

should be read in conjunction with Recital 12 of the Regulation. This states

that, in order to avoid discrimination between the public and private sector,

account should be taken "of undertakings making up an economic unit with an

independent power of decision ..." in calculating the turnover of the

state-owned undertakings. In the case of AI can/InespaI/PaIco. Inespal is a

wholly-owned subsidiary of INI, a Spanish state holding company, and it

planned to sell a 50 % stake in its subsidiary, Palco, to Alcan. In

accordance with Recital 12, the turnover to be taken into account in respect

of Inespal was deemed to include that of INI alone(3)not that of all the

entreprises held by the state. The same rule was applied in the concentration

KaIi +SaIz/MdK/Treuhand where Kali & Sa Iz, a subsidiary of BASF, and the

Treuhand acquired joint control of the potash company MdK. The Treuhand is a

public-law institution intended to restructure the former GDR's state-owned

companies. The Commission considered that in the case in question, the

Treuhand was itself an undertaking with a direct interest in the operation

but at the same time it did not exclude the possibility of regarding the

different organizational units within the Treuhand (up to the level of

directorate) as economic units with independent power of decision within the

meaning of the 12th Recital. Even assuming that hypothesis, the turnover

attributable to the directorate responsible for extractive industries

exceeded the EC turnover threshold.

251. Furthermore, in determining whether the thresholds of the Regulation are

met, it is necessary to allocate turnover geographically both between the EC

and the rest of the world and between individual Member States. In the case

of the purchase by Alcatel Cable S.A. of the submarine telecommunications

systems (i.e. undersea cab le-laying) business of STC Limited, however, there

was no immediately obvious way in which to do so.

252. The Commission rejected the approach of the parties which was to take

the turnover generated from all contracts where the cable laid had at least

(3) This same idea of economic independence also underlies the Commission's
   attitude to concentrations between public entities.

```

#### 2.I.C.§1.b.p.4 170

```
one landfall in the EC, and thus where at least one EC telecom operator (TO)

would earn revenue from traffic using the system, as EC turnover. This

approach was not followed since the parties' business was the laying of

undersea cables and not the service subsequently provided through them by

TOs.

253. Cables are laid primarily in international waters and sold to

international purchasing consortia mostly comprised of TOs. The circuits

contained in these cables are apportioned to the TOs according to their

participation in the purchasing consortium. The Commission concluded that in

allocating the turnover geographically, it was important to establish where

competition for the contracts occurred and the place of establishment of the

purchasers of the cable was taken as a sufficient surrogate in this

particular case. Furthermore, since there was more than one purchaser per

cable, the turnover generated by a contract was allocated to the operators

according to their participation in the consortium.

```

```
2.I.C.§1.C.p.5

<T5> c. Definition of concentration (Article 3)

```

17.1

```
254. For there to be a concentration within the meaning of the Regulation,

there must be acquisition of sole or joint control of a firm by one or more

other companies. The difference between sole and joint control also has

 implications for the method of calculating turnover. In the case of joint

control, the turnover of all the companies concerned must be taken into

account, while in the case of sole control only the firm holding such control

 is taken into account.

<T6> Sole control

255. Sole control frequently results from the acquisition by one undertaking

of more than 50% of the capital of another undertaking. If there are no

other elements of fact or of law, it does not matter very much, for control

to be found to exist, whether the holding acquired is 50% + one share, as in

Crédit Lyonnais/BFG Bank, or 100%, as in Sara Lee/BP Food Division. Sole

control may also be obtained through the purchase of assets, notably, as in

Zur ich/MMI. when it relates to a part of an undertaking not constituted as a

legal entity.

256. In accordance with well-established practiced [4] ) the Commission took

the view, in VW AG/VAG UK and West LB/Thomas Cook, that the acquisition by

one of the parties of sole control over an undertaking previously held

jointly was a concentration within the meaning of the Regulation.

257. In Société Générale de BeIgique/Générale de Banque the Commission took

the view that the increase from 20.94% to 25.96% in the stake which the

Société Générale de Belgique held in the Général de Banque gave the former

sole control over the latter. In reaching this conclusion, the Commission

carried out a projection of attendance at the future general shareholders'

meeting of the Générale de Banque based on participation of all shareholders

holding more than 0.06% of the capital. It deduced from this that the holding

of the Société Générale de Belgique in the Générale de Banque will in all

probability give it a majority of votes at the shareholders' general meeting

amongst those present and represented and that, in view of the wide

dispersion of shareholdings, this de facto majority would persist. The

(4) Twentieth Competition Report, point 149; Twenty-second Competition
   Report, point 228.

```

#### 2.I.C.§1.c.p.6 172

```
Commission also examined whether the provisions of Belgian law intended to

ensure the autonomy of banking and laid down in a Protocol, called into

question the de facto control normally resulting from a majority at the

shareholders' general meeting. It concluded that this was not the case,

applying competition policy analysis, given the powers conferred on the Board

of Directors. A majority of the Board may consist of representatives of the

shareholders that were signatories to the act separate from the Protocol on

banking. The Société Générale de Belgique is one such signatory.

<T6> Joint control

258. Joint control may arise where each of the parties has an identical stake

in the joint venture. In such cases, it is not necessary for there to be any

particular statutory rules or a specific shareholders' agreement. If such is

the case, however, such rules or agreement must, as in Matra/Cap Gemini

Soget i. AI can/InespaI/Pa Ico and Rhône-Pou Ienc/Sna i(I I). confirm that each

partner cannot act independently from the other partner(s) within the joint

venture because, for example, all have the same number of representatives on

the representative and/or management bodies and that none of the

representatives has a casting vote.

259. The key to determining whether there is joint control is to establish

whether the different partners have necessarily to be in agreement on the

strategic decisions taken by the joint venture. There is consequently no need

for each of the partners to have the same holding in the share capital or the

same powers: in Ericsson/Hewlett Packard. Ericsson held 60% of the capital

and was entitled to appoint four directors, whereas Hewlett Packard held 40%

of the capital and was entitled to appoint three directors; however, all

major decisions had to be taken unanimously. Similarly, in Aegon/Scott i sh

Egu i table. Aegon had initially 100% of the capital and 40% of the voting

rights, whereas the other partner, Trustco, had 60% of the voting rights:

however, the stategic and business decisions and the appointment of directors

were carried out by common agreement.^)

(5) See also JCSAT/SAJAC and Costa Crociere/Chargeurs/Accor

```

#### 2.I.C.§1.c.p.7 173

```
260. The rights of each of the partners must, however, be sufficient and must

go beyond those normally conferred on the minority shareholders of an

undertaking. In Si ta-RP/Scor i. the Commission took the view that the rights

conferred on some of the parties were insufficient to give them joint

control, since they had no right of veto in matters of business policy,

strategy, budgets and corporate planning. Similarly, in Dasa/Fokker. the

Dutch state's holding was deemed not to give it joint control, since it could

not on its own block any decision and had of its own accord limited its right

of objection, and had done so even though there were few instances in which

Dasa was able to act alone (i.e. without the support of an independent member

or of the Dutch state).

261. Joint control does not necessarily mean that the parties sharing it must

hold all of the capital of the joint venture: a shareholders' agreement, as

in Costa Crociere/Chargeurs/Accor or BHF/CCF/Charterhouse. may do instead.

262. In accordance with established practice,^) which is in line with

paragraph 41 of the Commission notice regarding the concentrâtive and

cooperative operations under Council Regulation (EEC) No 4064/89,( [7] ) the

simultaneous creation, as part of one and the same operation, of several

joint ventures between the same parties is to be deemed a single

concentration. This principle was appI ied in Harrisons & CrosfieId/Akzo.

263. In For t i s/CGER-ASKL. analysis of all the factual and legal circumstances

prompted the Commission to conclude that the operation resulted in sole

control as regards the "insurance" aspect and in joint control as regards the

"banking" aspect. Through this operation, Fort is, which is controlled by the

Belgian group AG and the Dutch Amev, acquired 49.9% of ASLK-CGER Banque and

ASLK-CGER Assurance. This holding was sold to it by ASLK Holding NV/CGER

Holding SA ("Holding"), the pub I ic-interest banking holding of the Belgian

state. Holding also retains 49.9%. The rest is held by the company itself

or through an ASLK/CGER Assurance cross-holding in ASLK/CGER Banque.

(6) Twenty-second Competition Report, point 229.

(7) OJ C 203, 14.8.1990; Twentieth Competition Report, point 25

```

**`2.`** **`I..C.§1.c.p.-8`** _**A n**_ _**[ . ]**_
##### **`1 /4`**

```
264. Account was taken from the outset of the equal shareholdings and

representation of the two parties within the new entities, and of the spirit

of partnership that guides them, notably with the setting up of a

"Consultation Committee". However, in insurance (Fortis's main activity),

the simple majority rule applying in voting on the Board, combined with a

casting vote given to Fortis in the event of persistent deadlock within the

"Consultation Committee", led the Commission to recognize here that Fortis

had sole control (the "power of the final say"). Conversely, in banking

(ASLK/CGER's main activity), in addition to the nine votes held by Fortis

(one double vote) and the eight votes held by Holding, account had to be

taken of the fact that Fortis must, in proposing strategic decisions, obtain

the agreement of the six members of the Management Committee (whose

composition is subject to approval by the Banking Commission) in order to

obtain the required qualified majority of 15 out of the 23 votes. Since the

possibility cannot be ruled out that just one of the members of the

Management Committee might vote with Holding in order to block a Fortis

proposal and that Fortis must therefore take this eventuality into account in

drawing up its proposals to the Board of Directors, it was concluded that

Fortis and Holding had joint control.

265. In Ph i I ips/Grundig. the Commission took the view that, prior to the

transaction, Grundig was jointly controlled by Philips and by three banks.

In concluding that the three banks held joint control, even though there was

no shareholders' agreement between them, the Commission based itself mainly

on the fact that the three banks had to approve the appointment of one of the

two managing directors of the company managing Grundig - the other being

appointed by Philips -, that they would normally follow the advice of that

director in view of their lack of relevant experience and that, being

financial institutions and given their objectives, they would tend to act in

the same way.

<T6> Concentration between public undertakings governed by

              one and the same public agency

266. In line with its practice, notably in ECSC cases, and in accordance with

the twelfth recital of the Regulation, the Commission confirmed that

concentrations between public undertakings governed by one and the same

public agency (central government, regional or local authorities) must be

```

```
2.I.C.§1.c.p.9

#### 175

examined under the Regulation, provided that such undertakings each make up

an economic unit with an independent power of decision. This principle was

applied in CEA-lndustr ie/France Te lecom/F inmeccanica/SGS-Thomson. In

Fort is/ASLK-CGER. in concluding that there was no risk of coordination of

competitive conduct, the Commission took the view that the "Office Central de

Crédit Hypothécaire", although owned by the state, was pending its sale

managed by the "Crédit Communal", a banking institution which was dependent

on the municipalities and provinces.

<T6> Concentrâtive joint venture

267. Article 3(2) of Regulation (EEC) No 4064/89 sets out the two conditions

which must be fulfilled for the setting up of a joint venture (JV) to be

regarded as constituting a concentration. Under the terms of the first

condition, referred to as the positive condition in the abovementioned

Commission notice, the JV must perform on a lasting basis all the functions

of an autonomous economic entity. Under the terms of the second condition,

referred to as the negative condition in the notice, the JV must not give

rise to coordination of the competitive behaviour of the parent companies

amongst themselves or between them and the JV. If one of these conditions is

not met, the agreement between the parties may be examined under Article 85

of the EC Treaty. It will then normally be covered by the accelerated

procedure introduced for this type of operation.^)

<T8> First condition: Autonomous economic entity

              established on a lasting basis

268. In Phi I ips/Thomson/Sagem, the parties had set up a joint venture for the

manufacture of liquid crystal displays, mainly to meet their own supply

requirements. Although the Commission made no express comment on the

question of autonomy, it follows from the decision that, although the parties

are to acquire only some 30% of the J V s production, it cannot be ruled out

that this percentage might increase in future. The J V s autonomy could then

be placed in jeopardy. This reasoning, which is in line with the terms of

paragraph 16 of the abovementioned notice, and with the Commission's previous

decisions on the subject (see in particular FlachgIas/Vegla) was also

appl ied in Br i t ish Telecom/MCI.

(8) See points 193 and 194 of this Report.

```

```
2.I.C.§1.c.p.10
#### 176

269. In Pasteur-Mér ieux/Merck, the two parent companies, which are

respectively the third and second largest world producers of human vaccines,

pooled their activities in this sector in Western Europe. Pasteur-Mérieux

(PM) transferred to the JV all its distribution infrastructure in

Western Europe, thus enabling the JV to carry out the distribution of all the

products previously distributed separately by the parties. However, since

the geographical scope of activity of the JV was restricted to

Western Europe, the parties did not transfer to it their research and

development (R&D) activities, their production activities or all of their

intellectual property rights. All these aspects taken together prompted the

Commission to conclude that the JV was not autonomous, and it was

consequently assessed under Article 85 of the EC Treaty.

The parent companies were to retain all of their R&D activities, with the JV

having access to them only through the intermediary of a development

committee. Consequently, the JV could only make "recommendations" as to the

research to be carried out for the improvement of products already marketed.

In the case of new products, the JV had an independent power of decision only

at the stage when a business decision relating to its territory was to be

taken and not at the upstream stages of research. While recognizing that the

specific features of the sector could make it difficult to transfer R&D

activities, the Commission found that, for the reasons set out above, the JV

would not have a decisive influence at each stage of the R&D process. In

view of the importance of R&D in the vaccine industry, the Commission

concluded that this lack of any decisive influence would not allow the JV to

behave as an independent player on the market.

The Commission reached the same conclusion as regards the non-transfer of

production activities to the JV, while the scope of the JV to turn to

independent suppliers appeared extremely limited, both legally and

economica My.

```

```
2.I.C.§1.c.p.11
### 177

Lastly, neither PM nor Merck was transferring patents for existing products,

while patents for future products were transferred only if the parent

companies could manufacture and sell outside the J V s territory. The

Commission concluded that these provisions would enable the parent companies

to re-enter the market rapidly if the JV were dissolved.

<T8> Second condition: Absence of coordination

                of competitive behaviour

270. First in 1991 (in Thomson/P iIk ington). then in 1992 (in Del Monte/Royal

Food/Anglo American), the Commission made it clear that a very limited

residual presence of the parent companies on the same market as the JV was

not generally sufficient to give rise to coordination of competitive

behaviour and was not therefore a bar to the application of the

Merger Regulation. The Commission reaffirmed this position on several

occasions in 1993. In Aegon/Scottish Equitable and Toyota Motor Corp./Walter

Frey/Toyota France. Allied Signal/Knorr-Bremse and Fort is/ASLK-CGER. one of

the parent companies was marginally active on the same market as the JV

without that preventing the link from being regarded as concentrâtive.

Coordination of competitive behaviour may also result from the activity of

the parent companies on neighbouring product markets that are linked to the

market on which the JV is active. The Commission reaches its decisions in

each individual case on the basis of a specific assessment. Thus, in

Phi Iips/Thomson/Sagem. the Commission considered that the degree of

interdependence between the markets for the different types of screen

(plasma, liquid crystals, cathode ray tubes, etc.) was such that coordination

of competitive behaviour was extremely likely, both between the parent

companies and between them and the JV. Conversely, in Harr isons &

Crossf ieId/Akzo, the Commission took the view that, although there was some

product overlap between the JV and the parent companies, there was no

foreseeable risk of coordination since the J V s products and those of the

parents were intended for very different applications one from another.

```

#### 2.I.C.§1.c.p.12 178

```
271. In S i ta/RPC/Scor i, the parent companies acquired joint control of an

existing enterprise (Scori) engaged in the treatment of special industrial

wastes, while they were already operating on the same product and geographic

market through another joint subsidiary (Ter is). The Commission noted on

this occasion that, since it was established that Scori and Ter is would

permanently come under a single economic management, regardless of the legal

structure of the group, there was no possible coordination between the two

joint ventures. In the same decision, the Commission made the point that if

Scori was, in respect of part of its activity, acting on behalf of one of the

parent companies under an agency contract, this was not likely to give rise

to any coordination of competitive behaviour since Scori did not in fact have

any real autonomy in this context.

```

```
2. I .C.§2.a.p.13 17 9

<T3> §2. Appraisal of concentrations

272. The substantive appraisal of concentrations 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. The relevant product and

geographic markets determine the scope within which the market power of the

new entity must be assessed. The Commission may, in its Article 6 decisions,

leave 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> a. Determination of the relevant product market

273. The decisions illustrate that the Commission's methodology is heavily

orientated towards demand-side substitutabi I ity, whereby a product market

comprises "all those products which are regarded as interchangeable or

substitutable by the consumer, by reason of the products' characteristics,

their prices and their intended use". This implies an economic factual

assessment. Sometimes the Commission finds it appropriate to distinguish

separate product markets, for the same product group, which correspond to

different categories of customers having distinct demand characteristics. The

Commission may also investigate whether it is appropriate that supply-side

substitutabi I ity (the facility of other manufacturers to switch production to

the merging parties' products) should be integrated into the product market

definition. Finally, the Commission may examine price evidence (levels,

elasticity and correlations) to determine to what extent such evidence may

complement findings based on the other criteria.

274. Demand-side substitutabi I ity has been used to define product markets in

several decisions. In Procord i a/Erbamont, different medicines are considered

to belong to different product markets not only because of their intr>r^u

properties, but also because they serve to treat different i I Inesses. [(9) ]

(9) See also Costa Croc i ere/.Çhargeurs/Accor, Thomson/Shor t, Rhôr.e
   Poulenc/SNIA I I, Fletcher C h.ajje nge/ Met h a n e x, KNP/BT/VRG and Zur_ich/MMl

```

```
2...C.,2...p,4

275. The existence of separate customer categories or market segments is

mentioned too in some decisions. In Costa Crociere/Chargeurs/Accor. the

Commission focused on the cruise market as a distinct segment within the

package holiday market because it found that a significant proportion of

customers (around half) were "captive" to cruises and insensitive to

significant price increases (although the Commission did not go as far as

investigating the possibility of price discrimination by the cruise operators

against these captive customers). In Nest lé/1 taIgel. the ice-cream market was

found to be divided into three separate markets namely 'impulse',

'take-home', and 'catering' categories of customers. In

Ericsson/Hewlett Packard, telecom network management systems were found to be

evolving, in response to télécoms deregulation, to cater for an increasingly

wider range of customers, beyond the traditional public-sector clients.

276. Supply-side substitutabi I ity is normally considered by the Commission

under its assessment of possible dominance (that is, as potential

competition). However, it is sometimes mentioned under product market

definition, but is not generally a sufficient condition for extending the

definition of the relevant market. Thus, in KNP/BT/VRG. graphic board was

found to constitute a separate market because of its end-use characteristics

and higher price, despite the existence of multi-purpose equipment allowing

manufacturers to produce both graphic board and board used for packaging

purposes.

277. Price factors are also considered in some decisions. An attempt to

investigate price elasticities was made in the Costa Crociere/Chargeurs/Accor

case, where a widespread enquiry among customers, tour operators and travel

agencies revealed that a 10% increase in the price of cruises would depress

demand from about half of consumers, but would not affect the other half. In

Thomson/Shorts. very short-range missiles, short-range missiles and

medium-range missiles were each held to constitute separate product markets

because, i nter alia, for each range of rocket prices were significantly

higher than those of the range below.

```

```
   C.§2.b.p.l5

<T5> b. Determination of the relevant geographic market

```

181

```
278. 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 and

factual assessment (see Article 2(1)(a)).

279. The Regulation 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'.CO)

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 these general indicators, as well as factors exerting a

possible determining influence on market delineation. General indicators

include the geographical distribution of market shares and relative prices,

and the location of major suppliers. On the demand-side, which is not likely

to be directly influenced by single-market legislation, the Commission

examines factors influencing consumer preferences, such as language and

cultural differences as well as brand loyalty, and consumers' final

purchasing patterns. On the supply-side, where single-market legislation may

be of considerable importance, the Commission examines barriers to entry

(quotas, tariffs, technical standards and public procurement preferences),

transport costs, distribution systems and general evidence on trade flows.

280. The use of general indicators is illustrated by several decisions. In

Rhône-Poulenc/SNIA II, the absence of price differences for an intermediate

product (nylon textile fibres) was held to indicate a market as wide as

Western Europe. Conversely, in Nest Ié/1 taIgeI. price differences between

countries were considered as indicating a predominantly national market for a

consumer product (ice-cream). In Harrisons & GrosfieId/AKZO, the geographical

market for three industrial product groups was held to be Community-wide in

view of, i nter alia. the presence of major suppliers in several

(10) See Art icle 9 (7)

```

#### 2. I.C.§2.b.p.16 182

```
Member States, with significant market shares. In Thomson/Shorts. the

presence of a national supplier for defence equipment was held to be

sufficient for the establishment of a national market, absence of a national

supplies indicating international or even worldwide competition^ [11] )

281. As far as specific demand factors are concerned, the relevance of

inherent customer preferences and the effect of advertising was noted in

cases involving final consumer products. In Nest lé/1 taIgeI. ice-cream markets

were held to be predominantly national in view of national consumer profiles

and consumption habits, and national brand loyalty. In

Costa Crociere/Chargeurs/Accor, markets for cruises and package holidays were

held to be national because of, inter alia, national differences in

consumption patterns (cruises being much more popular in France and Germany

than in Spain, for example), the need for brochures to be published in

several different languages, and the existence of advertising campaigns

targeting national audiences. Again, consumers' final purchasing patterns

were found to be an important factor for the delimitation of geographical

markets. For intermediate goods, this is illustrated by the KNP/BT/VRG case,

where the market for the distribution and servicing of printing presses was

found to be national, principally because customers (printers) insist that

distributors have a well developed local service network for maintenance and

repairs; again, in the Pi I kington-Techint/SIV case, rapid response times and

the quality of local service for the supply of certain kinds of glass used in

the building trade seemed to suggest national or even regional markets.

Conversely, a European-wide purchasing policy was taken to indicate the

emergence of EC-wide markets for car components in Cont i nentaI/KaI i cko/DG
Bank/Benecke. For consumer goods, local catchment areas constituted the

relevant geographic markets in the two retail cases Ki ngf i sher/Darty and

AhoId/Jeronimo Martins/Inovaçao.

282. As far as specific supply factors are concerned, the presence of

significant trade flows was considered to indicate at least Community-wide

markets for industrial goods in Harrisons & GrosfieId/AKZO. F letcher

ChaI lenge/Methanex and Rhône Poulenc/SNIA II. Conversely, in the Ka I i und

Sa Iz/MdK/Treuhand case, an insignificant level of imports of potash into

Germany was held to indicate a distinct market. A low level of transnational

M i ) See also Fletcher ChaIlenge/Methanex. KNP/BT/VRG and Costa
   Croc ière/Chargeurs/Accor.

```

```
2.I.C.§2.b.p.17
#### 183

trade (under 10% of total consumption) was taken to indicate national

markets for a consumer product (ice-cream) in Nest lé/I taIge I .

283. Concerning barriers to entry (another supply-side factor), the existence

of an EC external tariff was taken to indicate Community-wide markets for

industrial goods in Harrisons & GrosfieId/AKZO and FI etcher

Cha I lenge/Methanex. whereas the absence of barriers was taken to indicate

worldwide aircraft markets in DASA/Fokker. Other barriers to entry are

technical standards and public regulation, the presence of which was taken to

indicate national markets in the pharmaceutical sector in Gehe AG/OCP SA and

in the insurance sector in Zur ich/MMI and Fort is/CGER. On the other hand,

harmonization of technical standards was taken to indicate EC-wide markets

for electronics products in Ph i I ips/Grund ig. The problem of estimating the

time-frame over which regulatory barriers may be eroded by single-market

legislation was alluded to in American Cyanamid/She LL: national regulatory

schemes, which encourage national marketing of crop protection products, were

replaced in July 1993 by EC directives establishing mutual recognition of

national authorizations, but it was held that the ease of Community-wide

trade in such products was not likely to occur in the short term.( [12] )

284. Significant transport costs were considered as a factor likely to

constrain the scope of geographic markets for liquid petrochemicals in

Fletcher ChaI Ience/Methanex. for packaging board in KNP/BT/VRG. and for

industrial rubber products in Synthomer/YuIe Cat to. Conversely, in the

Pi Ikington-Techint/SIV case, markets for some kinds of flat glass were held

to be EC-wide since transport costs were found to be relatively low in

relation to the high-value-added products transported. National differences

in distribution channels for car exhaust components were held to suggest

national markets in Arv in/Sogef i and Knorr-Bremse/AI I ied Signal.

(12) See a I so JHoecjTsJ/S_cher_mg.

```

```
2.I.C.§2.c.p.18

<T5> c. Assessment of compatibility

```

#### 184

```
285. In 1993 the Commission authorized 49 notified mergers in the first phase

of proceedings, because it had no serious doubts as to their compatibility

with the common market (Article 6(1)(b) decisions). In one Phase I case,

British Airways/Dan Air, the Commission examined for the first time the

effects of a concentration of non-Community dimension on competition within

the territory of a Member State, following Belgium's request pursuant to

Article 22(3) of the Merger Regulation. In 4 cases, the Commission went into

the second phase of proceedings in order to carry out an in-depth

investigation of mergers that raised serious doubts (Article 6(1)(c)

decisions). Out of these 4 cases, the Commission authorized one merger

(P iIk inson-Tech int/SIV) without attaching conditions and obligations to its

decision, because it concluded that no dominance was created or strengthened

(Article 8(2) subparagraph 1 decision). In two other cases

(Kal i+SaIz/MdK/Treuhand and KNP/BT/VRG). the Commission considered that the

merger would lead to dominance. However, following undertakings given by the

parties, a decision of compatibility subject to conditions and obligations

was finally adopted (Article 8(2) subparagraph 2 decision). In one of these

two cases (KaI i +SaIz/MdK/Treuhand). the Commission set the criteria on the

basis of which a merger should exceptionally not be considered as the cause

of dominance if the dominant position would have been created or strengthened

even in the absence of the merger. The last of the four Phase II cases

(Mannesmann/VaIlourec/lI va) was still pending at the end of 1993.

286. In the Nestlé/Perr ier decision adopted in 1992, the Commission

interpreted Article 2(3) of the Merger Regulation as covering collective or

oligopolistic dominance. During the course of 1993, the possible creation or

strengthening of collective dominance was examined in a number of cases, four

of which are summarized below (Rhône-Pou Ienc/SNIA.' AI I ied S ignaI/Knorr

Bremse. KaI i +SaIz/MdK/Treuhand and P i Ikington-Tech int/SIV). In its

assessment, the Commission analysed the market structures and conditions in

order to establish: (i) the likelihood of anti-competitive parallel behaviour

by the members of the oligopoly group which may require the assessment of a

variety of factors including in particular, market transparency, respective

market positions or possible structural links; and (ii) the possible

constraints on such behaviour exerted by competitive elements outside the

ol igopoly group.

```

```
2.I.C.§2.c.p.19 13 5

<T6> Rhône-Poulenc/SNIA (Phase I case)

287. Rhône-Poulenc and SNIA created a joint venture, Europa, to which they

contributed all their activities in the field of nylon filament for textile

applications. The two companies had already pooled their activities in

related sectors (fibres used for carpets, textile and industrial

applications) in a joint venture authorized by the Commission on

10 August 1992.( [13] )

288. Although Europa will have a significant* share of the market for nylon

filament for textile applications in the EC (around 42%), the Commission

considered that the operation would not lead to the creation of single

dominance. because of the presence of strong competitors, in particular

Du Pont, the world leader in the field, with a market share of 23% in the EC,

the existence of overcapacities and the lack of long-term links between

suppliers and customers.

289. In view of a significant increase of the degree of concentration in the

```

`EC market for nylon` `textile filament` `as a result` _ai_ `the operation leading to`

```
a combined market share of around 66% for Du Pont and Europa, the Commission

also examined whether the concentration would create or reinforce a position

of oligopolistic dominance. It concluded that the following structural

characteristics of the market made parallel behaviour resulting from a

situation of oligopolistic interdependence unlikely:

   - the product is not homogeneous;

   - the competitive environment is not stable due to the high degree and

    speed of innovation leading to the development of new products that

    are generally not patented;

   - there is a general lack of transparency in prices due to the existence

    of individual negotiations between suppliers and customers;

   - the existence of structural overcapacity in the market and competitive

    pressures from outside the EC constrain the two players' ability to

    raise prices; and

(13) Twenty-second Competition Report, point 258

```

```
2.I.C.§2.c.p.20 „
```

**I** **o b**

```
   - there are no durable links between suppliers and customers.

290. The past behaviour of the players in the market for nylon textile

filament was highly competitive leading to price reductions in recent years.

This history of the market also led the Commission to conclude that no

oligopolistic dominance existed before the operation. In view of the

structural factors described above it was not expected that the competitive

situation would change as a result of the concentration.

<T6> Allied Signal/Knorr Bremse (Phase I case)

291. Knorr Bremse, a German company, and the US conglomerate Allied Signal

created a worldwide joint venture in which they pooled their interests in air

brake systems for medium and heavy trucks, buses and trailers. Air brake

systems are divided into actuation systems that create and control the

braking power and foundation brakes that apply the braking power to the

wheel. The product range of the concentration included both kinds of air

braking systems as well as related products.

292. The Commission examined the effects of the concentration in the

following product markets: components for air actuation systems, including

ABS, for commercial vehicles over six tons-, air foundation braking systems

for commercial vehicles over six tons; levelling control components;

operating cylinders; clutch servos; independent aftermarket of replacement

parts for air braking system components.

293. With regard to air actuation system components, in all markets, except

for ABS, the joint venture would strengthen the parties' market position

vis-à-vis the current market leader, Wabco, belonging to the Westinghouse

group, and in respect of air compressors and air dryers, the joint venture

would become the market leader with a share of around 50%. In view of the

presence of Wabco and other significant competitors with expertise and high

reputation for innovation in all areas of air actuation system components,

the buying power of truck manufacturers and potential competition from

players in neighbouring markets where technology and manufacturing processes

were similar, the Commission concluded that the concentration would not

create or strengthen a single dominant position for the joint venture.

```

```
2.I.C.§2.c.p.21 18 7

294. At the same time, however, the operation would increase the level of

concentration in the component markets creating a combined market share of

more than two thirds for the joint venture and Wabco with the two players

being more equal than was previously the case. As a result, the Commission

examined whether the operation would create or reinforce a position of

oligopolistic dominance on those markets. Despite the high degree of

concentration, the Commission concluded that this would not be the case for

the following reasons:

   - the lack of transparency in prices resulting from the fact that

    suppliers negotiate individually with vehicle manufacturers, the

     importance of non-price criteria and the lack of stability of the

    competitive environment due to rapid technological progress would make

    coordinated behaviour extremely difficult; and

   - the buying power of truck manufacturers and potential competition from

    players in neighbouring markets would effectively constrain the market

    power of the joint venture and Wabco.

295. With regard to the independent aftermarket for replacement parts for air

braking system components, although the degree of concentration would be

significantly increased, the Commission concluded that no single or

oligopolistic dominance would be created or reinforced, because the ability

of components manufacturers to raise prices in the independent aftermarket

would be limited by the prices at which replacement parts are sold through

the truck manufacturers' own concessionnaires. In the other markets affected

by the operation, the concentration did not give rise to serious doubts as to

its compatibility with the common market, in view of the low combined market

share of the parties and the presence of significant competitors.

296. Notwithstanding the Commission's decision to authorize the merger in

view of the specific features of this case, the Commission will be closely

following competitive developments in the vehicle component markets in the

light of the increasing degree of concentration in this sector.

```

```
2. I.C.§2.c.p.22 18 8

<T6> KaIi +SaIz/MdK/Treuhand (Phase I I case)

297. This case concerned the concentration of the salt and potash activities

of Kali+Salz (K+S), a BASF subsidiary, and MdK, a former GDR state-owned

company. The concentration took the form of a joint venture between K+S and

MdK's sole current shareholder, the Treuhandansta11, a public institution

charged with MdK's privatization.

298. The centre of gravity of the concentration lay in the area of potash

products used in agriculture. The Commission examined the effects of the

operation on two distinct geographical markets for agricultural potash,

namely the German market and the EC market outside Germany.

299. With regard to the German market for agricultural potash, the Commission

considered that following the concentration, K+S's dominant position would be

strengthened. Competition outside the K+S/MdK group would be insignificant

and new entry was not likely due to high entry barriers.

300. Nevertheless, the Commission concluded that the reinforcement of K+S's

dominant position on the German market would take place even in the absence

of the merger. The concentration could not therefore be considered as the

cause of this deterioration in the market structure. According to this line

of argument, in exceptional cases, a merger, which should normally lead to

the creation or reinforcement of a dominant position, cannot be regarded as

causing that result, if:

   the acquired undertaking would, in the foreseeable future, disappear

   from the market if not taken over by another undertaking;

   its market share would go to the acquirer; and

   acquisition by another undertaking that would be less anti-competiti ve

   in its effect can be ruled out.

In this case, there was sufficient evidence to consider that these three

requirements were met. This particular outcome would also be in line with the

fundamental objective of strengthening the Community's economic and social

cohesion referred to in Recital 13 of the Merger Control Regulation. The

Commission, therefore, considered that the operation should, in this respect,

be declared compatible with the common market.

```

```
  C.§2.c.p.23 18 9

301. With regard to the EC market outside Germany. following the

concentration, K+S/MdK and SCPA, the French potash supplier, would control

about 60% of potash sales. The Commission concluded that supply outside this

leading group was fragmented and that the remaining producers did not appear

to be able to constrain its market power I

302. Moreover, structural features of the market, namely homogeneous product,

transparent market conditions and lack of technological innovation, combined

with the record of past behaviour of K+S and SCPA also indicated that the

concentration would lead to a situation of collective dominance by K+S/MdK

and SCPA. However, the particular feature of this case and the main reason

for assuming an absence of real competition between the members of the

leading group was the existence of exceptionally close links between K+S and

SCPA. In particular, the two undertakings had a joint venture in Canada,

Potacan, with an output equivalent to a large part of SCPA's total

production. This joint venture would be particularly important for SCPA in

the future, because its potash reserves would soon be depleted. K+S's and

SCPA's cooperation within the export cartel Kali Export GmbH in Vienna also

appeared to restrict effective competition between them in the Community.

Finally, K+S had a long-established supply relationship with SCPA as a result

of which K+S did not act as an independent competitor on the French market to

any significant extent.

303. In order to sever the I inks between K+S and EMC/SCPA and thus remedy the

negative effects of the concentration on the Community market outside

Germany, the parties offered the following commitments:

   K+S and the joint venture between K+S and the Treuhandsta 11 would

   withdraw from Kali Export GmbH;

   K+S would establish its own distribution network for its potash products

   in the EC, and in France in particular; and

   with regard to Potacan, K+S has undertaken to adapt the structure of

   Potacan in such a way as to enable each partner to market the potash

   obtained from Potacan independently of the other in the Community.

304. The Commission considered that the first two commitments met the

concerns arising from K+S's and SCPA's links in the export cartel and with

regard to supplies to the French market. It therefore attached obligations to

```

```
2. I,C.§2.c.p.24 19 0

its decision to ensure compliance with these commitments. As to the third

commitment, the Commission decided not to impose it as a formal obligation,

because any appropriate arrangement regarding Potacan could be reached only

in agreement with EMC. The Potacan joint venture is already the object of

proceedings under Article 85 to which, unlike the merger proceedings, EMC is

also party. In the event that K+S is not able to reach agreement with EMC

despite K+S's best efforts, an appropriate solution is to be found in the

course of the Article 85 procedure.

<T6> KNP/BT/VRG (Phase I I case)

305. This case concerned the merger between two Dutch paper, board and

packaging groups, KNP and BT, and a Dutch distributor of paper and printing

systems, VRG. The merger raised a problem of dominance in the markets for

distribution and servicing of printing presses in Belgium and the

Netherlands.

306. With regard to the manufacture of waste paper based board and the

distribution of graphic paper, the Commission concluded that the merger would

not lead to dominance. Although the parties would attain market shares above

25% in some segments of these markets, no dominance would be created or

reinforced given inter alia the presence of other strong competitors, the

existence of spare capacity and the views of customers contacted by the

Commission that alternative sources of supply will be readily available.

307. With regard to pr int ing presses, prior to the merger BT and VRG

distributed and serviced on an exclusive basis printing presses manufactured

by the two main European suppliers, Heidelberg and MAN-Roland respectively

and competed against each other in Belgium and the Netherlands. As a result

of the merger, the new entity would have a market share of more than two

thirds in each of these countries.

308. The Commission considered the following elements in order to decide

whether the merger would lead to dominance with regard to printing presses:

   - distributors of other printing presses such as the Japanese company

    Komor i who currently compete with the parties in Belgium or the

    Netherlands have a very small share of the market. They lack an

    extensive service network and the printing presses they distribute do

```

```
  C.§2.c.p.25 1 9 1

   not have the long established reputation of Heidelberg and MAN-Roland in

   Europe;

   - with regard to maintenance and after-sales service, the few existing

     independent providers in Belgium and the Netherlands could not

    significantly constrain the market power of the merged entity in view

    of their small size and lack of technological expertise;

   - successful new entry into the Belgian and Dutch markets for

    distribution of the printing presses would depend on the quality and

    reputation of printing presses to be distributed. Given the very small

    number of well established makes, potential entry into the

    distribution market is therefore extremely limited;

   - customers are small and dispersed and could not be expected to be able

    to constrain the parties' market power. Moreover, they would have

    difficulties in switching to another make of printing presses, if they

    were not satisfied with the service offered by the parties.

309. In view of these elements the Commission concluded that the merger would

lead to dominance in the markets for distribution and servicing of printing

presses in Belgium and the Netherlands. Given the structure of the markets

concerned this dominant position was not likely to be quickly eroded. It was

therefore not merely temporary and would significantly impede effective

compet i t ion.

310. However, the parties entered into a commitment vis-à-vis the Commission

to terminate their distribution relationship with either Heidelberg or MAN
Roland for Belgium and the Netherlands. In addition, they undertook to divest

themselves of all assets related to the distribution and servicing of

printing presses for which the relationship will be terminated, including the

transfer of staff and existing servicing contracts, in order to ensure that a

third party is able to establish itself as an independent distributor in the

Belgian and Dutch markets.

311. On the basis of these undertakings the combination of the distribution

and servicing activities that would have resulted from the merger will not

```

```
2.I.C.§2.c.p.26 19 9

actually take place. Therefore, the Commission declared the operation

compatible with the common market subject to fulfilment of the obligations

accepted by the parties.

<T6> PiIkington-Techint/SIV (Phase I I case)

312. This case concerned the acquisition of joint control by Pilkington and

Techint in SIV, a flat and automotive safety glass producer previously owned

by the I talian state.

313. The Commission analysed the effects of the concentration on the float

glass market at two levels: (i) level 1, which corresponds to the production

and sale of primary raw flat glass; (ii) level 2, where raw flat glass is

subject to further processing before sale to the final user (automotive trade

or general trade).

314. Following the concentration, over 90% of the float glass market in the

Community would be supplied by five producers: St-Gobain, the market leader,

followed by PiIkington/SIV, the US-owned companies PPG and Guardian and the

Japanese-owned company Glaverbel. In view of the market shares and strength

of the other producers, in particular St-Gobain, the Commission concluded

that the concentration would not lead to the creation or strengthening of

single dominance for Pi Ikington/SIV. However, the acquisition of SIV by

Pi Ikington/Techint would further increase the degree of concentration in a

sector that was already highly concentrated and subject to high entry

barriers. Consequently, the Commission also examined whether the notified

operation would create or strengthen a position of collective dominance by an

oligopoly group of five producers.

315. With regard to the possible creation or strengthening of collect ive

dom inance. the Commission considered that competition outside the group of

the five Community producers would not be significant and that potential

entry was not likely in the medium term. Nevertheless, it concluded that the

following market characteristics undermined the likelihood of parallel

anti-competitive behaviour by the members of the oligopoly group:

   increasing excess capacity coupled with low price elasticity;

```

```
2. I.C.§2.c.p.27 . n .. 7
```

**i** _**y ô**_

```
   product innovation and differentiation;

   asymmetries in the market position and the degree of vertical

   integration of the five producers;

   insufficient price and sales volume transparency;

   strong incentive to renege on parallel behaviour due to the economies of

   float glass production, i.e. relatively low variable costs resulting in

   high marginal profits from additional sales;

   considerable purchasing power of vehicle manufacturers.

316. In assessing the possible creation or strengthening of collective

dominance, the Commission also examined the operation of Joint ventures

between the five Community float glass producers. The most important of these

was considered to be the Flovetro joint venture, which following the

concentration would be jointly operated by PiIkington/SIV and St-Gobain. The

Commission concluded that the continued operation of Flovetro would not

significantly impede effective competition because it was a pure production

joint venture whose output represented a very small percentage of Community

sales. Moreover, Flovetro did not involve the other 3 float glass producers

and no other production links existed in the sector.

317. In view of the above, the acquisition of SIV by P i Ik ington/Tech int was

declared compatible with the common market.

```

```
2.I.C.§3.a.p.28 .
```

**I** _**y**_ **`4`**

```
<T3> §3. Application of Articles 9. 21 and 22

<T5> a. Application of Article 9

318. A request for referral was received from the German authorities in the

McCormick/CPC/Rabobank/Ostmann case. As a general rule, when the substantive

conditions under Article 9 are met, the Commission may either deal with the

case itself or refer it to the competent authorities of the Member State

concerned, taking into account the public interest of ensuring that

competition in the common market is not distorted.

The Commission had the intention of dealing with this case itself, taking

into account both the threat to the distinct market in Germany and any

foreseeable effects of the concentration on other markets within the

Community. This option was however foreclosed as a result of an error in the

calculation of the legal deadlines provided for in Article 10(1), second

sentence. Nevertheless, the possibility of referral under Article 9 was still

open pursuant to Article 10(6) read in conjunction with Article 9(4)(a). The

Commission therefore concluded that it was appropriate to refer the case to

the competent authorities of the Federal Republic of Germany for the purposes

of carrying out a proper competition assessment.

319. From the point of view of substance, several factors indicated that the

herb and spice market remained national, in particular in Germany. The

stability of demand and saturation of the market in Germany, together with

the specificity of distribution and merchandising and the relatively high

costs of entering the market created an important barrier to entry to the

German market.

320. In the Commission's practice, a referral of a case affecting a whole

national market would only take place in exceptional circumstances, when this

market constitutes a substantial part of the common market. In this

particular case, the fact that herbs.and spices require a specific and very

wide distribution and service system, which has resulted in more than 85 000

sales points in Germany, showed that local conditions were a crucial factor.

From this perspective, the German authorities were probably in a good

position to carry out a detailed examination.

```

```
2.I.C.§3.b.p.29

<T5> b. Application of Article 21(3)

```

##### 195

```
321. Article 21(3), which allows Member States to take appropriate measures

to protect legitimate interests in respect of mergers covered by the

Regulation, was applied for the first time in IBM France/CGI. which was

authorized by the Commission on 19 May. The transaction involved a public

exchange offer as a result of which IBM France obtained control of the French

public limited company Compagnie Générale de l'Informatique (CGI). The

French authorities informed the Commission that they had taken certain

appropriate measures relating to two CGI subsidiaries forming part of the

merger that worked in particular with the French Ministry of Defence. The

measures were taken in order to protect French legitimate interests linked to

public security, pursuant to the second subparagraph of Article 21(3).

```

#### 2. I .C.§3.c.p.30 196

```
<T5> c. Application of Article 22(3)

322. The first request pursuant to Article 22(3) of the Regulation, which

entitles a Member State to request the Commission to examine a merger without

Community dimension, was made in the British Airways/Dan Air case and raised

a number of new issues. These mostly stemmed from the fact that although the

procedural rules are essentially the same as for a notified transaction, no

notification had been lodged. In this case, the Commission considered that

the Belgian request did not provide sufficient information to allow it to

proceed with an investigation and thus the time period started to run only

when additional information was received from the Belgian Government.

323. On a point of substance, it is important to stress that, under

Article 22(3), the Commission is entitled to intervene only "in so far as the

concentration affects trade between Member States" and that its scope of

action in terms of the measures to be taken is restricted to the territory of

the Member State concerned. In this respect, the acquisition of the

non-charter services of Dan Air clearly affected air transport between

Belgium and the United Kingdom. However, the only route concerned was

Brussels/London, where the Commission concluded that the operation would not

lead to the creation or strengthening of a dominant position.

```

```
2.I.C.§4.p.31

<T3> §4. Application of Article 223 of the Treaty

```

#### 197

```
324. On 17 March the French authorities informed the Commission that, on the

basis of Article 223 of the Treaty, they had requested the parties involved

not to notify a merger having a Community dimension. The sector concerned

was the manufacture of engines for missiles.

325. The Commission pointed out that Article 223 could be invoked for this

purpose by a Member State in respect of mergers that were limited to military

activities not having any civilian application. However, in such a case,

the Member State concerned had to enable it to check that the conditions for

the application of Article 223(1)(b) were met and that the merger would not

have any adverse effects for the suppliers of the undertakings concerned, any

intermediate consumers and final consumers (defence ministries) in other

Member States. It also reserved the right to apply the first paragraph of

Article 225 of the Treaty.

326. The French authorities provided the necessary information on 20 October,

namely the reasons for which non-notification was necessary for the

protection of the essential interests of the security of the country, the

precise nature of the activity showing that it was covered by Article 223(2),

the lack of any spill-over effects on non-military products and the impact of

the merger on suppliers, intermediate consumers and defence ministries in the

other Member States. The Commission informed the French authorities on

29 October that it had no comments.

```

```
2.1. D. p.1

<T9> D. Main decisions in the steel industry

<T3> §1. Main developments

```

##### 198

```
327. The crisis affecting the Community steel industry continued in 1993. A

total of 55 coal and steel cases were dealt with during the year. The number

of specialization agreements and Joint ventures increased, while the number

of mergers fell appreciably. As a result, six decisions were taken under

Article 66 of the ECSC Treaty, while nine cases were settled by means of an

exemption letter under Decision No 25/67. By contrast, 14 cases were dealt

with by means of a comfort letter pursuant to Article 65 of the ECSC Treaty.

```

```
2.1. D. p.2

<T3> §2. Mergers

<T5> (a) Mannesmann - Hoesch

```

#### 199

```
328. The Commission authorized Mannesmannrôhren Werke AG and Hoesch AG to set

up a joint venture, Mannesmann Hoesch Prazisrohr GmbH, and authorized

Mannesmannrôhren Werke to acquire 50 % of Gebr. Fuchs GmbH, a subsidiary of

Hoesch.

The decision covered only ECSC products. A parallel decision was adopted

under Regulation (EEC) NO 4064/89 to cover those aspects of the merger

involving EEC products.

<T5> (b) Sol lac - Bamesa

329. The Commission authorized Usinor Sacilor, through its subsidiary Sol lac,

to acquire a 30 % stake in the capital of the ECSC products distributor

Barcelonesa de Meta les (Bamesa).

<T5> (c) Profilarbed - Unimetal

330. The Commission authorized the merger of the heavy section and machine

wire production and distribution activities of Arbed and Usinor Sacilor, in

the long products sector. The merger completes the process of rationalizing

and integrating production that was begun when EuroprofiI was authorized.

<T5> (d) Ensidesa - Velasco

331. The Commission authorized Ensidesa to acquire a stake in the capital of

the holding company Cosimet, which, together with the Riberas family,

controls the Spanish ECSC products distribution group Velasco.

<T5> (e) Thyssen Kohletechnik RAG - Fechner

332. The Commission authorized Thyssen Schachtbau Kohletechnik GmbH (Thyssen

Schachtbau GmbH group, Mulheim/Ruhr) and Bruno Fechner GmbH & Co. KG

(RUhrkohle AG group), to set up a joint venture, Micro Carbon

```

###### 2.1. D. p.3 200

```
Brennstofftechnik GmbH and. authorized the latter to acquire Techno

Carbon GmbH. The new undertaking will produce and sell pulverized coal for

cement and lime-burning kilns.

<T5> (f) Laubag - Espag

333. The Commission authorized Lausitzer Braunkohle AG (LAUBAG) to acquire

all the capital of Energiewerke Schwarze Pumpe AG (ESPAG), a major

distributor of lignite briquettes. Following the transaction, the Treuhand,

which holds the capital of the two undertakings, will divide LAUBAG into two

companies, one of which will group together the profitable divisions under

the name "Braunkohlenwerke Brandenburg-Sachsen AG" with a view to future

privatization.

```

#### D. p.4 20 1

```
<T3> §3. Financial arrangements

334. In response to the crisis in the steel industry, the Commission put

forward measures under Article 53 of the ECSC Treaty.

Three groups of undertakings, comprising numerous firms, producing hot-rolled

wide coils and strip, heavy plate and heavy sections notified agreements

establishing common financial arrangements pursurant to Article 53(a) of the

ECSC Treaty,( [1] ) the main arrangements being as follows:

   the parties to the financial arrangements that neither reduce nor close

   down capacity will contribute to the financing of the capacity

   reductions of the parties that opt for closure; the aim is to reduce

   heavy section capacity by 2.5 million tonnes, hot-rolled wide coils and

   strip capacity by 6 million tonnes, and reversing-mi I I plate capacity by

   2 mi I I ion tonnes,

   plant closures will be deemed permanent when they are carried out in

   accordance with Article 8 of Commission Decision No 3010/91/ECSC.(2)

   Any export of plant for reassembly at a location where exports to the

   Community market would be improbable could be deemed a permanent

   closure,

   parties opting for closure will undertake, for five years, not to

   increase their residual capacity for the products in question that are

   covered by the financial arrangements on pain of a fine, payable to the

   other parties, of ECU 100 per tonne of increased capacity. For a period

   of five years, capacity increases stemming from maintenance work or

   current productivity investment are limited to 2 % per year. Investment

   in new technologies is not excluded where it replaces existing capacity

   without leading to a net increase in capacity,

   individual capacity closure programmes will be notified to the

   Commission with details of the plant to be closed. In principle,

   closures should take place before 31 December 1994.

(1) Commission Decision of 21.12.1993 (OJ L 6, 8.1.1994).

(2) OJ L 286, 16.10.1991.

```

`p.5` 202

```
The Commission made its authorization subject to one condition designed to

ensure that competition was maintained within the common market. This was

that the companies must not, under the financial arrangements, establish any

agreement or concerted practice or make unilateral declarations concerning

prices, rates of capacity utilization or the level of production remaining

under the control of each of the parties following the closures, and that the

parties will not, for the duration of the arrangements, participate in any

concerted practice or agreement for exchanging information that could

restrict competition without first informing the Commission. In addition,

each company must present its plant closure programme within three months of

notification of the Decision of 27 October 1993, and all the companies must

submit to any checks deemed necessary by the Commission.

```

```
d

```

```
<T9> E. Substantive and procedural rules

<T3> Application of the block exemption Regulations

<T5> (a) Motor vehicle distribution

<T6> Regulation (EEC) No 123/85

335. The year under review has seen the first bi-annual submissions of price

data to the Commission by the 23 leading European and Japanese car

manufacturers. This has come about in response to action taken by the

Commission in 1992 to improve price transparency for cars in the EC.( [1] )

The car manufacturers furnished information relating to the prices (on

1 May 1993 and 1 November 1993) of 55 European and 17 Japanese top-selling

car models, based on recommended retail prices, adjusted for equipment

differences, and given in local currencies before and after tax.

The main conclusion to be drawn is that there were notable exchange rate

movements in 1993 which must be taken into consideration. This is especially

relevant with regard to Spain, Portugal and Italy where devaluation occurred,

and which were the lowest price markets during this period with Germany,

having a strong DM, being the highest. Nevertheless the following comments

can be made :

   In November 1993, overall price differences were slightly greater than

   in May. Approximately 80% of the prices for cars produced by* European

   manufacturers and 90% of Japanese models showed price differentials of

   less than 20%.

   However, by excluding monetary fluctuations (by using the May ecu rate

   for the November analysis), it became clear that car manufacturers had

   tended to reduce price differentials for most of their models.

   By market segment there were, between May and November 1993, virtually

   no alterations in the ranking with respect to the cars constituting the

   highest percentage share of the overall car market (i.e. segments B, C,

   D). Medium and large cars (segments C and D) showed small price

(1) Twenty-second Competition Report, point 290

```

```
2.I.E...P. 2 2 Q 4

   disparities (85% of models had less than 20% differentials), while small

   and mini cars (segments B and A) had the greatest differences (only 67%

   and 58% respectively of all models with price differences of less than

    20%).

   The Commission notes that between May and November 1993 a general

   downward trend for car prices in the EC has occurred (taking the

   recommended retail prices at the appropriate ecu exchange rates).

Surveys of car prices in the Community will be carried out in this manner

every six months and will allow the Commission to go beyond the present

exercise of improving price transparency. They will enable it to assess the

trend in price differentials, which it expects to see diminish following the

initiative which it launched in May 1992, and to take these trends into

consideration in its reflections on the future of Regulation (EEC) No 123/85,

which is due to expire in June 1995.

In 1992, as a further part of its action to deal with car price differentials

between Member States, the Commission asked car manufacturers to make it

clear to their dealers that the manufacturers would fill orders which the

dealers receive from customers and approved dealers in other Member States.

The car manufacturers have cooperated by sending circulars to their

dealers, and judging by the significantly reduced number of complaints

received from individual consumers in 1993, this action has been useful.

However, the Commission has again received, in 1993, complaints from

consumers regarding the failure of dealers to carry out guarantee work on

cars purchased in other Member States. These difficulties have been

resolved by the intervention of the Commission and subsequent action on the

part of the manufacturers to remind their dealers that such guarantee work is

required by the provisions of Regulation (EEC) No 123/85.

In the year under review the Commission confirmed to manufacturers that

Regulation (EEC) No 123/85 refers only to vehicles of three wheels or more

and therefore is not applicable to the distribution of motorcycles within the

Community.(2) The manufacturers can adapted their distribution contracts to

(2) Twenty-first Competition Report, point 123

```

```
2.I.E.a.p. 3
```

205

```
the provisions of Regulation (EEC) No 1983/83 concerning exclusive

distribution in order to benefit from the exemption by category or may

introduce a request for individual exemption if they consider that this

regulation does not correspond to the requirements of motorcycle

distr ibut ion.

336. During the year under review, the Commission also continued to ensure

that intermediaries operating within the common market are not excluded from

the supply of vehicles provided that they show clearly that they are acting

as suppliers of services on behalf of a third party.

In addition, the Commission defined its position on the applicability of

Regulation (EEC) No 123/85 to contractual clauses that restrict dealers'

freedom to supply leasing companies. The problem arises in two references

for preliminary rulings within the meaning of Article 177 of the EC Treaty

that are currently before the Court of Justice. Taking the view that

Article 13(12) - which ranks leasing as a form of distribution - concerns

only relations between producers and dealers, the Commission concluded that

Regulation (EEC) No 123/85, as it currently stands, is not applicable to

relations between dealers and leasing companies.

```

```
2.I.E.b. p.4

<T5> (b) Application of the other block

                 exemption Regulations

<T6> Exclusive purchasing

```

##### 206

```
337. With regard to the application of Regulation (EEC) No 1984/83 to service

stations, the Commission was able, on several occasions, to clarify and spell

out certain aspects of the scope of the exemption and, in particular, the

restrictions of competition that prevented its application.

The Commission examined in particular the contracts negotiated by the Spanish

refineries with service station operators under the former monopolized

network when it was still legally reserved to Spanish refiners' products.( [3] )

<T6> Specialization and research and development agreements

338. The Commission received only one notification in 1993 under the

opposition procedure provided for in Article 4 of Regulation (EEC) No 417/85

on specialization agreements.( [4] ) The six-month period has not yet expired,

and the case is at present still under examination.

As far as Regulation (EEC) No 418/85 on research and development agreements

is concerned, the opposition procedure provided for in Article 7 continues to

be little used. No notifications under Article 7 were received in 1993.

<T6> Patent licensing and know-how licensing agreements

339. During the year, the Commission received only one notification in which

the parties requested application of the opposition procedure provided for in

Article 4 of Regulation (EEC) No 556/89 on know-how licensing agreements.( [5] )

The six-month period has not yet expired, and the case is still under

examination. The Commission did not receive any notifications in 1993 under

Article 4 of Regulation (EEC) No 2349/84 on patent licensing agreements.(6)

(3) See point 226 of this Report.

(4) OJ L 53, 22.2.1985.

(5) OJ L 61, 4.3.1989.

(6) OJ L 219, 16.8.1984.

```

#### 2.I.E.b. p.5 207

```
The Commission was able to terminate proceedings by sending a comfort letter

in two cases notified respectively in 1990 and 1991 under the two

Regulations, after the parties had amended their agreements in such a way as

to make them compatible with Article 85.

<T6> Franchising agreements

340. During the period covered by the Report, the Commission received three

notifications in which the parties requested application of the opposition

procedure provided for in Article 6 of Regulation (EEC) No 4087/88.( [7] )

In one of the three cases, the Commission found that the agreement did hot

appreciably affect competition in the common market or trade between

Member States. The opposition procedure was not therefore applicable, since

the agreement was not caught by Article 85(1) of the EC Treaty. The two

other notifications are still under examination.

The Commission was able to terminate examination of the two notifications^)

received in 1992 under Article 6 of Regulation (EEC) No 4087/88. In one

case, the Commission found that the agreement did not appreciably affect

competition within the common market. In the other, it found that the

agreement now met the conditions required to be eligible for the block

exemption, the parties having in particular removed the restriction

preventing the franchisee from determining the selling prices of the

franchised products and having expressly given the franchisee freedom to

purchase the products from other franchisees. Mention should also be made of

the Texaco case described earlier.(§)

(7) OJ L 359, 28.12.1988.

(8) Twenty-second Competition Report, point 273

(9) See point 225 of this Report.

```

```
2 . I I . p . 1

<T4> Chapter I I

<T2> Main cases decided by the Community lawcourts

341. This Report covers a total of 12 judgments and 5 orders.

<T3> §1. Interpretation of Article 3(f). the second paragraph of

           Article 5 and Article 85(1) of the EC Treaty

```

208

```
342. In its important judgments of 17 November in Meng. Ohra and Re i f f. the

Court of Justice, in response to a reference for a preliminary ruling,

defined the limits of its case-law on the interpretation of Article 3(f) 3(g)

since the entry into force of the Treaty on European Union) and Articles 5

and 85 of the EC Treaty.

The Meng and Ohra cases concerned German (Meng) and Dutch (Ohra) regulations

which prohibit insurance companies (Ohra) and/or insurance intermediaries

(Ohra and Meng) from granting certain financial benefits, in particular in

the form of the rebating of commissions in full or in part to clients.

The Rei ff case concerned German regulations on the fixing of tariffs for the

long-distance transport of goods by road.

343. In all three cases the Court applied the formula summing up its earlier

case-law set out in its judgment in Van Eycke (Case 267/86 [1988] ECR 4769,

at paragraph 16). Hence it rejected the interpretation that national

legislation having the same anticompetitive effect as a concerted practice

prohibited by Article 85 is contrary to the provisions referred to above,

where there are no agreements between enterprises.

The Court first observed that Article 85 of the Treaty per se is concerned

only with the conduct of enterprises and not with national legislation. For

that reason, the Court made the preliminary observation in Meng that the

measures at issue did indeed have an official character by reason of the

```

```
   P.2
###### 209

administrative status and the controlling and rule-making powers of their

author, the German insurance supervisory office.

The Court went on, however, to qualify that statement by pointing out that

Article 85, read in conjunction with Article 5 of the EC Treaty, requires

Member States not to introduce or maintain in force measures, even of a

legislative nature, which may render ineffective the competition rules

applicable to enterprises. Such would be the case, either if a Member State

were to require or favour the adoption of agreements, decisions or concerted

practices contrary to Article 85 or to reinforce their effects, or if it were

to deprive its own legislation of its official character by delegating to

private traders responsibility for taking decisions affecting the economic

sphere.

344. In response to the question put by the court making the reference, the

Court first considered, in Re i ff. whether the German rules in question

pointed to the existence of an agreement within the meaning of Article 85 of

the EC Treaty. Under those rules, tariffs are fixed by tariff boards made up

of persons from the relevant branches of the road transport sector. The

Court had previously held that an agreement existed where it was negotiated

and concluded by persons who, although appointed by the public authorities,

were proposed for appointment by the trade organizations and who consequently

must be regarded as representing those organizations.^) It pointed out,

however, that in the present case the members of the tariff boards were

acting as experts independently of the enterprises or associations which had

proposed them to the Federal Minister for Transport and were required to take

account of the interests of other sectors when fixing the tariffs. The Court

therefore replied in the negative to this question.

As regards reinforcing the effects of an agreement, the Court rejected the

argument put forward in Meng that the rules at issue had increased the scope

of an agreement prohibiting the rebating of commissions in the life insurance

sector by applying it to other classes of insurance. The Court considered

that rules applicable to a particular sector consolidated the effects of a

previous agreement only if they did no more than reproduce theterms of an

agreement between operators in the sector.

(1) Case 123/83 BNIC v Clair [1985] ECR 391

```

2.i,.P.3 2 1 0

```
Lastly, in Rei ff. the Court was asked to state whether the public authorities

had delegated their powers to private economic operators. Here, too, it

replied in the negative. It found that the German rules on the fixing of

road transport tariffs required the Federal Government to approximate the

conditions of competition between means of transport in order to avoid unfair

competition between road, rail and inland waterway transport. To that end,

the Federal Minister for Transport could himself attend, or be represented

at, meetings of the tariff boards, and could also fix tariffs himself if he

considered that those adopted by a board were not in the general interest.

```

```
2. I I.p.4

<T3> §2. Definition of an undertaking

```

###### **21 1**

```
345. In two actions (Joined Cases C-159 and 160/91) between Chr ist ian Poucet

and the Caisse Mutuelle régionale du Languedoc-RoussiI Ion (Calmurac) and the

AGF on the one hand and Daniel Pistre and the Caisse autonome nationale de

compensation de l'assurance vieillesse des artisans (Cancava) on the other,

the Court of Justice delivered a judgment on 17 February on the question

whether a body entrusted with the management of a special social security

scheme is an undertaking within the meaning of Articles 85 and 86 of the

EC Treaty.

To answer this question, the Court referred to its judgment of

23 April 1991(2) in which it defined the concept of an undertaking: "in the

context of competition law, the concept of an undertaking encompasses every

entity engaged in an economic activity, regardless of the legal status of

the entity and the way in which it is financed".

The Court also pointed out that the social security schemes in question

performed a social function and operated on the basis of the principle of

solidarity; in view of the compulsory nature of membership, maintaining

solidarity and financial equilibrium were essential factors.

On the basis of these considerations, the Court ruled that sickness

```

`insurance schemes` _or_ `bodies entrusted with the management of a social`

```
security scheme as a public service fulfil an exclusively social function.

That activity is based on the principle of national solidarity and is not

profit-making. The benefits which are paid are statutory benefits and are

independent of the amount of the contributions. It followed that the

activity was not an economic activity and consequently the bodies entrusted

with it did not constitute undertakings' within the meaning of Articles 85

and 86 of the EC Treaty.

(2) Case C-41/90 Hôfner and Elser v Macrotron [1991] ECR 1-1979

```

###### 212

```
<T3> §3. Application of Article 85 to a horizontal agreement on prices

346. On 31 March the Court of Justice delivered a judgment in response to an

application contesting a Commission decision(3) that 40 wood pulp producers

and three of their trade associations had infringed Article 85(1) of the

EC Treaty by concerting on prices (announced price and/or transaction price)

(the "Wood Pulp" cases - Ahlstrom and Others v Commission). In the course of

the proceedings, the Court had already delivered a judgment concerning the

Community's jurisdiction to apply its competition rules to undertakings

outside its territory.( [4] )

The Court annulled a number of provisions of the contested decision. It did

this for two main reasons: infringement of the rights of the defence, and the

fact that the Commission had failed clearly to establish general concertation

on announced prices.

According to the Court, the system of quarterly price announcements for wood

pulp did not in itself constitute an infringement of Article 85(1) of the

Treaty.

Furthermore, as the Commission had also been unable to prove satisfactorily

that prior concerted action had taken place, the Court endeavoured to

determine whether the system of quarterly price announcements; the

simultaneity or near-simultaneity of the announcements; and the fact that

announced prices were identical in the period 1975-1983 constituted serious,

detailed and consistent evidence of prior concertation. The two expert

reports commissioned by the Court revealed, however, that:

   those factors could be explained otherwise than by concerted action;

   a more plausible explanation for the uniform prices was that they

   resulted from the normal operation of the market rather than from

   concerted act ion.

Since the Commission had not established concerted action on announced

prices, the Court annulled Article 1(1) of the decision.

(3) Decision 85/202/EEC of 19 December 1984

(4) [1988] ECR 5193.

```

**`2.`** **`I`** **`I.p.6`** **`^`** _**M**_
213

```
Consequently, it also annulled the provisions of the undertaking annexed to

the decision in so far as they imposed obiigations other than those resulting

from the findings of infringements made by the Commission which had not been

declared void by the Court.

The Court found, however, that all the other provisions of the decision were

val id, namely those which establish:

   concertation on the fixing of "KEA recommended prices" by the members of

   that association (no fine had been imposed);

   participation by the Finnish association Fincell in the concerted action

   (f ine upheld);

   the existence of contractual clauses banning exports and reselling (fine

   reduced to ECU 20 000 in view, in particular, of the termination of the

   infr ingement).

```

```
2. I I .p.7
```

214

```
<T3> §4. Interpretation of Commission Regulation No 1984/83

         on the application of Article 85(3) to categories

             of exclusive purchasing agreements

347. In its judgment of 10 November in PetrogaI (Case C-39/92), delivered in

response to a reference for a preliminary ruling from the Lisbon civil court

(Tribunal Civel da Comarca), the Court of Justice gave a ruling on the

interpretation of a specific point in Commission Regulation (EEC) No 1984/83

of 22 June 1983 on the application of Article 85(3) of the Treaty to

categories of exclusive purchasing agreements.

The main action was between the Portuguese company PetrogaI and the owner of

a service station who had unilaterally terminated a contract in 1990 which

had been concluded in 1982 for 15 years and under which he had undertaken to

purchase fuel and oil from Petrogal. The court making the reference

considered that the legal assessment of such conduct depended on how the

provisions of Regulation 1984/83 concerning service station agreements were

interpreted.

Article 10 of the Regulation states that Article 85(1) of the Treaty does not

apply to the service station agreements which it defines. To qualify for

block exemption, such agreements must satisfy the conditions of Articles 11

to 13 of the Regulation. Article 12(1)(c) provides that agreements do not

qualify for exemption where they are concluded for an indefinite duration or

for a period of more than 10 years. As the contract in question had been

signed for 15 years, it would normally be caught by that provision.

However, the Regulation makes special provision for Spain and Portugal,

specifying that, of the conditions set out in Articles 10 to 13, the

condition relating to the maximum duration of the agreements referred to in

Article 10 is not applicable to agreements in force in Spain and Portugal on

the date of their accession to the Community.

Consequently, such agreements qualify for exemption under Regulation 1984/83

in so far as their terms meet the requirements of Articles 10 to 13 of the

Regulation, with the exception of that relating to duration.

```

```
2.I I.p.8 ^ ^
###### 215

<T3> §5. Interpretation of Commission Regulation (EEC) No 123/85

          of 12 December 1984 (motor vehicles) and the

     Commission notice of the same date concerning that Regulation

             Concept of authorized intermediary

348. In its judgment of 22 April in Peugeot (Case T-9/92), the Court of First

Instance defined the meaning of the term "authorized intermediary".

The origin of this case is a complaint made in 1989 by Eco System against

Peugeot and three of its authorized dealers in Belgium which were preventing

parallel imports of motor vehicles by Eco System acting as intermediary on

behalf of French consumers. The Commission initially adopted interim

measures at the request of Eco System, followed by a decision.(5) It is

this decision that was being contested in the present case.

The decision found that a circular letter dated 9 May 1989 from Peugeot to

its dealers in France, Belgium and Luxembourg, together with the

implementation of the circular by those dealers, had the effect of suspending

deliveries of Peugeot vehicles to Eco System and"was therefore contrary to

Article 85(1) and not exempted by Regulation (EEC) No 123/85 on the

application of Article 85(3) of the Treaty to certain categories of motor

vehicle distribution and servicing agreements.

In support of its application, Peugeot essentially relied on paragraph 11 of

Article 3 of the Regulation, which allows exemption where the dealer is

obliged not to sell vehicles to final consumers using the services of an

intermediary unless the latter has "prior written authority" to purchase a

vehicle and take delivery.

Peugeot also referred to the Commission Notice of 12 December 1984 concerning

the Regulation, which states that undertakings within the distribution system

can be obliged not to supply new motor vehicles within the contract programme

to or through a third party who represents himself as an authorized reseller

(5) Decision of 4 December 1991, OJ L 66, 11.3.1992, p. 3

```

```
2. I I .p.9
```

216

```
of new vehicles or carries on an activity equivalent to that of a reseller

(paragraph 3 ) .

In dismissing the application, the Court clarified the concept of

intermediary with written authority, pointing out that the only condition

imposed on intermediaries by the Regulation was that they should have prior

written authority from the final consumer. It followed that, provided an

intermediary was duly authorized, he could not be denied this status under

the Regulation on the sole ground that he was pursuing an occupational

activity. Such exclusion would have the effect of impeding parallel imports

and would run counter to the objective of achieving a single market.

The Court also ruled that the applicants could not rely on the above
mentioned Notice as it simply interpreted the Regulation and hence could not

modify the tatter's meaning as far as the concept of intermediary was

concerned.

```

###### 2. I I .p.10 217

```
<T3> §6. Abuse of a dominant position

349. The "plasterboard" case (Case T-65/89 BPB and British Gypsum) afforded

the Court of First Instance an opportunity to decide, by Judgment of 1 April,

that several practices constituted abuses of dominant positions.

The case concerned two enterprises in a dominant position: BPB, the British

holding company of a group that controls about half of plasterboard

production capacity in the Community, and its subsidiary, British Gypsum.

On 5 December 1988 the Commission decided that British Gypsum had abused its

dominant position in the supply of plasterboard in Great Britain and that

BPB, through its subsidiary British Gypsum, had also abused its dominant

position in the supply of plasterboard in Ireland and Northern Ireland.

BPB and British Gypsum then brought an action for annulment of the decision

and for a reduction in the fines imposed.

The Court rejected the contentions of the applicants relating first to

infringement of the right to a fair hearing (see paragraph 8(c)) and secondly

to various abuses of a dominant position.

It acknowledged that the practice of making promotional payments, even when

linked to an undertaking by the recipient to purchase exclusively from the

supplier, is common in vertical distribution systems and that, in a market

subject to effective competition, such arrangements may be in the interests

of both parties and may not, in principle, be prohibited. Such

considerations are not, however, unreservedly applicable in a market where

competition is already restricted owing to the dominant position of one of

the part ies.

An enterprise in a dominant position is under a special duty not to

jeopardize nor distort effective competition in the common market. The Court

held that British Gypsum had abused that position by tying purchasers 
aIbe i t at the i r

```

###### 2 . I I.p.11 218

```
request - by a commitment or promise on their part to purchase all or a

large part of their requirements exclusively from it, this being an

unacceptable barrier to market entry. Referring to the Court of Justice

judgment in Hoffmann-La Roche.( [g] ) the Court said that an abuse may occur

independently of any fault in view of the objective nature of that concept,

and that therefore the applicants' contention that British Gypsum had never

intended to weaken competition was invalid.

Furthermore, the fact that, it was possible at any time to break the contract

with an enterprise in a dominant position did not alter the abusive nature of

the conduct, since a dominant undertaking has the power to oblige its

customers not only to conclude but also to maintain such contracts.

The Court also found that the criteria for according priority in meeting

orders in times of shortage constituted an abuse, although no fines had been

imposed.

Lastly, it observed that enterprises in a dominant position are free to act

in defence of their own interests provided such action is not aimed at

strengthening and abusing their dominant position.

It considered, however, that British Gypsum's conduct in Ireland and

Northern Ireland, as a supplier in a dominant position on which its customers

depended to a fairly marked degree, clearly had the object of penalizing

merchants intending to import plasterboard and of dissuading them from doing

so, thus further strengthening its position.

(6) Case 85/76 [1979] ECR 461

```

```
(i

```

###### p.12 219

```
<T3> §7. References for preliminary rulings - Particular

           need for precision in the competition field

350. On two occasions the Court of Justice held that it was not necessary for

it to give a preliminary ruling on questions referred to it concerning the

interpretation of the Treaty competition rules.

a) It gave its first ruling' to that effect in its Judgment of 26 January in

   Telemars icabruzzo. delivered in response to a reference from the

   Magistrate's Court, Frascati (Vice Pretore di Frascati), Italy.

   The Italian court's questions concerned the interpretation of the

   Treaty's provisions on competition, in particular Articles 85(3) and 86,

   with a view to determining the compatibility with Community law of

   Italian rules which reserve the use of certain television channels for

   the Government, thus preventing the private sector from using them.

   The questions arose in connection with a dispute between certain

   television broadcasting companies on the one hand and the Italian

   Ministries for Posts and Telecommunications and the Defence on the

   other. The court making the reference fai led to specify the factual and

   legal framework which would have allowed the purpose of the questions to

   be identified and simply stated that Article 86 prohibits all

   monopol ies.

   The Court therefore reminded national courts of their obligation to set

   out the factual and legal context of their questions and at the very

   least to explain the factual assumptions on which those questions were

   based. It added that these requirements applied particularly to

   competition where complex legal and factual issues often arose.

   Although the file sent by the national court and the Court proceedings

   had produced some information, it was too fragmentary to allow the Court

   to interpret the Community competition rules with regard to the subject

   of the proceedings.

```

###### 2. I I .p.13 220

```
b) The second case( [7] ) was dismissed on 26 April, without oral hearing, by

   an Order declaring the application manifestly inadmissible.

   The Order answers the questions put by the court supervising the

   liquidation of Monin Automobiles, an importer of Japanese motor vehicles

   into France whose business had been restricted by the French

   government's policy of regulating imports of vehicles from the Far East

   and the resulting quota-sharing cartel between the five main Japanese

   manufacturers. Monin had lodged a complaint with the Commission for

   infringement of Articles 30 and 85 of the EC Treaty, which the

   Commission had rejected.( [Q] )

   In the meantime, Monin went bankrupt. The court responsible for the

   liquidation asked the Court of Justice for a preliminary ruling on

   several questions, essentially whether the French policy described above

   and the position taken by the Commission in that respect were compatible

   with Community law.

   The court making the reference had failed, however, to define the

   factual and legal background to its questions. The Court of Justice

   repeated that such a definition was an essential requirement, especially

   in the field of competition where complex legal and factual

   considerations often are at issue. Observing that it was therefore

   unable to establish a relationship between the questions and the

   substance of the case, the Court ruled that the questions were

   inadmiss ibIe.

(7) Case C-386/92 Monin Automobiles.

(8) Judgment of 18 September 1992, Case T-28/90 Asia Motor France and

   Others v Commission: not yet reported.

```

```
2 [.M.P.14 ]

<T3> §8. Procedure

<T5> (a) Orkem case-law restricted to Commission procedure

351. The Court of Justice Judgment of 10 November delivered in response to a

reference for a preliminary ruling from the Amsterdam District Court

(Arrondissementsrechtbank Amsterdam) concerns the question whether the Orkem

case-law extends to proceedings before a national civil court.( [Q] ) In Orkem.

the Court had held that observance of the rights of the defence, as a

fundamental principle of Community law, prevented the Commission, in the

course of a request for information under Article 11(5) of Regulation No 17,

from compelling an undertaking to provide it with answers which might involve

an admission on its part of the existence of an infringement which it is

incumbent upon the Commission to prove.

In Otto v Postbank. the Court held, firstly, that the application of

Articles 85 and 86 by national courts was in principle governed by national

law and that therefore, provided that the fundamental principles of Community

law were observed, the rights of the defence may differ from those applicable

in Community proceedings.

Secondly, on the basis of the differences between an administrative

procedure, as in the Orkem case, and a procedure exclusively concerning the

private relationships between individuals which cannot lead directly or

indirectly to the imposition of a penalty by a public authority, it ruled

that Community law did not require that a party should have the option of

refusing to give answers which might admit the existence of an infringement

of the rules of competition.

In response to the argument that such an answer would allow the Commission to

obtain, through national proceedings, information which it could not have

obtained directly, the Court pointed out that the Commission and, indeed, a

national authority, could not use such information (which it may legitimately

receive from any interested party) as a means of proof of an infringement

(9) Case 374/87 Orkem v Commission [1989] ECR 3283

```

#### 2. I I .p.15 222

```
of the competition rules in the context of proceedings capable of leading to

penalties, or as evidence justifying the initiation of an enquiry prior to

such proceedings.

The judgment contains two interesting points. First, it reflects the

 legitimate concern of the Court to ensure that the Commission cannot obtain

by roundabout means information it is unable to obtain directly. Secondly,

 it reaffirms the Court's desire to draw a clear line between national and

Community procedures, as evidenced by its ruling in the Spanish banks

case.( [1] °) The Postbank judgment places even more restrictions on the

Commission than the Spanish banks judgment places on national authorities,

as the latter allowed, under certain conditions, information in the

possession and which the Commission sends to national authorities to be used

by the latter as evidence justifying the initiation of national proceedings.

<T5> (b) Lack of clarity in statements of objections 
  infringement established on the basis of documents obtained subsequently

352. In its abovement ioned judgment (see paragraph 3, supra) in the Wood

Pulp cases (Ahlstrom and Others), the Court of Justice found that the rights

of the defence had been infringed in several respects.

First, the Commission's statement of objections was not worded sufficiently

clearly to enable the applicants to know exactly what conduct was being

objected to (in respect of transaction prices) and hence to defend

themselves effectively during the administrative procedure.

The Court also annulled Article 1(3) of the contested decision in so far as

it concerned the infringement relating to transaction prices committed by

members of one of the associations involved. The Commission had relied

(10) Case C-67/91 [1992] ECR-I 4785.

```

###### I .p.16 223

```
essentially on documents obtained after the statement of objections was

drawn up, thus preventing the members of the association from expressing

their views on the documents.

Lastly, the Court annulled Article 1(4) of the decision in so far as it

related to the producer St Anne, which had not been able to learn of the

objection concerning its participation in the meetings at which the

concertation was arranged.

<T5> (c) Right to a fair hearing

353. In its Plasterboard judgment (Case T-65/89 BPB and British Gypsum)

referred to above (see paragraph 6 supra), the Court of First Instance

specified the documents which the Commission could refuse to communicate to

parties under the rules on access to the file.

Under these rules, firms usually receive, in an annex to the statement of

objections, a list of all the documents in the Commission's possession with

an indication of the documents or parts of documents to which they may have

access. This is to enable them to respond appropriately to the conclusions

reached by the Commission. Among the documents regarded as confidential, and

therefore inaccessible, are internal Commission documents such as memoranda,

drafts and other working papers. Information which identifies complainants

who wish to remain anonymous is also confidential, as is information given to

the Commission on condition that it remains confidential.

In the PI asterboard case, the Court held that the applicants had failed to

demonstrate that these rules had not been complied with. In particular, the

Commission could not divulge the contents of correspondence with third

parties to the applicants. A firm in a dominant position to which a

statement of objections had been sent could take retaliatory action against

competitors, suppliers or customers who had cooperated in the Commission's

invest igat ion.

```

```
2. I I .p.17
###### 224

<T5> (d) Rejection of complaint - inadmissibility of an action

         against the communication of preliminary comments

354. In Rendo I I (Case T-2/92), the Court of First Instance was afforded the

opportunity to answer this point by Order of 29 March. It originated in a

complaint by the applicants against certain measures taken by SEP, (a Dutch

company serving as a vehicle for cooperation between electricity companies in

the Netherlands), and by those electricity companies. A Commission decision

of 16 January 1991 concerning some of the points raised in the complaint had

been unsuccessfully contested by the applicants before the Court.( [11] ) In

their new action, they were contesting a letter of 20 November 1991 from a

Director in the Directorate-General for Competition stating that it was not

possible as yet to act on their complaint in view of the decision already

taken and the ongoing proceedings.

The Commission contended that the action was inadmissible as the letter did

not constitute an act which could be reviewed under Article 173 of the

EC Treaty.

The Court examined each paragraph of the letter and concluded that it was not

a communication within the meaning of Article 6 of Commission Regulation

No 99/63/EEC as it did not inform the applicants of the reasons for rejecting

their complaint and did not fix a time-limit for them to submit their

comments.

Nor was the letter a fresh Commission decision having legal effects and hence

capable of being the subject of an application for annulment. Its content

was confined to repeating certain information and making certain assessments

which did not at any point take the shape of a new Commission decision. Nor

did it in any way indicate that the full Commission had discussed the

complaint a second time and adopted a decision thereon.

(11) Judgment of 18 November 1992 in Case T-16/91 Rendo and Others v
   Commiss ion. not yet reported.

```

```
2. I I .p.18
```

225

```
The Court thus appears to establish a new formal criterion of admissibility:

a measure may be non-contestable because it is not in the form of a

Commission decision.

The Court quickly dismissed the Commission's second argument to the effect

that the applicants should instead, before instituting proceedings, have

asked the Commission for a communication under Article 6 of Regulation 99/63

and then for a decision definitively rejecting the complaint. In its view,

the admissibility of the action was not dependent on the availability of

other recourses of appeal.

<T5> (e) Rejection of complaint - legality of grounds for

            rejection - manifest error of assessment

355. In order to understand the implications of the judgment of the Court of

First Instance of 26 June in Asia Motor (Case T-7/92), it should be noted

that in 1988 several French importers of Japanese cars had complained to the

Commission that the official importers of the five leading Japanese makes had

acceded to the French authorities' request that they limit their sales to 3%

of the French market and had arranged to share this quota among themselves.

The Directorate-General for Competition had sent letters pursuant to

Article 11 of Regulation No 17 to the importers in question. No replies were

received as the French Ministry for Industry had instructed them not to

answer. The Commission departments then requested information from the

French authorities, which replied that the questions related to regulations

made by the public authorities and that the importers had no say in managing

the quota.

The Commission accordingly rejected the parallel importers' complaint by

decision of 5 December 1991 on the ground that the contested behaviour was a

direct result of the policy of the French authorities and hence the official

importers had no freedom of manoeuvre. Furthermore, the complainants'

position would not be remedied by applying Article 85 as the

```

`2.II.p.19` `0` _,_
## **_lib_**

```
French regulations did not allow any importers other than those forming the

subject of the complaint to be included in the quota allocation.

The Court took the view that some of the documents submitted in evidence by

the complainants to the Commission pr ima facie constituted strong evidence of

real freedom of action by the five importers in question as regards market

sharing. In the light of that evidence, which essentially related to dealers

in Martinique, the Court concluded that the decision was vitiated by a

manifest error in the assessment of the facts.

The second ground for rejecting the complaint was also invalid as the

parallel importers could import vehicles into France and could thus be

included in the 3% quota. A ban on the concertation aimed at sharing the

quota would therefore have given them access to the French market.

Following this judgment, the first to have annulled a decision rejecting a

complaint, the Commission again requested information under Article 11 of

Regulation No 17 from the French authorities and from the importers of

Japanese cars allowed into France.

<T5> (f) Involvement of a parent company in an

            infringement committed by a subs id i a r y

356. In its judgment of 1 April in BPB and British Gypsum (plasterboard),

already referred to in another context (see paragraph 6 and 8(c)), the Court

of First Instance referred to earlier judgments in which it had held that the

conduct of a subsidiary may be attributed to the parent company where the

subsidiary does not decide independently upon its own conduct in the market

but carries out, in all material respects, the instructions given to it by

the parent company.

More specifically as regards Northern Ireland, neither the dominant position

nor the abuse thereof could be attributed specifically to any particular BPB

subsidiary. British Gypsum sold plasterboard in that market which had been

produced by the Irish subsidiary of BPB, so that the subsidiary increased its

```

```
2. I I .p.20 _
```

227

```
deliveries to British Gypsum in direct relation to the effectiveness of the

abuses committed by British Gypsum in Northern Ireland. Thus the BPB group

as a whole benefited from the practices of British Gypsum in the province.

It was therefore Justifiable to attribute the practices of British Gypsum in

Northern Ireland to BPB and to impose the contested fine.

```

```
2. I I .p.21
###### 228

<T3> §9. Case-law relating to the Merger Control Regulation

<T4> Applications by bodies representing

             the employees of the firms concerned

On 22 July 1992 the Commission decided that the acquisition of Perrier by the

Nestlé group was compatible with the common market, provided that Nestlé sold

a number of spring water companies formerly owned by Perrier to a competitor

approved by the Commission. The employees of those companies were anxious

about their position, with the result that on 3 February their

representatives brought an action for annulment of the Commission decision.

By separate appIication, they also sought suspension of the decision under

Articles 185 and 186 of the EC Treaty in so far as it required the springs in

question to be transferred (Case T-12/93 R Comité Central d'Entreprise de

Vittel ).

In an Order of 2 April, the second decision handed down by a Community court

in a merger case governed by Regulation No 4064/89, the President of the

Court of First Instance held that the application lodged by the employees'

representatives was not manifestly inadmissible, notably in the light of

Article 18(4) of Regulation No 4064/89 which gives employees of the

undertakings concerned the right to be heard. He considered however that it

was too early to give a ruling on the application for suspension as the

transfer of the springs had not yet been finalized: the approval of several

French authorities had yet to be obtained. He therefore ordered the interim

suspension of the decision until such time as the Commission notified him of

such approvaI.

In June the Commission informed the Court that the obstacles to the sale of

the springs had been removed and that the transfer could go ahead. The

President was thus able to decide on the application for interim measures.

In an Order of 6 July the President observed that the damage the employees

claimed to have suffered was not serious and irreparable. They had not shown

why the transfer of their company would result in damage to the maintenance

of their jobs. By virtue of Directive 77/187 on the safeguarding of

```

2 "

   P 2 2 2 2 9

```
employees' rights in the event of transfers of undertakings, the rights and

obligations by which a transferor is bound under an employment contract or an

employment relationship existing at the date of the transfer were transferred

to the transferee. In addition, under the French Employment Code, the

collective agreement in force could be terminated at any time - not

necessarily as a result of a transfer. It followed that the decision could

not directly result in the alleged damage, namely the loss of the advantages

acquired under the collective agreement.

The President of the Court accordingly dismissed the application for interim

measures.

<T4> Inadmissibility of an application by minority shareholders

              for the reopening of proceedings

On 28 October the Court of First Instance delivered its first judgment in a

merger case under Regulation No 4064/89. The case concerned a question of

procedure. The Court ruled as inadmissible an application lodged by minority

shareholders in General i, an Italian insurance company, against a refusal to

reopen the proceedings that had resulted in a Commission decision under

Article 6(1)(a) of the Regulation. The decision had concluded that the

increase in Mediobanca's stake in General i from 5.98% to 12.84% was not

covered by the Regulation as Mediobanca would not be in a position, as a

result of the transaction, to exercise a decisive influence over General i.

On 26 June 1992 the minority shareholders had requested the reopening of

proceedings following the publication, on 19 March of that year, in an

Italian daily newspaper of the text of a hitherto secret agreement signed in

1985 by Genera I i, Mediobanca and Lazard, whose Eurolux subsidiary was the

second main shareholder in General i.

By letter dated 31 July 1992, the Director-General for Competition had

rejected the applicants' request on the ground, inter alia, that the

Commission had known of the 1985 agreement and had taken it into account when

making its decision.

The Court observed, first, that there was no specific provision in Regulation

No 4064/89 for requests to the Commission to reopen proceedings.

Article 8(5)(a) does, however, enable the Commission to revoke a decision

```

```
2.II.p.23 0
#### **23 0**

declaring a concentration compatible with the common market where, in

particular, it is based on informat ion that is incorrect or has been obtained

by deception.

The application was declared inadmissible, essentially because the applicants

were third parties in relation to the decision whose annulment they were

seeking - their request that proceedings be reopened would have led to the

revocation of that decision - and because actions by third parties were

admissible only if those third parties were individually and directly

concerned by the decision.

The Court held that only in specific circumstances could a shareholder be

regarded as directly and individually concerned by a measure capable of

affecting relations between the shareholders of a company.

No such circumstances existed in the present case. In the first place, the

Commission finding that the increase in Mediobanca's holding in General i did

not fall within the scope of the Regulation did not alter the substance or

extent of the rights of shareholders. Secondly, the finding affects the

applicants in the same way as any other of the 140 000 or so shareholders of

that company. Finally, the court did not accept the applicants' contention,

in support of their contention that they were individually concerned by the

decision, that, if they had sought to intervene in the proceedings which

resulted in the adoption of the decision (which they would have done if they

had been aware of the matters subsequently disclosed) they would have had a

right of action. The Court considered that the legal certainty of traders

and the shortness of the time-limits which was a feature of Regulation

No 4064/89 would require that a request for the reopening of proceedings on

the ground of the discovery of an allegedly new fact should be submitted

within a reasonable period.

It held that the application of 26 June 1992 was late, given that the

applicants had themselves stated that they had learned of the alleged new

fact at the end of March or early April of that year.

```

§1.p.1
#### 231

```
<T5> Part Three

<T1> Public enterprises and state monopolies

<T4> Chapter 1

<T2> Main developments

357. The principles underlying the Commission's approach to liberalization in

certain sectors were dealt with in Part One of this Report.( [1] ) This chapter

reviews the measures adopted in the various sectors.

<T3> §1. Telecommunications and postal services

<T4> Community legislation

358. The main achievement this year was undoubtedly the Resolution of

22 July 1993 in which the Council of Ministers accepted the liberalization of

public telephone services by 1 January 1999 at the latest. [(2] ) The Council

thus took the view that the enforcement of existing Community legislation on

telecommunications services is one of the main Community policy objectives in

the telecommunications sector.

359. In furtherance of this objective, the Commission pursued bilateral

discussions during the year with a number of Member States on the application

of Directive 90/388/EEC of 28 June 1990 on competition in the markets for

telecommunications services. The main subject covered by the discussions was

the extent of the reserved telephone service, which the Directive defines

very strictly, which means that telephone services offered to closed user

groups cannot be subject to monopoly arrangements.

360. Following such bilateral discussions, Germany liberalized its voice

telephony services provided for "Corporate Networks" on 15 January, while

Ireland undertook by letter of 22 July to stick strictly to the terms of the

(1) See points 36 to 42 of this Report.

(2) See points 123 to 129 of this Report.

```

```
3.I.§1.p.2
###### 232

Commission's definition.. The Belgian Government confirmed, by letter dated

15 June, that, in Belgium, telephone traffic between third parties is

authorized via fixed links provided that it does not consist of voice

switching between two public switched network termination points or is not

available to the public. However, the relationship between the third parties

must be one that involves more than merely the need to make telephone calls

to one another; an example of an acceptable relationship would be that

between a parent company and its subsidiary. Denmark undertook by letter

dated 16 September to liberalize fully telephone traffic via fixed links in

1994, rather than defining reserved and liberalized telephone services. The

Commission continues to monitor the application of this aspect of the

Directive and will continue to take action in the event of complaints.

The Commission was also called upon to define the application of the

competition rules to the mobile telecommunications sector, which is excluded

from the scope of application of the Directive. Such exclusion does not mean

that the Member States could extend the monopoly enjoyed by their public

operator to mobile radio telephony, for example. Following the intiation of

proceedings against Italy, that country undertook on 1 October to grant a

second licence for the operation of GSM radio telephony on its territory.

Similar proceedings were initiated against Belgium, while discussions are

taking place with Ireland.

The Commission also asked those Member States which were planning to begin

procedures for the granting of additional licences to mobile operators to

submit the proposed conditions to it so as to avoid any future disputes

should such procedures fail to be objective and without discriminatory

effects. By letter dated 31 March the Commission accordingly presented a

number of comments on the preliminary draft which the Dutch Government had

subm i tted to it.

361. On 1 December the Commission adopted, on first reading, a draft

Directive( [3] ) amending Directives 88/301/EEC and 90/388/EEC. The draft

Directive is intended to extend to the satellite communications sector the

(3) SEC(93)1891 final.

```

```
3.l.§1.p.3
#### 2i3

the liberalization already introduced with regard to telecommunications

terminals and services. The Commission decided to await any comments from

the Council, Parliament and the Economic and Social Committee before formally

adopting the draft Decision.

```

```
3.I.§2.p.4
```

234

```
238<T3> §2. Energy

<T4> Spanish oiI monopoly

362. With the entry into force on 14 January of Law No 34 of 22 December 1992

on the oil industry, the Spanish oil monopoly established in 1927 ceased

legally to exist. This removed the last remaining statutory obstacle, namely

the exclusive retail marketing rights enjoyed by the company formerly

operating the monopoly (Campsa) and, by extension, by the Spanish refineries

in the monopolized service-station network. In view of the scope of the new

Law, the Commission decided to terminate the infringement proceedings it had

ini t iated.

Nevertheless, the Commission will be careful to ensure that the full effect

of the rules adopted is not neutralized and that the previous statutory

restrictions of competition are not replaced by contractual ones( [4] ) or

restrictions that prevent the effective opening-up of the market.

<T4> - Exclusive rights for the importation and exportation of electricity

                      and gas

363. The Commission received the national authorities' replies to the six

reasoned opinions sent in November 1992. The Commission had initiated

infringement proceedings under Article 169 of the EC Treaty against French,

Italian, Spanish, Dutch, Danish and Irish statutory provisions granting

exclusive rights for the importation and exportation of electricity and gas.

Some of the Member States involved reported that they were planning to

embark on a period of reflection and discussion with a view to adopting

legislative changes that would bring about some opening-up of the sector;

however, none of these Member States came up with any specific plans for the

abolition of the monopolies which had been challenged.

On the basis of these replies, and in the light of likely developments within

the Member States, the Commission finally decided at the beginning of 1994 to

refer the matter to the Court of Justice.

(4) See point 226 of this Report.

```

```
3.I.§3.p.5 _
#### 235

<T3> §3. Transport^)

<T4> Sea transport

<T7> Spain

364. As regards the further discrimination on grounds of nationality by

Transmediterranea, the public-sector sea transport company, referred to in

last year's Report,(6) the Spanish Government finally informed the

Commission, in response to the letter of formal notice sent on

24 November 1992 pursuant to Article 90 of the EC Treaty in conjunction with

Article 7, that it had, as from June 1992, put an end to the discrimination

objected to. In future, according to the information provided by the

Spanish Government, the discount for which only certain categories of Spanish

nationals were previously eligible will be granted both to Spanish nationals

and to nationals of other Member States.

<T4> Air transport: ground-handling services

365. The opening-up of air transport to greater competition as a result of

the third package of liberalization measures is obliging transport

undertakings to improve the quality of their services and to pay more

attention than ever to their cost levels. Ground-handling services provided

to airlines at airports, such as baggage handling, passenger check-in,

passenger transportation from terminals to aircraft, in-flight catering,

fuelling and aircraft maintenance, represent a substantial part of the

airlines' costs and are a key factor in their image.

However, unlike air transport, ground-handling services are in most

Member States still controlled by firms that are shielded from competition

and that are accordingly able to charge more than the quality of the services

provided would justify. This is the case where national laws allow airports

to be the sole providers of such services or where they grant such exclusive

(5) See points 136 to 142 of this Report.

(6) Twenty-second Competition Report, point 523

```

```
   §3.p.6
### 236

rights to an undertaking, frequently the dominant carrier on the national

market. The limits imposed on self-handling at many airports are a

particularly serious illustration of the anti-competitive nature of the

present system.( [7] )

366. An example of such restrictions was the refusal by the German

authorities to allow British Midlands to receive the ground-handling services

at Frankfurt airport which SAS was prepared to provide to it.( [8] )

This ban stemmed from national provisions stipulating that foreign airlines

could provide such services only if reciprocal treatment was granted to

German carriers in such foreign airlines' countries of origin. The German

authorities pointed out in this connection that Lufthansa was subject to

similar restrictions in Denmark and the other Scandinavian countries.

Since the imposition of such a reciprocity requirement on a Community

operator was clearly illegal, the German authorities agreed, following

representations by the Commission, to allow the complainant to receive the

ground-handling services provided by SAS.

367. The Commission received many complaints in 1993 in respect of

ground-handling services at several German, Italian, Portuguese and Spanish

airports. Such complaints reflect the size of the problem and the risk that

the expected benefits of air transport liberalization will be undermined by

restrictions of competition in ground-handling services.

368. The Commission found that Spain had not put an end to discrimination in

the form of reductions granted to Spanish airlines in charges for

ground-handling services.O)

On 14 June the Commission therefore sent a letter of formal notice to the

Spanish Government challenging the reductions which the airline Iberia, as

(7) Twenty-second Competition Report, point 518.

(8) Twenty-second Competition Report, point 520.
(9) Twenty-second Competition Report, point 521.

```

```
3.I.§3.p.7
##### 237

concessionaire of such services throughout Spanish territory, was obliged to

grant. The measures imposed by the Spanish authorities on Iberia requiring

it to grant such reductions were viewed as infringing the provisions of

Article 90(1) of the EC Treaty read in conjunction with Articles 7 (which

prohibits discrimination on grounds of nationality), 59 (which prohibits

restriction on the freedom to provide services) and 86 (which prohibits

abuses of dominant positions, including the application of dissimilar

conditions to equivalent transactions with other trading parties).

369. Over and above the normal pursuit of examination of individual cases,

the Commission considers that the scale of the problem calls for the adoption

of general measures.( [1] °)

<T4> Ports

370. The Danish Government did not respond to the request to grant access to

the port of Rridbyhavn to a company wishing to establish a sea link with the

German port of Puttgarden.d [1] ) The Commission accordingly adopted a

decision under Article 90(3) of the EC Treaty.( [1 2] )

371. Following the formal abolition by decree-law of the monopoly of port

handling operations enjoyed by port companies and groups( [1 3] ) in Italy, the

Commission noted that the decree-law had not been converted into law within

the deadlines set, so that the Italian Government had been obliged to extend

its effects through the successive adoption, up to the present date, of a

series of decree-laws.

It is thus apparent that, since the Court's judgment of 10 December 1991

(Case C-179/90 Porto di Genova) declaring the monopoly to be incompatible

with the provisions of Article 90(1) of the EC Treaty, read in conjunction

with Articles 30, 48 and 86, a satisfactory solution had still not been found

several months after the initiation of infringement proceedings^ [1 4] )

(10) See point 137 of this Report.
(11) Twenty-second Competition Report, point 522.
(12) See Annex I I I.B to this Report.
(13) Twenty-second Competition Report, point 524.
(14) Twenty-second Competition Report, point 524.

```

```
3.I.§3.p.8
#### 238

The Commission considers that repeated reliance on temporary emergency

measures has not established the conditions of legal certainty which alone

would allow interested economic operators, whether Italian or from other

Member States, to enter the market and undertake appropriate investment.

This situation of uncertainty has consequently, in the Commission's view,

frustrated the requirement that effective competition be established among

the firms operating in the port.

```

```
3. I I.§1 .p.1

<T4> Chapter I I

<T2> Main decisions of the Court of Justice

```

#### 239

```
<T3> §1. Court Judgments concerning Article 90 of the EC Treaty

372. In its judgment of 19 May in Case C-320/91 Corbeau, the Court of Justice

defined more closely the conditions for the application of Article 90(1) and

(2) of the EC Treaty. Article 90(1) requires Member States not to enact or

maintain in force any measure contrary to the rules contained in the

EC Treaty in favour of public undertakings and undertakings to which they

grant exclusive rights. Article 90(2) provides that undertakings entrusted

with the operation of services of general economic interest are subject to

the rules contained in the EC Treaty, in particular the competition rules, 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.

The facts underlying the judgment relate to the activities of a person

(Mr Corbeau) who, in Liège and the surrounding areas, provides a service

consisting of the collection of mail from the home of the sender and its

delivery by midday the following day, provided that the addressees reside

within the town. If they reside elsewhere, Mr Corbeau collects the mail from

the sender's home and dispatches it by post.

As a result of these activities, Mr Corbeau was brought before the Liège

criminal court accused of having contravened Belgian law on the postal

monopoly, which provides that the post office, which is a corporate body

governed by public law, has the exclusive right, throughout Belgium, to

collect, transport and deliver all mail, the infringement of which is subject

to penal sanctions. However, the criminal court questioned whether the

monopoly was compatible with Article 90 of the EC Treaty.

In its reply, the Court noted firstly that the Belgian post office was an

undertaking enjoying an exclusive right within the meaning of Article 90(1).

However, the holding of a statutory monopoly within a substantial part of the

common market may give rise to a dominant position within the meaning of

```

```
3.II.§1.p.2
###### 240

Article 86. The Court pointed out that, although Article 86 prohibits only

abuse of a dominant position by undertakings and is not applicable to

government measures, the Member States are nevertheless required not to take

any measures that might thwart the full effectiveness of that provision.

In the Court's view, Article 90(1) must be read in conjunction with

Article 90(2), whose content it reiterated. In the case in point, it

considered that the post office was indisputably entrusted with the operation

of a service of general economic interest within the meaning of

Article 90(2), consisting of the duty to collect, transport and deliver mail,

on behalf of all users, throughout the territory of the Member State

concerned, at uniform prices and under similar conditions of quality,

regardless of particular situations and the degree of economic profitability

of each individual operation.

The Court then went on to examine how far a restriction of competition, or

indeed the elimination of any competition, was necessary in order to allow

the holder of the exclusive right to perform its task of general economic

interest and, in particular, to operate under economically acceptable

condi t ions.

The Court took the view that, if it were to perform its task in a profitable

manner, the undertaking entrusted with the operation of a service of general

economic interest must be able to offset its losses in one sector of activity

by profits in another. Ensuring that this was so, meant that there was

justification for restricting competition from private undertakings in the

sectors that were economically profitable. Otherwise, such undertakings

could concentrate their business in the profitable sectors and offer cheaper

prices there than the undertaking entrusted with the operation of the service

of general economic interest, since they would not have to offset any losses

incurred in non-profitable sectors.

However, in the Court's view, banning competition is not justified where what

is involved are specific services which are dissociable from the service of

general interest, meet particular requirements of economic operators, and

call for certain additional services that the postal service does not

provide, such as home collection, more rapid or more reliable delivery or the

```

```
3.I I.§1.p.3
###### 241

ability to specify a different addressee during delivery, and to the extent

that such services do not undermine the economic equilibrium of the service

of general interest provided by the holder of the exclusive right.

The Judgment means that, where any extension of an exclusive right is not

Justified by Article 90(2), the undertaking enjoying the exclusive right is

committing an abuse of a dominant position in breach of Article 86.

The Judgment also confirms the direct applicability of Article 90(2), which

the court requesting the preliminary ruling accordingly had to apply itself.

```

```
3.I I.§2.p. 4
###### 242

< T 3 > § 2. Interpretation of the Directive on te Ie communicat ions

                   terminal eouipment

On 27 October the Court of Justice delivered three judgments interpreting

Article 6 of Commission Directive 88/301/EEC of 16 May 1988 on competition in

the markets in telecommunications terminal equipment, which requires

Member States to ensure that the formalization of technical specifications,

monitoring of their application and approval of equipment are carried out, as

from 1 July 1989, by a body independent of public or private undertakings

offering competing goods or services in the telecommunications sector. Two

of the judgments were in response to requests for preliminary rulings by

French courts (Case C-69/91 Decoster and Case C-92/91 Tai Ilandier). In the

third judgment, the referral for a preliminary ruling came from a Belgian

court (Joined Cases C-46/90 and C-93/91 Lagauche, Evrard and others). All

the cases related to proceedings instituted against traders who had sold

telecommunications terminal equipment (fax machines and cordless telephones)

that had not received type-approval. The parties had argued before the

national court that the national laws requiring such approval were

incompatible with the EC Treaty and the Directive, since there was no

competent independent body to grant such approval.

In France, at the time of the facts to which the cases related, approval was

granted by the general regulations department in the Ministry of Posts and

Telecommunications, while commercial operation was the responsibility of

France Telecom, which reports to the same Ministry. In the first two

judgments, the Court of Justice thus had to assess whether organizational

separation within one and the same Ministry was sufficient to comply with the

requirement laid down in Article 6 of the Directive. The Court held that

different departments within one and the same administrative authority could

not be deemed to be independent. If this were not so, uniformity of

application of the Directive in all Member States would be undermined. It is

not yet clear whether giving responsibility to two different administrative

authorities (or two different Ministries) would be sufficient to meet the

independence criterion. In any event, the Decoster and Taillandier judgments

mean that the measures taken by Member States to comply with this provision

must be looked at again.

In the third judgment, in Joined Cases Lagauche-Evrard. the Court did not

have to examine the question of independence, since the Belgian Government

```

**`3.`** **`II.§2.p.5`** **2 4 3**

```
acknowledged at the hearing that such division of activities had not been

carried out in Belgium.

However, the significance of this judgment lies in the legal implications

which the Court attached to the date of 1 July 1989 referred to in Article 6

of the Commission Directive. The Court held, firstly, that Article 90 of the

EC Treaty read in conjunction with Article 86 did not prevent regulatory and

operational roles from being combined within one and the same undertaking

provided that the function of such undertaking was confined to examining

approval applications submitted to the Ministry, such function being merely

incidental to the exercise of Ministerial power, and, secondly, that, as

regards equipment falling within the scope of application of

Directive 88/301/EEC and in so far as the facts related to the period after

1 July 1989, Article 6 of the Directive was a bar to any requirement that

terminal equipment be approved by a public undertaking offering goods or

services in the telecommunications sector.

Consequently, the combining of functions was, in the Court's view, compatible

in certain circumstances (subsidiary role of the operator, possibility of

appeal) with Community law prior to 1 July 1989, but was no longer compatible

after that date. This would appear to mean that a Directive based on

Article 90(3) can do more than simply spelling out the requirements that

already flow from the provisions of the EC Treaty.

By drawing a distinction between the legal situation before and after the

entry into force of Article 6 of Directive 88/301/EEC, the Lagauche judgment

thus invalidates the narrow interpretation of Article 90(3). Even if, in

itself, the granting of regulatory functions to an operator is not contrary

to Article 90 read in conjunction with Article 86, the Commission does

nevertheless have the power to prohibit 'such combining of activities on the

basis of the task conferred on it by Article 90(3) if it considers, subject

to review by the Court of Justice, that such combining of activities could in

some cases conflict with the rules laid down in the EC Treaty.

The Lagauche judgment thus underlines the Commission's powers to take

preventative measures in order to ensure equality of opportunity on the

markets on which public undertakings or undertakings having preferential

rights operate. It highlights the Commission's particular responsibility to

carry out the task conferred on it by Article 90(3) on such markets.

```

#### 3. I I .§3.p.6 244

```
<T3> §3. Public enterprises and state aid

<T4> Communication on public undertakings

373. Giving judgementC) on an appeal by France, the Court of Justice

annulled the Commission's 1991 communication on public enterprises, in which

Member States were asked to supply the Commission with annual reports on

their financial relations with large public enterprises in the manufacturing

sector.(2)

The Commission had based this requirement on Article 5 of its Directive

(No 80/723/EEC) on the transparency of financial relations between the Member

States and public undertakings. Paragraph 2 of this article provides that the

Commission can ask the Member States to supply certain financial data on

particular public enterprises whenever it deems this necessary. The

Commission argued that Article 5(2) was a sufficient legal basis for the

reporting requirement contained in the 1991 communication; the communication

merely specified an existing obligation to supply the data on request.

Dismissing this argument, the Court held that a general obligation to supply

reports systematically on a I I state-owned manufacturing enterprises above a

certain size threshold, as the Commission was asking the Member States to do

in the communication, was not covered by Article 5(2). Therefore, the

communication was effectively imposing a new legal obligation on Member

States, without an appropriate legal basis, and was null and void. The Court

indicated that such a new obligation altering the requirements of

Article 5(2) could only be imposed under Article 90(3) of the Treaty, like

the original Directive.

In accordance with the Court's ruling, the Commission has now incorporated

the reporting requirements in a new Directive amending that of 1980 and has

reissued the communication minus the reporting requirement as a statement of

policy on financial flows to public enterprises.^)

(1) Judgment of 16 June 1993, Case C-325/91 France v Commission, not yet

   reported.

(2) Twenty-first Competition Report, points 167 to 172.

(3) See points 399 and 400 of this Report.

```

4. i. §1.1 2 4 5

```
<T5> Part Four

<T1> State aid

<T4> Chapter I

<T2> Main decisions and developments in the policy of the Commission

<T3> §1. General policy Questions

<T4> Main developments

374. In 1993 the conduct of state aid policy was dominated by the crisis in

the steel industry. One of the deepest recessions since the 1930s, pressure

from imports and more difficult exporting conditions compounded the long-term

decline in steel use to create an urgent need for further capacity cuts.( [1] )

The Commission was prepared to play a coordinating role in bringing about

these capacity reductions and in March the Council pledged EC funds to

support the cost of closures. But first it was necessary to resolve a number

of cases of aid Member States wanted to give to state-owned steel producers.

The Commission's task was to ensure that, in return for the aid, the

producers contributed their fair share to the restructuring. Agreement was

finally reached in December, when the Council gave its approval for aid

totalling some ECU 6.8 billion to six producers in return for

5.5 million tonnes of capacity cuts. The difficulty of this first step in the

restructuring can be gauged from the fact that several meetings of the

Council were needed to achieve it and that in July the Commission, for the

first time, had to go to the lengths of issuing an injunction under

Article 88 of the ECSC Treaty to prevent Italy writing off ECU 4 billion of

the debts of llva, one of the six aided producers, which the Italian

Government maintained did not involve aid at all.

375. Tight control also continued to be required on aid to the car

industry.(2) Many of the cases involved rescues and restructuring. With

overcapacity growing, aid for motor industry investment in Austria also came

under close scrutiny and led to the imposition of countervai I ing duties.( [3] ^

(1) See points 29 and 481 of this Report.

(2) See points 505 et sea, of this Report

(3) See point 506 of this Report.

```

```
4. I .§1 .2
### 246

In shipbuilding the situation did not permit the ending of the special aid

arrangements, and the Seventh Directive was extended for a further year.( [4] )

Rescues and restructuring accompanied by aid packages were also the order of

the day in many other industries, from engineering to airlines.( [5] ) As

always, cases involving publicly owned companies or privatizations posed the

greatest problems from the point of view of aid control. But developments on

state guarantees^) and the new legal basis for the reporting obligations on

public enterprises^) promise to make such control easier in future. The

Court of Justice also reiterated the duty of the Commission to carry out a

full analysis of the impact of proposed aid on competitors.^)

376. A more routine but none the less important part of state aid control

work is the processing of notifications of types of aid that pose fewer

problems for competition and can therefore be approved fairly easily provided

certain limits and conditions, often laid down in frameworks and guidelines,

are respected. For such aid too, the Commission is the sole aid control

authority and Member States need its approval before they can give the aid.

The Commission has a duty to provide such regulatory approvals within a

reasonable time.( [Q] ) In a recession a fast service is especially important.

377. On national regional aid, the Commission pursued the established policy

of limiting the coverage of assisted areas so as' to increase the

effectiveness of aid and maintaining differentials between the more-developed

and the less-developed areas.( [1u] ) The Commission also continued work on aid

given for capital-intensive investment projects.

(4) See point 497 of this Report.

(5) See points 531 et sea, and 536 et sea, of this Report.

(6) See points 386 and 401 of this Report.

(7) See point 399 of this Report.

(8) See point 395 of this Report.
(9) Judgment of 11 December 1973, Case 120/72 Lorenz v Germany [1973] ECR

   1471, 1481 (para. 4).

(10) See points 465 and 466 of this Report.

```

```
4.I .§1 .3
###### 247

378. Incentives for genuine job creation, for training and for

small-firm development were given the sympathetic treatment they

deserve.( [11] ) The Commission virtually completed its reviews of existing aid

schemes for small and medium-sized enterprises following the issue of the

SME aid guidelines in 1992.d2) in another area of increasing importance,

the environment, the Commission issued new aid guidelines which are

considerably more detailed and comprehensive then those they replace.d [3] )

It continued its work to ensure a level playing-field between public or

publicly backed and private export credit insurers insuring short-term

commercial risks in intra-EC and intra-OECD trade. A framework is expected

to be adopted short I y.( [14] ) Work also continued on possible distortions of

competition through aid in other financial service sectors and in

television. In the latter area the Commission launched an EC-wide study to

help it in assessing the growing number of complaints from private

broadcasters.( [15] )

379. At international level, state aid matters figured prominently in the

accession negotiations with the Nordic countries (Finland, Norway and

Sweden) and with Austria.( [16] ) In the meantime, after the European Economic

Area Agreement enters into force on 1 January 1994, these countries, and

Iceland, will have the EC state aid rules applied to them by the EFTA

Surveillance Authority. Given the need for close cooperation with the

Authority, the Commission has devised arrangements under Protocol 27 to the

Agreement for liaising with it on pending cases and for informing it of

final decisions before they are published.( [17] ) State aid provisions are

also contained in the Europe Agreements signed with several dentral and

eastern European countries( [18] ). The Commission was involved in the talks

which resumed within the OECD on an international agreement on shipbuilding

and in the ongoing discussions about a Multilateral Steel Agreement. It

played an active part in negotiating the new subsidies code in the GATT.C [19] )

(11) See points 430 and 439 of this Report.
(12) Twenty-second Competition Report, point 342.
(13) See point 384 of this Report.
(14) See point 427 of this Report.
(15) See point 546 of this Report.

(16) See point 561 of this Report.

(17) See point 557 of this Report.

(18) See points 101 and 563 of this Report.

(19) See point 114 of this Report.

```

```
4. I .§1 .4

```

248

```
380. The single market, now in place, and the plan for economic and

monetary union make state aid control more important than ever and increase

the need for the Commission to use its finite resources efficiently. The

procedural improvements described in last year's report(20) continued with

the adoption of standard aid notification and report formats.( [21] ) The trend

towards codification of practice was maintained with the new environmental

aid guidelines. Such frameworks increase the transparency and predictability

of policy and boost confidence in the consistent enforcement of rules. They

also facilitate the evaluation of the compatibility of many individual awards

of aid of a relatively straightforward kind. The Commission discusses

proposed new policy statements and other general issues at regular

multilateral meetings with Member States. Two such meetings were held in

1993.(22) A "Wise Men's" group of prominent business economists and

competition law experts was set up to discuss and advise on state aid policy.

Publication of the new edition of the collection of source materials on the

state aid rules, announced last year, was however postponed until 1994 to

enable the latest papers (environmental aid guidelines, guide to procedures,

etc.) to be included.

381. On 1 August the European Court of First Instance (CFI) was given

jurisdiction to hear appeals brought by firms against state aid decisions. On

that date eleven cases pending before the Court of Justice but not yet at

the report stage were transferred to the Court of First Instance. Appeals

from decisions of the CFI to the Court of Justice will I ie on points of law

only. Jurisdiction to hear appeals brought by Member States and to hand down

preliminary rulings under Article 177 of the EC Treaty will remain with the

Court of Just i ce.

(20) Twenty-second Competition Report, point 337.

(21) See point 385 of this Report.

(22) See point 382 of this Report.

```

```
4.I.§1.5

<T4> Multilateral meetings

```

###### 249

```
382. A multilateral meeting between experts from Member States' Governments

and Commission officials(23) was held in June to discuss revised proposals

for environmental aid guidelines and short-term export credit insurance( [24] )

and new papers on aid in the tourism sector, R&D aid and the reference

interest rates used in calculating aid intensities. The reception of the

completely new draft of the environmental aid guidelines was relatively

favourable and the guidelines were subsequently adopted by the

Commission.(25) on export credit insurance, the discussion focused on

remaining points of substance. A useful exploratory discussion also took

pTace at the meeting on aid for tourism and on the Commission's practice

towards aid for research and development when the aid is provided as a loan

that is repayable if the project is successful but not if it fails. Finally,

the Member States welcomed the proposal to change the reference interest

rates used in the calculation of aid intensities more frequently to match

fluctuations in market rates. As a result, the Commission revised the

reference interest rates with effect from 1 July 1993 instead of the usual

annual revision.(26)

383. A discussion of further improvements to the reference interest rate

system was held at a second multilateral meeting in December. The

delegations agreed to the proposal that in future the reference rates for

the following year should be based on the average of the three months

September to November, instead of on the average for the whole year, and

that in the course of any year the reference rate would be revised if the

rates on which it was based changed by more than 15%, instead of by

2 percentage points as previously. These changes were subsequently adopted

by the Commission^ [27] )

The meeting also discussed cooperation with the EFTA Surveillance Authority

under the European Economic Area Agreement. There was a consensus that the

Authority should be invited to attend future multilateral meetings as an

observer and that the Commission should send it monthly lists of pending aid

cases. The handling of complaints lodged by firms and Member States in the

(23) See point 583 of this Report.

(24) Twenty-second Competition Report, points 339 and 340.

(25) See point 384 of this Report.

(26) See point 398 of this Report.

(27) See point 398 of this Report.

```

###### 250

```
Community and EFTA against state aid in the other's territory was likewise

cons idered.(28)

The meeting went on to discuss the question of the definition of "soft" aid,

i.e. aid for training, consultancy help and similar purposes, which is

allowed up to already high levels because of its beneficial effects on the

general competitiveness of small and medium-sized businesses. The paper on

"soft" aid was welcomed by most delegations and, after refinement of the

definitions, the subject will be discussed again at the next multilateral

meeting. Finally, the meeting considered the record of the Commission in

securing the recovery of aid granted illegally and found to be ineligible for

exemption. It emerged from a table of cases in which recovery had been

ordered that conflicts with national procedural law were one of the main

causes of delays in recovering aid.(29) in order to avoid such conflicts, it

was necessary for Member States to begin proceedings to recover the aid

immediately, even if the recovery decision was appealed, in accordance with

the non-suspensive effect of legal action against Commission decisions.

<T4> State aid for environmental protection

384. The new environmental aid guidelines, adopted by the Commission in

December, set out future policy in this area.( [3] °) The guidelines they

replace had been virtually unchanged since their introduction in 1974.( [31] )

Many aid measures were not covered by them and had to be assessed on an

ad hoc basis. The new guidelines codify the intervening developments in the

Commission's practice and provide a more comprehensive and user-friendly

frame of reference than hitherto, while maintaining progress towards full

application of the "polluter pays" principle and reflecting the increased

emphasis found in the Fifth Environmental Action Programme on "sustainable

development" so as to prevent environmental problems arising.

(28) See point 98 of this Report.
(29) The table is reproduced as Annex ... to this Report. See point 396 of
   this Report.
(30) OJ ...; see point 166 of this Report.
(31) Fourth Competition Report, points 175 to 179; Tenth Competition Report,
   points 222 to 226; Sixteenth Competition Report, point 259. Pending the
   adoption of the new guidelines, the existing Framework, which was due to
   expire at the end of 1992, was extended to cover the first and second
   halves of 1993 in December 1992 (see Twenty-second Competition Report,
   point 448) and June 1993 respectively.

```

```
(i

```

```
4. I .§1 .7
#### **25**

The guidelines lay down the rules or principles that should be observed in

each type of financial instrument used in environmental policy. The most

precise provisions concern aid for investment, where the rules are as

fol lows:

   For investment undertaken to adapt existing plant to new environmental

   standards or other new mandatory requirements imposed to protect the

   environment, firms can receive aid equal to 15% gross( [32] ) 0 f the cost

   of the investment strictly required for this purpose. Existing plant is

   defined as plant in existence for at least two years when the new

   standard or requirement comes into force. Plant newer than that may not

   be aided. Aid may be granted for a limited period around the time the

```

`new standards` _or_ `requirements are introduced;`

```
   For investment in new or existing plant which allows higher levels of

   pollution control or other environmental parameters to be achieved than

   are required by standards or other legal obligations, firms can receive

   up to 30% gross of the investment cost strictly required for this

   purpose. If several standards are in force, e.g. a Community standard

   and special national or local provisions, it is the stricter of the

   standards that must be exceeded. The actual level of aid must be in

   proportion to the environmental improvement achieved and the scale of

   the investment required to achieve it; 30% is the maximum. Aid of up to

   30% gross can also be authorized for entirely voluntary investment which

   helps protect the environment where there are no standards or mandatory

   requirements governing firms' behaviour;

   Small and medium-sized enterprises may receive an extra 10 percentage

   points of aid on top of the two limits mentioned above;

   In assisted areas the maximum level of aid is either the maximum

   allowable rate of aid for environmental investment or the prevailing

   rate of regional aid authorized by the Commission for the area,

   whichever is the higher;

   If an investment project partly involves adaptations to standards and

   partly exceeds standards or requirements, the limits are applied

   pro rata.

(32) That is to say, before tax. Under the previous framework, aid of 15% net

   (i.e. after tax) could be allowed for this purpose.

```

#### 252

```
Besides investment, the following other activities are covered by the

gui de Iines:

   dissemination of information;

   provision of training and consultancy help which benefit individual

   firms can be aided at rates of up to 50% for SMEs, as under the SME aid

   guidelines,( [33] ) or up to the prevailing regional aid rate, if higher,

   in assisted areas;

   incentives for purchasing environmentally friendly products;

   collection, treatment and recycling of waste and relief from new

   environmental taxes to avoid unsustainable losses in competitiveness.

The guidelines cover all sectors, including those subject to special

Community rules on state aid in so far as these rules do not provide

otherwise, which is the case for some forms of investment in agriculture.

They will also be applied to aid for energy conservation, except that here

the cost reductions the firm achieves will be taken into consideration.

The guidelines will be in force from 1 January 1994 until the end of 1999,

when the Fifth Environmental Programme ends, but will be reviewed in 1996. In

order to bring existing environmental schemes into line with the new rules,

the Commission will, before 30 June 1995, review under Article 93(1) all

existing schemes that are not voluntarily renotified. It also decided to

monitor application of the guidelines in 1994 to see whether or not it should

be made a rule for Member States to notify all large individual aid awards

under authorized schemes.

(33) OJ C 213, 19.8.1993.

```

```
4.I.§1 .9
###### 253

<T4> Standardized notifications and reports

385. The Commission adopted a system of standardized notifications and

reports that will make it easier for Member States to notify aid and will

improve the flow of information which it receives on state aid. Aid

proposals will in future have to be notified on the basis of a standardized

questionnaire specifying the information which the Commission deems necessary

for examining them. The new system should result in a considerable reduction

in the number of requests for supplementary information which the Commission

sends and should thus shorten the time needed to take decisions. As part of

this process of streamlining administrative procedures, the Commission also

decided that Member States would no longer be required to notify the

refinancing of schemes that were authorized for an indefinite period or for a

specified period that had not yet expired, if the new annual budget did not

exceed by more than 20% the budget originally notified. In addition, the

establishment of a system for the submission of standardized reports using a

set layout will enable the Commission to check more effectively, pursuant to

Article 93(1), whether the implementation of an aid scheme previously

authorized subject to certain socio-economic conditions continues to meet the

eligibility criteria for one of the exemptions provided for in Article 92.

So as not to impose too heavy an administrative burden on Member States,

detailed standardized reports will be required only for a very limited number

of major aid schemes. The reports for other schemes will have to contain

only a limited amount of information.

<T4> Issues clarified by Commission decisions and judgments of

                  the Court of Justice

<T5> (a) Substantive questions

<T6> State guarantees

386. It is common for governments to support firms by guaranteeing their

borrowing. Government loan guarantees usually involve state aid because,

without the guarantee, the firm would be unable to raise the finance it

requires and would have to abandon the project in question or indeed go into

liquidation. The Commission approves many loan guarantee schemes and

```

```
4.I.§1 .10
###### 254

individual guarantees to firms when they are notified to it, as they should

be, under Article 93(3) of the EC Treaty and in accordance with the letters

to Member States dated 1989. It always insists on it being a condition of the

guarantee that the guarantee may be honoured only after the guaranteed

creditor has recovered what he can of the debt through realization of the

debtor's assets, if necessary via the winding-up of the company.

387. Loan guarantees from the state can, however, cause major distortions of

competition when they are given in disregard of this condition and are not

notified. In the EFIM case,( [34] ^ where the guarantee arose from Article 2362

of the Italian Civil Code, banks were induced to continue to lend to

state-owned businesses that were in serious financial difficulties in the

expectation that the government would repay their mounting debts. Such action

provides continued funding to a company which should properly be restructured

or rationalized, to the detriment of its unaided competitors. Moreover, in

the EFIM case, it was not considered to be sufficient that the companies in

question were in liquidation for creditors to be able to claim under the

state guarantee. In the agreement that was eventually reached between the

Commission and the Italian authorities, payment under the guarantee contained

in Article 2362 of the Italian Civil Code was permitted. This was made

possible by the fact that the Italian authorities agreed to reduce the debt

of certain wholly owned companies by 1996 to levels acceptable to a

market-economy investor and that they undertook to dispose of shares in the

same companies, thereby nullifying the effects of the Article in the future.

<T6> Factors determining classification of measures as state aid

             under Article 92(1) of the EC Treaty

<T4> Financial benefit

388. Several cases decided by the Commission in 1993 illustrated the

principle that, for a measure to involve state aid within the meaning of

Article 92(1), it must confer a financial benefit on them with respect to

normal market conditions.

(34) See point 401 of this Report (§ 2). A full list of all decisions taken
   by the Commission over the year in state aid cases is given in
   Annexe I II.C. The list is subdivided by type of decision. References
   are given to the press release, if any, issued on the case and to the

   issues of the Official Journal in which the relevant decisions or

   notices on them were published when this is known at the time of
   wr i t ing.

```

```
4. I .§1 .11
###### 255

In the Dutch gas case,( [3] ^) the Dutch Government had, as required by the

Commission's decision in 1992,( [3] ^) notified the Commission of its intention

to grant rebates to Dutch ammonia producers for certain periods of 1992 and

1993 when the prices of ammonia were so low that producers throughout Europe

were making losses and having to shut down plants. The Commission found that

the price reduction was normal commercial behaviour on the part of the 50 %

state-owned monopoly supplier Gasunie since, if it were to ignore the falls

in product prices and the resulting financial difficulties of its customers,

it would be jeopardizing its future markets. There was also a danger that

customers would switch to alternative raw materials. The prices at which

Gasunie sold gas to suppliers in other Member States afforded them scope

similarly to reduce their prices to ammonia producers.

The contracts which the German railway company, Deutsche Bundesbahn (DB),

signs with firms on building or maintaining railway sidings and which offer

them credit facilities and other help in this connection were also considered

normal commercial conduct.( [37] ) The Commission was satisfied that DB recouped

its outlay on incentives in each individual case through the freight rates it

later charged the firm and that there was no cross-subsidy to the scheme from

other operat ions.

389. In a number of cases involving environmental subsidies the Commission

examined whether the subsidies confer a financial advantage on the

recipients. This was not considered to be the case for the payments made to

collectors of waste oils in Denmark, which were considered a straightforward

renumeration for serv ices. ( [38] ) On the other hand, in the case of a Danish

scheme which compensates the users of recycled raw materials for the higher

incidence of waste involved in this process by charging them a lower rate of

tax on waste offered at disposal facilities, the Commission considered that

the tax treatment potentially contained a financial advantage for the

beneficiaries with respect to the general tax system and therefore considered

it as falling within Article 92(1).( [39) ]

(35) See point 533 of this Report.
(36) Twenty-second Competition Report, points 434 to 437
(37) See point 534 of this Report.
(38) See point 421 of this Report.
(39) See point 420 of this Report.

```

```
   § [1] - [1] 2 _ _
### 256

<T4> Select iv i ty

390. In relation to a number of job-creation schemes in Denmark, the

Commission had to decide whether the schemes were aid schemes falling within

Article 92(1) or "general measures". For a scheme that subsidizes firms for

particular activities to fall within Article 92(1), it must "favour", i.e.

particularly benefit, certain firms or industries. In other words, there must

be an element of selection or discrimination in relation to the

beneficiaries. This favoured group needs not be specified in the rules of

the scheme or be readily identifiable. It is sufficient that the scheme could

benefit certain firms particularly, though these are not identifiable in

advance, and this is especially so if the authorities applying it have a

degree of discretion in selecting beneficiaries or setting the level of

subsidy. The Commission took two decisions on variants of a scheme offering

wage subsidies to firms taking on long-term unemployed persons.( [4] °) It was

found in the first case that the Member State had little or no discretion.

The scheme was automatically applied to any firm and unemployed person

meeting the conditions, which were precise and well defined in the most

important respects such as the terms of the employment contract. It was

therefore considered to be a general measure and not an aid scheme. In the

case of the modified scheme, however, a greater degree of discretion was

found to have been introduced and the scheme was considered to be potentially

selective, bringing it within Article 92(1). The authorities were now free to

grant the subsidies for recurrent short periods of work experience without

clear conditions as well as for periods of regular employment.

<T4> Lev ies

391. Levies are special taxes on the production or sale of certain goods or

services. The proceeds of the special tax - which are to be considered as

"state resources" within the meaning of Article 92(1) - may be used to

finance state aid for various purposes in the industry on which the tax is

levied. Such schemes raise a number of questions which were illustrated in

decisions taken in 1993. First, in accordance with a long line of Court

Judgments and Commission decisions, such levies may not be charged on imports

or remitted on exports. Both would make the levy scheme incompatible with

Community law.

(40) See point 441 of this Report.

```

```
   §1.13
###### 257

392. A second lesson which emerges from the various levy decisions is that

the fact that the industry is itself paying for the scheme does not make it

lose its character of a state aid.( [41] ) The negative attitude usually

adopted by the Commission towards sectoral aid schemes is, however, mitigated

when the measure does not directly benefit any individual enterprise in the

sector but is used to promote activities benefiting the sector as a whole

such as research, training, trade exhibitions, maintaining or improving

quality standards, etc. Thus, the Commission was able in 1993 to grant

exemption from Article 92(1) to levies supporting the Danish fur and the UK

wool trade( [42] ) and French engineering (COREM). As usual, many levy schemes

were also approved in agr icul ture. ( [43] ) On the other hand, a much more

sceptical attitude was taken of sectoral aid schemes offering direct

subsidies paid for by the exchequer,( [44] )

<T4> Sales of land for industrial or commercial development

                 by public authorities

393. Aid can be given to firms through the sale of sites for industrial or

commercial development by public authorities at prices below market

rates.( [45] ) The Commission investigates many complaints about allegedly

subsidized land sales. Although land normally accounts for only a small part

of investment costs,( [46] ) subsidized prices could upset the delicately

balanced differentials in the level of regional incentives and so disrupt

regional policy. The Commission is considering recommending Member States to

follow a code of practice in this area. In the cases on which formal

decisions were taken in 1993 it was concluded, on the basis of detailed

valuations of the sites, that the final selling prices were within the range

that could be considered as the market value. In the case of Sony's purchase

of a large piece of land near the Potsdamer Platz in Berlin,( [47] ) the price

was found to be below an official valuation made later, but within the

margin of error for land valuations after adjustments had been made for

(41) See Case 78/76 Steinike und Weinlig v Germany, paragraph 22.
(42) See point 528 of this Report.

(43) See point 551 of this Report.

(44) See point 453 of this Report.

(45) Twentieth Competition Report, point 239; Twenty-second Competition

   Report, point 345.

(46) Estimated at roughly 5% in the 1971 coordination principles for regional

   aid, OJ C 111, 4.11.1971.

(47) Twenty-first Competition Report, point 264.

```

```
4.I.§1 .14
```

258

```
the intervening rise in land prices, obligations to preserve a listed

building and to allow part of the site to be used for cultural purposes, and

possible further planning restrictions unknown at the time of sale. A

decision was also taken on the sale of land at Friedberg, Hesse, to the

pharmaceutical firm Fresenius.( [48] ) After an official valuation, the company

had agreed to pay ECU 280 000 more for the site than initially agreed.

Although this still left the selling price some 10% below the valuation, the

Commission took into account the fact that the land had been on the market

for some time before a buyer was found. The price agreed was thus likely to

be a market price, close to the price that would have resulted from an open

tender.

<T4> Breach of other provisions of Community law: a factor

       that immediately disquaiif je s aid schemes from exemption

394. An investment aid scheme in the Basque country of Spain again showed

that aid schemes are disqualified from exemption if they infringe other

provisions of Community law, in particular those concerning freedom of

establishment^ [49] ) No Member State may discriminate in the terms of an aid

scheme against the nationals of other Member States who are resident on its

territory. This principle has been applied many times to schemes supporting

the film industry.( [5] °) In privatizations too, discriminatory terms are not

permitted, and this was the reason why approval was initially withheld for

the privatization programme in Portugal.^ [1] )

<T5> (b) Procedural Questions

<T6> Article 93(2) proceedings and the balance between

      the rights of competitors and the prospective aid recipient

395. In the ÇookJ [52] ) anc [j Matra(] [53] [)] judgments, the Court of Justice

confirmed the circumstances in which the Commission is obliged to open

proceedings under Article 93(2) of the EC Treaty in order to allow interested

third parties, generally competitors, to comment on aid proposa Is.($ [4] ) In

(48) OJ C 21, 25.1.1994.

(49) See point 473 of this Report.

(50) Twenty-second Competition Report, point 442.

(51) See point 416 of this Report.

(52) See point 553 of this Report.

(53) See point 553 of this Report.
(54) See also Case 84/82 Federal Republic of Germany v Commission ("plan
   Claes"), judgment of 20 March 1984.

```

###### 4. I .§1 .15 259

```
the Cook case the Court held that, wherever the market situation in the

sector concerned was relevant to the decision, the Commission must carry out

a market analysis before deciding to authorize aid without Article 93(2)

proceedings. In the circumstances of the case, faced with a clear complaint

from a competitor that the aid would worsen overcapacity and harm its

position, the Commission should have carried out this analysis via

Article 93(2) proceedings because it did not have the data required to reach

a firm conclusion (on the existence of overcapacity) by itself. In the Matra

case, on the other hand, the Court found that the Commission had been right

not to open proceedings against the proposed aid for a new Ford/Volkswagen

minivan plant in Portugal because it was able to make a thorough market

analysis without this procedure.

<T6> Charging of interest on aid that has to be recovered

396. In its decisions ordering the recovery of illegally paid aid that is

found to be ineligible for exemption, the Commission now normally requires

interest to be charged on the aid from the date it was granted. This

practice, formally announced in the letter on penalties for unnotified aid

sent to Member States in March 1991,(55) w a s confirmed in the new decision

on the recovery of aid granted to British Aerospace in connection with its

takeover of the Rover Group.( [56] ) However, the Commission decided that the

policy of charging interest from the date the aid was granted should not be

applied retrospectively in cases decided before the Commission's letter of

March 1991. In such cases, interest would be charged only as from the date

the principal sum became recoverable under the decision. In the BAe/Rover

case, interest was therefore charged from the date in August 1990 when the

original decision, which had been annulled by the Court of Justice on

procedural grounds, became enforceable.

<T6> Writing a reserve clause into aid legislation

          to avoid breaches of notification obligation

397. The obligation to notify aid proposals in advance to the Commission laid

down in Article 93(3) of the EC Treaty imposes a moratorium on "putting into

effect" the aid plans before the Commission has given its approval. "Putting

into effect" is taken to mean not only the actual granting of aid to

(55) Twenty-first Competition Report, point 159 and Annex I 1.7

(56) See point 515 of this Report.

```

### 4. I ..§1 .16 260

```
the recipient but also the conferment of powers enabling the aid to be

granted without further formality. In 1989 the Commission wrote to

Member States clarifying this point. Nevertheless, Member States still

sometimes fall foul of the notification requirement by notifying aid

legislation which confers the unreserved power to give aid, albeit not yet

exercised, with the result that the aid case is classed as non-notified. To

avoid such technical and often unintended breaches, the Commission recommends

Member States' authorities to write a reserve clause into legislation whereby

the aid-granting body can make payments only after the Commission has cleared

the aid.

Both central and regional government authorities are increasingly following

this practice. For instance, in 1993 the Region of Emi I ia-Romagna in Italy

enacted general legislation which not only established the principle that the

grant of aid is conditional on the Commission's approval but also required

the regulations governing all aid schemes to include a clause stating that

the aid measures can be implemented only after publication of a notice in the

Region's official gazette announcing the Commission's approval.

<T6> Reference interest rates used for calculating aid values

398. Determining the aid value of concessionary financing involves comparison

with a reference interest rate and discounting of financial benefits

receivable in the future at such a rate. Future tax payments must also be

discounted when determining the net (i.e. after-tax) value of aid, including

grants. In making these calculations, the Commission uses a standard

reference interest rate for each Member State which is set once a year. The

method for setting such reference rates was laid down in the annex to the

1979 coordination principles for regional aid,( [57] ) although they are now

used to calculate aid values in most spheres of aid control, including aid

for SMEs,( [58] ) environmental protect ion,( [59] ) and the de minimis

faci I ity.( [6] °) Under the 1979 method, the reference rates were based on the

average level of a specified base rate over the previous year and could be

changed in the course of the current year only if the current level of the

base rate diverged from the reference rate by more than two percentage

(57) OJ C 31, 31.2.1979.

(58) OJ C 217, 19.8.1992; Twenty-second Competition Report, points 78 and

   342.

(59) See point 384 of this Report.

(60) See point 431 of this Report.

```

#### 4.I.§1 .17 261

```
points. Because of the rapid falls in interest rates in late 1992 and 1993

the Commission found that the reference rates for 1993 in some Member States

were considerably above market interest rates, leading to an overestimation

of the subsidy element of financing. It therefore decided to revise all

countries' reference rates for the second half of the year, aligning them on

the average level of the base rate over the three months March to May 1993.

Secondly, it decided that, so as to enable the reference rates to follow

interest-rate movements more closely in future, the reference rates for 1994

and later years would be based on the average of the base rate over the three

months September to November of the previous year and would be revised in the

course of the year whenever the current level of the base rate over a

three-month period diverged from the reference rate by more than 15% of the

reference rate.

```

```
4.I.§2.18
## 262

<T3> §2. Public enterprises and privatization

<T4> Pub Iic enterpr ises

<T7> Communication on public enterprises

399. As expected, ( [61] ) the Court of Justice delivered its judgment^ [2] ) o n

France's appeal challenging the legal basis of the reporting requirement

imposed on Member States by the Commission's 1991 communication on public

undertakings.(63) jh e Commission based the requirement to supply annual

reports disclosing financial transfers to major public enterprises in the

manufacturing sector on Article 5 of Directive 80/723/EEC concerning the

transparency of financial relations between Member States and their public

undertak ings.

The Court found in favour of the applicant and annulled the communication,

holding that the general and systematic reporting obligation which the

Commission wanted to impose went further than the obligation imposed by

Article 5 of the 1980 Directive to supply certain financial date on

particular public enterprises as and when necessary. The new reporting

obligation would have constituted an amendment of the 1980 Directive and

thus could not be imposed on the basis of a communication.

As a result of this judgment, the Commission decided to incorporate the

reporting requirements that were previously contained in the 1991

communication in an amending directive.( [64] ) The new directive imposes an

obligation on Member States to provide the Commission with financial data in

respect of their public undertakings operating in the manufacturing sector

that have an annual turnover in excess of ECU 250 million.

As the rest of the 1991 communication merely described existing law and

practice on the criteria for judging financial flows between public

authorities and public enterprises, the Commission sent an amended version of

the 1991 commun i cat ion (6^) to Member States at the same time as the

d i rect i ve.

(61) Twenty-second Competition Report, point 529.
(62) Case C-325/92 French Republic v Commission. See point 373 of this

   Report.

(63) Twenty-first Competition report, point 170.

(64) OJ L 254, 12.10.1993.

(65) 0J C 307, 13.11 .1993.

```

```
4. I.§2.19 263

<T7> France

<T8> Bull

400. The Commission decided( [66] ) in October to initiate the Article 93(2)

investigative procedure in respect of Bull, the French computer manufacturer.

This decision, under which the Commission will investigate, the French State's

payment, without notification to the Commission, of an advance on a future

capital injection amounting to ECU 380 million, follows the decision( [67] )

taken in July 1992 which found that a previous capital injection of

ECU 600 million into Bull represented aid.( [68] )

The new case was noteworthy in that neither of Bull's minority private-sector

shareholders (NEC and IBM) took part in the advance, whereas they had

participated in the 1992 capital injection. This had led the French

authorities in 1992 to argue that the 1992 recapitalization passed the test

of the 1984 communication on public authorities' holdings in company capital

in which the participation of private shareholders in the capital increase

meant that no aid was present. However, this argument had not been accepted

by the Commission as the investment decision by the French State had been

taken before the acquisition by NEC and IBM of Bull's shares and these

investments were not economically significant.

Before the end of the year the Commission wrote to the French authorities

about a further injection of ECU 1 300 million into Bull by the French State

and France Télécom in December.

(66) OJ C 346, 24.12.1993.

(67) 0J C 244, 23.9.1992.

(68) Twenty-second Competition Report, point 425.

```

4 2 2

     .i.§ o 2 6 4

<T7> I t a l y

<T8> EFIM

```
401. The Commission adopted two partial final dec isions( [69] ) in connection

with EFIM, the Italian state holding company which is in liquidation^ [70] )

These decisions, taken in August and September, concerned the aid

implications of the global guarantee for EFIM's debts arising under

Article 2362 of the Italian Civil Code.

The Commission considered that the payment by the Italian State of the debts

of EFIM group companies in liquidation constituted state aid because,

following the IQR/F inalp decision,( [71] ) a market-economy investor would not

have accepted the greater risk associated with unlimited liability, resulting

from Article 2362 of the Italian Civil Code in the case of full ownership,

without a corresponding increase in the return. Furthermore, such an investor

would have taken action to limit his financial exposure, by the sale of

investments, restructuring, etc. once it was realized that debts were

mounting with little likelihood of a reversal in the process.

Since EFIM did not provide its shareholder (the Italian State) with either an

adequate or an increased return and since its management (ultimately the

Italian State) did not take remedial action to contain the mounting debts,

the repayment of the group's borrowings by the State could not be considered

to be the behaviour of a market-economy investor and, therefore, constituted

aid.

Although the money was to be given to companies in liquidation, it would

still distort competition. This was because the companies in liquidation had

borrowed from banks and had then lent these funds to the group's operating

companies. Repayment of these external debts by the State would lead to

cancellation of the operating companies' intra-group debts and thus to a

benefit being granted to these companies, resulting in continued distortion

of compet i t ion.

(69) OJ C 267, 2.10.1993 and OJ C 349, 29.12.1993.
(70) Twenty-second Competition Report, points 475 to 478
(71) OJ L 183, 3.7.1992.

```

§2-21 2 6 5

```
The Commission decided, however, that the repayment of debt on the basis of

Article 2362 of the Italian Civil Code was compatible with the common market

under Article 92(3)(c) following an agreement with the Italian Government in

which it undertook:

   to freeze the debts, at 31 December 1993, of certain holding and

   subholding companies which are wholly owned by the Italian Treasury;

   to reduce these companies' debts to levels similar to those in

   comparable private-sector companies at the latest by 1996;

   to reduce the State's shareholding in these companies, at the end of the

   debt-reduction process, to a level that will inactivate the

   unlimited-liability aspects of Article 2362 of the Italian Civil Code;

   to submit this debt-reduction programme, together with the companies'

   financial and industrial restructuring plans, to a monitoring exercise

   to be undertaken in conjunction with the Commission.

The Commission considered that the financial and industrial restructuring

plans would assist these Italian public undertakings in becoming competitive

and that the eventual disposal of some of the Treasury's shareholdings in the

companies, by cancelling the unlimited guarantee, would prevent hidden

subsidies being provided to the companies in future via bank lending not

warranted by their performance. The decision to authorize the repayment of

creditors did not cover continuing aid to Alumix, whose case is still open.

<T4> Pr ivat i zat ions

402. The Commission continued to apply the principles it had developed over

the yearst [72] ) to the privatization of state-owned companies. While in some

countries the privatization process was nearing completion, in others it was

only beginning or being resumed after interruption. The Commission wrote to

countries in the latter category setting out its approach in these area. Thus

it had contacts with Belgium, Italy and France in respect of their general

plans for privatization and requested data from the Dutch and

(72) Twenty-first Competition Report, points 248 et seq. ; Twenty-second

   Competition Report, points 464 et sea.

```

```
4. I. §2. 22 266

Spanish authorities about the sale of individual companies. A final decision

was taken on the Portuguese privatization programme.

403. For the sake of transparency, it is worth reiterating the general

principles which the Commission applies to privatizations and which have been

built up over the years on the basis of scrutiny of individual cases.

As stated in Article 222 of the EC Treaty, Community law is neutral with

respect to the private or public ownership of undertakings. Accordingly, aid

that facilitates privatizations may not as such benefit from a derogation

from the basic principle of incompatibility of state aid with the common

market laid down in Article 92(1).

When the privatization is effected by the sale of shares on the stock

exchange, it is generally assumed to be on market conditions and not to

involve aid. Before flotation, debt may be written off or reduced without

this giving rise to a presumption of aid as long as the proceeds of the

flotation exceed the reduction in debt.

If the company is privatized not by stock-exchange flotation but by a trade

sale, i.e. by sale of the company as a whole or in parts to other companies,

the following conditions must be observed if it is to be assumed, without

further examination, that no aid is involved:

   a competitive tender must be held that is open to all comers,

   transparent and not conditional on the performance of other acts such as

   the acquisition of assets other than those bid for or the continued

   operation of certain businesses;

   the company must be sold to the highest bidder; and

   bidders must be given enough time and information to carry out a proper

   valuation of the assets as the basis for their bid.

Privatizations by flotation or competitive tender on the above conditions

need not be notified to the Commission in advance for examination of aid

implications, but Member States may notify if they desire the added legal

security of a formal clearance. In other cases, trade sales must be examined

```

`4.I.§2.23` 2 6 7

```
for possible aid implications and must therefore be notified. This is so in

particular in the following cases:

   sales after negotiation with a single prospective purchaser or a number

   of selected bidders;

   those preceded by the writing-off of debt by the State, other public

   enterprises or any public body;

   those preceded by the conversion of debt into equity or capital

    increases; and

   sales on conditions that are not customary in comparable transactions

   between private parties.

In all cases, there must be no discrimination based on the nationality of

prospective buyers of the shares or assets concerned.

Any sales on terms that cannot be considered normal commercial terms must be

preceded by a valuation carried out by independent consultants.

Privatizations^ [3] ) in sensitive sectors (synthetic fibres, textiles, the

motor industry, etc.) must all be notified to the Commission beforehand.

404. In 1993 decisions were taken on privatization programmes or individual

cases in the following Member States.

<T7> Germany

405. The Commission continued its scrutiny of the operations of the

TreuhandanstaIt in the former German Democratic Republic. Under its decision

of November 1992,( [74] ) several transactions of the TreuhandanstaIt were

examined by the Commission under the accelerated procedure agreed with the

German Government. The Commission also looked into new financing and

privatization models developed by the Treuhand. A characteristic of the East

German privatizations is the scale of the restructuring and the large

(73) See points 480 et sea, of this Report.

(74) Twenty-second Competition Report, points 19, 349 and 466. See also

   Twenty-first Competition Report, point 249.

```

###### `4.I.§2.24 268`

```
injections of funds necessary for this purpose. The Commission was concerned

to prevent the operations giving the resulting businesses any artificial

advantages over their competitors, especially when the industry was suffering

from overcapacity. Thus, some of the financial arrangements were modified to

accommodate initial objections raised by the Commission. In several cases

the Commission investigated allegations that funding granted in connection

with the privatization was being used to undercut the selling prices of

competitors. The main cases dealt with in 1993 are described below.

406. The Commission approved aid in connection with privatization of the

fertilizer producer Stickstoff-Werke AG, Piesteritz (Saxony-Anha 11 ). The

takeover of the majority of the company's assets by SKW-Stickstoffwerke

Piesteritz GmbH, a subsidiary of the buyer (SKW-Trostberg AG), prepared the

way for final privatization of the company. During the restructuring process,

95% of losses up to specified ceilings will be covered by the

TreuhandanstaIt. In total, guarantees and credits amounting to

ECU 280 million are to be made available. Since the restructuring results in

a reduction of the company's production capacity and involves a withdrawal

from sectors with a general problem of overcapacity while restoring its

profitability, the Commission decided that the aid was compatible with the

common market.

407. The Commission authorized two batches of aid to Buna AG (Saxony-AnhaIt).

Buna is the second-largest chemical producer in the new Lander with factories

located in the East German chemicals centre of Ha Ile-Merseburg. The first

aid consisted of a guarantee for investments of ECU 228 million and liquidity

loans of ECU 54 million. Later, the Commission approved additional loans of

ECU 115 million. In view of the ongoing restructuring of Buna, which is

reducing the company's production capacity in order to restore profitability

and improve its chances of being privatized, the Commission considered the

aid compatible with the common market.

408. The Commission also approved aid from the Treuhandansta 11 and the Land

of Saxony-AnhaIt for the Leuna refinery. A privatization contract concluded

between the TreuhandanstaIt and the TED syndicate led by Elf provides for the

combined acquisition of assets of the existing refinery of Leuna Werke AG and

the shares of the distributing company Minol AG,( [7] ^) the construction

(75) Twenty-second Competition Report, point 264

```

```
4.1.§2.25 269

of a new refinery and the operation of the old refinery by an Elf

subsidiary. The Commission did not object to the Treuhand's covering the

losses of up to ECU 380 million that the old refinery will incur until the

new refinery is operational. A monitoring system will ensure that neither Elf

nor its affiliates will benefit from this aid. The Commission also approved

investment aid of ECU 500 mi I I ion by the Land of Saxony-Anhalt for the

construction of the new refinery.

409. Aid granted by the TreuhandanstaIt to Sâchsische Olefinwerke, Bôhlen

(Saxony), to accompany its restructuring was also authorized. The company

produces mainly ethylene, propylene and other monomers and was to receive aid

of ECU 115 million in guarantees and ECU 127 million in loans. In view of the

reduction in capacity and because the restructuring will enhance the

privatization efforts, the Commission decided that the aid was compatible

with the common market.

410. The Commission opened Article 93(2) proceedings against alleged misuse

of aid from the TreuhandanstaIt to Leuna AG for its production and marketing

of caprolactam, a raw material for nylon and other man-made fibres.( [7] ^)

Following complaints submitted by other manufacturers, the Commission

investigated the prices at which Leuna sells caprolactam in the Community and

the financing of this company by the TreuhandanstaIt. It concluded, on the

basis of the available information, that Leuna was selling caprolactam at

prices below its production cost and was continuing production of a product

that had no prospects of profitability, given the situation of general

overcapacity in the Community.

411. The Commission closed, however, the Article 93(2) procedure it had

opened in 1992( [7 7] ) against alleged misuse of aid granted by the

TreuhandanstaIt to Buna for its production and marketing of butyl acetate

(butac), a product used in the paint industry. It concluded that

TreuhandanstaIt aid should not be used to continue production of a product

that had no reasonable prospects of profitability. With even the most

efficient producers of butac making losses on an oversupplied market,

continued loss-financing of Buna for this product would indeed be a misuse of

the aid that the Treuhandansta 11 was allowed to provide to the company.

(76) 0J C 220, 14.8.1993.
(77) Twenty-second Competition Report, point 416.

```

```
4.I.§2.26
###### 270

However, as Buna had decided in July to cease production of butac, the

Commission closed the procedure^ [78] )

412. The Commission allowed a guarantee of ECU 114 million and a loan of

ECU 46 million granted by the TreuhandanstaIt to the process plant and

machinery builder SKET to be extended until the end of June 1993, when a

restructuring plan detailing the required reduction in workforce and capacity

was to be concluded.

 It subsequently allowed the guarantee and the loan to be further extended

until the end of May 1994 and additional loans totalling ECU 72 million to

be provided.

The aid was to facilitate the restructuring of SKET by ending unprofitable

activities and transferring the remaining activities to six independent

subsidiaries. The restructuring is a prerequisite for the privatization of

these enterpr ises.

413. The Commission closed the Article 93(2) procedure opened in 1991(^9)

regarding aid granted by the Treuhandansta 11 and the Land of Thuringia for

the privatization and restructuring of Carl Zeiss Jena, Jenoptik and Jenaer

Glaswerk. The German Government had modified the aid package to eliminate the

possibility of open-ended aid. The Commission concluded that the remaining

ECU 960 million aid was justified.( [8] °)

414. Aid of up to ECU 794 million from the Treuhand was authorized in

connection with the partial privatization of the former East German potash

mining company, MitteIdeutsche Kali AG. Following an open tender,

Mi tteIdeutsche Kali is being taken over by the West German producer Kali und

Salz AG, a subsidiary of BASF. Kali und Saiz will own 51% of the shares of

the merged company, Mitte Ideutsche Kali GmbH, and Treuhand the other 49%. The

merger with Kali und Salz was investigated under the Merger Control

Regulation and authorized.( [81] ) The aid consisting of an ECU 539 mi I I ion

capital injection, non-repayment of ECU 160 million of bank loans, an amount

of up to ECU 70 million to cover future losses and an amount of

(78) OJ C 16, 19.1.1994.

(79) Twenty-first Competition Report, point 250

(80) 0J C 97, 6.4.1993.

(81) See point 297 of this Report.

```

#### 4.1.§2.27 271

```
ECU 24 million for redundancy costs is being granted for restructuring that

will reduce production capacity by two thirds and the workforce to only one

tenth (3 000) of its size in 1989. Kali und Salz AG is likewise greatly

reducing its production capacity so that in 1994 the combined capacity of the

merged company wi I I be only 56% of that of its two original parents (3.1

million tonnes in 1994 against 5.5 million tonnes in 1989).

415. The Commission approved aid of ECU 130 million in connection with the

privatization of Neptun Industry Rostock GmbH. The former shipyard had

already ceased building new ships and, under the terms of the sale, was to

discontinue its ship-repair activities and to retain only various engineering

businesses. The aid was for restructuring and investment and included

ECU 48 million of regional aid.

<T7> Portugal

416. In July the Commission decided to terminate the Article 93(2)

proceedings( [82] ) which it had initiated in respect of a discriminatory clause

based on the nationality of potential acquirers of shares in enterprises

being privatized under Law 11/90 of 5 April 1990 (which allows restrictions

to be placed on the total number of shares in the enterprise undergoing

privatization that can be purchased by foreign companies),( [83] ) after

establishing that the clause was not linked to the granting of aid.

The Commission therefore decided to approve the privatization programme,

under Article 92 of the Treaty, subject to the following conditions:

   prior notification, in accordance with Article 93(3) of the EC Treaty,

   of privatization cases in which the Portuguese authorities propose to

   use the restricted or direct-sale procedure;

(82) 0J C 253, 17.9.1993.

(83) 0J C 26, 29.1.1993; Twenty-second Competition Report, point 465

```

```
   §2.28
#### 272

   communication to the Commission, by 30 June of the following year, of an

   annual report on the state of progress of the privatization programme.

The Commission accordingly pursued separately the Article 169 proceedings

initiated against the nationality clause.

```

###### 4.I.§3.1 273

```
<T3> §3. Hor i zontaI aid

<T4> Investment aid

<T5> Review of existing schemes under Article 93(1) of the EC Treaty

417. In 1993 the Commission all but completed the exercise launched in

1990( [1] ) to eliminate general investment aid schemes, i.e. schemes offering

aid for investment to companies of any size, including those located outside

assisted areas. As noted in the guidelines on aid for small and

medium-sized enterprises,(2) such schemes run counter both to economic and

social cohesion and to SME policy.

418. In Belgium, following the Commission's decision on the repeal of the

1959 Economic Expansion Law, the Flemish Region adopted the necessary

regulations to implement the decision.

<T4> Aid for environmental protection and energy conservation

419. The environmental aid framework was extended for a further six .months

until the end of 1993 when the new guidelines were adopted by the

Commission.^) In the meantime a considerable number of environmental aid

schemes or awards were authorized, many of them for purposes not catered for

by the previous framework, so as to encourage voluntary action to reduce

pollution in excess of any legal requirements.

420. In February the Commission approved, pursuant to Article 92(3)(c), tax

relief in Denmark for companies using a minimum of 50% recycled material as

raw material in their production. The tax on waste delivered by companies

to a disposal facility had been increased. The relief was justified by the

fact' that companies using recycled materials were left with considerably

larger quantities of waste than companies using primary raw materials. The

tax relief would thus, generally speaking, place the companies receiving it

on an equal footing with other companies with regard to the waste tax and

(1) Twentieth Competition Report, points 171 and 247; Twenty-first

   Competition Report, points 240 and 241; Twenty-second competition

   Report, point 454.

(2) OJ C 213, 19.8.1992.

(3) See points 166 and 384 of this Report.

```

4-1 -§3.2 2 7 4

```
would promote the use of recycled material. Most of the firms benefiting

would be SMEs.

421. The Commission also approved an amended scheme in Denmark to pay firms

engaged in the collection of waste oils. However, it considered in this case

that the payments were straightforward remuneration for services, and not

aid. The scheme was part of the arrangements introduced to implement the

Council Directive on the disposal of waste oils.( [4] )

422. In September^) the Commission approved an aid scheme introduced in

Belgium by the Flemish regional authorities for investment which reduced

pollution, conserved energy or raw materials, or improved the environmental

acceptability or safety of products. To qualify for aid, the investment had

to take the firm beyond legal requirements for pollution control or to

achieve an exceptional performance in the conservation of energy or raw

materials, product safety, etc. Aid equal to 20% gross of the investment

costs could be granted from an annual budget of around ECU 18 million.

423. In February the Commission approved proposed aid for an

investment programme being carried out by two Belgian companies, Solvic & Cie

CNC and Solvay Interox S.A., with a view to restricting environmental damage

resulting from the companies' production methods and products (PVC, hydrogen

peroxide and sodium perborate). The new processes developed by the two

companies are innovatory and allow existing statutory requirements to be

exceeded. They will not affect the production capacity of the factories.

The aid is in the form of an ECU 5 million grant for Solvic & Cie CNC and an

ECU 3.6 million grant plus a five-year exemption from property tax for Solvay

Interox S.A. The net grant equivalent of the aid was below 10% in both

cases.

424. In September the Commission approved aid for PhenoIchemie, a chemicals

company situated at Doe I in East Flanders.

(4) OJ L

(5) See point 432 of this Report.

```

`4.I.§3.3` 275

```
The company was planning to install a gas turbine with a generator and a

steam-recovery boiler, for combined heat and power generation. The project

will substantially reduce CO2 emissions.

Of the total cost of the investment project (ECU 31 mi I I ion), on ly the part

directly relating to energy conservation and environmental protection

(ECU 21 million) was taken into account by the Flemish regional authorities

in granting the firm a subsidy of less than ECU 3 million.

The project went beyond the statutory constraints imposed by the public

authorities as regards elimination of pollution or nuisances and did not

entail any increase in the recipient company's production capacity.

425. The Commission decided to initiate Article 93(2) proceedings against two

decrees by the Walloon Regional Executive on renewable energy sources and the

environment. The decrees presented a number of problems relating both to

their legal basis and to the fact that both allowed aid to be granted to

equipment manufacturers and not just to firms installing new equipment

designed to conserve energy or reduce pollution.

426. The Commission opened Article 93(2) proceedings against the proposal by

the province of Trento in Italy to grant aid to Cartiere del Garda, a

manufacturer of coated printing paper located at Riva del Garda.( [6] ) The aid

of ECU 100 million would compensate the company for the additional investment

cost it would face should it decide for environmental reasons to expand not

at Riva, but at Mori 20km away.

The Commission took a final decision prohibiting the authorities from

granting the aid.( [7] ) It considered that the aid would not respect the

polluter-pays principle laid down in Article 130r(2) of the EC Treaty, that

it would run counter to the objective of cohesion and that it would adversely

affect trading conditions to an extent contrary to the common interest, given

the existing overcapacity in this sector.

(6) OJ C 75, 1 7 . 3 T 1 9 9 3 .

(7) OJ L 273, 5.11.1993

```

```
4.I.§3.4
#### 276

<T4> Export aid

427. Intensive work continued throughout the year on a draft communication

applying Articles 92 and 93 of the EC Treaty to short-term export credit

insurance.( [8] ) New discussions with the experts of Member States at a

multilateral meeting in June and at several meetings of the Council Export

Credits Group clarified the remaining issues, in particular the possibility

of governments' providing reinsurance cover to their export-credit insurers.

The communication would require Member States to eliminate completely any

remaining subsidies for a limited range of business (short-term commercial,

or "marketable", risks) which is now mostly done by private insurers or by

official export-credit agencies acting on their own account. The Commission

hopes to issue the communication in 1994.

428. The Commission continued to process schemes offering guarantees or other

incentives to reduce the risks of investment in central or eastern European

countries. In March it approved a scheme in the Netherlands whereby the State

will guarantee subordinated loans extended by the Nationale Investeringsbank

to enterprises in eastern Europe in which Dutch companies have at least a 40%

stake. The total financial commitment of the Dutch Government under the

scheme is some ECU 68 mi I I ion.

In June the Commission approved Italian Law No 100 of 1990 comprising

measures to promote participation by firms in joint ventures in eastern

Europe. Subsidized loans may be granted, through the public-sector company

Simest, to firms acquiring holdings in such joint ventures. The budget for

the scheme is some ECU 135 million.

429. Aid to improve the export performance of small and medium-sized firms in

particular may be authorized, provided that it is limited to training,

consultancy help, attendance at trade fairs and similar activités and does

not subsidize actual exporting activity. In such cases the support does not

need to be limited to non-EC markets. Several aid schemes providing for such

support were approved in 1993, including the UK wool industry levy scheme^)

and a scheme in Northern Ireland.

(8) Twenty-first Competition Report, point 166; Twenty-second Competition

   Report, point 339; see point 382 of this Report.

(9) See point 528 of this Report.

```

###### 277

```
<T4> Aid to small and medium-sized enterprises

430. As expected, ( [1] °) the issue of the guidelines for aid to SMEs and the

associated procedural improvements eased considerably the work of approving

aid schemes for the small-firm sector.( [11] ) Member States generally speaking

adapted their new or renotified schemes to the definitions and aid

intensities of the guidelines of their own accord or after a reminder from

the Commission. Far more schemes than before qualified for the accelerated

clearance procedure, which was widened last year.( [12] ) in many cases the

Commission was also able to tell Member States which had notified a scheme

offering aid below the de minimis limit that formal clearance was not

required. Many of the smaller schemes of this nature supported craft

businesses or cooperatives in,Spain and Italy. Training and consultancy help

("soft aid") figured prominently in the activities supported by these

schemes, many of which are co-financed by the Community's Structural Funds.

Some of the larger SME schemes approved in 1993 are discussed below.

431. In March the Directorate-General for Competition sent the Member States

a, guidance note on the use of the de minimis faci I i ty. ( [13] ) This explained

which categories of aid could be granted up to the de minimis limit without

notification, clarified the rules for cumulation of de minimis aid with aid

under authorized schemes in the same three-year period, explained how aid in

forms other than grants could be converted into cash grant equivalent, and

suggested ways in which the Member States could monitor the proper use of the

fac iIi ty.

432. The Commission approved an aid scheme for SMEs in Belgium that was

introduced under a decree of the Flemish regional authorities and will also

offer aid for environmental protection and energy conservation^ [14] ) Aid will

be available for investment and for consultancy and training. Both in terms

of definition and in terms of aid intensities, the scheme conformed to the

guidelines. The Flemish Region's guarantee can be granted in exceptional

circumstances provided that the conditions stipulated by the Commission

in this respect are complied with, namely payment for the guarantee and use

(10) Twenty-second Competition Report, point 467.

(11) See point 159 of this Report.

(12) Twenty-second Competition Report, point 348.

(13) See Annex I I.B of this Report.

(14) See point 422 of this Report.

```

###### 4.I.§3.6 278 _ „

```
of it only after all other means of recovery from the recipient and the other

guarantors have been exhausted.

433. A scheme was approved in Denmark for developing quality management in

SMEs in the manufacturing and service sectors through consultancy and

training. The projects eligible under the scheme are aimed mainly at

improving management and developing human resources in accordance with the

so-called "total quality concept", and not at the development of specific

products or production processes. The scheme, with a maximum aid intensity

of 50%, has a budget for 1993-95 of ECU 32 million.

434. The Commission authorized an extension of the special accelerated

depreciation allowances scheme for SMEs in Germany. The existing accelerated

depreciation allowances allow very small businesses to deduct 20% of

investment costs more than the standard rate of depreciation from taxable

profits in the first year. Under the extended scheme the same businesses can

form a tax-free reserve up to two years before the investment in respect of

up to 45% of anticipated investment costs. This two-year tax-free loan to the

firm will be worth between 2% and 3% net of the investment and, when added to

the ordinary accelerated depreciation, will remain within the aid limits for

SMEs under the guidelines. The extended scheme is to be introduced in 1995.

It will re lease an extra ECU 450 mi I I ion for investment by smaII f i rms.

435. The Commission also approved an extension of the equity loan scheme

which provides long-term subordinated loans to small and medium-sized firms

in the new eastern Lander of Germany. Introduced after unification, the

scheme was originally intended to expire at the end of 1993 but will now

continue until the end of 1995. The new scheme now offers loans when a new

partner puts capital into an existing business, and not only for start-ups

and expansion. Before approving the extended scheme, the Commission satisfied

itself that the aid was principally for investment and not for working

capital or rescues and that the maximum aid levels for SMEs in the region

were observed. Around ECU 520 million a year is spent on the scheme.

436. The Commission approved a number of smaller SME schemes in the new

eastern German Lander, including an investment aid scheme in Thuringia for

start-ups or for SMEs faced with difficulties in adapting to new market

conditions. Under this scheme, only firms with good prospects of viability

evidenced by a sound business plan were eligible. The maximum aid intensity

```

```
4. I.§3.7
###### 279

allowed will be the highest regional aid authorized by the Commission for

Thuringia, currently 35%, plus the 15% supplement for SMEs allowed by the

SME aid guidelines in assisted areas qualifying under Article 92(3)(a)

of the EC Treaty. The annual budget for the scheme will be ECU 7 million.

A scheme was also approved that will help smaller manufacturing businesses

in Thuringia through acute financial difficulties due mainly to the burden of

debt with which they were privatized and the delayed recovery of their

markets. The support is limited to firms with sound prospects located in the

parts of the Land with the highest unemployment rates and is intended largely

for rescheduling old debt with loans at slightly concessionary rates. Funds

of ECU 17 million for 1993 and ECU 52 million for 1994-96 have been allocated

to the scheme.

437. The French tax credit scheme for capital increases, approved last year

for 1992 only,( [15] ) was again authorized for 1993. Although the tax credit

was available to companies larger than SMEs according to the Community

definition, the figures for 1992 showed that, in practice, the scheme had

been used mainly by very small businesses. This, together with the low amount

of aid per firm and the expiry of the scheme at the end of 1993, persuaded

the Commission to overlook the failure to adapt the scheme to the SME aid

gu i de I i nes sooner .

438. The position was similar in the case of Italian Law 317 of

5 October 1991. In May the Commission cleared the package of SME aid measures

provided for by this Law, after the Italian authorities had reduced the level

of investment aid outside assisted areas to the maximum amounts allowed by

the SME aid guide I ines.( [1] ^) An amending decree was issued in July containing

the new investment aid rates and other changes and adapting the definition of

SMEs to that used in the guidelines. The Commission did not ask for recovery

of any of the aid which had been paid unlawfully after its original one-year

authorization ran out at the end of April 1992, because the detailed reports

supplied by the Italian authorities had shown that, in practice, the aid

awards had not exceeded the guideline limits and were very low in amount, the

aid being widely spread throughout industry.

(15) Twenty-second Competition Report, point 469.

(16) Twenty-second Competition Report, point 471.

```

```
4.I.§3.8

<T4> Employment aid

```

##### 280

```
439. This year, with the economic recession creating increasingly higher

levels of unemployment, the Commission paid particular attention to the

financial incentives introduced by Member States to promote employment for

the jobless, especially those who find it more difficult to enter the

employment market, such as young people and the long-term unemployed. Where

such incentives are general and automatic, they may fall outside the scope of

Art icle 92(1).

However, while its approach to such measures is generally favourable, the

Commission seeks to ensure that, when implemented, they are genuine

job-creating instruments and not merely a means of subsidizing labour costs.

If the latter were the case, the aid would be operating aid, the effect of

which might be to keep in businesss firms faced with overcapacity, with the

result that the same unemployment problem would be passed on to other

Member States, boosting unemployment there.

440. The Commission authorized the implementation by the Walloon regional

authorities in Belgium of a draft decree providing for the granting of aid to

small and medium-sized businesses that recruit between one and five

unemployed persons to work on "development projects", i.e. studies and

research in certain specified areas such as the development of new products,

environmental protection, energy conservation and the promotion of

alternative energy sources, and compliance with stricter quality standards

than those required by law. The aid will be made available in the form of

degressive wage subsidies and may not exceed 50% of the cost of the project,

unless the firm is a small enterprise as defined in the Community guidelines

on aid for SMEs and is recruiting from among certain categories of unemployed

persons who are particularly difficult to integrate or reintegrate into the

labour market.

Such aid, which is available only for study or research programmes that do

not entail any production activity, falls within the limits specified in

the guidelines on aid for SMEs. The exception allowed in the case of

recruitment by small businesses of unemployed persons facing particular

employment difficulties is justified by the serious concern to find work for

this category of job-seekers and by the size of the recipient firms.

```

```
4.I.§3.9 ^ ^
#### **28**

441. The Commission approved three major job-creation schemes in

Denmark which are designed to take up to 100 000 persons a year off the

unemployment register over the period 1994-96. Two of the schemes had been

approved in February and April in a slightly different form and were

renotified for approval in December. The schemes will cost around

ECU 2 billion a year. Two offer wage subsidies to firms and institutions

taking on unemployed people to work for them, the other offers subsidies to

unemployed persons starting up their own business.

442. Under the largest scheme, any firm taking on an unemployed person (in

practice, those unemployed for over a year) can claim a grant of ECU 5.5 per

hour, or around 42% of average wages in Denmark. The maximum subsidized

period is 12 months, making the maximum grant around ECU 9 300 per person.

There must be a net increase in employment in the company and, if the wages

subsidies are provided for over six months, the worker must be kept on for a

certain period after the subsidy ends or given training. The second scheme is

similar except that it is directed at groups of unemployed experiencing

particular difficulties in finding a permanent job such as immigrants, and

the workers will tend to be employed by institutions providing public

services. Under this scheme, the subsidy can rise to around 70% of average

wages and can last for more than 12 months. The same conditions as to

continuation of employment after the ending of the subsidy or provision of

training apply. Finally, the third scheme offers grants of 50% of the top

rate of unemployment benefit for a maximum period of two-and-a-half years to

unemployed persons setting up their own business. On the basis of the current

top rate of unemployment benefit, the maximum grant can reach some ECU 19 00O

per person.

The Commission considered that all the schemes fell within Article 92(1) of

the EC Treaty because the authorities exercised some discretion, especially

with regard to the period and the level of the subsidies granted as well as

to the terms on which the people taken on were employed under the first two

schemes. In February it regarded the version of the first scheme notified at

the time as a "general measure" not falling within Article 92(1) since the

conditions, particularly with regard to the terms of employment, left little

or no room for discretion and hence ruled out the possibility of the schemes

being applied selectively. In the later decisions, the schemes with their

discretionary aid element were in any event found to be in line with

Community policy on employment creation and hence to qualify for exemption.

```

```
4. I.§3.10

###### 282

443. In June the Commission decided to terminate the proceedings it

had initiated in respect of the draft Italian law providing for aid of a very

high intensity to any firm managed or controlled by a majority of women and

to authorize its implementation.( [17] ) The Italian authorities have limited

the scope of the scheme in such a way that the aid will be available only to

small enterprises as defined in the guidelines on state aid for SMEs and will

be restricted either to the maximum intensities laid down in the guidelines

or to amounts that may be deemed to be aid of minor importance (over a

three-year period, per firm, ECU 50 000 for investment aid and ECU 50 000 for

other objectives, i.e. a maximum of ECU 100 000 in total).

The scheme as defined is thus in line with two objectives which the

Commission generally supports, namely the promotion of employment and

equality of opportunity for women and the development of SMEs.

< T 4 > Aid for rescuing and restructuring firms in d i ff icu I ty

444. The recession brought forth many new cases of government-supported

rescues and restructuring of firms that were in financial difficulty. In

dealing with them and in deciding cases that had arisen in previous years,

the Commission applied the well-established principles governing such aid,

which is designed to prevent competitors being unduly harmed by the

operation.( [18] ) The Commission distinguishes between rescues, which are a

holding operation while the future of the firm in difficulty - closure or

restructuring - is being decided, and restructuring. The means which

governments may use for rescues are short-term bridging loans at market rates

or loan guarantees. The bridging finance should normally not be provided for

more than six months, although the Commission recognizes that the period may

be extended at the Member State's request unti I an investigation under the

Article 93(2) procedure has been completed.( [19] ) Restructuring aid must

restore the viability of the company through a sound restructuring plan whose

implementation is closely monitored but, besides this sine qua non, the

restructuring must make an additional contribution to reducing overcapacity

in the industry if the industry is in this situation, as it typically is.

Otherwise, competitors which are having to finance restructuring from their

(17) Twenty-second Competition Report, point 474.

(18) Eighth Competition Report, points 227 and 228.

(19) See point 527 of this Report.

```

```
4.I.§3.11
```

283

```
own resources will suffer harm. In cases where there is no overcapacity in

the industry, restructuring aid should still be conditional on some

contribution to the common interest, although this need not take the form of

extra capacity cuts or reduction of market share.

Many of the cases dealt with in 1993 concerned the steel and motor

 industries, other sensitive sectors and privatizations, especially in eastern

Germany. These are reported in the relevant section. The following cases are

some of the other cases.

445. In western Germany, the Commission authorized aid to the machine tool

manufacturer Berstorff Machinenbau GmbH, Hannover, in the form of a credit

guarantee provided by the Lower Saxony authorities under an approved scheme.

Berstorff manufactures machine tools used in the production of rubber and

synthetic products. The guarantee covered 80% of an ECU 8 million loan

extended to the company on market conditions.

The firm was carrying out a restructuring plan drawn up by an independent

consultant with a view to restoring its viability in the near future. Its

difficulties were due to the loss of markets in eastern and central Europe.

446. The Commission authorized the Bavarian Land Government to guarantee

until the end of 1993 an ECU 9 million loan to a pulp mill, Bayer ische

Zellstoff GmbH, Kelheim. The company had gone bankrupt as a result of the

loss of production due to teething troubles with a new process which avoids

the use of sulphur or chorine and is therefore less harmful to the

env i ronment.

447. The Bavarian authorities were also authorized to grant an interest

subsidy on an ECU 15.5 million loan extended by private banks to two machine

tool manufacturers, Maho AG and Deckel AG, which were restructuring and

merging their activities. The interest subsidy, worth ECU 1.3 million, was

the only public funding for the rescue and restructuring operation, which

involved the workforces of the two companies, suppliers and private bank

creditors. Private banks were writing off ECU 52 million of debt, while

ECU 15.5 mi I I ion was coming from sales of land and a similar amount in new

equity from the shareholders.

```

```
 4.I.§3.12
```

284

```
 448. The Commission closed the Article 93(2) proceedings against aid offered

 by the Basque Government for restructuring EsmaI taciones San Ignacio S.A., a

 producer of enamelled steel cookware, gas bottles and industrial boilers,

 located at Vitoria (Alava). The Commission had initiated the procedure in

 July 1992.(2°)

The aid consisted of a seven-year guarantee for a loan of ECU 7 million at

market interest rates. The guaranteed credit was to be used by the company

 to finance part of a restructuring programme which involves a major reduction

 in its labour force.

 In its final decision, the Commission noted the fact that the revised

.restructuring plan presented by the Spanish authorities appeared capable of

 restoring the company's long-term viability. The restructuring involved

closing down loss-making lines and a reduction in its remaining capacity by

about 13 %. The Commission also took into consideration the very low aid

 intensity of a guarantee on a loan at market interest rates when the

 loan is fully secured by assets and the beneficiary has a sound restructuring

programme.

449. The Commission also terminated the Article 93(2) proceedings started in

July 1990( [21] ) in respect of aid granted by the Spanish authorities in

connection with the sale of certain selected assets of the engineering group

Cenemesa to Asea Brown Boveri (ABB).

Although not the owner, the Spanish State had been actively involved in

seeking a purchaser for the group. In August 1989 it accepted an offer from

ABB to acquire the group. Under the terms of the agreement, the State

promised that the group's public-sector creditors would waive their claims

to some ECU 230 million of debts and unilaterally relinquish the mortgages

held on assets and also agreed to cover the costs of an early retirement

scheme for some 1 700 employees.

The Commission considered that, in waiving debts and agreeing to finance

redundancies, the Spanish State had not acted like a private creditor but as

a provider of aid. It took the view that the agreement between ABB and the

Spanish State was not part of a normal liquidation procedure and that ABB had

(20) Twenty-second Competition Report, point 423.

(21) Twentieth Competition Report, point 275.

```

```
   §3.13
```

285

```
benefited from being able to acquire the assets of the Cenemesa group as a

going concern without having to take over the debts normally associated with

such a purchase.

However, ABB had supplied information endorsed by the Spanish authorities and

showing that the former industrial activities of the group, now run by ABB,

would be restructured according to a plan which may be considered

satisfactory from the Community point of view. The restructuring programme

has reduced production capacity in all business lines by an average of more

than 50%. This action has removed excess capacity in the Spanish market and

was likely to make ABB's Spanish operation profitable and viable. ABB has

contributed substantial funds and know-how to put the assets back on a viable

foot ing.

Lastly, the Commission took into consideration the fact that the

restructuring plan would secure jobs in areas with specific problems of

underdevelopment and industrial decline.

450. The Commission closed the Article 93(2) proceedings( [22] ) it had opened

in July 1992( [23] ) in respect of a proposal by the Basque authorities to

provide aid in the form of an ECU 33 million state guarantee for the

restructuring of La Papelera Espanola, a group of companies producing and

processing pulp and paper.

The Spanish Government had submitted a revised restructuring plan drawn up by

the Basque authorities and the beneficiary group. The plan was likely to

restore the group's profitability by 1995 by increasing productivity and

quality and by reducing capacity. The Commission also took into account the

very low aid intensity of the guarantee.

451. The Commission extended the investigation begun in March 1992 and first

extended in September 1992( [24] ) to cover possible additional aid to the

mechanical engineering enterprise CMF Sud SpA and its successor company CMF

SpA. The old aid and the new are being vetted by the Commission in the light

of the group's restructuring programme, which is under discussion with the

I ta Iian author i t ies.

(22) OJ C 123, 5.5.1993.

(23) Twenty-second Competition Report, point 422
(24) Twenty-second Competition Report, point 426

```

```
4.I.§3.14
### 286

Following the extension of the proceedings in September 1992, the Italian

authorities informed the Commission of a reorganization of CMF Sud SpA,

whereby the holding company IRITECNA would set up a new company, CMF SpA, to

which CFM Sud SpA would sell its core business for a token sum initially set

at ECU 100 000.

Afterwards, CMF Sud SpA would go into voluntary liquidation and IRITECNA

would meet all its liabilities during liquidation.

The Commission considered that the provision of capital to the new company,

the transfer to it of the old company's core business for a token sum, and

the guaranteeing of all the old company's debts during liquidation involved

aid.

452. The Commission opened Article 93(2) proceedings against the financing

made available to Avenir Graphique, a printing house at Torcy (Marne la

Vallée), by three state-owned banks in 1991. The banks later waived most of

their claims when Avenir Graphique was taken over by another printing group.

453. The Commission took a final decision( [25] ) on a scheme introduced by the

Lazio regional authorities in Italy to assist the ceramics sector.

Article 93(2) proceedings had been opened in December 1992( [26] ) against the

ECU 3.5 million operating and investment aid to manufacturers of sanitary

ware and crockery.

The Commission decided that aid exceeding the limits it had set out in its

guidelines on state aid to small and medium-sized enterprises( [27] ) was

incompatible with the common market and therefore could not be granted but

that aid falling within those limits could be allowed.

(25) OJ L 238, 23.9.1993.

(26) Twenty-second Competition Report, point 429.
(27) Twenty-second Competition Report, point 342.

```

```
4.I.§4.15

<T3> §4. Aid for research and development

<T4> General policy developments

```

287

```
454. The Commission considers that the Community framework for state aid for

research and development/ [28] ) as originally published, continues to be an

appropriate instrument for the monitoring of R&D aid.

455. At the multilateral meeting held in June, Commission staff discussed

with experts from the Member States the arrangements regarding aid provided

in the form of an advance that is repayable if the research is successful.

Most Member States have aid schemes of this type.

In its administrative practice, the Commission allows such advances to cover

initially 40% of the costs of the applied research or development projects.

Where these are successful, the aid is repaid so that the actual intensity of

the aid does not exceed a gross grant equivalent of 25%.

The conclusion drawn from the discussions was that there were not sufficient

arguments for the Commission to change its policy on this type of aid for the

t ime being.

456. All the aid authorized in 1993 was cleared under the exemption provided

for in Article 92(3)(c), except for two EUREKA projects (HDTV EU 95 and

JESSI EU 127), which were cleared under Article 92(3)(b). Some of the more

important decisions are described below.

<T7> Belgium

457. In connection with the federalization of Belgium, the Commission

authorized in March the R&D aid scheme for the Walloon Region, which replaces

two national schemes ("IRSIA industrie" and "Prototypes") already approved by

the Commission. The budget for 1993 is ECU 73 million and will be used to

finance all stages of research carried out by public institutions and by

f i rms.

(28) OJ C 83, 11 .4.1986

```

```
4. I .§4.16
###### 288

The aid for basic research takes the form of a 50% subsidy (60% in the case

of SMEs). The aid for applied research and development is in the form of a

40% advance (50% for SMEs) that will be repaid in the event of success so

that the actual intensity will be 25% (35% in the case of SMEs). No

repayment will be required if the research is not successful.

<T7> Germany

458. The Commission authorized state aid for research relating to the

"VERBMOBIL" project. The aid, in the form of a grant, is intended for

universities, research institutes and firms working on a project designed to

allow sponanteous dialogue to be captured by machine and translated

automat icaI I y.

The project leader is the German centre for artificial intelligence. The aid

will amount to ECU 30 million over four years, with a gross intensity of 47%.

Since the project relates to basic research and since the criteria regarding

additionaIity and the common interest are complied with, the Commission

applied the exemption provided for in Article 92(3)(c) of the EC Treaty.

459. The Commission also gave the go-ahead for the "Arbeit und Technik"

research programme. This scheme, which has a budget of some ECU 163 million

for the period 1993-96, will finance fundamental research and basic

industrial research into the protection of health at the workplace by

reducing and providing safeguards against dangerous loads, and into the

adaptation of work and technology to the individual. Two thirds of the

budget will go to scientific establishments and one third to firms, 50% of

whose costs may be financed (60% in the new Lander).

460. The Commission did not raise any objections to a collaborative research

programme for SMEs. The scheme, which covers the period from 1993 to 2000,

has a total budget of ECU 150 million. The objectives of the programme are

to give SMEs access to research carried out at both national and

international level and to help research workers move from industry to public

research centres and vice versa. The level of intensity allowed is 35% (40%

in the new Lander) of the cost of the project, with a maximum ceiling of

ECU 155 000 (ECU 210 000) per firm for national collaboration and ECU 260 000

(ECU 310 000) for international cooperation. As regards the transfer of

research workers, the maximum intensity will be 40% (50%) of gross salary.

```

```
4.I.§4.17

##### 289

461. The Commission approved an extension of the major transport research

programme "Verkehrsforschung" for 1993, which had originally been approved in

1989 and 1990.( [29] ) The bulk of the budget of ECU 82 million was for further

work on the "Transrapid" magnetic lévitation train system, with smaller

amounts for basic research on other aspects of high-speed train operation,

urban public transport, goods transport and "transport chains".

462. Also approved were two major research programmes in laser technology and

in "microsystems", i.e. systems that are able to sense, process and react to

stimuli and have potential applications in health care, environmental

protection and transport. The laser technology programme has a budget of

ECU 84 million until 1997 and the microsystems technology programme

ECU 130 million for 1994-99. In line with the R&D aid framework and

established practice, the normal aid rates can be increased by 10 percentage

points for SMEs and for firms in the new Lander (15 percentage points for

SMEs in the new Lander).

<T7> France

463. In January, February and April the Commission approved the annual

refinancing of four French schemes covering research, development and

innovât ion.

The schemes are, firstly, the Atout-Puma programme, which is mainly intended

for SMEs and, through grants and repayable advances, funds R&D projects on

the integration of advanced materials into industrial technologies. The

second is the Research and Technology Fund (FRT) scheme, which assists firms

in their fundamental research or basic industrial research projects with

grants that may cover up to 50% of project costs.

The third scheme, "Major innovative projects", is intended for industrial

firms working on very specific technological developments such as intelligent

and flexible machines, clean and energy-efficient vehicles, advanced

high-speed trains and major innovatory industrial processes.

(29) Nineteenth Competition Report, point 145; Twentieth Competition Report,
   point 197.

```

```
4.I.§4.18
#### 290

The last programme relates to Anvar ("Agence NationaI pour la Valorisation de

la Recherche"), which covers all stages of R&D, focusing on applied research.

Aid to firms is provided in the form of advances which are repayable where

the projects are successful (85% of the budget) and direct grants

(feasibility studies). The total budget for the four schemes approved was

ECU 536 mi I I ion in 1993.

<T7> United Kingdom

464. In May the Commission approved state aid for research by Shorts PLC,

Belfast (Northern Ireland), for the design and development of a new executive

jet known as the Learjet 45. The aid is provided in the form of an advance

that is repayable if the project is successful, this being defined as

the sale of 101 planes. The advance covers 25% of the costs borne by the

f i rm.

Although the project is not covered by the July 1992 agreement between the

European Community and the United States on trade in large-capacity civil

a i rcraf t, ( [3] °) the terms of the aid are in line with the provisions of the

agreement.

(30) Twenty-second Competition Report, point 356.

```

```
4.I.§5.19

<T3> §5. Regional aid

<T4> General developments

```

#### **29**

```
465. In monitoring national regional aid, the Commission continued to pursue

the objective of increasing economic and social cohesion between the more

developed and the less developed parts of the Union so as to reinforce the

effect of the Structural Funds.( [31] ) Cohesion requires the authorization of

higher levels of national aid in the more disadvantaged regions. In other

words, the less developed regions must be free to offer higher levels of aid

to attract investment than the more developed ones. Furthermore, in the more

prosperous regions, whose development problems are relatively speaking less

severe, regional aid must be concentrated on the areas genuinely needing it,

leading to a gradual reduction in the assisted-area coverage. Competing forms

of aid in the non-assisted areas of developed countries must clearly also be

strictly controlled, with investment incentives being confined to small and

medium-sized firms or to special purposes like environmental protection^ [32] )

466. In presenting its proposals on amendments to the Regulations governing

the Structural Funds,( [33] ) the Commission committed itself to achieving

greater coherence between structural and state aid policies. This greater

coherence is to be assured thanks to the adoption of a timetable governing

the eligibility of a region for aid within the framework of the two policies

in question as well as ensuring that the regions eligible for structural fund

aid are also eligible for national regional aid when a Member State so wishes

it. It goes without saying that, in accordance with Art. 7 of Reg(EEC)n"

2081/93 of the Council of 20 July 1993, support given by the Structural Funds

must be in conformity with Community policies, including those concerning the

rules of competition.

(31) Twenty-first Competition Report, points 54 to 56.

(32) See points 419 et seg. and 430 et seg. of this Report.

(33) C0M(93)67 final, p. 15.

```

```
4.I.§5.20
##### 292

467. The Commission continued work on a policy for tackling the major

distortions of competition that can be caused by aid for capital-intensive

investment^ [34] ) On the basis of data supplied by the Member States, it

explored the possibility of calculating aid in relation to value added as

ana Iternative to the investment cost/Job criterion. However, this

calculation does not appear feasible in the short run. The main decisions on

national regional aid schemes are reported below.

<T7> Belgium

468. The Commission initiated Article 93(2) proceedings against an aid scheme

for firms participating in European industrial programmes covered by specific

international agreements. In addition to procedural irregularities, the

scheme allowed operating aid to be granted in regions eligible for regional

aid under Article 92(3)(c) of the EC Treaty, whereas such aid is acceptable,

subject to certain conditions, only in regions eligible under

Article 92(3)(a).

                     Denmark

469. The Commission authorized the setting-up of six enterprise zones within

the assisted areas of Bornholm, Nordjylland and Storestrrim. The level of aid

to be offered in the enterprise zones, mainly in the form of accelerated

depreciation, remains within the limits the Commission has already authorized

for the areas. In an effort to channel more investment funds to Bornholm, the

Danish authorities decided that tax allowances offered to employers and small

businesses for investment there would not be subject to the normal

restriction of being an active partner in the business invested in. The

Commission also approved this scheme.

<T7> Germany

470. The Commission approved the general plan of the main regional aid

programme for 1993, i.e. the Federal Government/Lander joint programme

("Gemeinschaftsaufgabe"), which was only slightly changed from previous

years. Continuing the pattern since unification, one which is likely to

(34) Twenty-first Competition Report, point 164

```

```
4.I.§5.21
###### 293

persist in the future, some 89% of the ECU 5.2 billion or so of aid to be

paid out under the programme in 1993 was to be spent in the new Lander.

471. The Commission agreed to a number of improvements in the range of

regional incentives in the new Lander. The system of special accelerated

depreciation for investment there will now be extended until the end of

1996,( [35] ) injecting an estimated ECU 5.4 billion more into the economy of

the new Lander. The guarantee scheme introduced in 1991 for investment in

the former German Democratic Republic( [36] ) was extended to restructuring

cases in areas suffering from especially high unemployment. Finally, the

Commission authorized the sale of industrial land owned by the Government in

the new Lander at half its market value and allowed the Berlin authorities

to subsidize rents for industrial and commercial buildings in assisted parts

of the city (in non-assisted parts, the lower rents will be available only

to SMEs).

472. The Commission closed the Article 93(2) proceedings against the grant

of aid under the special ERP investment aid scheme for the new Lander, the

"ERP-Aufbauprogramm", in the former West Berlin/ [3 7] ) The German authorities

had agreed to stop giving aid under the scheme to companies in West Berlin,

and the aid already granted had been within the limits laid down by the SME

aid guidelines. With regard to a provision of the investment allowance

scheme in the new Lander( [38] ) allowing those resident there before the

ending of the old regime to claim a higher rate than companies that had set

up later, the Commission asked the German Government to repeal this

discriminatory provision by 30 June 1994.

<T7> Spain

473. In May the Commission adopted a negative final decision on a system of

tax aid for investment in the Basque Country/ [3 9] ) In its decision the

Commission confirmed the position it had taken when proceedings were

initiated/ [40] ) particularly as regards the discrimination in breach of

Article 52 of the EC Treaty, which relates to freedom of establishment.

(35) Twenty-second Competition Report, point 484.

(36) Twenty-first Competition Report, point 285.

(37) Twenty-second Competition Report, point 485.

(38) Twenty-second Competition Report, points 483 and 486

(39) OJ L 134, 3.6.1993.

(40) Twenty-first Competition Report, point 292.

```

```
4. I .§5.22
```

294

```
Such discrimination is moreover one of the main reasons why the Commission

considers that the scheme is caught by Article 92(1) of the EC Treaty and

isnot a general measure.

The authorities concerned were therefore asked to end the distortions in

respect of Article 52 by 31 December 1993 at the latest. In addition, the

Commission decided that the Spanish authorities must, within two months of

notification of the decision and until such time as the discrimination was

abolished, ensure that the aid granted was restricted to the areas and

ceilings authorized for regional aid.

<T7> France

474. The Commission decided not to raise any objections to the credit policy

pursued by the "Institut d'Émission des Départements d'Outre-Mer" (IEDOM). A

particular feature of that policy is the rediscount agreements under which

the IEDOM refinances, at a reduced rate, certain assistance provided by

credit institutions in the overseas departments to local firms.

The Commission took the view that such measures constituted aid for the

credit institutions, since it reduced the cost of their resources, and for

firms, since they obtained loans more cheaply.

It decided not to raise any objections to the aid since it was intended for

disadvantaged regions eligible for the exemption provided for in

Article 92(3)(a) of the EC Treaty, in respect of which the Council, in its

Decision of 22 December 1989 establishing the Poseidom programme/ [41] )

recognized the need for specific measures.

<T7> Italy

475. The Commission approved a number of provisions adopted by the Sicilian

authorities that anticipate or replace national aid schemes for the

Mezzogiorno in respect of which a considerable payments backlog has built up.

The backlog entails substantial costs for investors, who are obliged,

pending payment of the aid, to borrow from banks at market rates in.order to

carry out their planned investment.

(41) OJ L 399, 30.12.1989.

```

```
4.I.§5.23

###### 295

The scheme comprises subsidized loans for SMEs and advance payment of aid due

to firms under Law No 64/86, within the limits allowed by the Commission for

extraordinary aid in the Mezzogiorno.

476. For similar reasons, i.e. in particular to mitigate the delays in the

payment of aid under Law No 488/92 on extraordinary aid in the Mezzogiorno,

the Commission authorized the region of Sardinia to grant subsidized loans to

SMEs. The maximum ceilings authorized by the Commission in the region must

be complied with where such loans are combined with aid granted under other

regional, national or Community schemes.

477. The Commission terminated the Article 93(2) proceedings initiated in

September 1992( [42] ) in respect of certain aid provided for under Law No 102

of 2 May 1990 on the reconstruction and development of La Va I te I I i na.

The aid consisted of grants, interest repayments, subsidized loans,

guarantees and tax reliefs for firms in La Va I te I I i na and surrounding areas

affected by the 1987 flooding.

During the proceedings, the Italian authorities undertook to adjust the

scheme so as to restrict eligibility to SMEs, to comply with the aid ceilings

stipulated by the Commission, to turn the operating aid into investment aid

and, in other cases, not to exceed the levels of aid of minor

importance/ [43] ) In view of the proposed adjustments, the Commission

declared the aid compatible with the common market.

<T7> Portugal

478. In July the Commission approved aid under the RETEX programme notified

by the Portuguese authorities. The programme comprises various types of

measures most of which involve aid within the meaning of Article 92 of the

EC Treaty. The aim of the programme is to promote economic diversification

in the regions affected by the restructuring of the textile and clothing

industry. The aid is in the form of outright grants, interest-free loans

and acquisition of public holdings financed by a risk capital fund. Most of

(42) Twenty-second Competition Report, point 497.

(43) Twenty-second Competition Report, point 337. See also point 431 of this

   Report.

```

```
4. I.§5.24

###### 296

the aid relates to services and to expenditure not directly linked to

production.

The individual measures under the programme provide for varying intensities

of aid. The measures may be combined with one another, in respect of the

same eligible expenditure, up to a maximum intensity of 75% (gross). They

may also be combined with other aid in the form of tax relief. However, the

combined total of programme aid and tax aid must likewise not exceed 75%

(gross).

The national budget provided for in the programme to cover financing of the

aid in the period 1993-97 is ECU 48 million (1993 prices). The aid is part

of the Community's RETEX programme and is thus jointly financed by the

Structural Funds.

<T7> United Kingdom

479. In July the Commission decided not to raise any objections to the new

assisted areas map in the United Kingdom. This replaces the map approved in

December 1984 and consists of travel-to-work areas (TTWAs) and parts of such

areas.

The assisted areas have, as in the past, been divided into two categories:

development areas, in which aid may amount to 30% net grant equivalent, and

intermediate areas, in which aid is restricted to 20% net grant equivalent.

The main scheme in force in the assisted areas in the United Kingdom is the

regional selective assistance scheme, which was approved at the same time as

the previous assisted areas map; the aid is provided in the form of capital

grants, and its intensity is limited to the abovementioned ceilings.

Some TTWAs have been divided in two, with one part having the status of

development area and the other that of intermediate area (Birmingham,

Blaenau, Gwent and Abergavenny, Pontypridd and Rhondda, Wirral and Chester).

```

##### **29 7**

```
The TTWAs of which only part is covered by the new map are the following:

Newport, Shotton, Flint and Rhyl, Wrexham, Dorchester and Weymouth, Cardiff

(Objective 2 part) and London (a small part representing 0.5% of the total UK

population). The part of London was included in the assisted areas map

because of its high level of unemployment, which is due to the steady

deterioration of the industrial base in that part of the city.

A significant new development is the inclusion in the assisted areas map of a

large part of the County of Kent (the Thanet, Dover and Deal, Folkestone,

Sittingbourne and Sheerness TTWAs) as a result of the anticipated loss of

jobs connected with the port, the ferry link with the continent and the

customs services once the Channel tunnel has been opened.

The proportion of the population covered (35.15% of the total population) is

only very slightly lower (0.15 percentage points) than previously.

```

```
4.I.§6.p.1

<T3> §6. Aid to sectors of industry subject to

             special Community rules on state aid

<T4> Genera I

```

298

```
480. In 1993 the need for strict aid control in industries with severe

structural problems was brought home with increased force/ [1] ) It is in

recessions that the special aid frameworks and codes in these sectors prove

their worth. As in the mid-1980s, it fell to the Commission to initiate an

orderly restructuring of the steel industry and prevent a subsidy race/ [2] )

The difference between the 1980s and 1993 was that the steel aid code no

longer allows aid for restructuring except for plant closures, with the

result that the assent of the Council under Article 95 of the ECSC Treaty had

to be obtained in several cases. In the shipbuilding, synthetic fibres and

motor vehicle industries too, the determined enforcement of the aid rules by

the Commission maintained confidence in a level playing-field while firms

undertook necessary restructuring.

<T5> (a) Aid to the steel industry

<T6> Steel covered by the ECSC Treaty

481. At the end of the year the Commission succeeded in removing one of the

obstacles to much-needed capacity cuts in the Community's steel industry when

it secured the Council's agreement that special derogations under Article 95

of the ECSC Treaty be granted to allow certain Member States to provide aid

packages in support of the restructuring and, in some cases, privatization of

public loss-making steel companies. These cases involved six companies in

four Member States: I I va in Italy and CSI and Sidenor in Spain/ [3] ) EKO Stahl

and SEW Freital in the former German Democratic Republic and the Siderurgia

Nac ionaI in PortugaI.

The settlement of these cases removed one of the obstacles to the private

steel companies proceeding with a wider round of voluntary capacity

reductions which the Council in February promised to support with additional

(1) See points 29 and 374 of this Report. See also Twenty-second

   Competition Report, point 375.

(2) Fifteenth Competition Report, points 177 et seg.
```

_(3)_ _Twenty-second_ _Competition_ _Report,_ `points 392` _to_ `398.`

```
(i

```

```
4.I.§6.p.2
###### 299

Community funds to help with redundancy costs and possible ECSC loans to

steel companies making capacity reductions under voluntary arrangements.

 In examining the six Article 95 ECSC cases, the Commission's approach was to

ensure (where appropriate, with the assistance of outside consultants) that

the restructuring plans were viable, that the aid would be limited to the

amount absolutely necessary and that it would not adversely affect trading

conditions within the Community to an extent contrary to the common interest

by requiring counterpart measures, commensurate with the aid involved, in the

form of capacity reductions to contribute towards the necessary structural

adjustment of the sector. With the objective of providing equality of

treatment as regards the latter aspect, the Commission aimed at a capacity

reduction/aid ratio of around 750 000 tonnes/year (t/y) per ECU 1 billion in

aid. This ratio was considered to be appropriate given the prevailing market

situation.

After lengthy and, in some cases, difficult negotiations with the

Member States concerned and after repeated unsuccessful discussions in the

Council throughout the year, an amended set of proposals was accepted on

17 December by the Council. This cleared the way for the Commission to adopt

decisions authorizing these aid packages early in 1994.

482. The Council and the Commission stressed the finality and exceptional

nature of these derogations and pledged that there would be no further aid to

these producers that was not allowed under the steel aid code. Moreover,

there were a number of important conditions attached to the approval of the

aid. These included capacity reductions required as a counterpart for the

aid amounting to a total of around 5.5 million t/y of hot-rolled products.

In order to ensure that these reductions are definitive and irreversible, the

installations concerned must be scrapped or sold for use outside Europe. In

addition there must be no increase in remaining capacity, apart from

productivity improvements, for at least five years as from the date of the

last capacity closure or payment of aid in respect of investments under the

plan, whichever is the later. Other conditions included requirements that

the recipient companies should have a minimum level of financial charges of

3.5% of turnover, should not benefit from tax relief on past losses and

should carry out on time all the restructuring measures laid down in the

restructur ing p lans.

```

```
4.,. § s.p.3 3 0 Q

 In order to ensure that all the conditions are met, the restructuring plans

will be subject to close monitoring for the next five years, with the

Member States required to submit six-monthly and, if necessary, quarterly

reports to the Commission containing full information on the recipient

company and its restructuring such as to allow the Commission to assess

whether its conditions and requirements are fulfilled. Particular attention

will be paid to the following: capacity and employment reductions;

investments; compliance with the timetable for closures; production and

effects; results in the financial markets; where appropriate, privatization

and creation of new companies; the source and terms and conditions of any

further financing; and progress towards viability.

In order to verify the accuracy of the information supplied, the Commission

may make checks in accordance with Article 47 of the ECSC Treaty and, in the

event of a complaint in respect of underpricing by an aided company, may

launch investigations under Article 60 of the ECSC Treaty.

The Commission will submit six-monthly reports to the Council to keep it

informed of developments. It may decide to mandate independent consultants,

with the agreement of the governments concerned, to assist in its monitoring

task. It is empowered to order the suspension or recovery of aid if the

conditions are not fully respected. If necessary, recourse will be had to

Article 88 of the ECSC Treaty in cases where Member States fail to comply

with any such decisions. The Commission may also require additional measures

to reinforce the restructuring if progress towards viability is not being

achieved.

The capacity cuts pledged by the countries authorized to grant aid will make

an important contribution towards the wider restructuring effort. The total

reductions necessary to restore viable conditions on the Community steel

market are estimated by the Commission at a minimum of 19 million t/y of

hot-rolled products and 30 million t/y of liquid steel production. A special

representative of the Commission, Mr Fernand Braun, was charged with

identifying potential cuts of this order of magnitude in cooperation with the

industry. In November the Commission agreed to allocate ECSC funds for

lending to companies contributing to a restructuring pool out of which some

of the closure costs would be met.

```

```
4.I.§6.p.4
### 301

Details of the Article 95 ECSC cases and other important cases dealt with in

the course of the year follow.

<7> Belgium

483. The Commission carried out an investigation into an ECU 12.5 million

bridging loan granted to Forges de Clabecq by Société Wallonne pour la

Sidérugie, a public holding company wholly owned by the Walloon Regional

Executive/ [4] ) It closed the case after the Walloon authorities had proposed

to raise the interest rate on the loan by 0.5% to 9.3%, a level which would

include an appropriate risk premium and therefore represented a realistic

commercial interest rate for a steel producer under present conditions/^)

<T7> Germany

484. One of the two German cases approved by the Council in December under

Article 95 of the ECSC Treaty concerned aid for restructuring at Sachsische

EdelstahIwerke, Freital (Saxony). The aid amounted to some ECU 177 million,

of which ECU 37 million was allowed by the Commission under Article 5 of the

steel aid code and Article 92 of the EC Treaty/6) The Commission had

proposed a positive decision on the remaining ECU 140 million as early as

May, in view of the substantial capacity reduction (53%) in hot-rolled

finished products of 160 000 t/y.

485. The second decision approved by the Council in December concerned

EKO Stahl, Eisenhuttenstadt (Brandenburg). It was agreed that the Treuhand

could provide ECU 428 million in aid to the company to cover restructuring

and part of the cost of investment in a new hot strip rolling mill, which for

a five-year period after the last aid payment under the plan or after the

last closure of capacities under the plan, whichever was the later, would be

limited to a capacity of 900 000 t/y. It was decided that 60% of EKO Stahl

would be sold to the Italian private steelmaker Riva. While EKO Stahl itself

was creating hot-rolling capacity with the new mill, a net reduction in

capacity in the East German steel industry of 462 000 t/y compared with 1990

(when it entered the Community) would be achieved. This included the

(4) 0J C 248, 11.9.1993

(5) 0J C 71, 9.3.1994.

(6) 0J C 302, 9.11.1993

```

```
4. I .§6.p.5
##### 302

closure, agreed in December, of a 320 000 t/y capacity medium section mill

at a plant already owned by Riva, at Hennigsdorf. A further ECU 158 million

in aid was to be provided for the investment at EKO Stahl under the regional

investment aid schemes, as allowed by Article 5 of the steel aid code.

In April the Commission had come out against an earlier restructuring plan

for EKO Stahl which would have involved nearly ECU 1 billion in aid. This was

based on a so-called stand-alone concept, without private capital being

involved.

In November, following a new proposal by the German Government, the

Commission took the view that the relation between the state aid proposed

(ECU 464.7 million) and the associated capacity reduction in hot-rolled

products (142 000 t/y) was still not sufficient to Justify a proposal for the

Council to approve the aid involved under Article 95 of the ECSC Treaty. In

the Commission's view, the required capacity reduction for such a level of

aid should amount to 350 000 t/y.

486. As it had done in 1992 for the main regional aid schemes/ [7] ) the

Commission approved under Article 5 of the steel aid code the possible

granting, under the main ERP schemes/ [8] ) of aid to the steel industry in

the new Lander until the end of 1994/ [9] ) Over the year it also authorized

several awards of regional investment aid, under Article 5 of the steel aid

code, to steel companies in the new Lander, including ECU 18 million and

12 million to Hennigsdorfer ElektrostahIwerke and Brandenburger

ElektrostahIwerke respectively, which were taken over by Riva last year/ [1 0] )

and to a number of scrap-treatment firms in the new Lander.

487. The Commission initiated an investigation under Article 6(4) of the

steel aid code into ECU 17 million in aid which the Lower Saxony Land

Government planned to give to Georgsmarienhutte, Lower Saxony, formerly

Klockner Edelstahl, for costs associated with the construction of a new

electric arc furnace/ [1 1] ) The aid was notified for approval as aid for R&D,

but the Commission had doubts whether it should not be considered as aid for

investment.

(7) Twenty-second Competition Report, points 386 and 391.

(8) Twenty-second Competition Report, point 468.

(9) 0J

(10) Twenty-second Competition Report, point 388; 0J ...

(11) 0J C 71, 9.3.1994.

```

```
4.I.§6.p.6

<T7> Spain

```

###### 303

```
488. The aid and restructuring package approved by the Council in December

included aid of ECU 515 million in support of a restructuring plan for the

special steels company Sidenor. Some 379 000 t/y of hot-rolled capacity would

be closed during the restructuring. Approval of the plan had been held up

since November 1992, and this made certain modifications necessary/ [1 2] )

489. At the same time ECU 2 817 million in aid was authorized for

restructuring the state-owned integrated steel company, Corporacion de la

Sidérugia Integral (CSI). In November 1992 the Commission had come out

against an earlier version of the restructuring plan which proposed some

ECU 3 592 million in aid in return for a net reduction in hot-rolling

capacity (taking into account the proposed investment in a compact strip

production unit at Sestao) of only 1.3 million t/y which would not be

achieved until 1997/ [1 3] ) The revised plan agreed by the Council reduced the

amount of aid subject to Article 95 of the ECSC Treaty, brought forward

closure of the hot strip mill at Ansio to the end of 1995 at the latest, and

uncoupled the investment at Sestao from the aided restructuring plan by

making the project dependent on genuine and long-term majority private-sector

participation unsupported by state aid. This increased the reduction under

the aided restructuring plan in hot-rolling capacity to 2.3 million t/y.

<T7> Italy

490. In July the Commission initiated proceedings under Article 6(4) of the

steel aid code against the Italian Government's plan presented to the

Commission in April to write.off some ECU 4 billion of the debt of the public

steel group I I va before it was reconstituted as the new public enterprise

Nuova Siderurgica/ [14] ) The Commission noted that the group was facing an

extremely delicate economic and financial situation and that it had recorded

substantial losses in 1991 and 1992 and a considerable increase in

indebtedness. In 1993 the situation continued to deteriorate. Despite the

gravity of the situation, the I I va group was able to continue its activities

(12) Twenty-second Competition Report, point 393

(13) Twenty-second Competition Report, point 394

(14) 0J C 213, 6.8.1993.

```

```
4.I.§6.p.7 3 Q 4

thanks to public financial assistance, and in particular the passive

attitude of its only shareholder, the Italian State, which enabled it to

increase its indebtedness on the basis of the explicit guarantee that was

provided for in Article 2362 of the Italian Civil Code and amounted to a

credit faciIi ty.

491. On the same occasion, the Commission adopted for the first time interim

measures based on Article 88 of the ECSC Treaty and calling upon the Italian

Government to waive the implementation of the plan to write off most of the

debts of the Italian public steel industry. The decision gave the Italian

Government formal notice to present its comments within fifteen days, failing

which the Commission would take a reasoned decision finding that it had

failed to fulfil an obligation under the Treaty. Before the end of July the

Italian authorities informed the Commission that they would comply with the

Commission's request.

492. The final restructuring plan for I I va agreed in December involved the

writing-off of ECU 1 579 million of debt before the assets of the company

were split into a flat-products business and a stainless-steels business 
I Iva Laminati Piani and Acciai Special i Terni respectively - and privatized.

The remainder of llva's debts, estimated at ECU 5.4 billion at the end of

1993, would either be transferred to the purchasers or covered by the selling

price'. The aid to the public steel group I I va also involved a capital

injection of ECU 351 million and restructuring and winding-up expenditure of

ECU 643 mill ion. To sum up, the total aid amounts to ECU 2 573 mill ion. In

return for the aid, it was agreed that 1.2 million t/y of hot-rolling

capacity would be cut at Taranto with the closure of two reheating furnaces,

that the Bagnoli wide-strip mill would be completely closed and that closures

of another 500 000 t/y of capacity would be carried out by the company

acquiring the Taranto plant within six months of p r i v a t i z a t i o n / [1 5] )

<7> Portugal

493. Also as part of the package agreed in December, the Council gave its

unanimous assent for ECU 306.3 million in aid for restructuring the

publicly-owned Siderurgia Nacional. In return, the company would reduce

(15) 0J

```

```
4. I. §6.p.8 _
###### 305

hot-rolling capacity by 140 000 t/y at its plants at Ma i a and Seixal. The

restructuring plan also includes aid towards redundancy costs and for

environmental protection investment that will be examined by the Commission

separately under the steel aid code. The decision took account of Portugal's

position as a small Member State with only one major steel company/ [1 6] )

<T6> Non-ECSC steel sectors

<T7> Germany

494. The Commission initiated the procedure provided for in Article 93(2) of

the EC Treaty against a proposal to grant ECU 186 000 in regional investment

aid to Berg-Spezial-Rohr GmbH, which makes large welded tubes at Siegen. The

investment would increase capacity in a sector suffering from considerable

overcapacity in the Community/ [17] )

495. On the other hand, the Commission authorized investment aid of

ECU 9 mi I I ion in grants and tax al lowances plus an ECU 15.5 mi I I ion loan

guarantee for the pipe producer Klôckner Rohrwerk Muldenstein GmbH of

Saxony-Anha11/ [18] ) The company was reducing its capacity by 25% overall and

by 80% in the case of smaI I-diameter pipes.

<7> Spain

496. Following the judgment of the Court of Justice in the Cook c a s e / [1 9] )

which had found that the Commission had been wrong to reject a complaint

about aid to PYRSA, a Spanish company making steel castings, without a

further investigation of the market situation, the Commission opened

proceedings against the aid consisting of grants of ECU 1.4 million and a

guarantee and interest subsidy on a loan of ECU 3.8 million/ [2 0] )

(16) 0J ...

(17) 0J C 122, 4.5.1993.

(18) OJ ...

(19) See points 395 and 553 of this Report.

(20) OJ C 281, 19.10.1993.

```

```
4.I.§6.p.9 _
### 306

<T5> (b) Aid to shipbui I ding

<T6> General

497. On 16 December the Council adopted Directive 93/115/EC extending the

period of validity of the Seventh Council Directive on aid to shipbuilding

(90/684/EEC) for a further twelve months until 31 December 1994. In the light

of a consultant's report, the Commission maintained the production aid

ceiling for 1994 at 9% for large vessels and at 4.5% for vessels with a

contract value of less than ECU 10 million and for ship conversions.

498. Negotiations continued under the auspices of the OECD on a new

international instrument to curb unfair trading practices in

shipbuilding/ [21] ) The talks covered both direct and indirect aid such as

production subsidies and home credit schemes, restrictions on traffic rights

of foreign-built ships and export financing/ [22] )

499. In a judgment on two appeals brought by Belgium against decisions

requiring it to reduce subsidies on loans to Belgian shipowners for having

ships built in Belgian yards, the Court of Justice confirmed that aid to

shipping companies placing orders for ships has to be counted towards aid

ceilings for shipbuilding/ [23] )

<T6> Decisions on individual cases

<T7> " Belgium

500. In October the Commission approved a restructuring package for

Boelwerf, the main shipyard in Flanders. The yard will undergo a 40%

reduction in workforce and a reduction in shipbuilding capacity of more than

50%, to be achieved in part by the irreversible closure of the site at

Hoboken. The aid package includes ECU 53 million operating aid in conformity

with the aid ceiling applicable under the Seventh Directive and

ECU 26 million closure aid to defray costs related to the redundancies.

(21) Twentieth Competition Report, point 9

(22) See point 575 of this Report.

(23) See point 555 of this Report.

```

```
4...J-.P.10 3 0 7

<T7> Germany

501. The Commission approved operating aid totalling ECU 790 million for four

East German shipyards - Warnow Werft, Peene Werft, Elbe Werft Bolzenburg and

Volkswerft - all in Mecklenburg-Western Pomerania. Directive 92/68/EEC

provides a derogation from the Seventh Directive for the East German yards

under which they can receive production aid up to 36% of a reference annual

turnover for a three-year period ending in 1993/ [2 4] ) A decision on a fifth

yard, MTW, was postponed until i t had been settled whether a change in the

site of this yard disqualified it from the 1992 derogation. The Commission

also approved tranches of investment and closure aid for the first four yards

as their investment plans were found to be in conformity with the required

capacity reduction of 40% from 1990 levels.

502. In April the Commission took a negative decision on aid to Bremer Vulkan

in connection with its acquisition from Krupp of a company specializing in

naval electronics/ [25] ) It established that ECU 65 million of unlawful state

aid had been paid to Bremer Vulkan when it bought a majority stake in Krupp

Atlas Elektronik via HIBEG, the investment vehicle owned by the Land of

Bremen. The decision requires Bremer Vulkan to repay the aid to HIBEG, which

transferred ECU 65 million more to Krupp in return for the stake than the

stock-exchange value of the Bremer Vulkan shares it acquired. HIBEG was able

to do so thanks to a guarantee granted by the Land of Bremen.

<T7> Spain

503. Under Article 9 of the Seventh Directive, Spain had been exempted until

1 January 1992 from the operating aid rules laid down in Chapter II of the

Seventh Directive (with the exception of Article 4(5)), provided that

inter alia it carried out a restructuring programme in 1991/92 which would

allow its shipbuilding industry to operate with the same aid level as the

other Member States. As provided for under Article 9(2) of the Directive, the

restructuring plan has been the subject of regular monitoring reports from an

independent consultant, jointly appointed by the Spanish Government and the

Commission. The consultant's final report for 1992 concluded that overall the

restructuring plan had achieved its targets. However, performance at

individual yards had been patchy, and this, together with the uncertain

(24) Twenty-second Competition Report, point 376

(25) 0J L 185, 28.7.1993.

```

```
4.I.§6.p. 11
```

308

```
prospects for new orders, raised some doubts about future levels of

competitiveness. Article 9 provides in such circumstances for additional

measures to be taken to reinforce the restructuring. The Commission is

discussing the consultant's findings with the Spanish authorities.

<7> United Kingdom

504. The Commission authorized the United Kingdom Government to offer up to

ECU 9 million (UKL 7 million) in production aid to the Swan Hunter yard to

enable it to compete for two or three orders for merchant ships in 1994 and

1995 (if aid is permitted in that year) with a view to facilitating the sale

of the yard and avoiding its closure. Swan Hunter had never been physically

closed to merchant shipbuilding. Only access to the national Shipbuilders'

Intervention Fund was not allowed since 1986. The United Kingdom Government

undertook that this was a one-off operation, that the aid would be granted in

compliance with the rules laid down in Articles 4 and 12 of the prolonged

Seventh Directive, and that it would not constitute a precedent for any of

the other military yards. The Commission considered that, in the light of

the abovementioned undertakings given by the United Kingdom Government, it

was appropriate to authorize this small amount of aid to the Swan Hunter

yard.

```

```
4.I.§6.p.12

<T5> (c) Aid to the motor vehicle industry

```

##### 309

```
505. The Commission's policy of monitoring aid for investment in the motor

 industry was vindicated when the Court of Justice upheld the decision to

authorize aid to Ford and Volkswagen for building a new mini van plant in

Portugal Z [2 6] )

506. In December the Council imposed countervailing duties of 4.9% on

gearboxes imported into the EC from a new General Motors plant in Vienna for

which the company had received an investment subsidy. Negotiations under the

EC/Austria Free Trade Agreement had failed to find a mutually satisfactory

solution to the problem. Another motor industry case concerning Steyr

Nutzfahrzeuge AG was settled after the aid had been reduced to a level which

the Commission considered reasonable for a comparable area in the Community.

507. The Commission took the following decisions pursuant to the framework on

state aid to the motor vehicle industry. In December 1992 it had reviewed the

framework but decided to leave it unchanged/ [27] )

<T7> Belgium and the Netherlands

508. In October the Commission initiated the procedure under Article 93(2) of

the EC Treaty with regard to possible state aid granted by the Dutch State

and the Region of Flanders to the truck producer DAF. DAF's financial

situation had gradually deteriorated over recent years, during which time

the company had asked the public authorities to postpone repayment of, or to

reschedule, outstanding loans and to provide new loans. The Dutch and the

Flemish authorities had not notified the transactions. Unless they are

reversed and any aid refunded to the respective governments, they will be

further examined under the procedure.

After the bankruptcy of DAF in March 1993, the new company DAF Trucks N.V.

was formed and purchased the core assets from the former DAF company. While

the Dutch and Flemish Governments had agreed with the private shareholders

that the public shareholding would be reduced to less than 50%, it remained

at 61%. The Dutch State and the Flemish Region contributed ECU 72 million

(26) See point 553 of this Report.

(27) Twentieth Competition Report, points 250 and 251; 0J C 36, 10.2.1993

```

```
4. I. §6.p.13 ' _
```

310

```
and ECU 24 million equity capital and ECU 21 million and ECU 9 million

risk-bearing loans respectively. In order to determine the extent to which

these measures constitute state aid, the business plan of the new company

will be examined in the light of the provisions of the framework on the state

aid for the motor vehicle industry relating to rescue and restructuring aid.

The Commission will also examine whether the sale of the assets of the former

DAF to the new company, without being offered to other possible buyers, led

to the price being below market value.

If its assessment of the case should confirm that illegal state aid

incompatible with the common market was granted, the Commission will

determine whether any of the aid, including that awarded to but not repaid by

the former DAF, should be reimbursed by the new company.

<T7> Germany

509. In June the Commission approved guarantees given by the Treuhandansta 11

on commercial loans of up to ECU 77 million for Sachsische Automobilbau GmbH

(SAB). SAB forms part of a large-scale Volkswagen project to establish modern

car production in Germany's new eastern Lander.

This project had been awarded direct and indirect aid of about

ECU 670 million by the German authorities, including certain operating

losses of SAB that the Treuhandansta 11 has agreed to cover. The Commission

considered the proposed Treuhandansta 11 guarantees to contain elements of

state aid to SAB. These guarantees constituted rescue aid but fulfilled the

conditions set by the Commission for such aid in general and in respect of

the motor vehicle industry in particular, as defined by the sectoral

framework. The granting of the guarantees was also in line with the

Commission's general position toward guarantees to TreuhandanstaIt-owned

companies in cases where the continued financing of such companies by the

Treuhandansta 11 is under scrutiny after initiation of the Article 93(2)

procedure/ [2 8] ) The need for SAB to increase its cashflow by recourse to the

financial markets arose de facto as a consequence of the Article 93(2)

procedure initiated in December 1991 / [2 9] ) by which all aid payments for the

Volkswagen project were suspended until a final decision was taken. A

decision on the whole Volkswagen project in eastern Germany is expected

shor tI y .

(28) See point 405 of this Report.
(29) Twenty-first Competition Report, point 235

```

```
   §6.p.14
###### **31 1**

510. In October the Commission approved regional aid to Saginaw, a

wholly-owned subsidiary of Adam Opel AG, in support of its investment plans

in Kaiserslautern. The project involved the installation of a new production

and testing line for diesel engines by Saginaw in the existing buildings of

Opel's Kaiserslautern plant, replacing an existing engine line. The project

will take place over the years 1993-96 at a total cost of ECU 260 million,

of which ECU 220 million is eligible for regional aid. The aid is in the form

of an ECU 33 million grant to the project that will be paid from 1994 to

1996. This amounted to a gross grant equivalent of 14%. In approving the

state aid, the Commission assessed the regional development benefits against

possible adverse effects on the sector as a whole, such as the creation of

significant overcapacity. It undertook an analysis to establish the net

regional disadvantages that Saginaw/Opel faced by investing in the assisted

area of Kaiserslautern. These disadvantages were found to be in proportion

with the proposed regional aid. The project was not expected to have negative

effects on the sector within the Community, as it will partially substitute

extra-Community imports of engines by the company. For these reasons, the aid

was compatible with the criteria for regional aid set out in the framework.

511. Also in October the Commission approved regional aid to MAN

Nutzfahrzeuge in support of its investment plans in Salzgitter. The project

involves the extension of buildings and the installation of new machinery in

order to expand the production of buses and bus components. The project will

take place over the years 1991-94 at a total cost of ECU 48 million, of which

ECU 46 million is eligible for regional aid.

The proposed aid, in the form of a grant of ECU 1.6 million to the project,

has a gross grant equivalent of 2.8%.

In approving the state aid, the Commission concluded that the project

complies with the criteria for regional aid set out in the framework for

state aid to the motor vehicle industry. It is satisfied that the project

will make a noticeable contribution towards overcoming the problems of high

unemployment in the region, while it will not lead to the creation of

significant overcapacity, particularly in view of the growing demand in

eastern Germany, where much of the former bus capacity has been closed down.

```

## 312

```
<T7> Spain

512. In April the Commission decided to approve state aid to Cadiz

Electronica S.A., a wholly-owned subsidiary of the Ford Motor Company. The

project involved installation of new, more flexible machinery in order to

rationalize the manufacture of the current type of electronic modules and to

create facilities for manufacturing electronic modules for advanced braking

systems. The investment would cost ECU 46 million and create 150 jobs. The

aid for the project consisted of a regional grant of ECU 12 million from the

central administration. In assessing the aid, the Commission did not apply

the same strict discipline as it does to final vehicle assembly or engine

production projects, since this would lead to unfair treatment by comparison

with aid to projects being undertaken by independent component producers,

which are not notifiable under the framework. Since the increase in capacity

was restricted to the new production of ABS electronic modules that are only

used for ABS systems in Ford cars and since the notified aid was far below

the ceiling for the assisted area, no significant distortions were to be

expected.

513. In July the Commission approved regional aid to SEAT in support of its

investment plans in Arazuri (Pamplona). These plans stemmed from the

Volkswagen Group's decision to centralize all production of the Polo model in

one plant and to use the capacity released in Wolfsburg by this transfer to

increase the production of the Golf and Vento models there. The project had a

total cost of ECU 375 million, of which ECU 367 million was eligible for

regional aid. The investment would increase employment by 1 425 workers to

4 369. The company was to receive investment grants and employment aid of

ECU 36 million, giving an aid intensity of 8% gross grant equivalent. In

approving the state aid, the Commission concluded that the project complied

with the criteria for regional aid set out in the framework because the aid

only compensated for the net regional disadvantages SEAT faced in investing

in the assisted region of Navarra. Taking into account all other capacity

changes by the same manufacturer at group level within the relevant segment

of the market, SEAT'S investment in Arazuri would involve a capacity

increase. Therefore, in order not to distort competition, the Commission

asked the Spanish authorities to ensure that the effective nominal aid

intensity did not exceed 9.7% of the eligible costs, which was equivalent to

the estimated level of net regional handicap.

```

```
4.I.§6.p.16

<T7> France

```

###### 313

```
514. In June the Commission approved state aid to Renault and PSA for a joint

R&D project on car and road safety entitled "Véhicule et Sécurité Routière".

The project, which was concerned with passive and active safety of vehicles

and the avoidance of accidents and was divided into four subprojects, was

complementary to the Eureka Prometheus programme and the Community's Drive

Research programme. The research project, which will be carried out over a

five-year period, will cost an estimated ECU 99 million and will be

coordinated by the joint company GIE PSA Renault, with many component

producers participating. The aid, under two schemes administered by the

Ministries of Research and Technology and of Industry and External Trade,

takes the form of grants of ECU 32 million. It will cover up to 50% of the

eligible expenditure on basic research and 25% of the expenditure on applied

research, giving an average intensity of 32%. In approving the state aid,

the Commission concluded that the project fulfilled the criteria of the

Community motor vehicle and R&D frameworks. In particular, the aid limits

laid down in the latter framework were met.

<7> United Kingdom

515. In March 1992 the Commission initiated Article 93(2) proceedings against

undisclosed aid paid by the United Kingdom authorities to British Aerospace

for its purchase of Rover Group over and above that authorized by the

Commission in 1988/ [3] °) It had already taken a decision on the unauthorized

aid in July 1990, but the decision had been annulled by the Court of

Justice on procedural grounds in February 1992 because the Commission had

failed to give the United Kingdom authorities an opportunity to reply under

Article 93(2) proceedings before taking the decision. In March 1993 the

Commission took a new decision under Article 93(2) proceedings. It came to

the conclusion that the additional financial concessions made in 1988 by the

United Kingdom authorities to British Aerospace constituted state aid

incompatible with the common market/ [3 1] ) It decided that not only the aid

itself should be refunded, but also the interest advantage which the

beneficiaries had enjoyed. The United Kingdom authorities later confirmed

that British Aerospace had paid the aid plus interest, amounting to some

ECU 73 million, to the Department of Trade and Industry. Interest was

(30) Twenty-second Competition Report, point 413.

(31) OJ L 143, 15.6.93.

```

```
4. I .§6.p.17
###### 314

charged over the period from 18 August 1990 (the date on which the

principal became due under the 1990 decision) to 23 May 1993. In choosing

this starting date instead of the date on which aid was granted, the

Commission accepted the contention of the United Kingdom authorities and the

aid recipients that the new policy on this matter initiated in March 1991 
whereby interest on the aid to be recovered was to run from the date of

effective payment of the aid - should not be applied retroactively. It

welcomed the compliance by the company and the United Kingdom authorities

with its new decision/ [3 2] )

516. In June the Commission approved regional aid to Leyland Daf Vans (LDV)

in support of an investment project forming part of the rescue of DAF's van

business. The project, which will be carried out over a five-year period, has

a total investment cost of ECU 34 million, of which an estimated

ECU 27 million is eligible for regional aid. Grants of ECU 6.4 million will

be available, giving an aid intensity of less than 15% net grant equiva lent,

below the regional ceiling of 20% net. On the basis of regional aid criteria,

the Commission concluded that LDV was suffering significant net operating

disadvantages by investing in the old over large installations of DAF. Hence,

the regional aid would not cause noticeable trade distortions in a market

segment where there was no structural overcapacity at EC level. The regional

aid would also help stem further job losses in the Birmingham area, which

suffers from high unemployment. On the basis of restructuring criteria, the

Commission concluded that the aid to rescue the van activities of the old

Leyland DAF would not allow LDV to increase its small market share at the

expense of its unaided competitors. LDV was not only diversifying its

business but also concentrating its van sales on a niche market in the

United Kingdom, mainly serving large fleet customers. As a result, the

effect of the restructuring aid to LDV on other EC van producers would be

m i nor.

(32) See point 396 of this Report

```

```
(2

```

```
4. I.§6.p.18

<T5> (d) Aid to the synthetic fibres industry

```

###### 315

```
517. The new code on aid to the synthetic fibres industry came into force on

1 January 1993. The code, which will be in force until 31 December 1994,

requires notification of any plan to grant aid - in whatever form - to

producers of synthetic fibres, as defined by the code. Germany initially

accepted the code for only one year, 1993, but in December 1993 it indicated

its acceptance also for 1994. All other Member States had already accepted

the code for both years.

Under the code, authorization is conditional on a significant reduction in

the production capacity of the assisted company. In assessing the

significance of the reduction in each case, the Commission takes into

account, among other matters, the intensity of the aid, the location and

size of the investment as well as the contribution, if any, the investment

makes to the cohesion of the Community and to the trend of the average rate

of capacity utilization of the aid recipient, any industrial group to which

it belongs and the industry generally.

<T7> ; Germany

518. The Commission opened proceedings under Article 93(2) of the EC Treaty

in four cases of aid to companies in the new Lander, namely:

(i) Markische Faser AG, Brandenburg, in respect of matters arising out of

the privatization of the company/ [3 3] ) the purchase of real estate and

certain capital injections;

(ii) Rhône-Poulenc Rhotex GmbH, Brandenburg (ECU 3.75 million in aid for new

plant for the texturization of polyamide textile filament yarn);

(iii) SST GarngeselIschaft GmbH, Thuringia (ECU 2.5 million in aid for new

plant for the production of polyester staple fibre); and

(iv) Texti Iwerke Deggendorf GmbH, Thuringia (ECU 22 million in aid for new

plant for the processing of polyester and polyamide textile filament yarn).

(33) Twenty-second Competition Report, point 402.

```

```
4.I.§6.p.19
```

316

```
519. Two of the cases were later closed with approval of the aid. The aid for

Rhône-Poulenc Rhotex was allowed in view of the fact that Rhône Poulenc was

significantly reducing its capacity for this process both in the former

German Democratic Republic and at group level. Similarly, the Commission

considered that, as a specific element of the strategy by which the synthetic

fibres industry of the former German Democratic Republic was being

restructured in order to reduce its capacity to 143 075 t/y, the aid to SST

GarngeselIschaft was also allowed.

<T7> France

520. Following the judgment of the Court of Justice on 24 March which had

annulled the Commission's original decision authorizing the a i d / [3 4] ) the

Commission opened Article 93(2) proceedings in respect of some ECU 30 million

in aid to Allied Signal Fibers Europe SA, Meurthe-et-Moselle, for

construction of new plant for the production of polyester industrial filament

yarn.

<T7> Ireland

521. The Commission authorized aid of ECU 180 000 to Wellman International

Ltd, Cavan, a polyester and polyamide fibre producer, for the conversion of

existing equipment and the design of new energy-efficient processes. It

decided to approve the aid because the investment would be accompanied by a

reduction in production capacity which was considered significant in terms of

the code, particularly given the intensity of the aid and the location of the

investment.

<T7> Portugal

522. The Commission authorized aid of about ECU 2 million to Text il Antonio

Falcâo Lda, Braga, for a new polyamide and polyester yarn extrusion facility.

The proposed aid was notified before the new code came into force and was

therefore assessed under the previous code, which expired at the end of 1992.

The Commission decided to approve the aid because of the location of the

investment and the minimal effect on intra-Community trade.

(34) See point 554 of this Report.

```

```
4.I.§6.p.20
###### 317

<T7> United Kingdom

523. The Commission opened Article 93(2) proceedings against the proposal to

award around ECU 1 million of aid to Abingdon Carpets pic for facilities for

polypropylene yarn production installed at its carpet factory in Gwent in

1989. Although the company applied for aid for the project in 1988, the

United Kingdom authorities did not notify the proposal to grant aid until

September 1993.

524. In line with the code, which requires notification of any proposal to

award aid to a producer of synthetic fibres, the Commission was notified of a

proposal to award ECU 1.2 million aid to Bonar Textiles Ltd, Tayside, for new

equipment to increase production capacity for polypropylene tape. On 21 April

it decided not to raise any objections because polypropylene tape did not

constitute a fibre within the meaning of the code.

```

**`4.I.§6.p.21`** 318

```
<T5> (e) Textile and clothing industries

525. Although the current rules governing aid to the textile and clothing

industry, which date from 1977, do not specifically require individual awards

of aid under authorized, e.g. regional or SME, schemes to be notified, as is

the case with synthetic fibres, aid to this sector, which is facing

structural adjustment problems, needs to be closely monitored and any aid

with a capacity-increasing impact should be individually notified. In 1993

the Commission dealt with the following cases, which were notified to it

under other general schemes or were themselves special sectoral schemes.

526. The Commission approved proposed aid of some ECU 4 million, with an

intensity of 8%, for Sofisilk, Mouscron (Hainaut), Belgium. The aid consists

of a grant and an interest subsidy.

The proposed aid will not increase textile production on the market since

Sofisilk has no spinning and weaving capacity but operates downstream. The

aid therefore complies with the requirements laid down by the Commission for

textiles and with the conditions of a regional aid scheme for the Province of

Hainaut approved by the Commission in 1975.

527. The Commission initiated an investigation under Article 93(2) of the

EC Treaty into aid offered by Lower Saxony to Nino Text il AG, Nordhorn. The

Land authorities proposed to honour a bank guarantee of ECU 13 million which

the Commission had approved in 1990 and to waive the repayment claim against

Nino. '

The Commission considered the honouring of the guarantee without attempting

to repay the loan by realizing the firm's assets to be new aid which should

be notified under Article 93(3) of the Treaty.

However, during the proceedings the Commission allowed the company to receive

a new temporary bank guarantee for a loan rimited to the minimum necessary

to keep Nino in operation for up to six months until the Commission reached

its final decision under the Article 93(2) proceedings. Without such rescue

aid, the company would not survive this p e r i o d / [3 5] ) Should the

Article 93(2) proceedings not be concluded within six months, the Commission

(35) See point 444 of this Report

```

###### §6.p.22 319

```
would consider a request to extend the guarantee for the remainder of the

period covered by the proceedings.

528. The Commission cleared an existing scheme to raise the profile of the

export activities of the wool textile industry in the United Kingdom. The

scheme is run by the British National Wool Textile Export Cooperation and

those eligible are predominantly small and medium-sized entreprises. The

scheme is financed through a levy paid by companies carrying out specified

activities in the woo I-processing fields and is completely self-financing,

having a very small budget. No levies are charged on imports, and exports are

not exempted from paying the levy. The scheme was therefore exempted.

529. The Commission started an investigation under Article 93(2) of the

EC Treaty into proposed aid totalling ECU 76 million for investment by the

Hualon Corporation in Belfast.

The investment plan (in four phases covering the period 1993-2000) involves

the construction of buildings and the installation of the necessary plant for

spinning, dyeing and finishing some 23 000 tonnes of polyester, polyamide and

polycotton fabrics.

The aid was not covered by the code on aid to the synthetic fibres industry

since the code applies to the manufacture of synthetic fibres and Hualon's

activities will be downstream of such production. The aid was, however,

covered by the guidelines for textiles laid down by the Commission in 1971

and 1977, which state that aid must not lead to increases in capacity and

must take account of the situation of the industry in the Community as a

whole. Although the level of the aid (38%) was below the limit for the

region, the Commission considered that it was unable at this stage, in view

of the fact that the investment will be completed only in 2001, to assess the

balance between the aid's regional benefits (creation of 1 800 jobs in

Northern Ireland) and its adverse effects on the textile sectors concerned.

```

```
4.I.§6.p.23
#### 320

<T5> (f) Aid to the coal industry

530. Pursuant to Decision No 2064/86/ECSC establishing Community rules for

state aid to the coal industry/ [36] ) the Commission ensured in 1993 that

financial measures planned for the coal industry complied strictly with the

Decision.

Financial measures 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 approved, by decision, the 1993 aid proposals for the Federal

Republic of Germany on 24 December i992/ [3 7] )( [3 8] ) for Belgium on

24 February 1993, [( 3 9 )] for France on 18 May 1993( [4] °) and for Portugal on

7 December 1993. [( 4 1 ) ]

By decisions of 23 December 1992( [42] )( [43] ) addressed to the

Spanish Government, the Commission authorized financial measures for the

Spanish coal industry for 1993. In those decisions the Commission also ruled

on the various other financial assistance measures for 1991 and 1992 which

the Spanish Government proposed to implement following the measures for

restructuring, rationalizing and modernizing the coal industry, and on the

financial assistance represented by the compensatory amounts to be paid to

electricity generators under the Ofico aid scheme for 1992.

The United Kingdom did not notify any aid for current production for the coal

industry in the financial year 1993/94. This reflects the United Kingdom

(36) OJ L 177, 1.7.1986.

(37) OJ L 58, 11.3.1993.

(38) OJ L 59, 12.3.1993.

(39) OJ L 85, 6.4.1993.

(40) OJ L 198, 7.8.1993.

(41) OJ L 23, 28.1.1994.

(42) OJ L 57, 10.3.1993.

(43) OJ L 57, 10.3.1993.

```

```
4...J..P.24 3 2

Government's policy of restricting the granting of aid to redundancy costs

and other social costs connected with the restructuring, rationalization and

modernization of the coal industry.

In accordance with Article 16 of Decision No 2064/86/ECSC, the Commission

presented to the Council the annual report on the application of the Decision

in 1992/ [4 4] )

Since the Community's current rules on financial assistance provided by

Member States to the coal industry (Decision No 2064/86/ECSC) were to expire

on 31 December, the Commission adopted on 28 December Decision

No 3632/93/ECSC establishing new rules for state aid to the Community coal

industry, to enter into force on 1 January 1994/ [4 5] )

On 25 March the Commission adopted the report on the market for solid fuels

in the Community in 1992 and the outlook for 1993/ [4 6] ) A revised version of

the report was approved by i t on 23 September/ [47] )

(44) C0M(93)589 final, 26.11.1993.

(45) OJ L 329, 30.12.1993.

(46) SEC(93) 441 final, 25.3.1993.

(47) SEC(93) 1399 final, 23.9.1993

```

```
  S.p.25
                                    Stote aid to the coal industry

                                 Aid for current production in 1992 and 1993

                                                              (mi I I ion ECU)

                             1 1 I I 1 1 1 1
               | Belgium | Germany | Spain | France | Portugal | United Kingdom | Community |
i | ! J, 1, j, j, j, (, 1
               | 1993 | 1992 | 1993 | 1992 | 1993 | 1992 | 1993 | 1992 | 1993 | 1992 | 1993 | 1992 | 1993 | 1992 |

; Aid under Decision No | | | | | | | | | | | I I I I
| 2064/86/CECA 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 I I I I I I I
   -Article 3 j - j 33.5 j 139.4 | 177.7 j 355.4 j 379.7 j 191.3 | 186.9 j 6.1 j 5.0 | - | - j 692.2 j 782.8 j
   -Article 4 j - j - j 1513.3 j 1787.7 j - j - j - j - | - j - | - I - I 1513.3 | 1787.7 j
Î -Article 5 j - j - j - | - | 24.9 j - j - j - j - j - I - I - I 24.9 j - j
| - Article 6 | - j - j 61.6 j 65.6 j - j - j - j - j - j j j - j 61.6 j 65.6 j
J -Other j - j - j - j - | - | 66.3 j - j - j 0.6 j 0.8 j - j - j 0.6 j 67.1 j

i i i i i i i t i i i i i i i i

   TOTAL | - j 33.5 j 1714.3 | 2031.0 j 380.3 j 446.0 | 191.3 j 186.9 j 6.7 j 5.8 j — j - j 2292.6 | 2703.2 j

   ECU per tonne j - j 153.67 j 26.66| 28.15 j 20.56 j 23.94 j 21.33j 19.72j 27.73 | 26.36 j - j - j 14.33| 14.64 |

 2. Indirect aid j - j 7.4 j 2566.7 j 2466.7 j 15.5 j 17.3 j - j - j - j - I - I ~ I 2582.2 j 2491.4 j

i ' I I I I I I I I I I I I I I I
   TOTAL | - | 40.9 | 4281.0 | 4497.7 | 395.8 | 463.3 | 191.3 | 186.9 | 6.7 | 5.8 | - | - | 4874.8 | 5194.6 |

I I I I I I I I I ' I I I I I I I
; ECU per tonne | - | 187.61 | 66.58] 62.34| 21.39 | 24.87| 21.331 19.721 27.73 | 26.36 | - | - | 30.47| 28.14 |

                                                      CM

                                                      NO

```

###### 323
```
4.I.§7.p.26

<T3> §7. Aid to other industries

531. The bulk of the aid cases dealt with in 1993 in industries other than

those subject to aid codes or frameworks involved rescues and restructuring
of firms in difficulty and are reported a b o v e / [4 8] ) A number of schemes

supporting particular industries through levies were also considered. The

problems arising from levy schemes are described in the introductory section
of this chapter/ [4 9] ) The remaining cases, in the energy sector, are reported

below.

<T4> Energy

532. In July the Commission authorized the United Kingdom Government to

continue to charge a levy on electricity bills in order to support the

development of renewable energy in England and Wales. The Fossil Fuel Levy

was introduced in 1990 at the time of the privatization of most of the

electricity supply industry in Britain, and the bulk of it is used to help

finance the decommissioning and waste management costs of nuclear power

stations. Although the levy also supports some renewable-generated
electricity, the Commission, in authorizing it in 1 9 9 0 / [5] ° ) limited it to

the period up to 1998 because of the nuclear component.

For renewables, which require longer-term support, the time limit was acting

as an obstacle to development. The Commission therefore lifted the limit as

far as renewable energy was concerned, allowing the United Kingdom to

continue the levy into the next century to finance a further 900 MW of

renewable capacity in England and Wales. At its peak, the levy will yield

around ECU 240 million a year for renewables support. In July and August the

Commission also authorized schemes . to subsidize renewable-generated

electricity in Northern Ireland and Scotland. The latter two sclernes

represent a total of 300 MW.

Aid arrangements for renewable-generated electricity are not counted towards

the limit of 20% of electricity demand which the Commission applies to

subsidies or other protective arrangements for indigenous fuels.(51)

```

`(48) See point` _AAA_ `of` `this` `Report.`
```
(49) See point 391 of this Report.
(50) Twentieth Competition Report, point 293.
(51) Twenty-second Co^r'? [ f ;] t [ :] -r r--'-.-..-'- • • [ :] n! :• 1/-': ar-o -153

```

#### 4.I.§7.p.27 324

```
533. In 1992 the Commission had decided that a new tariff for supplies of

natural gas by Gasunie to nitrate fertilizer producers in the Netherlands did

not involve aid, but it asked the Dutch Government to notify to it any

applications of a revision clause whereby the producer could be given rebates

off the tariff prices/ [5 2] ^ These rebates should, however, not take the

prices below those charged for gas exported from the Netherlands for use as

a raw material. In 1993 the Dutch authorities notified the Commission that

Gasunie wished to grant Dutch ammonia producers a rebate of 0.88 cts/m^ for

the period March to October 1992 and 0.58 cts/m [3] for the period May to

July 1993. Both periods had seen sharp falls of up to 20% in the prices of

ammonia, the main raw material for nitrate fertilizer production. The rebates

amounted to around 6% and 3.8% respectively of the tariff price and still

left the prices well above those at which Gasunie was supplying distributors

in Belgium, Germany and France. The Commission judged that the rebates were

normal commercial behaviour for Gasunie. Owing to the falls in prices due in

part to low-priced imports from eastern Europe, Gasunie's customers were

having to close ammonia plants to stem heavy losses. The rebates did not give

Dutch producers a competitive advantage over foreign ammonia producers as the

export prices for Dutch gas were still below those charged to Dutch

producers.

(52) Twenty-second Competition Report, points 434 to 437

```

**4.I.58.P.1** **3 2 5**

```
<T3> §8. Aid in the transport sector

<T5> (a) Land transport

534. State aid for the maintenance of essential public services is a vital

element in the common transport policy. Article 77 of the Treaty allows aid

to be granted to compensate for the discharge of public service obligations.

As regards rail transport, Regulation (EEC) No 1893/91d) has, since

1 July 1992, allowed the competent authorities to conclude contracts to

ensure the provision of services. The Commission intends to examine the way

 in which this new facility is utilized so as to ensure that it is fully

effective.

 In the light of the provisions of Directive 91/440/EEC(2) as they relate to

the separation of infrastructure costs and operations, the whole question of

the payment of infrastructure charges, particularly for freight, has come

into sharper focus. Pursuant to Article 93(3) of the Treaty, the

United Kingdom notified the Commission of its intention to institute a

freight facilities grant and a track charging scheme. Following examination,

the Commission decided not to raise any objection to the schemes, which

should facilitate the Commission's objective of making better use of the rail

system for freight movements.

The Commission decided that certain financial facilities provided by the

German railways (DB) to firms to encourage them to have sidings built or to

maintain existing sidings did not involve state aid. It considered the

arrangements - loans and the provision of materials and staff - were

completely financed out of the freight charges later paid to DB by the

company and were thus in line with the commercial investor principle.

In the inland waterways sector, Commission Regulation (EEC) No 3690/92(3)

introduced changes to the financial arrangements for scrapping so as to

permit further vessels to be removed from the fleet and thus reduce the

overcapacity in this sector. These measures came into force on

1 January 1993.

(1) OJ L 169, 29.6.1991.

(2) OJ L 237, 24. 8. 1991

(3) OJ L 374, 22.12.1992.

```

4.i.§8.p.2 3 2 6

```
Having initiated proceedings under Article 93 (2), the Commission took a

negative decision with regard to an Italian decree of 28 January 1992 which

introduced a tax credit for Italian road haulers. The Commission decided

that such aid was incompatible with the Treaty as it did not meet any of the

conditions for the derogation laid down in Article 92(2) and (3) of the

Treaty or in Council Regulation (EEC) No 1107/70.

In 1991 the Commission also initiated Article 93(2) proceedings with regard

to a draft Law of the Italian Government which contained state aid for the

restructuring of the Italian road transport sector. In March 1993 it decided

to extend the proceedings to include another Italian Law adopted in

February 1992 and containing identical state aid to that in respect of which

the proceedings had been initiated in 1991.

Finally, in May 1993 the Commission authorized a Spanish programme of aid

amounting to a maximum of ECU 81 million for the improvement of the road

transport sector for the years 1993-95. The authorization was based

i nter alia on the fact that the programme wi I I reduce overcapacity in the

sector by at least 8%.

<T5> (b) Maritime transport

535. The Commission is currently examining a number of cases involving state

aid and is continuing its work in reviewing its Guidelines for the

examination of state aids to Community shipping companies, adopted in 1989,

in the light of developments since then.

It has also undertaken a study on the question of the transparency of

financial relations between public authorities and ports which will be

finalized by the end of the year.

The Commission took decisions on a number of state aid cases concerning

maritime transport and ports during the year. A new interim state aid to

stimulate shipping in the Netherlands was approved by it in July. The budget

envisaged for the calendar year 1993 is ECU 27 million and the measure will

apply for one year only.

The Commission authorized two state aid schemes for maritime transport in

Germany. One allows financial contributions to be made to shipowners using

```

```
4. I. §8.p.3
###### 327

modern ships flying the German flag. The scheme, approved in December, has

been put in place for 1993 and 1994 only, and the total budget for the two

years amounts to some ECU 110 million.

In October aid to assist with the privatization of Deutsche Seereederei

Rostock was approved by the Commission. This amounted to ECU 170 million and

will help maintain levels of employment in Mecklenburg-Western Pomerania.

The Commission initiated Article 93(2) proceedings against aid proposed by

the Basque authorities for a new shipping I ine between Bilbao and Portsmouth.

The proceedings should allow the Commission to determine whether the aid,

amounting to ECU 8.5 million, is compatible with the common market.

In respect of ports, the Commission authorized in July the payment of certain

aid to support the restructuring of the Italian port sector (ECU 70 million).

However, it initiated Article 93(2) proceedings in respect of aid of

ECU 34 million to reduce the commercial deficits of port companies.

Financial support worth ECU 3 million granted by the Spanish authorities to

the leisure ports of Catalonia was considered by the Commission to be

compatible with the common market under Article 92.

<T5> (c) Air transport

536. Since the entry into force on 1 January 1993 of Regulations (EEC)

Nos 2407/92, 2408/92 and 2409/92/ [4] ) representing the third and final stage

of the Community air transport liberalization measures, a more rigorous

approach has become necessary in assessing aid for Community air carriers.

The Commission decided to consider as compatible with the common market under

Article 92(3)(a) aid notified by the Portuguese Government aimed at

compensating for the accrued deficit of TAP incurred during the period

1978-91 in carrying out public service obligations on the routes to the

autonomous regions of the Azores and Madeira/5) The aid amounted to some

ECU 178 million (ECU 163 million debt write-off and ECU 5 million capital

injection). In the same decision the Commission initiated Article 93(2)

(4) 0J L 240, 24.8.1992.

(5) OJ C 178, 30.6.1993.

```

```
<.,».p.4 3 2 8

proceedings with regard to the new method adopted by the Portuguese

authorities to compensate for the losses incurred by TAP in fulfilling public

service obligations on the same routes. According to this method,

compensation is calculated on the basis of the difference between the tariffs

imposed on TAP and those which TAP would apply taking into consideration its

commercial interest. The proceedings were initiated because this method

involves a, risk of overcompensation of the deficit and is not transparent.

Article 93(2) proceedings were also initiated with regard to non-notified aid

involved in the privatization and sale of the Dutch pilot school RLS to

KLM. ( [6] ) The Dutch Government sold the pilot school RLS to KLS (wholly owned

by KLM) for the token sum of HFL 1 and committed itself to covering the

operating deficit made by the school in the five years following

privatization. The Commission initiated proceedings because it doubted that

HFL I reflected the real market price of the school and had serious doubts

as to the compatibility of the covering of operating deficits with the

common market.

537. In November the Commission initiated Article 93(2) proceedings with

respect to the subscription, through a subsidiary of the Caisse de Dépôts et

Consignations - Participations, of the bonds issued by Air France last

March. The ECU 224 million issue consists of two types of bonds: bonds

repayable in shares (ECU 112 million) and subordinated progressive-interest

securities carrying share subscription vouchers.

The Commission's decision to initiate proceedings reflects doubts about the

commercial character of the operation, which, in the light of Air France's

financial position, appears to constitute state aid within the meaning of

the Treaty.

The Commission will therefore investigate whether the financial operation is

linked to a restructuring plan presented by the French carrier at the end of

1992 to restore the company's viability. It will verify the impact of the

aid on competition within the common market, in the light of Air France's

competitive position in the air transport sector, and in particular in its

domest ic market.

(6) OJ C 293, 29.10.1993

```

```
   §8-P.5 _ ^ ^
###### 329

538. The Commission decided in December to authorize the Irish Government to

inject ECU 216 million equity into Aer Lingus. This equity injection, to be

carried out in three tranches, will enable Aer Lingus to implement a

comprehensive restructuring plan which the Commission considers will restore

the airline's commercial viability over two years.

The Commission's approach in the context of increased competition in the air

transport sector, following the entry into force of Regulations (EEC)

Nos 2407/92, 2408/92 and 2409/92 (the "third package") on 1 January 1993, is

that there must be a strict policy of control of state aid so as to avoid any

effects which would be contrary to the common interest.

In general, airlines which receive state aid must compete fairly and freely

in the single market, taking account of existing demand and future market

growth. However, it would be unfair if they were allowed to obtain increased

capacity to compete with other EC carriers.

The Commission therefore required specific undertakings that the state aid

will not be used to allow Aer Lingus to compete unfairly within the common

market.

The Irish Government's commitments, which have been given for the duration of

the restructuring programme, relate mainly to the following points:

   the cost-reduction programme will be carried out as envisaged;

   the Irish Government will periodically report to the Commission on the

   financial and economic development of Aer Lingus and the development of

   the programme;

   Aer Lingus will not expand its operating fleet;

   the Irish Government will not grant any further aid to Aer Lingus;

   if created before the end of the restructuring period, the low-cost

   subsidiary Aer Lingus Express will operate within Aer Lingus's operating

   fleet;

   the European operations, the Transatlanic operations and, if and when

   created, Aer Lingus Express will become and operate as separate legal

   entities with separate accounts to allow transparency of operations;

```

```
   §8.p.6
##### 330

   Aer Lingus will not increase seats offered for sale to the public on

   scheduled flights on the Ireland/UK market as well as on the

   Dublin-London (Heathrow) route beyond clearly specified ceilings based

   on the traffic level achieved in the twelve months before notification;

   Aer Lingus will use the money for restructuring purposes only and will

   not acquire shareholdings in any Community carrier.

539. The Commission addressed two recommendations under Article 93(1) of the

Treaty to the German and Portuguese governments^) with a view to abolishing

the general tax exemption for TAP and the accelerated depreciation system for

airlines established in Germany. As a consequence of the German Government's

refusal to abolish the accelerated depreciation system, the Commission

initiated Article 93(2) proceedings with regard to this tax privilege/ [8] )

The Commission is at present updating its guidelines for the assessment of

aid schemes for Community carriers. It will take into account the conclusions

reached by the "Committee of Wise Men". For this purpose, the new guidelines

will be published after the Committee has completed its work on the future of

Community civil aviation.

(7) OJ C 163, 15.6.1993

(8) OJ C 16, 19.1.1993.

```

```
4.I.§9.1

<T3> §9. Aid to other service sectors

<T4> Financial services

```

_**OÙ**_ **`1`**

```
540. The liberalization of financial and postal services continued to

generate complaints from private competitors of state-owned banks and postal

administrations. The complaints concerned special privileges enjoyed by the

public-sector operators, injections of public funds when businesses are

privatized, and extensions of activities into markets previously served only

by the private sector.

541. In implementing the guidelines set out in the Green Paper on postal

s e r v i c e s / [1] ) the Commission examined the measures taken by the Belgian

authorities with respect to the OCP (Office des Chèques Postaux) and the OCCH

(Office Central de Crédit Hypothécaire) as well as measures adopted in France

in 1990 regarding the taxation of financial services provided by the post

off ice.

(1) C0M(91)476 final, 11.6.1992.

```

##### 332

```
<T4> Horse-race betting

542. In December 1990 the Commission initiated Article 93(2) proceedings in

respect of certain financial assistance granted to Pari Mutuel Urbain (PMU).

Since three of the aid measures had not been suspended following the

initiation of proceedings, the Commission adopted a provisional decision in

June 1991 calling on the French authorities to suspend such measures within

f i fteen days.

A feature of horse-race betting is that competition and trade between

Member States have developed only in the last few years. There are few

competing companies, and trade involves bets taken in one Member State on

horse-races run in other Member States and the exchange of televised pictures

of such races. For these reasons, the Commission had some difficulty in

reaching a well-founded assessment of any state aid that might arise from the

measures taken by the French Government in support of P M U / [2] )

In September the Commission terminated the Article 93(2) proceedings; the

main points of its decision are as follows.

Of the three measures in respect of which the Commission had taken an interim

decision, two were deemed to be aid incompatible with the common marke. In

particular, the amounts received by PMU as a result of exemption from the

employer's contribution to the building of subsidized housing must be repaid

by it. The other measure, involving exemption from the one-month delay rule

for VAT payments, although amounting to aid that was incompatible with the

common market, was offset by a permanent deposit of funds lodged with the

Treasury, so that its effect on competition and trade was nullified. The

other measures must be deemed to form part of the normal funding arrangements

of the PMU and do not therefore call for any objections under Article 92(1)

of the EC Treaty.

(2) See Annex I I I.A.1(c) to this Report

```

###### 4. I .§9.3 333

```
 <T4> Pub I ish ing

 543. In May the Commission authorized four aid schemes operated by the

Coopérative d'exportation du livre français (CELF) in support of the sale of

French-language books in non-French-speaking countries. Although the schemes

subsidized exports of books, albeit in small quantities, they were justified

on cultural grounds in view of the fact that all French-language book

publishers in the Community could benefit. The decision was subsequently

challenged by the Société internationale de diffusion et d'édition (SIDE)

before the Court of First Instance/ [3] )

<T4> Film and broadcasting

544. In June the Commission cleared a proposal by the French Government to

extend the .system of levies on cinema admissions and television station

revenue, the proceeds from which are used to finance film productions and

high-quality television programmes, to include sales of prerecorded

vidéocassettes/ [4] ) With video sales accounting for an ever-increasing

proportion of film revenues, the French Government wanted this distribution

mode to contribute to its film industry support system. In 1992 the

Commission had approved the German film aid scheme, which contains a levy on

prerecorded vidéocassettes/ [5] )

545. In October the Commission approved an ECU 6 million grant by the

Brandenburg Land Government for Studio Babelsberg. The old "Ufa/Defa"

studios, where many of the most famous pre-war German films were made, has

been purchased from the Treuhand by an international consortium which plans

to make it into a modern European film production centre. The grant by the

Land Government was for investment in the sound studios.

546. Four private television stations in Spain, France and Portugal have

complained to the Commission about alleged unfair competition through

subsidies and anti-competitive practices by public broadcasters. The subsidy

complaints are that the public funding of state broadcasters, through

television licence fees, capital injections and other payments,

overcompensates public broadcasters for any public service obligations they

(3) Case T-49/93, OJ C 272, 8.10.1993.

(4) Twenty-second Competition Report, point 444.

(5) Twenty-second Competition Report, point 442.

```

```
  .§9.4
```

334

```
may have to perform and for any advertising restrictions they may face and

therefore represents distortive state aid. To assist it in assessing the

complaints, the Commission is having a study made by outside consultants into

the balance between the respective rights and obligations and financial

resources of public and private television in the European Community. The

results of the study will be ready by mid-1994.

```

```
4. I.§10.p.1

<T3> §10. State aid in the agricultural sector

```

3 Ô 5

```
547. In the agricultural sector, Commission activity is largely determined by

the provisions of the common agricultural policy, the principles of which are

 laid down in numerous Council regulations. This applies above all to the

common market organizations, which are in principle exhaustive regulations

for the products concerned and exclude additional national market support

measures via state aid. In the field of agricultural structural and

environmental measures, Commission policy concerning the assessment of state

aid under Articles 92 and 93 of the EC Treaty is similarly largely determined

by Council regulations. In this context the introduction of Council

Regulation (EEC) No 2078/92 on agricultural production methods compatible

with the requirements of the protection of the environment and the

maintenance of the countrysided) is of particular importance. This

Regulation constitutes one of the accompanying measures of the 1992 CAP

reform. Regulation (EEC) No 2078/92 provides that Member States can introduce

additional state aid measures with different conditions and higher amounts of

aid than those set in this legislation. For the assessment of these state aid

schemes, the Commission has to take into account the basic criteria of this

Regulation. In comparison to the criteria which were applied before under

Council Regulation (EEC) No 2328/91, which previously set the parameters for

environmental measures, the following changes are important :

   aid can also be given for the maintainance of certain farming practices

    including those not under any immediate threat;

   the aid programmes can cover whole regions and are not restricted only

   to environmentally sensitive areas;

   "the aid rate (e.g. premium per ha) can provide an incentive and thus be

   higher than any income losses or possible additional costs associated

   with the requirements of environmental protection.

The full extent of the new parameters set by this legislation remain to be

defined. However, it is already evident that a very wide spectrum of

conditions may now be considered as conferring environmental benefits.

(1) OJ No L 215, 30.7.1992, p. 85. See also point 384 of this Report.

```

### 4.I.§10.p.2 336

```
Consequently state aid related to the environment can now be the source of

additional income to the agricultural sector in those Member States able and

willing to avail their farmers of the new possibilities opened up by

Regulation (EEC) No 2078/92, over and above that flowing from Community

co-financed actions.

548. As mentioned above, the Commission as a general rule raises objections

to aid which concerns national market support measures for products subject

to the various common market organizations. This is done because normally

such national aid per unit of output or input is liable to disturb Community

market mechanisms and, as operating aid, has no lasting effect on the

development of the sector concerned. In this context the Commission took

final negative decisions against two Italian aid schemes, one of them

concerning aid to olive oil producers which went beyond the total amount of

aid permitted by the market organization for oils and fats, the other

concerning aid for the private storage of nuts.

The Commission initiated Article 93(2) proceedings with regard to the

apparent misuse of a scheme approved in 1992( [2] ) for the export of mushrooms

from Ireland. It regarded this aid as an infringement of the market

organization for fruit and vegetables and as operating aid with no lasting

effect on the development of the sector. According to the information

available to the Commission, the aid was based on the quantity of mushrooms

exported and reduced the exporters' costs. Thus this aid is regarded as not

being in conformity with an approved aid scheme of which it is part, which

was intended to avoid massive lay-offs in small and medium-sized enterprises

whose earnings had dropped sharply due to the depreciation of the pound

sterling. The Commission had raised no objections to this aid scheme in 1992

on the understanding that products such as mushrooms for which common market

organizations exist were excluded from direct support to avoid an

infringement of the market organizations.

Another reason for initiating proceedings in this case was that a condition

for the grant of the aid constituted a measure having equivalent effect to a

quantitative trade restriction in contravention of Articles 30 et seg. of

the Treaty. According to the information available to the Commission, the aid

(2) Twenty-second Competition Report, point 470.

```

###### 4.I.§10.p.3 337

```
was granted only to producers, buying compost from one or more of the five

Irish composting companies. This case illustrates that in assessing state

aid the Commission has to take account of other Treaty provisions. It deems

any aid incompatible with Article 92 if the conditions for its grant are in

contravention of another provision of Community law.

Another case in the context of a common market organization where the

Commission decided to initiate proceedings under Article 93(2) of the

EC Treaty was in regard to aid taking the form of the transfer of assets of

the Milk Marketing Board for England and Wales, which currently constitutes a

virtual monopoly for the collection and marketing of milk, to a new

cooperative to be called Milk Marque.

On the basis of this transfer, Milk Marque will issue certificates of

entitlement to milk producers. These will not be transferable and can be

cashed in by producers not Joining the new cooperative on the fifth

anniversary of the day on which it is set up. Milk Marque is to pay interest

of 7% per annum on them after a one-year moratorium.

The Commission considered that these arrangements, which may also involve an

underestimation of the value of the assets due to be transferred to Milk

Marque, do not reflect normal market conditions but violate the open market

principle as established by the Court of Justice in its judgment in

Case 177/78 (Pigs and Bacon Commission v McCarren and Company Ltd). Milk

producers who do not wish to become members of Milk Marque would be forced

investors in the new cooperative, which would accordingly not be established

on a genuinely voluntary basis. Consequently the Commission also had to

consider the measure as an infringement of the market organization for milk

and milk products.

549. "In the wine sector, the Commission initiated Article 93(2) proceedings

in December 1992 with regard to German aid for supplementary distillation of

wine in Rhine land-Palatinate going beyond the quantities provided for in the

provisions of the common market organization. The Council subsequently

decided in February 1993 to allow this aid under the terms of the third

subparagraph of Article 93(2) of the EC 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.

```

```
4.I.§10.p.4

```

3 Ô 8

```
However, it has to be mentioned that it is not the only case in recent times

where the Council has made use of this Treaty provision to allow aid in the

wine sector against which the Commission had decided to initiate

proceedings/ [3] ) During 1992 and 1993 the Council took a total of four

decisions invoking "exceptional" circumstances for aid in the wine sector.

550. Concerning aid to investments for improving processing and marketing

conditions of agricultural products, Community policy is laid down in

Council Regulation (EEC) No 866/90 and further defined in the Commission

decision of 7 June 1990 on the selection criteria to be adopted for these

investments, otherwise referred to as "sector limits". Although Council

Regulation (EEC) No 866/90 allows Member States to introduce aid under

different conditions through Articles 92 and 93 of the EC Treaty, this

freedom is confined by the selection criteria under Regulation (EEC)

No 866/90 applied by analogy for the assessment of state aid.

This is Commission practice because these "sector limits" were established

to take account of the Community market situation for the products concerned

and not to reflect relative priority for use of Community funds. Thus, for

reasons of consistency of Community policy, it would be inappropriate to

encourage investments in sectors which are excluded from aid as a

consequence of Community market and structural policy by allowing state aid

in these restricted sectors.

The Commission had to deal with several cases which concerned aid for the

modernization of undertakings in excluded sectors (grainmills, oil seeds

processing) in the new Lander of Germany. The Commission decided to initiate

the proceedings under Article 93(2) of the EC Treaty because it saw no

reason to allow derogations from the abovementioned limits if motivated

solely by the general argument of the special situation in the new Lander.

Derogations from the "sector limits" might in general, however, be warranted

for a given case provided there is a solid justification based on an

economic analysis which included the Community interest.

(3) See, e.g., Twenty-second Competition Report, point 503.

```

```
4.I.§10.p.5

```

339

```
Such a derogation was made when the Commission raised no objections to an

 investment aid for an animal feed production plant, which is normally an

excluded sector (except units of small size); this derogation was allowed

because the Danish authorities could provide assurances that the measure,

located on the island of Bornholm had no impact on trade between Member

States.

These assurances were based on the particular circumstances of the case,

especially the geographical location of the investment and its isolation from

the relevant markets elsewhere in the Community.

551. In the case of aid financed by parafiscal charges (compulsory levies),

the Commission has to examine the financing of the aid as well as the aid

itself. The case of a German aid scheme for publicity financed by parafiscal

charges (Absatzfondsgesetz) highlighted new aspects of the examination

of these kinds of aid. The Commission raised no objections against this aid

scheme although for some products (e.g. oilseeds) only that part of

production was taxed (in this case oil production) which benefited from the

aid. In this case the aid was used exclusively for publicity for oils on the

domestic market. Thus the exclusion from the tax of production either for

export or for uses other than oil production was not considered as indirect

operating aid for these exempted products.

With regard to aid financed by parafiscal charges on products imported from

other Member States, the Commission's policy, based on the case-law of the

Court of Justice, is to consider such aid to be normally incompatible with

the common market because of the way in which it is financed. Only in cases

where there is substantial processing of such products after importation,

having the effect of changing the origin.of the processed products, and where

the charge is levied only on the products thus processed, can the

aid-financing aspect be deemed compatible with the common market.

The Commission was thus able to terminate Article 93(2) proceedings in

respect of aid for research financed by a parafiscal charge levied on

processed fruit and vegetables, the proceedings having been initiated because

of the taxation of fresh products imported from other Member States. After

the Dutch authorities had altered the regulations governing the levying of

the parafiscal charge, the situation was such that the charge was levied only

```

```
4. I.§10.p.6
```

340

```
on fruit and vegetables that had undergone substantial processing, so that

the products obtained were of Dutch origin.

Acting under Article 93(1) of the Treaty, the Commission recommended that the

French Government halt the granting of aid by the French national association

of table wines and regional wines. The aid was incompatible with the common

market because it was financed by a contribution levied when the products

were released to the home market and also on export, with products imported

from the other Member States also being taxed at those two stages.

The Commission did not consider that the blending of French table wines and

wines imported from other Member States amounted to substantial processing

that could alter the origin of the wines from the other Member States.

Furthermore, the Commission noted that the table wines supplied for

processing in France are not subject to the charge, whereas table wines are

always liable to the contribution on export, whether or not they are intended

for processing. The contribution was therefore regarded as a tax having an

equivalent effect to an export duty.

```

```
4.I.§11.p.1
##### 341

<T3> §11. Aid in the fisheries sector

552. In 1993 the Commission registered 23 new aid schemes and two aid schemes

notified after their adoption by the Member State in question.

The Commission decided not to oppose the implementation of 21 aid schemes.

During 1993 the Commission initiated Article 93(2) proceedings in relation to

one Danish aid measure and one Italian aid measure. During the same period,

the Commission decided to terminate Article 93(2) proceedings with regard to

three aid measures introduced by France 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 compatibl itiy 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.

                                 Decision by the Commission

```

```
Negat ive

dec i s i on

  1

```

```
Termination of

proceedings

    2

    4

    9

    3

```

```
Ini t iat ion of

Article 93(2)
 proceedings

     2

     7

    10

     2

```

```
  No

object ion

  12

  18

  28

  21

```

```
Year

1990

1991

1992

1993

```

```
Total

23

45(D

33(2)

25( [3] )

```

```
(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) Five registered aid measures were withdrawn from the register of aid
   before the examination process commenced.

```

```
4 . I I .p.1

<T4> Chapter I I

<T2> Main decisions of the Court of Justice

< T 3 > §1• Weighing of rights of third parties and prospective aid

     recipients in decisions whether or not to initiate proceedings

            under Article 93(2) of the EEC Treaty

```

#### 342

```
553. Third parties may be hurt by failure to initiate proceedings under

Article 93(2) because their rights to have their views heard is infringed.

As far as prospective aid recipients are concerned, the initiation of

Article 93(2) proceedings has important legal effect because of the

suspensive effect of those proceedings/ [1] ) In two judgments^) the Court

confirmed the extent of the Commission's obligations towards third parties

and prospective aid recipients when deciding whether or not to open

investigation proceedings under Article 93(2).

In the Cook judgment, the Court annulled the decision of the Commission to

raise no objections to several sets of aid granted to PYRSA, a Spanish

manufacturer of foundry products, which would increase the production

capacity of the company.

The Court considered that the Commission had based its decision not to raise

objections on the absence of overcapacity in the sub-sector in question. At

the same time, the Commission did not have at its disposal all the necessary

figures or statistics showing with any degree of certainty that its

assessment of the capacity situation was correct.

Consequently, the Commission was facing serious difficulties in determining

whether the aid could be considered compatible with the common market, and

therefore should have initiated the procedure under Article 93(2) of the

Treaty in order to verify its assessment.

(1) See [1992] ECR 1-4117; Twenty-second Competition Report, point 532 and
   Case C-47/91, Italian Republic v Commission ("I taIgrani"), judgment of

   30 June 1992.

(2) Cook v Commission. Case C-198/91, judgment of 19 May 1993; Matra v
   Commiss ion. Case C-225/91, judgment of 15 June 1993.

```

```
   p.2
###### 343

In the Matra case, however, the Court upheld the Commission's decision to

allow regional aid granted by the Portuguese Government to Volkswagen and

Ford for building a new multi-purpose van plant at Setubal. The Commission

had not opened proceedings; it had been satisfied as to the absence of

overcapacity from a consultant's report. In these circumstances, not having

serious doubts about the compatibility of the aid with the common market, it

had not been obliged to open proceedings. If the Commission was sure without

opening proceedings that the aid was permissible under the exceptions to

Article 92(3), it should not do so.

<T3> §2. Legal status of aid frameworks and their interpretation

554. In the CIRFS v Commission judgment^) of 24 March 1993, the Court

reaffirmed the binding nature of rules setting out the Commission's practice

in controlling aid where the rules have been recommended to the Member States

and accepted by them under Article 93(1) of the Treaty.

The Court found that the Commission had made a mistake in interpreting the

scope of the synthetic fibres aid framework when i-t had held that aid for an

investment project by Allied Signal did not need to be notified because it

concerned man-made fibres for industrial uses. The Commission had based its

interpretation on that given in a previous decision under which it had

approved aid to a German man-made fibres producer. However, the Court held

that an act of general scope could not be altered implicitly by an individual

decision. It therefore annulled the Commission's decision not to initiate

Article 93(2) proceedings in respect of the aid granted by France to Allied

S i gna I .

The Commission has since initiated Article 93(2) proceedings against the

aid/ [4] )

(3) CIRFS v Commission ("Allied Signal"), Case No C 373/89, judgment of

   24 March 1993.

(4) See point 520 of this Report.

```

```
4.I I.p.3

<T3> §3. Aid to shipping companies placing orders for ships

       ' to be counted towards aid ceilings for shipbuilding

```

344

```
555. The Court dismissed two applications by the Belgian Government seeking

the annulment of Commission decisions concerning aid in the form of

subsidized loans granted to shipowners for the building of ships in Belgian

shipyards.(5) The grant equivalent of the loans exceeded the maximum aid

ceiling laid down by the Commission pursuant to Article 4(1) of the sixth

Council Directive on aid to shipbuilding/ [6] ) In its decisions, the

Commission required the Belgian Government to review the terms of the loans

in such a way as to bring their grant equivalent within the limits set for

1989.

The Belgian Government argued that part of the aid thus granted did not

constitute support for shipyards, but was merely aid for the operation of sea

transport under the Belgian flag, and that the compatibility of the aid

should therefore be examined in the light of the exemptions provided for in

Article 92(3)(a), (b) and (c) of the Treaty.

556. In its judgment, the Court confirmed that the aid to shipowners that was

granted for the purchase of ships was aid to shipyards and should be fully

subject to the common ceiling rules, and that the Council directives based on

Article 92(3)(d) had already taken account of the aspects contained in

Article 92(3)(a), (b) and (c).

(5) Belgium v Commission, Joined Cases C-356/90 and C-180/91, judgment of 18

   May 1993.
(6) Council Directive 87/167/EEC of 26 January 1987.

```

```
5.§1.p.1

<T5> Part V

<T1> International dimension

<T3> §1. EFTA countr ies

```

345

```
557. In the referendum of 6 December 1992 the Swiss people decided that

Switzerland would not become part of the European Economic Area.

Consequently, the Agreement had to be amended and an additional protocol was

concluded. That protocol did not change any of the competition provisions.

Liechtenstein has also decided not to join the EEA for the time being but

could still do so at a later stage.

All the other countries involved were able to conclude their ratification

procedures during the period under review so that the EEA could enter into

force on 1 January 1994.

The EFTA Surveillance Authority (ESA) will be responsible for enforcing the

competition rules on the EFTA side. During the review period the Commission

cooperated closely with EFTA's Preparatory Committee for the Surveillance

Authority in order to help it prepare in the best possible way for the tasks

awaiting it upon the entry into force of the EEA.

On 15 December the Commission adopted new notification forms on which

companies will notify their agreements or a proposed merger to the Commission

so that account can be taken of the EEA dimension/1)

<T4> The Free Trade Agreements of 1972

558. The Commission continued to apply the competition rules of the 1972 Free

Trade Agreements, particularly in the state aid sector/ [2] )

As the EEA Agreement covers only state aid granted and anti-competitive

practices taking place after 1 January 1994, the Commission intends to

continue to monitor state aid as well as anti-competitive practices in EFTA

countries which date back to before the entry into force of the EEA and to

propose to the Council that remedial action is taken where needed.

(1) OJ L 336, 31.12.1993.

(2) See points 98 and 101 to 104 of this Report

```

```
5.§1.p.2
### 346

<T4> Sectoral agreements in the aviation sector

559. The Agreement between the Community and the Kingdoms of Norway and

Sweden which entered into' force on 6 July 1992 was amended on

10 September 1993 in order to extend the application of the so-called "third

package" in the area of civil aviation to these two countries. Although the

Agreement was originally set to expire on the date that the EEA entered into

force, the three Parties realised that this would lead to a particular

problem. The EEA does not as yet include the third package in the

"acquis communautaire" as defined in its Annex 13. This incorporation will

take place at a later stage. It has therefore been decided to maintain in

force the Agreement with Norway and Sweden as regards the third package, in

principle until the incorporation of the latter has taken place.

560. After Switzerland decided not to become part of the EEA Agreement, the

Swiss Government expressed an interest in concluding an agreement similar to

the one with Norway and Sweden on civil aviation. In addition, it asked for

an agreement covering road transport. In September the Commission recommended

that the Council instruct the Commission, to open negotiations on such

agreements. These negotiations should follow a two-track approach, i.e. cover

both the transport policy aspects and the competition aspects. The main

problem will be the enforcement of those rules. Unlike the Agreement with

Norway and Sweden, which was always intended to apply for a limited period

only, an agreement with Switzerland could remain in force indefinitely. For

this reason, the enforcement issue presents itself with more urgency.

<T4> Accession talks

561. The ongoing talks on enlargement with Austria, Finland, Norway and

Sweden have been greatly helped by the work already done on competition for

the European Economic Area.

Acceptance of the "acquis communautaire" is thus not presenting any major

difficulties, although the negotiations have highlighted two particularly

sensitive issues as far as the applicant countries are concerned, one

concerning the adjustment of state monopolies of a commercial nature and

```

```
                                 '
5.§1.p.3 3 4 7

the other regional aid schemes. The applicant countries stated among other

things that account should be taken of essential public health requirements

in connection with the alcohol and alcoholic drinks' monopoly and of the

characteristics of sparsely populated areas in the northern regions.

It was agreed in an exchange of letters between the Commission and the

Swedish authorities, on the one hand, and the Finnish authorities, on the

other, that the exclusive rights for the wholesale importation, production

and marketing of alcohol monopolies in those countries would be abolished.

As regards exclusive rights in the retail trade, existing Community

legislation does not require the abolition of existing state monopolies but

imposes the elimination of any discrimination in their operation. The

Commission also considered that the foregoing arrangements should be applied

as soon as the EEA Agreement entered into force.

562. In accordance with the conclusions of the Copenhagen summit, the

Commission opinion on accession applications from Cyprus and Malta analysed

the competition situation in these countries.

```

```
5.§ 2 .P.4 3 4 Q

<T3> §2. Central and Eastern Europe

563. During the period under review, the Community and its Member States

concluded a Europe Agreement with Romania, while an Interim Agreement between

that country and the Community was also concluded. In addition, the

Commission continued its technical assistance programmes with the countries

of central and eastern Europe with a view to helping them meet the obligation

under the Interim as well as the Europe Agreements to harmonize their

competition rules with those of the Community and acquire the necessary

experience in applying their competition laws.

564. Negotiations continued on partnership and cooperation agreements with

Russia and several other former republics of the Soviet Union. The Commission

has proposed that a competition article be included in the draft agreement

with Russia, which is at a more advanced stage than the other agreements.

Because the draft agreement does not aim to create a free trade area with the

Russian Federation, it was not felt appropriate to propose a competition

article which was as ambitious as those included in the Europe Agreements.

<T4> Other countries

565. Discussions about possible trade agreements are also taking place with

the Baltic States and with Slovenia. The intention is that the agreements

should include provisions on competition similar to those contained in the
```

_**)**_

```
Association Agreements with the central and eastern European countries, since

it may be in the interests of economic operators that as many Community

partners as possible form a coherent whole from the standpoint of competition

rules and their implementation.

566. As regards relations with Israel, the competition rules contained in the

1975 Agreement were to be strengthened and extended to cover service

activities in particular, while the arrangements for implementing the agreed

principles were to be set out more clearly.

```

#### 5.§2.p.5 349

```
567. As regards the Euro-Maghreb agreements to be negotiated with

Morocco and Tunisia, the same approach to competition rules could be taken as

for the central and eastern European countries. A major argument for

including such rules is the mutual advantage to the contracting parties in

applying harmonized competition rules instead of adopting defensive trade

measures.

568. A 1964 agreement between the Community and Turkey, which was

supplemented by a protocol in 1973, provided that, when a transitional period

of 22 years from that date had expired, a customs union would be set up.

Discussions have therefore started with a view to preparing for the change,

which should take place in 1995. It is clear that the competition rules are

an important aspect of the negotiations as they ensure that distortions of

trade will not result from the conduct of undertakings, an essential feature

of any treaty that provides for the abolition of all customs restrictions.

```

```
5.§3.p.6 ^ _
###### 350

<T3> §3. North Amer ica

569. The Agreement which the Commission concluded with the Government of the

United States on 23 September 1991( [3] ) continued to be applied both by the

Commission and the US competition authorities.

Thirty-six notifications were received and thirty-three sent. Those

notifications concerned mainly mergers and acquisitions while others dealt

with price fixing or licences.

Although the operation of the agreement should have been reviewed at the

latest 24 months after the entry into force of the Agreement, i.e. before

23 September 1993, it was decided to defer such a review until the Court of

Justice had taken a decision in Case 327/91 (France v Commission).( [4] ) The

Advocate-General dealing with the case delivered his opinion at the end of

1993, suggesting that the Agreement be annulled. No date has yet been set

for the Court judgment.

Bilateral meetings between DG IV and the US authorities were held in Brussels

on 20 September and in Paris on 9 December. At those meetings, the parties

discussed enforcement priorities, with particular emphasis on those of the

new US Administration, exchanged views on certain international aspects of

competition policy and explored ways of cooperating more closely on certain

specific cases.

A number of other contacts took place, inter 'alia in the margins of

international meetings at the OECD and in relation to specific enforcement

cases.

570. During the year under review no formal bilateral meeting took place

between DG IV and the Canadian Bureau of Competition, mainly because of

personnel changes in Canada. A number of informal contacts did take place,

however, in the day-to-day application of the' competition rules.

(3) Twenty-first Competition Report, points 64 and 362
(4) Twenty-first Competition Report, point 64.

```

```
5.§4.p.7

<T3> §4. Japan and Korea

```

#### **35 1**

```
571. Relations with the Japanese Fair Trade Commission (JFTC) entered a new

phase when the Commission and the JFTC organized a Joint seminar on

competition policy in the EC and Japan on 4 November in Tokyo. The success of

the seminar led to a decision in principle to organize a follow-up seminar in

Brussels during the course of 1994.(5) At an informal meeting in Paris on

9 December, it was decided that this seminar should focus on enforcement

issues in the EC and Japan.

The seminar was preceded by the eighth bilateral meeting between the

Commission and the JFTC on 2 November, also in Tokyo. A number of issues of

mutual interest were discussed, including exchanges on sectoral studies

undertaken by the JFTC into four sectors (automobiles, car parts, paper and

flat glass). One of the purposes of those sectoral studies is to examine

whether anti-competitive practices in those countries may give rise to market

access problems in Japan. The Commission is currently examining those studies

and may ask the JFTC to deal with certain problems highlighted in the

studies.

572. On 13 December a delegation from the Korean Fair Trade Commission

visited Brussels for their first bilateral meeting with DG IV. The meeting

was given over mostly to an exchange of views on recent enforcement

activities in the EC, in order to identify areas where the Community's

experience could provide the Korean authorities with useful guidance as

regards enforcement policies in their country.

(5) See point 110 of this Report

```

```
5.§5.p.8
```

352

```
<T3> §5. Multilateral organizations

<T4> OECD

573. During the period under review the OECD Committee on Competition Law and

Policy (CLP) held a number of meetings. Some joint meetings also took place

between CLP Working Parties and the Trade Committee on the relationship

between trade and competition policies. The Commission took an active part

in these discussions since they.may form a preparatory stage for the possible

discussions within the GATT on international competition rules. Other topics

discussed in the CLP were vertical and horizontal restraints.

574. The Commission took part in the work of the Industry Committee on

subsidies and structural adjustment. This involved drafting and finalizing

common concepts and methodologies for assessing state aid to industry with a

view to producing a detailed questionnaire for OECD members.

The questionnaire is an important stage in the project aimed at quantifying

the net cost to OECD public authorities of subsidies to industry.

575. The Commission continued to be involved in the ongoing talks in the OECD

about fair trading rules in the shipbuilding s e c t o r / [6] )

<T4> Unctad

576. The Unctad Intergovernmental Group of Experts on Restrictive Business

Practices (IGE) held its 12th meeting in Geneva on 18-22 October 1993.

(6) See point 498 of this Report

```

```
6.§1.p.1

<T5> Part Six

<T1> Contacts with Community institutions and

                  external organizations

<T3> §1. European Parliament

```

353

```
577. In the course of 1993 Parliament paid a great deal of attention to

competition matters. Its constructive contributions are greatly appreciated

by the Commission. It is the Commission's aim to maintain the regular

dialogue with Parliament on issues of competition policy.

On 8 February Parliament adopted its resolution on the Twenty-second

Competition Report. The resolution and the Commission's response are annexed

to this Report / [1] )

Two other resolutions were adopted which have a bearing on competition. They

concerned:

- shipbuilding (adopted on 16 November) and

- the situation of Daf/Leyland (adopted on 11 February).

578. During the year Members of Parliament submitted 159 written questions on

competition (141 in 1992); a further 29 questions were submitted for oral

reply (66 in 1992).

(1) Annex I.A,

```

`6.§2.p.2` 354

```
<T3> §2. Economic and Social Committee

579. On 24 November the Economic and Social Committee delivered its opinion

on the Twenty-second Competition Report. The opinion and the Commission's

response are reproduced in Annex I.B.

On 30 June the Committee delivered an opinion on state aid to shipbuilding.

580. The Commission appreciates the constructive observations made by the

Economic and Social Committee and hopes for a continuation of the good

working relationship with it.

```

```
6.§3.p.3

<T3> §3. Advisory Committee on Restrictive Practices

                 and Dominant Positions

```

###### 355

```
581. The Advisory Committee met six times to examine preliminary draft

Commission decisions pursuant to Articles 85 and 86 of the EC Treaty. Two of

the decisions involved interim measures.

The Committee delivered a total of seven opinions. It was also consulted in

13 cases where the Commission was considering sending comfort letters to

firms 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 its various compositions, the Committee held four meetings on matters

concerning legislation. Three of them dealt with a number of preliminary

draft regulations amending the block exemption regulations covering air

transport. One meeting was given over to discussion of a new block exemption

regulation relating to shipping consortia.

```

```
6.§4.p.4 -7 r '
```

35b

```
<T3> §4. Advisory Committee on Concentrations

582. The Advisory Committee on Concentrations met five times. It delivered

opinions on the draft decisions in KNP/BUhrmann Tetterode/VRG.

Pi Ikington-Techint/SIV. KaIi +SaIz/MDK/Treuhand and Mannesmann/VaIlourec/ILVA.

The review of Regulation (EEC) No 4064/89 was discussed at two meetings with

government experts from the Member States. The Commission drew very widely

on the results of the discussions in drafting its report to the Council/ [2] )

The meeting of Directors-General for Competition that was held on 15 October

was given over entirely to problems of cooperation between the Commission and

the competent authorities in the Member States. Discussions of this question

will be pursued within a working party of experts.

 2) See points 43 et seg. of this Report.

```

```
6.§5.p.5
```

357

```
<T3> §5. Conference of national government experts

583. At their 44th conference, held in Brussels on 7 December, the government

experts on restrictions of competition examined the preliminary draft of a

new Commission regulation on the form, content and other details of

applications and notifications pursuant to Regulation No 17 and the

preliminary draft of a new Form A/B. It was agreed to carry out a second

reading of the two preliminary drafts once the Commission had finished

consulting the relevant representatives of business and industry.

```

```
6. §6.a.p.6
```

358

```
<T3> §6. Contacts with the competition authorities in the Member States

<T5> (a) Restrictive agreements, dominant positions and mergers

584. In accordance with a general principle of law enshrined in all the

regulations implementing Articles 85 and 86, the Commission carries out its

proceedings in close and constant liaison with the competent authorities of

the Member States. Such contacts, which were once again very numerous in

1993, not only involve an exchange of views on the individual cases being

dealt with by the Commission. They also allow assessment of the scope for

cooperation at the investigation stage and, where appropriate, for the

sharing of tasks, in accordance with the principles of subsidiarity and

decentralization/ [3] )

585. It was in this spirit that the Commission decided to share with the

Member States a number of investigations to be carried out into firms in the

spectacle industry. The investigations were conducted partly by the national

authorities acting under Article 13 of Regulation No 17 and partly by

Commission officials acting under Article 14. In one case concerning the

distribution of office requisites, the Commission asked the authorities in

three Member States to carry out on its behalf investigations on their

respective territories into alleged restrictive practices. In two cases

which resulted in proceedings for infringement of Articles 85 and 86 and

related respectively to the foodstuffs and building materials industries, the

Commission decided to separate out from the facts resulting from its

investigation those which were more national in character and to refer them

to the competent authorities in the Member States concerned.

(3) See Part One, Chapter V, §2 of this Report.

```

```
6.§6.b.p.7

<T5> (b) Aid

```

###### 359

```
586. The Commission held two multilateral meetings with officials from

national ministries responsible for aid matters to discuss issues of state

aid policy. These meetings are dealt with elsewhere in this Report/ [4] )

(4) See points 382 and 383 of this Report

```

6.§7.p.8 3 5, 3

```
<T3> §7. Competition law in the Member States

587. The year saw a continuation of the tendency for competition law in the

Member States to move into line with the Community competition rules.

Measures were taken in several Member States to replace, amend or supplement

the existing legislation with this objective in view. Similar legislation

was being drafted in other Member States.

588. In Belgium the Act of 5 August 1991 on the protection of economic

competition entered into force on 1 April 1993, along with the necessary

implementing orders. It is closely based on Articles 85 and 86 of the

EC Treaty and introduces a ban on restrictive practices, with scope for

exemption, a ban on the abuse of dominant positions, and a system of merger

control. A number of bodies are involved in its application. Cases are to

be investigated by a Competition Office in the Ministry of Economic Affairs.

Decisions on these cases are to be taken by a Competition Council made up of

six professional judges and six specialists in competition matters. The

Council's decisions can be challenged before the Brussels Appeal Court, which

also has power to deliver preliminary rulings on the interpretation of the

Act at the request of other courts. The Minister for Economic Affairs is

empowered to declare block exemptions. There is also a joint Competition

Commission which is to play an advisory role.

589. In Portugal the decree-laws on competition and merger control were

incorporated into a single text. Important changes were made at the same

time. The new legislation resembles the EC competition rules in that it no

longer seeks to cover the case of an ordinary firm engaging in restrictive

practices individually. The previous rules on unfair and discriminatory

practices and on refusal to supply have been dropped. The ban on the abuse

of a dominant position has been supplemented by a ban on the abuse of

another's position of dependence. The merger control rules have been

reformulated so as to align them on the principles and concepts laid down in

the EC Merger Control Regulation. The new legislation also prohibits any

```

#### 6.§7.p.9 36 1

```
state aid which might significantly restrict or otherwise affect

competition. At the request of an interested firm, the Minister for Trade is

to investigate cases of state aid. If necessary, he will recommend to the

minister responsible the measures needed to restore competition.

590. The Dutch authorities are preparing a thoroughgoing reform of the 1956

Economic Competition Act. The system of supervision based on the concept of

abuse is to be replaced by new legislation prohibiting restrictive practices

and the abuse of dominant positions which would correspond closely to

Articles 85 and 86. The possibility of merger control legislation is also

under consideration. Plans have now been submitted to the appropriate

advisory bodies. In advance of the forthcoming reform, the Government

tightened up the supervision of certain horizontal agreements. Orders were

made banning price agreements, market-sharing agreements and restrictive

agreements in respect of tenders. Exemptions can be granted only in

individual cases. To qualify for exemption, an agreement must be shown to be

in the general interest.

591. In Ireland a bill was drafted which would amend the Competition Act 1991

in order to make the application of the law more efficient. The Minister for

Enterprise and Employment doubled the thresholds at which mergers must be

notified. The Competition Authority declared exemptions for exclusive

distribution and exclusive purchasing agreements for motor fuels which

correspond closely to those provided for in the Community block exemption

regulations, viz. Regulations (EEC) Nos 1983/83 and 1984/83.

592. In Denmark a committee was set up to draft a prohibition-based

competition bill and to examine the advantages and disadvantages of a reform

of the existing law. It is also to consider the introduction of merger

control.

593. The Government of the United Kingdom pressed ahead with its plans to

reform the rules on the abuse of economic power. A document setting out

various legislative options has been the subject of extensive consultations

```

e.§7.p.io 3 5 2

```
with all interested parties. The new rules are to be enacted together with

rules banning restrictive practices as soon as parliamentary time can be

found.

594. The Commission welcomes these moves, which in some cases go hand in hand

with a liberalization of markets and an ending of privileged treatment for

particular sectors, since they represent a decisive step towards the

harmonization of the competition policies of the Community and the

Member States and improve the scope for closer cooperation between

competition authorities and for decentralized law enforcement. This is an

objective to which the Commission has attached considerable importance and

which is being taken up more and more widely. In two other Member States,

France and Portugal, legal provision has now been made for the application of

Articles 85 and 86 by the domestic competition authorities. As yet there is

no such legislation in Denmark, Ireland, Italy, the Netherlands or the

United Kingdom. The Commission will continue its efforts to secure the

introduction of similar provisions in these countries too.

595. Those national authorities which do possess the necessary powers have

been applying Articles 85 and 86 more extensively. Eighteen new cases of

this kind were brought to the Commission's attention in 1993 (two in Germany,

six in Spain, eight in France and two in Portugal). In the large majority of

cases the Community prohibitions were applied in conjunction with the

corresponding prohibitions under domestic competition law. In the two German

cases, only the ban in Article 85(1) was applied because in the industry

concerned, the energy sector, domestic law gave the competition authorities

only very limited powers to supervise abuse.

596. The number of court cases in which the Community competition rules are

applied has also been increasingly rapidly. Member States' reports to the

Commission for 1993 list about 60 such decisions, with special mention being

made of 37 of them which are deemed to be of particular importance. Most of

the national competition authorities do not possess complete statistics on

```

```
(2

```

```
6.§7.p.11 7

such cases and so the total number of such judgments may well be a great

deal higher. The Commission considers that this development too provides

support for its policy of decentralized application.

597. Details of developments in Community law in the Member States are given

in the country-by-country reports in the annex.

```

```
6. §8. p. 12 3^4

<T3> §8. Other contacts

598. In addition to the contacts mentioned in this Report, the Commission, in

the course of preparation of its legislative work and general policy

documents, continues to receive submissions from, and have contacts with,

organizations representing consumers, employers and other relevant groups.

The Commission is in regular contact in particular with the European Bureau

of Consumers' Unions (BEUC), the European Round Table and the Union of

Industrial and Employers' Confederations of Europe (UNICE). It also

maintains contacts with chambers of commerce representing not only the

Member States but also our main trading partners, notably the United States.

Commission officials also spoke in a personal capacity at several conferences

relating to competition matters; this is a valuable means of increasing the

transparency of Community policy and of obtaining feedback from business and

other circles on the impact of competition policy in the market place. The

Commission welcomes these contacts with consumers, employers and other

relevant groups in monitoring the impact of competition policy.

599. The Commission replied to the questionnaire sent to it by Mr Charié,

Chairman of the French National Assembly's working party on disfunctions of

competition, and reported on progress in the work being carried out on the

issues dealt with in the questionnaire, including abuse of economic

dependence, dominant positions, price transparency and refusal to sell. The

Charié report draws widely on the Commission's comments.

<T4> National representative organizations

600. During the year Commission officials also met with the national

employers' organizations in Germany, Spain, France, Ireland and the

United Kingdom. The Commission invites employers' organizations or other

interested groups to make contact with its relevant departments if they would

like a similar opportunity to explain their points of view on general

questions and policy.

601. Finally, submissions were made to the UK House of Lords for its enquiry

into competition law/with regard in particular to procedures in individual

cases under Articles 85 and 86.

```

A N N E X E S

```
Annex I I I.A.1. p.1 3 6 J
                          D

<T4> Annex

<T2> Decisions, notices and judgments relating to individual cases

<T9> A. Competition policy towards enterprises

<T3> 1• Case summar ies

<T4> (a) Restrictive agreements

<T5> * Horizontal agreements

<T6> International Securities Market Association (ISMA) (formerly AIBD)

1. This case concerns a notification made by ISMA of its Rulebook. ISMA is an

association of traders or "bond dealers" in international securities, for the

most part "Eurobonds". It has some 900 member banks. Most of the not i fed

rules relate to arrangements devised by ISMA for maintaining the orderly

functioning of the market (such as harmonization of settlement and matching

procedures, and procedures for making good a failure to deliver etc.). Most

of the notifed rules did not pose any problem from a competition point of

view although some minor amendments were requested to be made in the rules

and procedures governing membership.

Within ISMA there exists a sub-group known as the Council of Reporting

Dealers (CRD), which has approximately 100 members. A market maker is a

trader who undertakes to "make a market" in a specified category of security,

i.e. to quote a buying and selling price in that security during a specified

period and for a minimum quantity to other market makers. A reporting dealer

is the term usually used to denote a market maker who is also a member of the

CRD. Brokers can also be members of the CRD. A broker's role is to introduce

a buyer to a seller and arrange the deal for them. There are basically two

types of broker - first the agency broker who merely introduces the parties

and acts for their account; and secondly the "matched principal" broker who

acts as principal entering into "back-to-back" transactions with the buyer

and the seller. He does not disclose the name of the parties and does not

hold securities on his books. The notified rules were concerned exclusively

with this latter kind of broker.

```

#### Annex I I I.A.1. p.2 366

```
An Article 19(3) notice was published on 14 December 1991 declaring that the

Commission intended to take a favourable view of ISMA's rules. Subsequently,

the Commission received two complaints alleging that Rules 931 and 932

infringed Article 85 of the EC Treaty. Rule 931 stated that brokers "shall

exclusively effect business between reporting dealers and shall give an

undertaking ... not to effect business with or between other parties." Under

Rule 932, reporting dealers were obliged to deal only with brokers who had

agreed to abide by Rule 931. As a result of these complaints, new facts came

to light which led the Commission to review its assessment of Rules 931/2 and

to conclude that :

(a) Rule 931 constituted an appreciable restriction of competition within

the meaning of Article 85(1) in that it prohibited brokers from dealing with

traders who were not CRD market makers and prevented them from dealing with

their existing clients (many of whom are not CRD market makers). One of the

objects and the effect of this prohibition is to facilitate the maintenance

of artificially high prices and to increase the prices available to dealers

who are not CRD market makers and to the "end investor". An exemption could

not be justified since the restriction did not produce any benefits other

than for the CRD market makers while at the same time producing harmful

effects on other market participants.

(b) Rule 932 also constituted an appreciable restriction of competition

since it is designed to reinforce the restrictive effect of Rule 931 by

preventing CRD market makers from dealing with brokers who are not willing to

restrict their dealing to CRD market makers. An exemption could not be

granted since this restriction produces benefits only for CRD market makers.

Following an informal letter stating the objections to Rules 931/2, ISMA

agreed to abandon these rules. The Commission was then able to issue an

administrative letter confirming that the Rulebook was in conformity with

Article 85 (1). This comfort letter was without prejudice to the question of

the CRD sub-committees, their rules and structure, and was subject to the

usual caveat regarding a change in circumstances.

```

`Ill` `A.1` `.` `p.3` `_,` _,_
###### 367

```
<T6> ACRISS

2. On 29 May the Commission published a notice pursuant to Article 19(3) of

Council Regulation No 17 regarding a notification of ACRISS (The Association

of Car Rental Industry Systems Standards). The notification concerned the

ACRISS constitution, and also a code of conduct, car classification system,

special equipment code and standard rental voucher scheme relating to the

procurement of car rental in the Community through the use of Computerized

Reservation Systems (CRSs).

ACRISS is at present composed of the five leading car rental firms operating

in the EC, Avis, Budget, Hertz, Europcar Interrent and EuroDollar. However,

the system is open to all car rental firms.

CRSs, which have been used in the airline sector for some time/1) a r e n o w

also being used by the car rental industry in the EC. ACRISS has formulated a

code of conduct for the companies seeking to sell car rental through CRSs.

This code is largely based on the code of conduct drawn up by the Commission

for application in the distribution and sale of air tickets through CRSs. The

object of the code is said to be to ensure that Computer Reservation Systems

are used in a fair, non-discriminatory and transparent way.

The Commission has concluded that the arrangements fall within Article 85(1)

of the EC Treaty because the availability of market information through a CRS

enables car rental firms to be informed, on a continuous basis, of their

competitors' prices and conditions of supply.

Nevertheless, the Commission considers that, overall, the arrangements

contribute to the enhancement of competition in this sector and has decided

to issue the parties with a comfort letter.

In its assessment, the Commission has particularly taken into account the

fact that all car rental firms are allowed to participate, for a reasonable

fee, and that the EC consumer is provided with easily accessible,

comprehensive and accurate information on a competitively priced car reniai

service.

(1) Exempted from Article 85(1) by Commission block exemption Regulation
   (EEC) No 83/91, OJ L 10, 15.1.1991.

```

```
Ill A.1. p.4
#### 368

However, given that this is a new departure in the EC car rental market, the

Commission is particularly keen that the present arrangements do not preclude

the right of all interested parties to pursue any grievances which they may

have through recourse to independent arbitration/appeal. Furthermore, the

Commission will intervene immediately if there is any evidence of price

coordination between participating companies or any indication that a

concerted effort is being made to restrict competition in any way. It is also

to be expected that there would be no constraints on the variety of

information which can be offered and, as far as technically possible,

included in the CRS. Finally, if the participating companies wish to make

additional concessions available to their clients, e.g. discounts and special

offers, without displaying such concessions on the CRS, they should clearly

be free to do so.

```

```
I I I . A . 1 . p . 5

<T6> UTC (Pratt & Whitney) / MTU( [2] )

```

369

```
3. The Commission authorized, by the dispatch of a comfort letter, a

cooperation agreement concluded in the commercial aero-engine sector between

the American company United Technologies Corporation (Pratt & Whitney

division) and the German company MTU Motoren- und Turbinen-Union.

Under the agreement, MTU's involvement in existing programmes is to increase,

and the two companies are to divide between them the work on future engine

programmes. MTU will thus play a more prominent part in the supply of

components and in the overhaul and repair of engines, and it will share with

P&W the risks associated with, and revenues earned from, such programmes.

The draft originally notified to the Commission provided for "strategic"

collaboration of a general nature going beyond collaboration on specific

industrial projects. However, following publication of a summary of the

notified agreement and in the light of comments submitted by third parties,

the parties undertook, at the Commission's request, to limit their

cooperation in the large-engine sector to particular projects. Such

cooperation will henceforth concern specific families of commercial

aero-engines.

The Commission accordingly considers that the cooperation will help to

promote competition because it involves a significant transfer of technology.

However, whenever it is faced with such framework agreements, it is the

Commission's policy to exempt only specific cooperation projects, especially

where the relevant markets are oligopolistic.

This was the first time the Commission had to assess a cooperation agreement

in this sector. A review of the situation will therefore be carried out in

ten years' time to see what impact the agreement has had on the market.

(2) Twenty-second Competition Report, Annex I I I.A.1

```

```
I I I . A . 1 . p . 6
                     5/0

<T6> Datacentra len - Maersk Data

4. Datacentraien A/S ("Datacentralen"), a company owned by the Danish

State, and Maersk Data A/S ("Maersk"), a company belonging to the Danish A.P.

McJI1er Group, which have world-wide activities in shipping, manufacturing,

aviation, oil production and trade, notified a set of agreements for the

establishment of two joint venture companies on a fifty-fifty basis, Dan

Computer Management A/S ("DCM"), and Dan Software International A/S ("DSI").

Further information was requested on several points and, having received the

information, the Commission was able to close the file by sending a negative

clearance comfort letter within the two months provided for in the

accelerated procedure.

Datacentraien and Maersk are both computer service companies, dealing with

"systems development" (analysis, design, programming, testing) and "operative

performance" (production) or "facilities management" ("FM") of computer

assignments. Datacentraien has mainly supplied FM to undertakings in the

public sector. Its activities abroad consist essentially in systems

development outside the Community. Maersk provides in particular computer

services to the A.P. Mailer Group. Like DC, it has no FM activities in the

Community apart from Denmark.

The main object of the agreements is to implement a decision of the Danish

Government for the privatization of Datacentraien. Accordingly, DCM takes

over the FM activities of Datacentraien and Maersk, but reserves services for

the A.P. Miller Group. DSI is intended to work as a joint systems-export

undertak ing.

The parties have negligible market shares in the Community as a whole and the

Commission considered that the putting together of Maersk's and

Datacentralen's goodwill and know-how in respect of FM is not likely to have

any appreciable impact on the scope for undertakings established outside

Denmark to win contracts in that country.

```

```
I I I . A . 1 . p . 7

<T6> * BP/Montedipe agreements

```

**37!**

```
5. An agreement was reached by which Montedipe (MD) agreed to sell and BP

agreed to purchase MD's business of the sale and distribution of the acetyls

products manufactured by MD at Porto Marghera and Priolo. MD will continue

to produce, but entirely for BP.

The agreement provided for the transfer of all the goodwill and other assets

and relevant sales/commercial personnel, as well as all the liabilities,

pertaining to MD's going concern. MD also covenanted not to compete either

directly or through its affiliates with BP in the business for a period of

f ive years.

The sale and purchase agreement envisaged the execution by MD and BP of

certain ancillary agreements relating, inter alia, to the toll-manufacture of

the above acetyls products by MD for sale by BP ; a proportion of the vinyl

acetate monomer will be sold to MD associates.

The ancillary agreements provided, inter alia, as follows :

   MD is to convert raw materials supplied by BP for an initial period of

   10 years with a right to extend such period for up to five further

   periods of one year each. It is envisaged that the plants will by then

   have exhausted their useful economic life. MD has the obligation to

   allocate its entire production capacity to BP and to operate the plants

   to the i r fulI capac i ty.

   BP has the right to require MD temporarily to shut down the plants,

   further to permanently close them and, if necessary, demolish them.

   It was further provided that the responsibility for the operation of the

   plants remains with MD, who must indemnify BP against any and all

   environmental risks and hazards caused by the operation of the plants

   and the handling, distribution and storage of raw materials and finished

   products.

   The cost of the conversion by MD will be equal to MD's fixed and

   variable costs together with the reimbursement of agreed capital costs

   and an element of profit or service chargé (or toll-fee).

```

```
I I I . A . 1 . p . 8
```

372

```
    It was also agreed that such quantities of ethylene as are required for

   conversion by MD to acetaldehyde would be supplied by MD from its Priolo

   ethylene plant. Such arrangement, based on an arm's length

   relationship, is to continue for the duration of the acetyls

   toi I-agreement.

The Commission stated that the agreements in question between some companies

of the BP Group and some companies of the EN I Group were agreements between

competitors restricting competition between them because they gave rise to

coordination of competitive behaviour between the parties with respect to the

supply and production of the products in question. They therefore fell under

Article 85 (1) of the EC Treaty.

This restriction of competition was appreciable, particularly in the case of

ethyl acetate, because BP had a fairly high share within the EC market in

1991.

However, the Directorate-General for Competition took the view that the

parties had provided sufficient (prima facie) justification for an exemption

to be granted by the Commission. It appeared in particular that the

agreements had certain advantages, notably environmental ones, because the

know-how acquired by Montedipe on the legal and technical requirements of

Italian law for environmental protection would allow environmental issues to

be handled efficiently. The question was not one of determining whether MD's

know-how was preferable to that of BP : since MD had been the previous

operator of the site, the sharing of environmental responsibilities no longer

posed any problems, and since MD was operating other production units on the

same site, the sharing of environmental responsibilities between the various

plants was avoided.

It was considered that the notification of the case could be dealt with by

means of a comfort letter closing the file.

```

```
Il I . A . 1 . p . 9
```

373

```
<T6> Bio-ethanol

6. The Directorate-General for Competition examined the conditions under

which fuel additives are marketed. It carried out inspections of oil

companies so as to see why they refused to purchase a new product on the

market, bio-ethanol. The oil companies adduced technical and commercial

arguments in support of their refusal to purchase the product. The

Commission's investigation did not identify any factors indicating that any

illegal concerted practices were involved. It therefore decided to

discontinue the investigation.

<T6> International Energy Agency

7. On 12 December 1983 the Commission adopted a decision granting a ten-year

exemption, under Article 85(3) of the EC Treaty, for the concerted practices

between oil companies that were necessary to allow application of the

emergency oil allocation system provided for under the International Energy

Agency.

The undertakings concerned asked for the exemption, which expired on

31 December 1993, to be renewed for a period of ten years. The Commission

accordingly initiated the procedure and, before taking a decision under

Article 85(3) of the Treaty, published a notice pursuant to Article 19(3) of

Regulation No 17 in the Official Journal.

```

```
I I I . A . 1 . p . 1 0
```

374

```
<T6> Solvay-Asahi joint venture

8. A comfort letter closing the file was issued in the case of a joint

venture between Solvay and Asahi Glass in respect of a trona mine and natural

soda ash plant in the United States formerly owned by Tennelo. Solvay, the

largest European producer of synthetic soda ash, acquired the capital stock

of a United States company in May 1992, which gave it an 80 % share in the

trona and soda ash operation. The other 20 % was held by Asahi Glass. The

output of the mine is allocated between Solvay and Asahi in proportion to

their interests.

The ancillary selling arrangements expressly stipulated that they did not

apply to Europe. Asahi Glass is however the owner of one of Solvay's major

customers for natural soda ash in the Benelux. The 20% shareholding gives it

direct access to natural soda ash from the United States". Having obtained

assurances from Solvay that there was no agreement or understanding relating

to the sharing of customers in the EC, the Commission was able to close the

f i Ie.

```

```
I I I . A . 1 . p . 11

<T6> Enimont-Orkem

```

###### 375

```
9. In 1989 Enimont (now Enichem) and Orkem (now Elf Atochem) reached

agreement on the bases for a reciprocal transfer of activities between the

two groups. Under the agreement, Orkem transferred to Enimont its radical

low-density polyethylene production (Dunkirk and Carling Saint-Avoid plants)

and its standard linear low-density polyethylene production (Dunkirk plant).

Enimont transferred to Orkem the company VedriI (Rho, Italy), which produces

methyl methacrylate and polymethyl methacrylate, and Vedri I Deutschland GmbH,

which operates a polymethyl methacrylate plant at Stockstadt, Germany.

Enimont also transferred to Orkem its polymethyl methacrylate production

plant at Porto Marghera, Italy. In addition, Enimont and Orkem had planned

to operate under a joint stucture the Dunkirk cracking plant and to share

ownership of Stocknord, which operates the necessary storage facilities at

that site, and the associated services.

The agreements, and in particular the reciprocal transfer of activities, are

intended to enable each of the parties to specialize in its strongest areas,

namely polyethylene in the case of Enimont and methyl methacrylate in the

case of Orkem. Following the exchange, the two parties ceased being

competitors on the relevant markets, since polyethylene and methyl

methacrylates are completely different products. When the French public

sector chemical industry was reorganized in 1990, Orkem's activities were

redeployed between the chemicals subsidiaries (Atochem and Total-Chimie

respectively) of the EIf-Aquitaine and Total-CFP groups. Orkem's chemical

activities were thus regouped with those of Atochem. However, whereas Orkem

had decided to withdraw completely from the sector of activity transferred to

Enimont (polyethylene), Atochem was at that time already active in that

sector .

After Atochem had intervened in the negotiations, the agreements concerning

the Dunkirk steam cracker (under which Enimont had the option of increasing

its share in ownership and operation from 50% to 100%) were amended in such a

way as to guarantee Atochem a 30% right of ownership and operation of the

steam cracker .

```

```
I I I . A . 1 . p . 1 2
#### 376

In 1991 Enichem succeeded Enimont and has for some time been planning to

carry out a programme to rationalize its own activities. In accordance with

the programme and with Elf Atochem's desire to consolidate its presence in

the polyethylene sector, it was decided in 1993 to terminate part of the

agreements previously signed between Orkem and Enimont. In particular, the

Car ling linear low-density polyethylene production plants (which had

previously been transferred by Orkem to Enimont) are retransferred to Elf

Atochem.

The Commission took the view that the agreements as a whole represented

cooperation that was caught by Article 85(1) of the EC Treaty.

However, the agreements made it possible to rationalize production in the

sectors concerned and to organize more efficient distribution on larger

geographical markets than those previously operated on by each party. The

parties are thus able to offer consumers a wider range of complementary

products and to concentrate their efforts on those activities in which they

are more efficient, and consequently to improve their products. The

Commission accordingly closed the case by sending a comfort letter.

```

```
I I I . A . 1 . p . 1 3 _
###### 377

<T6> Abim Card

10. On 6 August 1992 a notification was made concerning an arrangement

between four oil companies, Aral AG, BP Oil International Ltd, Italiana

Petrol i S.p.A. and Mobil Petroleum Company, Inc. (the "participants") to

enter into an arrangement under which each participant will individually

issue its own international commercial cards for the cashless purchase of

fuel and related products and services ("commercial cards") by haulage and

fleet operators ("commercial customers") in all suitable service stations

throughout Europe designated by each participant. The venture will

facilitate the mutual acceptance of commercial cards issued by each

participant throughout the venture network, called the "ROUTEX" network.

Technical aspects of the venture are contained in additional agreements,

including a purchase and sales agreement and a trade mark management

agreement.

The venture was designed to respond to the growth in cross-border road

transport in Europe, as truck and fleet operators extend their pan-European

activities, and to meet the increasing demand from commercial customers for

an easy and convenient means of obtaining fuel without cash wherever in

Europe they may be. Since none of the participants was in a position to

offer the density and spread of service stations throughout Europe that

commercial customers demand, each participant agreed to accept each other's

commercial cards on a reciprocal basis. Participants envisaged that this

international card acceptance arrangement would enable them to develop a

viable network of sufficient size to meet commercial customers' expectations

by providing them with service opportunities and network coverage on a

European-wide basis.

The cooperation provides that each participant accept certain obligations,

namely (i) to implement the venture in each European country in which a

participant maintains authorized outlets; (ii) to use its best efforts to

promote commercial cards; (iii) to issue a commercial card marked by a common

trade mark and (iv) to recogize commercial cards issued by the other

part ic ipants.

```

```
I I I . A . 1 . p . 1 4
```

373

```
By participating in the venture each participant also agreed to further

acceptance of the UTA (Union Tank Eckstein GmbH) truck card at its designated

service stations and to grant UTA market-related terms for diesel fuel.

Except for a few transitional arrangements limited in time, a number of

restrictions of competition were deleted at the Commission's request. The

Commission was particularly concerned that no commonly agreed discounts among

participants and between participants and UTA or commonly agreed rebates

given to commercial customers or a commonly authorized product range were

part of the arrangements, and that dealers would not be prevented from freely

determining whether the additional cost relating to a card payment should be

charged to customers.

The final agreements, as amended, were submitted in October 1993 and the case

was closed by the issuance of a comfort letter.

```

```
 I I I . A . 1 . p . 1 5

<T6> MPEAA/NOS and NOS Programme Coordination Rules

```

###### 379

```
11. This case concerns a number of rules coordinating the purchase and

production of television programmes by the Dutch public broadcasting

organizations. The latter cooperate within the central broadcasting

organization "NOS", which operates the aforementioned system of programme

coordinat ion.

The main suppliers of television programmes to the Dutch public broadcasting

organizations are the large American producers. Motion Picture Export

Association of America (MPEAA), an association of film producers and

distributors, and its member companies filed a complaint with the Commission

against the above rules on 5 April 1989. The Programme Coordination Rules

were notified to the Commission by the NOS on 20 September 1990.

After a notice pursuant to Article 19(3) of Regulation No 17 concerning these

rules was published, the system was exempted by comfort letter of

1 March 1993. The exemption was based upon the fact that the system presents

advantages in terms of organization and cost efficiency for the operation of

the Dutch public broadcasting system. The complainants did not raise any

objection to the case being closed by means of a comfort letter.

```

```
I I I . A . 1 . p . 1 6

<T6> BSB/Football Association

```

380

```
12. Following publication of a notice pursuant to Article 19(3) of Council

Regulation No 17, the Commission closed the file concerning agreements

between the English Football Association (FA), the BBC and BSkyB (formerly

BSB). Under their agreements with the FA, the BBC and BSkyB were granted

exclusive television coverage for the 1988/89-1992/93 football seasons. The

agreements related to ail national and international matches of which the FA

is the owner of the television rights, i.e. matches of the national cups

organized by the FA (FA Cup and Charity Shield) and international matches

involving the English national team. The BBC and BSB, which had bid jointly

for the rights, shared the rights between them by alternating transmission.

The Commission took the view that the exclusivity granted to the BBC and

BSkyB was caught by Article 85(1). In order to allow all channels a fair

chance to obtain access to major football matches, the duration of contracts

should as a general rule be limited to one football season. However, in this

particular case, an exemption was justified since BSB (now BSkyB), which came

into operation only in 1990, needed a longer-term contract in order to

facilitate its entry into the new developing market for. direct-to-home

satellite broadcasting. This assessment is without prejudice to the view the

Commission may take on any future contracts to be concluded by the parties.

Originally, the BBC and BSB (now BSkyB) were also granted exclusive

permission to televise football matches from abroad, which under Article 14

of the UEFA Statutes was subject to the prior permission of the FA. At the

Commission's request, this clause, which was the main subject of the

complaint by the Independent Television Association, was removed from the

agreements in 1992. Pending the Commission decision on Article 14 of the

UEFA Statutes, the FA undertook not to discriminate between, on the one hand,

the BBC and BSkyB and, on the other, third-party broadcasters, such as the

ITV companies, which want to show football matches from abroad.

```

```
I I I . A . 1 . p . 1 7

<T6> BBC Enterpr ises

```

#### 381

```
13. In December 1991 BBC Enterprises Limited, a subsidiary of the British

Broadcasting Corporation ("BBC"), submitted a request for negative clearance

or exemption to the Commission under EC competition rules in respect of a

standard copyright licensing agreement for the purpose of facilitating

retransmission of United Kingdom television programmes to subscribers in

Ireland to diffusion services (i.e. cable networks and multipoint microwave

distribution systems, "MMDS").

The licensors participating in the agreement with BBC Enterprises Limited are

other United Kingdom terrestrial broadcasters and organizations which

represent the owners of copyright and related rights in television programme

services broadcast in the United Kingdom, including the Independent

Television Association, Channel 4 and the Association de Gestion

Internationale Collective des Oeuvres Audiovisuelles "AGICOA" of Switzerland.

The licensees with whom agreements have been concluded to date are various

cable television undertakings and undertakings proposing to operate MMDS

services in Ireland, including Cablelink Limited in Dublin and Cork

Communications Limited.

The Commission considered that the agreement contained restrictions which

came within Article 85(1). In the context of its assessement of the request

for exemption under Article 85(3), it accepted the view of the notifying

parties that collective licensing was the most effective means by which an

operator of cable or MMDS systems could be sure of not infringing copyright

or neighbouring rights in retransmitting television broadcasts to its

subscr ibers.

Notwithstanding this, and in view of the fact that in certain Member States

broadcasters had in the past been excluded from similar agreements, the

Commission had to ensure that such risks were minimized here in the interest

of fair competition. The agreement was thus modified by the parties, at the

Commission's request, to ensure adequate access by broadcasters not at

present party to the agreement.

```

```
I I I . A . 1 . p . 1 8
###### 382

Following the publication of a notice^) pursuant to Article 19(3) of

Council Regulation 1 7 / [4] ) in response to which no observations were

received, the Commission advised the notifying parties on 8 July by comfort

letter that the criteria for an exemption had been fulfilled.

(3) OJ C 105, 16.4.1993.

(4) OJ 13, 21.2.1962.

```

```
I I I . A . 1 . p . 1 9 _,
                                7 0 7!

                           JUJ

<T6> Philips/Matsushita - DCC

14. In November 1991 Philips International BV ("Philips") notified to the

Commission for exemption or negative clearance a series of agreements

relating to patent licensing in connection with the development and

exploitation of the Digital Compact Cassette ("DCC") and the DCC player. DCC

is a new type of magnetic tape cassette recording and reproduction system

producing digital sound as opposed to the present analogue sound of

traditional cassettes. The other principal undertakings party to the

agreements are Matsushita Electric Industrial Company Ltd and Sony

Corporation, both of Japan, together with Thomson Consumer Electronics SA, a

company within the French Thomson group. In addition, a memorandum of

understanding relating to the prevention of copyright piracy in this context

between Philips and the International Federation of the Phonographic Industry

("IFPI"), representing the international music industry, was also notified.

Notwithstanding the fact that the agreements contained restrictions of

competition falling within Article 85(1) of the Treaty, namely pooling of

patents and know-how together with standardization of specifications, the

Commission took the view that there were sufficient grounds for an exemption

under Art icle 85(3).

Following the publication of a notice pursuant to Article 19(3) of Council

Regulation No 17, in response to which no observations were received, the

Commission advised Philips on 29 April by comfort letter that the criteria

for an exemption had been fulfilled.

```

```
I I I . A . 1 . p . 2 0

<T4> (b) Abuse of a dominant position

<T6> IBM undertaking

```

384

```
15. The Commission continues to monitor the undertaking given by IBM on

1 August 1984. The undertaking provides for the disclosure of interface

information for attachment of competitors' products to IBM System/370

products and SNA (System Network Architecture).

Since its inception, there has been a total of 189 requests from 23

competitors containing 1 487 individual questions. Seven of these companies

have signed and received information under technical information disclosure

agreements.

```

```
I I I . A . 1 . p . 2 1

<T4> (c) Decisions to reject complaints

<T6> Exelvision - France Télécom

```

385

```
16. The Commission formally rejected by decision a complaint lodged in 1987

by the French company Exelvision against France Télécom for abuse of a

dominant position consisting in the offering free of charge by the latter of

Minitel terminal equipment to be used for the provision of videotex

value-added services to end-users.

The complainant was a manufacturer of terminals with similar features to

those offered by France Télécom.

The assessment of the case was made complicated by the change in the

regulatory framework, in France and in the entire EC, as regards the

provision of. value-added services that has taken place since the complaint

was lodged. Whereas in 1987 the provision of value-added services was still

under monopoly in France, it was liberalized in 1988.

In its reasoning, the Commission considered that, for a limited period of

time, the offering by France Télécom of the basic Minitel terminals free of

charge to end-users was a promotion action intended, like many others, to

ensure a quick starting up of the videotex service so as to make it

attractive for potential providers of services and end-users. That was what

happened in fact, and now over 90% of the videotex terminals in the EC are

installed in France. In addition, many countries are following, to a greater

or lesser extent, the French strategy.

In respect of the period after the liberalization of the videotex service,

the Commission assessed whether the behaviour of France Télécom could amount

to an abuse of a dominant position by trying to eliminate a competitor by

predatory action. In so doing, the Commission took into consideration the

facts that France Télécom was not actually manufacturing the terminals but

buying them in large series following public tendering procedures, in which

the complainant never took part, and that from 1989 onwards France Télécom

introduced a monthly rental fee for the new Minitel terminals and stopped the

acquisition of the older models.

```

#### 386

```
The result of the assessment showed that no abuse of a dominant position

could be deemed to exist because no intention to eliminate Exelvision was

proven and because no indication of pricing below average variable costs was

found either as regards the entire videotex service or the new Minitel

termina Is.

```

```
  .A.1. p.23

<T6> Tiercé Ladbroke (B)/PMU-DSV-French "sociétés de courses"

```

387

```
17. In 1990, Tiercé Ladbroke, the Belgian subsidiary of Ladbroke Group, the

largest bookmaker in the United Kingdom, lodged a complaint with the

Commission alleging that Articles 85 and 86 of the EC Treaty had been

infr inged by:

   GIE Pari Mutuel Urbain ("PMU"), a body running a totalizator betting

   system which was set up under French law by the ten racecourse

   organizers in France, the "sociétés de courses";

   the ten "sociétés de courses" themselves;

   Pari Mutuel International SA ("PMI"), a subsidiary of PMU set up to

   manage its rights abroad;

   Deutscher Sport ver lag Kurt Stoof GmbH & Co. ("DSV"), Cologne, which is

   PMU's sublicensee in Germany.

The object of the complaint was twofold:

1. The ten "sociétés de courses" hold the intellectual property rights to

   the races they organize; Ladbroke claimed that they had infringed

   Article 86 of the EC Treaty by refusing to supply Tiercé Ladbroke in

   Belgium with television coverage of French races comprising sound,

   pictures and commentary. French racing provides the basis for a large

   proportion of the odds betting service offered by Ladbroke in Belgium.

   The French "sociétés de courses" supply sound, pictures and commentary

   to PMU's own betting shops in France, and through PMI to DSV, which

   transmits this coverage to German bookmakers.

   The Commission decided that the relevant market here was not the Belgian

   market in horse-race betting but the market in the televised

   distribution of sound, pictures and commentary covering horse-races in

   general. It had not been demonstrated that PMU, PMI, DSV or any

```

```
I I I . A . 1 . p . 2 4
```

388

```
   individual race organizer held a dominant position on this market.

   Ladbroke had not shown that the ten "sociétés de courses" together held

   a collective dominant position.

   Even supposing that they did hold such a position, however, the

   Commission concluded that they remained free to choose, market by

   market, whether or not to grant licences in respect of their rights. So

   far they themselves did not transmit sound, pictures and commentary

   covering their races to the Belgian market. The position would be

   different if the "sociétés de courses" were to decide to grant licences

   to certain bookmakers and not to others. Conduct of that kind might

   constitute discrimination caught by Article 86.

2. Ladbroke also challenged, under Article 85 of the EC Treaty, the

   validity of conditions in contracts which prevented PMU and DSV from

   transmitting to other countries the sound, pictures and commentary they

   received from the French "sociétés de courses".

   The Commission concluded that, as Community law stood at present, these

   were restrictions which a licensor was entitled to impose and were not

   caught by Article 85(1) of the EC Treaty.

The Commission accordingly decided to reject the complaint.

```

```
I I I . A . 1 . p . 2 5 3 8 9

<T6> Ladbroke Racing Ltd (UK)/PMU-French "sociétés de courses"

18. In 1989 Ladbroke Racing Ltd, the main UK bookmaker, lodged a complaint

against ten of the associations known as "sociétés de courses", which

organize horse races in France. The ten associations (five in the Paris

region and five in the provinces) were authorized to take off-course

totalizator bets by a decree of,11 July 1930, and the complaint alleged that

they had infringed Articles 85 and 86 of the EC Treaty by entrusting the

organization of off-course betting to a single body, GIE Pari Mutuel Urbain

(PMU).

A law of 16 April 1930, and the implementing decree of 11 July 1930,

authorized five Paris "sociétés de courses" and five provincial ones jointly

to take bets away from their own racecourses. The ten authorized

associations entrusted the organization of their off-course betting business

to the company Société du PMU s.a.r.l.. A law of 23 December 1964 gave the

same associations the exclusive right to take bets on foreign races. A

decree of 14 November 1974 required "sociétés de courses" wishing to take

off-course bets to do so through the PMU. A decree of 13 September 1985

stipulated that a "société de courses" could take off-course bets on races

run in France only at its own racecourse or through the PMU.

The Commission rejected Ladbroke's claim that the associations acted

unlawfully in choosing a single organization, the PMU, to organize their

off-course betting between 1962 and 1974. It found that the designation of a

single organization to be responsible for computing the total stakes and

calculating and paying out winnings was a legal obligation imposed on the

associations by the 1930 decree authorizing off-course betting. Before the

1974 decree made the PMU's involvement compulsory, Ladbroke never asked the

associations to designate it in the PMU's place. Contrary to the claims put

forward by Ladbroke, the 1930 decree prevented the associations from

designating an individual operator.

The Commission also found that there had not been any ex post legalization of

restrictive agreements or practices prohibited by Article 85 of the

EC Treaty, as the EC Treaty did not exist when the 1930 decree was issued.

```

**`III.A.1.`** **`p.`** **`26`** **3 9 0**

```
It took the view that the agreements entered into by the associations for the

organization of betting, such as arranging the racing calendar, were a

logical consequence of the 1930 decree. The other issues raised by Ladbroke

were considered in the course of separate proceedings.

```

```
I I I . A . 1 . p . 2 7

<T6> Tiercé Ladbroke (B)/French PMU and PMU Belge

```

##### **39 1**

```
19. In 1991 Tiercé Ladbroke, the Belgian subsidiary of the largest British

group of bookmakers, lodged a complaint with the Commission against the

French PMU (GIE Pari Mutuel Urbain) and the PMU Beige, which comprises

Pari Mutuel Unifié Belge asbl and the Société coopérative auxiliaire PMU

Belge, which was set up by the PMU Beige for the taking of totalizator bets

in Belgium. The complainant charged that the parties against which it was

complaining had, on 25 May 1990 and 18 March 1991, concluded agreements

which, as from 20 March 1991, allowed bettors in 17 departments in Northern

France to place totalizator bets four times a month, in the outlets of the

French PMU, on races organized in Belgium by the Belgian "sociétés de

courses".

The system is as follows: the bets are taken in France by the French PMU in

its outlets and totalized by it. The bets are subsequently transferred to

the Belgian totalizator system, at which point a 35% levy is deducted in

accordance with Belgian law. Of this 35% levy, 26% are kept by the PMU Beige

and the remaining 9% are returned to the French PMÙ, which, together with the

"sociétés de courses", keeps 5%, the remaining 4% going to the French

Government, whereas on French races, the percentage retained by the PMU and

the "sociétés de courses" is 10% and the State's levy 18%.

In France and in Belgium, the PMUs are the joint organ of the "sociétés de

courses" and are authorized by law to take bets on domestic races in

accordance with the totalizator principle. Whereas in France only the

totalizator is authorized and consequently the PMU enjoys a monopoly

position, in Belgium bookmakers are also authorized to take not only

odds-type bets, but also on-course totalizator bets, under the control of the

"sociétés de courses", to which they pay a fee. They are also authorized,

and are the only ones to have such authorization, to take odds-type bets on

foreign races.

The Commission considers that the relevant geographic markets are France on

the one hand and Belgium on the other, since national legislation on the

taking of bets in the two countries has the effect not only of making the

conditions of competition uniform within each country, but also of making

them different from those in all the other Member States.

```

**`I I . A . 1`** 392

```
In view of the legislative provisions currently in force on the French

market, where bets can be placed only with the French PMU, there can be

neither any abuse of a dominant position within the meaning of Article 86 nor

any restriction of competition within the meaning of Article 85(1) of the

EC Treaty for the simple reason that no competition may be exercised.

As far as the Belgian market is concerned, since the PMU Beige does not hold

a dominant position, it cannot have committed any infringement of Article 86

of the Treaty. Furthermore, the marketing abroad of the betting medium

constituted by the races which its members, i.e. the "sociétés de courses",

organize must be seen as merely a sale of services from one Member State to

another which, though it may affect trade between Member States, has neither

the object nor the effect of preventing, restricting or distorting

competition within the common market; this means that the PMU Beige has not

committed any infringement of Article 85(1) either.

```

```
(2

```

```
I I I . A . 1 . p . 2 9
### 393

<T6> Tiercé Ladbroke (B)/PMU Beige

20. In 1992, Tiercé Ladbroke (the Belgian subsidiary of the leading British

group of bookmakers) lodged a complaint with the Commission against the

PMU Beige. The PMU Beige comprises Pari Mutuel Unifié Belge asbl and the

Société Coopérative Auxiliaire PMU Belge, to which the "sociétés de courses"

entrust the taking of off-course totalizator bets on the races which they

organize.

The complainant charged that the PMU Beige, which had accredited it as its

agent for the taking of totalizator bets on Belgian horseraces from 1982 to

1988, had refused to renew its accreditation for the taking of such bets.

In the meantime, (in December 1991), the PMU Beige and four chairmen or

members of Belgian "sociétés de courses" had taken control of one of

Tiercé Ladbroke's competitors, Tiercé Franco-Belge, which the PMU Beige

continued to accredit as its agent for the taking of this type of bets.

Tiercé Ladbroke claimed that the PMU Beige had as a result excluded it from

the market for the taking of bets on Belgian races, which meant that, under

Belgian law, it could take bets only on foreign races.

It concluded that the PMU Beige, which, in its view, had a monopoly for the

taking of off-course bets on Belgian races, was abusing its dominant position

in breach of Article 86 of the EC Treaty.

The Commission took the view that no such monopoly existed any longer since

the Brussels Court of Appeal (in a judgment delivered on 11 May 1993)

recognized the Ostend racecourse's right to entrust the taking of bets on its

races to an agent other than the PMU Beige. Furthermore, the Ostend

racecourse immediately availed itself of this right for the 1993 summer

season and entrusted the taking of bets on its races to Tiercé Ladbroke.

The Commission also took the view that the PMU Beige (and its subsidiary,

Tiercé Franco-Belge) was not in a dominant position on the relevant market,

which is that for the taking of bets in Belgium on horseraces, irrespective

```

```
I I I . A . 1 . p . 3 0 7 n
```

694

```
of where they are run and the type of betting involved. It is in fact

Tiercé Ladbroke which has the largest share of that market.

Lastly, it took the view that, even supposing that the PMU Beige and Tiercé

Franco-Belge were in a dominant position, the refusal to accredit Ladbroke

would not have affected trade between Member States, since the taking of bets

at the Franco-Belgian frontier is of only marginal significance and since the

bets to which the complaint relates are taken in Belgian outlets on Belgian

races and do not involve any financial transfer between Belgium and another

Member State.

It consequently rejected Tiercé Ladbroke's complaint.

```

```
I I I . A . 1 . p . 3 1 _ _
```

395

```
<T6> MTVE/VPL-IFPI

21. In June 1992 the Commission received a complaint from MTV Europe

("MTVE"), a pan-European satellite television station, which broadcasts pop

music videos, against Video Performance Limited ("VPL"), the International

Federation of the Phonographic Industry ("IFPI") and the five major worldwide

record companies, Sony, Polygram, Warner, BMG, and Thorn/EMI ("the majors").

VPL licenses and administers broadcast and other performance rights in

relation to music videos under UK law for its members, including the five

majors. IFPI is an international association of record and video-producers

which coordinates the activities of its members, including the majors, in the

various national collecting societies to which they belong.

MTVE complained (a) that the existence of VPL and its operations in the

licensing of copyright in the music videos of its members within the EC and

its joint activities with IFPI, which enable record companies to operate

pan-European licensing through joint selling agreements (80 % of which is on

behalf of the five majors), was contrary to Article 85(1) and (b) that VPL

and IFPI jointly occupy a dominant position in the Community within the

meaning of Article 86 as they are able to exercise absolute control over the

licensing of their members' music videos. According to MTVE, they have abused

this dominant position in the relevant market by imposing unfair prices on

MTVE for the licensing of pan-European transmission of music videos.

MTVE had first concluded an agreement with VPL/IFPI in 1987 for the rights

described above. This had been renewed in 1990 but was due to expire on

31 July 1992, and MTVE was concerned that VPL and IFPI would not be prepared

to renew it. Therefore, in conjunction with the complaint, it requested the

Commission to adopt interim measures, requiring VPL and IFPI to enter into a

new agreement with it. However, following intervention by the Commission,

VPL and IFPI agreed to extend the agreement with MTVE to 31 July 1993. (It

was subsequestly extended to 31 July 1994).

On 11 May 1993 the Commission rejected MTVE's request for interim measures,

on the sole ground that, in view of the extension of the agreement, no risk

```

##### I I I . A . 1 . p . 3 2 396

```
of serious and irreparable damage to MTVE which would justify the adoption of

interim measures existed.

In view of this, it was not necessary for the Commission to make any finding

in that context in relation to the existence, or otherwise, of a prima facie

case of infringement of the Community's competition rules.

The substantive examination of MTVE's complaint by the Commission is

proceeding.

```

**`I I I`** **`.A.1`** **`.`** **`p.`** **`33`** **39** **7**

```
<T6> Pentos

22. The Commission refused to grant interim measures following a complaint by

Pentos Retailing Group, a UK retail bookseller, concerning the Net Book

Agreements (NBA).

The NBA provides for uniform standard conditions of sale to be imposed by

British publishers on retailers for the resale of "net" books. Following the

Commission's Decision of 12 December 1988 not to exempt the N B A ( 5 ) and the

judgment of the Court of First instance of 9 July 1992 upholding the

Decision/ [6] ) Pentos filed a complaint with the Commission contending that

the continued operation of the NBA, and in particular the application of the

clause concerning the reimportation from other Member States of books printed

in the United Kingdom (the circumvention clause), prevented it from adopting

price promotion measures, thus adversely affecting its sales.

The Commission took the view that, in relation to the circumvention clause, a

prima facie case of infringement of Article 85 could not be excluded.

However, the Commission considered that the condition of serious and

irreparable harm was not fulfilled because of lack of sufficient evidence put

forward by Pentos.

(5) Eighteenth Competition Report, point 52.

(6) Twenty-second Competition Report, point 318

```

```
 I I-A.1. p . 3 4

<T6> ECSC inspection

```

###### 398

```
As in the past, the ECSC inspection department carried out a number of checks

on coal and steel production subject to the levy (Articles 49 and 50 of the

ECSC Treaty).

In all, 103 checks of declared production were carried out at the head

offices and works of coal and steel undertakings.

```

```
Annex I I I.B p.1 39 9

<T9> B. Public enterprises and national monopolies

<T4> Decisions pursuant to Article 90 of the Treaty

<T6> Port of Rddbyd)

On 21 December the Commission adopted a decision under Article 90(3) of the

EC Treaty requiring the Kingdom of Denmark to bring to an end an infringement

of Article 90(1), read in conjunction with Article 86 of the EC Treaty, in

relation to a refusal to grant access to port facilities at Rtfdby (Denmark).

The Danish authorities had refused to allow Euro-Port A/S, a subsidiary of

STENA Rederi AB, access to existing port facilities at Rddby or,

alternatively, to construct new facilities on land adjacent to the existing

port. Euro-Port A/S wished to enter the market for ferry services on the

Rtfdby/Puttgarden (Germany) route. The port of Rtfdby is owned and managed by

DSB, the state-owned railway company, which holds the exclusive right for the

organization of rail traffic in Denmark. DSB also operates ferry services

from the port in conjunction with Deutsche Bundesbahn, a German public

undertaking.

The Commission found that an undertaking which owns and manages an essential

facility, i.e. a facility or infrastructure without which its competitors are

unable to offer their services to customers, and refuses to grant them access

to such a facility is abusing its dominant position. Specifically, an

undertaking which owns and manages essential port facilities from which it

provides a maritime transport service may not, without objective

 justification, refuse to grant a shipowner wishing to operate on the same

maritime route access to that facility without infringing Article 86.

Moreover, Article 90(1) prohibits a Member State placing an undertaking in a

position in which it could not have placed itself by its own conduct without

 infringing Article 86. Therefore, where a Member State refuses to grant

access to essential port facilities and has strengthened the effects of the

 refusal by also refusing to authorize the construction of a new port, it

constitutes a breach of Article 90(1), read in conjunction with Article 86.

 (1) Commission Decision 94/119/EC, 0J L 55, 26.2.1994

```

**`Annex`** **`I I`** **`I.B`** **`p.2`** 400

```
Having examined the argument of the parties, the Commission found that there

was no objective justification for the double refusal of the Danish

authorities and that it effectively prevented competitors to DSB entering the

market for ferry services between Denmark and Germany, thus strengthening the

joint dominant position of DSB and Deutsche Bundesbahn on the

Rddby/Puttgarden route, contrary to Article 90(1), read in conjunction with

Art icle 86.

```

```
Annex IV.A. p.1

<T5> Annex IV

<T1> The evolution of concentration and competition

<T4> Introduct ion

```

##### 401

```
23. As announced in the XXII Annual Report, the collection of data directly

by the Commission (DOME), which was the source for the preparation of the

statistical information contained in this annex, was interrupted in 1992.

From this year, the inforamtion presented in this section of our Annual

Report will come from outside databases. Most of the information presented

here comes from the AMDATA database, a product of Acquisitions Monthly and

Computasoft Ltd. to which the Commission services are subscribed. AMDATA

figures have been completed with information on joint ventures provided by

K P M G d ) . This has been necessary to improve our coverage of these types of

operations, which are not the specifically addressed by AMDATA.

The characteristics of the AMDATA and DOME databases have been the subject of

a comparative study carried out by the Directorate General for Economic and

Financial Affairs, which has been published in European Economy. For our own

purposes, it is important to point out the following features of AMDATA as

compared to DOME.

a) AMDATA has a much broader coverage than DOME. This is reflected in the

   large number of operations that it captures as compared to DOME (see

   figure 1 ) . Furthermore, AMDATA registers not just the operation in

   itself but a greater number of variables and characteristics of the

   operation, including its value (although not always).

b) As figure 1 shows despite the differences in coverage between the two

   databases, the comparison of the time series of mergers and majority

   acquisitions provided by DOME has a time profile similar to the series

   on number and value of these types of operations provided by AMDATA( [2] ).

(1) We would like to thank KPMG for kindly providing this information.
(2) The comparison of figures on minority acquisitions and joint ventures is
   not possible given the relatively recent coverage of these types of past
   operations by AMDATA and KPMG.

```

###### Annex IV.A. p.2 402

```
c) AMDATA provides detailed information about the nationality of the bidder

   and target companies. This allows us to improve our knowledge about the

   cross-border flows of takeover activity.

d) AMDATA also provides detailed information about the Standard Industry

   Classification of the operation which allows us to improve the sectorial

   analysis of the deals.

In order to maintain some continuity in our publication, we have tried to

maintain a format of presentation as similar to the old one as the

differences in our statistical sources allow us. We have also kept the

annual period unchanged and data presented below cover years running from

1st June to 31st May. The date of each operation corresponds to the date of

announcement of the deal as reported by AMDATA.

Finally, it is worth recalling that the objective of this annex has always

been and will be in the near future to provide a description of the main

patterns of evolution of merger and concentration activity in the EC. We do

not enter here into any in-depth analysis of the causes behind this

evolution. Our main purpose is a descriptive one.

<T9>A. Takeovers (including mergers and majority acquisitions),

        minority acquisitions and joint ventures in 1992/1993

<T4> A genera I overv iew

24. Table 1 shows the evolution between 1987/1988 and 1992/1993 of mergers

and majority acquisitions, minority acquisitions and joint ventures. The

first part of the table includes data on agriculture, mining, utilities,

construction and manufacturing and the second one gives information on

services. Sectors of activity are defined at one digit level according to

the British Standard Industrial Classification as given by AMDATA. At the two

digit level, this classification is practically equivalent to the NACE code.

Entries in blank correspond to information not available in the two sources.

Operations are classified according to their geographical dimension. We have

defined five categories. National deals are operations between firms of the

same country. Community deals include operations involving firms from at

least two different Member States. For majority and minority acquisitions,

```

Mergers and majority
acquisitions as measured

by DOME and AMDATA

Graphic 1

**>**

**CD**

4 ^

CD

Osl

```
DOME: No. of cases

 1000

  800 h

  600

  400

  200 h

```

No.of cases(x1000) Vol. in 10BECU : AMDATA

20

87/88 88/89 89/90 90/91 91/92 92/93

AMDATA:N.Oper.

Sources: AMDATA and DOME databases

DOME:N.Oper. - * - AMDATA:Vol.in ECU

`Annex` `IV.A` P.4 4 0 4

```
we have distinguished extra-EC operations depending on the nationality of the

bidder and the targetted firm. 'EC-internationaI' designates operations in

which EC companies acquire firms of non-EC origin. International-EC deals

are operations in which the bidder is a firm from outside the Community and

it acquires one or several EC firms. The last category (outside EC) includes

deals in which there was not any involvement of EC firms.

25. As graphic 1 and Table 1 show, concentrâtive activity has maintained

during the last year the declining trend started in 1990/1991. Both the

number of operations and the total value of deals has declined even more

sharply than last year. The decrease in the number of deals is general

affecting almost all sectors. In manufacturing, there is a fall of

approximately 12% in the number of mergers and majority takeovers. The

subsector with the largest contraction in concentrâtive activities was metal,

engineering and cars with a 15% decrease in 1992/1993. However, this sector

had maintained its 1990/1991 levels in 1991/1992. All manufacturing

susbsectors showed in 1992/1993 frequencies of operations similar to those

achieved in 1988/1989, just before the 1989/1990 peak. In agriculture,

mining and utilities, the rate of decrease of concentration activity was

higher than in the manufacturing sectors.

26. In the service sector, the evolution has not been so uniform. For

instance, the distribution and tourist sector attained a high level of

concentration activities in 1991/1992, though inferior to 1989/1990 figures.

However, in 1992/1993, mergers and acquisitions of majority stakes fell a

considerable 22% with respect to 1991/1992 figures. The banking and

financial sector also experienced a reduction in the number of deals,

although this was of lesser magnitude (6%). 'Other services' was the only

subsector that had an increase in concentrâtive activity, reaching a number

of deals similar to the 1990/1991 figure (even higher if we add minority

acquisitions). This subsector includes health and sanitary services,

education, research and development and recreational, cultural and personal

serv ices.

This contraction in concentration activity shows very different patterns

depending on the geographic nature of the operations. In manufacturing,

cross-border operations involving EC firms (i.e. intra-EC operations or deals

between European and a non-European firms) have fallen by less than national

operations (10% and 18% respectively). However, the evolution of cross
border operations has not been uniform. Intra-Community operations have in

```

_Tabla_ 1

ŒXENTRMIVE CFERM1CNS Br _SECKR_ AN) GEDTi^miC TtfE 1987/1968 - 1992/1993

Mergers end majority acquisitions i
SIC code

(1 digit) Nation. ! Caimn. I EC/ ! Intern./ i Cutside INaticn. ICarmn.
opérât. Î cperat. ! intern. ! EC ! EC ! cperat. ! cperat
v ears

EC/ ! Intem./iOutside itotien. iCaimn. ! EC/ I Intern./ iOutside INaticn.

intern. ! EC 'EC ! cperat. ! cperat. I intern. ! EC ! EC I cperat.

```
                                        6

                                        11

                                        35

                                        33

                                        30

                                        16

                                        26

                                        33

                                        44

                                        49

                                        71

                                        51

```

Minority acquisitions ! Joint ventures

!Comn.

I cperat.

6

**21**

10

20

16

6

```
 37

 1C5

 163

 157

 113

 132

```

50

**160**

**203**

**231**

**204**

**163**

50

**182**

**252**

**235**

**192**

**147**

4

**12**

36

**35**

**27**

**24**

TOTAL

EC/ ! Intern./ IOutside

intern, i EC i EC

```
21

20

21

24

30

33

94

152

236

278

243

245

139

250

467

491

453

354

125

235

302

315

280

299

```

6

**12**

30

**37**

**32**

26

/Vjriculture

1967/1968 6

1968/1969

1969/1990

1990/1991

1991/1992

1992/1993

Ehergy/Nbte r
```
1967/1968 26

1968/1969

1989/1990

1990/1991

1991/1992

1992/1993

Winer./Chan.
1967/1968 84
1968/1969 195
1989/1990 247
1990/1991 271

1991/1932 23CT
1992/1993 194

Mst./Eng/Cars
1967/1968 399
1968/1969 568

1989/1990 715

1990/1991 647

1991/1992 687
1992/1993 564

Mnufactur.

1967/1968 385
1968/1989 675

1969/1990 777
1990/1991 846

1991/1992 851
1992/1993 701

Construction

1967/1968 59
1968/1969 80

1989/1990 107
1990/1991 92
1991/1992 127
1992/1993 106

```

6

21

10

18

11

5

37

105

151

**134**

92

**94**

```
50

160

178

182

169

123

 50

180

249

209

164

122

 4

 12

 35

 25

 16

 15

```

```
20

16

16

12

17

18

72

94

117

77

88

73

102

143

130

130

122

118

85

131

114

104

98

118

```

```
 1

 4

 5

 10

 9

 16

22

58

79

107

79

91

37

102

203

178

176

136

 40

104

167

147

117

120

 0

 5

 16

 9

 12

 12

```

```
 3

12

 7

 6

11

11

17

32

47

62

61

63

36

80

107

88

69

102

21

63

62

79

43

69

```

```
0

0

9

9

14

0

0

8

9

18

 1

0

12

25

29

```

3

12

7

7

14

14

17

32

73

150

**154**

**140**

36

80

**172**

**105**

**249**

**243**

**21**

63

**84**

**144**

**133**

**133**

1

3

9

**19**

**13**

**12**

```
40

90

65

75

129

176

138

77

21

60

54

51

 8

 19

 13

 9

```

```
26

87

84

68

65

15

166

131

21

60

81

60

 3

 10

 9

 8

```

```
! 84

i 195

I 247

I 280

i 239

i 203

 399

 568

 715

 655

 696

 582

```

335

676

777

858

876

730

! **59**

! **81**

I **107**

I **97**

! **133**

! **110**

```
0

0

2

10

11

```

```
5

7

12

```

```
12

22

17

34

30

46

28

34

 3

19

13

14

```

```
0

2

14

10

```

```
 2

 0

 7

15

11

```

**4^**
**O**

**en**

Tabla 1 continued

COCENIWnVE ŒERMIOS Bf SECTCR _AK)_ ŒTJGR»flHIC TrFE 1967/1968                              - 1992/1993

Mergers and majority acquisitions ! Minority acquisitions ! Joint ventures
3IC code
(1 digit) Nation, i Caimn. i EC/ ! Intern./ ! Outside ! Nation. ! Conrui. i EC/ i Intern./ i Outside ! Nation, i Carmn. I EC/ i Intern./ i Outside I Nation,
cperat. I cperat. î intern. ! EC I EC I cperat. ! cperat. ! intern, i EC ! EC î cperat. I cperat. ! intern, i EC i EC ! cperat.
''ears

Oistr./fbtels

**CaTTTLTI.**

cperat.

43

121

222

190

147

127

9

24

59

43

43

50

```
 41

125

249

312

210

157

 5

 12

 29

 25

 30

 34

```

103

282

559

570

435

363

Intern./ I Outside

EC ! EC

**TOT/>l**

EC/

intern.

1967/1968 399

1988/1969 602

1969/1990 744

1990/1991 570

1991/1992 763

1992/1993 508

Trortsp.^3cjnri.

1967/1968 78

1963/1969 113

1939/1990 152

1990/1991 164

1991/1992 159

1992/1993 133

BonK^ in/Ins.

1937/1968 540

1988/1969 704

1969/1990 859

1990/1991 800

1991/1992 683

1992/1993 606

Other services

1967/1933 134

1968/1969 203

1969/1990 173

1990/1991 167

1991/1992 123

1992/1993 132

```
Totals

1937/1988 2110
1983/1969 3167

1989/1990 3353
1990/1991 3633

1991/1992 3720
1992/1993 3004

```

0

1

14

12

15

1

0

5

12

6

4

4

33

73

80

0

0

6

8

18

**0**

**9**

**5**

**93**

163

196

```
48

121

214

157

121

104

 9

24

53

33

23

 33

 41

123

206

168

136

122

 5

 12

 20

 15

 22

 15

 252

 761

1122

 947

 760

 634

```

```
79

85

110

70

53

82

 6

 15

10

23

23

20

121

139

122

106

76

82

 19

 28

 17

 13

 20

 499

 659

 655

 550

 497

 537

```

```
12

57

109

108

87

103

 2

26

33

37

33

33

45

80

122

122

73

108

 8

 22

 10

 16

 30

```

**160**

**447**

**768**

**729**

**605**

**656**

16

41

33

36

44

44

3

19

12

22

14

17

17

53

64

69

63

51

3

8

4

13

19

114

310

356

376

326

381

```
16

41

51

109

123

92

 3

 19

31

72

80

79

 17

 53

96

183

156

135

 0

 3

 9

 23

 33

 45

 36

 116

 187

 387

 392

 351

```

1

2

4

13

10

0

2

3

17

47

49

8

12

12

0

0

0

25

45

42

**0**

**0**

**4**

**10**

**8**

2

2

21

27

17

0

4

2

44

82

58

39

75

30

30

**19**

**49**

**67**

**30**

58

130

87

67

8

13

16

24

0

0

322

612

470

363

13

73

74

41

19

43

60

54

32

108

77

82

1

18

17

22

0

0

65

247

228

199

I 399

I 602

I 745

i 534

I 780

I 523

78

114

152

169

171

144

**540**

**703**

**863**

**833**

**756**

**636**

I 134

I 203

I 173

I 173

i 131

I 150

1151

1627

1933

1759

1833

1503

91

142

258

258

177

219

8

**41**

**67**

111

125

86

```
167

219

302

366

243

269

 0

 27

 58

 40

 45

 77

 266

 429

 635

 775

 595

 651

```

8

29

16

15

6

10

19

13

41

125

47

18

9

9

4

15

0

0

110

266

151

149

0

6

16

2

**0**

**0**

**1**

18

67

54

Source: AOMTA (acquisitions) end WMS (joint ventures).

Note: Joint ventures values for 1990/1991 go fran January 1991 to May 1991 only. **O**
###### **a***

```
Annex IV.A. p.7
```

407

```
fact declined by more than national deals, with a 20% decrease with respect

to last year figures. On the contrary, the number of deals involving

European and non-European firms shows a certain resistence to fall with

decreases in the range of 3% to 4%.

This trend appears even more clearly in the service sector. Here, domestic

operations fell by 20% last year while cross-border operations increased by

9%. Once more, this is due to the increase in the number of operations

between EC and non-EC firms that increased considerably while intra-Community

deals decreased by 9%.

The figures of operations between firms from outside the EC showed

remarkable increases in manufacturing during the last two years. The metal,

engineering and cars sector explains this upsurge in extra-EC merger

activity. Although the coverage by the database of this type of operation is

not comparable to its EC coverage, the evidence provided by Table 1 seems to

suggest that the contraction in concentration activities has been more

important in Europe than in the rest of the world during the last years.

<T4> Distribution by sector of mergers and majority acquisitions

27. Table 2 gives a detailed account of the distribution by sector of the

mergers and majority acquisitions involving EC firms that took place during

1992/1993. The first three columns give us the information concerning the

geographic dimension of those operations and column four and the rest of

columns give us the aggregate figures for the period 1987/1988 to 1992/1993.

This table includes only mergers and majority acquisitions which result from

the addition of the following categories supplied by AMDATA: public bids,

private bids, management buy-outs, divestments, reverse takeovers^).

The first part of the table shows the number of operations of these types

that took place in agriculture, mining and utilities, construction and

manufacturing. This latter category has been subdivided in three groups:

minerals and chemicals, metal, engineering and motor industries and general

manufacturing. The second part of the table includes all the service sectors

divided in four subgroups: distribution and hotels, transport and

communication, banking, financial sector and insurance and other services.

(3) For a definition of three categories, see the section on distribution
   by size and bid type below.

```

408

Table 2

Geo. dimensicn and yr
Target SIC (2 digits)

M3RGERS _HO_ MVJCRITY ACQUISITIONS Bf S.W-CICK

1992/1993
National Cananity ET^hon-EC Total

TOTALS

1967/1963 1968/1969 1969/1990 1990/1991 1991/1992

21

0

1

22

9
24

17

1

8
18

77

7

65

30

141

204

5

452

131

302

53

306

67

49

60

975

140

146

78

9
97
117

304
157

42

1090

104

104

2720

38

2

5

45

7

20
15

2

30
14

10

108

23

192

252

4

589

154

332

36

320

80
64
91

1137

235

215

74

15
96

91
381

148

49

1306

134

134

3299

39

1

5

45

9
30
14

1

12

9
75

9

96

35

166

283

5

594

146

445

50

353

87

65

83

1229

195

184

94

13
101

110
336

174

50
1307

164

164

3414

Agriculture &KbrticuIture 11 1 5 17
Forestry 1 0 0 1
Fishing 1 0 3 4
AGRICULTURE 13 1 8 22

Coal mining & solid fuels 2 0 5 7
Mineral o i l _k_ natural gas 7 2 13 22
Mineral o i l processing 5 1 1 7
Nuclear fuel production 2 0 3 5
Electricity/Gas Mother energy 24 1 11 36
Water supply industry 2 1 1 4
EhETCf&WTER 42 5 34 81

Metalliferous ores 1 1 6 8
Metal manufacturing 37 9 17 63
Other mineral extraction 15 3 12 30
Ncn-metal mineral products 76 35 30 141
Chemical industry 64 45 97 206
Product ion of man-trade fibres 1 1 2 4
MJ^ER^/CHM04LS 194 94 164 452

Other metal goods manufacture 87 15 23 125
Mschanical engineering 225 47 95 367
Office machinery/data prcc. equipment 18 2 15 35
Electrical _k_ electronic eng. 127 34 77 233
Motor vehicles _k_ parts 38 14 12 64
Other transport equipment 33 3 11 52
Instrument engineering 31 8 21 60
MTTAL/EN3Ir£ERIr£/t>RS 564 123 254 941

Food industry 114 29 35 178
Sugar 4: sugar by-products 104 15 54 173
Textile industry 44 16 11 71
Leather _k_ leather goods 4 0 4 8
Footwear _k_ clothing industries 69 9 14 92
Timber _k_ wooden furniture 52 6 14 72
Paper manufacture _k_ products 239 29 55 324
Rjbber _k_ plastics processing 52 15 37 104
Other manufacturing industries 23 3 13 39
k^NLFACTURING 701 122 233 1061

Construction/civil engineering 106 15 17 138
aO^TRCTIOl 106 15 17 133

Total 1620 360 715 2695

14

1

2

16

10
42

6
0
2

2

53

6

23

9

69

107

2

215

85

184

35

187

26

30

41

538

76
71
46
2
40
54

170
71

30

560

69

69

1501

36

0

1

37

5
35
16

3
39

4

102

17

58

36

145
226

7

439

156

415

34

321

80

73

75

1154

217

203

111

7

76
101
337
136

42

1230

161

161

3173

(2.

Table 2 continued

###### 409

MEFCERS AND MUCRITY ACOlISmOS IN ACfUCLLTLFE, MINING UTILITIES, MâNLFACÎLRIN3 AND ODNSTRJCTIGM Bf SiftH-'ILK

TOTALS

1967/1988 1983/1969 1969/1990 1990/1991 1991/1992

Geo. dimension and yr
Target SIC (2 digits)

1992/1993
National Catrrtnity B^ncn-EC Total

Distribution-wholesale 262 73 125 460
Scrap deal ing/Wiste materials 10 0 1 11
Distribution-retail (dcmestic) 95 10 10 115
Distribution- retail (other) 78 6 17 101
Hotels and catering 55 14 31 101
Repair of goods & vehicles 7 1 1 9
DISTRIEt^ON/FDTELS 506 104 185 797

Gen. traisp./Carnririication 9 0 1 10
Railways 3 0 1 4
Other inland transport 36 6 7 49
Sea transport 1 1 3 5 19
Air transport 12 3 4 19
Transport support services 17 3 6 26
Other trans?, serv./storage 49 18 26 93
Postal serv./teleçons 1 0 3 4
TRVvEPCrVlHIDO^NICATIONB 133 33 53 224

Banking & finance 123 28 43 194
Insur. (ex social security) 43 15 21 84
Business services 333 66 110 509
Renting of movables 29 7 8 44
Owning/dealing in real estate 73 6 8 87
B*NK^IrWŒ/IN3UWCE 606 122 190 918

Sanitary services 33 5 16 54
Education 10 0 6 16
Research _k_ Development 8 3 5 16
MadicaI/Health serv.; vets 13 1 3 17
Other public services 0 0 2 2
Recréâtiandl/cultural serv. 63 5 15 83
Personal services 5 1 3 9
OTr£RSER/IŒS 132 15 50 197

288

8

89

77

70

15

547

0
0
39
6
7

13

36

0

95

78

44

498

62

66

743

20

12

8

12

2
46
66

159

430

6

114

135

116

12

863

3

3

55

21

17

11

67

0

178

195

81

608

92

70

1045

48

10

12

32

0

74

66

242

614

11

141

227

155

25

1173

15

2

47

33

25

18

110

3

253

242

94

773

104

96

1309

23

38

31

13

25

96

17

243

455

3

140

185

103

13

899

15

0

62

21

23

15

103

13

257

280
96
635

53
78

1194

57

16

16

15

8

87

10

209

526

18

256

135

75

14

1025

4

2

68

29

21

30

72

12

233

243

73

535

39

78

968

49

11

19

5

1

75

14

174

TOTALS 1334 274 478 2136 1549 2329 2978 2559 2405

Source: >*>M3ATA

```
Annex I V . A . p . 1 0 4 1 D

As Table 1 already showed, the general manufacturing group and metal,

engineering and motor industries are the two subgroups with the greatest

number of mergers and majority acquisitions in 1992/1993. This has been a

constant since 1987/1988. The geographic distribution of these operations

presents significant differences though. While cross-border operations have

more or less the same number of cases in these two subsectors, the number of

national operations in general manufacturing is much higher than in

meta I/engineering/cars.

General manufacturing, paper and paper products, food and sugar were the

subsectors with the highest frequency of operations during last year.

Despite the general decline in the number o.f deals, the paper subsector

maintained a high level of concentration activity in 1992/1993. As a result,

it has increased its relative share within the manufacturing group,

accounting for more than 30% of all deals in this group. The shares of the

food and sugar subsectors experienced a substantial reduction in the number

of deals but still maintained their relative importance, which is greater

than in 1987/1988.

In the metal, engineering and automobile sector, we have to note that the two

main subsectors - mechanical engineering and electrical and electronic

engineering - have behaved differently over time. Both subsectors had

approximately the same number of deals in 1987/1988. Since then,

concentrâtive activity in mechanical engineering has grown far more rapidly

than in electrical and electronic engineering. It is also worthwhile

noticing that national deals are more frequent in mechanical than in

electrical engineering. /

Despite its small number, the progression in the number of deals in the

'electricity, gas and other energy' subsector is quite remarkable.

In services, there is a high concentration of deals in two subsectors that

account for approximately 50% of the total number of mergers and majority

takeovers. These are distribution at the' wholesale level and business

services in the financial group.

Almost all subsectors have followed the general trend in concentration

activity over time, with a peak around 1989/1990 and 1990/1991 followed by

```

```
Annex IV.A. p.11 - . .
```

**41** **1**

```
the present decline. This gives a very stable distribution of operations by

sector over time with just a few noteworthy events:

a) first, the relative decline of business services versus wholesale

   distribution, although the former still maintains its leadership in

   terms of deals registered;

b) the banking subsector has increased its relative importance steadily

   over the years but suffered a drastic reduction in the number of deals

   in 1992/1993;

c) all the other financial services (i.e. insurance, renting of movables

   and real estate) have had more deals in 1992/1993 than in 1991/1992,

   although the increase was relatively small;

d) non-domestic retail distribution had an unusually low level of

   concentrâtive activity in 1991/1992 and the important increase of last

   year must be considered as the re-establishment of a normal level of

   concentrâtive activity;

e) domestic retail distribution had an unusually high number of deals in

   1991/1992, but in 1992/1993 concentrâtive activity in this subsector has

   diminished to the level of previous years.

To conclude this section, Table 3 shows the distribution by country of all

the intra-Community operations - i.e.. national plus Community-wide

registered in 1992/1993.

The United Kingdom has the highest number of deals in six out of the ten

economic sectors included in the table (agriculture, metal and engineering,

general manufacturing, distribution and hotels, banking and insurance and

other services). Germany has the greater number of deals in four sectors

(energy and utilities, minerals and chemicals, construction and transport and

communications). This high level of concentrâtive activity in Germany seems

to reflect the influence of German re-unification given the nature of the

sectors in which Germany occupies the first place. The third country with

respect to the total number of operations of intra-Community dimension was

France.

```

Table 3

412

fcETCERS _HO_ MUCRITY ymJISITIGNS CF INTRMDOMMTY DMNSIGN BT SECTCR AN) TARGET NAJIGMftLITY - 1992/1993

Nbticrol/Camuiity 92/S3
Target nationality B CK I r l F D Gr I Lux N_ FT S? IX Total
Target SIC

Agriculture 2 1 1 1 1 0 0 0 2 0 3 3 14
Energy &Wdter 2 0 0 4 2 2 0 2 0 4 0 2 11 47
Mins^hamicals 13 11 3 31 67 1 31 2 11 1 29 68 288
Mstal/thg./Cars 13 41 2 131 185 1 64 1 45 0 13 191 687
Manufacturing 2 7 3 2 13 153 184 3 93 1 60 4 4 0 203 823
Construction 6 4 1 1 1 4 7 0 2 0 6 0 1 43 121
Distrib./Hotels 20 19 4 82 199 1 13 0 40 4 24 206 612
Transporty€arm. 9 12 1 28 45 1 17 0 25 0 6 27 171
Bank^in./Insur. 43 33 7 125 114 2 70 3 74 4 45 203 728
Other services 5 3 1 20 39 0 10 0 6 1 3 59 147

TOTALS 140 161 33 591 923 9 302 7 273 14 166 1019 3533

Source: /M>ATA

```
Annex IV.A. p.13

<T4> Geographic distribution of concentrâtive operations

```

413

```
28. The AMDATA database allows us to give a detailed breakdown of the

geographic distribution of concentrations. In this section, intra-Community

operations are presented separately from those involving Community and non-EC

companies in the same operation.

<T5> Intra-Community operations

29. Table 4 presents the distribution of mergers and majority acquisitions

involving firms from the Member States only. The diagonal of this table

shows operations of purely national dimension while the remaining entries are

Community-wide operations, i.e. operations between firms of at least two

different Member States. This table includes all the operations that

occurred during 1992/1993 in all sectors (agriculture, mining and utilities,

manufacturing and services).

Table 4 shows that the three countries which are targetted more often for

mergers and majority acquisitions of national and Community dimension (UK,

Germany and France) have also been the countries of origin of the greater

number of bids to acquire companies within the Community. The UK is the

first country in both cases. In 1992/1993 there were more operations of this

kind within the UK than anywhere else within the Community. Just the number

of national operations in the United Kingdom is greater than the total number

of operations anywhere else in the EC: there were 929 purely national

operations in the UK while the total of national plus Community operations

targetting Germany (which occupies the second place) was just 923. France

had the third highest levels of concentrâtive activity in 1992/1993, both in

terms of nationality of the bidding and targetted firms.

However, the table shows some important differences between these three

countries. The number of cases with the UK appearing as bidder nationality

is slightly greater than the number of cases of that country appearing as

target nationality (1,101 and 1,019 respectively). Therefore, we could say

that the UK is a 'purchasing country' in the EC context as the net balance in

terms of number of operations is negative, i.e. with more purchases of

```

414

**Table 4**

OOLNIRT DISTRIBUTION CF MERGERS AND MUCRITY AfJQJISITIGNB CF MRMD3MMTY DIMENSION (national and Carrrunity) (al I sectors)
1992/1993

Target nationality B DX Irl F D Gr I Lux KL FT S? IK Total
Bidder nationality

Belgiun 7 8 1 0 8 3 0 0 3 4 0 3 3 103
Derrrark 1 134 0 3 3 1 1 0 1 1 2 16 163
Ireland 1 0 2 5 0 2 0 0 0 4 0 1 19 52
France 19 3 0 4 7 7 3 4 2 2 5 1 11 2 2B 2 3 6 2 5
Germany 5 13 0 2 6 8 0 1 0 8 2 14 0 8 16 893
Greece 0 0 0 1 0 4 0 0 0 0 0 0 5
Italy 1 1 0 18 6 1 2 4 9 1 1 1 8 2 2 8 9
Luxembourg 1 0 1 1 0 0 0 0 0 0 2 1 6
The Netherlands 2 2 4 1 7 2 9 0 3 0 215 1 7 9 2 9 6
Portugal 0 0 0 0 0 0 0 0 0 4 1 0 5
Spain 0 0 0 2 2 0 0 0 0 4 89 1 98
United Kingdom 12 5 6 48 43 1 16 0 23 1 17 929 1101

TOTALS 140 161 33 591 923 9 302 7 273 14 165 1019 3633

Source: /fcOATA

`Annex` `IV.A.` `p.15` 415

```
foreign companies by UK firms than of British firms by foreign companies^ [4] ).

Nevertheless, the UK is a country where the proportion of domestic operations

with respect to Community operations is relatively high: for each bid for a

foreign firm of a different Member State made by a UK firm, there are 5,4

operations involving British-only companies.

In 1992/1993 at least, France showed a different profile. As in the UK,

French firms appear more often as buyers of foreign firms from other EC

countries than as targets for intra-EC operations^). But domestic

operations are relatively less important in France (in comparison with

Community operations) than in Britain: for every cross-border operation there

were 3.2 national majority acquisitions of national firms by French

companies.

Germany has a differnt profile too. Firms of German nationality have been

targetted more often than German firms have targetted companies in another

Member State. In this sense the situation in Germany is different from that

of the UK and France. However, as in the UK, national operations (801) were

relatively much more important than acquisitions of foreign firms by German

companies (92) or than acquisitions of German firms by foreign companies

(122).

The rest of the Member States follow more or less closely these three

patterns. Belgium, Greece and the Iberian countries are targetted more often

than they appear as bidders abroad but within the Community. In this sense,

they look like Germany. Belgium shows a great degree of 'openness' in

concentrâtive operations within the Community. As in France, the ratio of

national to Community deals is proportionately smaller compared with other

countries. The opposite seems to apply to Italy for instance where 82% of

all intra-Community deals were strictly national.

(4) Of course, the real net balance should be given in terms of the value of
   the operations, but given the high number of cases with missing data of
   bid value, it is considered here that the number of operations is a
   better indicator. in the case of the UK and operations of Community
   dimension, the balance in value terms is also highly negative: the value
   of bids by British firms was 7,7 bil. ECU while the value of bids of
   targetted British firms was just 2,6 bil. ECU.

(5) However, the balance in terms of aggregated bid values is more or less

   balanced in the French case.

```

`Annex` `IV.A.` `p.16` _A_ _*. •'_
**`4`** **`I`** **b**

```
<T5> EC/non-EC operations

30. Tables 5 and 6 complement the picture of transnational concentrâtive

activities. Table 5 shows the distribution of majority acquisitions by

European firms in non-EC countries according to the nationality of the

targetted firms. Table 6 shows the nationality of origin of companies from

outside the Community merging or acquiring majority participations in EC

firms.

As table 5 shows, North America was the preferred target nationality for EC

firms acquiring or merging with a non-EC firm. On the buyers' side, the UK

was again the most active EC nationality followed by Germany and France. But

again, these countries show different patterns. About' 50% of UK firms

acquiring companies outside the EC chose the USA or Canada as the target

nationality. On the other hand, Germany and France distributed their target

nationalities more evenly among North America and Western (non-EC) and

Eastern Europe. It is remarkable that the fifth largest EC acquiring country

according to table 5 was Denmark where over half the operations were in
Scandinavia^ [6] ^. The relatively high activity of Italian firms in Latin

America is also noteworthy.

Table 6 shows that Germany was in 1992/1993 the favourite country of

destination of foreign funds from outside the Community to acquire EC

companies. In 88 cases, North America companies acquired majority

participations in German companies. Western Europe ranked second with 62

cases, which is a significant figure. Those two worId regions, followed by

Scandinavia, accounted for most of the operations as expected. The Far East

was the fourth largest investor, but considering the size of these Asian

economies like Japan, they show a relatively low level of concentrât i ve

activity with EC firms. This becomes apparent if we compare the figure for

Scandinavia (91 operations) with the figure for Far East Asia (62

operations).

The sectorial breakdown of mergers and majority acquisitions by EC firms of

companies outside the Community shows that they tend to concentrate their

acquisitions in the metal, engineering and cars and in the manufacturing

(6) In fact Denmark accounts one third of all EC acquisitions in
   Scandinav ia.

```

**Table 5**

Target nationality
Bidder nationality

**Belgiun**

**Derrrork**

**Ireland**

**France**

Germany
Greece

**Italy**
Luxembourg

**The Netherlands**

Portugal
Spain
**United** **Kingdom**

DISTRIBUTION Bf WCFLD REGION CF MERŒR3 _MO_ MUCRITT A03JISITICN5 BY EC FIRvB CF OCMWIES CF hCN-£D N\TICNW-ITY (al I sectors)

1992/1993

USV^an Scandinavia Rest of West.

Europe

Far East Latin America Middle East East Europe Australia Asia Africa International TOTAL

4

4

1

19

25

1

7

0

9

0

0

9

0

1

0

1

2

0

0

0

3

0

0

14

10

37

8

85

96

2

33

2

53

0

5

201

4

7

6

24

25

1

10

0

14

0

2

102

0

21

1

4

12

0

2

0

8

0

0

15

0

1

0

19

27

0

2

1

5

0

0

25

1

2

0

6

3

0

1

0

6

0

0

15

1

0

0

5

0

0

10

1

1

0

2

5

TOTALS 195 63 80 34 25 79 21 15 12 534

Source: ACATA

**4^**

**3k**

418

Table 6

Target nationality
Bidder nationality

UBA&Canada
Scandinavia
Western Europe
Caribbean
Far East
Latin America
Middle East
Eastern Europe
Australasia
Asia
Africa
International

DISTRIBUTION BY BEDZR NATICNALITY CF MERGERS AND MUCRTTY CF

AOQUISmCNS CF EC FD*6 BY CCMWŒS FROM CUTSIDZ Tr£ EC (al I sectors) - 1992/1993

DX Irl F Gr Lux NL FT SP IK Total

88 2

26 0

62 1

0 0

15 0

2 0

4 0

2 0

4 0

5 0

3 0

3 1

6

16

3

0

1

0

0

1

0

0

0

0

**35**
**5**

**21**
**0**

11

0

2

1

1

0

2

3

20

12

10

0

3

5

1

0

0

0

2

5

19

7

13

1

4

0

0

1

0

0

0

2

19

11

16

1

1

0

0

0

4

0

1

3

75

12

11

2
**26**

**0**

1

0

5

0

5

9

273

91

145

4

62

7

8

5

15

5

14

27

TOTALS 12 27 5 81 214 4 47 56 58 146 656

Source: /MDATA

**`Annex`** **`IV.A.`** **`p.`** **`19`** _**A**_ _**<\**_ _**r\**_

```
sector (with 118 operations each) followed by the distribution and hotels and

the banking, insurance and finance sectors (with 82 operations each). This

follows the general pattern of the sectorial distribution of operations seen

in Table 2. However, the distribution by world regions shows some

differences. In concentrations between North America and EC firms, there is

a substantial difference in the number of cases registered in the metal,

engineering and car sector (50 cases) and the number of cases in general

manufacturing (33 cases, which is similar to the number of cases in

chemicals, 31, distribution and hotels, 30 and banking, 30). When EC firms

acquire or merge with companies in Eastern Europe, the general manufacturing

sector is the one with the highest frequency of operations (31 deals)

followed by metal and engineering and distribution and hotels (with 18 and 10

operations respectively). The number of operations affecting Eastern Europe

in the banking, insurance and finance is limited to 5 only. By contrast, the

financial sector has the highest number of concentrâtive operations

targetting firms from Australasia. For Western Europe, manufacturing, metal

and engineering and chemicals (with 18, 17 and 13 deals respectively) were

more often targetted than the service sectors (12 cases in distribution and

10 in the financial sector). Finally, 19 Scandinavian companies were

targetted in the metal and engineering sector and 15 in the distribution and

hotels sector.

The sectorial distribution of concentrâtive operations in which a non-EC

company targetted an EC company shows some differences with respect to the

sectorial distribution of intra-EC deals that we examined in Table 3 above.

First of all, there were more concentrât ive operations in the metal and

engineering sector in 1992/1993 than in the general manufacturing sector (136

and 120 operations respectively). This is the opposite to the situation

found for intra-Community deals, where general manufacturing occupies the top

position among targetted sectors. The number of operations that targetted

the financial sector was also relatively higher when the bidding firm was of

non-EC origin, compared with the number of cases in which all the firms

involved were European (17% compared with 20%). The same applies to

chemicals, mining and utilities and agriculture. The high concentration

activity involving foreign companies that acquired EC firms in the metal and

engineering sector was due in part to the large number of deals of these

types in which German firms were targetted (56 cases which account for 41.2%

of the deals in that sector). The huge weight of Germany in the geographic

distribution of deals determines to a large extent the sectorial distribution

```

`Annex` `IV.A.` P.20 4 2 0

```
(Germany attracted 32.6% of the operations of this kind). Very important too

was the activity in the German distribution sector with 48 cases of non-EC

firms targetting German firms in that sector. The UK shows once more its

speciIisation in the financial sector with 42 cases of British firms being

the target of non-EC firms in 1992/1993. In France, the distribution was

relatively even among the main five sectors. The case of Belgium is

remarkable as the number of operations targetting Belgian firms with a non-EC

bidder was significantly low compared with the number of deals registered

wi th an EC bidder .

<T4> Flows of concentration activity

31. The identification of the nationality of the bidder and target company in

each operation permits a detailed description of the flows of concentrâtive

activities between countries. The combination of this information and the

geographical dimension of operations can help to identify patterns or

characteristics of each Member State as regards to its position in the

international flow of concentrâtive operations. In this section, we will

define three indicators to help determine the pattern for each country.

   The first one refers to the role of each Member State as bidder or

   targetted country in operations of intra and extra-EC dimension. This

   classification is based on the propensity of each country to target (or

   to be targetted by) firms (from) inside or outside the EC.

   The second indicator, the net-balance index is a sort of external

   balance for each country measuring the difference between the number of

   cross-border deals in which that country appears as bidder and target

   nat ionaI i ty .

   Finally, the 'openness index' gives us an idea about the ratio between

   national and cross-border deals involving companies from a certain

   Member State. Graphics 2 and 3 summarize the characteristics of the

   Member States based on these indexes.

32. In order to identify the role as internally or externally targetted

country for each Member State, we divide the corresponding entries of the

last two rows of Tables 3 and 6. It can be seen that the number of

operations with EC bidders is much larger than the number of cases with a

```

```
Annex IV.A. p.21
#### **42 1**

non-EC company as bidder. For instance, there were 3,638 operations of

intra-EC nature and only 656 cases of non-EC firms acquiring EC companies.

This means that for each time that a non-EC firm took over an EC company,

there were 5.55 deals of EC firms acquiring majority holdings in other EC

firms. This can help us to characterise Member States according to their

propensity to be targetted from inside or outside the EC. Countries with a

ratio lower than 5.55 would then be countries which have a propensity to be

targetted by firms from outside the EC higher than the Community average. On

the other hand, if the ratio is higher than 5.55 we can say that firms of

that nationality are more often targetted, in relative terms, by firms from

inside the EC than the EC average. Following to this method, we find that

Greece, Portugal, Spain, Germany and The Netherlands are Member States

relatively more open to concentrâtive activity from outside than from inside

the Community. The opposite happens in the other Member States, with Belgium

at the top with 11.7 intra-EC operations for each operation with a non-EC

f i rm as bidder.

A similar analysis can be made with Tables 4 and 5 to measure the relative

propensity of EC firms from each Member State to bid in concentrâtive

operations within the Community or target firms outside the Community. For

that purpose we can divide term by term the entries of the last columns of

these two tables. On average, each time an EC firm takes over a firm from

outside the Community, 6.81 EC firms are taken over by an EC company.

Countries with a ratio below 6.81 indicate a propensity to take over firms

from outside the Community higher than the Community average. If the ratio

is greater than 6.81 it can be said that a country has a relatively greater

tendency to be a bidder in intra-EC deals than in EC/non-EC deals than the

Community average. This classification gives Portugal, Spain, Germany,

Italy, France and Belgium as having a relatively higher propensity for intra
EC bidding, Greece, The Netherlands, Denmark, Luxembourg, Eire and the UK as

countries with a propensity to bid more outside the EC than within the EC.

These criteria give a picture of EC Member States according to their intra or

extra-EC concentration activities as presented in graphic 2. Of course, the

smaller the absolute concentrâtive activity is for any country, the more

volatile is the position of one country in the graphic. Thus, the picture

for countries such as Greece, Portugal or Luxembourg should be considered as

```

EC Member **Stales as bidder or target**

countries from inside and outside the EC

Graphic 2

**CD**

<

Internal

Bidder

6.81

External

Bidder

Portugal «

Greece

Spain

Germany»

EC Av

N e t h e r l a n d s

D e n m a r k

l.u xem.

B e I g l u m

I l a l y

EI re

France

« UK

4 ^

n t e r n a l l y targetted

Source: Tables 3, 4, 5 and 6

Externally targetted

l._
5.55

**`Annex`** **`IV.A.`** **`p.23`** 423

```
highly unstable as the small numbers of operations in those countries can

make their position fluctuate a great deal from one year to another.

Graphic 3 provides some further information about the characteristics of

Member States as far as international concentration activities are concerned.

The net balance index has been calculated for each Member State as the

difference between the number of cross-border deals^ [7] ) in which firms of

that country appear as targetted from abroad and as bidders in extra-EC

operations, divided by the total number of international deals for that

country. Only five countries appear with a negative balance, i.e. as

countries whose firms are more often bidders acquiring firms in other EC or

non-EC countries than targetted by foreign firms. Ireland and the UK have

the most negative balance followed by Denmark, France and The Netherlands.

On the other hand, Portugal, Spain, Greece, Belgium and Germany, followed by

Italy have a positive net balance in the number of operations involving firms

from outside their national borders.

Graphic 3 also includes an openness index. This index measures the relative

importance of cross-border concentrâtive activity in one country compared

with the number of national deals. It is calculated as the difference

between all international deals and national operations, divided by the sum

of both. Small countries such as Luxembourg, Portugal, Greece and Ireland

tend to be very open as one would have expected, while large countries such

as Germany tend to be less open. However, it is interesting to notice some

exceptions. In particular, Denmark has a negative index which shows that

internal concentrâtive activity is very important relative to international

operations. It is also interesting to note that France has a negative index

but very small in absolute terms (as compared with Italy for instance), which

shows a certain balance between the number of cross-border and national deals

involving French firms. Among the countries with positive net balances and

openness indexes, there are some important differences. For instance, the

net balance is approximately the same in Spain and Portugal. However, the

openness index in Spain is less than half of the Portuguese index, which

shows a much more important concentrâtive activity of domestic nature in

Spain than in Portugal.

(7) Both of EC and non-EC nature, but excluding national operations

```

###### Net balance and openness index of EC countries in terms of M&Maj.acquisitions

Graphic 3

             Belgium

             Denmark

             Eire

             France

             Germany

             Greece

Italy 

Luxem.    

             Netherlands

             Portugal

             Spain

U.K. 

**-0,6** **-0,4** **-0,2** **1,2**

Net balance Openness index

Source: AMDATA

**>**

**CD**

**<**

**>**

**4 ^**

```
Annex IV.A. p.25 . _
```

425

```
< T 4 > Distribution of concentrâtive operations

              by bid-value intervals and bid type

33. The AMDATA database does not provide information on the turnover of the

companies involved in concentrations as the DOME database did. Therefore, it

is not possible to give an account of the size of the companies involved in

the operations. Nonetheless, AMDATA provides certain information which can

give us an idea about the size distribution of the operations themselves

instead of the size of the firms involved. AMDATA gives information of the

value of the bid in each deal. However, as Table 7 shows, there is a large

percentage of operations for which the bid value remains unknown. The bid

value is given for only one third of the total number of operations involving

European firms (i.e. national and Community deals plus operations involving a

European and a non-EC firm). The percentage of missing bid values is not the

same for all the sectors. This problem is worse in intra-EC operations in

the construction sector, where the bid value is known in approximately only

one out of six operations. On the other hand, the problem is a minor one in

EC/non-EC deals in the energy and water sector where the bid value is not

known for only 13 of a total of 34 operations.

Intra-EC operations are usually of smaller dimension than those involving EC

firms and firms from third countries. For instance, in general manufacturing

65% of intra-EC deals had bid values below 10M ECU while that percentage was

43% in the case of EC/non-EC operations. However, 56% of EC/non-EC deals in

that sector had bid values between 10 and 500M ECU, and 34% of intra-EC

operations were included in the same bid value interval. Nonetheless, there

were 2 intra-EC operations with bid values of over 200M ECU.

The distribution of the size of the deals by sector of activity and by bid

value intervals shows some interesting facts. The energy and water sector

has a high average size of operations. In the case of intra-EC deals, 31% of

all operations for which figures are available had bid values above 200M ECU.

In the EC/non-EC case, that percentage goes up to 38% with 3 deals having bid

values of over 900M ECU. The chemicals and extractive sectors also had bid

values greater than the average ones. 47 operations of extra-EC dimension

had bid values above 50M ECU and 7 deals exceeded the 500M barrier. The

financial sector, metal and engineering and general manufacturing are next

more important in terms of in average size of deals.

```

**Table 7**

DISTRIBUTION BT BID-VALLE MERv5»LS _HO_ SECTCR CF _/CTNITC_ CF COŒNTRATICNS - 1992/1993

##### 426

14

8

47

34

164

637

254

823

233

121

17

612

185

171

52

728

191

147

47

Bid value bends in MEU5
Target SIC

Agriculture

intro-EC
EQfocn-EC

Energy _k_ Water

intra-EC

EC/ncn-EC

Mins/]h8T)icals

intra-EC

EC/hcn-EC

Mstal^hg./Cars

intra-EC

EC/hcn-EC

Mnufacturing

intra-EC

EC/ncn-EC

Const ruction

intro-EC
EC/ncn-EC

Distrib./fbtels

intro-EC

EC/ncn-€C

Trcnsport/jatm.

intro-EC

EC/ncn-EC

Banlyfin./Insur.

intro-EC

EC/ncn-EC

Other services

intra-EC
EC/ncn-EC

hb value < 1CM < 5CM < 1CCM < 20CM < 50CM < 90CM Cver Totals

7

6

31

13

187

102

466
171

600

156

96

10

396

130

129

35

469
126

97
28

6
1

8

5

55

15

151

36

144

29

16

4

138

27

24

9

143

28

32

8

1

1

3

5

30
25

52

31

59

24

5
1

54

18

13

5

59

21

15

7

0

0

0

3

9

10

12

10

9

11

2

2

9
8

3

3

24

8

2

3

0

0

4

4

5

5

3

4

5

8

0

0

6

2

1

0

25

4

1

1

TOTALS 3259 879 429 128 78 41 4828

Source: AVCATA

```
Annex IV.A. p.27
```

427

```
Table 8 gives the distribution of concentrâtive operations (excluding joint

ventures and minority participations as in the previous tables) by type of

operation. Public bids identify deals in which any acquiree is quoted on a

stock exchange anywhere in the world. The private acquisitions category

includes any transaction where the acquiree is not quoted on a stock exchange

and the transaction does not fall into any other category. Management buy
outs are those operations in which the acquiror is identified as being owned,

partly or in total, by members of the management of the company being

acquired. Divestments are defined by AMDATA as acquisitions with a divesting

company registered in the United Kingdom. Finally, reverse takeovers account

for operations in which a stock exchange quoted company buys a non-quoted

company and the issue of shares as consideration results in the non quoted

company taking control of the quoted company( [Q] ).

Table 8 shows that private acquisitions are, by far, the most frequent type

of operation with 3,821 deals out of 4,828 intra-EC and EC/non-EC operations.

They are particularly frequent in EC/non-EC operations as only 184 deals of

extra EC concentration activities belong to other categories. On the other

hand, reverse takeovers are very seldom found with only 3 cases registered in

1992/1993. Management buy-outs were relatively frequent in the intra-EC

group with more than 12% of the total number of deals. Most of the 184 cases

of the extra-Community deals were concentrated in the divestments category.

Those deals were relatively frequent in the distribution and financial

sectors. Public bids of intra-EC dimension were particularly important in

the banking, finance and insurance sector with 60 operations.

As can be seen, AMDATA allows for a much more detailed bid type

classification than DOME, which had mergers and majority acquisitions,

minority acquisitions and joint venturs as the only three types of

operations. It is worthwhile noticing that AMDATA does not include a

separate category for mergers. Even in the case of two companies that merge

into a new one, disappearing as the entities originally in existence, AMDATA

does not include a separate category for mergers. If two companies that

merge into a new one, disappearing as the entities originally in existence,

(8) AMDATA includes 'strategic alliances' (minority) stakes and 'demergers'
   as additional categories which do not fall under the majority
   acquisition general heading. Minority stakes are presented in the next

   sect ion.

```

Table 8

Bid type
Target SIC

DISTRIBUTION CF CFERMICNS BT BID TrFE AVD SECTCR CF ACTIVITY - 1992/1993

Publ ic bids Private acq. Mm. buy-outs Divestments Rev. takeovers Totals

intro-EC EC/ncn-EC intro-EC EC/ncn-EC intro-EC EC/non-EC intro-EC EC/xn-EC intro-EC EC/ncn-EC intro-EC EC/hcn-EC

Agriculture 1 0 9 6 1 1 3 1 0
Energy _k_ Water 5 3 3 8 2 4 0 0 4 7 0
Minerals/Chemicals 12 12 209 133 30 3 37 16 0
Ktetal/Engineering/Cars 17 5 492 230 117 3 61 16 0
Manufacturing 29 3 617 214 97 2 80 19 0
Construction 1 1 94 15 19 1 7 0 0
DistributiayHotels 17 8 467 156 6 5 0 63 2 0 0
Trcnsport/CaWnication 2 3 140 4 5 2 0 1 9 3 0
BcnJyfirxrce/Tnsurcnce 6 0 9 5 3 2 156 80 2 55 2 3 1
Other services 3 4 107 37 16 0 21 6 0

14

47

283

637

823

121

612

171

728

147

8

34

164

254

238

17

185

52

191

47

TOTALS 147 48 2705 1016 445 13 340 111 3638 1190

Source: /fcCATA

**4^.**
**NO**

**OO**

```
Annex IV.A. p.29
##### 429

AMDATA identifies at least one of the companies as having some control or

priority over one or the others, just as in a takeover or in a majority

acquisition. In terms of this database, there is always (at least) one

bidder and one target company^ [9] ). Besides, it is this accounting method,

which allowed us to make the geographic analysis of flows of concentrâtive

activities based on the nationality of the bidder and target companies.

<T4> Minority acquisitions and joint ventures

34. Tables 1 and 9 give information on the evolution of minority

acquisitions^ [10] ) during last year in comparison with the 1987/1988 to

1991/1992 period. Contrary to what happened with mergers and majority

acquisitions, the purchase of minority stakes has not fallen very

drastically with respect to 1991/1992 figures. National operations and EC

international operations grew relative to the 1991/1992 figures. The

evolution was relatively similar in manufacturing and services. The number

of operations of this type experienced some increase in metal, engineering

and cars and in the financial sectors and other services. The highest

concentration of minority acquisitions took place in the banking, insurance

and financial sector with 80 national operations and 39 cross-border deals

involving EC companies. This high level of activity was already present in

the previous years, although the incomplete time coverage of these types of

deals by AMDATA before 1990/1991 does not allow us to make long term

comparisons.

Table 9 gives a summary of international activity of minority acquisitions

involving EC firms. Intra-EC deals were much more abundant than deals

involving firms from outside the EC. France was the country with the

highest number of national operations in 1992/1993 followed by Italy. In

the United Kingdom and Germany, two countries with very high levels of

concentration activities in terms of majority acquisitions, the number of

minority acquisitions was quite small.

(9) Although this may be difficult at times, and therefore questionable, it
   is also true that the number of 'pure' mergers is proportionately very

   smaII.

(10) AMDATA defines minority acquisitions or stakes as operations in which
   the acquiror does not own more than fifty per cent of the acquiree. The
   thresholds for inclusion are either that the size of the stake being
   acquired is greater than thirty per cent or if less, the transaction
   value is greater than £ 10M.

```

Table 9

BITXER AN) TARGET NMIOW.ITIES CF MMRITY AaUISITIOS - 1992/1993

Target naticnality B EX Irl F D Gr I Lux N_ FT FJS IK Total
Bidder naticnality

Belgian 8 0 0 1 1 0 0 0 1 0 0 0 11
Denmark 0 1 4 0 0 0 0 0 0 0 0 1 0 15
Ireland 1 1 1 0 0 0 0 0 0 0 0 0 3
Frcnce 1 1 0 7 7 3 0 5 1 0 1 3 1 93
Gemtny 0 0 0 0 1 1 0 2 0 1 0 2 3 19
Italy 0 0 0 2 0 0 41 0 0 0 3 0 46
Luxembourg 1 0 0 0 0 0 0 0 0 0 0 0 1
Spain 0 0 0 0 1 0 0 0 0 1 15 0 17
thitedKingdon 0 0 0 5 0 0 3 0 3 0 3 14 28
The Netherlands 3 0 0 1 0 0 1 0 15 1 0 0 21

Total intro-€C 14 16 1 86 16 0 52 1 20 3 27 18 254

U^&Ccnada 1 0 0 5 2 0 2 0 1 1 0 2 14

Scandinavia 0 1 0 0 0 0 1 0 1 0 1 1 5
Western Eurcpe 1 1 0 3 1 0 1 0 1 0 1 1 10
For East 0 0 0 1 0 0 0 0 1 0 2 3 7

Middle East 0 0 0 0 1 0 0 0 0 0 0 0 1
Eastern Eurcpe 0 0 0 1 0 0 0 0 1 0 0 0 2
International 0 0 0 0 0 0 1 0 0 0 1 1 3

Total Rest of World 2 2 0 10 4 0 5 0 5 1 5 8 42

TOTAL EC + Rest of World 16 18 1 9 6 2 0 0 5 7 1 2 5 4 3 2 2 6 296

Source: AKCATA

_[BMCan_ Sccnd. West Eur. Far East Latin Am. East Eur. Other Total I TOTAL

0 ! 11
0 2 0 0 0 1 0 3 I 18
1 0 1 0 0 0 0 2 1 5
4 0 3 2 3 1 1 14 i 107
1 2 5 3 0 1 0 _12_ J _3)_
0 0 1 0 0 1 1 3 1 49

1

1 0 0 0 0 0 0 1 ! 18
3 1 0 3 1 0 4 12 I 41
0 0 0 0 1 1 0 2 I 23

10 5 10 8 5 5 6 49 I 304

**`Annex`** **`IV.A.`** **`p.`** **`31`** _**A**_ _**[ -,, ]**_
431

```
France was also the main bidder nationality in cross-border operations of

this kind, with 16 intra-European operations and 14 deals with firms from

non-EC countries. France was also targetted very often for this type of

operations by other firms from both inside and outside the EC (19 cases). It

is also worthwhile noticing that Spain, with 17 international operations, was

another frequent target nationality. Italy was third with 16 operations.

The data for joint ventures are limited to those contained in Table 1. These

data have been kindly offered by KPMG. These time series include figures of

three types of agreements:

a) Agreements between two or more companies, not being daughter companies

   of the same parent company, to set up something new. This could be a

   new company, the development of an oilfield or whatever as long as they

   start something new and independent.

b) Agreements creating a consortium which will make acquisitions or develop

   goods or services on a permanent or long term basis.

c) Agreements by which two separate companies merge some of their

   subsidiar ies.

This implies that the categories included in Table 1 under different headings

are not completely mutually exclusive. Furthermore, it must be borne in mind

that joint ventures are counted every time one company goes across the

border. This means that if a joint venture is being formed by three

companies of which two companies are going cross-border, the operation is

counted twice.

The KPMG database does not include information concerning national joint

ventures as we indicated before. Moreover, the EC/non-EC deals are counted

without making reference to bidder or target nationality of the firms, given

that this is more difficult or even sometimes impossible to establish in this

k ind of operat ion.

Table 1 shows that the number of intra-EC joint ventures in manufacturing

increased considerably during last year but it was still below the 1991/1992

figure. However, EC/non-EC deals in manufacturing continued their decreasing

```

**`Annex`** **`IV.A.`** **`p.32`** _**A**_ _**[ -,]**_ **`[ ~ ]`**
432

```
tendency started in 1991/1992. It is worthwhile noticing that joint ventures

in manufacturing between EC and non-EC firms are much more frequent that

intra-EC operations. The metal, engineering and car sector contained most of

the intra and extra Community joint ventures in manufacturing, followed by

minerals and chemicals and general manufacturing.

The evolution in the service sector was more uniform with decreases in all

types of deals. The number of joint ventures of an intra-Community nature

has been reduced to one third of the 1991/1992 figure in the service sector.

The decrease has been also constant although less dramatic in the EC/non-EC

area.

Most of the operations of this kind .are found in banking, insurance and

financial services with 85 joint ventures involving EC firms created in

1992/1993. It is also important to take note of the high level of activity

in the creation of joint ventures registered by KPMG outside the EC.

```

```
 V.B. p.1
```

433

```
<T9> B. The 1993 studies programme

35. During 1993 eight studies were commissioned by DG IV. One of these

studies entitled "Analysis of technical and economic problems concerning the

application of competition rules to the electricity sector" is intended for

publication. Two studies will not be published. The first one of them deals

with price differentials for consumer electronics goods. The second one

examines the issue of cross-subsidies. Five confidential studies were

commissioned last year. These studies have been instrumental for the

internal work of DG IV. Given the confidential nature of these studies, we

cannot present an abstract of their findings in this section.

<T4> Summary of studies intended for publication

<T5> Analysis of technical and economic problems concerning the

      application of competition rules to the electricity sector

36. The study, comprising four chapters, looks at the problem of price

discrimination in the electricity sector. The first chapter analyses the

problem on the basis of a methodological approach which determines the

structure of the rest of the report. The second chapter looks at the various

types of goods and services in respect of which price.discrimination may be

practised; it also sets out the cost concepts that may be applied in

analysing discrimination. The third chapter looks at price discrimination

from the cost angle. The fourth chapter examines how price discrimination

can be explained in terms of normal economic behaviour or may be justified in

regulated behaviour.

The first chapter analyses the problem of price discrimination in the

electricity sector. The three types of discrimination usually identified in

economic theory are presented. It is concluded that all three are relevant

to an analysis of the electricity sector. The chapter also draws a

distinction between the regulated and non-regulated markets-, it argues that,

while the regulated market is at present the natural framework for examining

discrimination issues in the electricity sector, there is also a need to look

at any discriminatory practices resulting from normal economic behaviour.

Such practices are a function of the type of competition prevailing on the

```

```
IV.B. p.2
```

434

```
market. The electricity sector is, from this point of view and in present

circumstances, relatively simple to deal with since the typical situation is

that of a monopoly. There are various possible reasons for the

discriminatory practices obtaining on the regulated markets. Among such

practices, it is necessary to draw a distinction, as explicitly recognized in

US regulatory practice, between justified and unjustified discrimination.

Justification is based on an improvement in economic efficiency, and any

discrimination that does not bring about any such improvement is regarded as

unjustified. Applying those concepts, the study of discrimination can thus

be broken down into five topics, each involving a particular characterization

of discriminatory practices. The first topic relates to the legal

characterization of discrimination, which might be different from the

characterization usually applied in economics. This law-related topic is not

dealt with in the report. The second topic is the economic characterization

of discriminatory practice in the electricity sector. Such characterization

calls for a definition of the goods and their variants and of the cost

concepts applied. The third and fourth topics relate to the characterization

of discrimination resulting from normal economic behaviour and from regulated

behaviour respectively. As far as the fourth topic is concerned, the

question of the level of discrimination that can be justified by an

improvement in economic efficiency is of particular importance. The fifth

and final topic is the numerical characterization of the impact of

discrimination in terms of economic efficiency (measured by a welfare

function). By definition, this question involves case-by-case studies and

cannot be dealt with here. It is concluded, however, that it should be

possible for such studies to be carried out successfully in the electricity

sector as long as one remains within the framework of normal economic

behaviour under a monopoly and within the framework of regulated behaviour.

The second chapter defines the market within which questions of

discrimination and the cost concepts applicable for the purposes of the

analysis are to be studied. So as to avoid any technical or mathematical

discussion, the analysis is based exclusively on examples. It is important

to note that, in most cases (interruptibiI ity defined in terms of power and

energy being an exception), this does not restrict the general validity of

```

```
IV.B. p.3 j -. ```

4ôb

```
the concepts. The concepts presented here on the basis of examples may be

extended to actual cases applying appropriate calculation tools. The

relevant market is defined as that for the supply of electricity and for

electricity transmission services. Such supply and services are marketed in

different variants. They may vary in terms of geographical location, volume,

regularity and interruptibi Iity. They may be combined (supply including

generation and transmission) or separate (transmission service separate from

generation). Various cost concepts may be applied in attempting to justify

price differences. The concepts of allocated, incremental and marginal costs

are presented.

The third chapter deals with the economic characterization of discrimination.

While the concept does not pose too many difficulties for the stylized models

that are usual in economic theory, application difficulties emerge once

reference has to be made to real costs. The analysis is presented in terms

of the different variants of supply and services established in Chapter 2.

It makes use of the cost concepts introduced in that chapter. It is evident

that conclusions as to the existence of discrimination may differ widely

depending on the context within which the transactions have been concluded

and depending on the cost concepts applied. Marginal costs lend themselves

least well to the practice of discrimination. However, they raise questions

of practical implementation, are sometimes difficult to interpret and are, in

any event, difficult to verify. Incremental costs avoid some of these

difficulties but introduce degrees of freedom that may be exploited for the

purposes of discrimination. The characterization of discrimination thus

poses questions as to the application of uniform cost-assessment methods. A

minimum requirement is that any undertaking justifying price differentiation

through incremental cost differences should be asked to demonstrate that it

is applying a cost-calculation approach that is properly formalized and

applied in a non-discriminatory manner to its various transactions. A better

solution is to standardize the calculation of incremental cost at national or

Community level. These remarks apply to an even greater extent to allocated

costs. By definition, allocated costs lend themselves more easily to

discriminatory practices. Unless it can be validated on the basis of other

approaches (marginal or incrementaI cost), justification of price differences

by differences in allocated costs is not economically sound. However,

allocated costs do have a major advantage in that they are the most

```

##### IV.B. p.4 436

```
easily verifiable on the basis of accounting information. Here too, a

minimum requirement seems to be that any justification of price differences

based on differences in allocated costs should derive from a formalized

procedure applied in a non-discriminatory manner. The ideal situation would

be for cost-allocation procedures to be standardized to some extent as

between undertakings in the member countries.

The fourth chapter looks at the characterization of discrimination resulting

from normal economic behaviour, and regulated behaviour. Normal economic

behaviour covers a vast range of potential discrimination. In practice, if

recourse to normal economic behaviour is not to be used to explain

practically any type of discrimination, it is important to characterize, both

legally and through statistical assessments of welfare, discrimination which,

although compatible with normal economic behaviour, constitutes an abuse of a

dominant position. The concept of excessive prices could considerably

facilitate such characterization.

Similarly, regulated behaviour may cover a vast range of discriminatory

practices. Here again, it seems essential to be able to characterize either

legally or through statistical assessments of welfare regulatory requirements

that may be acceptable. Within such acceptable regulatory requirements,

discriminatory practices must be justifiable in terms of economic efficiency.

This may be partially achieved on the basis of non-statistical analyses.

<T4> Summary of studies not intended for publication

<T5> Study on consumer electronics prices

37. This study was carried out by the International Economics Research

Centre of the University of Sussex (United Kingdom). The study was a

combination of data sources to compare EC prices of several consumer

electronics products: CD players, colour TV sets, video cameras and video

cassette recorders. The main conclusion of the study is that there are

significant price differences for some individual products from market to

market and that certain EC markets seem to have markedly higher prices than

```

```
IV.B. p.5
###### 437

other markets. On the other hand, prices seemed to display considerable

convergence on average if one considers only France, Germany and the United

Kingdom. Although the study is not a complete survey, it presents an

illustration of price differences and the problems of measuring them.

The study covers the United Kingdom, France and Germany quite extensively and

it also includes information on certain European countries: the Netherlands,

Denmark, Belgium, Spain, Greece and Italy as well as Japan.

In the United Kingdom, France and Germany, it was not easy to find evidence

of significant price variations (VAT included) for those products for which

identical models were on sale in several countries. However, for some

models, prices differed significantly across these three countries. Some of

the evidence suggests that for radio cassette players, prices were higher in

France than in the other two countries. Exchange rates in Autumn 1992 raised

French prices to above 20% above UK prices.

The relative similarity in prices among these three Member States did not

extend to the whole Community.

In Italy, Greece, Denmark and (to a lesser extent) Spain prices were often

significantly higher than in France, Germany and the United Kingdom. Denmark

for instance shows prices 50% higher for VCRs, radio cassette players and TV

sets, although Danish VAT rates are not so much higher.

Within this pattern, at the level of average prices, there were a number of

individual differences for some models. Price differentials emerged at the

brand level. For instance, some brands appeared to be relatively more

expensive in certain markets even where the general level of prices in those

markets might not have been exceptional.

Very crude sampling of prices in the Japanese market did not appear at first

sight to indicate that many EC items were dearer in Japan than in the EC.

The study has also pointed out some technical problems establishing price

comparisons. For instance, technical differences were rife in all products

except pure audio, and since identical models were not always available, the

exact price equivalencies were not easy to establish. Moreover, differences

```

```
IV.B. p.6
```

438

```
on guarantee terms added further complications. Also, figures for average

differences between markets will be very sensitive to the sampling approach

and the method of averaging.

<T5> Cost allocation and cross-subsidies

38. The study examines the issue of cross subsidies between different

activities within one enterprise and which have consequences for competition

policy.

Cross subsidies, within an enterprise, can arise where costs are common to

two or more activities. The allocation of such costs between these activities

can have an influence on the process of competition. Similarly, cross

subsidies can arise in the context of monopoly power. In such circumstances a

monopolist who also operates in a competitive market may be able to absorb

some of the costs of the latter in the monopoly sector and so distort

competition in the competitive sector. A monopolist can also be in a position

where there are substantial common costs.

These matters are of particular interest to competition authorities

especially where exclusive rights are being withdrawn from monopolists,

allowing for competitive entry to previously closed markets.

When a monopolist cross subsidises competitive activities from monopoly

activities there is a clear problem for competition policy. However, the

existence of common costs resulting from shared assets can give rise to

productivity gains. Nevertheless, competition issues can ensue where there is

an inappropriate allocation of costs.

39. The study examines three methods for the allocation of costs in these

circumstances. These three methods are: Fully Distributed Cost, Incremental

Cost, and Stand Alone Cost allocation, each of which can be used to identify

cross subsidies. Each of these methods is sensitive to bases on which they

are made. Typically enterprises make choices between these three methods and

much depends upon the information they wish to generate, the market context

of enterprise concerned and the regulatory environment.

```

```
IV.B. p.7
```

439

```
40. State-owned network frequently have weak cost accounting systems. This

situation will change as markets are liberalised. When such a state

enterprise is privatised the accounting for cross subsidy issue becomes more

important as the enterprise seeks to eliminate any redistributional cross

subsidy or uses cross subsidies as a barrier to entry. In some instances this

type of enterprise has accounting systems imposed upon them by a national

regulatory authority.

41. The study emphasises the link between pricing principles and accounting

systems for common costs and cross subsidies in networks. This is especially

the case where constraints have been imposed on pricing e.g. 'universality',

'affordable prices' or 'geographic averaging'. The study recognises, in these

circumstances, the possibility of contradictions where such networks face

competitive new entrants.

42. The study demonstrates the importance of the cross subsidy and cost

allocation issue to the Single Market. Economic integration could be

influenced by the response to these issues in sectors such as energy and

telecommunications. Consequently, tackling these issues is deemed to be an

important policy issue.

43. Some possible policy solutions to the accounting and cross subsidy

problems are suggested and examined. Structural separation of the relevant

activities would provide a solution but at the cost of lost economies of

scope. Equally, the detailed regulation of accounting systems would offer a

solution but again this would impose costs on the economy.

44. The results of the study suggest that the best policy would be to resort

to broad statements of principle and to place upon the enterprises concerned

the obligation to maintain management accounting records of a nature

sufficient to enable it to demonstrate that its conduct does not infringe

these principles. The study argues that once these broad principles have been

established, they should be supported by a survey of allocation methodologies

in place, by the further development of the 'market economy investor

principle' and by the application of the competition rules.

```

```
IV . B . p . 8

<T4> Confidential studies

```

440

```
Study of the restructuring plan for the Spanish integrated steel company

CSI .

Study of the restructuring plan for the Spanish special steels company

Sidenor.

Study of the shipbuilding market 1993.

Planned capacity reductions in former GDR shipyard.

Examen des pratiques de la gestion collective des droits afférents à la

cablodistribution en Belgique.

```

```
IV.C. p.1
#### 441

<T9> C. Statistical note on concentration operations notified under

              Council Regulation (EC) No 4064/89

<T3> §1. Introduct ion

45. Council Regulation (EEC) No 4064/89 on the control of concentrations

entered into force in September 1990. In line with the practice established

by the two previous competition reports the Commission has prepared a

detailed statistical analysis of the cases dealt with in the appl ication of

the Regulation to September 1993. For the purposes of consistency the same

methodology as used last year has been followed.

46. The tables presented below give a statistical description of the cases

classified according to the type of concentration, the geographic dimension,

the economic sectors involved and the nationality of the firms concerned.

47. Cases officially notified to the Commission but not falling within the

scope of the Regulation have been excluded. Cancelled or withdrawn

notifications have also been omitted.

48. The cases have been grouped into three periods of time (1990/91, 1991/92

and 1992/93). Each group covers notifications (or decisions) made in the

period from 21 September to 20 September of the following year. 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.

<T3> §2. Type of operation and geographic dimension

               of the concentrations (Table 1)

49. Table 1 shows the breakdown of the operations that took place in 1990/91,

1991/92 and 1992/93 by type of operation and by geographic dimension.

50. There are six different types of concentration. 'Majority acquisitions'

represents cases where one or more undertakings purchase securities or assets

by contract or by other means, thereby acquiring direct or indirect control

```

iv.c. p.2 4 4 2

```
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. Public-bid cases have been further divided into those

in which the bid has been contested by the acquired firm and those in which

the bid was commonly agreed. The group 'Others' includes a cross-shareholding

deal in both 1990/91 and 1992/93 and one demerger case in 1991/92.

51. With respect to geographic dimension, the same four groupings as last

year have been used : national deals, which are those involving two or more

companies from the same country (not necessarily a Member State), operations

of Community dimension which are those involving companies of at least two

different Member States, the third category which includes deals between at

least one Community company and at least one company from a non-Member State

and lastly, extra Community deals which involve only companies from at least

two different non-EC countries without the participation of any company from

any Member State.

52. In 1992/93 the total number of cases falling under the Regulation was

somewhat down on the total in the previous year (52 compared 57 cases). This

is perhaps not surprising in the less positive economic climate, currently

preva iIing.

53. Joint ventures and the acquisition of a majority holding were again by

far the most common type of concentrations and represented respectively 51 %

```

_**f**_
```
and 35 % of total cases notified in 1992/93. It would appear that the marked

increase in the percentage of joint venture cases that occurred in 1991/92

compared to 1990/91 (49 % compared 32 %) has now stabilised at a level of

around 50 % of all cases, since the 1992/93 figure shows only a marginal

increase (ie. 51 % ) . For the other types of concentration, namely agreed and

contested public bids, mergers and other, the number of cases remains small

and is comparable to the position in previous years.

54. With regard to the geographic dimension of the operations, the most

remarkable feature of this year's statistics would seem to be the substantial

increase in operations of a pure Community dimension not involving non-EC

companies. In 1991/92, these operations represented 33 % of the total but in

1992/93 this rose to over half of the total (51 % ) . This is an indicator of

increasing cross-border integration within the Community. The counterpart to

```

**«v.c.** **p.3** **4 4** **3**

```
the increase in purely Community operations was a strong decrease in the

number of deals concerning Community and non-EC companies. The total number

of such operations fell from 20 in 1991/92 to only 10 in 1992/93.

<T3> §3. Economic sectors of the operations (Table 2)

55. Notified cases are classified by NACE code of the main economic activity

of the concentration resulting from the operation. This sectorial breakdown

is further analysed by the geographic dimension of the concentration.

56. In 1992/93 there was a larger number of cases in the service sector

compared to manufacturing as a whole. This reverses the position observed in

the two previous years. Whilst manufacturing activities, namely the broad

categories 1, 2 and 3 of the NACE classification, accounted for 62 % and 58 %

of total operations in 1990/91 and 1991/92 respectively, these

classifications accounted for less than half of all operations notified (23

deals corresponding to 44 %) in 1992/93. The increase in activities in the

service sector is largely explained by the sharp rise in the number of

operations in real estate, computer and professional services, as well as the

maintained high number of concentrations in transport, community and

financial services. In 1992/93 there were 9 cases in the former sector

compared to only 3 in the previous year, whereas the latter was the sector

with the highest number of operations in 1992/93 and experienced a total of

13 cases.

<T3> §4. Operations by nationality of the companies involved (Table 3)

57. 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. To simplify the analysis and facilitate a

comparison over the last three years, a breakdown by nationality of the

companies involved in the operations falling under the Regulation is

```

**`IV.C.`** **`p.4`** 444

```
presented in Table 3. Countries are ranked according to the frequency of

companies with the corresponding nationality and are divided in two groups :

Member States and non-Member States.

58. As can be expected on general grounds, there is a relatively strong

correlation between frequency of company nationality and the economic size of

the corresponding country. The five larger Member States head the list for EC

countries and the United States has the greatest number of mentions for non
EC countr ies.

59. In 1992/93, as was the case in 1990/91 and 1991/92, France, Germany and

the United Kingdom had the largest number of cases. French companies were

again particularly active in mergers and acquisitions in 1992/93 and over the

three years they have the largest number of mentions (80 mentions) compared

to United Kingdom (64 mentions) and Germany (59 mentions). Italian and

Spanish companies figure less strongly in the list in 1992/93 compared to

1991/92 (8 and 5 mentions respectively compared to 16 and 11 for the previous

year). Companies from the Netherlands were relatively more active in 1992/93

with 8 mentions compared to only 3 in 1990/91 and 1991/92.

<T3> §5. Analysis of cases leading to a decision under Article 8(2)

                or Art icle 8(3) (Table 4)

60. Table 4 provides detailed information on the individual decisions taken

under Article 8(2) and 8(3) of the Regulation. Although most of the notified

cases falling under the scope of the Regulation are cleared with the usual

one month deadline by means of an Article 6(1)(b) decision, where the

proposed operation raises serious doubts with regard to its compatibility

with the common market, the Commission will open a more exhaustive second

stage of analysis by means of an Article 6(1)(c) decision. This procedure is

normally^ [1] ) terminated by means of an Article 8(2) or Article 8(3) decision.

61. The number of cases leading to an Article 8 decision are relatively few

in number to allow a large number of general conclusions to be drawn.

Nevertheless, the number of cases leading to second stage proceedings appears

(1) This was in fact the rule for all but one operation. This operation
   concerned case No IV/M.238 - Siemens/Philips, where the parties withdrew

   their notification after the Commission had decided to initiate second

   stage proceedings.

```

#### IV.C. p.5 445

```
to be relatively stable at about 4 cases a year (4 in 90/91, 3 in 91/92 and 4

in 92/93). This corresponds to somewhat less than 10 per cent of all cases

falling under the Regulation. However, it should be noted that these

statistics only take account of cases closed within the year under review and

that towards the end of the year 1992/93, the Commission opened second stage

proceedings in three other cases which will appear in the statistics for

1993/94.

62. Examination of the individual decisions in Table 4 show that relatively

few cases involve joint ventures (only 2 out of 11 cases) and that with one

exception all cases involved the manufacturing sector.

```

##### 446
```
IV.C. p.6

Table 1 Operations by type of concentration and geographic dimension

```

```
   1991/92

A B C D Total

```

```
 6 6

 0 2

 0 0

 3 10

 1 0

 0 1 0

10 19 20

```

```
Type of concentration

Acquisition of majority

ho Id i ng

Agreed pub Iic bid

Contested public bid

Joint venture/Control

Merger

Other

Total

```

```
   1990/91

A B C D Total

 5 11 8 2 26

```

```
0 0 1 0 1

7 18 16 6 47

  1992/93

```

```
1 22

0 3

0 1

6 28

1 2

0 1

8 57

```

```
2

```

```
0

0

2

0

```

```
1 1

```

```
0 1

7 5

```

```
1 2

1 15

1 1

```

```
Type of concentration A

Acquisition of majority

holding 3

Agreed pub Iic bid 1

Contested public bid 0

Joint venture/Control 5

Merger 1

Cross shareholding 0

Acquisition of minority 1

```

```
B C D Tota

```

```
 9

 1

 0

15

 1

 0

 0

```

```
Total 11 26 11

```

```
0 19

1 3

0 0

2 26

0 2

1 1

0 1

4 52

```

```
A= national, B= Community, C= Community plus non-EC, D= extra-Community

Source: MTF Database.

```

### IV.C. p.7 447

```
Table 2 Operations by economic sector and geographic dimension

```

```
  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**

```
  1992/93

A B C 0 Total

```

**0** **1** **3** **1** **5**

**4** **3** **5** **0** **12**

**0** **5** **1** **0** **6**

**0** **1** **0** **0** **1**

**0** **5** **1** **0** **6**

**3** **8** **0** **2** **13**

**4** **3** **1** **1** **9**

**0** **0** **0** **0** **0**

**0** **0** **0** **0** **0**

**11** **26** **11** **4** **52**

```
NACE code

```

```
  1990/91

A B C D Total

```

```
1. Food, textiles and 2 1 2 0 5

  clothing

2. Wood, paper, refining 3 6 1 1 11

```

`chemicals,` `metal` _k_

```
  machinery

3. Elect, and transport 2 3 6 2 13
```

`equipment` _k_ `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

```

_k_ `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

```

```
0 0 1 1 2

7 18 16 6 47

```

```
A= national, B= Community, C= Community plus non-EC, D= extra-Community

Source: MTF Database.

```

```
IV.C. p.8

Table 3

France

United Kingdom

Germany

Italy

Spain

Netherlands

Be I g i urn

Portugal

Denmark

Ireland

Luxemburg

Greece

USA

Sweden

Switzerland

Japan

Canada

South Afr ica

Kuwa i t

Australia

Austr ia

Finland

Hong Kong

New Zealand

Virgin Island

```

448

```
Operations by nationality of the companies involved

```

```
1992/93

 30

 17

 20

  8

  5

  8

  4

  3

  2

  1

  1

 119

 52

```

```
1990/91

 27

 16

 14

  6

  5

  3

  1

 14

  3

  5

  5

  1

```

```
1991/92

 23

 31

 25

 16

 11

  3

  5

  1

  2

 13

 12

  6

  2

  2

  2

  1

  1

 159

 57

```

```
TOTAL

 80

 64

 59

 30

 21

 14

 10

 4

 4

 1

 1

 0

 34

 17

 17

 8

 5

 4

 2

```

```
Total companies 101

Total operations 47

```

```
Table 4 Breakdown of final decisions resulting from proceedings Initiated under Article 6(l)(c) of Council Regulation 4064/89

```

```
           1990/91

Article 8(2) decisions

```

```
With conditions

    2

 Agreed bid

 Contested bid

 Community (1)
  Community/

  non EC (1)

   159

   55

 Belgian/French
 French/Swiss

```

```
          1991/92

Article 8(2) decisions

```

```
 <

b

 CO

4^

```

```
Article 8(3) decisions

      1

  Acquisition of

    majority

 Community/non-EC (1)

     35

  Canadian/French/

   Ital ian

```

```
Without conditions

    0

```

```
Article 8(3) decisions

     0

```

```
No of cases

Type of

operation

Geographical

Dimension

NACE code

Nationality

of firms Involved

```

```
With condition

    3

 Acquisition of

 majority (2)

 Joint venture/

 control (1)

  Nat. (1)

 Comm. (2)

   31 (2)

   32 (1)

French/ltalIan

   (2)

 German/German

```

```
Without conditions

    1

  Acquisition of

   majority

   Extra-EC

    29

 Swedish/Swiss

```

```
No of cases

Type of

operation

Geographlca

Dimension

NACE code

Nationality

of firms Involved

```

```
              ' 1992/93

    Article 8(2) decisions Article 8(3) decisions

 With condition Without conditions

     2 1 0

  Acquisition of Joint venture/
  majority (1) control

   Merger (1)

  National National

  Comm./non-EC

   211-247 272

 Dutch/Dutch/ German/German

      Dutch

 EnglIsh/American

NACE codes

159 Mineral water

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

211 Paper

247 Manufacturing of nylon fibres

272 Steel tubes

Source: MTF Database.

```

```
 <

 o

 o

4^

```

**o**

#### **V.C. p.11 45 1**

```
Table 5: Initiation of proceedings under Article 6(1)(c)

                 1990/91 1991/92 1992/93

No of cases

```

```
Acquisition of

majority (1)

Joint venture/

Control (2)

Merger (1)

National (2)

Community (2)

211

241

261

272

Ge rman/Ge rman

Dutch/Dutch/Dutch

Ge rman/F rench/

   I ta Iian

English/Italian

```

```
Aquisition of

majority (1)

Joint venture/

Control (1)

Agreed Bid (1)

Contested Bid (1)

National (1)

Community (1)

Commun i ty/non—

Community (2)

55

159

247

272

Ge rman/Ge rman

French/Belgian

Swiss/French

Ame r i can/EngIi sh

```

```
Type of operation

Geographical

dimension

NACE codes

Nationality

159 Mineral water

211 Paper

241 Potash products

```

```
Acquisition of

majority (4)

Joint venture/

Control (1)

National (1)

Community (2)

Commun i ty/non—

Community (1)

non-Commun i ty/

non-Community (1)

314 (2)

32

295

353

Ge rman/Ge rman

French/ltalian (2)

F rench/CanadI an/

I ta M an

Swiss/Swedi sh

```

```
247 Manufacturing of nylon fibres

261 Flat glass

272 Steel tubes

295 Packaging machines and foodstuffs

314 Manufacturing of accumulators, cells and primary batteries

353 Manufacturing of aircraft and spacecraft

55 Hotels and restaurants

```

ISSN 0254-1475

OM(94) 161 final

# **DOCUMENTS**

#### **EN 08**

###### Catalogue number : CB-CO-94-174-EN-C ISBN 92-77-67851-8

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