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**COMMISSION OF THE EUROPEAN COMMUNITIES**

Brussels, 10.04.1996

COM(96) 126 final

### **XXVth REPORT ON** **COMPETITION POLICY (1995)**

(presented by the Commission)

##### `TABLE OF CONTENTS`

```
                                     Page

Introduction

I. Anti-trust : Articles 85 and 86
                                        12

A. Ensuring the benefits of the internal market 12

   1. Car distribution 12
   2. Restrictions on parallel trade 13
   3. Restrictions on access to the market by new entrants 15
   4. Green Paper on vertical restraints 17
   5. Cross-border credit transfers 17
   6. Leniency programme 19
   7. Access to the file 19

B. Cooperation and competition in a rapidly changing and
   increasingly global economic environment 20

   1. The application of articles 85 and 86 in the
      telecommunications sector 20

      1.1 Strategic alliances 20
      1.2 Access and interconnection agreements 22

   2. Globalization of markets 23

   3. Transfer of technology 23

C. Transport 24

   1. Maritime transport 24

      1.1 Liner shipping consortia 24

      1.2 Inland rate fixing by ship liner conferences 25

   2. Air transport 26

      2.1 IATA tariff consultations 26

      2.2 Cooperation between airlines 26
D. Trans-European networks and competition rules 27
E. Competition and environment 28
F. Secondary product markets 29
G. Liberal professions 30
H. Subsidiarity and decentralization 31
   1. De minimis agreements 31

   2. Decentralization 31

I. Statistical overview . 33

```

```
II. State monopolies and monopoly rights : Articles 37 and 90 35

A. Introduction
                                           36

    1. Services of general economic interest at the heart of the
       Commission's liberalization policy 36
    2. Article 90(3) Directives 36

    3. Other instruments available to the Commission 37

B. Telecommunications 38

    1. General measures 38

    2. Cable TV liberalization directive. 38
    3. Mobile telephony liberalization directive 39
    4. Full competition directive 40
    5. Infringement proceedings under Article 90(3) 41

C. Energy 42
D. Postal services 43
E. Transport 43

    1. Airports 43
      1.1 Landing fees 44
       1.2 Ground handling 44
    2. Ports 45

F. Other state monopolies of a commercial character 45

    1. Swedish and Finnish alcohol monopolies 45
    2. Austrian alcohol monopoly 46
   3 . Austrian salt monopoly 46
   4. Austrian manufactured tobacco monopoly 46

III. Merger control 48

A. Introduction 48

B. In-depth investigations 48

   1. Media cases 48

    2. Other in-depth investigations 50

C. Other major cases 52
D. Legitimate interests of Member States 53
E. Mergers in the coal and steel industries 54
F. Perrier 54

G. Statistical overview 55

IV. State aid 57

A. General policy 57

New measures to enforce compliance with the notification requirement 58

   1. Recovery of illegal aid 58
    2. Cooperation between the Commission and national courts 59

B. Concept of aid 59

C. Assessment of compatibility of aid with the common market 62

   1. Sectoral aid 62

       1.1 Sectors subject to specific rules 62

             1.1.1 Aid to shipbuilding 62

```

```
              1.1.2 Steel 62

              1.1.3 Coal 63
              1.1.4 Motor vehicle industry 63
              1.1.5 Synthetic fibres industry 65
              1.1.6 Transport 65
              1.1.7 Agriculture 68
              1.1.8 Fisheries 69

       1.2 Specific sectors not subject to special rules 70

              1.2.1 Banking 70
              1.2.2 Postal sector 71

              1.2.3 The audiovisual sector 71

    2. Horizontal aid 72

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

    3 . Regional aid 78

D. Procedures (rights of complainants) 78

E. Statistics 79

V. International activities 82

A. European Economic Area 82
B. Central and Eastern Europe, Baltic States, New Independent 82
   States and Mediterranean countries

    1. Central and Eastern Europe 82
    2. Baltic States, Slovenia and New Independent States 83
   3 . Mediterranean countries and Mercosur 83

C. North America 84
D. Japan 85
E. Australia and New Zealand 85
F. Multinational organizations and other international issues 85

   1. OECD 85
    2. World Trade Organization 86
   3 . UNCTAD 86
   4. International cooperation 86

VI. Information policy 88

```

_Annex : cases discussed in the report_ `89`

###### **Introduction**

**1.** **A competitive environment as a prerequisite for competitiveness**

```
1. It is widely recognized that competition policy has a key role
to play in ensuring that EU industry remains competitive.

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

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

```

**2.** **Internal market and competition policy**

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

2.1 Factors affecting competition in the internal market

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

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

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

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

```

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

2.2 Role of competition policy

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

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

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

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

```

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

8. Telecommunications is a strategic area of considerable interest
for the European Union [3] . Ongoing liberalization of this sector has
forced telecom operators to launch new services and to reduce prices.
Both industry and consumers benefit from the opening-up of telecom
markets. The introduction of competition in this sector is also vital
to facilitate the transition to the information society, and thus for
our ability to survive in an increasingly competitive and global
market. In this context, cultural diversity and equal access to the new
services are essential objectives that need to be addressed.

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

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

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

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

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

```

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

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

3. International cooperation

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

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

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

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

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

```

**4.** **Role of the Commission in applying the competition rules**

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

15. Accordingly, the Commission has been considering how to focus on
those arrangements which have a significant effect on competition and
are likely to affect trade between Member States appreciably. For this
purpose, several instruments and concepts have already been developed.
Preparatory work is under way to broaden and refine them further.
Particularly relevant in this respect are the application of the de
```

_minimis_ `principle (in the fields of both` `anti-trust` `and state` `aid)` `,`
```
group exemptions (which allow firms to make agreements without
notifying them to the Commission so as to obtain legal certainty), and
the notion of Community interest in the case of complaints.

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

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

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

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

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

```

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

5. Transparency

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

```

**6.** **Democratic accountability**

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

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

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

                            10

```

```
relationship between competition policy and competitiveness.

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

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

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

27. In recent years the Commission's competition report has increased
steadily in size, to reach more than 600 pages in 1994. Since the
Commission's separate brochure "European Community competition policy

 1994", which summarizes the Commission's policy and decisions in a
"user-friendly" format, has been well received, the Commission has been
asked, in particular by the Economic and Social Committee, to present
a shorter and more readable document.

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

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

```

**7. Statistics**

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

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

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

                            11

```

**I - Anti-trust** **:** **Articles 85 and 86**

**A** **-** **Ensuring** **the** **benefits** **of** **the internal market**

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

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

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

```

**1.** **Car** **distribution**

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

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

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

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

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

                            12

```

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

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

This is all the more important in the car sector, where price
differences between Member States are significant. In its latest sixmonthly survey of car prices, published in July, the Commission noticed
that price differentials had risen dramatically since November 1994. [7 ]
Since the beginning of 1995 it has received an increasing number of
complaints from individuals in the European Union, mostly from Austria,
Germany and France, who have been prevented from purchasing a car in
Italy and Spain, where, following currency devaluations, prices were
relatively low. [8 ]

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

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

```

**2.** **Restrictions on parallel trade**

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

```

_BASF/Accinauto_

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

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

    "The impact of currency fluctuations on the internal market", Communication from the
    Commission to the European Council, 31.10.1995, point 25.

```

`See also judgments of the Court of Justice of 24 October 1995 in` `Cases` `C-70/93` _Bayerische_
_Motorenwerke_ _AG and ALD Auto-Leasing_ _D GmbH_ `and C-266/93` `Bundes/cartellamt` _and_ _Volkswagen_
_AG, VAG Leasing_ _GmbH_ `(not yet` `published).`

```
    "Distribution of motor vehicles", Explanatory brochure, European Commission, DG IV,
    IV/9509/95. More than 7 000 copies of this brochure have already been distributed.

    OJ L 272, 15.11.1995, p. 16.

                         13

```

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

```

_Pharmaceutical products :• Organon_

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

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

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

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

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

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

                         14

```

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

```

**3.** **Restrictions on access** **to** **the market** **by** **new entrants**

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

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

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

Access to the market can also be blocked through abuse by a monopoly
or dominant provider of essential facilities or services. This is a
problem of increasing importance in various sectors. Where a dominant
company owns or controls a facility access to which is essential to
enable its competitors to carry on business, it may not deny them
access, and it must grant access on a non-discriminatory basis. Be it
dn the transport sector, in particular air transport, in banking or in
the telecommunications sector, the Commission applies this general
principle of EU competition law [13] in order to foster new competition.
The case concerning access to the port of Roscoff in France (ICG/CCI
Morlaix) raises the same issue.

```

_Unilever/Mars_

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

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

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

     This general principle has found support in the Judgment of the Court of Justice of 6
```

`April` `1995 in` `Cases` `C-241/91` `P and` `C-242/91` `P` _Radio_ _Telefis_ _Eireann_ _(RTE) and_ _Indépendant_
_Television_ _Publications_ _Ltd v Commission_ _(Magill)_ `[1995] ECR` `1-743.`

```
                          15

```

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

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

```

_Van_ _Marwijk/FNK-SCK_

```
42. In its decision of 29 November 1995 [16], the Commission imposed
fines [17] on FNK and SCK for infringements of Article 85 (1) on the Dutch
crane-hire market.

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

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

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

```

_ICG/CCI Morlaix_

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

     In 1992 the Commission took a negative decision against Langnese (Unilever) and Schôller,
     who are in a duopolistic position on the German impulse ice cream market. In that case
     the Commission acted against "sales outlet exclusivity" arrangements under which a
     retailer undertakes to sell only the products of the manufacturer with whom he has a
     contract. The Commission decided that the cumulative effect of the agreements in question
     amounted to an appreciable restriction of competition by Langnese and Schôller. This
     finding was appealed against by the parties but was upheld by the Court of First Instance
```

`in its judgments of 8 June 1995 in Case` `T-7/93` _Langnese-Iglo_ _GmbH v Commission_ `[1995]`
`ECR` `11-1533` `and in Case` `T-9/93` _Schôller_ _Lebensmittel_ _GmbH & Co. KG v Commission_ `[1995]`
```
     ECR 11-1611.

     OJ C 211, 15.08.1995, p.4.

     OJ L 312, 23.12.1995, p.79.

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

                            16

```

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

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

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

```

**4.** **Green Paper on vertical restraints**

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

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

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

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

5. Cross-border credit transfers

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

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

                            17

```

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

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

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

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

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

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

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

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

     OJ C 251, 27.09.1995, p. 3.

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

                            18

```

```
6. Leniency programme

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

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

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

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

```

**7. Access to the file**

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

52. The Court of First Instance annulled a series of Commission
decisions of 19 December 1990 [22] sanctioning infringements of the
competition rules on the market in soda ash. One of the decisions
related to a concerted practice by which Solvay and ICI divided the
European market between them. In addition, the Commission found that
both Solvay and ICI abused their dominant positions in western Europe,
in the United Kingdom and Ireland respectively. [23 ]

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

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

     OJ C 341, 19.12.1995, p. 13.

     OJ L 152, 15.6.1991.

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

```

`Judgment of the Court of First Instance of 29 June 1995 in Case` `T-30/31` _Solvay_ _v_
_Commission_ `[1995] ECR` `11-1775.`

```
                            19

```

```
in favour of ICI. [25 ]

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

```

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

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

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

```

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

```
1.1. Strategic alliances

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

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

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

```

`Judgment of the Court of First Instance of 29 June 1995 in Case` `T-36/91` _Imperial_ _Chemical_
_Industries_ _pic_ _v Commission_ `[1995] ECR` `11-1847.`

```
    Commission Decision of 12 December 1994 on the terms of reference of hearing officers in
    competition procedures before the Commission (OJ L 330, 21.12.1994, p.67).

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

                         20

```

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

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

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

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

```

_**Atlas/Phoenix**_

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

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

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

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

                         21

```

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

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

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

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

```

_Global_ _Mobile Satellite Systems_

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

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

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

1.2. Access and interconnection agreements

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

    Notices pursuant to Article 19(3) of Regulation No 17 (OJ C 337, 15.12.1995, pp. 2 and
    13) .

```

`Notice pursuant to Article 19 (3) of Regulation No 17 (OJ C 304, 15.11.1995, p.` _6)._

```
    G7 conclusions and Telecommunications Infrastructure Green Paper.

                         22

```

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

```

**2.** **Globalization of markets**

_ATR/BAe_

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

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

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

3. Transfer of technology

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

64. The Regulation on the block exemption of categories of technology
transfer agreements, [33] proposed in 1994 and substantially amended in
1995 following third party hearings and the second meeting of the
Advisory Committee on Restrictive Practices and Dominant Positions, is
intended to promote economic growth and enhance competitiveness by
simplifying the content of the two existing regulations on licensing
agreements [34] and combining them in a single regulation.

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

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

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

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

                            23

```

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

C - Transport

1. Maritime transport

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

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

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

1.1. Liner shipping consortia

68. The new regulation granting block exemption to liner shipping
consortia [35] is an important instrument for this purpose, as it will
encourage shipowners to improve and rationalize their operations,
thereby reducing costs and freight rates whilst at the same time
allowing them to offer a better-quality service along with greater
frequency. This is the second block exemption that has been adopted in
the liner shipping sector. Regulation (CEE) No 4056/86, which lays down
rules for the application of Articles 85 and 86 to maritime transport,
already contains a block exemption for liner conferences. [36 ]

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

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

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

                            24

```

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

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

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

1.2. Inland rate fixing by ship liner conferences

71. On 8 June 1994 the Commission adopted a report [38] on how it intends
to apply the competition rules to liner shipping which it presented to
the Transport Council. The report focuses on an analysis of the legal
position with regard to price-fixing agreements concluded by shipowner
members of liner conferences concerning the land section of multimodal
transport services provided by them in the Community. It concluded
that this practice was contrary to the Community competition rules and
could not qualify for exemption as it stood. It suggested, however,
that a new approach be established that was compatible with the
competition rules and allowed inland container transport to be
organized more efficiently and more to the advantage of shippers.

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

73. In 1994 the Commission took two decisions prohibiting inland
price fixing agreements : the TAA (Transatlantic Agreement) decision [39 ]

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

     SEC(94)933.

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

                            25

```

```
and the FEFC (Far Eastern Freight Conference) decision. [40 ]
On 10 March 1995 the Court of First Instance ordered the suspension of
the TAA decision in so far as it prohibited joint price fixing in
respect of the inland portions within the Community of throughintermodal transport services. [41] That order was confirmed on appeal by
the Court of Justice on 19 July 1995. [42 ]

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

2. Air transport

2.1. IATA tariff consultations

74. Regulation (EEC) No 1617/93 of 25 June 1993 [45] states that
Article 85(3) is applicable in particular to the holding of
consultations on tariffs for the carriage of passengers and freight on
scheduled air services between Community airports. The exemption is,
however, subject to the conditions set out in Article 4 of the
Regulation, notably that the exemption is applicable only if the
consultations give rise to interlining.

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

The Commission therefore considers it desirable to amend the abovementioned Regulation in order to exclude from its scope tariff
consultations relating to the carriage of freight. The Commission has
published a notice [46] giving the airlines and other interested parties
the opportunity to make known their views in advance. It will decide
on further action in 1996.

2.2. Cooperation between airlines

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

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

```

`Case T-395/94 R` _Atlantic_ _Container_ _Line_ _and Others_ _v Commission_ `[1995] ECR` `11-595.`

`Case` `C-149/95` `P (R)` _Commission_ _v Atlantic_ _Container_ _Line_ _and Others_ `[1995] ECR` `1-2165.`

```
     Commission press release IP/95/646, 21.06.1995.

     Order of the President of the Court of First Instance of 22 November 1995,
```

`Case T-395/94 R II` _Atlantic_ _Container_ _Line_ _and others_ _v Commission_ `(not yet published)`

```
     OJ L 155, 26.6.1993, p. 18.

     OJ C 322, 2.12.1995, p. 15.

                            26

```

```
routes.

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

```

_Lufthansa/SAS_

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

78. The Commission stated [47] that, although the agreement appreciably
restricted competition on the markets in question, especially on the
routes between Scandinavia and Germany, it could qualify for exemption
provided that certain conditions were met, allowing existing and
potential competition to be maintained.

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

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

```

**D** - **Trans-European networks and competition rules**

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

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

     OJ C 201, 5.8.1995, p. 2.

                            27

```

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

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

```

_Gas_ _Interconnector_

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

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

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

```

**E** - **Competition and environment**

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

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

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

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

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

                         28

```

```
state.

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

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

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

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

```

**F - Secondary product markets**

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

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

In the Commission's view, neither of these approaches reflects reality
sufficiently. Dominance has always been defined by the Commission as
the ability to act to an appreciable extent independently of
competitors and consumers. Therefore, an in-depth fact-finding [1] exercise

                            29

```

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

```

_Pelikan/Kyocera_

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

```

**G** - **Liberal professions**

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

```

_Coapi_

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

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

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

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

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

                            30

```

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

```

**H - Subsidiarity and decentralization**

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

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

1. De minimis agreements

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

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

```

**2.** **Decentralization**

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

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

    The Court of First Instance endorsed this practice for the first time in its judgment of
```

`17 September 1992 in Case T-24/90` `Automec` _v Commission_ `[1992] ECR` `11-2223,` `paragraphs 91`
```
    to 94.

```

`Case` `T-114/92` _BENIM_ _v Commission_ `[1995] ECR` `11-147` `and Case` `T-5/93` _Tremblay v_ _Commission_
```
    [1995] ECR 11-185. The Court of First Instance, referring to the Automec II judment,
    indicated that, in order to assess the Community interest, the Commission must balance
    the significance of the alleged infringement as regards the functioning of the common
    market, the probability of its being able to establish the existence of the infringement
    and the extent of the investigative measures required to enforce the competition rules.

                         31

```

```
93. An important step forward in the decentralization effort is the
Commission's notice on cooperation between national courts and the
Commission in applying Articles 85 and 86. [53] In 1995 several national
courts in Spain, France, Germany and Belgium have relied upon the
cooperation mechanism laid down in this notice to obtain information
from the Commission on competition issues.

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

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

The Commission has pressed ahead with its preparation of a notice on
cooperation between the Commission and national competition
authorities [55], pursuant to which the Commission will inform and consult
the national authorities when the latter apply Article 85(1) or 86 or
national competition law in cases with a Community dimension. A draft
has already been submitted to the Member States for consultation.
Further consultation of interested third parties will follow on the
basis of a draft notice which the Commission intends to publish in
1996.

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

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

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

     OJ C 39, 13.2.1993, p. 6.

```

`Joined cases` `C-319/93,` `C-40/94 and C-224/94` _Dijkstra/Frico_ _Domo,_ _van_ _Roes_ _sel/Campina_
_Melkunie,_ _de_ _Bie/Campina_ _Melkunie_ `(not yet` `published).`

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

                            32

```

**I** - **Statistical overview**

_Graph 1 : New_ _cases_

600

500 4

400

300

200

100

1991 1992 1993 1994 1995

- Cases opened on
Commission's ow n

initiative

B Complaints

- Notifications

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

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

                            33

```

_**Graph 2 : Cases dealt**_ _**with**_

1200

1000 +

800

600

400 4

200

1991 1992 1993 1994 1995

I Formal decisions

I Informal procedure

```
97. During the year the Commission closed 433 cases in total, of
which 419 through an informal procedure (including comfort letter,
discomfort letter, rejection of complaint and administrative closure
of the file [56] ) and 14 by formal decision. In 1995, the number of cases
closed fel by 23.4% compared with 1994.

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

                            34

```

_**Graph 3 :**_ _**Stock**_ _**of**_ _**cases**_ _**over**_ _**time**_

2500

2000

1500 4

1000

500 4

1991 1992 1993

I Input of cases _r":—\_ Output of cases

1994

-•— Stock of cases

```
1995

```

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

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

                            35

```

###### **II - State monopolies and monopoly rights : Articles 37 and 90** **A - Introduction**

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

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

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

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

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

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

```

**2.** **Article 90(3) Directives**

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

                            36

```

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

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

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

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

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

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

```

**3.** **Other instruments available to the Commission**

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

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

                            37

```

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

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

```

**B - Telecommunications**

```
1. General measures

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

On 25 January it adopted the second part of the Green Paper on the
liberalization of telecommunications infrastructures. The Green Paper
examined the regulatory conditions required to ensure full competition
in the telecommunications sector within the time-frame agreed by the
Council. [58] After wide-ranging consultations on the Green Paper, the
Commission adopted on 3 May a Communication on the consultations [59 ]
summing up the results and listing the measures necessary to complete
the moves towards full liberalization and establishment of a clear
regulatory framework. This includes:

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

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

```

**2.** **Cable TV liberalization directive**

```
103. On 18 October the Commission adopted a directive allowing cable
TV infrastructure to be used to provide already liberalized
telecommunications services. [60] The draft had been issued for public
consultation on 21 December 1994 [61] . Although not bound by specific
Treaty requirements, the Commission has sought to establish a
transparent and open procedure for the adoption of Article 90(3)
directives. The more than forty written comments received expressed
their broad support for the Commission draft.

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

     COM{95)158.

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

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

```

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

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

```

**3.** **Mobile telephony liberalization directive**

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

At its meeting on 20 December 1995, the Commission agreed the
Article 90(3) directive in principle. The directive was formally
adopted by the Commission on 16 January 1996. [63] The Commission's aim
is to ensure fair competition as regards both the granting of licences
to operators and the management of mobile telephony networks in the
European Union. This should help new entrants to gain access to the
market and facilitate the interconnection of national networks.

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

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

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

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

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

     Communication of 21 October 1992 on the 1992 review of the situation in the

     telecommunications service sector (SEC (92) 1048).

                            39

```

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

```

**4.** **Full competition directive**

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

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

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

107. In parallel with its action to establish the above-mentioned
regulatory framework, the Commission pursued its efforts to ensure
full • implementation of the existing directives in the
telecommunications sector and in particular the Services Directive. [65 ]
On 4 April, the Commission issued a Communication [66] on the status and
implementation of this directive,which affirmed the Commission's
intention to ensure that the problems and gaps in implementation
identified in the Communication are resolved.

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

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

                            40

```

```
5. Infringement proceedings under Article 90(3)

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

```

_Omnitel Pronto_ _Italia_

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

```

_GSM_ _Radiotelephony services_ _in other_ _Member States_

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

```

_Vebacom_

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

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

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

                            41

```

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

C - Energy

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

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

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

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

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

     SEC(95)464 of 22.3.1995.

                            42

```

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

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

```

**D - Postal services**

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

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

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

```

**E - Transport**

**1.** **Airports**

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

     See footnote 2 above.

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

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

                            43

```

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

1.1 Landing fees

```

_Brussels-National Airport_

```
120. The Commission adopted a decision under Article 90 (3 ) [7 3] concerning
the system of discounts on landing fees charged at Brussels-National
Airport under the Royal Decree of 22 December 1989. British Midland,
the airline which lodged the complaint, considered that the system
enabled the airline Sabena, its main competitor on the Brussels-London
route, to benefit from a discount of 18% on its landing fees, although
no other airlines qualified for a reduction.

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

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

1.2. Ground handling

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

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

122. A fresh development in this area was the agreement in principle,
reached on 8 December, by the Transport Council, on the Directive
relating to the liberalization of ground handling services in Community
airports. The proposal, based on Article 84 of the Treaty, had been
presented by the Commission in December 1994 and followed the Council
Resolution of 24 October 1994 [74] on the situation in European civil
aviation and the Commission communication on 'The way forward for civil
aviation in Europe'.

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

     OJ L 216, 12.9.1995, p. 8.

     OJ C 309, 5.11.1994, p. 2.

                            44

```

```
operating costs and better match their services to customer
requirements.

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

2. Ports

```

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

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

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

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

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

```

**F - Other state monopolies of a commercial character**

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

1. Swedish and Finnish alcohol monopolies

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

```

`Judgment of 10 December 1991, in Case` `C-179/90` `Porto` _di Genova_ `v.` _Siderurgicn_ _Gabrielli,_
```
     [1991] ECR 1-5889.

                            45

```

```
the end of 1995. [76 ]

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

```

**2.** **Austrian alcohol monopoly**

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

```

**3.** **Austrian salt monopoly**

```
128. With regard to the national monopoly of a commercial character
in the salt.sector, Austria, following action taken by the Commission,
finally agreed to abolish the exclusive rights to import and sell
products from other Member States wholesale; the rights should have
been abolished by the start of 1995. [77 ]

4. Austrian manufactured tobacco monopoly

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

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

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

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

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

     OJ C 241, 29.8.1994, p. 35.

                            46

```

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

                            47

```

###### **Ill - Merger control** **A - Introduction**

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

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

The revised Implementing Regulation [80] came into force on 1 March 1995.
In addition, four interpretative notices which were published at the
end of 1994 were applied for the first time in 1995. [81] They concern the
distinction between concentrative and cooperative joint ventures, the
notion of a concentration, the notion of undertakings concerned and the
calculation of turnover.

These changes in the operation of the Merger Regulation were adopted
by the Commission as a result of its 1993 review exercise. A new review
exercise was launched during the year. The Commission carried out a
wide-ranging consultation exercise on the issue of lowering the
thresholds contained in the Merger Regulation as well as on other
aspects of the Regulation which might need to be revised. Among those
consulted were the Member States, other Community institutions,
individual businesses, trade associations and legal advisers. A Green
Paper on the operation of the Merger Regulation was published early in
1996 [82] with a view to full public consultations on the issues involved.
Legislative proposals are likely to be made later in the year.

```

**B - In-depth investigations**

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

1. Media cases

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

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

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

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

     COM(96)19.

                            48

```

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

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

```

_Nordic_ _Satellite Distribution_

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

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

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

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

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

```

_RTUVeronica/Endemol_

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

                            49

```

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

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

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

```

**2.** **Other in-depth investigations**

```
135. The remaining operations in which in depth investigations were
opened were all ultimately declared compatible with the common market.
```

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

```

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

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

  the potential effects of new technologies which are likely to alter

                            50

```

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

```

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

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

```

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

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

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

```

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

```

`141.` `In` _Crown Cork_ _and_ _Seal/Carnaud_ _MetalBox,_ `following a detailed`
```
second-phase analysis of both the horizontal and vertical issues
raised, the Commission determined that the only market in which the
proposed concentration threatened to create a dominant position was the

                            51

```

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

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

C - Other major cases

142. A number of major operations were cleared without in-depth
investigations within one month of their notification. They included
```

`several in the pharmaceutical sector, among which were` _Glaxo/Wellcome,_
_Behringwerke/Armour_ _Pharmaceutical,_ _Hoechst/Marion_ _Merrell_ _Dow, Rhone_
_Poulenc_ _Rohrer/Fisons_ _and_ _Upjohn/Pharmacia._ `In order to remove any`
```
possible doubts as to compatibility, Glaxo agreed to grant to a third
party an exclusive licence for one of the anti-migraine compounds
currently under development by either Glaxo or Wellcome. It appears
that recent mergers in the pharmaceutical industry are intended to
increase the range of products offered by companies, thereby making
them more competitive as suppliers to the wholesalers, hospitals and
pharmacy chains. As a result, the operations to date have been largely
complementary in nature and have not in general led to any competition
problems.

```

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

144. The Commission approved an operation by which the Finnish
```

`companies` _Repola_ _Corporation_ `and` _Kymmene_ _Corporation_ `entered into a`
```
full merger. Repola and Kymmene are large international companies
active in the fields of printing paper and packaging materials. The
operation involved, among other products, the markets for newsprint,
magazine paper and paper sacks.

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

                            52

```

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

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

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

```

**D** **-**
**Legitimate interests of Member States**

```
145. On 6 March the United Kingdom authorities made, in the context
```

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

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

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

                            53

```

**E** **-** **Mergers in the** **coal** **and steel industries**

```
146. During the year the Commission took seven decisions on
concentrations under Article 66 of the ECSC Treaty. Three of these
cases involved the sale to the private sector of steel companies that
```

`had previously been State-owned : the acquisition by the` _RIVA_ `group`
`of Ilva's flat products operation; a joint venture between` _Usinor_
_Sacilor_ _and Hoogovens_ `to take over the Portuguese` `flat` `products company`
_SN-Planos;_ `and another joint venture between` _RIVA and FREIRE_ `involving`
`the takeover of` _SN-Longos_ `.`

```
F - Perrier

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

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

                            54

```

**G** - **Statistical overview**

_Graph 1 :_ _Number_ _of_ _final decisions adopted each_ _year_ _since 1990_

**Final decisions taken under the Merger Control Regulation**

```
 120

 100

       1990 1991 1992 1993 1994 1995

```

_Graph_ _2 :_ _Breakdown_ _for_ _1995_ _by_ _type_ _of_ _operation_

**Type of concentration (total 1990-95)**

Others

Agreed bid 7%

Joint venture / control

49%

Acquisition of majority

39%

**55**

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

**49**

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

**56**

**IV -** **State** **aid**

**A - General policy**

```
148. In July, the Commission published its Fourth survey on state aid
in the Community [83] covering 1991 and 1992. The survey is an essential
quantitative instrument in defining aid policy. The trend recorded in
the period 1981-1990 showing a slow but steady fall in total aid has
continued, despite the high costs of German unification, recession and
stronger international competition. However, total aid granted remains
high, with an average of ECU 94 billion a year for the Community as a
whole, or 1.9% of its GDP and ECU 704 per person employed. In
November, the Industry Council met and approved the Commission's
analysis indicating that, whilst taking account of other Community
objectives, it was necessary to continue to reduce aid levels by
strengthening control mechanisms and improving their transparency.

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

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

151. Two other multilateral meetings were held in 1995. In July
```

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

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

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

                            57

```

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

New measures to enforce compliance with the notification requirement

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

1. Recovery of illegal aid

154. Again the Commission emphasised the importance it attaches to
the system of prior control of aid plans and the concrete expression
of the system, i.e. the rule that prior notification must be given.
Thus, in May, it adopted a communication [84] that details the principles
it intends to apply in ensuring compliance with its policy on the
recovery of aid granted in breach of that obligation.

The communication forms part of a wider movement aimed firstly at
ensuring that Member States comply more strictly with Article 93 (3) of
the EC Treaty and, secondly, at encouraging economic operators to be
more vigilant about the lawfulness of the aid granted to them. The
Commission had already tackled the matter before when it sought the
recovery of incompatible and unlawful aid, [85] a position upheld and
indeed strengthened by the Court of Justice. [86] More recently, the
Court of First Instance again upheld Commission policy in this area.
In its judgment of 13 September in joined cases T-244/93 and T-486/93,
```

_Textilwerke_ _Deggendorf_ _GmbH v._ _Commission,_ `the CFI upheld the`
```
Commission's decision to make its authorization of a new aid package
subject to a suspension of the payment of that aid, until a prior aid
to the same company which had been declared incompatible had been
recovered, because it was clear from the Commission's decision that the
cumulation of the incompatible aid and the new aid package would render
the totality of the aid incompatible.

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

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

  OJ C 156, 27.6.1995, p. 5.

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

```

`Judgment of 21 March 1990, in Case C 142/87` _Royaume_ _de Belgique_ `v` _Commission_ _._ _(Tubemeuse)_

`[1990] ECR` `1-959.` `Judgment of 14 February 1990, in Case C 301/87` _République_ _française_ `v`
_Commission_ _(Boussac)_ `[1990] ECR` `1-307.`

```
                            58

```

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

2. Cooperation between the Commission and national courts

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

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

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

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

```

**B - Concept of aid**

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

87 See Commission Communication to the Member States, letter SG(95)D/1971 of 22.2.1995. The
  Court of First Instance very recently confirmed that the Commission could seek the payment
```

`of interest on sums recovered: Judgment of 8 June` `1995,` `in Case T 459/93` _Siemens_ _SA,_

[1995]ECR 11-1675.

88 OJ C 312, 2 3 . 1 1 . 1 9 9 5, p . 8.

`89` `Judgment of 21 November 1991, Case C 354/90` _Fédération_ _nationale_ _du commerce_ _extérieur_ _des_
_produits_ _alimentaires_ _et Syndicat_ _national_ _des négociants_ _et transformateurs_ _de saumon_ _contre_
_Etat_ _français,_ `[1991] ECR` `1-5527,` `paragraph` `14.`

```
                         59

```

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

157. (a) For Article 92(1) to apply, the measure must have provided
a firm with an economic advantage which it would not have received in
the normal course of business. The Commission considers that this
condition would be met if a company were to acquire publicly owned land
or publicly owned industrial site at a price lower than the market
price. It therefore decided to initiate the Article 93(2) procedure in
```

`respect of the acquisition by the company` _Siemens_ _Nixdorf_ _AG/Mainz_ `of`
```
a publicly owned site at a price estimated to be between DM 5 .5 million
and DM 21.5 million lower than the market price.. The same reasoning
would apply if the State were to acquire land from a company at a price
higher than the market price. As the Commission had doubts whether the
price for the land sold by the Spanish steel company Tubacex to the
public authorities corresponded to the market value, it decided to
initiate the Article 93(2) procedure.

158. Public financing of costs inherent in the preparation of a
building/industrial site and in providing connections to various
(public) utility services does not fall under Article 92(1) if the
company pays for the use of the infrastructure through direct or
indirect charges. Since preparation of the site in Villey, Meurthe-etMoselle, for setting-up a new production plant by the paper company
```

_Kimberly-Clark_ `benefited this company` `alone,` `in particular because it`
```
is the owner and sole user of the installations put in place, the
partial public financing provided constituted an aid to that company.
In this context, the Commission also took into consideration that a
private market investor would not have carried out this preparation
since the selling price for the site did not even cover partial
financing of it.

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

_Institute_ _for_ _the Development_ _of_ _Andalusia._

```
Because the intended capital injection by the Land of Bavaria to cover
```

`the accumulated losses of the steel undertakings` _Neue_ _Maxhutte_
_Stahlwerke_ _GmbH and_ _Lech-Stahlwerke_ _GmbH_ `would` `coincide with the sale`
```
of its shares in these companies, thereby removing any prospect of
profitability from the provision of these funds even in the long term,
the Commission decided that these capital injections constituted state
aid. For similar reasons, it decided that the capital injections made
by the Italian State through its industrial holding company ENI into
```

`the fertilizer company` _Enichem_ _Agricultura_ _S.p.A._ `in the period 1991-94`
```
constituted state aid, as the capital injections were made before a
restructuring plan had been set up solely to prevent the company from
going bankrupt and thus without any prospect of a reasonable return.
Moreover, the Commission considered that, under the circumstances, the
period during which the company had suffered heavy losses, i.e. five
years, was too long to have been acceptable to a private market

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

                            60

```

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

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

`State into the ship repair company` _Lisnave_ `in connection with a`
```
restructuring of the company did not involve state aid under
Article 92(1) .

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

Therefore, Article 92(1) does not apply to general measures applicable
to all undertakings in a Member State and satisfying objective and nondiscriminatory requirements. In the light of these considerations, the
Commission considered that aid granted by the German Government to
employees of the firm Maschinenfabrik Sangerhausen GmbH to cover social
security obligations in connection with the liquidation of the firm did
not constitute state aid, since the aid is automatically available to
any firm in liquidation in Germany. Similarly, it took the view that
the suspension of debt repayments in favour of the Spanish steel
```

`company` _Tubacex_ `did not, in itself, constitute state aid, but a general`
```
measure taken within the framework of Spanish insolvency legislation
generally applicable to all companies. However, it also follows from
the above criteria that, if the effect of the objective requirements
under a scheme open to all firms is that only certain undertakings may
benefit from the measure, the Commission considers state aid to be
involved.

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

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

                            61

```

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

162. (d) The aid must be capable of affecting trade perceptibly
between Member States. The Commission considered this condition to be
```

`met in respect of aid to the German company` _Leuna-Werke_ _GmbH_ `even`
```
though the company does not export goods to other Member States, since
the aid may enable it to increase its production for the domestic
market and thus reduce the potential market there for goods imported
from other Member States.

```

**C - Assessment of compatibility of aid with the common market**

```
1. Sectoral aid

1.1. Sectors subject to specific rules

```

_1.1.1._ _Aid_ _to_ _Shipbuilding_

```
163. On 21 December the Council adopted Regulation (CE) No 3094/95 [92 ]
implementing an OECD agreement with respect to normal competitive
conditions in commercial shipbuilding and shiprepair, including the
elimination of production subsidies. The new regulation will apply as
from the entry into force of the OECD agreement. This was scheduled
for 1 January 1996 but, although the European Union ratified the
agreement in December, entry into force was unfortunately delayed
because of delays in ratification by other parties to the agreement.
The Council therefore decided that the rules of the Seventh Directive
on aid to shipbuilding [93] should continue to apply ad interim but not
beyond 1 October 1996. If the OECD agreement has still not entered
into force by 1 June 1996, the Commission will put forward appropriate
proposals to the Council so that it can decide future policy before
1 October 1996. Against this background, the Commission decided to
maintain from 1 January 19 96 the common production aid ceiling at 9%
for large vessels and 4.5% for vessels costing less than ECU 10 million
and for conversions.

```

_1.1.2_ _Steel_

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

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

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

```

`Judgment of the Court of Justice in Case 78/76` _Steinike_ _und Weinlig_ _v_ _Bundesamt_ _fur_ _Ernâhrung_
_und_ _Forstwirtschaft_ `[1977] ECR 575.`

```
   OJ L 332, 30.12.1995.

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

   Commission Decision 3855/91/ECSC. :

                            62

```

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

```

_1.1.3_ _Coal_

```
165. Decision No 3632/93/ECSC [95] of 28 December 1993 establishes the
Community rules for state aid to the coal industry covering the period
from 1994 until 2002.

On 4 April the Commission authorized [96] financial assistance totalling
ECU 3 3 84.2 million that had been planned by Germany for 1995 in the
form of compensation to the electricity generators under the Third Law
on electricity produced from Community coal, aid for maintaining the
underground workforce in mines ( "Bergmannspramie"), and aid to cover
the exceptional costs of a number of coal undertakings resulting from
inherited liabilities.

On 19 July the Commission delivered a positive opinion on a
restructuring plan submitted by the French authorities and authorized
aid [97] totalling ECU 912.8 million to cover operating losses for 1994,
aid to cover inherited liabilities resulting from the modernization,
rationalization and restructuring of the coal industry, and aid for
research and development. On the same occasion, the Commission approved
additional German aid totalling ECU 196.9 million for the supply of
coking coal and coke for the Community steel industry. [98 ]

On 26 July the Commission authorized [99] France to grant aid totalling
ECU 668.1 million to cover operating losses for 1995, aid to cover
inherited liabilities resulting from the modernization, rationalization
and restructuring of the coal industry, and aid for research and
development.

The Commission authorization for the United Kingdom to grant aid
totalling ECU 2 594.4 million for inherited liabilities in 1995 was
contained in the Commission Decision of 3 November 1994. [10] °

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

```

_1.1.4._ _Motor vehicle_ _industry_

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

  OJ L 329, 30.12.1993, p. 12.

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

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

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

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

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

```

`Case` `C-135/93` _Spain_ _v Commission_ `[1995] ECR` `1-1651,`

```
                            63

```

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

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

On the basis of its decision of 5 July, the Commission continued to
apply the framework during 1995. It received 9 notifications on the
basis of approved schemes and 2 notifications on the basis of ad hoc
schemes. It adopted a decision approving notified aid in 6 cases. It
also took an interim decision enjoining the German Government to
provide within a fixed deadline all the information necessary to allow
```

`an assessment of aid to the new projects of` _VW_ _Sachsen,_ `which were not`
```
covered by a previous 1994 decision. [102 ]

167. In assessing individual awards based on regional aid schemes
```

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

168. As regards rescue and restructuring aid, the Commission adopted
```

`final decisions on the cases concerning` _DAF Belgium,_ _DAF_ _Netherlands_
_and_ _SEAT-Volkswagen._ `These decisions implied, pursuant to the existing`
```
regulations, a recovery of part of the aid in the case of bankrupt DAF
and a significant reduction of production capacity in the case of SEAT.
Furthermore, the Commission decided to initiate proceedings under
```

`Article 93` `(2)` `against aid granted by the Spanish authorities to` _Santana_
_Motor_ _S.A._

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

_Opel Austria_ `and` _Ford Valencia_ `cases, the Commission approved the aid`
```
proposed for these projects.

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

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

                            64

```

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

171. In several past cases, the Commission has required the national
authorities to monitor the realization of eligible investment and asked
the Member States to send annual reports on the investments carried out
and the aid payments made. Practice has shown the importance of such
a follow-up procedure, bearing in mind that the execution of large
multi annual investment projects leads to many changes which might
require modification of the aid payments. In the course of 1995 this
```

`ex post control was exercised in the` _Ford/VW_ _Se_ _tubal_ `and Fiat`
_Mezzogiorno_ `cases as well as in the` _Chrysler_ `and` _SNF_ `cases in Austria,`
```
where the European Union had reached agreement on aid reductions with
```

`the Austrian authorities. In its` _NedCar_ `decision, the Commission`
```
required the Dutch authorities to notify the rules on the allocation
of costs between the old and new models, so that it could ensure that
no aid was granted to Volvo and Mitsubishi on the basis of inadequate
rules. [103] The analysis of the cost allocation rules for 1994 and 1995
showed that they did not contain elements of state aid. Finally, in the
```

`case of restructuring aid for` _Rover,_ `which dates from a period prior`
```
to the establishment of the framework, and in the case of regional aid
```

`for` _Opel Eisenach_ `the ex post monitoring was terminated after all the`
```
conditions of the decisions had been fulfilled.

```

_1.1.5._ _Synthetic_ _fibres_ _industry_

```
172. Since 1977 aid to this industry has been subject to
supplementary control through the code on aid to the synthetic fibres
industry. In April the Commission asked an independent consultant to
assess the code's effects and, if supplementary control were still
considered necessary, advise what form it should take. The consultant
reported in October and the Commission will decide what action to take
early in 1996. Also in April the Commission extended the period of
validity of the current code [104] for a further nine months to
31 March 1996 [105] .

```

_1.1.6._ _Transport_

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

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

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

104 OJ C 346, 30.12.1992.

105 OJ C 142, 8.6.1995.

                            65

```

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

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

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

177. In relation to civil aviation, the Commission based its
decisions concerning state aid on the principles developed in the new
guidelines adopted in November 1994. [10G] These take account of the
increasingly competitive nature of the market for air transport
services after the entry into force of the third liberalization package
in 1993. In 1994 the Commission authorized the granting of
restructuring aid to be paid in instalments in favour of TAP and Air
France. In both cases, the Commission's approval was made subject to
the correct fulfilment of a list of commitments and restructuring
plans. Then in 1995, with the assistance of independent experts, the
Commission monitored compliance . In view of the satisfactory fulfilment
of both elements by TAP [107] and Air France [108] no objections were raised
to payment of the second tranches of the aid.

178. Also in 1994, the Commission decided that the subscription by
the French public .entity CDC-P to bonds issued by Air France
constituted illegal aid, incompatible with the common market, and
requested its reimbursement. In October 1994, France and Air France
challenged the Commission decision before the Court of First Instance.
The Commission then decided on 4 April 1995 [109] to amend its original
decision, and to request France to ensure that the aid and interest on
arrears are deposited in a blocked bank account until the Court
delivers a final ruling. The economic rationale of this mechanism is
to deprive Air France of the use of the money corresponding to the aid,
pending Court proceedings.

106 XXIVth Report on Competition Policy, point 375.

101 OJ C 154, 21.6.1995.

109 OJ C 295, 10.11.1995.

109 OJ L 219, 15.9.1994.

                            66

```

```
179. On 4 May 1995 [110], the Commission analysed the financial
transactions involved in an agreement between Swissair and Sabena,
aimed at the acquisition by the former, of a strategic stake (49.5%) of
Sabena. The operation implied the issue by Sabena of new shares for
BEF 9.5 billion, BEF 6 billion being subscribed by Swissair and the
remaining part by Belgium and a group of Belgian investors. The
Commission recalled that when the public holding in a company is to be
increased, the capital injection will not involve state aid provided
that the public investment goes together with the injection of a
significant amount of capital by a private shareholder. Swissair's
subscription of new shares at the same price and under the same
conditions as Belgium and the Belgian investors was accepted as
evidence that the operation was a normal financial transaction and not
state aid.

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

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

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

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

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

 °OJ L 239, 7.10.1995 page 19.

                            67

```

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

186. The Commission also examined several cases of state aid in the
road transport sector, taking particular account of the gradual
liberalization of cabotage since 1 January 1995 [111] which entails the
opening-up of local markets to Community competition.

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

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

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

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

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

```

_1.1.7._ _Agriculture_

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

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

                            68

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

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

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

193. As regards aid to investments in improving the processing and
marketing of agricultural products, Community policy is laid down by
Council Regulation (EEC) No 866/90. [113] This Regulation also authorizes
Member States to establish aid measures, under various conditions, in
accordance with Articles 92 and 93 of the Treaty. However, this
facility is limited by the selection criteria provided for in the
Regulation, applied by the Commission by analogy to the assessment of
state aid.

Until 1994, the selection criteria applicable to such investments,
known as "sectoral limits", were specified in Commission Decision
90/342/EEC of 7 June 1990. [114] This was amended by Commission Decision
94/183/EEC of 22 March 1994. [115] In 1994, the Commission informed Member
States that it would continue to apply the sectoral state aid limits
provided for in point 2 of the Annex to the 1990 Decision. [116] In 1995,
the Commission altered its position in order to apply the more
favourable limits provided for in the 1994 Decision. [117] Following
preparatory work with the Member States, the Commission adopted [118] the
principle of the application to state aid, from 1 January 1996, of the
criteria contained in its Decision of 22 March 1994 and no longer those
in its Decision of 7 June 1990.

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

```

_1.1.8._ _Fisheries_

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

   OJ L 218, 6.8.1991, p. 1.

   OJ L 91, 26.4.1990, p. 1.

   OJ L 163, 29.6.1990, p. 71,

   OJ L 79, 23.3.1994, p. 29.

   OJ C 189, 12.7.1994, p".5.

   OJ C 71, 23.3.1995, p. 6.

   OJ C 29, 2.2.1996, p. 4.

   OJ C 44, 16.2.1996, p. 2.

                            69

```

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

1.2. Specific sectors not subject to special rules

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

```

_**1.2.1.**_ _**Banking**_

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

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

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

                         70

```

_1.2.2._ _Postal_ _sector_

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

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

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

```

_1.2.3_ _The audiovisual_ _sector_

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

```

`Judgment of 12 February 1992, Joined Cases C-48 and` `C-66/9Ô` _Nederland_ _en PTT Nederland_ _and_
_PTT Post_ `v` _Commission_ _[_ `1992] ECR` `1-565;` `Judgment in Case` `C-320` _Paul_ _Corbeau_ `[ 1993]`
```
   ECR 1-2563.

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

                            71

```

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

```

**2.** **Horizontal aid**

```
2.1. Research and development

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

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

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

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

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

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

                            72

```

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

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

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

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

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

2.2 Employment aid and general social measures

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

Most measures taken by Member States under their labour market policies
are general in nature and do not involve aid, either because they do
not favour certain undertakings or do not affect trade between Member
States within the meaning of Article 92(1) of the EC Treaty. For
```

`example,` `under the new` _Danish Energy Package,_ `which imposes on Danish`
```
industry new or increased energy taxes (C0 2 and S0 2 emissions), some of
the proceeds of these taxes will flow back to the industry in the form
of a general reduction in labour market contributions paid by the
industry. As all companies automatically benefit from this reduction
on the basis of objective criteria, the Commission did not consider
this reduction to constitute state aid under Article 92(1) .

Only measures that selectively reduce labour costs of certain firms or
in certain sectors with a view to encouraging them to increase their
labour force, to maintain the level of employment or to recruit certain
categories of unemployed persons distort or threaten to distort
competition because they favour the beneficiaries vis-à-vis their
```

`competitors.` `Accordingly, the Commission considered that a` _Swedish_
_employment_ _aid_ _scheme_ `available only to firms with less than 500`
```
employees constituted state aid in favour of those firms to the
detriment of competitors with more than 500 employees.

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

                            73

```

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

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

`in` `respect` `of employment aid` `offered` `to the` _shoe sector_ _in Italy_ `under`
```
a general employment aid scheme to sectors suffering from an employment
crisis.

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

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

122 OJ C 334, 12.12.1995, p. 4.

123 Guidelines on rescuing and restructuring firms in economic difficulty (OJ C 368, 23.12.1994) .

                            74

```

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

2.3. Aid for environmental protection

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

206. The Community guidelines on state aid for environmental
protection [124] aim to strike a balance between the above-mentioned
competition policy and environmental policy considerations. Thus, they
confirm the "polluter pays" principle but at the same time provide that
environmental aid may be authorized under certain conditions.

In line with these principles, the guidelines stipulate that, although
operating aid is normally considered to be incompatible with the common
market, in exceptional cases the Commission may authorize operating aid
in the form of relief from environmental taxes as well as other
compensatory measures, provided that the aid is necessary to achieve
the environmental objectives set. Thus, the Commission considered that
```

`the relief from new energy taxes on` _C0_ _2_ _and_ _S0_ _2_ _emissions_ _in favour_ _of_
_energy-intensive_ _firms_ _in Denmark_ `and the` _Netherlands_ `and the` _relief_
_from_ _tax on groundwater_ _and waste_ _in favour_ _of certain_ _firms_ _in_ _the_
_Netherlands_ `could be approved since they had to be regarded as the`
```
inevitable price to be paid for being among the first countries to
introduce a tax beneficial for the environment. Without some relief
these taxes would so seriously damage the competitiveness of energyintensive firms in the countries going ahead with the tax, in this case
Denmark and the Netherlands, as to be impracticable. However, in order
to ensure that these tax reliefs do not distort competition unduly and
to encourage aid recipients to implement measures to reduce pollution,
the Commission will always stipulate that the tax relief must be
temporary and, in principle, degressive.

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

207. The Commission continued in 1995 to apply the criteria of the
Community guidelines on state aid for SMEs adopted by the Commission
on 20 May 1992. [125] The framework provides for a review of its
application by the Commission no later than three years after
publication. The Commission therefore presented experts from the
Member States, at a multilateral meeting held in July, with the
conclusions of the review and noted the changes it believed to be
necessary. The Commission's objective continues to be to authorize aid
which provides impetus and overcomes specific handicaps affecting SMEs
whilst limiting distortions of competition to a minimum. The

124 OJ C 72, 10.3.1994.

125 OJ C 213, 19.8.1992, p. 2.

                            75

```

```
discussion chiefly centered on clarification and simplification of the
```

`rules,` `updating the de` _minimis_ `rule and the possibility of taking`
```
account of investment expenditure relating to technology transfers.

2.5. Export aid

208. Export aid, i.e. aid linked to the quantity [126] of goods sold in
other Member States/EEA States or aid closely linked to the marketing
and sale of goods in those countries (such as aid for the setting-up
or operation of distribution networks or sales agencies for goods and
services within the Community and the EEA), is clearly at odds with the
objective of an internal market. Such aid does not promote any
Community objective which can justify its direct distortive effects on
competition. Thus, the Commission will not authorize export aid.
However, in line with the favourable view it takes of financial
assistance to SMEs, in particular in view of their limited know-how and
difficulties in raising external financing, the Commission may
authorize soft aid in favour of SMEs related to the development of
export markets, such as aid for consultancy and marketing research,
provided that the aid is a one-off operation and limited to the
penetration of new markets. It may, under the same circumstances,
approve aid to SMEs for participation in trade fairs.

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

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

2.6. Rescue and restructuring aid

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

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

   OJ C 368, 23.12.1994, p. 12.

                            76

```

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

212. The purpose of rescue aid is to maintain a firm in operation
temporarily while an appropriate restructuring plan is drawn up. A
rescue aid may therefore be granted for only a limited period of time,
normally no more than six months. The Commission considered that the
guarantee with a duration of eighteen months granted by the Spanish
```

`Government to` _Gutierrez_ _Asunce_ _Corporacion_ _(Guascor)_ `for commercial`
```
loans did not meet the conditions of rescue aid.

213. Under the guidelines, the Commission makes the approval of
restructuring aid subject to strict conditions. In particular, the aid
should normally be a one-off operation. It must be linked to a
restructuring plan capable of restoring the long-term viability of the
firm within a reasonable period of time and on the basis of realistic
assumptions as to its future operating conditions, so that further aid
will not be necessary. The Commission considers this to be a sine qua
non for the approval of restructuring aid. [128] In view of the fact that
```

`certain` _German guarantee_ _and_ _soft-loan_ _schemes_ _for_ _the_ _rescue_ _and_
_restructuring_ _of firms_ _in_ _difficulty_ `did` `not,` `in` `principle,` `exclude the`
```
repetitive provision of aid for such operations in favour of the same
firm, the Commission reserved its right to examine such repetitive aid
```

`individually. Similarly, as the restructuring plan for` _SANTANA Motor_
_S.A.,_ `a subsidiary of SUZUKI Motor Corporation Group, was vague and`
```
unconvincing and did not aim to restore the long-term viability of the
firm, the Commission could not approve the aid which the Spanish
Government intended to grant under that plan and decided to institute
the investigative procedure of Article 93(2) EC.

214. In order to offset as far as possible adverse effects on
competitors, it is a condition for authorizing restructuring aid to
firms operating in sectors suffering from structural overcapacity that
the recipient firm reduce capacity in a genuine and irreversible way.
In its approval of restructuring aid to the Italian fertilizer company
```

_Enichem_ _Agricultura_ _S.p.A.,_ `the` `Commission` `emphasised` `the`
```
implementation of an irreversible reduction in the company' s production
capacity and decided, moreover, that this condition for approval had
to be respected until such time as the effects of the aid on the
competitive situation in the Community were insignificant. However, it
was unable to approve a state guarantee in favour of the Spanish
company Guascor since the restructuring plan for the company did not
seem to provide for reductions in capacity in at least one of its
product sectors in which there is overcapacity in the EC.

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

`fertilizer company` _Enichem Agricultura_ _S.p.A.,_ `the Commission took`
```
account of the commitment made by the Italian Government to privatize
the company.

128 See also the Community guidelines on state aid to the aviation sector (OJ C 350, 10.12.1994,
   p. 5) .

                            77

```

```
2.7. Treuhandanstalt

215. In January the Commission decided on the terms applicable for
```

`1995 for privatization aid in the new` _Lander._ `Such terms had previously`
```
been defined in 1991 [129] and 1992 [130] . Following the dissolution of the
```

_Treuhandanstalt,_ `the Commission decided that the procedures and`
```
assessment criteria applying to privatizations in 1995 should be more
in line with those applicable for other Member States. After the
transition year 1995 no special rules would exist.

The Commission investigated several individual cases of aid for the
```

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

```

**3.** **Regional aid**

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

```

**D - Procedures (rights of complainants)**

```
217. In its judgment of 28 September 1995 in Case T-95/94 SYTRAVAL
```

_v. Commission,_ `the Court of First Instance annulled the Commission's`
```
decision of 31 December 1993 rejecting a complaint in respect of
alleged state aid in favour of Sécuripost, a subsidiary of the stateowned French postal administration, which operates in competitive
markets. The CFI considered that the Commission had not provided
sufficient reasoning for the rejection of a series of statements by
complainants alleging preferential treatment of Sécuripost.

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

`provided sufficient information. The conclusions in` _SYTRAVAL_ `confirm`
`the` `CFI's` `judgment of 18 September 1995 in Case T-49/93` _SIDE_ _v._
_Commission._

```
129 XXIst Competition Report, point 249.

130 XXIInd Competition Report, point 349.

                            78

```

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

###### **E - Statistics**

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

```

`131` `See in particular Case 84/82` _Germany_ _v Commission_ `[ 1984] ECR 1451.`

```
132 These figures dp not include aid cases in agriculture, fisheries, transport and-coal

                            79

```

_**Graph**_ _**1: New**_ _**cases**_ _**in**_ _**1995**_

**900**

**800**

**700**

**600**

16
68

510

**•** **Reexamined** **aid**

*** Unnotified** **aid**

**D** **Notified** **aid**

```
     619

```

I 10

113

680

**500**

**400**

**300**

**200**

**100**

**0**

_**Graph**_ _**2**_

```
    700

    600

    500 1

    400

    300

    200 4

    100

```

-

1

**1994** **1995**

**Decisions taken** **by the** **Commission**

```
1991 1992 1993 1994 1995

                    80

```

_**Table**_ _**1:**_ _**Decisions**_ _**by**_ _**Member State**_

```
 Austria 22

 Belgium 15

 Denmark 17

 Finland 2

 France 51

 Germany 209

 Greece 9

 Ireland 3

 Italy 93

 Luxembourg 1

 Netherlands 34

 Portugal 12

 Spain 110

 Sweden 6

 United Kingdom 35

 EUROPEAN UNION 619

```

```
81

```

**V - International activities**

**A - European** **Economie** **Area**

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

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

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

```

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

```
1. Central and Eastern Europe

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

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

The Commission's White Paper providing guidelines on the integration
of the CEECs [136] underlines the importance of a viable competition policy
for economies in transition and lays down four pillars (anti-trust,
mergers, state aid and state monopolies/exclusive rights) for the
approximation of legislation which the associated countries should
undertake. Substantial progress has been made in this area as regards
anti-trust; all but one associated country have a competition law
authority. Upon accession, these countries will accept all of the

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

134 OJ C 241, 29.8.1994.

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

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

                            82

```

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

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

2. Baltic States, Slovenia, and New Independent States

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

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

3. Mediterranean countries and Mercosur

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

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

                            83

```

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

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

```

**C - North America**

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

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

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

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

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

Notifications from the US to the EC under the Agreement have continued
regularly through the year with a total of 35 altogether (21 from the
Department of Justice and 14 from the Federal Trade Commission), 21 of
which were in merger cases. The notifications from the EC to the US
resumed after 10 April, following the short interruption due to
uncertainty about the legal position of the Agreement under Community
law [138] . The EC notified the US on 43 occasions in 1995, of which 30
involved merger cases.

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

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

138 XXIVth Competition Report, point 413.

                            84

```

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

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

D- Japan

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

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

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

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

```

**E - Australia and New Zealand**

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

```

**F** **-**
**Multilateral organizations and other international issues**

**1.** **OECD**

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

   XXIVth Competition Report, point 414.

                            85

```

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

2. World Trade Organization

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

In the state aids field, all Member States agreed to the Commission's
proposal for a joint notification and reporting procedure to the
Commission and the World Trade Organisation, thereby modifying the
existing standardized system of notification and annual reporting of
state aid [140] . As a result of this modification, the notification of
subsidies as required by the WTO Agreement on Subsidies and
Countervailing Measures and the above annual reporting is carried out
in one step. The Commission is confident that this new procedure will
alleviate the administrative burden on Member States and ensure a high
level of transparency.

3. UNCTAD

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

4. International cooperation

230. The group of experts convened by Mr Van Miert in 1994 to discuss
the prospects for closer cooperation between competition authorities
presented its report in July 1995. [141] It made a number of
recommendations. Having, briefly examined the possibility of
establishing an international competition authority and a worldwide
competition code, it put this to one side as not being realistic in the
short or medium term. Instead it felt that one should commence with the
introduction of an adequate set of competition rules by those countries
not yet having one. In this regard the group recommended that
assistance should be provided by those countries which have already
acquired experience in this area.

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

140 Commission letter D/20500 dated 2 August 1995 replacing letter SG(94) D/2484 dated
   22 February 1994.

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

                            86

```

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

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

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

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

                            87

```

**VI - Information policy**

```
231. During 1995, the Commission continued its active public
information campaign on competition policy. As in the past, press
releases on competition-related issues accounted for almost one third
of the total number of Commission press releases. With its limited
resources, DG IV s Information Service replied during the past year to
more than 1000 questions from the public, forwarding relevant
documentation or providing useful advice. Owing to a lack of resources,
most information enquiries have in recent months been answered by way
```

`of standard letters containing an updated list of` _Community_
_*_ _[2]_
_publications_ _on competition_ _available_ _to_ _the_ _public_ _[1]_ `(including`
```
studies and speeches by DG IV officials) . DG IV, in collaboration with
the Office for Official Publications, published during 1995 several
```

`reference books on competition law, while the` _EC Competition_ _Policy_
_Newsletter,_ `issued three times per year and with a print-run of 17 000`
```
copies, has established itself as a leading source of information in
the field. For 1996, several new publications are under preparation and
DG IV plans to introduce data on EUROPA, the European Institutions'
host on the World Wide Web. [143 ]

```

`For more information and to obtain the latest list of` _Community Publications_ _on_ _Competition_
_available_ _to the public,_ `contact DG` `IV s` `Cellule Information, C150` `00/158,` `Wetstraat, 200`
```
   rue de la Loi, Bruxelles B-1049 Brussel, tel. (+32-2) 295 76 20, fax. (+32-2) 295 54 37,
   Electronic mail: X400: c=BE;a=RTT; p=CEC;o=DG4;s=INF04, Internet: Info4@dg4.cec.be

   http://www.cec.lu.

```

_**Annex : Cases**_ _**discussed**_ _**in the**_ _**report**_

_**1.**_ _**Articles**_ _**85 and 86 and Article**_ _**90**_

```
 Case ' Paragraph numbers

 Brussels National Airport 120

 Atlas - Phoenix 57

 ATR/BAe 61-62

 BASF/Accinauto 36

 Coapi 89

 Gas Interconnector 82

 ICG/CCI Morlaix 40,43

 Inmarsat-P 59

 Lufthansa/SAS 77-78

 Omnitel Pronto Italia 109

 Organon 37-38

 Pelikan/Kyocera 87

 TACA 73

 Uni lever/Mars 40, 41

 Van Marwijk/FNK-SCK 40,42

 Vebacom 111

```

_2._ _Merger_ _control_

```
 Case Paragraph numbers

 ABB/Daimler Benz 139

 Crown Cork and Seal/Carnaud MetalBox 141

 Glaxo/We 11 come [ - 142

 Lyonnaise des Eaux/Northumbrian Water 145

 Mercedes Benz/Kâssbohrer . 135,137

 Nordic Satellite Distribution 133

 Orkla/Volvo 140

 Perrier 147

 Repola Corporation/Kymmene 144

 RTL/Veronica/Endemol 134

 Siemens/Italtel 135-136

 Swissair/Sabena 76,143

                    89

```

```
3. State aid

 Case Paragraph numbers

 Air France 177, 178

 Andalusian Development Agency 159 •

 AOM 181

 BSL (Buna, Sâchsiche Olefinwerke,Leuna) 215

 CGM 185

 Chrysler 171

 Crédit Lyonnais 197

 DAF Belgium 168

 DAF Netherlands 168

 Danish energy package 202, 206

 EM-Filature 159

 Employment aid scheme in Sweden 202

 Energy taxes in the Netherlands 206

 Enichem Agricultura S.p.A. 159, 214

 Ferries Golfo De Viscaya 184

 Ferrovie dello Stato S.p.A. • 189

 Fiat Mezzogiorno 171

 Footwear industry in Italy 203

 Ford Genk 167

 Ford Valencia 169

 Ford/VW Setubal 171

 French postal administration 198

 Guascor (Gutierrez Asunce Corporacion) . 212

 Kimberley-Clark 158

 Lech-Stahlwerke GmbH 159

 Leuna-Werke GmbH 162

 Lisnave 159

 Lufthansa 180

 Maschinenfabrik Sangerhausen GmbH 160

 NedCar-Volvo/Mitsubishi ; 171

 Opel Austria 169

 Opel Eisenach 171

 ROSCOs 189

 Rover ; 171 ] '

 Santana Motor SA . 213

 SEAT-Volkswagen | 168 ; |

                            90

```

```
Siemens Nixdorf AG/Mainz 157

SNF ; 171

Swissair-Sabena 179

Sytraval ' 217 
TAP ; 177

Textilwerke Deggendorf GmbH 154

Tubacex 157, 160

                        91

```

###### **ISSN 0254-1475**

## **COM(96) 126 final**

# **DOCUMENTS**

##### **EN 08** **Catalogue number : CB-CO-96-135-EN-C** **ISBN 92-78-01875-9**

**Office** **for Official Publications of the European Communities**

**L-2985** **Luxembourg**

#### **-3L**