Control of Concentrations Between Undertakings.

Wednesday, 28 June 1978

Joint Committee on the Secondary Legislation of the European Communities Debate

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Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   This is a short report which relates to an old proposal that has been in existence for five years now to exercise control over concentrations which may affect the free working of the market. The control proposed is similar to a control which is already in existence over agreements between undertakings or abuse by large undertakings of their dominant position within the Common Market or in a substantial part of it. The proposed new Regulation, this being in draft for our consideration at this stage, would apply to concentrations where either there is an aggregate turnover of the undertakings involved exceeding 500 million units of account—which is I suppose about £275 million—and, as well, a market share of more than 20 per cent or if that turnover is not reached, the turnover is less than that, where the market share in any case exceeds 30 per cent. Apart from the control which would arise in either of these situations it is proposed in the Regulation that there would be compulsory notification in a case where the undertaking being taken over has a turnover of more than 50 million units of account. Under the proposal the Commission can commence proceedings within three months. If it does not the concentration is presumed to be compatible, that merged concentration is to be considered. However, if it is a decision of the Commission to investigate it or make inquiries then it must make a final decision within nine months on proceedings. Based on criteria specified in the Regulation the Commission may declare that the concentration is incompatible or that it is entitled to be exempted subject to conditions. If it is incompatible the Commission are entitled to get the concentration broken-up, impose fines and so on, subject to appeal to the Court of Justice.

Under the existing law of the Community if an undertaking acquires a dominant position and proceeds to abuse it the Commission have power to require the undertaking to end the abuse.

The court has held that it may do this in the case of a merger if the abuse arises through a merger and as a result of the merger the undertaking is so strengthened that a degree of dominance has been reached which substantially fetters competition, which is defined by the Court as the situation in which only undertakings whose behaviour depends on the dominant one remain in the market. Under existing law no criteria, no turnover figures or market shares, are specified; it is left at large, as I understand the position. But under the existing law, though left at large, the Commission can order decartelisation. Therefore the Commission already possess substantial power but are seeking power to prohibit proposed mergers. The Joint Committee have been affected in the drafting of this report by the view which has been expressed in one authoritative journal that the staff would require to be increased by two-thirds, that is, the staff of the Directorate General dealing with this matter, and that the machinery would become dangerously bureaucratic. In effect it was felt that the Regulation discloses an attitude which is anti-merger as distinct from merely being concerned with abusive market possession or dominance arising.

The Joint Committee question whether the proposed Regulation represents the best way of extending Community control. In doing so it has also been affected by views expressed quite strongly to it by the Confederation of Irish Industry. The Joint Committee expresses the view that the Commission’s control—if the Regulation were adopted—should be through a consultation process with the Advisory Committee whose approval the Joint Committee believes should be required, the Advisory Committee consisting of an official from each Member State.

There are just two other points on it. A 12-month period was given to the Commission to reach a decision. In the Sub-Committee’s view the requirement should be to commence proceedings within a month and to give a decision within two months. Finally, the Joint Committee stresses the confidentiality requirements of the proposed Regulation and the necessity for their strict observance and enforcement.

Perhaps it is relevant too to remind the Joint Committee at this stage that we have just passed through both Houses of the Oireachtas legislation which is awaiting the signature of the President which would give ministerial control of mergers which involve the merging of Irish companies or of Irish companies with foreign companies, where both the merging companies have either assets of £1¼ million or a turnover of £2½ million, irrespective of their market share. The control existing in this segment of the market is therefore very much more extensive than anything proposed in this proposal which will be the law very shortly and will also give power to the Minister after certain procedures are followed to order the decartelisation or the break up of anything which constitutes a monopoly, which is defined as being anything in excess of 50 per cent of the market or being in receipt of 50 per cent of the commodity used or the commodity supplied. Companies which export 90 per cent of their production are excluded. That summarises the situation as I find it.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   The Committee may recall that at an earlier stage I asked that this report be put back for further consideration because it is a report that nailed its colours to the mast more than some of the reports we have had. I thought about the possibility of submitting one or two amendments but my view is opposed fundamentally to the approach which is basically that the proposal of the Commission whereby a Council Regulation would allow the Commission to exercise greater control over multi-nationals, over concentrations at the European Community level, is undesirable because it would increase the bureaucracy in the competition directorate, that this would be the wrong way to control concentrations and that there would be a problem in relation to the confidentiality relating to the proposed merger. It would be impossible to submit amendments because I fundamentally disagree with the approach. It is very important that the European Commission should have powers to control large concentrations and to control mergers at the European Community level. I agree that in the Continental Can case there was a decision of the Commission which is upheld in principle by the Court of Justce that where a company has a dominant position and increases that position by way of merger it may be possible to control this under Article 86, but that is a very limited type of control.

I do not agree at all with the authority quoted here, Lyons: New Law Journal, that the Commission’s Directorate General for Competition would have to increase by two-thirds and that the decision-making machinery of this is already dangerously bureaucratic. That is not the case. The actual staff in the Directorate General for Competition in Brussels is very small. It is far smaller than the German staff, or the British staff, for the control of mergers and yet it is supposed to be supervising concentrations and mergers at the European Community level for the control of competition. When one talks about a bureaucracy of the European Commission it is very often because there is a requirement for a large staff for translation and for administration, but the actual key bodies who are controlling abuses of the dominant position and who are controlling cartels at the European Community level are under-staffed. They cannot get through their workload in the way in which they would like to and as they should because there are not enough people there. I would be very loath to see a report from this Committee appearing to suggest that the Commission should not be involved in the control of mergers in the same way in which it is involved at the moment in the control of cartels and in the control of dominant positions, and I would also be reluctant to see us criticise the Directorate General for Competition as being over-bureaucratic. It is under-staffed in its essential staff who carry out the jobs which basically it must do.

I take the point made by Senator FitzGerald that we have just passed mergers and monopolies legislation here which will apply in the Irish context and which is strict legislation of its sort, but in the Member States there is parallel national legislation, and this does not take away the urgency and the need for overall European Community control of large multi-national companies and of potential mergers. This proposal certainly has been around since 1973. It appears to be blocked at the political level in one or two Member States but I support very strongly the need for this type of control and the general approach of the Council Regulation. The only way in which I can express this support is to seek an opportunity to vote against this draft report when it has been discussed by the Committee.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   Would anyone else like to express any view on this pale document which was described as nailing its colours to the mast?

Deputy McCreevy: Information on Charlie McCreevy  Zoom on Charlie McCreevy   I support the general outline of the report that the proposal perhaps is not the best way of approaching mergers between different companies. They should not have to go before the Commission at all times. One commentator said that it would be dangerously bureaucratic and I believe that would be the case. If it takes the Commission from nine to 12 months to decide, that is too long a period in commercial life for firms that are contemplating a merger.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   There is a shortage of staff, not an over-bureaucracy.

Deputy McCreevy: Information on Charlie McCreevy  Zoom on Charlie McCreevy   From my limited experience in this House it seems that bureacracy is growing on all sides and there seems to be an enormous bureaucracy growing up within the EEC. I question also the proposal of having a central deciding agency as the most appropriate way of doing it. Mergers within each individual state should be controlled by legislation in that State. Where there are cross-border mergers between, for instance, a firm in this country and a firm in Britain or any other country in the EEC, the EEC should become involved directly. Each country should have its own legislation with, perhaps, the EEC taking some interest when there is a merger between firms of one country and another.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   Is Senator FitzGerald in a position to tell us the present size of the staff in the Commission’s Directorate General for Competition?

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   I think the Senator knew the answer to that question before she put it.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   I do not honestly know it. My view is that there are about 20 people, but I could be wrong by about ten. I think we are talking about, at the most, 20 people.

Senator Mulcahy: Information on Noel William Mulcahy  Zoom on Noel William Mulcahy   There are a number of comments I would like to make on it and I rise to the bait extended by Senator FitzGerald. I agree with him on the time limit, but it is important when we are talking about concentrations that we realise—and I hope I am interpreting the document correctly—that it refers to trade between member countries in the Common Market and not necessarily to trade in the world scene. I do not know whether that is a correct interpretation.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   If I might interpose, I understand it relates to the Common Market or a substantial part of it, however that may be interpreted, but not in the context of world trade.

Senator Mulcahy: Information on Noel William Mulcahy  Zoom on Noel William Mulcahy   What I am concerned about in relation to the competition is that the size of concerns in Europe will have to be as big as the concerns they have to compete with in other concentrations like Japan and America. I would hate to see legislation from the EEC inhibiting the development of sizes of concentrations that can take on the competition, because as sure as night follows day we would lose our share of the world market. With the rate of unemployment going up as it is in Europe at present I would hate to see them being spancelled in their effort to compete. I merely make that as a comment when we talk so much about decartelisation. Otherwise I agree that control is required, and that is what our present legislation, about to be enacted, provides. I hope the people who will exercise the rights given to them under law will in the future take the competitive needs of industry into account.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   Senator Mulcahy has expressed my view in regard to this whole affair. There is no bonnet in which bees buzz more actively than the Brussels bonnet. This anti-merger bee is buzzing like mad out there. I think they are missing a significant point, which is that this is to an extent an imitation of the United States position. They are missing the point, in that the United States are concerned only with breaking up mergers or monopoly positions where competition is interfered with. It seems to me that power is there already in the Commission. That is why I do not want a bureaucratic level of operation beyond what is already there in the absence of evidence that damage is being done, which does not seem to me to be before the Joint Committee. Senator Robinson having raised opposition to this, it might be that the Joint Committee would send this draft Report back to the Sub-Committee for a collection of more comprehensive information about it. I do not think the Sub-Committee would object to that happening to their document.

Chairman: Information on Eoin David Senior Ryan  Zoom on Eoin David Senior Ryan   It might be a good idea as at present obviously we would not get agreement.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   We are too small in number at present to let the matter be decided by vote; I do not think it would be fair. I agree very much with the point Deputy McCreevy made with regard to the time element; that is altogether too long. But that is to assume that we were to go along with the idea of a Regulation at all in this field. I just wanted to say that, if we were, that would be very definitely a point that I would be pressing for.

Deputy Woods: Information on Michael J. Woods  Zoom on Michael J. Woods   On a point of information, this Regulation deals with the control of concentration between undertaking. Is this really specifying particular industrial undertakings? Are agricultural undertakings excluded or included? They do not seem to be excluded.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   Have we got the Regulation? I do not think they are excluded.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   They are not normally excluded.

Chairman: Information on Eoin David Senior Ryan  Zoom on Eoin David Senior Ryan   I do not think they could be.

Deputy Woods: Information on Michael J. Woods  Zoom on Michael J. Woods   No, they would be included.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   I think they would be included.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   If they met the basic criterion.

Senator Mulcahy: Information on Noel William Mulcahy  Zoom on Noel William Mulcahy   The turnover criteria.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   Japan has gone ahead in the world like mad by encouraging monopolies and concentrations.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   This is not against all mergers. It is deciding when in certain circumstances mergers are not desirable rather than saying there cannot be mergers. Indeed, part of the Community’s industrial policy is to do what Senator Mulcahy was saying: to ensure that there are large enough enterprises to compete with the Americans. That is a declared part of the European Community industrial policy.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   There is a presumption against mergers.

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   That is not necessarily the case. It is more a control of the activities of large companies and a control of mergers and concentrations.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   But there can be large companies that are there and grow into their size without any mergers——

Senator Robinson: Information on Mary Robinson  Zoom on Mary Robinson   And are then in a monopoly position to dominate a whole market.

Senator FitzGerald: Information on Alexis Fitzgerald  Zoom on Alexis Fitzgerald   Which is subject to their existing regulations?

Chairman: Information on Eoin David Senior Ryan  Zoom on Eoin David Senior Ryan   Let us refer it back for further discussion and see. Quite apart from Senator Robinson some of the other Members here, in a very small gathering at present, seem to have some reservations. Perhaps therefore it could be referred back for further consideration.

Senator Mulcahy: Information on Noel William Mulcahy  Zoom on Noel William Mulcahy   Could I make a point since we are still in Committee on it? The question of bureaucracy in the EEC was raised. It is only reasonable to expect that the number of civil servants working in Brussels will be smaller than the numbers working in the various countries. For instance, I remember one illustration given us which was that 100 people are trying to control the whole energy policy of the EEC compared with 4,000 in the UK alone. Therefore the set of relationships should be smaller, each country doing its own thing.

Ordered: That the draft report be referred to the Sub-Committee on Statutory Instruments and Legal Affairs for further consideration.


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