The Advantges and Disadvantges Introduced by Regulation - Term Paper Example

Strong enforcement mechanism is vital for the operation of Articles 81 and 82 EC. compare and contrast the advantges and disadvantges of the old style centralised system with the decentralised approach introduced by Regulation 1/2003 I. Introduction The complexity of the commercial activities within the European Community has created the need for an appropriate legal framework that can offer effective and rapid justice to all the interested parties. In this context, the European legal order has created structural links among national administrative bodies1, as well as between national administrative bodies and common, European public bodies; the Community legal system2 in fact teems with committees and groups made up of a mix of national representatives and representatives of the Commission (Cassese, 2004, 21). Under these terms competition law has been recognized as one of the most important sectors of the European law. At a first level competition law has been set under the regulatory authority of the European Community. It has to be noticed that this legal area comprises three main policy areas [5]: a) Antitrust: control of collusion and other anti-competitive practices which has an effect on the EU (or, since 1994, the European Economic Area). This is covered under Articles 81 and 82 EC respectively; b) Mergers: control of proposed mergers, acquisitions and joint ventures involving companies which have a certain, defined amount of turnover in the EU/EEA; c) State Aid: control of direct and indirect aid given by EU Member States to companies. The last case is covered under Article 87 EC (ex Article 92). As stated above, competition law belongs to European Unions will regarding all its aspects. However, many times there are issues that can influence its formulation or its application in practice, like the existence of similar legal frameworks of other geographic areas (e.g. U.S. antitrust law). II. Articles 81 and 82 EC (previously 85 and 86) - content and analysis The definition of “Antitrust” is critical for the explanation and analysis of the legal rules that relate with competition. The above term [4] covers two prohibition rules set out in the EC Treaty; In this context, competition is a basic mechanism of the market economy and is a simple and efficient means of guaranteeing consumers a level of excellence in terms of the quality and price of products and services while in order to be effective, competition assumes that the market is made up of suppliers who are independent of each other, each subject to the competitive pressure exerted by the others. It has to be specified that in general articles 81 and 82 EC3 (ex 85 and 86) contains the following provisions [4]: At a first level, agreements which restrict competition are prohibited (Article 81 of the Treaty); These include, for example, price-fixing agreements and cartels between competitors (See Appendix II for the full text of the article). On the other hand, article 82 states that firms in a dominant position may not abuse that position (Article 82 of the EC Treaty); This includes, for example, predatory pricing aiming at eliminating competitors from the market, tying practices, freezer exclusivity and the like (See Appendix III for the full text of the article). Under these terms Goyder (1998, 76) found that the wide scope of Article 81 (ex. 85) is more easily understood by listing those sectors of the Common Market economy which have been specifically excluded from its scope, rather than by seeking to enumerate everything which it covers. In the first category of direct exclusion, we should refer first to Article 232(1) which states that the provisions of the Treaty (including of course Articles 85 to 94) shall not affect the ECSC Treaty4 and in particular as regards . . . the rules laid down by that Treaty for the functioning of the common market in coal and steel. Articles 65 and 66 clearly form part of these rules. and are therefore applied in parallel to Articles 85 and 86. The above interaction of articles 81 and 82 with other articles of the Treaty are logical as the specific articles constitute the basis of the competition law in the European market area. However, there are cases when the above articles5 are not applied when certain conditions exist. In this context it has be noticed [4] that article 81 (ex. 85) applies only where there is an appreciable impact on intra-Community trade; The current quantative criteria are defined in the de minimis notice, which sets the relevant threshold at 5 percent for horizontal agreements and 10 percent for vertical agreements; This means that if these thresholds are not met at any of the relevant markets, the infringement of competition law will not be sanctioned by the Commission, with the exception of so-called hard core restrictions for which infringement is always sanctioned. As a following consequence of the above agreements, decisions, and concerted practices have no significance under Article 85 unless they are capable of affecting trade between Member States, quite apart from the second and further requirement that they should have as object or effect the prevention, restriction, or distortion of competition within the Common Market. (Goyder, 1998, 107). The above restrictions related with the articles applicability do not mean that the articles can be limited as of their application, in fact the only limitation can take place through the Communitys authorized bodies through specific legal rules; individuals or institutions cannot limit or alternate the articles content or area of applicability. Especially for the article 82 (ex. 86) it has been stated by Goyger (1998, 320) that it is increasingly important to the Commission in its continuing enforcement of competition policy: it has potential for further development and application by way of control, in a great variety of circumstances, of the problem of the abuse by undertakings of dominant positions in specific markets; It is proving particularly valuable to the Commission as it seeks through its powers under Article 90(3) to issue directives bringing more competition to the key Community markets in energy, telecommunications, and transport. Under these terms the definition of dominance has been considered as absolutely necessary for the interpretation and the application of article 82 EC6. In this context (Goyder, 1998, 320), dominance has considered to be an abstract word, but used in a commercial context it refers to a position of power for an undertaking in relation to a specific product market and within a relevant geographical market, both of which must be defined Fortunately, dominance was considered in detail by the European Court in one of its early cases arising out of article 82. The explanation of the meaning of dominance is however just a little part of the theoretical framework that has to be examined before applying the article 82 (as it happens with all articles of the Treaty). III. Main aspects of Regulation 1/2003 This new Regulation, adopted by the Council on 16 December 2002 and implementing the rules on competition laid down by articles 81and 82 of the EC Treaty, will replace Regulation (EEC) No 17/62 with effect from 1 May 2004, the deadline for implementation in the Member States [1]. Moreover, the above Regulation lays down rules implementing the provisions of the EC Treaty relating to agreements, decisions by associations of undertakings and concerted practices which may restrict competition (Article 81) and abuses of a dominant position (Article 82). It sets out neither to amend Articles 81 and 82 of the EC Treaty nor to prevent the Member States from adopting stricter national laws and implementing them on their territory [1]. Under these terms, the main mission of Regulation 1/2003 seems to be the implementation of articles 81 and 82 of the Treaty although there could also be found other issues that are stated for the first time through this Regulations provisions. Although the articles 81 and 82 set general recognized and applied rules7, there is the possibility for the individuals to seek for less restrictive legal rules, the so-called norms. In this context, it has been found by Franchini that ordinary sectoral norms aim to regulate administrative proceedings on an individual basis; The norms do not go so far as to create a general law or a "tight web," but rather expose the extent to which Community law might be said to remain "spotty"; Examples of such norms include Council Regulation 1/2003, which regulates Commission competition proceedings and which affirms the principle of proportionality, sets down rules for conducting inspections, details the rights of defense, and requires that the parties receive notice of the Commissions decisions. However, because of the above situation and in order to avoid any overlap and ensure a uniform and coherent application of European competition law, the Regulation [1] maintains the rule that Member States competition authorities are automatically relieved of their competence if the Commission initiates its own proceedings; Nevertheless, the latter undertakes to consult the national authority in question before initiating proceedings; In addition, when the competition authority of a Member State or the Commission receives a complaint concerning an agreement, a decision by an association of undertakings or a concerted practice which is being or has been dealt with by another competition authority, it may suspend its proceedings or reject the complaint. This sovereignity of the national law could be explained as an effort of the European legal authorities to protect the national legal rules from potential violations. Despite of the recognized power of the national authorities however, Regulation 1/2003 requires the application of EC Competition law by all national competition authorities and national courts; On the other hand [2], national Competition Authorities may make the following decisions under regulation 1/2003; order an infringement to be brought to an end, order interim measures, accept commitments from the infringing parties, impose fines or other penalties provided for in their national laws. However, the Commission keeps an important role in the enforcement of EC Competition law; In particular, it may take up cases on its own initiative, respond to complaints and has a key consultative role in national competition authorities proceedings. In this context, Regulation 1/2003 reinforces the powers of the Commission in several important respects [2]: In addition to the powers set out in Regulation 17/1962, Regulation 1/2003 establishes that the Commission is authorized to seal any business premises, books, or records for a period necessary to conduct the inspection; If seals are broken, companies may be fined up to one percent of their total turnover in the preceding year. The above power of enforcement8 could be characterized however as a kind of limitation of the power of the state to impose its rules. Moreover, under the rules of Regulation 1/2003 the Commission may impose a fine of one percent of the previous annual group turnover in the event of non-compliance with procedural obligation. This type of punishment cannot be viewed in no case as restriction or limitation of the power of the national legislative bodies. A characteristic provision of the above Regulation is that commission officials will be allowed to ask any employee of the undertaking or association of undertakings for explanations of facts or documents relating to the matter and purpose of the inspection and to record the answers during a dawn raid (on-the spot questioning); The potential fines for failure to respond to the requests and for supplying incorrect or misleading answers have been increased to a maximum of one percent of the companies’ turnover in the preceding year. This punishment also can be considered as just a mid-level effort to impose the European Union law and should not be regarded as interference in the local commercial activities. Regulation 1/2003 establishes a “directly applicable exception” system whereby agreements, decisions and concerted practices will be lawful or void depending on whether they fall outside the scope of Article 81(1), satisfy the conditions of Article 81(3), or in fact breach Article 82 [4]. For this reason it has been observed that the European Commission has abandoned its monopoly on applying Article 81(3) and, with it, the notification system. Article 81(3) will become directly applicable by National Competition Authorities and national courts, in the same way as the rest of Articles 81 and 82 [4] IV. Comparison between 81 and 82 EC (previously 85 and 86) and Regulation 1/2003 The case-law of the European Court and of the Court of First Instance has clarified the meanings of articles 85 and 86 in their application to a wealth of differing circumstances and industrial sectors (Goyder, 1998, 368). In this context, it has been found by the above researcher that the great majority of cases have been concerned with one rather than both Articles, but in some decisions the relationship of the Articles to each other has been a central feature. No account of EC competition law should disregard the important interaction between these two Articles. This view cannot lead to the assumption that the simultaneous application of both the above articles is impossible, however it is more likely for the relevant authorities to check for the possible application of one of the principles and if there is a positive feedback, the relevant authority usually avoids to check the applicability of the other article. Article 81 has a significant differentiation from article 82. More specifically, it has been found by Goyder (1998, 368) that one of the main problems encountered by the Commission in enforcing Article 81 is proving the existence of the relevant agreement or concerted practice in the absence of unequivocal written evidence; this problem of identification does not arise under Article 82. The study of the above researcher showed that three further important distinctions between the Articles should be noted: a) Since it is necessary under the terms of Article 82 to establish that the abuse occurred in a market comprising a substantial part of the Common Market, the chief difficulty in such cases (rather than proof of an agreement or concerted practice) is to define accurately the relevant geographic and product markets to which the dominance applies; Such dominance must be either over the entire Common Market or over a single Member State or group of Member States, or possibly a substantial part of a single Member State; By contrast, under Article 81, although the Commission must still carry out economic analysis to identify the markets where the agreements or practices have their effect, their delineation is normally less critical to the outcome of the case, b) Article 82 provides no sanctions of voidness for illegality against the prohibited conduct, for there is no equivalent of Article 81(2); On the other hand, since Article 86 is directly enforceable in the courts of Member Statesi; c) Whilst a finding of a breach of Article 81 necessarily involves some restriction of competition, a breach of Article 82 can occur when the abuse of dominance is simply exploitative, i.e. an advantage obtained for the dominant company at the expense of the consumer without any effect on the competitive process or the structure of the market in which the dominant company operates. The above differences do not exclude the application of both the above articles in a specific case under the terms presented previously. The most important issue is however to conduct a thorough examination of the existence of the appropriate conditions for such an initiative. Furthermore, undertakings may apply for a negative clearance decision with respect to Article 869 (now 82) using the same procedure as in the case of Article 85 (now 81), but there is a major difference in that there is no provision for receiving an exemption; If negative clearance is denied, the undertaking will have succeeded only in flagging its conduct for the attention of the Commission and submitting what may amount to a confession (Jones, 1999, 32). In this context it has been found by Jones that article 82 (formerly 86) does not primarily address concerted conduct and does not contain a nullity provision similar to that found in Article 81 (formerly 85), the absence of an exemption leaves undertakings with little incentive to request a negative clearance except in the case of mergers and concentrations. On the other hand, there is clearly already a considerable interpenetration of the EC and EFTA markets -- one has only to look at some of the notable anti-trust cases under Articles 85 and 86 which involve EFTA companies trading in the EC -- Tetra Pak (Case T-51/89), Hugin/ Liptons Case (22/78 [ 1979]), Woodpulp (Joined Cases 89/85, 104/85, 114/85, 116/ 85, 117/85, and 125/85 to 129/85, Judgment of 31 Mar. 1993) to name but three (Bright, 1994, 84). The interaction between the European legal orders and the financial activities within the Community is intense and continuous. For this reason Wyatt (1998, 97) stated that national courts10 and the Commission possess concurrent powers for the application of Articles 85 and 86 (81 and 82); The power of national courts derives from the direct effect of these Articles. When dealing with the requirement of adequate protection in Automec II (Case T-24/90 Automec v Commission [1992]), the Court referred to the direct effect of Articles 85 and 8611 and the possibility for the national court to make an Article 177 reference to the Court of Justice. It should be noted however that national courst have by their own a significant level of power which has to be preferred unless it is opposite to the Unions orders. In the above context, the question whether there is a Community right to damages for breach of EC competition rules could have been clarified by the Court of Justice in Banks, but the Court left this question unresolved; The relevant provisions in the ECSC Treaty were declared not to be directly effective and therefore national courts may not entertain an action for damages in the absence of a Commission decision (Case C-128/92) I believe that this ruling, which concerned the ECSC Treaty, does not exclude the possibility that the directly effective Articles 85 and 86 in the EC Treaty can give rise to liability between individuals (Wyatt, 1998, 130). Moreover, it has been found [1] that the direct effect of the legal exception system established by the Regulation is to increase the responsibility of undertakings since, given that they are no longer subject to a prior-notification requirement, they will have to ensure in good faith that agreements do not affect free competition and do not infringe the Community rules in this area. In order to ensure that the rules on competition concerning agreements, decisions of associations of undertakings and restrictive practices (Article 81) and abuses of a dominant position (Article 82), which are liable to be anticompetitive, are applied, the Commission has a number of powers to take decisions, to conduct investigations and to impose penalties; It exercises these powers when, following a complaint or on its own initiative, it finds in a given case that there has been a violation of Article 81 or 82 of the Treaty [1]. Under the new Regulation, the Commission is able to take the following decisions [2]: a decision finding and terminating an infringement: If the Commission finds there to be an infringement of Article 81 or 8212 of the Treaty, it may adopt a decision requiring the undertakings and associations of undertakings concerned to bring the infringement to a end or finding that the infringement has been brought to an end. However, the existence of such an element cannot be checked in all cases and as a result the Commission may proceed to the use of inappropriate legal rule. a decision ordering interim measures: In cases of justified urgency, the Commission, acting on its own initiative, may, on the basis of a prima facie finding of infringement, order interim measures. It should be noticed however that the description of urgency as stated above has been left to the power of the Commission which can have a very negative impact on the effectiveness of the legal rules that are going to be used. a decision making commitments binding: Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and where the undertakings concerned offer commitments to meet its concerns, it may make those conditions binding for a specified period; It may reopen the proceedings if the facts of the case change, the undertakings act contrary to their commitments or the decision is based on incomplete, incorrect or misleading information. The above issues also proves the increased power of Commission under the new Regulation. The relevant European Unions authorities have been granted a very strong power of decision regarding a variety of issues some of which can be considered as belonging to the national authorities. a decision finding that Articles 81 and 82 are inapplicable: The Commission may, for reasons of Community public interest, find that, on the basis of the facts of which it is aware, Article 81 does not apply to an agreement, a decision by an association of undertakings or a concerted practice either because the conditions of Article 81(1) are not met or because the conditions for a derogation under Article 81(3) are met; It may do likewise for cases of dominant positions, as referred to in Article 82 of the Treaty. Under any case the relevant decision of the Commission has to be sufficiently justified and should not exceed the necessary level of interference (in case of simultaneous right of decision of national authorities). In addition to the above, Regulation 1/2003 introduces broader investigatory powers for the European Commission. Moreover, the above Regulation establishes a “directly applicable exception” system whereby agreements, decisions and concerted practices will be lawful or void depending on whether the fall outside the scope of article 81(1), satisfy the conditions of article 81(3), or whether they in fact breach article 82 [2]. The provision of these powers to the community authorities do not mean that the power of decision of the national authorities is diminished, however there are cases where the latter is significantly limited. V. Conclusion The presentation of the elements of articles 81 and 8213 of the Treaty as well as of the Regulation 1/2003 as applied today, prove that European Union has managed gradually to increase its level of influence in the internal of the member states. This power could be of course interpreted as an advantage for the individual and the institutions that activate in the Unions commercial market as they would be more protected from potential violations of their rights. However, in some cases the interpretation of the particular provisions can be partially subjective and as a consequence the interested party would be left unprotected to the will of the Unions authorities. It has to be noticed here that the last case is a very rare one as the Unions authorities have been proved to be a more independent judge for the cases that are brought to them for resolution. For this reason many citizens as well as organizations prefer the Unions Courts instead of the National ones. The decisions on the cases that have been examined in the past by the Unions Courts prove that the above assumption is a realistic one. Under these terms the application of articles 81 and 82 of the Treaty (as introduced and protected by the Regulation 1/2003) should be considered as an additional measure towards the resolution of difficult and complicated disputes that arise in the European area. References Bignami, F. (2004). Three Generations of Participation Rights before the European Commission. Law and Contemporary Problems, 68(3): 124-135 Bright, C. (1994). Business Law in the European Economic Area. Oxford University. Oxford Cassese, S. (2004). European Administrative Proceedings. Law and Contemporary Problems, 68(1): 21 Franchini, C. (2004). European Principles Governing National Administrative Proceedings. Law and Contemporary Problems, 68(1): 183-196 Goyder, D. G. (1998). EC Competition Law. Oxford University Press. Oxford Healey, N. (1995). The Economics of the New Europe: From Community to Union. Routledge. New York Jarvis, M. A. (1998). The Application of EC Law by National Courts: The Free Movement of Goods. Oxford University. Oxford Jones, C. A. (1999). Private Enforcement of Antitrust Law in the EU, UK and USA. Oxford University Press. Oxford Sauter, W. (1997). Competition Law and Industrial Policy in the EU. Clarendon Press. Oxford Schwarze, J. (2004). Judicial Review of European Administrative Procedure. Journal Law and Contemporary Problems, 68(1): 39-47 Snyder, D. (1997). Mergers and Acquisitions in the European Community and the United States: A Movement toward a Uniform Enforcement Body?. Law and Policy in International Business, 29(1): 115-144 Wyatt, D. A. Barav, A., Wyatt, J. (1998). Yearbook of European Law. Clarendon Press. Oxford, vol. 17 Cases - European Court of Justice Leclerc and Others v. Au Blé Vert SARL Case 229/83 [ 1985] Europemballage Corporation Can Co. Inc. v. Commission Case 6/72 [ 1973] United Bratids Case 27/76 [1978] Belgian Radio and Television v. SABAM Case 127/73 [ 1974] Tetrapak [ 1974] 2 CMLR 238 Case T-24/90 Automec v Commission [1992] Banks Case C-128/92 web sources http://europa.eu/scadplus/leg/en/lvb/l26092.htm [1] http://www.gtlaw.com/pub/alerts/2004/vanzutvena_06.asp [2] http://europa.eu.int/comm/competition/antitrust/legislation/entente3_en.html [3] http://www.gtlaw.com/pub/alerts/2005/0605.asp [4] http://europa.eu.int/comm/competition/antitrust/legislation/regulation.html [5] Appendix I The renumbering of the Articles of the EC Treaty ( 1957) which will take effect when the Treaty of Amsterdam ( 1997) enters into force (as in Jarvis, 1998, xix) EC Treaty Article EC Treaty Article Renumbered 3b 5 5 10 6 12 7a 14 9 23 10 24 12 25 28 26 29 27 30 28 34 29 36 30 37 31 48 39 52 43 59 49 73b 56 85 81 86 82 90 86 92 87 93 88 95 90 100 94 100a 95 113 133 130r 174 169 226 170 227 171 228 173 230 175 232 177 234 Appendix II Article 81 of the EC Treaty (ex Article 85) 1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: - any agreement or category of agreements between undertakings; - any decision or category of decisions by associations of undertakings; - any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Appendix III Article 82 of the EC Treaty (ex Article 86) Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Read More