The European Union Treaty - Essay Example

The exercise of Article 81(3) Introduction: The EU Treaty sets out as its goal, the objective of promoting a free market, therefore the driving force behind its provisions are to restrict any measures that would inhibit, restrict or distort competition.1 While Article 82 of the EC Treaty specifically applies to undertakings that are in a dominant position, Article 81 is intended to restrict the formation of cartels by undertakings that may contribute towards the elimination of competition and move to achieve a dominant position within the common market. There are certain exemptions that have also been provided under Article 81(3), however these four exceptions to the rule are so broad based and uncertain in their legal application that they do not provide any effective guidance to undertakings on what will and will not be construed to be a restrictive practice under EU law. Moreover, the provisions of this section of Article 81 also face difficulties in their legal application, because they must be enforced by national Courts and there are no effective or clear guidelines that are available to local Courts in judicial interpretation of these exemptions. One option open to local Courts in the event of ambiguity in interpretation is to seek a reference under Article 234, in order that Community decisions are not accepted or rejected in an ad hoc manner by a national Court2. The recent moved by the EU to introduce clear guidelines on the criteria under which block exemptions have been provided to certain groups of undertakings may also be helpful in resolving the uncertainties that both undertakings and judicial authorities have faced in applying the provisions of Article 81(3). The Four conditions stipulated under Article 81(3) and Block exemption: Article 81 (3) lays out some exceptions to the provisions of Article 81, where the criterion of anti-competitive practice will not apply. These four conditions that can be applied to undertakings whose activities3 - (a) contribute to improvement in production and distribution of goods or technical and economic progress (b) allow consumers a fair share in the benefits that accrue as a result of such progressive activities (c) do not impose restrictions that would qualify as being indispensable in achieving the stated objectives (d) do not raise the possibility of competition from other companies being eliminated The European Commission has provided some guidelines for the implementation of the provisions of Article 81(3)4. According to these guidelines, the assessment on application of Article 81(3) is to be carried out in two parts. The first step is to assess whether such an agreement between two or more undertakings is likely to restrict competition. It may be noted that where small undertakings are concerned, the potential for their scope of activity adversely affecting trade between member states is limited. Therefore, according to the objectives of Article 81, the activity would not qualify as incompatible with community law. Hence this should be the first step any undertaking should take. Secondly, even if the scope of activity of the undertaking is broad based enough to conceivably affect competition, the Competition will examine such effects in accordance with the four provisions that have been laid out, in order to assess whether or not the effect overall is a beneficial one. Restrictive agreements, vertical restraints, horizontal agreements between undertakings – all of these could come under the scope of the exemptions. However, the problems that have been faced by undertakings is in making the determination under the block exemption Regulations adopted by the Community for particular industries, as to which kinds of agreements and practices will not be deemed to be incompatible with EU Rules. Certain undertakings may fall under the category of block exemptions such as the automobile sector, where vertical constraints have been allowed to enhance production and distribution of vehicles. However, even under this category of block exempted undertaking, there is ambiguity and confusion in implementation, as in the case of Ford v Commission, where a selective distribution agreement was sought and qualified under the criteria for exemptions, yet was refused by the Commission5. Thus, even when an undertaking falls into one of the block exemptions that are provided for these industries, the Commission also has the power to withdraw the exemption any time6 thus there is economic uncertainty created for the organization. Forwood points out the difficulties that have been incurred in correctly interpreting the provisions of Article 81(3), which is in the nature of an applicable rule rather than an area where there is flexibility in interpretation, and there is a lack of clear input from the Community on execution. While there is a general guideline in that the objective of Article 81(3) is to foster agreements and activities among undertakings but prevent it from expanding to the level of a cartel, the criteria for exemption make it difficult to implement effective constraints. For instance, the first clause that an undertaking must satisfy in order to qualify for exemption is classified as “economic and technical progress” which is a wide ranging area. For example, in analyzing whether or not a particular activity would be deemed eligible in contributing to progress, non economic areas such as the environment and cultural considerations, such as providing the kind of programming that is not geared towards profit making, could also be included.7 It is difficult for a judge to weigh the relative benefits of such progress against restriction of competition, because the areas are too broad based with indeterminate effects. Undertakings could potentially claim that they are contributing to progress inspite of the formation of a cartel, justifying it on the basis of progress. Moreover, what are the limits to be set to ensure that consumers get a fair share in the benefits and how are such benefits to be evaluated? For instance, would such improvements also constitute providing employment in difficult economic conditions because the consumers must be benefited?8 Moreover who will qualify as consumers, would it be only the ultimate user of a product or the intermediary distributors and intermediary undertakings? There is also the issue of conflicts among the national law and Community law, where it is difficult to specify what kinds of customer benefits could be reasonably applied, as a result there could be claims of the kind raised in the case of Costa9 who refused to pay an electricity bill, or Crehan10 who refused to pay high beer prices. In reference to the third provision which is the indispensability aspect, this requires an element of reasonableness, in that the undertaking may need to demonstrate that the benefit that will accrue will justify the restrictions that are proposed to be placed and the business decision will have to be justified11. Forham has also raised the question of what happens when there could be alternative restrictions that could be proposed to achieve the same objective as that sought by the undertaking. How then is a judge to determine which restriction is likely to be the better option?12 In a similar way, it is also difficult for judges to assess the fourth criterion of not restricting competition, particularly when the relevant limits to the exemptions are not clarified. In response to the legal uncertainty and lack of clarity and establishment of clear parameters under Article 81(3) the commission has taken steps to clamp down on any abuse of Article 81 through the formation of cartels. The new regulations that have been established under block exemptions provide clearly defined areas within which medium sized undertakings can function safely without the danger of incompatibility with EU law.13 Technology transfer has also been included within these exemptions and the limits of patent protection clarified. Moreover, specific guidelines have been laid out for coping with individual cases, which is likely to help alleviate the legal uncertainties that exist. The Implementation of merger controls and greater level of cooperation between the Commission and national Courts under the new guidelines may provide assistance. The European Competition Network has also been set up, where Commission and national authorities will collaborate and cooperate in order to ensure that the Community objectives are achieved. Conclusion: On the basis of the above, it may be noted that due to the lack of clear legal guidelines from the Commission thus far and the fact that the provisions of Article 81(3) have been in the nature of rules that are too broad in scope to apply effectively, uncertainties have been created . Undertakings have not had clear guidelines about when and how they could come up in conflict with community laws, and the block exemptions that have been provided have also been subjected to the same uncertainties. Potential conflicts have been created - of national law with Community Law, as well as the difficulties inherent in determining what and what will not constitute the kind of business activity by an undertaking that could be deemed to be the formation of a cartel . Possibly, the new Guidelines of the Commission may be helpful in addressing some of these issues. Bibliography Cases: * Case 6/64, Costa v ENEL (1964) ECR 585 * Case 453/99 Courage v Crehan (2001) ECR 1-6297 * Case no: T-528/93,Metropole Television (1996) ECR II 649 at 116 et seq * Case No: 42/84, Remia v Commission (1985) ECR 2545 * Cases 25 and 26/84, Ford v Commission (1986) ECR 3021 Books/Articles: * Faull, Jonathan and Nikpay, Ali, Faull and Nikpay: The EC Law of Competition Oxford University Press, at 2.165 * Forwood, Nicholas, 2003. The content and meaning of Article 81(3) EC The text of a Paper prepared for a conference in Trier on 8 and 9 May 2003. Available online at: http://www.era.int/web/en/resources/5_1990_300_file.323.pdf * Korah, Valentine, 2002. The interface between intellectual property and anti-trust: The European experience 60 Anti trust law Journal 801 at 804 * Monti, Mario, 2003. EU Competition Policy after May 2004 Text of address at the Fordham Annual Conference on International Antitrust Law and policy, New York. Available online at: http://www.eurunion.org/news/speeches/2003/031024mm.htm * Volcansek, Mary L, 1992. The European Court of Justice: Supranational policy making Western European Politics, 15:109 * Text of Article 81(3), available at: http://europa.eu.int/comm/competition/legislaiton/treaties/ec/art81_en.html. * Guidelines on the Application of Article 81(3) of the EC Treaty Available online at: http://europa.eu.int/scadplus/leg/en/lvb/l26114.htm . Read More