Government to reform competition law

The changes are in light of an EU Regulation that comes into force in May. The DTI consulted on the proposals last year, asking for views on the general effect of the changes that the new Regulation will make.

The DTI then launched a separate consultation, trying to find out whether there are any competition exemptions given under the existing UK laws (mostly in the Competition Act of 1998), which should be amended or removed so as to bring UK and the forthcoming EU law into line.

The exemptions considered were:

• block exemptions;
• vertical agreements;
• competition scrutiny regimes; and
• agreements given directions under the Restrictive Trade Practices Act of 1976.

The new Regulation replaces another Regulation of 1962 which originally implemented Articles 81 and 82 of the Treaty of Rome, the foundations of competition law in the European Union. The Treaty itself dates back to 1957.

In particular, Article 81 prohibits agreements, decisions and concerted practices by undertakings that prevent, restrict or distort competition unless they meet certain exemption criteria. Article 82 prohibits the abuse of a dominant market position by undertakings.

The new Regulation, 1/2003, has four main effects:

1. It abolishes the current system under which businesses must notify their restrictive agreements to the Commission in order to obtain an exemption. It replaces notifications with a "legal exception" regime under which agreements which fall within the prohibition but which meet the exemption criteria are automatically exempt and legally enforceable at the outset.
2. It devolves powers to national competition authorities (NCAs) and courts in Member States to apply Articles 81 and 82 in full and requires them to apply these Articles to any case where there is an effect on inter-state trade. National law may be applied in parallel but NCAs and courts in Member States must not make decisions under national law, the outcome of which differs from that which would be reached under Community law.
3. It provides for Member States to co-operate closely in enforcing competition law by exchanging information and conducting investigations on each other's behalf. To facilitate this process, a European Competition Network (ECN) has been established.
4. It strengthens and clarifies the Commission's powers of investigation, widens the range of available remedies and provides tougher sanctions for procedural infringements.

The Government published the bulk of its response to the consultations in January, but delayed announcing a decision on whether to repeal the verticals exclusion, which will apply across all sections of business and industry. This was done following representations from
the newspaper and magazine sectors who had particular concerns about their sector.

Vertical agreements are agreements between firms at different levels of the supply chain; in the newspaper industry these arrangements provide for arrangements between publishers and distributors to distribute to exclusive regional areas.

A 30 day period was granted to allow the various parties to discuss among themselves concerns about the effects of a repeal. This was done with the help of the Office of Fair Trading and an independent mediator.

According to Ms Hewitt:

"The Government's approach to modernisation is to remove or reduce any differences between EU and UK competition law that may present an obstacle to the effective operation of the regime in the UK.

"As part of this we have decided that certain exclusions from the Competition Act should be removed, in particular the exclusion for vertical agreements.

"The Government believes it would be appropriate to allow a transitional period of one year from 1st May 2004 so that the repeal of the domestic exclusion for vertical agreements will not take effect until 1st May 2005. The transitional period gives a breathing space so that any changes are made in a managed way."

A transitional period for agreements given clearance under the Restrictive Trade Practices Act was announced in January. This exclusion will be repealed in May 2007, which will
effectively give business more than eight years' grace from the last date agreements received clearance to allow transition to the new regime under the Competition Act.

The necessary legislative changes will be made by statutory instrument, which will come in to effect on 1st May 2004 alongside reforms to the EC regime agreed at the Competitiveness Council. The transitional periods applying to the removal of certain exclusions will begin at that point.