Merger control law must be Italians’ priority

Date: 10/07/03

By Dick Leonard

ONE of the more urgent tasks facing the embattled Italian presidency is to shepherd through the draft regulation on merger control which has been on the agenda of the Council of Ministers since last December.

It is crucial that it should be adopted by the end of this year so that it can take effect on 1 May 2004. This would enable the ten new member states to align their competition authorities with those of the existing members from the outset.

That is not the only reason why its early adoption is necessary. Nine months ago the EU's merger control policy appeared to be a complete shambles, following three judgments reached in quick succession by the European Court of First Instance, in Luxembourg.

These overturned three decisions by the European Commission, banning the merger of firms in the UK and in France. The first judgment, in June 2002, concerned the travel industry, where the Commission had blocked a merger between the UK groups Airtours and First Choice.

This was followed last October by the over-ruling of the Commission's veto on the merger of the French electrical companies Legrand and Schneider. One week later, the French packaging firm Tetra Laval won its case against the Commission, which had banned its acquisition of the bottling company, Sidel SA.

The Commission had been responsible for merger control since 1990, and had ruled on more than 2,000 cases. These were the first times that its decisions had ever been successfully challenged in the Court.

The three judgments represented a severe setback to Competition Commissioner Mario Monti, who had previously been one of the most widely-admired members of the Commission.

Voices were even heard suggesting that the Commission should be stripped of its merger controlling powers, which should be hived off to an ad hoc body, appointed by the Council of Ministers. Monti acted quickly to see off this threat, and on 11 December presented a comprehensive reform package, of which the draft new merger regulation was the centrepiece.

The new regulation markedly improves the flexibility and transparency of the Commission's procedures, while setting out much clearer rules for the division of responsibility between itself and the national competition authorities.

This is particularly important as the number of these will soon increase to 25, and later 27, with the addition of countries with widely different, and sometimes virtually non-existent, methods of merger control.

At the same time, Monti announced a series of non-legislative measures designed to improve the quality of the Commission's vetting processes. These included the publication of new guidelines on the appraisal of "horizontal" mergers, ie those between companies that are direct competitors, and of a draft best practices guide for companies contemplating merger negotiations. Monti also announced:

• The appointment of a prominent economist to the post of chief competition economist to advise on merger and other competition investigations;
• the institution, in all in-depth merger investigations, of a peer-review panel composed of experienced officials, whose task would be to scrutinize the investigating team's conclusions with a fresh pair of eyes at key points duringthe enquiry; the allocation of extra support staff to the Commission's hearing officers;
• the appointment of a consumer liaison officer within the competition department;
• allowing companies being investigated to have an early opportunity to review the Commission's file on the case and to see submissions by third parties expressing concern about the impact of the merger on competition, and;
• offering parties the possibility of attending so-called state of play meetings with the Commission at decisive points in the procedure to update them on the progress of the investigation and to give them the opportunity to discuss the case.

Most of these measures have since been implemented, although the chief competition economist has not yet been appointed. The post was advertised, and 36 applications were received, but the Commission has, according to a report in The Wall Street Journal, also approached a prominent American competition expert, Janusz Ordover, who was a member of the first Bush Snr. administration in the early 1990s.

One effect of the merger regulation itself, as European Voice pointed out last December, will be to make the EU's system of vetting mergers more similar to that in the US.

This would make less likely a repetition of cases such as the projected takeover of Honeywell by General Electric, which sailed through in Washington, only to be rejected in Brussels.

Perhaps for this reason, the draft merger proposal was hailed at the annual competition policy conference recently held by the American Chamber of Commerce in Brussels. Despite the fact that the regulation greatly increases the scale of fines that can be imposed on firms supplying "incorrect or misleading" information, it has also been broadly welcomed by the business community as a whole.

In consumer circles, the reaction has been more reserved. The European Consumers' Organization (BEUC) recently published its own commentary on the draft regulation, in which it drew attention to an inequality of treatment between third parties who are commercial rivals of firms concerned in merger proposals and those who are representing consumers.

The latter should have the same opportunities as the former, BEUC claims, in terms of access to the Commission's files, and the right to participate in exploratory meetings.

There will probably be two or three more meetings of the Council between now and December when the regulation is due to be adopted. Relatively small amendments would be required to take account of the BEUC objections, and it is very much to be hoped that the member states' representatives will be ready to consider them.

The Council should remember that the raison d'être of competition policy is to protect the consumer, and it should never forget the famous words of Adam Smith, the prophet of modern capitalism.

In The Wealth of Nations, he wrote: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or some contrivance to raise prices."

It is for this reason that merger control is necessary, and to work properly it has to be transparent and readily accessible to consumer interests.