Mario Monti was right. Who still remembers, today, the furious arguments that, one year ago, accompanied the approval of a new European system for the distribution of automobiles? To listen to some manufacturers or dealers, the repercussions should have been disastrous for industry and for trade. The first part of the reform entered into force, and nobody continues to talk of revolution, but of a smooth transformation. Professionals now place emphasis on the fact that the European Commission recognised the special nature of the automobile sector by defining a specific distribution system. The renewal of contracts between manufacturers and distributors has not always been easy, especially in Germany, but new agreements have been signed nearly everywhere. In practice, everybody, or nearly, now recognises that the lengthy experience of the exemption system (automobile distribution was in practice exonerated from the enforcement of normal competition rules) can no longer be extended. The system allowed for excessive abuse, which the Commission had attacked on several occasions. With competition between companies being fair and particularly active, nothing justifies that the benefits for consumers be cancelled through abusive behaviour in distribution. The exclusive distribution system, condemned to disappear, incurs a cost accounting for between 20 and 25% of the cars price. It should now be reduced. The second phase of the reform (from 1 October 2005) will have greater repercussions, as it will enable all dealers to established sales offices throughout Europe, thus establishing competition between dealers of the same brand. Guaranteed exclusivity is finished. Dealers will loose some of their advantages, but the consumer will benefit, through cheaper car repairs and spare parts.
The Competition Commissioner, Mario Monti, thus was right not to cede to the particularly strong pressure from not only the professional circles (who logically defend their interests), but also from some of the national authorities, sensitive to industry's arguments.
The case of automobile distribution had been preceded by that, equally spectacular, bringing an end to tax free sales in airports for intra-Community flights. The beneficiaries from this system were able to lobby hard, thanks to the size of the financial benefits that they enjoyed, and several governments fell foul to their arguments. Mario Monti did not flinch, and everything went into its place, to the benefit of fiscal equality and the tax receipts of the member states, without prejudicing users.
This two fold reminder answers two aims. The first is to advise prudence in the assessment of the EU's competition policy. It is normal that the losers in a dossier defend themselves and work towards underlining their grievances. However, observers, economists and also politicians should never loose sight of the general interest and in particular the interest of consumers. Certain newspapers that ranted over the two above mentioned cases, would not appreciate being reminded of what they wrote in the past... The second reason for the two fold reminder is that a new 'general' case (that is to say not concerning the behaviour of an individual company, but regulations as a whole) is presently being discussed, and it is easy to foresee that everything will unfold is a more or less similar fashion: Commission efforts on the one hand, reticence from those affected on the other.
The turn of the liberal professions? Mario Monti's new aim is to bring clarity and introduce more competition in the sector for liberal professions. The Commission doubts that national regulations, which presently govern these professions in most of the member states, are truly inline with the principals and proper running of the European market and free competition. In most of the member states, state authorities take part in the management of these professions: the rates are set by the state after consultation with the professions. Mr Monti invited the authorities and professions themselves to debate the need to maintain restrictions that date back to the medial corporations, and which may have negative effects for companies and consumers. He feels that the banning of agreements and dominant positions should be applicable to liberal professions, while taking into account their specificities and, in certain cases (solicitors or lawyers for example), their participation in the state. The thought process has been underway for some time. Last spring the Commission received and published a study on the situation in the various member states, which it had ordered from the Institut fûr Höhere Studien in Vienna (see bulletin of last 25 March, page 14). Before European parliamentarians, Mr Monti then explained that these powers are nevertheless limited. It is unacceptable to see Community legislation as homogenous or to challenge the state's role in the management of systems for certain professions (see our bulletin of 9 October, page 14). This week, the Commission organised a conference on the regulations governing professional services and we await the results.
In the meantime, the Commission services sent a questionnaire to professional organisations concerned and some published their responses, which generally tend to justify and explain the regulations presently enforced (for example see the positions of the European Bar Council in our bulletin of last 17 June, page 12). Others reacted through the press, sometimes indicating that, in their opinion, Mario Monti was mistaken. However, the Commission remains convinced that the general interest suggests loosening controls and introducing a certain amount of competition (see p. 11 of this bulletin).
The small May 2004 revolution. Either way, the main element to take into consideration for an objective and serene overall view of the situation concerning competition policy is the view of the small revolution, which will take place next 1 May. That day will see the entry into force of the new Community systems applicable to agreements between companies, abuse of dominant positions and the monitoring of mergers. I sometimes wonder if political circles, professional circles and even possible certain legal circles are fully aware of the scope and meaning of these reforms, which Mario Monti defined last week (in a conference in New York) as 'our Big Bang.' After 40 years of enforcement, the system of prior notification of agreements will disappear, and the decision-making responsibility will be further shared between the Commission and the competent national authorities. The Commission will no longer be submerged with agreement notifications for which most pose no problem, but which represent a very heavy administrative burden and his services will be able to concentrate on the detection of more damaging agreements and practices. The progressive liberalisation of markets as significant such as those for energy, transportation or telecommunications, beneficial to the economy and for users, nevertheless demand an increase in controls and more active monitoring, in order to avoid former restrictions and former monopolies from being replaced by agreement that would make the arrival of new operators and the reduction of prices difficult.
Why foresee, from the outset, a burdensome system that is abandoned today? The answer is simple: at the time of the Treaty of Rome's entry into force, the national competition authorities did not exist (apart from in Germany?) and the courts had no experience in this field, and companies even less. A few decades have been requires for the progressive formation throughout the EU of the mentality and expertise required to permit this change.
Merger controls will be clarified. Equally important is the reform of mergers, even if the Council has yet to approve the new regulation put forward by the Commission. Mario Monti hopes that the approval occurs before the end of the year, in this case as well, and the entry into force occurs before next 1 May. The proposed revision should answer numerous remarks that accompanied the enforcement of the present regulation concerning the interpretation of certain principals and concepts. The revision should clarify the provisions relating to notifications and ease the timetable for 'in-depth investigations' (notably with regard to the assessment of 'correcting measures' envisaged by the companies concerned). At the same time, the Commission proposes to enhance the Commission's investigative powers and it is this point that raises the most difficulties for certain member states.
Alongside this regulation we find the draft indicating the Commission guidelines for the assessment of mergers between competing companies, that is to say horizontal mergers. During last week's conference in New York, mentioned above, Mario Monti noted that these guidelines represent a new example of growing convergence between EU and United States competition policies, which is an elegant way of saying that the Commission is aligning itself with the American understanding of the ending of competition in a specific sector.
Either way, whatever the result of the Council's deliberation, one aspect of the reform in the field of mergers will be completed by the first of May: the internal reform of the Commission services. There will no longer exist an autonomous 'mergers' task force, separate from the other competition services. The inspection of planned mergers becomes sector-based, that is to say that it is undertaken by civil servants specialised in the sector (or sectors) affected by the plan. At the same time, the role of the 'economists' within the Directorate General takes its true meaning. The assessment of each operation will, from the outset, is done by taking into account the possible economic implications and the effect on European industry (including competition between the 'colossi' from third countries). Thus, relations between competition policy and industrial policy become closer, even on the administrative level.
(F.R.)