COMMITTEE OF PUBLIC ACCOUNTS debate - Thursday, 22 Jul 2004

Competition Authority Accounts 2002-2003.

Dr. John Fingleton (Chairman of the Competition Authority) called and examined.

Chairman

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised as follows. Members and witnesses' attention is drawn to the fact that, as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of these rights and provided with a transcript of the relevant part of the committee proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions of Standing Order 156 that the committee should refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

I invite Dr. Fingleton to introduce his officials.

Dr. John Fingleton

I thank the committee for inviting us here today. It is the first time the chairperson of the authority has appeared before the Committee of Public Accounts.

Chairman

Would you please introduce your officials.

Dr. Fingleton

Accompanying me is Ms Noreen Mackey, legal adviser to the authority and Mr. Ciaran Quigley, secretary to the authority. Also present are Mr. Ronald Long, assistant secretary in the Department of Enterprise, Trade and Employment, Mr. Eamon Carey, principal officer in the Department and Mr. Kevin Byrne who is a higher executive officer in the Department.

Deputy Rabbitte

I do not mean to be rude but does Dr. Fingleton propose to read his entire statement? We have read it.

Dr. Fingleton

No.

Chairman

Mr. Purcell will introduce the Competition Authority accounts 2002-2003.

Mr. Purcell

The Competition Authority in its current form came into being on 1 July 2002 by virtue of a commencement order made under the Competition Act 2002. The accounts before the committee today cover the six months period in 2002 and the full year 2003. During this time the parent Department, the Department of Enterprise Trade and Employment discharged the payment functions of the authority on the instructions of the authority but that was changed in 2004. The authority now has its own bank account and draws down its grant from the Vote in instalments as required. For practical reasons the Department still operates the payroll on behalf of the authority.

Turning to the accounts, members will note that there is no surplus or deficit at the end of the accounting period. This is a natural consequence of the standard way adopted for public bodies funded by way of grant rather than grant-in-aid. Effectively, the grant is matched to the outturn for the accounting period.

The only other point of note is that merger fees and other receipts are transferred to the Vote as appropriations-in-aid by direction of the Department of Finance rather than accruing to the authority itself. These amounted to €308,000 in 2003. I am glad to say I was in a position to give a clear audit report for both accounting periods.

Chairman

Will Dr. Fingleton speak briefly on his opening statement? We will include the text in the published report.

Dr. Fingleton

I am grateful as I am unused to reading scripts. The document is designed to give committee members a sense of the position of the Competition Authority at this time. The authority is more or less fully staffed following decisions in 2001 and 2002 to increase resources. The authority recruits directly which allows it to recruit more rapidly. It had a high turnover but that has abated. Turnover is at 10% — a much lower figure than the 50% and more which we experienced in 1999 and 2000. The Competition Act 2002 strengthened our powers and functions across all of our enforcement areas, most importantly in the area of mergers where it transferred the function from the Minister to the authority. We are using our powers fully. The only one we have not yet used is the power of arrest. We have an unprecedented number of cases in court, both civil and criminal. I have summarised the highlights in the document and made the point that the cases in court are the tip of the iceberg in terms of our investigative work. They constitute 1% to 2% of the matters under investigation that eventually go to court.

Competition cases are unusually complex. There is an impending Circuit Court case in the west of Ireland that involves 24 co-defendants. Both the President of the District Court and a High Court judge recently commented that there is no courtroom in the country capable of accommodating that number of defendants and their legal teams. There is no precedent for these numbers. Such cases are complex. The United States and EU cases against Microsoft each took at least five years to investigate and bring to court. It took hundreds of person-years to carry out the investigations. That is the nature of the complexity of the economic and legal analysis required in such cases.

We have implemented a new system of merger review. The Irish Competition Authority, the Department of Enterprise, Trade and Employment and the private sector are happy with how the system operates. There has been a sharp increase in merger activity in the economy that is reflected in the 80% increase in notifications this year. Only three cases from last year went to full (Phase 2) investigation and these were dealt with satisfactorily. We produced approximately 70 reasoned decisions in merger cases within the past 18 months. We made recommendations for changes in a wide variety of markets where there are public restrictions on competition and these have been supported by detailed analysis.

The authority's work is highly innovative by international standards. Other countries watch us closely. The recent convictions in Drogheda were the first of their kind and next year's home heating oil cartel trial before a jury will also be a first in Europe. We have attempted to use amicus curiae, or friend of the court provisions, to assist private enforcement where we perceive there to be a problem. That is an extremely innovative measure and the authority is the first body to attempt this in the High Court. We are producing reasoned decisions over and above the requirement. We were the first agency in the EU to produce merger guidelines.

In the document I have given examples of two cases: the decision regarding Aer Lingus' travel agents and the milk blockade. I included them to illustrate that the benefits in these cases tend to be ten to 25 times the annual budget of the authority in terms of benefits to the economy. These benefits are long-term and have a wider implication outside the market in which the enforcement action takes place. I do not believe the number of cases we bring to court should be the measure of our output. A good enforcement agency sets clear guidelines for people so they know how to comply with the law. Our goal should be to encourage compliance with the law not merely to bring people to court.

Home heating oil is part of the service sector and is an example. That investigation started in the middle of 2001. The file was sent to the DPP approximately 18 months ago. The DPP has begun to serve the book of evidence over the past nine months. It is taking place over 11 different District Court areas so it is time consuming. The case is not likely to come to trial before April 2005 at the earliest and because there are 24 co-defendants it may have to be split into several court rooms.

The book of evidence, which is different for each of the 24 co-defendants, runs in each case to 1,000 pages and each page could in principle involve many days' work. There is a total of 40,000 pages in the book of evidence to meet the criminal law standard of 'beyond reasonable doubt'. Cartel cases are conspiracies and are extremely difficult to unearth. They are very secretive as they amount to theft because people meet to decide that the customer is the enemy, the competitor their friend, and they make an agreement. It is easy for us to infiltrate that, get evidence and bring it forward. The difficulty of applying criminal law is not exclusive to competition. We have American colleagues who have practised criminal law in the United States and they are surprised by the stringency of the requirements with which we must comply to meet that standard of proof. The standard of proof is a delicate balance between defendants' rights and the prosecutorial process.

I am happy, however, that at the recent District Court hearing there was no challenge to the quality of the forensic work carried out by the authority. That case involved less work but the home heating oil case with its 40,000 odd pages of evidence is a pretty good indication of the volume of work involved in a case. We can do one of those cases a year and that explains why we have not done more. From 2007 on, cases on which we are working will come to court but only at a rate of one a year, given our resources.

Deputy Curran

I welcome Dr. Fingleton and his colleagues to their first appearance before this committee. The Competition Authority was indirectly addressed in the past through the Department. I have some questions arising out of the authority's accounts for 2002 and 2003. On page 9 of both accounts, under staff details, the number of staff varied from 36 to 40. The staff seconded from the Department of Enterprise, Trade and Employment was reduced, the authority's staff increased, and it has five members. Can Mr. Fingleton tell me a little about the role of the five members and his view of staffing, in particular the 16 staff seconded from the Department? Is it the authority's ambition to have fewer seconded or to have all authority staff? Where is the authority going on this issue because there was a significant change in that make-up over a very short time?

Dr. Fingleton

The Minister appoints members of the authority under section 35 of the Act for a term not exceeding five years. The chairperson is a member, although there are separate provisions for that position. The members are the decision-making body within the authority and there are certain decisions the authority cannot delegate, which the members must make collectively, such as mergers, decisions to bring proceedings and decisions related to our accounts. At the end of 2003 the authority had 41 sanctioned posts plus the five members, making a total of 46, and of the posts, 33 were filled. To date 39 of the 41 positions are filled. Out of our total of 46 there are 44 people on the premises.

We started to recruit directly from July 2002 and due to the number of vacancies over those 18 months, almost half of the total posts in the authority came up during that period, some of which have not yet been filled. That explains why we now have 50% recruited directly. There is a provision in the 2002 Act for the transfer of staff who work in the authority on secondment from the Department to the authority's staff. Discussions are ongoing between the Department and staff in that regard. It is a matter between the Department and the staff in the authority and their unions. The authority directly fills any new positions that come up, through an open competition.

Deputy Curran

On page 10 of the accounts travel and subsistence accounted for 25% of the general administration costs in both cases, which was quite a substantial percentage. Was that internal or external or can Dr. Fingleton offer any break-down of it?

Dr. Fingleton

In 2003 the total travel and subsistence of €124,000 comprised €36,000 for home travel and €88,000 for foreign travel.

Deputy Curran

Does that apply to the staff or to the members?

Dr. Fingleton

That is for everybody. Much of that is explained by the fact that we have a formal role in the area of EU competition policy. An advisory committee for mergers and one for restrictive practices, meet regularly in Brussels. In all cases that the European Commission decides, consultation is held with the member states including Ireland. For example, Ireland was selected as the rapporteur in the recent Microsoft case and we have held the same position recently in the four most high profile Commission cases. These cases have important implications for the Irish economy and consumers so we play an active role there. The other large category in that expenditure is the Organisation for Economic Co-operation and Development which has a competition committee consisting of 28 countries, and other members, and is the forum for discussing best practice in a range of areas. Examples of meetings in the last year in which we have participated are, how to deal with buyer power in agricultural markets, an issue that has arisen in several mergers and media mergers, for which our Act contains special provisions which other countries regard as a possible model. I pay tribute to Deputy Rabbitte's part in drafting that provision. We also have been involved in examining our merger notification rules to ensure they do not tax international business in Ireland. This involves us working with other competition authorities that, as members observed, is a significant part of our work. It is an important input to the quality we produce.

Deputy Curran

The conclusions of the report contain different categories, highlighting various areas where we have become less competitive. Various analyses and comparisons in recent years show where our competitiveness is not good. As Dr. Fingleton said at the beginning of his presentation, the Competition Authority is an enforcement agency. In the report, it states that in addition to the insurance industry, large studies are under way in the banking sector. These are key areas where the public perceives there is a lack of competition. Competition in banking is not always to do with the best or cheapest rates but also access, transfer, entry and so forth. These are live issues that do not just affect businesses but individuals. Where do we go from those studies to actual enforcement? At what stage is the authority in dealing with these issues?

Chairman

May we publish the opening statement?

Dr. Fingleton

Yes, the committee may.

If the authority finds restrictive practices, I would prefer to seek a statutory solution from the Oireachtas rather than trying to battle it through the courts system. The fundamental source of the restrictions may not only be private restrictions. The whole regulatory structure and system of operation are part of the problem. In these cases, we would bring recommendations to Government. This tends to be the sort of problem that emerges in a wide range of areas. Taking our insurance study, in our preliminary document we highlighted a number of issues such as there being not enough information for new entrants into the market. This will probably be repeated in our final report. That is a matter for IFSRA and we will make a recommendation to that effect.

With regard to insurance brokers, we have made the point that there is a lack of transparency. It is not clear whether brokers operate in the interests of insurance companies or consumers. We have highlighted this by calling for greater transparency. Again, it is an issue for IFSRA. In some cases, there may be recommendations to consumer groups. One of the issues coming out in our insurance industry study is that when buyer groups come together, such as the CIF has done, they achieve a great amount for their members in getting better value by being pro-active buyers. Groups such as the CIF are well placed to do so. Recommendations will be made that more groups should follow their example.

The recommendations that can be made in a study vary from sending something to our office and enforcing it through section 4 and 5 of the Act through the courts. A formal investigation must be started because a study is not an investigative process and due process issues are involved. We can make a recommendation to the Government, or a regulator such as IFSRA, and particular groups such as consumers or trade associations. We are not decisive and we cannot force people to do anything when we do a study. That is why we have to be careful how we argue our case and ensure it is compelling.

Deputy Curran

A number of years a go, a foreign bank entered the Irish banking sector offering cheaper mortgage rates. Up to that point, Irish banks claimed they were as competitive as they could be. However, they matched the entrant's rate which indicates that there was a margin available to them that they had not passed on to the consumer. The Competition Authority has a large study under way into banking. Will an interim report be published on the banking sector?

Dr. Fingleton

Last August, we defined two areas for focus in our study. In December, we summonsed a large number of financial institutions, including banks, to provide us with information. However, we were victims of our own success because we received up to 136 boxes of documentation from the banks. Contrast this with the insurance industry, when the insurance federation did not even bother to respond to our consultation method. Three people in the authority have spent the past six months sifting through these 130 or so boxes of information. That process will have finished next week. Hearings with the banks are arranged for late August and early September with a view to having our draft recommendations out for consultation towards the end of 2004.

Deputy Curran

Is the Competition Authority going through this process because it believes there is a cartel operating in the sector without competition?

Dr. Fingleton

We are concerned with the performance of the market. However, we must analyse it to see what lies at the root of it. Is it the private behaviour of banks, or is it the way the payment system operates which acts as a barrier to entry into personal and current accounts? Is it the way the system is regulated that is not friendly to entrants but still facilitates the banks in claiming they are acting within their rights? Getting to the root of the problem is the difficult process.

Deputy Noonan

I welcome the authority delegation and the officials from the Department. I am a strong believer in the work done by competition authorities and I wish Dr. Fingleton well in his work. I know he is still relatively new to his role both in his personal capacity and as an agency that is now independent of a Department. It is probably too early to fully assess the progress the authority has made but I wish Dr. Fingleton well and hope he continues with his good work.

I must also make some criticisms that are being put to us as members of the Committee of Public Accounts. They fall into three areas. The first is that the Competition Authority is primarily an enforcement agency but is failing to enforce. The second is that the authority's emphasis is too academic in nature and that it is involved more in studies and assessments than in action. The third criticism is that the authority's sense of priorities is not in line with major public concerns and that where there are major consumer concerns it does not seem to act, though it acts in areas where there is rather limited consumer concern.

I do not know if these are legitimate criticisms. I will flesh them out, and Dr. Fingleton may care to comment as I do so. In the 2003 annual report of the authority it states for example that fewer than 5% of public complaints become fully-fledged investigations. That suggests that the authority is either receiving many crank complaints or else ignoring many legitimate complaints. A figure of 5% of public complaints being pursued by the authority to investigation stage is very small, unless there is some context I do not understand.

Dr. Fingleton

I would not describe those complaints as crank complaints. Very often, people approach us with matters that do not indicate any breach of the Act, or reveal any evidence to show any such breach. The figures are not out of line compared to such figures in the UK or other countries. In the UK the Office of Fair Trading has noted that 1% of all complaints from consumers and 10% of all complaints from business lead to or suggest a breach of the legislation.

Ideally, one would like all complaints to be very well focused. The basis for us carrying out the insurance study for example was largely because in 2002 the highest volume of complaints related to insurance. One of those complaints, with regard to the Glassmatix agreement among the motor insurance companies, led to an enforcement action. Regarding all the others, there was no evidence of an agreement between insurance companies or of an abuse of dominance arising from any of them. Sections 4 and 5 of the Competition Act 2002, which deal with cartels, are relatively narrow. In the UK they have a broader provision that used to be called complex monopoly whereby if a market is concentrated and there is a competition problem, it can be remedied. We do not have such a provision. It is not possible for us to use sections 4 and 5 to deal with such problems.

We can do one of those per year given what is required in bringing a criminal prosecution. There is a view abroad that bringing a cartel case involving a large number of co-defendants is a trivial matter and that we should do another this week or next. Unfortunately, it is not like that. We do not set the standards, they are set by the DPP, who reflects the higher standard that applies in the courts. Criminal prosecutions in this area are novel. We are the first country in the EU to do this. Anyone else who has tried it in the EU has failed. We rely on criminal fines, whereas almost every other country in the EU uses civil fines, which have a much lower standard of proof. The authority said it would like to see civil fines introduced, since it believes they would be a more effective deterrent. However, that has not happened yet and did not happen under the 2002 Act. Deterrents could be stronger, but we are fully committed to enforcement, and relative to what is required of us regarding a criminal standard, we are putting great effort into bringing cases.

A large number of cases settle without going to court, and that is also a good outcome, since we meet our objectives. We send out a letter of initiation saying we will begin High Court proceedings, and the parties come and say that they are happy to make the changes we want. That saves us the expense of going to court and, importantly, the parties.

Deputy Noonan

In the foreword to the 2003 report, Dr. Fingleton refers to what he has just mentioned. He states:

With this caveat, I believe that it is reasonable in a full year to expect the authority to produce:

One full cartel investigation leading to criminal enforcement proceedings;

A handful of other (mostly civil) investigations leading to proceedings or enforcement decisions because the case gets settled;

Dr. Fingleton

The discrepancy may concern the fact that the average figure for 2003 is not the average figure over a longer period. Whether it is 5% or 2.5% is not the fundamental point.

Deputy Rabbitte

Probably not. However, if it is only 2.5%, it further buttresses the argument that Deputy Noonan was seeking to tease out with Dr. Fingleton which is that it is a very low rate. This leads to the question of priority. The cases of the Kennel Club and the Irish League of Credit Unions have been mentioned. Perhaps it is a matter of the politician's perspective compared to that of the competition expert, but, given the low number of investigations, it seems an odd sense of priority to target bodies such as the Kennel Club and the Irish League of Credit Unions, given that the league is a co-ordinating mechanism for the credit unions and there were always disputes and tensions between the large credit unions and the great bulk of credit unions. I cannot see much point in having two GAAs or two FAIs, although it sometimes seems as if that is the case, or even two competition authorities. If we were talking about financial service charges and ripping off consumers, surely the banks ought to have been the area that received 11 days of treatment in the courts, if such a case was supportable.

I am concerned with the sense of priority. While consumers and their representatives make complaints or criticisms to us, in many cases they do not fully understand the complexities that Dr. Fingleton has explained. I entirely accept Dr. Fingleton's point about the amount of work the Competition Authority has done to enhance knowledge among businesses of the role of the authority. The great bulk of consumers would not be up to speed on that but they are up to speed on the price of drink, for example, and have extreme views on this. It is the same in regard to the banking sector yet it is the credit unions that are the subject of an action by the authority.

Dr. Fingleton

We do not address 95% of complaints because they do not reveal a breach of the Act and that is not because we do not prioritise. I have already outlined the various reasons this might be the case. Regarding the banks, to bring an investigation case in the High Court, we need to show that section 4 or section 5 of the Act has been breached. We cannot bring a case simply because the market is not performing well.

It is interesting to note that when the competition authorities in the UK tackled the banking system, they did so not under their equivalence of section 4 and section 5 but rather under the complex monopoly provisions that exist in British legislation whereby the Competition Commission, formerly the Monopolies and Mergers Commission, has the power to target under-performing markets in a more rigorous way. This is very like the manner in which we carry out our studies except at the end of studies in the UK, they can order the banks to do certain things whereas all we can do is make recommendations to Government or to regulators. There is a big difference between the Irish and UK approaches. If a revision of the law was considered, we would do well to consider this UK provision.

Ultimately, we consider cases where complaints throw up breaches of the Act. Five of the large investigations last year were "own initiative" investigations that we initiated and five arose from complaints. The evaluation stage is not a trivial one. It involves collecting information and data about the market. Nonetheless, this would be before we begin using our summons powers, taking statements and so forth, which would be the prelude to bringing a court case.

Deputy Rabbitte

I understand that. Is there any kind of strategic overview by the authority that recognises the manifest public concern about price rip-offs in X, Y and Z areas and aims to target a significant area? While the Kennel Club may have tremendous merit within its own parameters, a person asked about it in a vox pop on the high street would not be too concerned, although that might depend on what street the person was on. However, there are bigger issues, for example, the drinks trade. At this time of year, I visit the south-west and, therefore, I know a little of the Doyle case. Based on anecdotal evidence picked up in the pub, this seemed to me to be of some significance in the context of prices in the drinks industry. What happened in regard to that case? I thought it had advanced to the stage at which a file was with the Director of Public Prosecutions, yet it has disappeared off my radar screen.

Dr. Fingleton

The case occurred before I joined the authority. However, the DPP never took a decision to bring proceedings in that case. The authority still has proceedings in the High Court against those organisations.

In December 2003 the Licensed Vintners Association gave an undertaking in the High Court regarding allegations concerning the price fixing of alcoholic drinks. There was an investigation into the pub trade following newspaper reports of increases in drink prices in October 1997 in the wake of the lifting of a price freeze order by the then Minister of State at the Department of Enterprise and Employment with responsibility for consumer affairs. It was just after Deputy Rabbitte had left that post.

Following certain inquiries authorised officers conducted a search of the office of the Vintners Federation of Ireland in late November 1997. Subsequent searches of the office of the LVA and the Limerick city branch of the VFI were carried out in January and February 1998. As a result of the investigation the authority instituted separate civil proceedings against the VFI, LVA and a number of individual publicans alleging that they had engaged in agreements, decisions and-or concerted practices to increase drink prices by a set amount in the summer of 1996 and in October and November 1997 and to fix margins in respect of certain alcoholic beverages on an ongoing basis.

The following are the undertakings that were given to the court in the settlement of the authority's actions:

The association and its officers, servants or agents and each of them undertake to the court not to recommend to the association's members the prices, margins, increases in prices and increases in margins earned on the sale to the public of alcoholic beverages for consumption on licensed premises owned, managed or controlled by the association's members;

the association and its officers, servants or agents and each of them undertake to the court that they will not breach the provisions of section 4 of the Competition Act 2002 in relation to the sale of and the price at which alcoholic beverages is sold to the public for consumption on licensed premises owned, managed or controlled by the association's members; and

the association and its officers, servants and agents and each of them undertake to the court to inform the association and members of the settlement of these proceedings, and the undertakings provided for herein, and that the association may not recommend to its members the prices, margins, increases in prices and increases in margins earned by the sale to the public of alcoholic beverages for consumption on licensed premises owned, managed or controlled by the said members.

The effect of these undertakings was that the authority achieved most of what it could have achieved if the case had gone to a full and complete hearing without the costs and time associated with same. There are no fines available for this type of proceeding in Irish law and a full hearing of the court case would have been the result. The only additional thing we might have got was a declaration by the High Court that they had breached the Act. That would have been of interest historically.

Dr. Fingleton

Deputy Rabbitte used the terms "examine" and "divided". Investigations under section 4 and section 5 are carried out where a complainant reveals a possible breach of the Act. We must meet the standard for bringing a case set out in both Irish and EU law. Where we carry out a substantial investigation that does not meet that standard, very often nothing will appear about it in the public domain. We are required not to prejudice parties where no breach of the Act has been revealed. This still leaves a great deal of grey area between what I would describe as totally competitive behaviour and a breach of the Act. There may be a great deal of dissatisfaction because people may perceive a serious problem in a market, but our investigation may not reveal that something is going on. That is a general point that may explain how we operate.

There is one piece of private litigation in this area that the authority has been following. That allegation precedes the 1996 Act, therefore, we are precluded from doing anything on it. Second, we clearly signalled in our amicus curiae brief in the High Court recently that we are willing to intervene in private litigation where we believe we have a role and it would be appropriate to do so. Unfortunately, that previous case is not such a case. Third, the Deputy can rest assured that if our investigation in this sector revealed something, we would bring appropriate court proceedings.

On the other side of the Deputy's "examine" comment, the other way of looking at something like this is that if we think the market is not performing well but it is not in breach of section 4 or section 5, we can do a study. To be perfectly honest, we have a set of criteria set out in our website for doing studies. These relate to concerns in respect of regulation and problems in the market. Our problem is that there are many markets in this country that have met that standard. When we last examined it we chose banking, insurance and professions. We do not have the capacity to do another study. As I said, we will not have the capacity this year to start another study. It will be well into 2005 before we have this capacity. If the Deputy or anyone else thought the cement industry was a suitable subject for study, we would happily consider it, bearing in mind that we would not be looking at sections 4 and 5 of the Act, but at the overall structure of the market and how it operates.

Deputy Rabbitte

Short of the requirements of the legislation, if there are fairly sane people alleging that the structure of a particular sector is anti-competitive, and equally sane and better informed people on your side of the table tend to privately agree with them, is Dr. Fingleton saying there is a deficiency in the law that we should address? Given the experience over the past four years, is some tweaking, moderation or enhancement of the legislation required?

Dr. Fingleton

I said already that if there is an amendment to the Act, we should look at what used to be called "complex monopoly" or the market investigation provision in UK law, which deals more effectively than our law with this grey area between a breach of section 4 and section 5 and a market not performing well. That provision works well, and it has just been revised and upgraded in the Enterprise Act 2002, which went through the House of Commons in 2001, parallel with our own Act. I hope that answers the Deputy's question.

Deputy Rabbitte

How many cases have been referred to the DPP?

Dr. Fingleton

Three files have been referred to the DPP, two before the new Act came into force, one in late 1998 and one in late 1999. These are the two to which we have already referred — the Soft Drinks and Beer Bottles Association case and the Licensed Vintners VFI case. The only other case referred is the home heating oil case. That investigation was carried out under the old Act, but we felt the evidence was sufficient to send a file to the DPP. The DPP has decided to go with this.

No. I believe the Office of Fair Trading has enormous difficulty with that provision because it is extremely difficult to assess the benefits to consumers of a particular action. For example, when the Commission decided to refuse State aid to Aer Lingus, almost three years ago, Aer Lingus reduced its costs by approximately 30% in the following two-year period, which brought substantial benefits to consumers and the economy. Nobody envisaged then the wide-scale nature of those benefits in terms of, for example, changed management within Aer Lingus, on-line sales, the promotion of the Internet etc.

It is true the Commission imposed fines on cement companies and the cement representative body and that the Court of Justice upheld some of those fines, but not all, and adjusted the levels. The Irish authority participates in the European Commission's decisions in such cases. Where the Commission is investigating companies in Ireland, we take a particular interest and ensure we keep up to date with the file. Unfortunately, much as I would like to, I cannot say anything about our current investigations in this or any other sector.

Deputy Connaughton

I thank Dr. Fingleton. I knew this was a difficult area and having listened to him for the past hour and a half I understand how complex it is.

A remark was attributed to Dr. Fingleton in the Irish Independent of 31 January 1997. On that occasion he said he believed that price-fixing cartels were costing the Irish economy more than £1 billion. As he is aware, our economy has strengthened over the past years, however, to the ordinary punter there has never appeared to be more of a rip-off in prices than exists currently. Is the authority swimming against such a strong tide that irrespective of all it does — I am impressed by what it is trying to do — it will be drowned by that tide?

Dr. Fingleton

Dr. Fingleton

That suggests we need to do more within the authority and generally on the issue. In terms of business attitudes towards competition, trials before jury will have a big effect on how business people look at the Act. I know from talking to lawyers and some of my friends who work in companies, that many companies are having compliance programmes rolled out, not just in this area but in company law enforcement. Companies are looking at what their managers and other people are doing in terms of their contacts with other people. There is probably not enough of it. I wrote a paper on this subject recently where I stated it will not be until judges decide to convict people who are members of the same golf clubs of which they themselves are members, that we will really see white collar crime being tackled. This is one of the novel areas in which we are trying to deal with white collar crime. The US experience shows that this can be done but it requires substantial changes in attitudes. We are committed to bringing the best possible cases before the courts and to achieving that outcome. It will take a little bit of time yet before we see convictions but I hope we will see convictions as the Oireachtas intended. Compliance will then be taken much more seriously.

In support of what Deputy Noonan said in regard to the level of studies, could you lose sight of your customers, the consumers? A number of statutory regulators with enforcement powers have recently been appointed. A report this week revealed price variation in Dublin. Is that not sufficient evidence that the Competition Authority is not working effectively?

Dr. Fingleton

In response to Deputy Noonan, I very much take on board what Deputies say to me here and outside the committee. They are more in contact with their constituents than I could ever be. We take these issues very seriously but there is a limit to how much we can do.

I have outlined the home heating oil case in some detail. We have seven people doing forensic investigations. It is not easy to bring a criminal case when we are talking about 40,000 pages of books of evidence. I would love to have the budget of €36 million that the Dutch competition authority has or the €60 million or €70 which the Office of Fair Trading has in the UK but we have a €3.5 million budget. The amount we can achieve is very much determined by our funding. Relative to the needs of the economy there is a very serious problem.

This week's CSO survey showing price divergence demonstrates yet again evidence of consumers getting a raw deal. Competition policy is a complement to consumer policy and it may be that we need stronger consumer policy to represent individual consumers. It is not enough to tell people to shop around. People do not have time. The rise of convenience retailing is an example of the fact that people are time poor. People do not know they can shop around, for example, regarding conveyancing fees when they are buying houses. That is the job of a consumer agency. If we want to prioritise ourselves we should not become, or be tempted to become, a consumer agency.

Regarding recent price rises, people have said we should do an investigation into price fixing but the one thing that comes out of that study is the enormous variation in prices, whereas if there were price fixing we would be more likely to see enormous constancy in prices. The one thing it did not obviously suggest was simple price fixing. I suggest much more complex structural problems underlie that.

The frustration that you are representing is one I share. It is very much about the volume of our work. One of the difficult jobs I have to do is keep the quality of our work high rather than try and spread it too thinly. It would be a disaster to bring cases to court that would not succeed because then we would really be an ineffective agency. Bringing a small number of high quality cases is the best we can do with the resources we currently have.

Deputy Curran

I found what Dr. Fingleton said very interesting. I share the frustration of my colleague, Deputy Noonan. I am particularly conscious of the fact that you said quite clearly that you are not at liberty to say what items you currently have under investigation. You could well be investigating issues that are of concern to us. That is a matter of concern from the perspective of the perception and image of the Competition Authority. While you were able to say you were addressing the banking industry by way of a study and report, that is different to an actual investigation. That is a little bit frustrating because we do not really know if you are addressing the issues that concern us.

We are also concerned at the fact that we do not know on what basis you are prioritising. You said a lot of things were referred to you and so on. At the outset I asked about the organisation's staff structure. You mentioned that you are the chairman and the members were ministerial appointments and so forth. I would have thought it prudent of the members at least at the start of the year to reflect on what the major issues were and that these would receive priority. We have heard of the global effect of the lack of competitiveness on the economy. I thought it would have been incumbent on the members to examine some of those key issues and put in place a work programme to deal with them. While we see the reports of the authority we do not see the investigations.

I am also concerned by the problems in the banking sector, that have been an issue for a long time. I know it is not Dr. Fingleton's personal problem. When the Royal Bank of Scotland entered the market the problem was highlighted and it has taken two years for an investigation to take place. From an enforcement perspective, I am very concerned at how long it will take before we see changes in the marketplace

Before Dr. Fingleton made his opening statement Mr. Daly of the Revenue Commissioners addressed us. During the course of his contribution, he alluded to the fact that he had reservations about various aspects of the Finance Act. He said his office is examining them to see if it is necessary to make changes and that, if so, he will make recommendations to the Minister.

Dr. Fingleton openly suggested that the Act was inadequate in different ways or that it was curtailing or limiting the Competition Authority in performing its functions, particularly those concerning enforcement. Has he, as chairman, or his organisation made recommendations to the Minister or the Department seeking that specific changes be made to the Act? On this side of the table — I am not speaking for any of my other colleagues — I do not know what changes need to be made. The authority implements the Act regularly and if the changes to be made are as significant as Dr. Fingleton has implied, the problem should be addressed now rather than considering it in a year and saying the Act is restrictive. Will the Competition Authority keep the committee informed on the banking report as it progresses?

Dr. Fingleton

I will answer the last question on the Act first. The 2002 Act, which the Tánaiste brought through the Dáil, was very substantial. It was excellent, dealt with many problems and transferred the merger function. By the standards of 2001-02, it was very courageous and showed a great commitment to competition policy.

I do not want to be interpreted today, as saying there are flaws in the Act. What I have said is that there are measures in other jurisdictions that we would still do well to look at. I spoke in particular about matters that were not really examined by the competition and merger review group, which did excellent work. It did its work within an environment in which there was very little acceptance of the need for competition policy. Incremental change is the way to do this. I have drawn attention to three features in other jurisdictions: the ability to impose civil fines in the system; the correct allocation of responsibility in terms of decision making between the courts and the authority; and the complex monopoly-type revisions in the UK. I encourage all concerned to examine these in any future analysis. I will address them. The Department and the Minister have been extremely co-operative in working with us to determine how the Act can be improved. It is early days in terms of a new Act although, in some sense, these issues precede July 2002.

The frustration felt by the Deputy over our not being able to comment on active investigations is nothing compared to the frustration that I and everybody in the office sometimes feel. One could work on something for a year and not be able to say anything to anybody outside about it. It could be the sexiest, hottest issue in the newspapers every day but one could not say one is doing anything about it.

Parties under investigation, be it a civil or criminal investigation, have rights. We would never want to prejudice a criminal investigation. It would be all too easy to make accusations but we have a statutory position and must be very careful about what we say publicly. Companies and individuals who work in them have rights and when they are incorrectly accused or accused during an investigation before something has been shown to have happened, it has very seriously damaging effects on them and their stock market price, etc., especially where very large corporations are concerned. We have a very high duty, which is unfortunate, but that is how our law works.

I did not go into the detail of how the office is structured internally but I gave the resource figures. On the question of priorities, we are very much driven by evidence. If we find evidence of a breach we will pursue it. That is an important thing for an enforcement agency to do. Obviously, we like it when that evidence is found in a market that is large or more important to the economy than others. Evidence is central to what we do because we have to get our cases through the courts. In the early days, we need to take the best possible cases and take the cream off the top.

We have a three year strategy statement, which is brought out within the six months as required under the new Act. We have an external board, which we appoint voluntarily. There is nothing in the Act requiring us to do so, but good governance requires it. It is an external board consisting of Ronald Long, assistant secretary in the Department; Francis Ruane, professor of economics in Trinity College; Gerald Hogan, SC; Gerald FitzGerald, partner in McCann FitzGerald; and John Travers, former chief executive of Forfás. They meet us periodically. At the beginning of each year, we review our strategy statement and create a work programme for the year. If the committee wants to see the work programme, we will be very happy to provide it.

We take our strategy formulation and corporate governance responsibilities far more seriously even than is required under the Act. Even during the past three months, with the upsurge in merger notifications, I have had to reallocate resources within the agency on several occasions. There is constant resource reallocation to make sure we are dealing with issues of priority. Mergers always get the first call because the statute requires tight time limits and reasoned decisions. We then engage in enforcement and advocacy, in that order.

Chairman

Is the Department of Enterprise, Trade and Employment happy with the resources available to the Competition Authority, in light of the statement that €3.5 million would be insignificant and the fact that competitiveness is one of the most pressing economic issues at present?

Mr. Ronald Long

That is a challenging question. We are very happy with resources. In the Department we are very proud of our Competition Authority, we are very loyal to it and we are sure that with more funding, it could do more. However, funding is a perennial and all-pervasive problem. We will always seek to get as much as we can for the authority. We feel that the committee's judgment of the authority should acknowledge that 2003 was the first year in which the new authority, with its new powers and twice the level of staff, was up to almost full staffing strength.

If I had been chairman or a member of the authority, I would have been choosing cases with which to proceed on the basis that this is a very big change in the climate in Ireland. I would choose cases I could win, which would set a headline and even adjust the court system to the need to operate a system that is really quite new for Ireland.

The authority is doing a very good job. We are happy to look for extra funding for it and we would be happy to discuss the sort of changes to powers, mentioned by the chairman, to see how we could co-operate and advance this sector of law and its application.

Chairman

I thank Mr. Long for his response. The monetary benefits of the authority's work are considerable. In light of the scale of the work that must be done and the necessity to have a very effective competition authority, it would make poor economic sense if it were inhibited in any way through insufficient funding or if it were inappropriately quantified on its work schedule going forward. I thank Dr. Fingleton, the officials from the Department of Finance and everyone else for being here today. Is it agreed to note 2002-2003 accounts? Agreed.

The committee went into private session at2.40 p.m. and adjourned at 2.45 p.m. sine die.