I thank the Chairman and confirm that we are happy to assist the committee in any way we can.
As I mentioned in my recent letter to the joint committee, the proposal is not strictly new. It is about updating and modernising the regulation of mergers at EU level. The original EU merger regulation was adopted in 1989 after about 13 years of negotiations and came into force in 1990. That regulation, which is currently in operation provides for a regulatory system for controlling mergers and take-overs which involve large companies and impact across the EU. Most member states have their own national merger laws with the exception of Luxembourg.
The main benefit of having merger control at EU level for business is the one-stopshop principle. In other words, if we did not have merger controls at EU level, parties to large cross-border mergers would have to look for regulatory clearance under each of the various national merger control regimes across the EU. Under the regulation, large cross-border transactions are scrutinised by just one competition authority, namely, the European Commission. The regulation also provides a level playing field, whereby all mergers covered by the regulation are subject to the same notification requirements, procedures and legal standards.
The benefit for consumers is that merger control ensures that markets remain competitive in order that consumers are not harmed. In December 2001, the European Commission adopted a Green Paper and sought views from interested parties for reforming the merger control regulatory system which was in place at the time. During 2002, the Commission engaged in a consultation process before submitting the current proposal to the Council in December 2002. A Council working group deliberated on the proposal during 2003 and significant agreement has been reached on the new text. However, the proposal requires agreement by unanimity and consensus has not yet been reached in regard to Article 2, which relates to appraisal of concentrations, that is, how mergers are examined by the Commission. It is probably the most important article in the regulation.
At present 14 states and the Commission have agreed to a compromise text in regard to Article 2, but Germany has not. The matter is on the agenda for the Council of Ministers meeting in Brussels in the morning. The point of contention relates to the substantive test used by the Commission in examining the competitive impact of a notified merger, or a concentration as it is referred to in Brussels. Under the current dominance test, a merger is prohibited by the Commission if it creates or strengthens a dominant position. Germany favours retaining that test. The substantial lessening of competition test - known as the SLC test - was introduced into Irish merger law in 2002 via the Competition Act and came into effect on 1 January this year. It is also used in the UK, USA and Australia as well as some other member states.
While we would have liked a complete change from the dominance test to the SLC test in the regulation, we agreed, together with 13 other member states and the Commission to the compromise solution which is a dual test combining the dominance test and the SLC test. However, Germany uses a dominance test at national level and considers that it should be retained in the regulation.
The proposal introduces various improvements to the regulatory process aimed at reforming and improving EU merger control. The plan is that the proposed regulation would revise and replace the existing merger regulation which has performed well over the years. The regulation only applies to large scale mergers which have a Community dimension as defined by the regulation. A merger has a Community dimension where the parties exceed significant financial thresholds and carry out business in more than one member state.
Few Irish companies have been involved in mergers which have a Community dimension. Transactions involving large companies like CRH, Bank of Ireland, Glanbia and so on would probably be subject to the regulation if they merged with another significant international company. The acquisition of First Active by the Royal Bank of Scotland is currently being examined by the Commission under the regulation. Where the turnover of the parties to a merger exceeds €40 million per annum, it is subject to review by the Competition Authority under the Competition Act 2002. Mergers involving smaller companies with a turnover of less than €40 million annually generally do not require any regulatory clearance. There is no administrative burden on mergers between small businesses.
I explained earlier that the financial thresholds for triggering the regulation are high, therefore, inevitably there are some large scale cross-border mergers which do not meet these thresholds and therefore fall outside the jurisdiction of the regulation. In those cases, parties are required to make multiple filings in many member states. On the other hand, some mergers are caught by the thresholds simply because of their size but might be more appropriately handled by a national competition authority if their competitive impact is centred in one member state.
In order to ensure that the best placed authority deals with these cases, the proposal simplifies the system for referral of merger cases from the Commission to national competition authorities for investigation and vice versa. Under the proposal, the parties have a right of initiative to seek a referral in either direction. The main advantage of this is that the transaction would be notified to the correct authority from the start, reducing legal uncertainty and costs for merging parties.
Another provision in the proposal introduces an option for parties to notify their merger to the Commission earlier in the merging process than at present. The requirement to notify at present arises within a week after the conclusion of a binding agreement to merge. The flexibility proposed is designed to remove unnecessary regulatory rigidities. The regulation also introduces a degree of flexibility into the time frame for carrying out merger investigations, in particular for complex cases. Where a notified merger is the subject of an in-depth inquiry, more time will be added to the timetable if the parties offer remedies to allay the competition concerns. This will allow for full consideration of the remedies, including consultation with the member states.
The regulation also enhances the Commission's fact finding powers, enabling it to obtain information more easily, and provides for the possibility of imposing higher fines for failure to comply with requests to supply such information. The fine for supplying incorrect or misleading information to the Commission will be increased to 1% of turnover from the current maximum of €50,000.
