The purpose of this Bill is to provide a modern legislative framework for the promotion of competition in Ireland. It will replace our existing enactment relating to competition and mergers and put in place a new framework retaining what is best of the existing arrangements and introducing new features based on the best independent advice available to the Government.
In September 1996 my predecessor, Deputy Richard Bruton, established a competition and mergers review group under the chairmanship of Michael Collins, SC. Wide-ranging terms of reference were given to the review group, which in effect asked them to examine the whole field of competition policy and law in Ireland, including merger law, competition arrangements in the newspaper and grocery sectors as well relevant EU and international developments. The membership of the review group was drawn mainly from relevant interest groups such as IBEC, ISME, ICTU, the Consumers' Association and the legal profession.
During the course of its work the review group published four major discussion documents, commissioned a number of studies and other research and engaged in wide-ranging public consultations. Its final report was received by me in March 2000 and published in May of that year. I believe it is no exaggeration to say that the review carried out is one of the most thoroughgoing and extensive ever carried out into competition in this country or possibly anywhere. I would therefore like to place on the record the Government's appreciation of the work done by all the members of the review group and especially by their chairman, Mr. Michael Collins.
The analysis and recommendations contained in the final report form the main background to the proposals for change which are contained in the Bill. In addition, two other influences have helped to shape the reforms being proposed. These are developments in the competition law of the European Union and the views and experience of the Competition Authority which since 1991 has been the main executive agency for the implementation of Irish competition law.
This is a time of change for the competition law of the European Union. Articles 81 and 82, formerly 85 and 86, of the EU Treaty set out the basic competition rules applying to undertakings. The practical application and enforcement by the Commission of these rules are mainly provided for in Regulation 17 of 1962. In September 2000, the Commission proposed a draft Council regulation to replace Regulation 17. This proposal, which is currently under consideration in the Council working group, involves a complete recasting of the existing arrangements for the implementation of Union competition law.
Two proposed EU changes are of particular relevance to the Bill. First, it is proposed to abolish the EU notification system and to make the whole of Article 81 directly applicable. Second, the Commission is proposing that the competent authorities in member states, in our case the courts and the Competition Authority, shall be empowered to apply Articles 81 and 82 using national procedures and remedies. While the draft regulation is still under discussion in Brussels, these two changes are very likely to be included in the final version and appropriate account has been taken of them in the Bill.
Before outlining the Bill, I would like to indicate why I believe it is important for us to keep our competition legislation up to date. It could be suggested that some of the legislation being replaced is of relatively recent origin, particularly the Competition Acts, 1991 and 1996, and that is true. However, the importance of legislation in this area derives from the importance of competition itself. It is proverbially true that "competition is the life of trade", but that proverb is especially applicable to an economy as dependent on external markets as ours, an economy which must achieve and maintain the highest standards of competitiveness in its goods and services. Sound competition law arrangements contribute to competitiveness, domestic and international, by penalising anti-competitive and anti-consumer behaviour, protecting the competitive process in all sectors of the economy and facilitating orderly restructuring of enterprises. Without such arrangements, national competitiveness would be continuously at risk from the pervasive effects of cartel behaviour, abuses of market power and excessive market concentration. All factors contributing to our competitiveness, therefore, should be kept under regular review and any action that is identified as being necessary or desirable should be taken whenever required.
I now propose to outline the principal contents of the Bill drawing attention to the main policy innovations which it contains. The Bill will repeal and replace the three main statutes which deal with merger control and competition generally in the State, that is, the Mergers, Takeovers and Monopolies (Control) Act, 1978, the Competition Act, 1991, and the Competition (Amendment) Act, 1996. This will, for the first time, bring under one statute our legislative provisions relating to competition and mergers. That, in itself, is a use ful innovation which will make access to the legislation easier for competition law practitioners and the public alike.
The structure of the Bill follows generally from the earlier Acts. Parts 2 and 4 substitute for the Competition Acts, 1991 and 1996, but with a clearer treatment of the provisions relating to the Competition Authority. Part 3 – Mergers and Acquisitions – stands in place of the 1978 Mergers Act and Part 5 – Miscellaneous – includes a provision relating to the maintenance of the Groceries Order 1987. Part 2 of the Bill – Competition Rules and Enforcement – makes provision for the rules and procedures which will govern the prohibition of activities which prevent, restrict or distort competition in trade in the State or which constitute an abuse of a dominant position in such trade. It was the Competition Act, 1991, which first introduced into our national competition legislation the concepts of the general prohibition of anti-competitive agreements, decisions and concerted practices and the prohibition of abuse of dominant position. The Act of 1991 relied for enforcement of these rules mainly on private civil actions and on a system of voluntary notification of agreements to the Competition Authority.
By 1996, it was considered that these methods of enforcement were not achieving the desired results and the Competition (Amendment) Act of that year introduced two important enforcement changes, first, infringements of the competition rules were made criminal offences, in addition to being civil wrongs and, second, the Competition Authority was empowered to initiate or recommend civil or criminal proceedings in appropriate cases.
In general terms, it can be said that the present system of competition rules and enforcement is working well. The concepts of prohibited anti-competitive agreement and prohibited abuse of dominant position, which were derived from EU competition law in 1991, are now widely understood and accepted in this jurisdiction. That has helped to bring closer alignment between our competition law and EU competition law.
The availability of private civil remedies for breaches of the competition rules, while it may not have had the widespread impact envisaged in 1991, has nevertheless produced a useful if small body of Irish jurisprudence in competition law. The notification system introduced in 1991 led to the establishment of a substantial body of Competition Authority decisions which has produced much certainty and guidance for business enterprises. With regard to enforcement changes made in 1996, it may be too soon to reach a definitive verdict on them but the initial results are reasonably encouraging. I have no doubt that introducing criminal sanctions for breaches of competition law has greatly increased the deterrent value of the whole competition regime and has probably changed business culture and atti tudes in Ireland in regard to anti-competitive behaviour.
Part 2 of the Bill will retain the main features of the present system but will abolish the notification system. The number of notifications has declined considerably in recent years, suggesting that the level of understanding of the substantive rules regarding anti-competitive agreements, decisions and concerted practices among the business community and their advisers is now quite high. A second reason for abolishing the notification system is, as I indicated earlier, that there is every likelihood the comparable EU system of notification will be abolished when the EU draft council regulation for the modernisation of EU competition law is adopted. The current system of notification will be replaced by the direct application of the relevant statutory provisions. The Bill retains in section 4(3) a power for the competition authority to issue category declarations which will be broadly similar to the category licences under the 1991 Act. The most important policy change proposed in Part 2 is the rebalancing of the imprisonment penalties in section 8 to reflect the gravity of different types of anti-competitive behaviour.
The current statutory provisions relating to penalties for offences under competition law are set out in section 3 of the 1996 Act. These provide for penalties of fines up to a maximum of £3 million, or 10% of annual turnover, and imprisonment of up to a maximum of two years. The new maximum fine provided for in section 8 will be €3.8 million, slightly less than the level in 1996. No change is proposed in the penalty relating to turnover. While the CMRG did not recommend any changes in the level of penalties provided for in the 1996 Act, I requested my Department, in consultation with the Competition Authority, to review the effectiveness of existing penalties. The advice to me was that the maximum imprisonment penalty of two years for any infringement of competition rules was an inadequate penalty and an insufficient deterrent for the hard core competition offences of price-fixing, market sharing or bid rigging, while at the same time it could be considered excessive and over the top for the lesser infringements such as agreements to limit technical development.
The Bill, therefore, introduces a distinction between the two categories of infringement in sections 6 and 8, increasing the imprisonment penalty from two to five years in the case of the more serious category and abolishing it for the less serious category. I think this is a reasonable approach to take. The new five year maximum penalty, which also makes the offence an arrestable one, sends the clearest possible signal that blatantly anti-consumer activities such as price fixing will not be tolerated.
Part 2 also makes a number of important technical changes in relation to criminal procedure for competition offences. These relate to presumptions – section 6(2), section 8(7) and section 11; defences – sections 6 and 7; fines – section 8; provision of information to juries – section 10; and evidence – section 12. These changes, in conjunction with the new approach to penalties, are primarily designed to facilitate the prosecution of serious competition offences while taking due account of the rights of accused persons.
Two major policy innovations are provided for in Part 3. First, it is proposed to transfer from the Minister to the Competition Authority responsibility for examining and deciding upon mergers generally, based on competition criteria only and, second, it is proposed in the case of mergers in the newspaper-media sector to retain for the Minister and ultimately for the Legislature, a right to intervene where the protection of certain stated public interests require such intervention. I will elaborate on these two important proposals in turn.
Under existing legislation the Minister is responsible for merger control. While the Minister can refer a merger control proposal to the Competition Authority for investigation and report, it is the Minister who makes the final decision on all mergers notified. The Competition and Mergers Review Group considered at length the question of who should control mergers. While the group was divided on the issue, a majority recommended that merger proposals should, in the first instance, be notified to the Competition Authority, with the final decision resting with the Minister on stated public policy grounds. I was concerned, however, that a "two-tiered" approach would create a more cumbersome regulatory system than the existing one. At present more than 95% of merger notifications are cleared following an initial assessment and without referral to the authority.
In considering the review group's recommendation I also questioned whether a reformed mergers regime should rely on non-competition criteria in the assessment procedure. Most competition experts maintain that mergers should be assessed by reference to competition criteria only and while I believe there is a theoretical justification for the use of non-competition criteria, decisions have very rarely been influenced by such considerations. In light of that fact and so as to provide as simple and as speedy a regulatory procedure as possible, I have formed the view that merger notifications should be determined by reference to competition criteria alone. Indeed, even the European Commission assesses mergers on the basis of competition only. There are no public policy or common good evaluation criteria applicable under the EU merger regulation. Furthermore, I believe that the Competition Authority, being the specialist body, is the appropriate forum for undertaking the required competition examination and analysis. Its personnel are well placed to assess mergers expertly, impartially and free from party or lobby affiliations.
In light of these facts I propose to depoliticise the merger control system and transfer the function to the independent authority so that in the future mergers will be examined and decided upon using competition criteria only. The transfer of responsibility for mergers to the authority can be seen as completing the process begun in 1991 when responsibility for the implementation of competition rules was allocated to the authority and not to the Minister who previously, under the restrictive practices Acts, had exercised the main executive responsibilities for competition matters.
The second proposed policy change, which is related to the first, concerns the treatment of mergers and acquisitions in the newspaper-media sector. As this proposal concerns matters which have frequently been a source of controversy, I propose to go into it in some detail. The special dangers that arise from excessive concentration of media power and ownership are recognised in the competition law arrangements of many democratic countries. In Ireland, this recognition finds expression in our mergers code, mainly in the Mergers, Takeovers and Monopolies (Newspapers) Order, 1979. Under that order, which was made by the then Minister for Industry, Commerce and Energy, Deputy O'Malley, every merger involving a newspaper must be notified to the Minister irrespective of the financial thresholds. The current Bill includes a provision, section 17(4), which will permit the making of an order to succeed the 1979 order. It is my intention that the new order, which must be laid before the Houses of the Oireachtas, will apply to the broader class of media businesses along the general lines of the definition of "media business" in section 22(9).
In September 1995, my immediate predecessor established the Commission on the Newspaper Industry. This was against the background of various difficulties in the newspaper industry, including the events which led to the cessation of the Irish Press titles. The commission, under the chairmanship of the former Chief Justice, Mr. Justice Thomas Finlay, reported in June 1996 and made 16 recommendations, three of which were relevant to merger control over newspapers. As the CMRG, which was established later that year, was specifically looking into the mergers legislation in the context of a legislative consolidation, it was appropriate for it to consider how best to implement those recommendations.
The essence of the recommendations of the Commission on the Newspaper Industry, as adapted by the CMRG, were, first, that certain public interest criteria, including the competitiveness of the indigenous newspaper industry, plurality of ownership and titles, maintenance of cultural diversity and cross-media interests should be taken into consideration in the case of newspaper-media mergers and, second, that the scope of merger law should be extended to include the acquisition of control over newspapers-media by means other than the acquisition of shares or assets.
The reasoning behind the first recommendation was described in Chapter 1 of the report which referred to "the special position of the media, including newspapers, as purveyors of information and opinion to the public and as organs of public opinion". The commission also suggested that regulatory regimes applicable to the media "should be consistently concerned as a fundamental matter with the diversity of viewpoint and culture and the representation of a wide variety of interests." The recommendation was made in the assumed context that the Minister would continue to be the merger authority, as under the 1978 Act, or would have a general power to overrule authority decisions on public interest grounds.
Neither the commission nor the CMRG recommended or envisaged that the proposed special criteria relating to newspapers or media should be the responsibility of the Competition Authority. The purpose of the second recommendation relating to control over newspapers and media was to ensure that the acquisition or control over newspapers by means such as the provision of financial assistance or by any other means would be covered by merger law. The Government has accepted both of these recommendations and they are provided for in the Bill in sections 15 and 22. Section 24 provides that any order made by the Minister in relation to a media merger may be annulled by either House of the Oireachtas. In this way, the final say on media mergers will rest not with the Minister but with the Legislature. The authority will exercise its normal competition scrutiny over media mergers and it is not to be expected that this will be overruled frequently.
Before leaving Part 3 of the Bill, it should be noted that, following the advice of the CMRG, section 17(1) of the Bill alters the type and level of financial thresholds that are used to determine whether a merger is to be notified. It is proposed to abolish the threshold relating to assets and to have a notification threshold based solely on turnover. It is also proposed to increase the amount of the current turnover threshold from £20 million, or €25 million, to €40 million. This is a little more than the €38 million recommended by the CMRG. The current threshold has not been increased since 1993.
Part 3 also contains a considerable number of technical changes and it may be appropriate to consider and debate those on Committee Stage. In general terms, the effect of those technical changes is to bring our merger control regime closer to that of the EU merger regulation following the recommendations of the CMRG report.
Part 4 of the Bill ensures the continuation of the Competition Authority and makes a new provision with regard to its functions. The authority is now ten years old and it is possible to form a view of its performance during that period. The authority has established itself as a competent professional executive agency executing its statutory functions to a high standard. It has gained widespread respect both in Ireland and internationally. It has had its share of difficulties in the past, particularly concerning the turnover of personnel, but these have largely been resolved. This year it will achieve a staff complement of 44, which is almost double that of five years ago. The authority is well positioned to take on the new functions proposed in the Bill.
I have decided to retain the current collective nature of the authority as a body comprising a number of persons but to enhance the role of the chairperson broadly in line with the CMRG report. The collective nature of the authority is emphasised, in particular, by section 28(4), which requires the authority not to delegate certain key functions in the Act. These functions include the power to initiate proceedings for an offence under sections 6 and 7 or to make a determination in merger cases following a full investigation.
The Bill includes provision in section 28(1) for a new advocacy function for the authority. I place particular importance on this as an instrument for bringing about change in business culture. We need the carrot as well as the stick. Some business attitudes towards the notion of competing, or rather of not competing, are rooted deep in business tradition and culture. Many of the problems have to do with the interface between business and Government itself. An example of this is the era of price control, which may have contributed to a sense of not rocking boats within particular business or trade communities. The authority is already playing a very valuable advocacy and educational role and the Bill recognises and provides for this.
Part 4 also includes a number of changes which will strengthen the independence of the authority. Section 27(3) makes express provision, for the first time, for the independence of the authority. Increased autonomy in financial and staffing matters is provided for in sections 36, 37, 39 and 41.
Section 32, pertaining to co-operation between the authority and certain statutory bodies, provides a statutory framework for practical co-operation between the authority and the sectoral regulators listed in Schedule 1. These are the Broadcasting Commission of Ireland, the Commission for Electricity Regulation, the Commission for Aviation Regulation and the Director of Telecommunications Regulation. This provision, which is wholly new and is based on the advice of the CMRG, will underpin and enhance existing levels of co-operation between the relevant bodies.
Part 5 of the Bill provides for miscellaneous matters such as repeals, expenses and saving and transitional provisions. Section 46 warrants specific comment. It empowers the Minister to amend or revoke the 1987 groceries order. I understand that the inclusion of this provision in the draft scheme of the Bill, which was published last July, caused some concerns about the future of the groceries order. I can, however, assure the House that reports of the imminent demise of the order are exaggerated. I have no proposals to amend or revoke the order. The purpose of section 46 is simply to ensure that the order is not placed in a legal limbo in which it could never be amended or revoked. I doubt if even the most ardent admirers of the groceries order would want that.
I hope that the outline of the Bill which I have just given, together with the detailed explanatory memorandum which accompanied the Bill on presentation, provides a good guide to the content of the Bill and to the key changes that are proposed. Much of the Bill is technical in nature and unlikely, I think, to prove contentious. I look forward to the detailed examination of those provisions on Committee Stage. As regards policy innovation, it comes down to a small number of key judgment calls: do we want to toughen up on hard core competition offences? Do we want to take merger control out of the political arena? Do we wish to retain a right to intervene on media concentrations that might pose risks to the operation of the democratic system itself? Do we want to build and develop a strong independent agency to enforce our competition law?
The area of competition policy and law has never been noted for uniformity or unanimity of opinion. That is hardly surprising as the same can be said of the two main intellectual disciplines which underpin it, law and economics. It is appropriate that competition policy is an area where ideas and proposals compete vigorously with each other. Ultimately, however, when all the reviewing, reporting and advising is done, the buck stops here. It is the Government's responsibility to decide what competition legislation to promote and propose to the Houses of the Oireachtas and it is for the Oireachtas to decide what legislation will be enacted. I commend the Bill to the House.