What are the changes contemplated under the ECMR Essay Example

the dominance test should be preserved. This decision was made to provide more legal certainty, given the well-established body of case law around it. Additionally, some experts believed that using the SLC test would allow for a flexible interpretation, potentially leading to Commission interference in a wide range of situations and reducing legal certainty. In contrast, the dominance test would serve as an effective check on the Commission's interventionist tendencies.

Last year, the CFI overruled the Commission's merger decisions in three main cases (Airtours, Schneider, and Tetra Laval). This has led to sympathy for the view that reforms are necessary. The EC's merger reform package includes a notice about assessing horizontal mergers, which aims to address the Airtours gap by expanding the "dominance" test. This notice emphasizes that the previous two-structured approach to horizontal mergers is no longer applicable.

The categorization of mergers based on their potential anticompetitive effects has led to a tripartite classification. This classifies mergers as creating a position of power, resulting in a collusive or coordinating oligopoly, or resulting in a non-collusive oligopoly. The UK's SLC test aligns with the US position as stated in the OFT's guidance note. Despite nomenclature differences, both tests are likely to yield similar results in practice. The EC's expansion of the meaning of "dominance" brings it closer to the American substantial lessening of competition test. This convergence of results has been used to argue against adopting the US test, as "if it ain't broke, don't fix it", according to Commissioner Mario Monti.

It appears that the statement regarding the Airtours decision may not always hold true in certain critical cases, which have been referred

to as "static oligopoly" cases by Mark Williams. The adoption of the SLC test signifies a significant shift for the UK, which previously relied on a loose "public interest" test. However, John Vickers argues that this criteria had been broadly interpreted to include only competition considerations that align with the SLC test. Thus, despite adopting this new test, the substantive policy remains largely unchanged. One key difference in the regimes' treatment of mergers is their approach to an "Efficiency Defence." The EC merger proposals indicate that there will not be a separate efficiency defence, as efficiency will be considered within the framework of whether a merger would create or strengthen a dominant market position that would significantly impede competition. This approach stems from the fact that ECMR was created to address competition problems, rather than broader social or industrial concerns.

According to Mr Phillip Lowe, who heads DG Comp, the best way to tackle these concerns is through precise and focused laws. The EB has attempted, like the ECMR, to tackle efficiency concerns as part of overall merger analysis. However, there is a difference in that an additional efficiency defence can be used even if competition would substantially decrease due to the merger, which argues that the merger still creates benefits.

John Vickers has noted that the use of efficiency defenses in mergers would be rarely allowed. The burden of proof is high, with the party arguing needing to demonstrate that the efficiencies would increase competition or provide customer benefits that are specific to the merger, likely, and demonstrable. John Vickers describes this as requiring "very compelling evidence". If customer benefits can be shown, the OFT does

not need to refer the case to the Competition Commission (CC). This difference in approach between the EC and the UK may result from the earlier "public interest" test for merger control in the UK, which allowed for "efficiency considerations" under its broad umbrella definition of "public interest".

The EU and UK regimes has accepted the failing firm defence, such as France vs Commission and Air Canada/Canadian Airlines. However, the proposed EU reforms and EB have attempted to establish specific boundaries for this defence. The EB criterion is more stringent, requiring proof that the failing firm is in a "parlous" financial position, rather than just a likelihood of bankruptcy. Procedurally, the main distinction lies in the "jurisdiction" assessment. This is significant because the ECMR deals with mergers with a community dimension, while the UK regime is limited to mergers with a UK dimension. Previously, the UK relied on a worldwide aggregate test.

Previously, a relevant merger situation would occur if the combined worldwide assets of the merged undertakings surpassed 70 million pounds. However, under the Enterprise Bill, this asset-based test is now limited to assets within the UK. The "share of supply test" under the old system remains applicable, which means that if the merged entity is responsible for supplying 25% of relevant goods or services in the UK or a significant portion thereof, it is considered a relevant merger situation.

The objective of the Enterprise Bill is to ensure that a merger falls under the relevant UK regime only if it has a strong association with the country. The draft guidance notes clarify that having 25% of goods/services within the UK may not be sufficient to consider

a merger as creating a relevant merger situation if the entities are not actively providing such goods/services but instead use agents. In such cases, their association with the UK may not be strong enough to fall within the net. On the other hand, the EC's "community dimension" test is precise and ensures that a transaction with a worldwide turnover of 5 billion also has a significant EC dimension with at least two EU undertakings having a turnover of 250 million euros. Additionally, while the UK uses a more liberal "material influence" test to determine if one undertaking controls another, the ECMR uses the stricter "decisive influence" test, making it more likely for the UK to capture a broader range of transactions.

The P;O/European Ferries case demonstrates how a 16.1% shareholding of voting rights by P;O gave them significant influence over European Ferries' policies, according to the competition commission. This distinction is emphasized in the reforms implemented at the EU and UK levels. The "allocation" factor is crucial when it comes to jurisdiction and warrants further discussion in this context.

The allocation of cases between the EC and National Competition Authorities (NCA's) is impacted by the reforms of the ECMR. The main concern when devising an allocation mechanism is to ensure that the ECMR, which acts as a "one-stop shop" mechanism for merger clearances, embodies its founding philosophy of dealing with any merger that has a community dimension at the EC level instead of being subjected to varying decisions of national authorities. Although exclusive jurisdiction was provided for mergers with a community dimension under the ECMR, it still allowed member states to assess mergers linked to the country

concerned ("distinct national market") or those in which the member state had a 'legitimate interest' or security concern, such as with the "German clause." The OFT was recently granted a request for reviewing part of a deal that impacted on UK's diary market.

The ECMR provided for member states to refer non-community dimension matters to the EC if the issue crossed multiple member states. The reform aimed to simplify the "allocation" process, but the proposed 3+ rule in the Green paper was omitted in the final package. Instead, if more than 3 states refer a matter, then the EC has exclusive jurisdiction. This change was made to avoid forum shopping and prevent an excessive burden on the EC. However, it is important to balance this with the "one stop shop" principle of EC exclusivity and not allow deference to national interests (the German clause) to erode it. The CFI further highlighted this concern in the SEB/Moulinex case, where they rejected the EC's decision to involve France under Article 9 due to it involving a distinct French market.

In terms of merger regulations, the UK adopts a two-tiered approach. The first tier involves the OFT conducting a preliminary investigation to assess if there is potential for anticompetitive effects to arise from the merger. If such effects are likely, the matter is referred to the competition commission (CC) for a full investigation. The CC then proposes remedies based on its findings. The earlier UK regulations required the involvement of the Secretary of State (SOS) at both the referral and the remedy stages.

The CC used to suggest solutions for the SOS to follow, but the Enterprise Bill has stopped this

unless there are certain "public interest" factors, like national security. However, there can still be issues as the CC and OFT's merger guidelines may clash. The OFT has tried to resolve any remaining differences by acknowledging that the organizations have different focuses. In contrast, the ECMR grants complete control of the merger review process to the Commission, who acts as both investigator and judge.

As part of the reforms, efforts are being made to limit the excessive power of the case team investigating mergers by introducing checks and balances. To achieve this, a peer review panel is being proposed to periodically examine the conclusions of the case team and approach it with a fresh perspective. The proposed reforms also suggest reorganizing the European Commission's merger review teams by dismantling the merger task force and merging its staff with industry-specific antitrust teams. Another procedural reform relates to notification requirements associated with mergers.

While the option to notify authorities of a merger remains with the UK regime, the European Commission Merger Regulation (ECMR) mandates notification. However, voluntary notification of mergers is common in the UK. The distinction may not have significant impact in practice. Notably, the ECMR reforms allow for notification of a concentration before signing a legally binding agreement and removal of the mandate to notify within one week of signing, if parties have not acted on the agreement yet. These changes provide additional time for the commission to assess mergers and for parties to propose remedies or commitments.

It is important to note that time is a crucial factor in ECMR as it affects the quality of merger decisions. The introduction of "stop the clock provisions" in ECMR

reforms provides parties with more time to propose remedies, and for the EC to evaluate those proposals within one month and four months during Phase 1 and Phase 2 stages, respectively. However, when remedies are being proposed, these time limits are relaxed, and the EC can extend further investigations by four months into the Phase 2 stage if the matter requires extensive analysis. These relaxed time limits are crucial because they allow the EC to conduct thorough economic analyses of merger situations, particularly in light of recent reversals by the CFI in the Airtours, Schneider, and Tetra Laval cases due to inadequate evidence and reasoning. In the UK regime, both FTA and EB have mandated time limits for the CC to complete its investigation.

The EB brings about no significant modifications during this period, except for the removal of the SOS's involvement in setting the time limit that the FTA previously allowed. The CC now holds the authority to determine whether to increase the investigation period, with a maximum extension of 8 weeks. Overall, these reforms aim to create more transparent and predictable merger processes, which is particularly crucial as the EC faces upcoming expansion through 10 new member states. Moreover, with the number of merger cases before the EC rising from around 60 annually in the 1990s to approximately 200-300 today, the necessity for reforms is evident.

Both EU and UK regimes recognize the crucial role of economic factors in competition law reform. This is evident in the proposed appointment of a chief competition economist for ECMR reforms to oversee economic analysis for merger decisions. While the EU reform process has taken a big step with

the closure of the Airtours gap, it's worth noting that the commission still requires rigorous factual analysis and integration of economic theories into factual matrices. As evidenced by CFI's overruling of three vital EC merger decisions this year, the commission still has a long way to go in this regard. Despite this progress, the permissible extent of judicial review has become contentious due to Tetra Laval's decision, which the EC plans to appeal to ECJ. Unfortunately, neither EU nor UK reforms have addressed this fine issue.

Although the UK and EU have different substantive tests, their practical views are likely to be similar. Additionally, the EC has implemented more checks and balances, including peer review panels, while the UK has purposely reduced the impact of the SOS.