competition policy newsletter - European Commission

ISSN 1025-2266

EC COMPETITIONPOLICY NEWSLETTER

Editors:Linsey Mc Callum

Nicola Pesaresi

Address:European Commission,

J-70, 04/226Brussel B-1049 Bruxelles

Tel.: (32-2) 295 76 20Fax: (32-2) 295 54 37

World Wide Web:http://europa.eu.int/comm/competition/index_en.html

I N S I D E :

• Introduction by Commissioner Neelie Kroes

• State aid rules and public funding of broadband

• First experiences with the new merger regulation

• Recent cartel cases

• Profit splitting mechanisms in the gas market

• State aid and shipyards — recent developments

MAIN DEVELOPMENTS ON

• Antitrust — Merger control — State aid control — Enlargement

COMPETITION POLICY

NEWSLETTER2005 � NUMBER 1 � SPRINGPublished three times a year by theCompetition Directorate-General of the European Commission

Also available online:http://europa.eu.int/comm/competition/publications/cpn/

EUROPEAN COMMISSION

Contents1 Introduction by Commissioner Kroes

Articles

3 A new perspective for Spanish shipyards — reducing distortions in shipbuilding by Hans BERGMAN andKai STRUCKMANN

8 State aid rules and public funding of broadband by Monika HENCSEY, Olivia REYMOND, Alexander RIEDL,Sandro SANTAMATO and Jan Gerrit WESTERHOF

16 State aid aspects in the implementation of the Emission Trading Scheme by Brigitta RENNER-LOQUENZ19 The Court of Justice rules for the first time on Article 21(3) of the Merger Regulation in case C-42/01

Portuguese Republic v. Commission by Téa MÄKELÄ

Opinions and comments

25 Profit splitting mechanisms in a liberalised gas market: the devil lies in the detail by Harold NYSSENS andIain OSBORNE

31 The BdKEP decision: the application of competition law to the partially liberalised postal sector by ManuelMARTINEZ LOPEZ and Silke OBST

35 Capacity limitations for shipyards in the context of the Court of Justice' judgement on Kvaerner Warnow Werft(KWW) by Joerg KOEHLI

International/Enlargement

39 Next EU enlargement: Romania and State aid control by Koen VAN DE CASTEELE

Competition Day

43 European Competition day in Luxembourg

Antitrust

45 Les décisions GDFLa Commission est formelle: les clauses de restriction territoriale dans les contrats de gaz violent l'article 81par Concetta CULTRERA

49 Two recent veto decisions under the new Regulatory framework for electronic communications — Theimportance of competition law principles in market analysis by Dirk GREWE, András G. INOTAI andStefan KRAMER

53 The Court of First Instance rejects Microsoft's request for interim measures concerning the Commission'sdecision of 24 March 2004 by Cecilio MADERO, Nicholas BANASEVIC, Christoph HERMES, Jean HUBY andThomas KRAMLER

59 The needles case: how to find within a complex scheme of bilateral agreements, a tripartite market sharingagreement by Christian ROQUES

Cartels

63 Comment un armistice se transforme en cartel sur le marché de la bière française by Ann RUTGEERTS65 Commission fines companies for colluding on raw tobacco prices in Spain by Carlota REYNERS FONTANA,

Massimo DE LUCA and Rafael MORILLAS67 Commission adopts cartel decision imposing fines on copper plumbing tube producers by Harald MISCHE71 Commission fines members of the monochloroacetic acid cartel by Christopher MAYOCK

Merger control

73 Merger control: Main developments between 1 September and 31 December 2004 by Mary LOUGHRAN andJohn GATTI

79 First experiences with the new merger regulation: Piaggio / Aprilia by Mario TODINO84 EDP/ENI/GDP: the Commission prohibits a merger between gas and electricity national incumbents by

Giuseppe CONTE, Guillaume LORIOT, François-Xavier ROUXEL and Walter TRETTON

State aid control

89 Décision finale positive dans le dossier des centres de coordination belges par Jean-Marc HUEZ94 State aid for restructuring the steel industry in the new Member States by Max LIENEMEYER103 Flemish region authorized to participate in the capital increase of the R&D company OCAS by Christophe

GALAND105 Aid in favour of Trinecké Zelezárny, a.s. a steel producer in the Czech Republic by Ewa SZYMANSKA108 German Landesbanken: Recovery of more than €3 billion, plus interest, from WestLB and six other public

banks by Martha CAMBAS, Elke GRÄPER, Stefan MOSER, Yvonne SIMON and Annette SÖLTER111 Information section

Neelie Kroes, Commissioner responsible for Competition

Welcome to the spring 2005 edition of the Competition Policy Newsletter!

This is the first edition of the Newsletter since Itook over as European Commissioner for Compe-tition. I would like to take this opportunity to giveyou a picture of how I see competition policyevolving over the next five years, and how that fitsinto the wider vision the Barroso Commission hasfor the European Union.

But first of all, I would like to put on record mysincere thanks to Mario Monti for the achieve-ments which marked his term in office. His fare-well speech last October (reproduced in theautumn 2004 Newsletter) gave a flavour of thevigour, enthusiasm and sheer hard work he and theDirectorate General for Competition put into thejob, with impressive results. It was an honour aswell as a pleasure to pick up the baton from him.

Over the next five years I will be working for aEuropean Union that is peaceful, prosperous andcompetitive. A Union that makes the most of avibrant and well-functioning internal market. AUnion where well-educated people, top-levelknowledge, and the right business climate cometogether to produce innovative results. I thinkthese aspirations — economic growth, better jobsand a secure and sustainable standard of living —are shared by the vast majority of Europeans.

That is why, under the guidance of PresidentBarroso, the new European Commission is deter-mined to reinvigorate the Lisbon process launchedin 2000. We will do this through a partnership formore economic growth and more jobs.

More economic growth will give us the means tosustain the fabric of our European societies andguarantee social justice; protect the natural envi-ronment which is our legacy to generations to

come; promote peace, security and respect forrights within our borders; and, of course, exportthese principles to partners throughout the world.

Competition policy has a crucial role to play in thepartnership for growth and jobs. Competitiondrives up innovation and drives down prices.Competition is the central driver for economicgrowth.

I am firmly convinced that it is markets thatgenerate wealth — and, as a result of that, jobs —and not governments. Competition is the essentialand necessary ingredient of markets. Market basedcompetition rewards strong firms that offer bettergoods and services at lower prices. And it penal-ises those which make less efficient choices abouthow they organise themselves and what theyproduce. And my own experience has taught methat companies which face strong competition intheir home markets are more likely to becomesuccessful on a global scale.

But markets will only serve us to their full poten-tial if they operate freely and fairly. Keeping theplaying field level is right at the heart of mymission. That is why I will pursue three key objec-tives: ever more effective enforcement of modern-ised competition law; promoting competition-friendly practice; and reform of the state aidregime.

Effective enforcement

Europe now has a set of up-to-date, effective rulesin the field of anti-trust and merger control. Thesound application of these rules is the EuropeanCommission's ongoing priority. But we also needto look at complementary steps to strengthenenforcement.

I want to push harder in the fight against cartels.Cartels represent the worst of competitionbreaches by robbing businesses and consumers oftheir fair share of the benefits of efficient inte-grated markets. As well as creating a dedicatedcartel directorate within the Directorate Generalfor Competition, we are working on ways ofimproving the leniency system within Europe.This is also one of several areas where our cooper-ation with other competition authorities world-wide is fundamental.

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Furthermore, it is time to empower consumergroups and other private parties to press their owncases for breaches of European competition law.We could make more use of the national courts. Itherefore plan to present a Green Paper on thisissue. Private enforcement of the competition rulesis important in providing compensation to partiesinjured by competition law infringements, actingas an incentive for compliance, and strengtheningthe decentralisation of the enforcement of the anti-trust rules. All of which should have a positiveknock-on effect in terms of deterrence.

And thirdly, I think we can do more to promotecoherence and simplicity in our policy approach.All areas of the competition rules need to sharecommon economic principles and commonconcepts of harm. We are working hard on areview of our action under Article 82 in tacklingabuses of market power. We will be consultingwidely on a series of working papers in this fieldwith a view to providing better guidance to busi-ness by extending the same economic analysispresent in Article 81 and the Merger Regulation toquestions of abuse of dominance.

Promoting competition-friendly

practice

I think that there is a lot more the Commission cando to promote competitive practice. We willlaunch sector inquiries in areas where competitiondoes not appear to be functioning as well as itmight. We intend to make a start this year with thefinancial services and energy sectors, both marketsbeing crucial to the Union's overall competitive-ness. We will go into these investigations with anopen mind and constructive approach. Where weidentify obstacles to competition — whether thosebarriers are created by private actors or by poor orover-complicated regulation — we will proposesolutions, working closely with national adminis-trations, regulatory bodies and competition author-ities.

Moreover, we will introduce systematic examina-tion of the impact of proposed new EU legislationon competitiveness. The aim is to screenproposals, identify those which may have anunnecessarily harmful impact on competition andconsumers, and then take the steps needed to make

sure this is appropriately dealt with before theproposal leaves the Commission. And as well asbuilding competitiveness testing into Europeanimpact assessment, I also intend to encourageMember States to review national regulation thatstands in the way of competition.

Reforming the state aid regime

My third objective is perhaps the most important.We have to improve the state aid system. TheEuropean Council has set a clear objective: a morecompetitive Europe needs ‘less and better aid’.The Commission will shortly launch a consulta-tion process on an Action Plan for delivering thisthrough a comprehensive reform of the currentstate aid regime. The reform has to deliver ‘lessaid’ since it is simply unacceptable that while mostbusinesses fight hard to survive and succeed,others are granted artificial advantage throughpublic support. In the long run this aid preventsmarket forces from rewarding the most competi-tive firms, and overall competitiveness suffers.And the reform has to deliver ‘better aid’ sinceintelligently-targeted support can fill the gaps leftby genuine market failures and hence empowermore undertakings to become active competitors.

The Action Plan will launch a wide debate on howwe can ensure that future aid is concentrated whereit adds greatest value. The new rules must ensurethat the Commission can continue to block thosesubsidies that hold back essential structuralchange. At the same time they should make iteasier for Member States to use public funds formeasures which will boost innovation, improveaccess to risk capital, and promote research anddevelopment.

Competitiveness is about people making a differ-ence to their lives, and about businesses producinginnovative high-quality products and services asefficiently as possible. As Competition Commis-sioner, I intend to pursue a tough, rigorousenforcement of all aspects of the competition rules— Article 81, Article 82, mergers and state aids.All of which will help strengthen the Europeaneconomy. The concrete actions I have describedrepresent an ambitious but attainable response tothis challenge. I look forward to reporting on ourprogress in future editions of this Newsletter.

Introduction

2 Number 1 — Spring 2005

A new perspective for Spanish shipyards — reducing distortionsin shipbuilding

Hans BERGMAN, Directorate-General Competition, unit H-1, andKai STRUCKMANN, formerly Directorate-General Competition

Introduction

On 12 May 2004 the European Commission took anegative decision concerning aid worth 500million euro which the Spanish State holdingcompany Sociedad Estatal de ParticipacionesIndustriales (SEPI), granted in 1999 and 2000 tothe publicly owned civilian shipyards, owned atthe time by IZAR. The Commission concludedthat this amount constituted state aid which couldnot be approved under the EU rules on aid to ship-building. As loans amounting to 192 million eurohad been paid back to SEPI, the sum to be recov-ered from IZAR amounted to 308 million euro,plus interests.

On 20 October 2004, the European Commissiontook another decision (case C 38/03) with regard tothe same company. The Commission in this deci-sion established that SEPI during 2000 had grantedan additional 556 million euro to the publiclyowned civilian shipyards. This aid granted infavour of IZAR's civil activities was not in linewith EC State aid rules and the Commission there-fore concluded that also this amount had to berecovered from IZAR.

These two decisions followed after several yearsof complaints from competitors on the businessbehaviour of the Spanish public shipyards andforced the Spanish authorities to undertake a majorrestructuring of these shipyards.

Decision May 2004 (Case C 40/00)

The Commission decision taken in May 2004covers a number of transactions that took placebetween 1999 and 2000 involving SEPI, itssubsidiary Astilleros Españoles (AESA), theformer holding company of the publicly ownedcivilian shipyards and AESA's producing subsid-iaries. Since the Commission suspected that thesetransactions contained state aid, it opened a formalinvestigation (1) on 12 July 2000, which was

extended (2) on 28 November 2001 and furtherextended (3) on 27 May 2003.

Based on the facts that were established during theformal investigation procedure the Commissionconcluded that the state holding company SEPIundertook the following transactions, whichentailed state aid to the public Spanish shipyards:

• An excess purchase price paid by SEPI whenAESA sold three shipyards to SEPI in 1999.According to the Commission's calculation thepurchase price paid by SEPI contained an aidelement of 56 million euro. The aid benefitedthe remaining civil shipyards still owned byAESA;

• Loans amounting to 192.1 million europrovided by SEPI to three of AESA's ship-building companies;

• A capital injection by SEPI of 252.4 millioneuro to AESA in 2000, benefiting three ofAESA's civil shipyards.

October 2004 decision (case C 38/03)

The Commission decision of October 2004concerns three capital injections, made in 2000,2001 and 2002 by SEPI, to IZAR. When theCommission found out about these transactions itsuspected that they contained state aid and there-fore opened a formal investigation (4) on 27 May2003.

The total amount of capital injected into IZAR wasas follows: 1,322 million euro provided in July2000, 105 million euro provided in 2001 and50 million euro in 2002.

The Commission concluded that IZAR's civilianactivities benefited from the capital injection inthe year 2000, by receiving loss coverage of364 million euro during the period 2000–2003.Furthermore, the Commission concluded thatIZAR's repayment of a 192.1 million euro loan to


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(1) OJ C 328, 18.11.2000, p. 16. Press release IP/00/760, 12.7.2000.




SEPI on behalf of three of the shipyards, asoutlined above, constituted also a direct aid tothese civil shipyards. The total aid amount for thecivil shipyards was thus 556.1 million euro.

The additional capital injections in 2001 and 2002from SEPI to IZAR were used to cover unexpectedincreased costs for pre-pensions in IZAR's formermilitary shipyards and did not constitute aid.

Why is the aid incompatible?

The above mentioned aid measures, amounting to500 million euro, respectively 556 million euro,were declared incompatible by Commission deci-sions of 12 May 2004 and 20 October 2004 for thefollowing reasons.

Legal base

In 1997 pursuant to Council Regulation 1013/97,the Commission exceptionally approved apackage of restructuring aids to the public Spanishshipyards amounting to 1.4 billion (1) euro subjectto the condition that no further such aid could beprovided. The total restructuring packageamounted to 1.9 billion euro including aidapproved in 1995. The restructuring period lastedfrom 1994 to 1998, after which the shipyardsshould have become profitable. In giving its agree-ment, the Council stressed the ‘one time, last time’nature of the aid package.

Any further public measures that did not form partof the aid package approved in 1997 thereforeneeded to be assessed according to the generalstate aid rules, i.e. Article 87 of the EC Treaty. On29 June 1998 the Council adopted the Ship-building Regulation, which was in force from1 January 1999 to 31 December 2003 (2), i.e. theperiod when the concerned measures took place.

Article 5(1) of the Shipbuilding Regulation explic-itly states that no rescue or restructuring aid maybe granted to an undertaking that has been grantedsuch aid pursuant to Regulation 1013/97 (i.e.within the 1997 shipbuilding aid packagementioned above). Consequently, rescue orrestructuring aid to the public Spanish yards inexcess of the aid, that was authorised by the initialCommission decision in 1997, would be consid-ered incompatible with the common market.

The measures under investigation did not fallunder any of the other derogations provided for bythe Shipbuilding Regulation. Hence the crucialquestion in the investigation procedure waswhether the measures granted by SEPI constitutedaid, as the qualification of the measures as aidconsequently would imply their incompatibilitywith the common market.

The role of SEPI

In the opening and extensions of the formal inves-tigation procedure the Commission presumed thatSEPI acted on behalf of the state, i.e. that its behav-iour in the different transactions was imputable tothe state. Spain contested this, and claimed thatSEPI functions independently from the state andthat therefore its actions are not imputable to thestate. Furthermore, in Spain's view, SEPI acted asa market investor and therefore the funds providedfrom SEPI in this case could not be considered asstate aid.

The Commission, however, noted that SEPI is apublic holding company which depends directlyon the Ministry of Finance. As such it is consid-ered a public undertaking in the sense of Commis-sion Directive 80/723/CEE of 25 June 1980 (3) asamended by Commission Directive 2000/52/EC of26 July 2000 (4), since, due to its ownership or itsfinancial participation, the public authorities candirectly or indirectly exercise a dominant influ-ence on SEPI.

With reference to the jurisprudence of the Court(Case C-83/98 France v Ladbroke Racing andCommission (5); C-482/99, Stardust marine (6))the Commission concluded that the funds providedby SEPI were to be considered state resources asthey remained under public control. Furthermore,the actions of SEPI were considered imputable tothe state, by the level of supervision exercised bygovernment representatives over the company andthe public nature of its activities.

The general principle that applies for financialtransactions between the state and public compa-nies is the so called market economy investor prin-ciple. Given that SEPI's funds were consideredstate resources, it was essential that SEPI, in itseconomic transactions with its shipbuildingsubsidiaries acted fully in line with the market

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(2) OJ C 119, 22.5.2002, p. 22.

(3) OJ L 195, 29.7.1980.

(4) OJ L 193, 29.7.2000, p. 75.

(5) [2000] ECR I-03271, paragraph 50.

(6) [2002] ECR I-04397, paragraphs 55-56.

economy investor principle in order to be able toconclude that the funds provided were free of stateaid.

The market economy investor principle isexplained in the Commission communication tothe Member States on the Application of Articles92 and 93 of the EEC Treaty and of Article 5 ofCommission Directive 80/723/EEC to publicundertakings in the manufacturing sector (1). Thecase law further establishes (e.g. in Case C 40/85Boch (2)) that the appropriate way of determiningwhether a measure constitutes state aid is to ask towhat extent the undertaking would be able toobtain the sums in question on the private capitalmarkets at the same conditions.

Therefore, the Commission had to apply thecriteria of the market economy investor principleto each of the transactions undertaken by SEPI as ithad to assess individually whether each transac-tion was free of aid.

Aid via the purchase of assets by SEPI

SEPI on 28 December 1999 bought the threecompanies Juliana, Cadiz, and Manises fromAESA for 15 million euro which according toSpain corresponded to the book value of thecompanies at some point in 1999.

The Commission based its assessment on theinformation obtained within the investigation andconcluded that SEPI on 28 December 1999 paid15 million euro for three companies which had abook value of minus 41 million euro and whichfurthermore contained additional liabilities ofsubstantial amounts. It therefore concluded thatSEPI paid more than the market price for thecompanies (which on the basis of the availableinformation was estimated at minus 41 millioneuro). The amount exceeding the market price, i.e.56 million euro, consequently was to be consid-ered as incompatible state aid to the seller, AESA.

Aid via loans provided by SEPI to three

shipyards in December 1999

The three shipbuilding companies owned byAESA (Juliana, Cadiz and Manises) had accumu-lated a debt to AESA of 192 million euro. WhenSEPI took them over in 1999 it also provided themwith 192.1 million euro ‘advance’ payment whichwas used to repay the loans to AESA. SEPI in turntook over the claim of 192.1 million euro fromAESA. The assessment focused on SEPI's loan of

192.1 million euro to the three companies Juliana,Cadiz and Manises.

The Commission again needed to assess whetheran investor could, under normal market economyconditions, expect an acceptable rate of profit-ability on the capital invested and to what extentthe undertaking would be able to obtain the sumsin question on the private capital markets.

It was clear from the annual reports that the threecompanies receiving the loans were in difficulties.There were no signs that the difficult financial situ-ation of the companies would improve. For thesereasons, it was obvious that the three companieswould not have been able to obtain the loans on theprivate capital markets and that SEPI, conse-quently, could not have expected a reasonable rateof return. Thus, the Commission considered theloans from SEPI to the shipbuilding companiesamounting to 192.1 million euro as state aid, whichwas incompatible with the common market.

These loans were repaid with interest to SEPI on12 September 2000 by IZAR which at that timehad taken over and dissolved the companiesJuliana, Cadiz and Manises. The Commissiontherefore declared that the aid had been recovered.However, this information was used in the seconddecision on IZAR (see further below).

Aid via a capital injection from SEPI to

AESA

AESA on 20 July 2000 sold to Bazán (laterrenamed IZAR) its remaining three shipyardcompanies, Puerto Real, Sestao and Sevilla for onePeseta each. On 18 July 2000, two days before,SEPI decided to provide AESA with a 252 millioneuro capital injection. This capital was then paidout in September 2000. Spain claimed that sincethis capital was only provided in September 2000,when AESA already had sold its shipyards, itcould not distort competition for shipbuilding.

The Commission in this respect concluded first,that the capital injection, in view of the financialsituation of AESA, could not be expected togenerate a reasonable rate of return and conse-quently constituted incompatible aid that neededto be recovered.

Secondly, the Commission noted that AESAcancelled debts to its shipyards for 309 millioneuro before the yards were transferred to Bazán fora symbolic price. This improved their financial



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(1) OJ C 307, 13.11.1993, p. 3.

(2) [1986] ECR 2321.

situation by the same amount. It was alsoconcluded that since AESA's debt cancellation didnot involve any cash payment, already SEPI'sdecision on 18 July 2000 to inject 252 million euroto AESA enabled AESA to cancel the concerneddebts without having to declare immediate bank-ruptcy, although the money was only provided inSeptember 2000.

From a state aid perspective the aid was thereforegranted by SEPI's decision on 18 July 2000 toprovide the capital injection, since this decisionwas the precondition to enable AESA to relieve theshipyards of its debts. The ultimate beneficiariesof this aid were the shipyards, since the effect ofthe operation was that the shipyards were relievedof their debts to AESA.

AESA's debt cancellation improved the financialsituation of the concerned shipyards by 309million euro. However, the Commission onlyassessed the provision of funds from SEPI, whichin this transaction amounted to 252 million euro.This state aid was not compatible with thecommon market, since it could not be authorisedunder the rules for restructuring aid or any othertype of aid.

Aid through the capital injection to IZAR

The Commission established that out of the 1322million euro injected by SEPI into IZAR (at thetime called Bazán) in July 2000, 364 million eurohad benefited the civilian activities of the ship-yards since it was used to cover losses of thesecompanies for the years 2000 to 2003.

From the information provided by Spain it is clearthat the civilian companies bought by Bazán inJuly 2000 were in economic difficulties. Therewere furthermore no signs that the difficult finan-cial situation for their activities would improve. Itcan therefore be excluded that the civilian activi-ties, under the ownership of Bazán/IZAR wouldgenerate an acceptable rate of return.

For these reasons, it can be established that IZARwould not have been able to obtain loans or capitalon the private capital markets to cover the losses ofits civilian activities. Therefore, the provision ofcapital to these activities did not comply with themarket economy investor test. For the samereasons SEPI could not have expected a return onthis capital. Therefore the provision of theseresources from SEPI to IZAR did not comply withthe market economy investor principle. Thereforethe capital injected for the use by the civilian activ-ities constitutes state aid to IZAR. This state aid

was illegal, since it had not been notified to theCommission.

It can furthermore be concluded that this aid wasnot compatible with the Common market as itcould not be authorised as restructuring aid. Theaid could neither be approved under any otherprovision of the shipbuilding Regulation or underany other of the derogations laid down in Article87(2) and (3) of the EC Treaty.

Loans repaid by IZAR on behalf of three

activities

As noted above, in the state aid decision on case C40/00, IZAR had repaid loans amounting to 192.1million euro with interest to SEPI. The funds hadbeen provided in 1999 to the companies Juliana,Cadiz and Manises, which subsequently weretaken over by IZAR in July 2000.

According to information received from Spain, thereported losses for the civilian activities for theyear 2000 did not include the repayment of theabove mentioned loans.

It is evident that funds provided by SEPI in 1999benefited the civilian companies Juliana, Cadizand Manises. However, since the repayment ofthese loans was made from the general accounts ofIZAR, the effect is that the three companies, laterdissolved into business units, benefited from nothaving to repay the concerned loans. It is thus clearthat it was IZAR, which through the payment fromits own resources, alleviated Juliana, Cadiz andManises from the financial burden to repay theloans.

The Commission has assessed whether the loansrepaid by IZAR could have been financed withfunds received through a new loan taken by IZARunder market conditions. Concerning this aspectthe Commission considers that without the capitalinjection in the year 2000, which — as has beenshown above — has been used to support thecivilian activities of IZAR, the latter's financialsituation would have been much worse than it was.For this reason it can be excluded that IZAR couldhave received a loan on market conditions if it hadnot received the illegal and incompatible aid in theform of 364 million of the capital injection.

The repayment of 192.1 million euro by IZAR toSEPI should therefore be considered as a furtheruse of the capital injection under investigation tothe benefit of IZAR's civilian activities. For thesame reasons as outlined above for the losscoverage, this use of funds for the civilian activi-ties did not comply with the market economy

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investor principle and the corresponding amountused from the capital injected to IZAR constitutesincompatible state aid to IZAR.

Aid recovery following change of

ownership

The shipyard companies that ultimately benefitedfrom the illegal aid established in the first decisionwere, at the time of the decision, owned by IZAR.The Commission decision therefore found that thisillegal aid should be recovered from IZAR. TheCommission took the view that after the change ofownership of the yards, from AESA or SEPI toIZAR, the recovery of the aid should not remainwith the previous owner of the concerned compa-nies as they were not transferred to IZAR onmarket terms in open and transparent tenderingprocedures, but in the form of a reorganisationwithin the SEPI group, with the use of symbolicprices. Therefore all incompatible aid is to berecovered from the owner of the ultimate benefi-ciaries of the aid, i.e. IZAR.

Future

Following the Commission decisions, Spain hastaken several steps in order to reorganise its publicshipbuilding sector. The reason is that IZAR had todeclare bankruptcy once the recovery claim for theillegal and incompatible aid would be introducedin the balance sheet of the company. This was donein January 2005.

One aim of the reorganisation has been to avoidthat IZAR's military production would be harmed,which is a legitimate objective in accordance withArticle 296 of the EC Treaty. This goal is reachedby transferring the military production to a newpublic company (‘Navantia’). Since the newcompany, for viability reasons, will need to havecertain civilian activities, safeguards have to beput in place in agreement with the Commission.

Another aim has been to, if possible, rescueemployment in the civil shipyards, while stillrespecting Community legislation. The objectiveis to privatise the civil shipyards, through open andtransparent market operations. In this way, theCommission may accept that the recovery claimon IZAR does not follow to the privatised ship-yards.

A third aim has been to alleviate the social prob-lems, by granting pre-pensions to all IZAR

employees at the age of 52 or above. In this way itis hoped that direct lay-offs can be avoided.

Conclusion

The Commission, when it took the decisions, wasaware that the consequences of the decisions maybe serious for the Spanish public shipyards andtheir employees. However, the Commission alsohad received numerous complaints from shipyardsin other EU Member States, and even fromSpanish competitors. It therefore had to act toensure that competition in the EU shipbuildingmarket was not distorted.

The state aid history of the Spanish shipyards maybe seen as an illustration of how repeated state aidin order to cover losses creates problems not onlyfor competitors, but in the end also is harmful forthe employees. Competitors suffer, since acompany that runs with permanent deficitssupported by state aid tends to undercut prices andthus create serious distortions in the market.Employees also suffer, at least in the long run,since such companies feel less pressure to innovateand improve productivity, which is necessary inorder to ensure long-term job security.

The effects of the recent restructuring will be onthe one hand a viable military shipbuildingcompany, with a limited civilian activity which isstrictly obliged to respect EC Competition rules.On the other hand, the civilian yards, significantlydownsized, may find new buyers.

The Commission has also underlined the EuropeanCommunity's coherent policy in support of EUshipyards, facing unfair competition from Koreanshipyards, which consists of three main elements:

• A WTO panel against Korea, challengingrestructuring aid and export aid and the pricedepression these measures have caused. Thisprocedure was terminated by adoption of thefinal report by the Dispute Settlement Body on11 April 2005.

• The temporary defensive mechanism (1), whichallows for the granting of state aid to EU-yardsconstructing ship-types particularly harmed byunfair competition.

• ‘LeaderSHIP (2) 2015’. A Commission initia-tive aiming at strengthening the competitive-ness of EC shipyards.

(1) OJ L 172, 2.7.2002, p.1, Press release IP/02/945, 27.6.2002.

(2) COM(2003) 717 final of 21.11.2003.

State aid rules and public funding of broadband

Monika HENCSEY, Olivia REYMOND, Alexander RIEDL,Sandro SANTAMATO and Jan Gerrit WESTERHOF,Directorate-General Competition, unit H-3 (1)

Introduction

The development of the information society and ofthe ‘e-economy’ is commonly seen as a necessarystep for giving new impetus to the modernisationof society and the growth of the economy. It is acrucial aspect of the Lisbon agenda, which sets outthe European Union's policy priorities for the nextdecade.

A pre-requisite for transition to the e-economy iswidespread access to broadband. ‘Broadband’refers to always-on Internet connection providinghigh-speed data transmission, allowing thedelivery of innovative content and services.

By means of its eEurope strategy, the Commissionis actively encouraging national governments toset up national broadband strategies (2). In thiscontext, many public initiatives are taking place atnational or local level to advance the developmentof those services and the establishment of theinfrastructure that is necessary to provide them.

Inevitably, public intervention raises the issue ofState aid: under what conditions are these projectscompatible with the EU rules on competition and,more specifically, on State aid?

In the recent months, the Commission had theopportunity to assess several projects involvingpublic support to broadband development. Theconsiderations developed in this article reflect theCommission's conclusions in the ensuing deci-sions and aim at providing guidance on how todesign forms of intervention that do not raisecompetition concerns. A word of caution is,however, necessary. These are the first decisionson State aid relating to broadband projects: the

present views might evolve in the light of furtherexperience and in view of the quick pace ofeconomic development and technological evolu-tion in the sector.

I. WHAT IS BROADBAND AND

WHY SUPPORT IT

Some introductory elements

Connectivity to the Internet and the possibility toreceive and transmit data is an electronic commu-nication service. A basic service of this type isubiquitously available throughout the Commu-nity (3). This is the ‘dial-up’ narrowband connec-tion, which has limited capability. The moreadvanced broadband services offer ‘always-on’access allowing transmission of large volumes ofdata, reducing waiting time and improving effi-ciency.

Broadband networks are typically made up of anational backbone, a regional and a local backhauland an access network or local loop. The highestbandwidth can be provided over technologiesusing optical fibre which is the mainstreammedium deployed for national and regionalnetworks. The connection to the final user (lastmile) can then be provided by upgraded two-wayTV cable networks, wireless solutions, bespokefibre access solutions or through the existingcopper telephone lines by upgrading some parts ofthe switching and transmission equipment (forinstance, xDSL).

Broadband penetration in Europe is stillmodest (4), but the growth rate of broadbandsubscriptions has been very large, with the number

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(1) All authors work for the European Commission, Directorate-General for Competition. The present document only reflects theirpersonal opinions and should not be held to represent the views of the European Commission or of the Directorate-General forCompetition. The authors wish to thank Guido Acchioni, Adrian Cox, Christian Hocepied, Dag Johansson, Laura Pontiggia andLucilla Sioli for their valuable comments and opinions. The final responsibility for the content of the paper rests solely on theauthors.

(2) Commission Communication COM(2004) 369 of 12 May 2004, ‘Connecting Europe at High Speed – National BroadbandStrategies’.

(3) Directive 2002/22/EC on universal service and user rights relating to electronic communications networks and services (UniversalService Directive), 7.3.2002.

(4) In July 2004, broadband penetration in the EU-25 was — on average — 6.5% of the population. Cf. Communication from theCommission COM(2004) 759 on European Electronic Communications Regulation and Markets 2004 (10th ImplementationReport), 2.12.2004.

of broadband lines almost doubling in the past twoyears. Despite this rapid increase in connectivity, alarge part of the European territory is under-served. For example, ADSL, the most commonlyused platform in the EU, reaches not more than85% of the population of the EU 15 and even lessin the new Member States.

Lack of terrestrial broadband coverage is dueamong others to some of the typical economicproblems associated with networks industries.Broadband networks are generally much more costeffective to roll-out, and hence available atcheaper terms, where potential demand is higherand concentrated, i.e. in densely populated areas.Because of high fixed costs, unit costs escalatedramatically as population densities drop (1).Remoteness also plays a role, requiring to bridgelonger distances in the backhaul and in the lastmile. 65-70% of the costs associated with thedeployment of broadband in the access network isrelated to civil infrastructure (2). In addition,although equipment costs have fallen as volumesincrease, they remain a significant cost and majorbarrier to roll-out.

In areas where demand is not very developed andcoverage of cost is uncertain, private operatorsmight find it difficult to find a source of fundingfor infrastructure projects, which have a long lifeand amortisation period.

Today, next to ‘black areas’ — where highdemand supports a competitive supply — therecan be 'grey areas' which can be characterized as akind of natural monopoly, where the network iscontrolled by a single operator refusing access toits basic infrastructure. Finally, there are 'whiteareas' with no broadband provision at all.

The fact that an operator refuses access to its infra-structure — such as dark fibre (3) — to otherproviders, may seriously restrain competition. Ex-ante access regulation of wholesale broadbandaccess (4) addresses some of these issues. It has notso far ensured effective competition in all regionsand markets.

Public intervention might accelerate the establish-ment of the network while ensuring, by means ofopen access requirements, that competition ispreserved in the future.

What kind of public support?

Public intervention in broadband may take variousforms with different implications in terms ofimpact on competition and State aid assessment.Although individual projects differ widely in thedetails, the projects assessed by the Commissionso far can be broadly classified in two main catego-ries: infrastructure projects and projects involvingend-to-end services provision.

In a typical infrastructure project, the publicauthorities may want to support the creation ofinfrastructure (for instance ducts, masts, colloca-tion sites, dark fibre) which is made available to alloperators on non-discriminatory terms. Thiswould generally concern to a varying extent theregional, local and access infrastructure, but notnational backbone networks. Typically, the infra-structure is owned by the state but its managementis tendered out to an independent company thatdoes not offer the final service, but only access tothe infrastructure or wholesale services.

In the case of projects involving end-to-endservices provision, the selected bidder wouldnormally not only have the task of providing thenecessary infrastructure open to third partyproviders, but would also have the obligation tooffer itself the retail service to end users. It is left tothe selected bidder to choose between leasing orbuilding the infrastructure necessary for thedelivery of the required services. The assets wouldtypically be owned by the selected bidder.

The next two sections summarise the elements thatappeared particularly important for the Commis-sion's assessment of both types of projects. It isworthwhile mentioning that all projects were inunderserved areas, either because scarcely popu-lated or because characterised by difficult topog-raphy.



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(1) The costs per user of a satellite solution is largely unaffected by site density, however, at current overall subscriber volumes thistechnology remains expensive when compared to DSL or cable, mainly due to high set-up and installation costs.

(2) Broadband Stakeholders Group ‘Broadband in Rural Areas’, 2003. In the case of xDSL solutions, the infrastructure in the accessnetworks already exists although sometimes investments in backhaul infrastructure are needed.

(3) A plain fibre-optic cable with no optical transmission equipment. Operators may add their own equipment and build their ownnetwork, retaining complete control over the fibre.

(4) Access Directive 2002/19/EC, 7/03/2002 and Commission Recommendation 2003/311/EC, 11.2.2003 on relevant product andservice markets within the electronic communications sector require in principle the unbundling of copper lines only and not thatof fibre connections in the local loop.

II. PUBLIC INTERVENTION NOT

INVOLVING STATE AID

Investment on market terms

When public authorities intervene on the marketon the same terms as private investors, there is nogranting of State aid. This case, however, is quiterare, since public authorities generally take actionprecisely because the market fails to deliver thedesired supply.

Nevertheless, it might still be the case that a publicinvestment project in a broadband project iscapable of securing revenues that are sufficient torepay its costs within a reasonable time-horizonand provide a rate of return in line with the marketremuneration for projects of similar risk.

For pure infrastructure projects the appropriaterepayment period might be longer, and the returnon investment might be lower than those requiredby the market on integrated telecom projects. TheCommission accepts the principle that the businessmodel of a 'utility' company involved in pure infra-structure provision would be different from that ofa telecom operator investing in a network andproviding electronic communications services toend-users (1). However, conformity with theMarket Economy Investor Principle (MEIP)would have to be supported by a sound businessplan, foresee a pricing policy that is justified oncommercial rather than on policy grounds andpossibly envisage a relevant participation ofprivate partners to the venture on equal terms withpublic investors.

General infrastructure not distorting

competition

It is sometimes suggested that certain projects donot fall within the scope of Article 87(1) EC, butshould rather be seen as a typical task of the publicauthority of providing general infrastructure.

It could be argued that this is the case of a projectthat serves the interest of the general public,provides a facility that the market is not capable ofsupplying and is planned in a way that avoidsgranting of selective advantages.

These conditions, however, should be interpretedstrictly. As the Commission argued in ATLAS (2),infrastructures that do not serve the general public,but are rather dedicated to specific economic oper-ators cannot be seen as a typical task of the publicauthority outside of the scope of Article 87(1) EC.Similarly, projects that duplicate market initiativesor provide services already available are deemedto potentially distort competition. The infrastruc-ture argument appears therefore tenable only iflimited to basic civil works and passive elementssuch as ducts and dark fibre in unserved areas. Sofar, no such case was the object of a Commissiondecision.

Funding of a Service of General

Economic Interest

Use of public resources might not constitute Stateaid also in relation to the funding of a Service ofGeneral Economic Interest (SGEI). The Court ofJustice has indicated that compensation for coststhat result from public service obligations are notwithin the scope of article 87(1) of the Treaty,providing certain conditions are fulfilled. Theseconditions are described in the Altmark judgementof 24 July 2003 (3).

In its decision on Pyrénées-Atlantiques theCommission assessed whether those conditionswere fulfilled for a broadband project.

A preliminary question: true public service?

Before proceeding to the four Altmark criteria apreliminary question has to be answered: could theservice in question be actually considered aService of General Economic Interest? (4)

The Commission acknowledged that MemberStates have a large power of appreciationconcerning the identification of a service as SGEI,but — on the basis of the case-law of the EU courts— indicated that some general principles shouldnevertheless be respected:

— the definition of SGEI must not be in conflictwith Community legislation in the givenfield (5);

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(1) Commission decision of 9 September 2004 in case N 213/03, Project ATLAS (Corrigendum).

(2) Cf. footnote 8.

(3) Judgement of the Court of 24 July 2003, in case C-280/00, Altmark Trans, ECR 2003 p. I-7747 paragraphs 89 to 93 of thejudgement.

(4) This, indeed, can be considered an implicit requirement of the first Altmark condition.

(5) Judgment of the CFI of 27.02.1997 in case T-106/95, FFSA, ECR 1997 p. II-0229.

— the service in question must carry a generalinterest that goes beyond the generic interestassociated to each economic activity (1);

— the public intervention must be justified by thenature and needs of the public service (2).

Community legislation in the given field

In the electronic communications sector, Commu-nity legislation harmonises the principles appli-cable to the universal service obligation (3), whichconcerns the supply of a minimum set of basicservices to all end-users at affordable prices. Asalready indicated, the scope of universal serviceincludes a narrowband connection capable ofsupporting voice and data communications at aspeed sufficient to access the Internet; typically ator equal to 56kbit/s. Member States may decide tomake additional services publicly available in theirterritory, in addition to those included in the scopeof universal service. It is considered important thatthe characterisation of a broadband service asSGEI does not modify the scope of universalservice, and as such does not imply any obligationto offer or finance broadband services imposed ontelecom operators. (4) This could represent a heavyburden, especially for small operators and newentrants in the market.

In Pyrénées-Atlantiques, the qualification of theprovision of broadband access as SGEI did notalter the scope of the universal service while beingin line with Community priorities and not raisingcompetition concerns. This allowed the conclusionthat the qualification as SGEI in the areasconcerned was not in contrast with Communitylegislation.

General interest

The Commission also acknowledged that broad-band services can be considered to carry a generalinterest that goes beyond that of generic economicactivities. Broadband services are becoming awidespread support not only for the developmentof business initiatives, but also for responding tonumerous citizens' needs and for the supply ofgovernment services. The possibility to offer,thanks to broadband, e-Health, e-Government, e-Education and tele-working render this type ofinitiatives more relevant to the general interestthan projects for pure economic development,

which would generally be assessed under theexisting State aid rules, for example on regionalaid. Naturally, SGEI projects must be related to theprovision of a service to the general public and notbe exclusively targeted at businesses.

Public intervention justified by the nature

of the service

The Commission also found that the alreadymentioned economic peculiarities of this networkindustry justified public intervention in certaingeographic areas. What is worthwhileemphasising is that the same conclusion would notnecessarily hold for projects that, contrary toPyrénées-Atlantiques, concerned areas whereoffers by competing operators are already present(‘black areas’).

It was also considered that only the investment inthe network justified public support. Indeed, themarket might not be able to undertake the highfixed-cost investment in the infrastructure, butonce an open infrastructure is available, marketoperators would normally not need additionalfunding for the supply of the downstream services.

Finally, only if the infrastructure is fully open ontransparent and non-discriminatory terms, it canprovide a service of truly general interest. Thefunding of a network belonging to one operatorthat may restrict access to competitors, would riskforeclosing the market from new entrants in themedium term. On the contrary, public interventionshould not create monopoly positions and shouldensure open and non-discriminatory access to thefinanced network.

The open access requirement should concern thebasic element of the infrastructure — e.g. access todark fibre in case of an optical fibre infrastructure.If this is the case, competition can take place in thesegments of the market with the highest value-added and lead to the greatest advantage for theend users.

The Altmark criteria

The assessment of the fulfilment of the Altmarkcriteria is based on considerations which are notnecessarily specific to broadband projects, but



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(1) Judgement of the Court of 10 December 1991, in case C-179/90, Merci convenzionali porto di Genova SpA, ECR 1991 p. I-5889,point 27.

(2) Judgement of 13 December 1991 in case C-18/88, GB-INNO-BM, ECR p. I-5941, point 22.

(3) Directive of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating toelectronic communications networks and services (Universal Service Directive), OJ L 108 of 24.4.2002.

(4) Op. Cit. Footnote 2.

apply to SGEI in general. Some of the crucialelements are worth recalling:

Clearly defined obligations

Public support is not considered aid if it is possibleto establish a clear correspondence between theextra costs of public service obligations and theircompensation. This requires a precise identifica-tion of the services demanded. In general, the attri-bution of a public service mandate through an openprocedure implies a detailed specification of therequired services and fulfils this criterion.

Parameters of compensation established

beforehand

If the mechanism for compensation left somemargin of discretion or the possibility to grant ex-post additional funding, the risk of overcompensa-tion could not be excluded. Again, the criterion isnormally satisfied when the service is attributedthrough open procedure, since the overall amountof aid, or the parameters for compensation, wouldbe determined before the start of the contract.

No overcompensation

Whatever the mechanism for the choice of theoperator and the determination of compensation,the compensation must ‘not exceed what is neces-sary to cover all or part of the costs incurred indischarging the public service obligations, takinginto account the relevant receipts and a reason-able profit for discharging those obligations.’

Indeed, there could be circumstances in which theattribution through an open procedure on the basisof the best available offer on the market would notbe sufficient to exclude overcompensation. Thismight be the case if the number of potentialcompetitors is limited — notably because of theatypical character or the complexity of the service— or if an operator has privileged access to aninfrastructure necessary to provide the service.

To avoid this problem, in the case of Pyrénées-Atlantiques the authorities required the selectedoperator to set up a legally independent companywhose accounts would be regularly audited. Areverse payment clause in case of revenuesexceeding a certain threshold was also foreseen.

Choice of provider

To ensure that the cost of public service is effec-tively minimised it is necessary not only to avoid

overcompensation, but also to entrust the serviceto the most efficient operator. For this reason thefourth Altmark criterion is a necessary comple-ment to the third one.

In the case of broadband there are many variablesthat qualify a project: quality of service, aidamount, aid intensity, geographical coverage,chosen technical means, price to users, etc.

The case law on public service contracts indicatesthat when the chosen procedure is not based onlyon the lowest price, but on multiple awardingcriteria (‘the most economically advantageoustender’) those criteria must be: ‘linked to thesubject-matter of the contract, do not confer anunrestricted freedom of choice on the authority, …expressly mentioned in the contract documents orthe tender notice, and comply with all the funda-mental principles of Community law, in particularthe principle of non-discrimination’ (1).

It has been suggested, however, that the Altmarkcase-law should be interpreted in a more stringentway. If aid is to be excluded, the procedure mustoffer sufficient guarantees that the choice reflectsthe 'best value for money' for the tendering publicauthority.

In Pyrénées-Atlantiques, the Commissionaccepted that the fourth Altmark criterion wassatisfied because the selection was not mainlybased on qualitative criteria, but was made onquantifiable elements and the choice between thetwo final offers reflected the lowest amount andintensity of aid.

III. COMPATIBLE AID

A project that does not fall within the categoriesdescribed above would generally involve State aidand would need to be notified and assessed forcompatibility.

This would be the case of infrastructure projectsdedicated to businesses — as the Commission hasindicated in ATLAS — or in areas where there isalready competitive supply and the SGEI qualifi-cation would not be justified. It might also be thecase of funding of SGEIs that does not complywith the Altmark criteria.

Another frequent case is that of ‘service projects’,involving the funding of an end-to-end serviceprovision.

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(1) Judgment of the Court of 17 September 2002 in case C-513/99, Concordia, ECR [2002] p. I-07213, point 64.

Service projects

Projects involving end-to-end service provisionhave several pros and cons when compared to pureinfrastructure projects. On the one hand:

— an end-to-end service typically involves alower detail of specification as to the type ofinfrastructure and technical means required bythe authorities. This has the advantage ofallowing better exploitation of existing instal-lations and greater technological neutrality;

— an end-to-end service might also be preferablein cases where there is less need for buildingand managing new infrastructure and focus ison the rapid availability of the service to endusers. By tendering the final service, theauthorities have greater certainty on the scopeand timing of the final service;

— a project that includes the provision of the finalservices allows greater commercial opportuni-ties to the selected bidder and is likely to attracta greater proportion of private funding. Thismight entail lesser use of public resources andlower aid intensities.

On the other hand:

— this type of project can be seen as moredistortive than one merely consisting of provi-sion of infrastructure, since it will intervene ina greater number of markets, including thosedownstream markets in which public interven-tion appears less needed. In most cases publicsupport for third party infrastructure (espe-cially civil infrastructure), sold on a non-discriminatory wholesale basis to serviceproviders, should be sufficient to reduceoverall investment costs and lower barriers toservice provision for numerous providers;

— it should also be noted that in certain infrastruc-ture projects the State retains ownership of theinfrastructure and attributes its managementthrough a concession of limited duration to anindependent party that cannot act as serviceprovider. This solution preserves the neutralityof the infrastructure manager, as opposed to asituation in which a service provider alsocontrols the infrastructure;

— finally, an end-to-end service requirement mayput at an advantage the service operations ofthe selected provider, who is likely to be in aposition to roll-out end-user services prior tothe entry of third party providers benefiting

from the open access. Under certain circum-stances, this might lead to market foreclosureeffects.

Presence of State aid

The funding of service projects, being a selectivemeasure, distorts competition and constitutes Stateaid. The selectivity is both sectoral and geograph-ical. Public funding supports the telecom sectorand allows businesses in the concerned regions toprofit from broadband services at better conditionsin terms of coverage, quality and prices.

The measure might also selectively favour thechosen service provider, which will be capable ofestablishing its business and developing itscustomer base, enjoying a first mover advantageover prospective competitors. It should be consid-ered that the broadband market is rapidly evolvingand that, while public authorities generally decideto intervene in view of the lack of private initia-tives in the concerned areas, it cannot be excludedthat those could become viable in the mediumterm.

The Commission has noted in several cases thatthe existing frameworks and guidelines cannot beapplied to assess aid measures that specifically aimat widespread availability and use of high-speedbroadband services in rural and remote areas. Ittherefore assessed the compatibility of themeasure with the common market directly on thebasis of Article 87(3)(c) of the EC Treaty. Thisinvolved establishing the necessity and propor-tionality of the measure.

Necessity of the measure

Broadband connectivity is a type of service that byits nature is capable of positively affecting theproductivity and growth of a large number ofsectors and activities. Regional economic develop-ment benefits resulting from greater broadbanddeployment can include job creation and retention,more industrial growth, improved education andhealth systems and even reduced traffic conges-tion. (1) The social and economic case for broad-band takes on added significance for rural andremote communities, where improved communi-cations can address a variety of challenges posedby distance. (2)

The Commission supports the principle that thedeployment of broadband infrastructure needs tobe encouraged where broadband connectivity is



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(1) US Department of Commerce, Office of Technology Policy, “Understanding Broadband Demand”, September 2002.

(2) OECD, “Broadband Driving Growth: Policy Responses”, October 2003.

not provided by the market at affordable prices.The scope for public intervention in underservedareas was emphasised in eEurope 2005.(1). TheAction Plan set 'widespread availability and use' asits broadband objective, and highlighted the roleStructural Funds can play in bringing broadband todisadvantaged regions. Structural Funds can beused to increase broadband coverage in under-served areas where geographical isolation and lowdensity of population can make the cost of buildingnew infrastructure or upgrading the existing oneunsustainable (2).

The necessity of the measure should, however, bewell documented. A survey of the existing servicesand infrastructure should constitute the basis onwhich to evaluate the need for public intervention.In principle, such intervention should take placeonly in areas where there is no provision of service(‘white’ areas). However, because of the physicalcharacteristics of a network, some duplication ofexisting infrastructure is always likely to takeplace and represents a sort of ‘unavoidable’ distor-tion. Duplication should, nevertheless, be mini-mised: a pure replica, in terms of geographicalcoverage, of existing services would not meet therequirements for necessity of aid.

Proportionality

In order for the aid measure to be compatible withArticle 87(3)(c) of the EC Treaty, it must beproportionate to the objective and must not distortcompetition to an extent contrary to the commoninterest. The trade-off between the advantages —in terms of local economic development andsupport to information society — and the disad-vantages — in terms of distortion of competitionand possible disincentives to private investment —has to be assessed. The extent of the measure interms of service definition, as well as projectdesign features, should also be evaluated to ensurethat the least distorting model, which would never-theless produce the required results, is adopted.

In its decisions, the Commission has positivelyassessed the following elements:

— Open tender: The selection of the serviceprovider through open procedure in accordancewith EC rules and principles on public procure-ment minimises the advantages to the directbeneficiary of aid.

— Technology neutrality: A project which aims atachieving a certain final service leaving to the

provider the choice of technological means hasthe advantage of not favouring a priori anygiven technology.

— Open access: The obligation for the provider tolease capacity to resale operators and serviceproviders on a transparent and non-discrimina-tory basis is seen as a more pro-competitivesolution.

— Use of existing infrastructure: The freedom forthe service provider to choose the most effi-cient way of procuring the necessary infra-structure, either by building, buying or leasingit from third parties minimises duplication andenhances economic efficiency. Since leasingfacilities is expected to be more cost effectivethan building new infrastructure, existing oper-ators have the possibility to contribute theirinfrastructure to the project, which limits theeconomic impact of the project for operatorsthat already have infrastructure in place.

— Short duration, small aid amount and intensity:Other things equal, the smaller the amount andintensity of aid and the shorter the duration ofthe funding, the smaller the distortion ofcompetition.

— Reverse payment mechanism. The existence ofa reverse payment mechanism, under which thepublic funding is expected to diminish asdemand for services picks up, ensures that onlythe minimum necessary public funds are used.

— Cost allocation transparency and monitoring:Clear specification of the cost eligible forpublic funding, separation of accounts whereother activities are present and regular moni-toring of the financial results ensure a highdegree of transparency.

— Minimisation of price distortion: The appro-priate pricing of the services is important toensure that business end-users benefiting fromthe aid are not put in a position more favourablethan their competitors located in regions wherethe same advanced broadband services areavailable on market terms. The risk of sendingthe wrong price signals to the market as a resultof tariffs charged for a State funded serviceshould also be considered. Finally, dispropor-tionately low prices may necessitate more aidthan the minimum necessary to address theundersupply of the service in certain areas.Benchmarking with tariffs offered by service

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(1) COM(2002) 263.

(2) Commission staff working paper, ‘Guidelines on criteria and modalities of implementation of structural funds in support ofelectronic communications’, 28.7.2003, SEC(2003) 895.

providers in areas which do not benefit fromaid is a desirable proviso.

IV. CONCLUDING REMARKS

This article does not have the ambition to clarifyall the issues that can be raised in connection withpublic funding of broadband projects. There are,however, certain elements that appear to haverather general relevance in the assessment.

In particular, projects that are attributed throughopen procedure, that impose open access to thebasic infrastructure and take place in areas wherethere is no competitive supply (a mix of ‘white’and ‘grey’ areas), are more likely to qualify forcompatibility.

In general, although they involve higher budgetsand a long time horizon, projects focussing on thedeployment of open infrastructures tend to mini-mise competition distortions. State support for thehigh fixed-cost elements of networks lowers theentry barriers for all operators providing down-stream services, who may access the network onequal terms.

In contrast, measures supporting the provision ofend-to-end services are generally aimed atsupporting the quick deployment of broadbandservices in regions without coverage. Of shorterduration than infrastructure projects, empiricalevidence shows that subsidies for the provision ofend-to-end services tend to favour the dominantoperators.



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State aid aspects in the implementation of the Emission TradingScheme

Brigitta RENNER-LOQUENZ, Directorate-General Competition, unit G-2

1. The Emission Trading Scheme

The Emission Trading Scheme (ETS) (1) plays amajor role in the Commission's Climate ChangePolicy. It aims at helping EU Member States toachieve compliance with their commitments underthe Kyoto Protocol by using a market based instru-ment which allows achieving emission reductionsat least cost.

The ETS is the first international trading systemfor CO2 emissions in the world. It started on1 January 2005 and, once all National AllocationPlans are implemented, will cover a total of morethan 12000 installations in the EU-25 (combustionplants, oil refineries, coke ovens, iron and steelplants, and factories making cement, glass, lime,brick, ceramics, pulp and paper) representing closeto half of Europe's emissions of CO2.

Within certain limits, Member States define theamount of emission allowances they will distributeto participants. By handing out fewer allowancesthan companies are expected to need for coveringtheir actual emissions, Member States create scar-city, which is the prerogative for the creation of afunctioning market of emission allowances. Apartfrom the initial allocation, Member States are notsupposed to intervene in the development of themarket, and have in particular no further influenceon the development of the price for emissionallowances.

A cornerstone of the implementation of the ETSare the so-called National Allocation Plans(NAPs). These plans establish the total number ofemission allowances Member States plan to allo-cate for the 2005-2007 trading period and themethods of allocating them to the different instal-lations in the economic activities involved.

Member States were obliged to submit their NAPsby end of March 2004 (by 1 May 2004 for the newMember States) in view of the start of the newsystem on 1 January 2005. However, most of theMember States were late in submitting their plans.

The Emission Trading Directive requires theCommission to assess compliance of these planswith Article 10 of the ETS directive and witheleven criteria established in Annex III thereof.The Commission may refuse a plan in total or inpart within three months from its notification if theplan is found incompliant. By the mid of February2005, the Commission had taken decisions on 21NAPs (2). The assessment of the plans of the CzechRepublic, Poland, Greece and Italy is underway.

2. The assessment of the National

Allocation Plans

The NAPS submitted to the Commission are farfrom uniform. Member States have opted fordifferent approaches with regard to centralelements of the allocations. Plans differ e.g. asregards the basis for initial allocations, rewards forearly action, the consideration of technologicalemission reduction potential, the allocation to newentrants, and even to some extent with regard tothe scope of installations covered by the scheme.

In January 2004 the Commission published guid-ance on the implementation of the allocationcriteria, in order to ensure consistency and trans-parency. It grouped several plans for decisions atthe same time, while assessing each plan on itsown merits and it joined a communication to theCouncil and the European Parliament to eachround of decisions, explaining the assessment ofthe plans and reasons for rejection.

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(1) Introduced by Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003, OJ L 275, 25.10.2003,p. 32.

(2) On 7 July the Commission decided on the NAPs of Denmark, Ireland, the Netherlands, Slovenia and Sweden; on 20 Octoberdecisions were taken on the NAPs of Belgium, Estonia, Latvia, Luxembourg, the Slovak Republic and Portugal; in late Decemberdecisions were taken on the NAPs of Cyprus, Hungary, Lithuania, Malta and Spain. The decisions are accessible at http://www.europa.eu.int/comm/environment/climat/emission_plans.htm.

Until now, the Commission required changes toplans mainly in three areas (1).

• If the allocation chosen by a Member State forthe 2005-2007 trading period was not consistentwith the Member States obligation to achieve itsKyoto target. This was the case in particularwhere a Member State could not sufficientlysubstantiate its intended use of flexible mecha-nisms and could therefore not demonstrate thatwith the use of these mechanisms it would beable to respect its target.

• If the volume of allowances for the 2005-2007trading period was inconsistent with assessmentof progress towards the Kyoto target, i.e. theallocation exceeds projected emissions.

• If a Member State intended to intervene in themarket after the initial allocation by redistrib-uting the issued allowances among the partici-pating companies during the 2005-2007 tradingperiod. This State intervention would alter thecorrect functioning of the market and createuncertainty for business.

3. Involvement of DG Competition in

the assessment of the NAPs

Criterion 5 of Annex III of the ETS directiverequires that a National Allocation Plan ‘shall notdiscriminate between companies or sectors in sucha way as to unduly favour certain undertakings oractivities in accordance with the requirements ofthe Treaty, in particular Articles 87 and 88thereof’.

In its guidance document, the Commissionconfirmed that ‘the normal state aid rules willapply.’

By letter of 17 March 2004 to the Member States,the two director generals of DG Environment andDG Competition described under what circum-stances state aid may be involved in National Allo-cation Plans and what they considered as poten-tially most distortive practices in the context ofallowance allocation, potentially leading to incom-patible state aid. The letter indicated that theassessment of the National Allocation Plans wouldprimarily aim to ensure the environmental effec-

tiveness of the overall scheme and to preventsignificant distortions of competition, which couldarise in particular in case of over-allocation ofallowances.

The letter clarified that the Commission would notrequest automatically state aid notification of allNAPs. However the Commission would assessstate aid aspects of the plans in the context of theassessment of NAPs under the emission tradingdirective. Where a NAP seemed to contain aid andwhere such aid was likely to be incompatible, theCommission would take action under the state aidrules.

When examining the National Allocation Plans,the Commission took account in particular ofexperience it had in assessing national emissiontrading systems put already in force by someMember States before the Emission TradingDirective.

The Commission considered that the allocation ofemission allowances confers a selective advantageto certain undertakings which has the potential todistort competition and affect intra Communitytrade unless the allowances were sold to the recipi-ents at the market price (2). As regards the use ofstate resources and their imputability to MemberStates, the specificities of the emission tradingdirective led to a differentiated assessment. Article10 of the directive obliges Member States for thefirst trading period from 2005 until 2007 to allo-cate at least 95% of the allowances free of charge.This allows Member States to sell up to amaximum of 5% of the allowances. So far,Member States have made little use of this possi-bility. Only Denmark has decided to auction 5% ofthe allowances. Some other Member Statesenvisage auctioning of unused allowances fromthe new entrants reserve at the end of the tradingperiod or to auction a very limited number ofallowances to cover the administrative costs of theimplementation of the scheme. To the extent that aMember State does not use its possibility to sellallowances at a market price, the measure appearsto be imputable to the Member States and to entailthe use of State resources.

The measure may also contain state resources andbe imputable to the Member State where a



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(1) Where a plan has been approved by the Commission, the Member State can proceed to take a final allocation decision at nationallevel. Before doing so, it can make changes o the number of allowances for individual plants as a result of improved data. AMember State may, however, not increase the total number of allowances it intends to put into circulation.Where a part of a plan was rejected and the Member States implements the proposed changes, it will not have to submit its plan tothe Commission a second time but can proceed with the allocation decision at national level.

(2) State aid N 653/1999 — Denmark, OJ C 322, 11.11.2000, p.9; State aid N416/2001 — United Kingdom, OJ C 88, 12.4.2002, p.16;State aid N35/2003 — Netherlands, OJ C 227, 23.9.2003, p. 8.

Member State allows banking of allowances fromthe first to the second trading period. Until now, allMember States with the exception of Franceexcluded banking.

With the exception of Denmark, the Commissiontherefore could not exclude that the NAPs impliedState aid pursuant to Article 87(1) of the Treaty.

The Commission assessed further if any potentialaid was consistent with and seemed to be neces-sary to achieve the overall environmental objec-tive of the ETS directive.

The Commission sought contacts with MemberStates in particular where a NAP seemed tocontain one of the following features.

• Any potential aid does not contribute to achievethe environmental objective of the measure(this appears to be the case where a MemberState allocates a total number of allowanceswhich is not consistent with projected emis-sions or where it is inconsistent with its path toKyoto)

• beneficiaries do not deliver a sufficient environ-mental counterpart for any potential aid (thiswill be the case where they receive more thanrealistically projected emissions, as the aidwould then not have an incentive effect tochange behaviour)

• a plan leads to discrimination between tradingsectors or installations, e.g. by using unjustifieddifferent allocation methods for differentsectors or applying an allocation method differ-ently to certain undertaking; also with regard tounjustified different treatment of new entrantsvis-à-vis incumbents.

When assessing the NAPs, the Commissionencountered a limited number of such situations.Until now, most of potential threats to undistortedcompetition could be resolved in discussion withthe Member State concerned. In several cases,Member States reduced the total number of allow-ances in order to comply with Criterion 1, 2 and 5of the ETS directive. In some cases, MemberStates abandoned reserves established for specificsectors. The Commission therefore concluded formost NAPs that based on the information providedby the Member States, it considered that anypotential aid was likely to be compatible with thecommon market should it be assessed in accor-dance with Article 88(3) of the Treaty.

It should be noted that the Commission until nowscreened all NAPs in the context of ETS directivein order to identify obvious problems of probablyincompatible State aid. Until now, the Commis-sion did not take any formal State aid decision on aNational Allocation Plan. This does not give theMember State formal state aid approval of theirNAP, but it indicates however that the Commis-sion did not find obvious fault with the plan. Thisprima facie positive assessment can play a role inparticular where complaints might be launchedagainst a National Allocation Plan. Unless newevidence is brought forward, which casts doubtson the preliminary assessment, there is no reasonwhy the Commission should come to a less posi-tive assessment in case it would deal with a NAP ina state aid procedure.

In case any of the remaining four plans wouldcontain features likely to create significant distor-tions of competition and the Member Stateconcerned was not modifying its plan of its ownaccord, the Commission might need to requestnotification under Article 88(3) of the Treaty or todeal ex officio with a potentially illegal aid, hadthe aid already been granted. Considering theduration of a State aid investigation, in particularwhen a formal investigation procedure underArticle 88(2) of the Treaty would need to beopened, this could considerably hamper this coun-try's companies participation in the emergingcarbon market.

4. Experience gained from the process

The implementation of the emission trading direc-tive followed an extremely demanding schedule,not least due to the late submission of most of theNational Allocation Plans. While it was criticalthat Commission and Member States set up themajor elements of the emission trading construc-tion in a credible and workable manner, this phasealso needs to be seen as a learning phase. Oneshould not forget that the carbon market is anemerging market. At this stage it was most impor-tant to ensure a certain scarcity of allowances andto secure against major distortions of competition.In this setting, the screening of the NAPs understate aid aspects preferably without entering intoformal state aid investigations proved valuable.However, experience gained during the firsttrading period may well bring to light the need fora refinement of the application of the availableinstruments or even of the instruments themselves.

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The Court of Justice rules for the first time on Article 21(3)of the Merger Regulation (1) in case C-42/01 Portuguese Republicv. Commission (2)

Téa MÄKELÄ, Directorate-General Competition, unit E-3

On 22 June 2004, the Court of Justice rendered ajudgement in case C-42/01 Portuguese Republicv. Commission. The Court upheld the Commissiondecision of 22 November 2000 adopted against thePortuguese Republic on the basis of Article 21(3)of the Merger Regulation (‘Decision’). The Deci-sion was taken in the context of the examination ofa concentration notified to the Commission. In itsDecision, the Commission obliged the PortugueseGovernment to take the necessary measures tocomply with Community law and withdraw twodecisions (‘despachos’ of 5 July 2000 and11 August 2000) the Government took to oppose aproposed concentration, which had a Communitydimension, on the basis of national legislation onprivatisation. The present judgement marks thefirst ruling by the Court of Justice on Article 21(3)of the Merger Regulation (3). The background tothis judgement and some of the key findings of theCourt are briefly analysed below.

1. Background to the Court proceeding

In July 2000, the Commission received a notifica-tion of a concentration by which the Portuguesecompany Secil Companhia Geral de Cal eCimentos SA (‘Secil’) and the Swiss Holderbankgroup (‘Holderbank’) intended to acquire thewhole of the shares in the Portuguese cementmanufacturer Cimpor Cimentos de Portugal SGPS(‘Cimpor’). Cimpor had been nationalised in1970s but had been largely privatised in the 1990s.Through a public bid announced in June 2000,Secil and Holderbank sought to take control ofCimpor with a view to dividing the company on ageographical basis. Holderbank's offer to purchasepart of Cimpor had a Community dimensionwithin the meaning of the Merger Regulation,whereas Secil's bid for the other part of Cimpor didnot. Consequently, only the acquisition by

Holderbank of its part in Cimpor fell within thescope of the Merger Regulation.

Subsequent to the notification of the transaction tothe Commission (4), the Portuguese Governmentrefused to authorise the proposed transaction onthe basis of national legislation on privatisationand adopted two decisions (‘despachos’ of 5 Julyand 11 August 2000) to that effect. These deci-sions were taken in application of Decree Law380/93, according to which acquisition of sharesrepresenting more than 10% of the share capitalwith voting rights in companies that will be priva-tised is subject to previous authorisation by theMinistry of Finance. Pursuant to Article 4 of theDecree Law, the authorization shall be justifiedconsidering the objectives of Article 3 of theFramework Law on Privatisation No 11/90.

In September 2000, a letter by the Commissionerwas addressed to the Minister of Finance indi-cating that the Portuguese Republic appeared tohave failed to fulfil its obligations under Article21(3) of the Merger Regulation by deciding toreject the proposal by Secil and Holderbank toacquire Cimpor without informing the Commis-sion of its reasons and without giving it the oppor-tunity to assess the compatibility of those reasonswith Community legislation before adopting themeasures in question. In October 2000, theMinister of Finance replied that he had appliedDecree-Law No 380/93 to the takeover bid bySecilpar and Holderbank. The contested Decisionwas adopted in November 2000.

In the Decision, the Commission found that noneof the three legitimate interests set out in thesecond subparagraph of Article 21(3) were appli-cable and that the Portuguese Republic had failedto observe the procedure laid down in Article 21(3)of the Merger Regulation. The Commission there-fore found that the Portuguese Republic had acted



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(1) Council Regulation (EEC) No 4064/89 of 21 December 1989 (‘Merger Regulation’) now repealed by Council Regulation (EC)No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (‘The EC Merger Regulation’) enteredinto force on 1 May 2004; See corresponding Article 21(4) of the EC Merger Regulation.

(2) Judgement of 22 June 2004 in case C-42/01 Portuguese Republic v. Commission. The Hearing was held in September 2003 and theOpinion of Advocate General Tizzano, positive to the Commission, was issued in January 2004.

(3) In 1999, the Commission adopted a decision against the Portuguese Republic pursuant to Article 21(3) in the context of mergercase IV/M.1680-BSCH/A. Champalimaud. Proceedings before the Court were commenced but withdrawn at an early stage.

(4) Case No. COMP/M.2054–Secil/Holderbank/Cimpor.

in breach of that provision and required it to with-draw its decisions of 6 July and 11 August. ThePortuguese Republic failed to comply with theDecision.

Subsequently, in January 2001, Secil andHolderbank withdrew their notification to theCommission and abandoned their merger plans.

In February 2001, the Portuguese Republicbrought an action for annulment to the Court ofJustice of the Commission decision based onArticle 21 of the Merger Regulation.

In this context it should be noted that, during theCourt proceedings, on 4 June 2002, the Court ofJustice rendered its judgement in Case C-367/98.In that action, the Commission challenged on thebasis of internal market rules, inter alia, Portu-guese Law No.11/90 as well as Decree LawNo. 380/93. The Court found the Portuguese rulesproviding for a manifestly discriminatory treat-ment of investors from other Member States withthe effect of restricting free movement of capital.As to the argument based on the need to safeguardthe financial interests of the Portuguese Republic,the Court held that it was settled case-law that sucheconomic grounds, put forward in support of aprior authorisation procedure, cannot serve asjustification for restrictions on freedom of move-ment. By adopting and maintaining in force, inparticular, Law No 11/90 and Decree Law No 380/93, the Portuguese Republic had failed to fulfil itsobligations under Article 73 B (now Article 56) ofthe Treaty.

The contested Decision in the present proceedingschallenged the application of Decree-Law 380/93to a specific case.

2. Article 21(3) of the Merger Regulation

The Merger Regulation provides the frameworkfor the assessment of concentrations that have aCommunity dimension and ruling on their compat-ibility with the common market from the competi-

tion policy point of view. In relation to theMember States, this competence is exclusive andfinds explicit expression in the first and secondparagraphs of Article 21, which read as follows:

‘1. Subject to review by the Court of Justice, theCommission shall have sole competence to takethe decisions provided for in this Regulation.

2. No Member State shall apply its nationallegislation on competition to any concentrationthat has a Community dimension. […]’

While preserving the exclusive competence of theCommission to review the effects of concentra-tions having a Community dimension on competi-tion, the Merger regulation allows Member Statesto review the compatibility of mergers with otherpolicy interests, provided they are compatible withCommunity law.

Therefore, Article 21(3) provides that

‘3. Notwithstanding paragraphs 1 and 2,Member States may take appropriate measuresto protect legitimate interests other than thosetaken into consideration by the Merger Regula-tion and compatible with the general principlesand other provisions of Community law(emphasis added).’

The three specific categories of interests, whichare explicitly identified as legitimate inArticle 21(3) are ‘public security’ (1), ‘plurality ofmedia’ (2) and ‘prudential rules’ (3).

In this context it needs to be noted that the claim bya Member State of ‘a legitimate interest’ creates nonew rights for the Member State. It is restricted tothe recognition in Community law of the MemberState's present reserved powers to intervene incertain aspects of concentrations affecting theterritory coming within their jurisdiction ongrounds other than those covered by the MergerRegulation (4).

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(1) The reference ‘public security’ is made without prejudice to the provisions of Article 296 of the Treaty on national defence, whichallow a Member State to intervene in respect of a concentration which would be contrary to the essential interests of its security andis connected with the production of or trade in arms, munitions and war material. Moreover, there may be wider considerations ofpublic security, in the sense of Article 297 and 30 of the Treaty, in addition to defence interests in the strict sense. The requirementfor public security, as interpreted by the Court of Justice, could cover security of supplies to the country in question of a product orservice considered of vital or essential interest for the protection of the population’s health; Notes on Council Regulation (EEC)4064/89 with a view to clarifying the scope of certain articles.

(2) ‘Plurality of media’ recognises the legitimate concern of Member States to maintain diversified sources of information for thepurpose of plurality of opinion and multiplicity of views; Notes on Council Regulation (EEC) 4064/89 with a view to clarifying thescope of certain articles.

(3) ‘Prudential rules’ relate in particular to financial services and refer to the application of rules normally confined to national bodiesfor the surveillance of banks, stock broking firms and insurance companies. Prudential rules concern the good repute ofindividuals, the honesty of transactions and the rules of solvency; Notes on Council Regulation (EEC) 4064/89 with a view toclarifying the scope of certain articles.

(4) Notes on Council Regulation (EEC) 4064/89 with a view to clarifying the scope of certain articles.

Article 21(3) further provides (1) that ‘any otherpublic interest’, which a Member State wishes toprotect, ‘must be communicated to the Commis-sion by the Member State concerned and shall berecognised by the Commission after an assessmentof its compatibility with the general principles andother provisions of the Community law before themeasure to protect such an interest is taken by theMember State (emphasis added)’. The Commis-sion has a time limit of one month (2) from thecommunication of the claimed public interest tomake its assessment and inform the Member Stateof its decision.

For the Commission to recognise the compatibilityof the public interest claimed by a Member Statewith the general principles and other provisions ofCommunity law, it is important that prohibitionsor restrictions placed on concentrations should notconstitute a form of arbitrary discrimination or adisguised restriction in trade between MemberStates. In addition, measures which may be takenby the Member States must satisfy the criterion ofappropriateness for the objective and must belimited to the minimum of intervention necessaryto ensure protection of the legitimate interest inquestion. Therefore, where alternatives exist, themeasure should be chosen which is objectively theleast restrictive to achieve the end pursued (3).

3. The main arguments advanced by

the Commission

In the Decision, the Commission argued that thestructure of Article 21(3) is built on the balancebetween on the one hand the Member State beingunder an obligation to communicate to theCommission in advance ‘any other public interest’and to withhold from adopting measures to protectsuch interests, and, on the other hand, the Commis-sion being under an obligation to assess and rendera decision as to the compatibility of the claimedinterest with the general principles and otherprovisions of Community law within a short dead-line.

The Commission held that Article 21(3) would bedeprived of all its effect if, as a result of theabsence of communication of the claimed publicinterest, the Commission was not entitled to assesswhether a measure adopted by a Member State wasjustified by one of the interests expressly consid-ered as legitimate by Article 21(3). Member Statescould easily avoid the scrutiny of the Commission

by not communicating such measures. The Com-mission therefore considered that Article 21(3)should be interpreted in the sense that, irrespectiveof whether a measure is communicated, theCommission is entitled to adopt a decisionassessing whether a measure not covered by one ofthe three interests mentioned in Article 21(3)should be recognised as compatible with theTreaty.

The Commission stated that the arguments under-lying the two decisions opposing the concentrationwere encapsulated in the text of the second deci-sion referring to the objective of Decree-Law No380/93, according to which it is necessary ‘toprotect development of the shareholding struc-tures in companies undergoing privatisation witha view to reinforcing the corporate capacity andthe efficiency of the national production apparatusin a way that is consistent with the economic policyguidelines in Portugal’.

The Commission held that this objective is not oneof the interests (public security, plurality of themedia and prudential rules) regarded as intrinsi-cally legitimate for the purposes of the secondparagraph of Article 21(3) of the Merger Regula-tion. By adopting the decisions declining toauthorise the acquisition of more than 10% of theshares in Cimpor, the Portuguese Republic, in theCommission's view, in effect prohibited the acqui-sition and thereby raised barriers to the freedom ofestablishment and free movement of capitalenshrined in the Treaty, which could not beconsidered warranted under any essential groundsof public interest recognised in the case-law of theCourt of Justice. In any event, the PortugueseGovernment had not advanced any such grounds.The interest underlying the two decisions of thePortuguese Minister of Finance, which were notnotified to the Commission contrary to Article21(3) of the Merger Regulation, were thus found tobe incompatible with Community law.

One of the essential questions for the Commissionin these proceedings was whether the Commissionhad the competence to adopt an Article 21(3) Deci-sion under these circumstances or should havereverted to an infringement procedure underArticle 226 of the Treaty, as argued by the Portu-guese Republic in its action for annulment of theCommission decision. The Commission main-tained that Article 21(3) should be interpreted ascovering a situation where the Member State hasnot communicated to the Commission the public



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(1) See paragraph 3, subparagraph 3, of Article 21; now of Article 21(4) of The EC Merger Regulation.

(2) Pursuant to Article 21(4) of The EC Merger Regulation, the time limit is 25 working days.

(3) Notes on Council Regulation (EEC) 4064/89 with a view to clarifying the scope of certain articles.

interest, other than public security, plurality of themedia or prudential rules, it intends to protect priorto taking the measures.

4. The Court's findings

As regards the preliminary question raised by thePortuguese Republic, the Court considered thatwithdrawal of the notification (11 January 2001)after the adoption of the Commission's decisioncannot in any circumstances cause that decision tolapse. The decision thus continued to exist and toform the subject matter of the action brought by thePortuguese Government (1). The Court then wenton to analyse whether the Commission was enti-tled to adopt the contested decision.

The Court first recalled that the Merger Regulationis based on the principle of a precise allocation ofcompetencies between the national and Commu-nity authorities. On the one hand, the Commissionalone has competence to take all decisions relatingto mergers with a Community dimension. On theother hand, the 29th recital of the Merger Regula-tion provides that ‘concentrations not referred toin this Regulation come, in principle, within thejurisdiction of the Member States’. (2) In addition,the Court noted that, for reasons of legal certaintyand in the interest of the undertakings concerned,the Regulation also contains provisions (3)designed to limit the duration of the Commission'sreview (4).

In the Court's view, the above elements demon-strated that the Community legislature intended tomake a clear allocation between the interventionsto be made by the national and the Communityauthorities, and that it wished to ensure a control ofmergers within deadlines compatible with both therequirements of sound administration and the re-quirements of the business community. (5) There-fore, the Court dismissed the Portuguese Govern-ment's position on the third subparagraph ofArticle 21(3) of the Merger Regulation, to theeffect that, in the absence of any communication ofthe interests protected by the decisions of 5 Julyand 11 August 2000, the Commission could notrule by decision on the compatibility of those inter-ests with the common market (6).

Secondly, the Court agreed with the Commission,and the Advocate General, that, if, in the absenceof any communication by the Member Stateconcerned, the sole option open for the Commis-sion were to bring an action for failure to fulfilobligations under Article 226 of the Treaty, itwould be impossible to obtain a Community deci-sion within the short time limits laid down by theMerger Regulation. This would in turn increasethe risk of national measures already taken irre-trievably prejudicing a merger with a Communitydimension and rendering the Commission's reviewunder Article 21(3) ineffective by giving theMember States the possibility of circumventingthe controls laid down by that provision (7).

Consequently, the Court acknowledged that for thepower to review public interests, other than thosespecified as legitimate, to be effective, theCommission must have the power to rule by deci-sion as to the compatibility of those interests withthe general principles and other provisions ofCommunity law, irrespective of whether or notthose interests have been communicated to it (8).

Whereas the Court recognized that the Commis-sion's task, in identifying the interests protected bythe national measures, may be made more uncer-tain and complex if these interests have not beencommunicated to it, the Court emphasised that theCommission always has the possibility to ask theMember State concerned for information. TheCourt acknowledged that in this case the Commis-sion had done so. However, should the MemberState not provide the information as requested, theCommission is entitled to take a decision on thebasis of the information which it has at itsdisposal (9).

Thirdly, the Court held that ‘in a situation such asthat in this case, where the Member State has notcommunicated the interests protected by thenational measures in question, it is inevitable thatthe Commission will first examine whether thosemeasures are justified by one of the interests speci-fied in the second subparagraph of Article 21(3) ofthe Merger Regulation. If in so doing, it finds thatthe Member State adopted the measures in ques-tion in order to ensure the protection of one of the

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(1) Paragraph 43 of the judgement.

(2) Paragraph 50 of the judgement; Case C-170/02 Schlüsselverlag J. S. Moser v Commission [2003] ECR I-0000, paragraph 32.(3) Reference is made to Articles 4, 6, 10(1), 10(3), 10(6) and 21(3) of the Merger Regulation.(4) Paragraphs 51-52 of the judgement.



(7) Paragraphs 55-56 of the judgement.



legitimate interests enumerated in that subpara-graph, it does not have to take its examinationfurther and verify whether those measures arejustified by any other public interest envisaged inthe third subparagraph (emphasis added) (1).

Therefore, in light of the above considerations, theCourt concluded that the Commission has thepower under the third subparagraph of Article21(3) of the Merger Regulation to adopt a decisionas to the compatibility with the general principlesand other provisions of Community law of publicinterests protected by a Member State other thanthose three explicitly mentioned as legitimate inArticle 21(3). This is so even in the absence ofcommunication of those interests by the MemberStates concerned. Therefore, the Commission, inadopting the contested decision, did not encroachon the jurisdiction of the Court of Justice ornational courts, and did not infringe Article 21(1)of the Merger Regulation, Article 220 EC, Article226 EC or committed any misuse of procedure (2).

Finally, the Court also dismissed all other pleas bythe Portuguese Republic in support of its action forannulment of the Commission decision.

As to the plea on the infringement of Article 253 ofthe Treaty (plea for lack of, or insufficient, indica-tion of the legal basis) the Court found that thewording of the contested decision, and in partic-ular paragraphs 60 to 64 of the grounds, clearlyshow that it is based on the third subparagraph ofArticle 21(3) of the Merger Regulation (3). TheCourt also held that it is not necessary for thereasoning to go into all the relevant facts andpoints of law, since the question whether the state-ment of reasons meets the requirements of Article253 of the Treaty must be assessed with regard notonly to its wording but also to its context and to allthe legal rules governing the matter in question. Inthe Court's view the Commission supplied a suffi-cient, though brief, statement of reasons why itconsidered the interests underlying the two deci-sions by the Portuguese Government incompatiblewith the general principles and other provisions ofCommunity law. The Court also recognised thatthe decision was adopted in a context that was wellknown to the Portuguese Government (proceedingin Case C-367/98 Commission v Portugal) and thatthe Portuguese Government had not supplied theleast indication to the Commission as to the

compatibility of the public interests protected bythe measures concerned with Community law (4).

As regards the alleged breach of the principle ofproportionality, the Court found that the publicoffer had been launched with a view to sharing theassets of Cimpor between Secil and Holderbankand the two concentration operations were thus"indissolubly linked". Therefore, in the Court'sview, it was not possible to limit the effects of thecontested decision only to the Holderbank/Cimporconcentration, which had a Community dimen-sion. Consequently, the Commission was entitledto state in the decision that the PortugueseRepublic was obliged to withdraw the decisions of5 July and 11 August 2000 in their entirety, and todeclare that the interests underlying those deci-sions were incompatible with Community law (5).

5. Conclusions from the judgement

The above-mentioned proceedings were of consid-erable importance from the point of view of theCommission's exclusive competence to examineconcentrations having a Community dimension.This judgement, which is the first ruling on Article21(3) of the Merger Regulation, supported theposition adopted by the Commission and providesuseful guidance for any future application of thatprovision. It clarifies the interpretation of Article21(3) in cases where a Member State fails to notifyto the Commission ‘any other public interest’(other than public security/plurality of media/prudential rules) it wishes to protect before takingmeasures to protect that interest.

The judgement confirms the Commission'scompetence to assess the compatibility of thatinterest with the general principles and otherprovisions of Community law and to adopt a deci-sion addressed to the Member State to that effect,even in the absence of a communication of such aninterest to the Commission before the measure toprotect that interest is taken. In such circum-stances, the Commission will first examinewhether those measures are justified by one of theinterests explicitly recognised as legitimate inArticle 21(3) (public security/plurality of media/prudential rules). If it finds that the Member Stateadopted the measures in question in order to ensurethe protection of one of these legitimate interests it



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(1) Paragraph 59 of the judgement; by analogy, in relation to State aid, Case C-301/87 France v Commission (Boussac St. Frères)[1990] ECR I-307, paragraph 22.





does not have to take its examination further andverify whether those measures are justified by anyother public interest envisaged in the thirdsubparagraph.

Whereas this judgement is relevant in circum-stances of wrongful non-communication by theMember State of its public interest claims otherthan public security/plurality of media/prudentialrules, it may be appropriate to be cautious beforedrawing too far reaching conclusions as to its rele-vance for other scenarios that may arise underArticle 21(3) of the Merger Regulation.

However, what can be drawn from this judgementis that the Court has unequivocally emphasised the

principle of a precise allocation of competenciesbetween the national and Community authoritiesand interventions made by the national and by theCommunity authorities in view of efficient mergercontrol respecting sound administration, legalcertainty and the legitimate interests of the under-takings concerned.

Most importantly for the Commission's role in theeffective enforcement of Community law, and inparticular in safeguarding of an effective system ofmerger control in the Community, the Courtrecognises Article 21(3) as lex specialis takingpriority over an action for failure to fulfil obliga-tions under Article 226 of the Treaty in the circum-stances of the case.

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Profit splitting mechanisms in a liberalised gas market:the devil lies in the detail

Harold NYSSENS and Iain OSBORNE,Directorate-General Competition, unit B-1

Introduction

Liberalisation of energy markets is a key elementin the Lisbon agenda to improve Europeancompetitiveness. Recent years have therefore seena range of actions at European and Member Statelevel to open markets for competition, most promi-nently through the adoption of European legisla-tion liberalising electricity and gas markets (1).

In parallel, the Commission has pursued a series ofanti-trust cases to remove, amongst others,commercial practices that entrench marketsegmentation (2). In view of the high costs of entryinto energy markets, established players' efforts tosell outside their traditional supply zones are likelyto be, at least in the medium term, a crucial catalystfor competitive markets to develop in this sector.A number of cases challenging territorial restric-tion clauses found in upstream gas contracts weredescribed in a recent article in this Newsletter (3).The present article discusses further how other,more sophisticated, mechanisms might similarlyhave the effect of segmenting the European gasmarket. In particular, it reviews the compatibilitywith article 81 of the EC Treaty of so-called‘profit-sharing mechanisms’, also dubbed ‘profitsplitting mechanisms’ or PSMs, in contractsbetween gas producers and wholesalers.

The importance to consumers of cross-

border trade

Although gas has been internationally traded to afar greater extent than electricity, gas markets inmost of Europe have nevertheless historically beensharply segmented by national legislation,commercial practice and contract terms. Pricespaid by customers in different national marketsand end-use sectors have varied markedly, dueto these factors amongst others. One importantreason probably lies in the different gas prices inupstream long-term gas contracts signed by

national incumbents with upstream producers.Indeed, upstream prices have tended to be setaccording to three main principles:

The first principle is the ‘competing fuels princi-ple’. This principle means that the evolution of thegas price is linked to the price of crude oil and itsderivatives. It arose historically from gas beingmarketed predominantly in competition withheavy and light fuel oils.

The second principle is the ‘market value princi-ple’. This principle indicates that the gas price isnegotiated separately for each target market(generally the territory of a Member State), takinginto account the mix of competing fuels in thismarket. In this regard, it should be noted that thefuel mix naturally varies from country to country,leading to different price levels for each MemberState.

The third principle is the so-called ‘net-back prin-ciple’. This principle implies that, whatever pricewould be the result of the previous principles isthen adjusted taking into account transport costsbetween the agreed delivery point and the pointwhen the gas enters the importer's sales area. Thenet-back principle generally has the effect oflowering gas prices for those importers whosesales area is further away from the delivery point.

These, together with other relevant factors likelocal transport costs and margins, lead to pricedifferentials between market prices and thus to anatural pressure for arbitrage between markets.The effect of such ‘gas-to-gas’ arbitrage should be,in the first instance, to equalise prices betweenmarkets. Competition between suppliers — of gasfrom the same and from different sources —should also create pressure for gas prices to falltowards costs. This is of particular importancewithin the areas of Europe that have historicallyrelied heavily on a single source of gas (Russian,Algerian or North Sea gas).


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(1) In particular Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules forthe internal market in electricity and Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003concerning common rules for the internal market in natural gas.

(2) For an overview, see MEMO/03/159 of 29.7.2003.

(3) See. H. Nyssens, C. Cultrera and D. Schnichels: ‘The territorial restrictions case in the gas sector: a state of play’, CompetitionPolicy Newsletter, 1/2004, p. 48. See also the closure of the investigation concerning OMV (IP/05/195).

It is therefore of prime importance for competitionthat wholesalers who buy gas from producers arefree to sell this gas outside their historic area ofoperation. It is in this perspective that legalmonopolies for gas supply, import and/or exportthat were granted in the past by a large number ofMember States are gradually being abolished bythe liberalisation Directives. However, somecontractual practices can achieve a similar effectas legal monopolies from the point of view ofcompetition or the consumer.

Further barriers to free movement:

profit sharing mechanisms

An earlier article on territorial restrictionsdescribed the progress achieved by the Commis-sion in securing the removal of territorial restric-tion clauses from some upstream gas supplycontracts. Since then, the Commission serviceshave continued to work on this theme. Forinstance, in October 2004 the Commissionadopted two decisions, the first on this subject inthe gas sector, which formally confirm that territo-rial restriction clauses infringe Article 81 of theTreaty (1).

However, the Commission's work on this themehas not only addressed contract clauses that explic-itly forbid resale outside a particular territory. Ithas also covered a number of contractual mecha-nisms that have equivalent effects to a territorialrestriction, by making resale economically unfea-sible or at least less attractive. In particular,producers have sometimes replaced territorialrestriction clauses with PSMs.

That effects similar to territorial restrictions mightbe achieved as effectively indirectly, by moresophisticated means, has long been recognised bythe Commission. Paragraph 49 of the CommissionGuidelines on Vertical Restraints (2) indeed states:

‘The hardcore restriction set out in Article 4(b) ofthe Block Exemption Regulation [...] relates tomarket partitioning by territory or by customer.That may be the result of direct obligations, suchas the obligation not to sell [...] to customers incertain territories [...]. It may also result from indi-rect measures aimed at inducing the distributor not

to sell to such customers, such as [...] profit pass-over obligations [...]’.

This position has been reflected in a number ofCommission decisions. For example, in the JCBdecision (3), relating to construction and earth-moving equipment, the Commission dealt with asystem of service fees payable when goods hadbeen exported by a distributor to a destinationoutside its own territory. These fees were paid bythe distributor of the country of origin, and paid tothe distributor in the destination country. The feesupposedly related to the cost of after-salesservices provided in the destination country for re-exported goods. The Commission argued that,given that the fee amounted to a substantial part ofthe potential gross margin from such exports, thefee acted as a de facto profit pass-over clause andthat this deterred export sales and thus reinforcedthe territorial protection of other official distribu-tors.

Similarly, in the Volkswagen (4) case, an antitrustinfringement arose because a limit, imposed on thevolume of sales outside the contract territory thatcould be taken into account for the purpose ofcalculating a bonus, was liable to induce dealers toremain within their own territory, and thusrestricted consumers' and overseas dealers' abilityto acquire vehicles in Italy.

The starting point is therefore to regard profit-sharing or profit pass-over mechanisms (PSMs) aslikely to infringe Community anti-trust law. Inrecent territorial restriction cases the Commissionhas equally paid close attention to profit-sharingclauses. For instance, in the Nigerian LNG case (5)it ensured such clauses would not be inserted intocontracts.

Do profit-sharing mechanisms always

restrict competition?

However, the antitrust effects of a PSM depend onwhat concrete mechanism is being applied. Therest of this article examines the application ofprofit-sharing in liquefied natural gas (LNG (6))supply contracts. Some operators have indeedargued that profit-sharing mechanisms canprovide a valid means of maintaining a commer-



(1) See Commission press release IP/04/1310. [See the article on the GDF case in this Newsletter on page 45].

(2) OJ C 291, 13.10.2000, p. 1.

(3) Decision of 21.12.2000, OJ L 69, 12.3.2002, p. 1.

(4) Commission decision of 28.1.1998, OJ L 124, 25.4.1998, p. 60.

(5) Commission press release IP/02/1869. See also Commission press release IP/02/1048 concerning the GFU case.

(6) LNG is gas that has been super-cooled at the port of departure. It is piped aboard an insulated tanker and can then be transportedlong distances before being piped ashore and regasified, and then injected into onshore transportation pipelines.

cial equilibrium between the parties to an LNGcontract. LNG involves co-ordinating and time-tabling a complex chain of technical facilities,including upstream production sites, cooling facil-ities, tankers, re-gasification terminals and thefinal transport pipelines. Therefore, deviations ofships away from a pre-planned delivery schedulecan sometimes cause a number of difficulties, bothfor the seller — in terms of re-arranging its produc-tion process — and for the buyer, who has to re-arrange its supply portfolio. In view of these tech-nicalities, delivery schedules are arranged betweenthe seller and the buyer. It is therefore natural thatLNG contracts include provisions clearlyoutlining the conditions for such deviations, bothbetween EC ports and on a larger inter-continentalscale (1) in case the delivery schedule cannot bemet any longer because of the deviation.

The issue is relevant for LNG because a tanker canbe diverted during its journey (so long as terminalcapacity is available in an alternative port). LNGsupplies are therefore inherently more flexible totake advantages of price spikes in differentnational markets than gas supplies through pipe-lines. The type of arrangements discussed herewould be difficult to justify in pipeline contracts,where deviations of the gas are unlikely to disruptthe upstream production process and where,anyhow, gas molecules are difficult to track in ameshed network.

Given these factors, some historic LNG contractshave included mechanisms to share profits arisingfrom resale of an LNG cargo in a port/countryother than its originally intended destination.

Such arrangements should however not lead tolimiting the buyer's freedom to re-sell the gaswithin the European internal market wherever hedeems commercially appropriate. The exact func-tioning of such profit sharing mechanisms is ofconsiderable importance in assessing whethertheir object or effect is to restrict the resale of LNGbetween Member States (2). Several dimensions ofan LNG contract are relevant for determining aPSM's impact on competition.

Sharing of costs or sharing of profits?

First, a consistent theme identified in the prece-dents cited above relating to profit sharing is thatthe pass-over of part of the total margin may bejustified, where this compensates the recipient forcosts that they demonstrably incur because of there-sale. These might, for instance, be after-salesservices, or charges to ensure that all distributorsparticipate fairly in marketing costs.

However, in the case of LNG sales, no after-salesservices appear to be provided by the seller. Nordoes the seller appear to incur any marketing costsfor such a non-branded commodity. It is hard tosee, therefore, what costs arise that can legiti-mately be reclaimed through a systematic levy onresale.

The impact of the contractual regime

Second, PSMs risk, by their nature, interferingwith the freedom of a buyer to dispose of his goodsas he sees fit. It is this interference which createsthe basis for anti-competitive object or effects (3).However, whether these practices lead to a restric-tion depends also on the stage in the value chainwhere the PSM is being applied.

LNG cargoes, like other international freight, canbe shipped on the basis of internationally recog-nised commercial terms (INCOTERMS), estab-lished by the International Chamber of Commerce(ICC) (4). The most likely contractual regimes forLNG shipments are as following (emphasisadded):

• FOB (Free on Board) means that the sellerdelivers when the goods pass the ship's rail atthe named port of shipment. This means that thebuyer has to bear all costs and risks of loss of ordamage to the goods from that point.

• DES (Delivered Ex Ship) means that the sellerdelivers the contract goods when those goodsare placed at the disposal of the buyer on boardof the ship at the named port of destination. The



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(1) LNG trading is beginning to emerge as a global market. Naturally, since the jurisdiction of European anti-trust law is limited tomatters affecting trade within the single market, this article is of no relevance for trades not affecting the EC market.

(2) The present considerations apply merely to transactions which could affect trade between Member States. Mechanisms whichapply merely to transactions between the Community and third countries are therefore unlikely to fall within the scope of ECantitrust rules.

(3) See judgment of the Court of Justice of 14 December 1983, Kerpen & Kerpen, case 319/82, ECR, p. 4173.

(4) An overview of the Incoterms, 2000 edition, can be found on the following website: http://www.iccwbo.org/index_incoterms.asp

seller has to bear all costs and risks involved inbringing the goods to the named port of destina-tion before discharging.

• CIF (Cost, Insurance and Freight) means thatthe seller delivers the contract goods whenthose goods pass the ship's rail in the port ofshipment. The seller must pay the costs andfreight necessary to bring the goods to thenamed port of destination and procure marineinsurance against the buyer's risk of loss of ordamage to the goods during the carriage.However, the risk of loss of or damage to thegoods, as well as any additional costs due toevents occurring after the time of delivery, aretransferred from the seller to the buyer in theloading port.

In principle, both parties to a CIF or DES shipmenthave to agree about deviating a ship before it hasarrived in the re-gasification terminal. Indeed, inthe absence of both parties' agreement no deviationcan be realised whilst still respecting the essentialconditions of the contract (delivery of a gasvolume at a certain delivery point within a certainperiod range). In other words, a change of deliverypoint encompasses a substantial change to theagreement, as in the absence of an agreed deliverypoint, there can be no contract. PSMs applying toa CIF or DES cargo which has not yet been deliv-ered therefore constitute, in some sense, an agree-ment between the parties to change an essentialelement of the contract (the delivery point) inexchange for a price (determined, for instance, bymeans of the PSM). In this sense, a PSM includedin these types of contracts does not interfere withthe buyer's freedom, since the deviation of thecargo takes place before the ownership and/or riskof the gas has passed. In general, therefore, it isunlikely that PSMs in CIF or DES contracts wouldconstitute an infringement of antitrust law, so longas they apply to what happens with the gas beforeits delivery.

On the other hand, PSMs that oblige the buyer topay an amount to the seller in view of the use madeby the buyer of the gas after it has been deliveredwould clearly restrict the buyer's freedom. Thiscould exceptionally be the case for a PSM in a CIF/DES contract (if for instance the use of the gas

after its re-gasification is restricted (1)), but wouldnormally more clearly result from a PSM in a FOBcontract. PSMs in FOB contracts constitute, inprinciple, a limitation of the freedom of the buyerafter transfer of property/risk. They can thusundermine incentives to sell gas in a different partof the European market than originally intended.Therefore they are, prima facie, to be considered asa violation of article 81(1) of the EC Treaty.

‘Raw’ vs. ‘Net’ PSMs

Thirdly, the likelihood of a restriction beingconsidered a violation of article 81(1) of the Treatydepends also on the methodology of the PSM.Although contractual practice is extremely varied,two broad categories of PSM clauses can be identi-fied, which have quite different effects.

A first type of PSM splits the entire differencebetween, on the one hand, the upstream pricebetween the seller and the European buyer and, onthe other hand, the price obtained by the latterwhen re-selling in a territory alternative to theoriginally envisaged territory. Calling such mech-anism a PSM could be considered a euphemism tothe extent that what is being split is not really aprofit, but rather the gross price differentialbetween the upstream price and the downstreamprice in the new territory. Such mechanisms can bedubbed ‘raw PSMs’.

A second type of PSM can be dubbed ‘net PSM’.Such PSM applies where there is a positive ‘incre-mental’ profit differential between, on the onehand, the downstream profit expected to be madeby the buyer in the originally envisaged territoryand, on the other hand, the downstream profiteffectively made when re-selling in the new terri-tory. The term ‘net’ has been chosen in view of thefact that the split is to be applied to profits afterdeduction of the costs associated with the deliveryof gas in the new territory.

The difference between raw PSM and net PSMclauses is significant as these clauses have quitedifferent effects on the incentive for the operatorsconcerned to change the destination of the cargoesand realise price arbitrage. This is illustrated byFigure 1.



(1) As regards Commission action over use restrictions, see IP/00/297, and M. Fernandez Salas, ‘Long-term supply agreements in thecontext of gas market liberalisation: Commission closes investigation of Gas Natural’, Competition Policy Newsletter 2/2000,p. 55.

In this illustrative schema, assuming that the PSMprovides for a 50/50 share between operatorsconcerned, the difference in the effects of raw andnet PSM's can be described as follows:

• raw PSM: in the alternative destination, thedifference between the final price (130) and theinitial price (100) is 30, so 15 goes to the seller,leaving only 5 for the buyer (after costs of 10);whereas in the traditional destination, the reali-sable margin is 10 (downstream price (120) —upstream price (100) — costs (10)). The effectof the raw PSM is to reduce the margin of thebuyer as compared to the margin originallyexpected in his traditional territory. The rawPSM operates, in reality, in a manner close tothe ones condemned in the JCB and Volks-wagen cases cited above.

• net PSM: the incremental profit as a result of thedeviation is 10 ( 20 margin in the new territoryas compared to only 10 margin in the originalterritory) Assuming again a 50/50 share of theadditional profit, the application of the net PSMleaves the buyer with a profit of 15 (20-5retroceded to the seller) as compared to themargin of 10 he would have made in the origi-nally foreseen territory. In other words, themere splitting of a real incremental profit willalways lead to a higher margin, also for thebuyer, in the new territory.

Because raw PSMs can be expected to (compara-tively) reduce the margin of the buyer in case ofdeviations, they are likely to be considered asrestrictions by object. Indeed, it can be presumedthat a buyer will tend to sell its gas wherever itmakes the biggest margin. Net PSMs, on thecontrary, will tend always to leave an additional(even if reduced) margin in the new territory. It can

therefore again be presumed that the buyer willagain, go for the higher margin in the new territory.In view of this logic, it can be considered, from apolicy point of view, that net PSMs, do not appre-ciably restrict competition to the extent they do notabolish the ‘incentive’ for the buyer to still obtain ahigher margin in a new territory. In line with this,only FOB contracts providing for the freedom ofthe buyer to deviate ships — without priorapproval of the seller — containing the mere limi-tation that an incremental profit will be shared canbe considered as not being appreciably restrictive.This reasoning also implies that in case of devia-tions with a profit (as compared to the upstreamprice) but without an ‘incremental’ profit (ascompared to the originally foreseen destination)no retrocession can take place.

Sharing of confidential commercial

information

In addition, the practical operation of PSMs canhave significant indirect effects. In particular, anyapplication of a PSM implies the risk of sharing ofconfidential information between (potential)competitors. More specifically, the price offeredby the wholesaler to its final customers is likely tobe used for computing the precise profit to beshared by the parties. To the extent that theproducer is itself an actual or potential competitorselling directly to those final customers — or that itmay subsequently share the information with otherdownstream competitors — this information-sharing may itself be anti-competitive. As a conse-quence, this direct passing-over of informationabout commercial prices or margins should beavoided, for instance, by means of the appointmentof an independent trustee. This trustee will then bein charge of receiving from both parties the



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Figure 1

different pricing, margin or cost informationwhich is necessary to compute the part of the incre-ment to be retroceded.

Ability to determine likely effect

Finally, it is also of great importance whether thecontract terms are in fact clear enough to enablethe buyer to determine in advance (and without theneed for ad hoc renegotiation) what share of profitwill be payable to the seller. In practice, PSM'sappear by no means always so clearly drafted.Indeed, contracts not providing for clear wordingas regards cost determination and the pricecomparators (raw prices or net incrementalmargins) will tend to be considered as having thepurpose to oblige the buyer to ask for the priorapproval of the seller before any transaction. Suchvague clauses should therefore be considered torestrict competition in the same manner as the ‘rawPSM's’ described above.

Conclusion

The authors' conclusion is that, to the extent thatPSM's have the effect of creating a disincentive toresell gas outside the originally intended destina-tion, thereby limiting the buyer's freedom todispose of its gas as he sees commercially appro-priate, they infringe anti-trust law. Such infringe-ments are more likely in case of FOB contracts, inview of the fact that in CIF/DES contracts bothparties' approval is anyhow necessary in order toamend the essence of the contract (delivery pointand price). Where PSMs clearly maintain theincentives for the buyer to sell abroad — byleaving him systematically a positive incrementalmargin in a new destination where the LNG ship isdeviated — they are considered, by the authors, asnot being appreciably restrictive. This reasoningrequires a detailed analysis of contractual mecha-nisms and their economic context. Unfortunately,the devil lies in the detail...



The BdKEP decision: the application of competition law tothe partially liberalised postal sector

Manuel MARTINEZ LOPEZ and Silke OBST, Directorate-GeneralCompetition, unit C-1

1. Introduction

On 20 October 2004, the Commission adopted adecision based on Article 86 regarding certainprovisions of Germany's postal regulatory frame-work which bar commercial mail preparationfirms from earning discounts for handing over pre-sorted letters at Deutsche Post AG's (DPAG)sorting centres (1). The case was prompted by acomplaint on 20 May 2003 from theBundesverband der Kurier-Express-Post Dienstee.V. (BdKEP), a German association of courier,express and postal service providers.

The Commission found that the incriminatedprovisions of the German Postal Law induceDPAG to abuse its dominant position, thus toinfringe Article 82, in two ways: First, they induceDPAG to discriminate between, on the one hand,bulk mailers who have access to the downstreamsorting centres and the related discounts and, onthe other, commercial providers of such serviceswho do not have access to these discounts. Second,the provisions prompt DPAG to extend its marketpower from the (reserved) market for basic postalservices upstream into the (liberalised) market formail preparation services.

2. Mail preparation services and

discounted postal tariffs

DPAG has the exclusive right to clear, sort, trans-port and deliver letters weighing less than 100grams (the so-called reserved area). The marketfor mail preparation services is upstream of thereserved area. It involves the making up of postalitems (printing, enveloping, labelling, franking),collecting, placing them in mailbags or containerscomplying with certain standards, bundling andsorting them to a greater or lesser degree by desti-nation and delivering them to access points of theuniversal service provider. These activities weretraditionally performed by the senders themselves.

They are now increasingly outsourced to special-ised mail preparation firms and warrant a hugepotential for market growth in Germany.

Since local post offices in Germany are notequipped to process bulk mail, mail preparationfirms transport the letters directly to DPAG'ssorting centres where they are fed into the publicpostal network. The German postal legislationprovides for a graduated system of discountedpostal tariffs for large customers which feed self-prepared mail into the postal network at sortingcentres. The level of discount depends on thenumber of items per category and on whether theletters are handed over at the outbound sortingcentre (i.e. closest to the sender) or the inboundsorting centre (i.e. closest to the recipient). Thediscounts, which reflect the costs avoided byDPAG, are fixed by the German postal regulatorRegTP and reviewed once a year. Mail preparationfirms which — as the overwhelming majority —work on behalf of several senders and consolidatetheir letters before feeding them into the publicnetwork are barred from these discounts as far asletters falling within the reserved area areconcerned. Yet the costs savings for DPAG are thesame irrespective of whether the mail is brought bycustomers themselves or by commercial providersacting on their behalf.

3. Article 82 complaints to the

Bundeskartellamt

In the framework of the European CompetitionNetwork (ECN), the German Federal Cartel Office(Bundeskartellamt) informed the Commission thatit had received two complaints under Article 82and/or the German equivalent which related to thesame subject-matter. Indeed, the complainantschallenged DPAG's refusal to grant them quantity-based discounts for reserved mail items at theincumbent's sorting centres. DPAG's practice washowever so far covered by the German postal



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(1) Text of the decision available at: http://europa.eu.int/comm/competition/liberalization/decisions/

regulatory framework and in particular by theprovisions under investigation by the Commis-sion. The compatibility of the German provisionswith Community law was thus a preliminary ques-tion for any further action at the national level.

The Bundeskartellamt and the Commission there-fore agreed to closely co-ordinate their actions,proceeding in two stages and at two levels. First,the Commission would finalise the infringementproceedings under Article 86 and take a definitiveview as to whether the German postal provisionsinfringe the competition rules. Should theCommission come to the conclusion that the provi-sions are contrary to Community law, theCommission decision would lift the obstacle of thejustification of DPAG's behaviour through theGerman Postal Law. Indeed, under the ECJ's CIFcase law (1), national competition authorities arerequired to set aside the application of national lawwhich contravenes Community law. A Commis-sion decision ruling against the incriminatedprovisions in the German Postal Law would be asufficient indication that these provisions contra-vene Community law. The Bundeskartellamtcould then, in a second step, adopt a decision basedon Article 82 (to the extent that trade betweenMember States is affected), enjoining DPAG togrant commercial mail preparation firms the appli-cable downstream access discounts. In such a way,the Bundeskartellamt's action at the national levelwould be a perfect supplement to an Article 86decision which, in itself, would not have anyimmediate bearing on DPAG's behaviour.Thereby, the competitive disadvantage placed onmail preparation firms — if confirmed by theCommission's investigation — could in practicerapidly be removed.

4. Infringement of articles 86-82 of the

EC Treaty

The Decision finds that the contested provisionsinduce DPAG to abuse its dominant position, thusbreaching Article 82, in two ways.

4.1. Discrimination

First, they induce DPAG to discriminate between,on the one hand, large customers who have accessto the downstream mail preparation discounts and,

on the other, commercial providers of suchservices who do not have access to these discounts.This amounts to not treating like cases alike,thereby discriminating between senders. Bothmajor senders and commercial firms hand oversimilar volumes of mail at sorting centres, pre-sorted and presented in the same way and leadingto the same savings in handling operations andefficiency gains for DPAG.

This finding is fully corroborated by Article 125th indent of the Postal Directive (2) which laysdown a tariff non-discrimination principle fordifferent types of large mailers: ‘Wheneveruniversal service providers apply special tariffs,for example for services for businesses, bulkmailers or consolidators of mail from differentcustomers, they shall apply the principles of trans-parency and non-discrimination with regard bothto the tariffs and to the associated conditions.’

4.2. Extension of a dominant position

Second, the relevant provisions induce DPAG toextend its market power on the (reserved) marketfor basic postal services into the market for mailpreparation services where it is also a key player.DPAG charges the full postal tariff for profession-ally pre-sorted and prepared bulk mail delivered toa downstream access point which, in terms ofvolume and quality of preparation, would havegiven rise to the maximum available discount hadit been handed over by the bulk mailer itself.DPAG thus enjoys the cost savings without anycompensation for the mail preparation firms. Atthe same time, mail preparation firms whichcompete with DPAG do not have the possibility toprocure their clients savings on postage which is akey argument in the cost savings-driven market formail preparation services.

4.3. No interference with Article 7 of the

Postal Directive

During the proceedings, DPAG's main argumentwas that part of the mail preparation services asdefined by the Commission, namely the pre-sorting of the mail and its transport from thesender's premises to a DPAG sorting centre onbehalf of several senders, fall within the ambit of



(1) Judgment of the Court dated 9 September 2003 in Case C-198/01, Consorzio Industrie Fiammiferi (CIF) and Autoritá Garantedella Concorrenza del Mercato.

(2) Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development ofthe internal market of Community postal services and the improvement of quality of service, OJ L 15/14 of 21.1.1998 as amendedby Directive 2002/39 of 10 June 2002, OJ L 176, 5.7.2002, p. 21.

the reserved area of the Postal Directive and that,as a consequence, Articles 86 and 82 do not applyto the services concerned.

The Decision demonstrates why this allegation, ifat all justified in law, is unfounded in the actualcircumstances at hand. Pursuant to Article 7(1) ofthe Postal Directive, the scope of the reservedservices includes the ‘clearance, sorting, trans-port and delivery’ of certain items of correspon-dence. The reserved area thus has a clear begin-ning, the ‘clearance’, and an ending, the‘delivery’, both chronologically and geographi-cally. Both terms are defined by the Directive (1).

Not only letter boxes and postal offices, but alsoDPAG's sorting centres are ‘access points’ underthe Directive since all clients, whether senders ormail preparation firms, can deposit their bulk mailitems at these points. This means that in the case ofbulk mail the reserved area only starts with thehanding over of the mail items at the sortingcentre. All activities which take place beforehand,in particular the pre-sorting and the transport fromthe sender's premises to the sorting centre, cannotbe reserved (2). The Commission has already takenthis view in the 2001 SNELPD decision (3) and its1998 Notice on the application of the competitionrules to the postal sector (4)

4.4. No negative impact on DPAG's

financial equilibrium

The incriminated provisions are not justified underArticle 86(2), which sets out an exception toArticle 86(1) where the application of the rules ofcompetition would obstruct the performance of theparticular tasks assigned to the undertaking whichhas been granted exclusive or special rights. First,the Postal Directive determines a maximum scopeof services for which Member States can grant

exclusive or special rights, to the extent necessaryto ensure the maintenance of the universal service.Article 7 Postal Directive could thus be seen as alex specialis to Article 86(2) in the realm of thepostal sector. As the mail preparation activitiesunder investigation do not fall within the ambit ofthe reserved services, there is a presumption thatany special right in relation to these is not justifiedunder Article 86(2).

More importantly, even on substance DPAG failedto demonstrate that removing the incriminatedprovisions would actually have any impact on theperformance of the universal postal service. TheGerman system of discounted postal tariffs isprecisely designed not to obstruct the performanceof DPAG's universal service obligations. Thediscounts are regularly reviewed by RegTP andmirror the avoided costs in each case and, in partic-ular, take into account the fixed network costswhich DPAG continues to bear even if part of it isnot used or less used because of upstream consoli-dation.

5. Conclusion

The BdKEP decision is the 15th decision based onArticle 86 adopted by the Commission and the firstone ever addressed to Germany. It shows that theCommission is determined to use this legal basiswhenever Member States adopt or maintain inforce provisions which induce dominant undertak-ings to abuse their position. This is particularlyimportant in the postal sector, where the Commu-nity legislator has decided a gradual and controlledliberalisation that Member States should not frus-trate. After the SNELPD decision mentionedabove and the Italian hybrid mail case (5), this isthe third illustration of the interaction betweenArticle 86 and postal sector-specific regulationsince the entry into force of the Postal Directive. In



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(1) Clearance is the ‘operation of collecting postal items deposited at access points’ (Article 2(4)), i.e. ‘physical facilities [...] wherepostal items may be deposited with the public postal network by customers’ (Article 2(3)). Delivery or distribution (theequivalence of both terms can be derived from the French and German language version) is the ‘process from sorting at thedistribution centre to delivery of postal items to their addressees’. The activities of ‘sorting’ and ‘transport’ can be reserved to theextent to which they take place between the beginning and ending defined by the Directive.

(2) This is confirmed by a comparison with the scope of the universal service defined in Article 3 of the Postal Directive. The universalservice provider is under the obligation to ensure the ‘clearance, sorting, transport and distribution of postal items up to twokilograms’ at all points in the national territory on every working day and not less than five days a week. If ‘transport’ wasconstrued as comprising the conveyance of mail items from the sender’s premises to the sorting centre as alleged by DPAG,DPAG would be obliged to pick up mail items from all households and companies everywhere in Germany

(3) Commission Decision of 23 October 2001 on the lack of exhaustive and independent scrutiny of the scales of charges and technicalconditions applied by La Poste to mail preparation firms for access to its reserved services, OJ L 120, 7.5.2002, p. 19.

(4) Notice from the Commission on the application of the competition rules to the postal sector and on the assessment of certain Statemeasures relating to postal services, OJ C39 of 6.2.1998, page 2. See in particular footnote 30: ‘Even in a monopoly situation,senders will have the freedom to make use of particular services provided by an intermediary, such as (pre-)sorting before depositwith the postal operator.’

(5) Commission Decision of 21 December 2000 concerning proceedings pursuant to Article 86 of the EC Treaty in relation to theprovision of certain new postal services with a guaranteed day- or time-certain delivery in Italy, OJ L 63, 3.3.2001, p. 59.

terms of procedure, the BdKEP decision and thewarning letter which the Bundeskartellamtaddressed to DPAG in November 2004, demon-strate the ever closer co-operation between theCommission and the national competition autho-

rities within the new framework laid down byRegulation 1/2003. The Federal Republic ofGermany and DPAG have filed an application forannulment of the Decision before the CFI (CasesT-490/04 and T-493/04).



Capacity limitations for shipyards in the context of the Court ofJustice' judgement on Kvaerner Warnow Werft (KWW)

Joerg KOEHLI, Directorate-General Competition, unit H-1

Introduction

On 28 February 2002, the Court of First Instanceannulled two Commission decisions concerningthe East German shipyard Kvaerner WarnowWerft (KWW), which ruled that KWW hadexceeded its capacity limitation and Germany hadto recover parts of the earlier restructuring aid. TheCommission filed an appeal, which was finallydismissed by the Court of Justice on 29 April 2004.

Since 1995 the Commission monitored thecompliance of East German yards with thecapacity limitation as a production limitation, inthe meaning of limiting the output. According tothe Court, the Commission's decisions were wrongin interpreting the capacity limitation of EasternGerman shipyards as a production limitation.

Taking into account the judgment's reasoning, theCommission examined whether further to KWWalso to other shipyards, which were subject to suchlimitation, the Court's interpretation of the notion‘capacity limitation’ may apply. This article anal-yses the consequences of the judgement of theCourt of Justice and the Commission's decision oncapacity limitations for East German, Spanish andGreek shipyards.

1. Background

Capacity limitations for shipyards in East

Germany, Spain and Greece

From 1992 to 1997, based on the Council Direc-tive on aid to shipbuilding and it's various amend-ments (see footnotes (1), (2),(3), and (4)) theCommission approved state aid for several ship-yards in Germany, Spain and Greece. In acountermove these Member States accepted toreduce shipbuilding capacities and promised not toexceed these capacity limitations for a period of upto 10 years. The decisions concerned the followingshipyards:

— East Germany: Volkswerft Stralsund, AkerMTW, Kvaerner Warnow Werft (KWW),Peene Werft and Elbewerft Boizenburg

— Spain: Astano, Astander, Puerto Real, Sestao,Sevilla, Barreras, Juliana and Astander andprivate sector yards

— Greece: Hellenic shipyard

Starting point: Kvaerner Warnow Werft (KWW)

in East Germany

From 1992 to 1996, a profound restructuring ofthe five Eastern German shipyards was carried out.As a counterpart for the exceptionally largeamounts of aid Germany reduced the shipbuildingcapacity in Eastern Germany by 40% resulting in atotal capacity limited to 327 000 cgt. Germanyallocated this capacity between individual yards,from which 85 000 cgt were attributed to KvaernerWarnow Werft (KWW).

The restructuring of all yards was carried out in asimilar way: the yards were privatised and totallyrebuilt with help of state aid. In total, the aid paidto the Eastern German yards amounted to aboutDEM 6 billion (ca. EUR 3 billion), from which theaid paid to KWW was DM 1.2 billion (ca. EUR600 million). From 1993 to 1995, five decisionswere taken regarding KWW, authorising the aidby tranches.

Since 1994, the Commission had monitored thecompliance with the individual capacity limita-tions, which were supposed to be in force for up toten years. From the beginning of the monitoringthe Commission considered the capacity limita-tions as being a limitation of production, of theoutput of the yards in the meaning of tonnage built.Since this was the understanding between theCommission, Germany, and the yards concerned,the monitoring was always carried out as moni-toring of actual production of the yards.



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(1) Council Directive 90/684/EEC of 21 December 1990 on aid to shipbuilding , OJ L 380, 31.12.1993, p. 27.

(2) Council Directive 92/68/EEC of 20 July 1992 amending Directive 90/684/EEC on aid to shipbuilding, OJ L 219, 4.8.1992, p. 54.

(3) Council Directive 94/73/EC of 19 December 1994 amending Directive 90/684/EC on aid to shipbuilding, OJ L 351, 31.12.1994,p. 10.

(4) Council Regulation 1013/97 of 2 June 1997 on aid to certain shipyards under restructuring, OJ L 148, 6.6.1997, p. 1.

In summer 1998, during a monitoring visit toKWW it was established that the production of theyard would exceed considerably the annual limitof 85 000 cgt. In summer 1999 a negative decisionwas taken due to exceeding the capacity limit in1998 by 37 414 cgt (total production 122 414 cgt).This had repercussions to the previous year, andanother negative decision was taken in 2000concerning 8 862 cgt excess of the capacity limita-tion in 1997. Due to these decisions, KWW wasordered to pay back a total of DM 95 million (EUR47.5 million) of incompatible aid. KWW reim-bursed the whole amount with interest in April2000 but appealed at the Court of First Instance.

2. The judgements of the Court

When the Commission implemented its decisionson restructuring aid it considered the capacity limi-tation as both a technical limitation (‘bottlenecks’)and a limitation of actual production. However,following KWW's appeal against the recovery ofaid due to its excess of production the Court ofFirst Instance ruled on 28 February 2002, in jointcases T 227-99 and T 134-00, that the Commissionwas wrong in interpreting the capacity limitationof KWW as a limitation of actual production.

The capacity limitation, in the light of theCommission decisions adopted between 1993 and1995 authorising the aid, had to be understood as atechnical limitation of the production facilities. Aslong as the production facilities of the yard asdescribed in the Commission decisions author-ising the aid were not changed, the yard couldproduce more than 85 000 cgt. In order to be ableto claim that the capacity limitation was in fact alimitation of the actual production, the Commis-sion should have clearly formulated its decisionsin the period of 1993 to 1995 accordingly andshould have imposed a production limit.

On 13 May 2002 the Commission appealed at theCourt of Justice against this judgment. However,on 29 April 2004 the Court of Justice dismissed theappeal with the following arguments:

— With regard to the above mentioned Directivesthe Commission had a certain measure ofdiscretion in setting the conditions to which theproposed aid was to be subject to in order toensure that it remained compatible.

— The Court takes note that the actual productionof an undertaking is not the same notion asproduction capacity.

— However, neither Directive 90/684 (1) asamended nor Directive 92/68 (2), on which theauthorising decisions for restructuring aid tothe East German shipyards are based, include adefinition of capacity or capacity restrictions.

— If the authorisation of aid was subject to thecondition that not only the technical capacity ofthe yard but also its actual production shouldnot exceed 85 000 cgt per annum, the Com-mission should have stated that clearly andunequivocally in its authorising decisions.None of the decisions mentions specificallythat the capacity restriction constitutes a yearlyceiling on actual production.

— Neither the wording nor the broad logic of theauthorising decisions supports the conclusionthat the capacity restriction referred to KWW'sactual production. Even if the technical restric-tions of capacity proved to be inappropriate toavoid distortion of competition, this does notjustify a capacity restriction, which was inreality a limitation on production.

Consequently, according to the judgement of theCourt of First Instance of 28 February 2002 incases Kvaerner Warnow Werft vs. Commissionthe Commission was wrong in interpreting thecapacity limitation as a limitation of actualproduction. A capacity restriction may relate toproduction achievable under favourable normalconditions, given the facilities available. However,the figure indicated by the capacity restriction maybe exceeded in periods of optimal conditions.Following this, the capacity limitation has to beunderstood only as a technical limitation of theproduction facilities. As long as the productionfacilities of the yard were not changed, shipyardscan produce more than the capacity limitationauthorised in the Commission decision.

3. Implications of the Court's judgment

East German shipyards

The Court judgement concerned the two Commis-sion decisions on Kvaerner (675/1999 and 336/2000), by which the Commission established thatKvaerner exceeded its production limitation. Sincethe judgement was limited to a specific yard and tospecific years of production the Commissionexamined whether its basic rulings apply only toKvaerner or whether it should also be applied toother EU yards subject to a capacity limitation.



(1) See footnote 1.

(2) See footnote 2.

On the one hand, using a narrow interpretation, theCourt's ruling could be restricted only to KWW.On the other hand, if wording and sense of theoriginal Commission decisions for further ship-yards, which authorised state aid subject tocapacity limitations, were rather similar to the onefor KWW, the Court's judgment may applyaccordingly to other concerned yards.

After the closure of one of the East German ship-yards (Elbewerft Boizenburg) four yards were stillsubject to capacity limitations. The aid wasapproved by several Commission decisions refer-ring to different measures, which were split up intoseveral tranches. However, the critical wording inthe different authorising decisions (KvaernerWarnow Werft, Aker MTW, Volkswerft Stralsundand Peene Werft) was not identical and varied fordifferent measures and tranches.

On the other hand, since the structure of thedifferent decisions for the East German shipyards,to which the Court referred to, was rather the sameit was doubtful that the Commission could applytwo different methods of monitoring and differen-tiate between the limitation of capacity and thelimitation of production. All authorising decisionshad the same objectives with regard to the capacitylimitations and it appeared difficult to justify adifferent treatment of the shipyards. In particularfrom an economic and political point of view suchdifferent treatment would not have been compre-hensible.

The in-depth analysis of the Court's judgementsupports this approach. Indeed, the Court did noteven clearly state that the Commission could haveinterpreted the notion of limitation of technicalcapacity as equivalent to the one of production.Although the Court did not exclude that theCommission could have interpreted the limitationsin this way with regard to its margin of discretionin the area of state aid the Court observed that theCommission did not use this interpretation in itsdecisions.

Consequently, it was doubtful that the Courtwould uphold the earlier decisions for Aker MTW,Volkswerft Stralsund and Peene Werft as regardstheir interpretation that technical capacity equalsproduction.

Spanish shipyards

As in the German cases, the decision C 56/95, ex N941/95 (1), concerning aid to support the restruc-turing of publicly-owned yards in Spain refers as

well to Directive 90/684/EEC (latest amended byRegulation 1013/97, see footnote 4). In its first partthe decision stipulates that the reduction of tech-nical capacity will be achieved by both closures offacilities and the reduction of production (‘cessa-tion of a new building’).

With reference to Council Directive 90/684/EECthe decision says that ‘Spanish authorities haveundertaken that production at the yards will notexceed the reduced capacity of 210 000 cgrt. TheCommission will … undertake a close monitoringof actual production levels to ensure that this levelof production is not exceeded.’ Finally, accordingto the decision's conclusive part ‘the Spanishgovernment shall co-operate … to ensure that theproduction limitation and other conditions arerespected’.

Taking into account that the Commission decisionrequests both a limitation of the production and areduction of the technical capacity the wordingappears substantially clearer than in the decisionson the German yards. In contrast to Council Direc-tive 90/684, which according to the Court did notdetermine the form of a limit on the actual produc-tion of the yards, the decision precisely sets out theconditions for approving the aid. From the legalpoint of view, the shipyards had — further to theclosure of certain facilities — to respect a limita-tion of the production. However, taking intoaccount that the decision's legal basis was the sameas for the East German shipyards (Council Direc-tive 90/684) and with view to the Court's interpre-tation of the Commission's decision it appearedpossible to apply the same monitoring proceduresas for the East German shipyards.

Greece shipyards

In 1997, based on Council Directive 90/684 andCouncil Regulation 1013/97 covering both ship-building and ship repair the Commission approvedinvestment aid for Hellenic Shipyards (N 401/97).The decision recalls that certain installations (slip-ways, docking facilities) shall be permanentlyclosed. Referring to the Council Directive stipu-lating a reduction of capacity the decision says that‘there is a reduction in the yard's repair capacityequivalent to the reduction of the number ofemployees’ (35% from the 1996 employmentlevel), ‘which cannot be compensated by theenvisaged increase in productivity and a reductionof docking capacity for commercial vessels’. Itappears that despite the reference to productivity,which may imply a limitation of production, the



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Commission could interpret the capacity reductionas a merely technical restriction based on theCourt's judgement

4. Conclusion for the three Member

States and follow-up

It follows from the analysis of the different deci-sions, that a strict interpretation of the judgementmay require to continue the monitoring of produc-tion for certain East German shipyards but to end itfor others. In Spain, the Commission couldcontinue such monitoring since the conditionsimposed were focussed on a limitation of theproduction. In contrast, the Commission was notauthorised to carry out a monitoring of productionof the Greek shipyards. Such a differentiatedapproach is not comprehensible both from aneconomical and from a political point of view

The Commission concluded that the decisionsauthorising state aid for the above mentioned ship-

yards were taken on the same legal basis andresembled the KWW decisions on which the Courtof Justice had ruled. With regard to the differencesof the decision's wording and their interpretationthe Commission decided to clarify the way how itintended to carry out the monitoring of capacitiesfor all the above mentioned decisions on state aid.

For reasons of coherence and equal treatment theCommission decided (NN 56/2003) to considerthe capacity limitations of these decisions for EastGerman, Spanish and Greek shipyards as merelytechnical limitations in so far as the decisions werebased on Council Directive 90/684 as amended.However, the monitoring of technical capacitylimitations will continue in the sense of the provi-sions set out in the concerned individual cases ofstate aid until the date foreseen by each of thesedecisions. The interpretation and monitoring ofcapacity limitations for further shipyards based onrules different from those mentioned above werenot modified or replaced by the Commission'sdecision.



Next EU enlargement: Romania and State aid control

Koen VAN DE CASTEELE, Directorate-General Competition, unit I-1 (1)

1. Introduction

In December 2004 the final chapters of the acces-sion negotiations with Romania on Justice andHome Affairs (chapter 24) and Competition(chapter 6) (2) were finally closed.

Unlike for most other chapters, mere commitmentsare insufficient. For the closure of the competitionchapter three elements need to be put in place (3):

• The necessary legislative framework;

• An adequate administrative capacity; and

• A credible enforcement record.

The experience with the competition chapter hasproven successful so that for future negotiations,depending on the chapter, legislative alignmentand a satisfactory track record of implementationof the acquis as well as obligations deriving fromcontractual relations with the European Union willbe the benchmarks for provisional closure.

2. Safeguard clauses

Like for Bulgaria and the other new MemberStates, safeguard clauses are foreseen in the eventof serious shortcomings (under Articles 37, 38,and 39 of the 2003 Accession Treaty).

The Accession Treaty will contain a generaleconomic safeguard clause (cf. Art. 37 of the2003 Accession Treaty). This general economicsafeguard clause applies to situations where ‘diffi-culties arise which are serious and liable to persistin any sector of the economy or which could bringabout serious deterioration in the economic situa-tion of a given area’. The safeguard clause wouldallow the Commission to determine the necessaryprotective measures. Both, new and currentMember States are able to make use of this safe-guard clause. The clause can be invoked for aperiod of up to three years after accession.

However, this general safeguard clause wasconsidered insufficient. Hence, the Commissionconsidered that the Accession Treaty should alsocontain a specific internal market safeguardclause (cf. Art. 38 of the 2003 Accession Treaty).

If a new Member State has failed to implementcommitments undertaken in the context of theaccession negotiations, causing a serious breach ofthe functioning of the internal market, or an immi-nent risk of such breach, the Commission mayupon motivated request of a Member State or on itsown initiative, take appropriate measures. TheCommission is authorised to take the decisions onthe necessary measures. These measures should belimited in time and proportional, whereby ‘priorityshall be given to measures, which disturb least thefunctioning of the internal market and, whereappropriate, to the application of the existingsectoral safeguard mechanisms’. Again, the clausecan be invoked for a period of up to three yearsafter accession. It is furthermore stated that thesafeguard clause may be invoked even beforeaccession on the basis of the monitoring findingsand enters into force as of the date of accession.The measures shall be maintained no longer thanstrictly necessary, and, in any case, must be liftedwhen the relevant commitment is implemented.They may however be applied beyond the three-year period as long as the relevant commitmentshave not been fulfilled.

For Romania and Bulgaria, a further safeguardclause was introduced (postponement clause).For both countries, the Council may, on the basisof a Commission proposal, postpone enlargementfor one year. The clause can be triggered if, basedon the Commission's continuous monitoring ofcommitments undertaken by Bulgaria andRomania in the context of the accession negotia-tions and in particular the Commission's moni-toring reports, there is clear evidence that the stateof preparations for adoption and implementationof the acquis in Bulgaria or Romania is such thatthere is a serious risk of either of those States being


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(1) The views expressed are purely those of the writer and may not in any circumstances be regarded as stating an official position ofthe European Commission. The author would also like to thank P. Lindberg for his many useful comments.

(2) With two specific transitional arrangements regarding fiscal aid measures (Free Trade Areas and Deprived Areas). Thesetransitional arrangements are modelled after the transitional arrangements applicable for, inter alia, Poland.

(3) On the accession process, see Devuyst Y., Känkänen, J., Lindberg, P., Orssich, I. and Roebling, G., ‘EU enlargement andcompetition policy: where are we now?’, CPN, No. 1, February 2002 and Känkänen, J., ‘Accession negotiations brought tosuccessful conclusion’, CPN, No. 1, Spring 2003, p. 24-28.

manifestly unprepared to meet the requirements ofmembership by 1 January 2007 in a number ofimportant areas. In principle, unanimity is required(see however the specific safeguards introducedfor Romania, described in the next section).

3. Specific safeguards for Romania

The Commission was very critical of the Roma-nian progress on the competition chapter, in partic-ular as regards the State aid track record and therestructuring of the Romanian steel sector. It hadproposed the Council not to close the competitionchapter (1).

However, the Council has the final say in thesematters. It decided to proceed with the closure butit introduced a series of additional safeguards.

These additional safeguards are linked to the post-ponement clause and to the so-called existing aidmechanism (2).

3.1. Postponement clause for Romania

Notwithstanding the general conditions triggeringthe application of the postponement clause andwithout prejudice to the internal market safeguardclause, the Council may, acting by qualifiedmajority (whereas normally unanimity is required)on the basis of a Commission recommendation andafter a detailed assessment in the autumn of 2005of the progress made by Romania in the area ofcompetition policy, decide to postpone the acces-sion of Romania by one year, if it is based on short-comings in Romania's fulfilment of specific condi-tions in the Competition area. These conditions arethe following:

(1) Romania must ensure effective control by theCompetition Council of any potential State aid,including in relation to State aid foreseen bymeans of deferral of payments to the Statebudget of fiscal or social liabilities or deferralsof liabilities related to energy supply.

(2) Romania must strengthen its state aid enforce-ment record without delay. Romania mustensure a satisfactory enforcement record in theareas of both anti-trust and State aid.

(3) Romania must submit to the Commission bymid-December 2004 a revised steel restruc-

turing plan (including the National Restruc-turing Programme and the Individual BusinessPlans) in line with the requirements set out inProtocol 2 on ECSC products to the EuropeAgreement and with the conditions set out inthe Act of Accession. In particular, Romaniamust fully respect its commitment not to grantor pay any State aid to the steel mills coveredby the National Restructuring Strategy from 1January 2005 to 31 December 2008, and tofully respect the State aid amounts and theconditions regarding capacity reductions,decided in the context of Protocol 2 on ECSCproducts to the Europe Agreement (3).

(4) Romania will continue to devote adequatefinancial means and sufficient and adequatelyqualified human resources to the CompetitionCouncil.

(5) Romania must fulfil the obligations undertakenunder the Europe Agreement.

3.2. Existing aid mechanism

3.2.1. Normal operation of mechanism

In order to prevent incompatible aid from being‘imported’ into the EU on the date of accession, asystem was set up for examining measures whichwere put into effect in the acceding countriesbefore accession and are still applicable afteraccession (the existing aid mechanism).

The purpose of this mechanism is to provideAcceding Countries and economic operators withlegal certainty as regards State aid measures thatare applicable after the date of accession. If ameasure is qualified as ‘existing aid’, it benefitsfrom a special protection against actions from theCommission — such an ‘existing aid’ can only bemodified for the future through a special procedurelaid down in Chapter IV of the procedural regula-tion 659/1999 (4). When the Commissionconsiders that an existing aid scheme is not or nolonger compatible with the common market, itshall inform the Member State concerned and mayissue a proposal for appropriate measures,including the amendment or abolition of thescheme. If the Member State accepts, the appro-priate measures become binding. If the MemberState refuses, the Commission must open the



(1) See Financial Times ‘Defiant EU Commission says Romania not ready’, 4 December 2004; Interview with Commissioner Rehn,BBC Romanian ‘Amânarea aderãrii pânã în 2008 rãmâne o posibilitate’, 9 December 2004.

(2) For a more detailed description, see Roebling, G., ‘Existing aid and enlargement’, CPN No. 1, Spring 2003, p. 33-37.

(3) See in this edition of CPN, article from Lienemeyer, M, ‘State aid for restructuring the steel industry in the new Member States’.

(4) Council Regulation No 659/1999 laying down detailed rules for the application of Article 93 EC [now Art. 88], OJ L 83, 27.3.1999,p. 1.

formal investigation procedure. The final decisionfollowing the opening will become binding on theMember State.

Procedural regulation 659/1999 contains thefollowing definition of ‘existing aid’: (i) pre-treatyor pre-accession aid; (ii) aid authorised by theCommission or Council; (iii) aid deemed to beauthorised in accordance with Art. 4(6) (so-called‘Lorenz’, where the Commission has not adopted adecision within two months for a notified aid); (iv)aid for which the limitation period has expired; (v)aid that did not constitute aid at the time when theaid was put into effect.

For the 2003 accession (like for the accession ofAustria, Finland and Sweden (1)), aid pre-existingaccession did not automatically get "existing aid"status.

Annex IV.3 of the 2003 Accession Treatyprovided for three different types of measureswhich were put into effect before accession and arestill applicable after accession, which will beregarded as existing aid.

• The first one covers aid measures put into effectin a new Member State before 10 December1994 (2).

• The second one consists of a list of State aidmeasures attached to the Accession Treaty. Alist of 223 existing aid measures was attached tothe 2003 Accession Treaty. The list was estab-lished on the basis of an assessment by thenational State aid monitoring authority findingthem compatible with the acquis, followed by aspecial screening of the measures by theCommission.

• The third type of existing aid covers othermeasures submitted to the Commission afterthe finalisation of the Accession Treaty list,which were assessed by the national State aidmonitoring authority prior to accession andfound to be compatible with the acquis and towhich the Commission did not raise an objec-tion. This so-called ‘interim procedure’ wasnecessary, in order to extend the existing aidmechanism to the period between the finalis-ation of the Accession Treaty and the date ofaccession.

All measures still applicable after the date ofaccession which constitute State aid and which donot fall under one of the previous categories shallbe considered as new aid upon accession.

This mechanism does not apply to agriculture(production, processing and marketing of agricul-ture annex-I products) and transport. Both agricul-ture and transport work with a positive lists of aidsput into effect before and still applicable afteraccession which need to be submitted within acertain period after accession — all measureswhich are on the list are regarded as existing aidfor a period of three years. Fisheries follow thegeneral regime.

In principle, the same mechanism will apply toboth Romania and Bulgaria.

3.2.2. Specific provisions for Romania

For Romania, however, it is stipulated that therewill be no list with existing aid measures attachedto the accession treaty and no application of theinterim procedure, until the Commissionconcludes that Romania's state aid enforcementrecord has reached a satisfactory level. In practice,the timing no longer allows for any list withexisting aid measures for Romania (3) to beincluded in the Accession Treaty.

Furthermore, the interim procedure will only startrunning once the Commission accepts that Roma-nia's state aid enforcement record has reached asatisfactory level. In practice that means that onlycases with a positive assessment by the RomanianCompetition Council after the date set by theCommission as being the date that Romania'senforcement record is satisfactory can besubmitted.

Such a satisfactory level shall only be consideredto have been reached once Romania has demon-strated the consistent application of full and properState aid control in relation to all aid measuresgranted in Romania. In particular for restructuringcases, for regional aid cases and for decisionsrelating to services of general economic interest, ithas been spelled out in detail in the EU CommonPosition which specific points need to be assessedby the Romanian Competition Council.



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(1) See Art. 172 of the Act of Accession.

(2) Date of the Essen European Council, since at this European Council on 9 and 10 December 1994 each associated country wasinvited to empower a single authority to monitor and control all State aids in an independent way, on the basis of transparentlegislation, and as uniformly as possible. The European Council also stressed the importance of satisfactory implementation ofState aid control in the context of future accession.

(3) Such a list for the Accession Treaty containing 3 aid measures, has been prepared for Bulgaria.

The ‘suspension’ of the existing aid mechanism isin fact the logical consequence of an unsatisfactoryenforcement record, since one of the criteria forsubmitting the aid measures is a finding of compat-ibility with the acquis by the national State aidmonitoring authority. Naturally such a finding isnot relevant if the quality of decision-making isunsatisfactory.

Furthermore, the special provisions for Romaniaallow the Commission to also recover incompat-ible aid granted in the pre-accession periodbetween 1 September 2004 and the date fixed inthe Commission decision that the enforcementrecord has reached a satisfactory level. Such aCommission decision establishing a failure byRomania to control its State aid can, therefore,have drastic consequences for the beneficiaries.

4. Conclusion

The Council has introduced very strong safeguardsto ensure that Romania fulfils all obligations in thefield of State aid control.

The postponement clause clearly constitutes a ‘lastresort’ option, although the specific references tocertain competition requirements (1) and themajority voting mean that the ‘fuse is quite short’.However, the specific provisions introduced in theexisting aid mechanism may prove to be as effec-tive to push Romania to quickly respect its obliga-tions in field of State aid control. Not being able tohave aid considered as ‘existing aid’ will act as aconsiderable disincentive for investors as it createslegal uncertainty. In addition, State aid grantingauthorities may become more sensitive to theserious implications of not playing by the rules,which should reinforce the position of the Roma-nian Competition Council in enforcing State aidrules. The special provision regarding the recoveryof incompatible aid also constitutes a powerfulincentive for all those involved to ensure that therules are respected.

With these additional safeguards in place, theCompetition Chapter with Romania could finallybe closed, so that in April 2005 the AccessionTreaty with both Romania and Bulgaria can besigned.



(1) Similar provisions exist for Justice and Home Affairs.


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European Competition Day

The first European Competition Day this year will be held in Luxembourg on 3 May 2005. It isorganised by the Ministry of the Economy and Foreign Trade and the Competition Council, incooperation with the European Commission. The theme will be

‘The competition rules and the liberal professions’

For more information and the programme please seehttp://www.eco.public.lu/actualites/conferences/2005/05/03_journee_conc/

Les décisions GDFLa Commission est formelle: les clauses de restriction territorialedans les contrats de gaz violent l'article 81

Concetta CULTRERA, Direction générale de la Concurrence, unité B-1

Introduction

Le 26 octobre 2004, la Commission a adopté deuxdécisions concernant des clauses de restrictionterritoriale dans le secteur gazier, l'une adressée àGDF et ENI et l'autre à GDF et ENEL. GDF et ENIsont les opérateurs gaziers les plus importantsrespectivement en France et en Italie, tandis queENEL est un producteur d'électricité italien actifaujourd'hui également dans le secteur gazier.

Ces deux décisions sont très intéressantes à maintségards: elles sont les premières décisionsformelles adoptées par la Commission depuis unedécennie dans le secteur de l'énergie et viennentconfirmer, après un certain nombre d'affairesconcernant les clauses de restriction territorialeclôturées par règlement à l'amiable (1), que cesclauses violent l'article 81 du traité. Ainsi, ellesclarifient le droit au bénéfice de tous les opérateursdu secteur. A ce stade du processus delibéralisation et d'intégration du marché gaziereuropéen, elles sont en outre un exemple on nepeut plus classique du soutien que l'application dudroit de la concurrence communautaire apporte àla création d'un marché compétitif et intégré àl'échelle européenne.

Les clauses de restriction territoriale

objet de l'affaire

Les clauses en question dans cette affaire setrouvaient jusqu'à peu dans deux contrats concluspar GDF respectivement avec ENI et ENEL.

Le contrat entre GDF et ENI, conclu en octobre1997, a pour objet le transport de gaz naturelacheté par ENI au Nord de l'Europe. GDF enassure le transport sur le territoire français jusqu'àla frontière avec la Suisse. Le contrat contenait uneclause qui obligeait ENI à commercialiser le gazexclusivement «en aval du point de relivraison».

Or, par un contrat postérieur, les Parties avaientconvenu que ce point de relivraison serait situé à lafrontière entre la France et la Suisse. Par ailleurs,

l'une des définitions données dans le contrat detransport se référait au système en aval du point derelivraison comme signifiant des infrastructures detransport situées en territoire suisse. La Commis-sion a donc conclu qu'aux termes de la clause enquestion, ENI ne pouvait commercialiser le gazobjet du contrat de transit qu'au-delà de la frontièreentre la France et la Suisse.

Cette clause a été supprimée en novembre 2003,après l'ouverture de l'enquête par la Commission.

Le contrat entre GDF et ENEL a été conclu, quantà lui, en décembre 1997 et concerne le swap(échange) de gaz naturel liquéfié acheté par ENELau Nigeria. Aux termes de ce contrat, le gaz estlivré à Montoir (France) par le fournisseur nigérianà ENEL qui le cède immédiatement à GDF.Ensuite, GDF relivre à ENEL des quantitéséquivalentes à différents points de relivraison(Baumgarten, à la frontière entre la Slovaquie etl'Autriche, Oltingue, à la frontière entre la Franceet la Suisse, et Panigaglia, le terminal de réceptionet regazéification de gaz naturel liquide en Italie).

Ce contrat contenait une clause, supprimée ennovembre 2003, qui imposait à ENEL de n'utiliserle gaz qu'en Italie.

Selon les informations fournies par ENEL et ENIet non contestées par GDF, les deux clauses enquestion dans cette affaire auraient été introduitesdans les contrats à la demande de GDF.

La restriction de concurrence

Telle que formulée, la clause contenue dans lecontrat conclu par GDF et ENEL, en prévoyantque ce dernier utilise le gaz naturel en Italie,l'empêchait de le revendre dans d'autres Etatsmembres, et donc aussi en France. Elle interdisait,entre autres choses, toute possibilité deréexportation.

Quant à la clause contenue dans le contrat conclupar GDF et ENI, elle établissait qu'ENI commer-



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(1) Voir notamment H. Nyssens, C. Cultrera et D. Schnichels, «The territorial restrictions case in the gas sector: a state of play», inCompetition Policy Newsletter, 1/2004, p. 48.

cialise le gaz objet du contrat seulement en aval dupoint de relivraison, c'est-à-dire après la frontièrefranco-suisse. Autrement dit, la clause en questioninterdisait à ENI la commercialisation du gaz enamont du point de relivraison, et notamment enFrance. Cette interdiction de commercialiser le gazen France concernait également l'hypothèsed'éventuelles réexportations vers la France de gazqui aurait déjà quitté le territoire français.

Ces deux clauses restreignaient ainsi le territoiredans lequel les Parties pouvaient utiliser le gazobjet des contrats et visaient donc à cloisonner lesmarchés nationaux, en empêchant notamment desconsommateurs de gaz naturel établis en France des'approvisionner auprès d'ENEL et ENI.

Or, selon une jurisprudence constante de la Courde justice, des clauses qui restreignent la liberté del'une des Parties d'utiliser la marchandise livrée enfonction de ses propres intérêts économiquesconstituent des restrictions de la concurrence ausens de l'article 81 du traité (1). En particulier, seprononçant sur les interdictions d'exportation, laCour a dit pour droit qu'une clause de ce type «parsa nature même, […] constitue une restriction de laconcurrence […], l'objectif sur lequel lescontractants sont tombés d'accord étant d'essayerd'isoler une partie du marché» (2).

La Commission a donc conclu que les clauses enquestion avaient pour objet de restreindre laconcurrence à l'intérieur du marché commun, ausens de l'article 81, paragraphe 1, du traité.

Les restrictions pouvaient par ailleurs êtreappréciées comme étant sensibles car les volumestransportés ou échangés au titre de chaque contratconstituaient une part significative de la consom-mation de gaz naturel en France, et notamment dela consommation éligible. La Commission a, enoutre, tenu compte des spécificités du secteurgazier européen, longtemps caractérisé par desdémarcations géographiques, et en particulier dumanque de fluidité dans ce secteur.

Les explications alternatives données

par les parties

Les Parties ont contesté l'interprétation de laCommission quant à l'appréciation du caractère

restrictif des clauses, en avançant que la Commis-sion en avait mal compris la portée et la finalité. LaCommission a cependant rejeté ces arguments endémontrant que les clauses établissaient bel etbien, dans le chef d'ENI et d'ENELrespectivement, des obligations qui visaientnotamment à empêcher la commercialisation dugaz en France et ne pouvaient avoir aucun autre butque celui de restreindre la concurrence.

En particulier, en réponse à un argument desParties que les clauses visaient à prendre encompte les intérêts économiques d'ENI et ENEL,qui étaient, dans un cas comme dans l'autre, dedisposer du gaz là où ils en avaient besoin, c'est-à-dire en Italie, la Commission a fait valoir que lamention par les clauses en question du lieu decommercialisation ou du lieu où le gaz devait êtreutilisé ne reflétait pas un «intérêt» dont laconnaissance aurait été nécessaire pour l'exécutiondes contrats. Par ces clauses, ENI et ENELexprimaient plutôt les limites de leurs intérêtsen matière d'utilisation directe et de revente(commercialisation en aval du point de relivraison,dans un cas, et utilisation en Italie, dans l'autre).Or, il n'y aurait normalement aucune raison pourune partie à un accord commercial de faire part detelles limites, dépourvues de rapport avec l'objetmême du contrat, sauf à vouloir s'engager vis-à-visde l'autre partie, in casu GDF, en vue de respecterde telles limites.

Quant à l'argument que les clauses en question nepouvaient pas être interprétées comme limitantl'utilisation ou la revente de gaz car elles étaientcontenues dans des contrats qui, par leurs objetsmêmes, respectivement le transport et l'échange dugaz, ne comportent pas de dispositions relatives àla commercialisation du gaz, la Commission arelevé que le fait que les contrats conclus par GDFavec ENI et ENEL fussent l'un un contrat de trans-port et l'autre un contrat d'échange ne signifie pasen soi que les parties auraient été empêchées d'yintroduire des clauses concernant d'autres aspectsque le transport ou l'échange, et notammentl'utilisation et la commercialisation du gaz.

Enfin, la Commission a répondu à l'argumentd'ENEL que la clause contenue dans son contratavec GDF concernant l'utilisation du gaz en Italieétait nécessaire pour la définition de la portée del'obligation d'échange souscrite par GDF, en

Antitrust


(1) Voir notamment l’arrêt de la Cour de justice du 14 décembre 1983, Société de Vente de Ciments et Béton de l’Est SA contre Kerpen& Kerpen GmbH und Co. KG., 319/82, Rec. p. 4173, point 6, et la décision 98/273/CE de la Commission du 28 janvier 1998 dansl’affaire COMP/35733, VW, point 143 (JO L 124 du 25.4.1998, p. 60).

(2) Voir notamment l’arrêt de la Cour du 1er février 1978, Miller International Schallplatten GmbH contre Commission, 19/77, Rec.p. 131, point 7.

faisant valoir que l'identification dans le contratd'échange des points de relivraison aurait étélargement suffisante dans ce but. L'indication quele gaz devait être utilisé en Italie, par contre,n'ajoutait aucun éclaircissement à cet égard, carelle concerne un élément temporel postérieur aumoment auquel se termine le service effectué parGDF.

La Commission a enfin tiré parti, dans ses conclu-sions concernant la fonction objective desditesclauses, d'une analyse de leur historique, etnotamment des formulations utilisées dans lespremières moutures des contrats, ainsi que decertaines déclarations parfois contradictoires desParties.

La logique économique des clauses

Mais quelle pourrait donc être la motivation desParties, et en particulier la motivation de GDF, àl'introduction de clauses de ce type dans descontrats de transport ou d'échange de gaz?

En réponse à cette question, il y a lieu de noter toutd'abord qu'il est parfaitement imaginable qu'untransporteur introduise dans un contrat de trans-port ou d'échange de gaz une clause de restrictionde la revente dudit gaz, notamment dansl'hypothèse où le transporteur exerce égalementune activité de vente de gaz dans le territoire danslequel il effectue le transport pour le compte d'untiers et qu'il souhaite que le gaz transporté ne soitpas vendu par ce tiers à l'intérieur de son territoire.

Tel est justement le cas de GDF: en effet, ENI etENEL auraient pu envisager de commercialiser enFrance le gaz que GDF transporte ou échange autitre des deux contrats. Or, la France est le paysdans lequel GDF exerce traditionnellement sapropre activité de vente. Les clauses en question,en empêchant la revente en France, répondentdonc bien à l'intérêt que GDF pourrait avoir deprotéger son territoire traditionnel de vente,logique du «chacun chez soi» bien connue dans lesecteur gazier.

En effet, ce secteur, avant le début du processus delibéralisation, a été longtemps caractérisé par desdémarcations horizontales, c'est-à-dire entredifférents marchés géographiques, qui limitaientles activités des entreprises. Plusieurs Etatsmembres, en outre, ont longtemps accordé àcertaines entreprises des droits spéciaux ouexclusifs. Enfin, les entreprises du secteur étaientet sont encore, souvent, intégrées verticalement etprésentes dans toutes les phases de la filière

gazière en aval: importation, transport, stockage,distribution et vente aux consommateurs finals.

C'est cette structure traditionnelle que le processusde libéralisation en cours dans la Communautéessaie de modifier, avec l'objectif de créer unmarché du gaz naturel compétitif et intégré àl'échelle européenne. Par l'ouverture de lademande, qui s'est faite de manière graduelle, leprocessus de libéralisation vise à offrir auxconsommateurs européens, qui souvent nepouvaient s'approvisionner qu'auprès dumonopole actif au niveau national, régional oulocal, la possibilité de choisir entre les offres deplusieurs entreprises, aussi bien nationalesqu'étrangères. De même, par l'établissement duprincipe de l'accès des tiers aux réseaux, leprocessus de libéralisation entend permettre auxentreprises concurrentes d'accéder aux territoiresde ventes traditionnellement desservis par lesopérateurs verticalement intégrés.

Or, des clauses de restriction territoriale commecelles en question dans cette affaire, en empêchantdes consommateurs de gaz naturel établis enFrance de s'approvisionner auprès d'ENEL et ENI,représentent l'une des pièces maîtresses d'unensemble de pratiques qui perpétuent lecloisonnement du marché européen, cultivent lalogique du «chacun chez soi» et contribuent aumanque de fluidité dans le secteur.

Elles entravent ainsi la poursuite de l'objectifmême du processus de libéralisation, c'est-à-direl'intégration et l'ouverture à la concurrence desmarchés nationaux.

Cette affaire est donc un exemple de la contribu-tion que le droit de la concurrence peut donner auprocessus de libéralisation du secteur gaziereuropéen.

Les mesures correctives adoptées par

la Commission

Bien que les infractions aient été terminées ennovembre 2003, quand les clauses en question ontété supprimées, la Commission a estimé avoir unintérêt légitime à constater que les entreprisesavaient contrevenu aux dispositions de l'article 81du traité. En effet, dans le secteur gazier, qui n'a étéouvert que récemment à la concurrence, laconstatation des infractions par l'adoption desdeux décisions a permis d'affirmer clairement, aubénéfice non seulement des Parties mais aussi desautres entreprises opérant dans ce secteur, que lespratiques en question ne sont pas conformes audroit communautaire. En plus, l'intérêt à constater



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les infractions était en l'espèce d'autant plusévident que les Parties ont contesté le caractèreanticoncurrentiel des clauses en question et qu'ilexistait donc un risque que le comportementinfractionnel fût répété.

La Commission a décidé, néanmoins, de ne pasimposer d'amendes. Entre autres facteurs, elle atenu compte du fait que cette phase du processus

de libéralisation, qui s'est clôturée par l'entrée envigueur, en août 2004, de la Deuxième DirectiveGaz, a impliqué une évolution profonde dans lespratiques commerciales des acteurs qui y sontprésents, notamment les pratiques liées à lacommercialisation du gaz naturel dans des Etatsmembres autres que celui où chaque opérateur aété traditionnellement établi. C'est justement cestypes de pratique qui étaient l'objet de cette affaire.

Antitrust


Two recent veto decisions under the new Regulatory frameworkfor electronic communications:The importance of competition law principles in market analysis

Dirk GREWE, András G. INOTAI and Stefan KRAMER,Directorate-General Competition, unit C-1

1. Introduction

In October 2004, the Commission exercised its so-called ‘veto power’ under Article 7 of the Direc-tive on a common regulatory framework for elec-tronic communications networks and services(Framework Directive) for the second and thethird time (1) On 5 October 2004, the Commissionadopted a veto decision requiring the FinnishCommunications Regulatory Authority (Ficora)to withdraw its draft regulatory measureconcerning the market for access and call origina-tion on public mobile telephone networks inFinland. On 20 October 2004, the Commissionrequested the Austrian TelecommunicationsRegulatory Authority (TKK) to withdraw its draftregulatory measure concerning the market fortransit services in the fixed public telephonenetwork in Austria.

Both veto decisions provide clarifications as to thestandard of competition law based market analysesas required from National Regulatory Authorities(NRAs) under the new regulatory framework forelectronic communications networks and services.These two notifications are also examples of aregulatory (designation of an undertaking withsignificant market power (SMP)) and a deregula-tory (non-designation of an undertaking withSMP) measure which were subsequently consid-ered incompatible with Community law. In otherwords, the Commission's assessment of the draftmeasure has been independent of the fact whetherit has a regulatory or deregulatory effect on themarket. What is important is to ensure the appro-priate regulation of electronic communicationsmarkets, if necessary, on the basis of a thorougheconomic analysis in accordance with Communitycompetition law principles.

2. The case of mobile access and call

origination market in Finland (FI/

2004/0082)

2.1. The draft measure notified

The draft measure notified by Ficora concernedthe Finnish market for access and call originationon public mobile telephone networks (mobileaccess and call origination market). In thismarket, service providers (SPs) and mobile virtualnetwork operators (MVNOs) buy access and callorigination services from mobile network opera-tors (MNOs), in order to be able to offer their ownmobile services on the retail market.

Ficora's market analysis concluded thatTeliaSonera had SMP in the defined market, basedon the following factors: (i) high market share (inexcess of 60%), (ii) the fact that the most signifi-cant independent SP operates in TeliaSonera'snetwork, (iii) the lack of countervailing buyingpower and (iv) network effects, economies of scaleand scope, and financial strength.

2.2. The Commission's veto decision

The information that the Commission received inthe notification and as a result of several requestsfor information did not warrant the conclusion thatFicora had undertaken the assessment in accor-dance with Articles 14 and 16 of the FrameworkDirective, which specifically refer to the notion ofSMP and the task of the NRA to determinewhether or not there is a dominant operator on themarket.

In its examination Ficora had to ensure on aforward-looking basis whether TeliaSonera was ina position to behave to an appreciable extent inde-pendently of its competitors, wholesale customers



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(1) For a general review of the New Regulatory Framework and the Article 7 consultation mechanism see R. Krüger, L. Di Mauro,‘The Article 7 consultation mechanism: managing the consolidation of the internal market for electronic communications’, (2003)3 Competition Policy Newsletter 33. For an overview of the principles of market analyses and the Commission’s first vetodecision, see L. Di Mauro, A.G. Inotai, ‘Market analysis under the New Regulatory Framework for electronic communications:context and principles behind the Commission’s first veto decision’, (2004) 2 Competition Policy Newsletter 52.

and ultimately consumers in the relevant market.The evidence provided did not constitute a suffi-cient basis for concluding that this was the case.The Commission's view was based on three mainreasons: first, the lack of taking into considerationthe apparent market dynamics; second, the lack ofevidence of capacity constraints and barriers toswitching; and third, the undue weight given toevidence of network effects, economies of scaleand scope, and substantial financial advantages.

2.2.1. Lack of taking into consideration the

apparent market dynamics

The Commission noted that, despite the fact thatthe market share of TeliaSonera in the relevantmarket was in excess of 60%, other factors rele-vant for the assessment of SMP should have alsobeen taken into account.

Firstly, even though there were no regulatory obli-gations for MNOs to provide access, both SPs andMVNOs have been able to conclude agreementson a commercial basis with each of the threenationwide-operating MNOs in the relevantmarket. There were over 10 SPs in the market, andat least three MVNO agreements have beenconcluded, with one SP concluding an MVNOagreement with two MNOs.

Secondly, SPs were usually negotiating with allMNOs and comparing prices and other terms.MNOs were apparently able to conclude agree-ments with different SPs due to their ability toprovide flexible offers or types of services thatwere not provided by other MNOs.

2.2.2. Lack of evidence of capacity constraints

and barriers to switching

The Commission found that, provided that MNOsare not subject to capacity constraints of theirnetworks, and SPs are not locked in to theirsuppliers as a result of high switching costs and theabsence of countervailing buying power, thecompetitive threat of other MNOs' attracting SPsor MVNOs which proved to be successful at retaillevel is likely to limit TeliaSonera's market powerin the relevant market.

Firstly, no sufficient evidence was provided as tothe existence of barriers to expansion in the rele-vant market. In fact, TeliaSonera's competitors hadlower capacity utilisation rates, and there seemedto be no immediate impediment for them to takemore traffic on their networks. Secondly, althoughswitching between MNOs does entail some costs(such as the switching of the SIM card), Ficora didnot consider the incentives of MNOs to bear the

costs of switching themselves, taking into accountthe apparent incentives for MNOs to provideaccess to SPs. In the course of the Commission'sassessment it was revealed that some MNOs hadalready considered paying costs to be incurred byan SP ready to switch to their networks.

2.2.3. Undue weight given to evidence of

network effects, economies of scale and

scope, and substantial financial

advantages

While not contesting that network effects andeconomies of scale and scope resulting from theoverall size of a network may of course be takeninto account as indicators of SMP, the Commis-sion found that in this case these factors werethemselves — in the absence of more detailedevidence as explained above — insufficient tosubstantiate a finding of SMP.

In particular, TeliaSonera's competitive advantageseemed to stem primarily from its superiorcapacity utilisation and not primarily (scale) econ-omies. As opposed to differences in scale, differ-ences in capacity utilisation do not offer a sustain-able competitive advantage to an operator and canbe overcome by attracting a larger number ofcustomers onto existing capacity.

Furthermore, no evidence was provided that finan-cial advantages of TeliaSonera — taking intoaccount the fact that its competitors are also partsof large vertically and horizontally integrated tele-communications groups — were of such a degreethat could serve as the basis of an SMP finding.

3. The case of the fixed transit services

market in Austria (AT/2004/0090)

3.1. The draft measure notified

TKK's draft measure concerned the Austrianmarket for transit services in the fixed publicnetwork. In addition to call origination and calltermination, transit services are used to conveycalls between telephone exchanges either at a locallevel or across regions. Telekom Austria (TA) isthe incumbent operator which owns the traditionalnationwide fixed telephony network and at thetime of the market review offered around 90% oftransit services to alternative network operators.Only a small number of operators had at the timeof the review provided transit services in competi-tion with TA, together accounting for theremaining 10% of the market.

Antitrust


Over the period taken into consideration for themarket analysis, a number of operators had ceasedpurchasing transit services directly from TA andbegan to further roll out their networks by directlyinterconnecting with each other and/or TA eitherat the level of local or regional exchanges. Witheach direct interconnection, an operator would notneed to buy the transit service from TA any longer.TKK's inclusion of such operators into the relevantmarket was based on the assertion that they canalso act as a supplier of transit services to thirdparties. TKK included all operators which nolonger demand transit services into its market defi-nition irrespective of whether this has actually ledto additional offers of transit services to thirdparties or not.

TKK had calculated that taking account of suchdirect interconnection decreases TA's share of allcall minutes relating to transit services to below50%. As a consequence, TKK found no SMP in therelevant market and considered the market fortransit services in the fixed public telephonenetwork to be effectively competitive.

3.2. The Commission's veto decision

3.2.1. The inclusion of direct interconnection

into the relevant market

The Commission Recommendation on relevantmarkets within the electronic communicationssector (Recommendation) sets out those marketsthat are susceptible to ex ante regulation and thatregulatory authorities are required to analyseunder the Framework Directive. The Recommen-dation requires regulatory authorities to decide onthe elements to be included in particular marketsidentified in the Recommendation, while adheringto competition law principles. The Commissionconcluded that, on the basis of the informationprovided in the notification, there was insufficientevidence to include direct interconnection in therelevant market.

The Commission was of the view that when deter-mining the existence of demand-sidesubstitutability, TKK did not provide sufficientevidence showing that network operatorspurchasing transit services could promptly shift toother products or services in response to pricechanges. In contrast, TKK found in its marketanalysis, that direct interconnection requires

network roll-out associated with high investmentsas well as substantial planning and time.

As far as supply-side substitutability is concerned,the Commission expressed the view that TKKshould have ascertained whether a network oper-ator that ceased to purchase transit servicesbecause of direct interconnection would actuallyuse its productive assets, i.e. the newly-createdcapacity, to offer (relevant) transit services to thirdparties. The Commission states in its veto decisionthat a merely hypothetical supply-side substitutioncannot be sufficient for the purposes of marketdefinition. TKK did not provide evidence thatnetwork operators which ceased to purchasetransit services subsequent to direct interconnec-tion would systematically offer part of their newcapacity to other operators demanding transit (1).Therefore, the Commission made clear that TKKshould not automatically include all direct inter-connection in the relevant market (2).

3.2.2. The importance of applying a thorough

green field analysis

When assessing the need for sector-specific regu-lation, a green field analysis should examinewhether the market conditions that would prevailin the absence of regulation reflect those of aneffectively competitive market. In this case theCommission was therefore interested to find outwhat effect a withdrawal of obligations may haveon TA's supply of transit services, especiallyagainst the background that TKK had stated in thenotification that the proposed withdrawal of regu-lation may lead to competitive disadvantages foroperators with relatively small networks. Becauseof a lack of such examination, the Commissionstated in its veto decision that insufficient consid-eration was given to the possibilities that would beopen to operators which have, at this point in time,still insufficient traffic volumes to justify a furthernetwork roll-out in the event regulation werelifted.

In conclusion, the Commission asked TKK tofocus in its future review of the market, necessarysubsequent to the veto decision, on those undertak-ings that are actually offering transit services orthose which would, in the short term, be willingand consider it economically viable to offer suchservices to third parties. The Commission alsoasked for a more detailed consideration of how



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(1) In case UK/2003/0016, OFTEL emphasised in the case of interconnected mobile operators the lack of spare capacity and the highcosts of developing systems for dealing with wholesale customers (including billing and account management).

(2) TKK itself argues that, since TA’s captive sales are not offered on the market, these should not be considered for the calculation ofmarket shares.

business models of alternative operators areaffected by a possible withdrawal of remedies andhow this may affect competition in the provision ofthe relevant electronic communications services.

4. Conclusion: the importance of

competition law principles

When defining markets and determining whetheran undertaking has SMP in the defined market,NRAs must act in accordance with Communitylaw, especially Community competition law andthe relevant case law of the Community Courts.

As regards the definition of the relevant market,NRAs shall base their definition on the factorswhich are used to define markets under Commu-nity competition law, namely demand-sidesubstitutability and supply-side substitutability (1).

In the Austrian case, the NRA had taken intoaccount mere hypothetical supply-side substitu-tion for the purposes of market definition. This ledto inflated market boundaries and, at the subse-quent stage of the SMP assessment, to a significantreduction of TA`s market share, which presumablyresulted in a substantial under-estimation of TA`smarket power. Therefore, the Commission hadserious doubts as to the compatibility of the notifi-cation with Community law and vetoed the draftmeasure.

In the Finnish case, the NRA did not properlyassess the barriers to switching on the part of SPsand MVNOs, by not establishing whether MNOshave incentives to bear the costs of switchingthemselves, and that some MNOs had alreadyconsidered paying costs to be incurred by an SPready to switch to their networks. Furthermore,

Community competition law was not correctlyapplied when the dynamic nature of the market andits effect on the market power of TeliaSonera wasnot properly assessed. In this context, it should bereiterated that a fundamental principle of SMPassessment in accordance with competition lawprinciples is that market power should normallynot be established on the sole basis of the existenceof large market shares, but that NRAs shouldundertake a thorough and overall analysis of theeconomic characteristics of the defined market (2).

Although the underlying notifications were quitedifferent on substance, they have in common thatEuropean competition law principles have notbeen properly taken into account in the respectivemarket analyses. The most important part of theCommission's assessment of the draft measures ofNRAs is to verify whether Community law, inparticular Community competition law, has beencorrectly applied to the facts gathered by the NRA.It is in this area that the Commission undertakesthe most thorough scrutiny and checks whether theNRA has not erred in the application of the legalprinciples set out in Community law, including thecase law of the Community courts.

In general, however, it has to be noted that theCommission has exercised its veto power only incase of 3 of the 134 notifications which have beenassessed so far (3). Although the Article 7 consul-tation is no approval regime, one may thereforeconclude that the NRAs have well implementedthe swift from the old regulatory framework to thenew regulatory framework, i.e. from sector-specific regulation and antitrust law being twowidely different but complementary regimes toone regime which is uniquely based on Europeancompetition law principles.

Antitrust


(1) Commission Notice on the definition of relevant markets for the purposes of Community competition law, OJ C 372, 9.12.1997,p. 5, point 20ff. Commission guidelines on market analysis and the assessment of significant market power under the Communityregulatory framework for electronic communications networks and services, OJ C 165, 11.7.2002, p. 6, point 44ff.

(2) Commission guidelines on market analysis and the assessment of significant market power under the Community regulatoryframework for electronic communications networks and services, OJ C 165, 11.7.2002, p. 6, point 78.

(3) This number refers to the notifications which have been completely assessed as of 31.1.2005.



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The Court of First Instance rejects Microsoft's request for interimmeasures concerning the Commission's decision of 24 March2004

Cecilio MADERO, Nicholas BANASEVIC, Christoph HERMES,Jean HUBY and Thomas KRAMLER,Directorate General Competition, unit C-3

1. The decision

On March 24 2004, the Commission adopted adecision in Case COMP/C-3/37.792 — Microsoft— by which it concluded that Microsoft hadabused its dominant position in PC operatingsystems in contravention of Article 82 EC by (i)refusing to provide interoperability informationnecessary for competitors to be able to effectivelycompete in the work group server operatingsystem market and (ii) tying to its dominant PCoperating system its streaming media player,Windows Media Player. The Commissionimposed a fine of EUR 497.196,304 on Microsoftand ordered Microsoft to bring to an end itsinfringement of Article 82 EC (Article 4 of theDecision). More specifically, the Commissionordered Microsoft to (i) provide to interestedundertakings the interoperability informationnecessary to build work group server operatingsystems that fully interoperate with the WindowsPC operating system, such supply having to becarried out on reasonable and non-discriminatoryterms (‘the interoperability remedy’, Article 5 ofthe Decision) and (ii) to offer a full-functioningversion of its PC operating system which does notincorporate Windows Media Player (‘the tyingremedy’, Article 6 of the Decision). The Decisionalso foresees the establishment of a monitoringmechanism to oversee Microsoft's implementation(Article 7 of the Decision). Microsoft was granteda deadline of 120 days to implement theinteroperability remedy and a deadline of 90 daysto implement the tying remedy (1).

2. The order of the President of the

Court of First Instance (2)

2.1. The procedure

On June 7 2004, Microsoft filed an application forannulment of the Decision with the Court of First

Instance (‘CFI’). Additionally, on June 25 2004,Microsoft filed an application with the President ofthe CFI pursuant to Art 242 EC for the suspensionof the operation of Articles 4, 5(a), 5(b), 5(c) and6(a) of the Decision until the CFI rules on its appli-cation for annulment. Microsoft's application forsuspension, which is the subject of the presentarticle, was thus limited to the suspension of theinteroperability and the tying remedy, and did notrelate to the fine or the monitoring mechanism.

As the various time-limits imposed on Microsoftby the Decision would have elapsed during theprocedure on interim measures, the Commissiondecided on June 25 2004 not to enforce Articles5(a) to 5(c) and 6(a) of the Decision pending theoutcome of the interim measures proceedingsbefore the President of the CFI. The Commissionnevertheless highlighted that this partial stay ofenforcement of the Decision did not affect the rele-vant time-limits prescribed by the Decision. TheCommission noted that, as a result, were an orderof the President of the CFI rejecting Microsoft'sapplication to be taken after these time-limits hadelapsed, Microsoft would have to comply with theDecision immediately thereafter.

During the proceedings before the President of theCFI, fifteen organisations were granted leave tointervene in favour of the parties (five on theCommission's side). Two of these interveners(Novell and the Computer & CommunicationsIndustry Association, ‘CCIA’), which had bothintervened in favour of the Commission, withdrewtheir intervention after having entered into finan-cial settlements with Microsoft. However, theparties to the proceedings agreed that the writtenand oral submissions by Novell and CCIA shouldremain part of the file and that the President shouldbe able to rely on them for his appraisal of the case.

The order of the President of the CFI onMicrosoft's application for suspension was finally

(1) For a more detailed discussion of the Decision, please refer to the Competition Policy Newsletter 2004, Number 2.

(2) Order of the President of the Court of First Instance of 22 December 2004 in Case T-201/94 R, Microsoft, not yet reported.

issued on December 22 2004. Microsoft's applica-tion for suspension was dismissed in its entirety.

The following paragraphs highlight some of thePresident's findings with respect to the dismissal ofthe requested suspension of the interoperabilityand tying remedy. For its application for interimmeasures to succeed, Microsoft had to establish aprima facie case and to prove that the circum-stances of the given case gave rise to urgency. Incase Microsoft were to prove both a prima faciecase and urgency, the President would then have tobalance the interests of Microsoft against theCommission's interest in preserving effectivecompetition.

2.2. The interoperability remedy

2.2.1. Prima facie case

In arguing that it had a prima facie case as regardsthe suspension of the interoperability remedy,Microsoft presented three pleas. First, Microsoftargued that the Decision did not fulfil the condi-tions laid down by the Court of Justice in the IMSHealth judgment (1) for the qualification of arefusal to licence intellectual property rights as anabuse prohibited by Article 82 EC. Second,Microsoft claimed that it had not refused theinteroperability information at issue, since therequest by Sun Microsystems on which theCommission relied to establish such a refusal wasnot sufficiently clear. Third, the Decision was, inMicrosoft's view, inconsistent with the TRIPSAgreement (‘Agreement on trade-related aspectsof intellectual property rights’).

On the second plea, the President concluded thatMicrosoft had not established prima facie that theCommission had erred in defining the scope ofSun's request (para. 200 of the order). As regardsTRIPS, the President found that Microsoft in itsapplication for interim measures had not suffi-ciently expanded on this claim for the President tobe able to make a proper ruling (para. 201 of theorder). Microsoft's arguments concerning TRIPSwere indeed not described in its application forsuspension, which merely cross-referred toMicrosoft's application for annulment, and in asubsequent filing to the Court, Microsoft devel-oped these arguments in an annex, rather thandeveloping them in the body of its submission. ThePresident confirmed the procedural rule that argu-ments that are not properly fleshed out in the bodyof the applicant's submission should be disre-garded (paras. 86 and 88 of the order).

Consequently, in his examination of Microsoft'sprima facie case, the President focused on whetherthe Commission correctly qualified Microsoft'srefusal to supply interoperability information as anabuse of Art 82 EC. In this respect, the Presidentcame to the conclusion that a series of questions ofprinciple had to be addressed in this context thatcould not be decided in summary interim measuresproceedings and that therefore Microsoft's argu-ments as to this plea could not be rejected outrightas unfounded.

The main questions that the President identified asdeserving a closer examination, without prejud-ging the assessments to be made in the main caseare as follows. A first question was whether theconditions set out in the IMS Health judgment arenecessary or merely sufficient to justify compel-ling licensing of intellectual property rights (para.206 of the order).

Another question was whether the nature of theprotected information must be taken into accountwhen ordering the disclosure of information (para.207 of the order). The President concluded on thispoint by stating that account would have to betaken of the value of the underlying investment,the value of the information concerned to thedominant undertaking and the value transferred tocompetitors in the event of disclosure (para. 207 ofthe order).

The last question the President identified inconnection with the prima facie case was whetherthe requirements for licensing of intellectual prop-erty rights set out in the IMS Health judgment weresatisfied in the present case. In that regard, thePresident identified two sources of disputebetween the parties that he considered sufficientlyserious to constitute a prima facie case.

The first of these two sources of dispute was, inrelation to the criterion developed in IMS Healththat the requested input must be indispensable toviably compete. In this regard, the President notedthat the disagreement between the parties boileddown to whether the information requested fromMicrosoft was actually necessary for inter-operability as defined in Directive 91/250 on thelegal protection of computer programs. The Presi-dent underscored that, in order to answer this ques-tion, a thorough examination of the elements offact in the light of the applicable legislation wouldbe necessary.

Antitrust


(1) Judgment of 29 April 2004 in Case C-418/01, IMS Health, not yet reported.

The second source of dispute in applying thecriteria developed in IMS Health that the Presidentidentified related to Microsoft's argument that itsrefusal was objectively justified. In this respect,the President noted that the Court dealing with thesubstance of the case would have to assess whetherthe Commission had committed a manifest error inthe evaluation of the interests involved in this case,in particular in connection with the protection ofthe intellectual property rights relied on and therequirements of free competition enshrined in theEC Treaty.

2.2.2. Urgency

For an applicant to pass the legal test for interimmeasures as regards urgency, he must demonstratethat he will suffer serious and irreparable damagewithout the suspension. In this respect, Microsoftclaimed that the implementation of the Decisionwould (i) harm its intellectual property rights (ii);interfere with its commercial freedom; and (iii)irreversibly alter market conditions.

As regards the alleged infringement of Microsoft'sintellectual property rights, the President foundthat the mere ‘breach of the exclusive preroga-tives’ of a holder of intellectual property rightsentailed by an order to license these rights couldnot in itself constitute a serious and irreparabledamage because otherwise, the urgency require-ment would always be fulfilled in cases whereintellectual property licensing is ordered (para.250 of the order). In order to establish urgency, theapplicant must show that the interference with itsintellectual property rights creates harm to it thatgoes beyond the making available of protectedinformation by way of licensing. In this respect,Microsoft argued that it would be required todisclose information on the internal structure andinnovative aspects of its products. However, thePresident concluded that there was not sufficientevidence to prove that the information thatMicrosoft would have to disclose would revealmore than is necessary to ensure interoperability.There was also no risk that the information in ques-tion could be used by Microsoft's competitors toclone its products (para. 289 of the order).

Furthermore, Microsoft contended that the infor-mation it had to disclose would end up in thepublic domain without Microsoft being able tocontrol its use, and that products built on the basisof the disclosed information would remain in thedistribution channel for a long time. As regards thefirst of these arguments, the President noted thatMicrosoft could introduce appropriate contractualsafeguards in its licence agreements to preventbreaches of confidentiality by its licensees. As

regards the second argument, the President statedthat the economic impact of the productsremaining in the distribution channel would belimited in time, essentially because the productsremaining in the distribution channel would overtime become technologically obsolete (paras. 282and 285 of the order).

As regards Microsoft's assertion that it would beforced to alter its business policy, the Presidentfirst pointed out that any decision requiring adominant undertaking to bring an abuse of itsdominant position to an end entails a change in itsbusiness policy. The President clarified that wherean applicant invokes an interference with its busi-ness freedom in order to demonstrate that such adecision by the Commission must be suspended, ithas to prove either that it would be prevented fromresuming its initial business policy were the Deci-sion to be annulled, or that the interference with itsbusiness policy would bring about serious andirreparable damage of another kind (paras. 291 and293 of the order). The President concluded thatMicrosoft had failed to prove any of these specificcircumstances. In particular, the President stressedthat the disclosure of information of the same kindas the interoperability information at stake in thiscase was not an exceptional course of action totake for Microsoft, which had made similar disclo-sures in the past, and was making similar disclo-sures at present, notably under the US Settlementand under an agreement with Sun which wassigned shortly after the Decision (para. 302 of theorder). The President concluded that in view ofthese disclosures already offered by Microsoft, theDecision would not lead to a significant change ofbusiness policy on its part (para. 301 of the order).

As a last argument to support its claim for urgencywith regard to the interoperability remedy,Microsoft maintained that mandatory licensingwould irremediably alter the prevailing marketconditions since the disclosure of the informationat stake would reveal important aspects of itsproduct design, and competitors would be allowedto reproduce functionalities which Microsoft haddeveloped through its research and developmentefforts. With regard to this argument, the Presidentreiterated that Microsoft had not proven to therequisite legal standard that the use which compet-itors could make of the disclosed informationunder the Decision would go beyond the use formere interoperability purposes. Furthermore,Microsoft did not adduce evidence to support itscontention that market conditions would bealtered, let alone demonstrate how it would beprevented from regaining market shares lost as aresult of the remedy (para. 319 of the order).



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2.3. The tying remedy

2.3.1. Prima facie case

In support of its prima facie case as regards thetying remedy, Microsoft relied on five arguments.First, Microsoft contended that the Commissionapplied a speculative theory on tying, in particularin basing its analysis on the foreclosure effectswhich stem from the ubiquitous distribution ofWindows Media Player resulting from its bundlingwith the Windows PC operating system. Second,Microsoft maintained that the Commission did nottake the advantages of bundling Windows MediaPlayer with the Windows PC operating systemsufficiently into account. Third, Microsoft claimedthat the Decision failed to establish an infringe-ment of Art 82 EC. Fourth, Microsoft argued thatthe Decision was a breach of the Community'sobligations under the TRIPS Agreement; and,fifth, Microsoft asserted that the remedy imposedby the Decision was disproportionate.

Two of Microsoft's arguments on the prima faciecase, namely those on TRIPS and the allegeddisproportionate nature of the remedy weredismissed by the President at the outset as havingnot been described in sufficiently clear terms toconstitute a prima facie case. This was in partic-ular due to a procedural mistake committed byMicrosoft similar to that concerning its TRIPSargument with respect to the interoperabilityremedy (paras. 392 and 393 of the order).

As regards the other arguments brought forwardby Microsoft, the President found that they couldnot be regarded as prima facie unfounded and thatbecause of the complexity of the issues raised,these questions would have to be resolved in thecourse of the main action. The President then high-lighted the questions he considered as particularlyrelevant for the main case.

The first point the President deemed to be impor-tant for the main action was whether “the Commis-sion may rely on the probability that the marketwill ‘tip’ as a ground for imposing a sanction inrespect of tying practiced by a dominant under-taking where that conduct is not by nature likely torestrict competition, should that be the case”(para. 400 of the order). In other words the Presi-dent saw a need to clarify in the main actionwhether the Commission may partly rely on aprospective analysis of the risks for competitionresulting from tying.

A second point that the President raised as a ques-tion that merited closer examination in the mainaction is ‘whether any positive effects associatedwith the increasing standardisation of certain prod-ucts may constitute objective justification orwhether, as the Commission contends, the positiveeffects of standardisation may be accepted onlywhen they result from the operation of the compet-itive process or from decisions taken by standard-isation bodies’ (para. 401 of the order).

Other questions that in the eyes of the Presidentwould have to be addressed in the main case werewhether the Commission conducted a manifesterror in appraising the impact of ‘indirect networkeffects’ on the competitive process in the mediaplayer market and whether the fact that for manyyears, Microsoft and other manufacturers haveintegrated certain media functionalities in their PCoperating systems backs Microsoft's assertion thatWindows Media Player and the Windows PCoperating system constitute two different products(paras. 402 and 403 of the order).

2.3.2. Urgency

To establish urgency, Microsoft relied on twomain arguments. First, Microsoft maintained thatthe unbundling remedy imposed by the Decisionwould interfere with its commercial freedom byforcing it to abandon its ‘basic design concept’ forthe Windows PC operating system which consti-tutes a uniform and well-defined platform onwhich applications can run. Second, Microsoftclaimed that the implementation of the Decisionwould damage its reputation as ‘a developer ofquality software products’.

As regards the alleged damage to the Windows‘basic design concept’, Microsoft argued thatserious and irreparable damage would derive from(i) the costs associated with developing anunbundled version of Windows, (ii) the placing onthe market of the unbundled version causinguncertainty for third parties and reducing theappeal of Windows and (iii) long-lasting effectsgoing beyond any annulment of the Decision if theunbundled version sold in significant quantities.

The President rejected the arguments relating toMicrosoft's ‘basic design concept’ on thefollowing grounds. Research and developmentcosts constitute mere financial damage which inprinciple cannot be taken into account whenassessing serious and irreparable damage in aninterim measure case (1). Microsoft did not adduce

Antitrust


(1) Case C-213/91 R Abertal and Others v Commission [1991] ECR I-5109, para. 24.

sufficient evidence to back its assertion that theuncertainty about the uniformity of the Windowsplatform resulting from the marketing of anunbundled version of Windows would reduce theappeal of Windows to final consumers orMicrosoft's customers (para. 419 of the order). Nordid Microsoft show that third parties would nolonger design products for the Windows platformin the event that an unbundled version of Windowswas brought to the market (para. 417 of the order).As to the alleged long-lasting effects of a signifi-cant distribution of the unbundled version, thePresident emphasised that Microsoft constantlyheld such a scenario to be very unlikely. Moreover,he endorsed the Commission's argument that incase of annulment of the Decision, Microsoftwould be able to update its operating system inorder to distribute Windows Media Player and,consequently, to restore at least to a very largeextent the tying of Windows Media Player with itsoperating system (para. 440 of the order).

Concerning the possible damage to Microsoft'sreputation, Microsoft referred to alleged malfunc-tions of the unbundled version of Windows. Thesemalfunctions would be twofold. On the one hand,the functioning of the Windows operating systemitself would be affected; on the other hand, certainapplications and websites which call uponfunctionalities of Windows Media Player wouldnot work properly.

The President first observed that functionalitiesabsent from Windows because of the absence ofWindows Media Player could ‘be replaced to areasonably large extent’ through the installation ofthird party media players (para. 448 of the order).The same applied as regards malfunctions of appli-cations and websites. In addition, the Presidentnoted that there were ‘strong incentives forwebsite and applications designers who currentlyrely on Windows Media Player to encourage usersto download the software [Windows MediaPlayer] or to distribute it themselves under thelicenses normally granted by Microsoft for thatpurpose’ (para. 449 of the order). The Presidentconcluded that it had ‘not been demonstrated thatthe problems invoked by Microsoft could not beavoided, at least to a large extent’ (para. 453 of theorder). To the extent that some minor problemsalleged by Microsoft were to persist, Microsofthad not shown that consumers would necessarilyview these malfunctions as unforeseen and not as alogical consequence of the absence of a mediaplayer in the operating system. This was all themore the case since Microsoft was in a position toinform its customers about the difference betweenthe bundled version (with a media player) and the

unbundled version (operating system only) (para.454 of the order). The President concluded thatMicrosoft had not adduced evidence to demon-strate the defects it identified would be likely tohave a substantial effect on the perception of theproduct by final consumers and customers. ThePresident was therefore unable to evaluate the realconsequences of these alleged problems onMicrosoft's reputation. Even in the event that therewas a risk of serious harm to Microsoft's reputa-tion, the President found that there would be nostructural or legal obstacles which would hinderMicrosoft to implement publicity measures whichwould restore its reputation, should the Decisionbe annulled (para. 465 of the order).

Further Microsoft arguments relating to allegeddamage to its trade marks and breach of its copy-right were dismissed by the President. As regardstrade marks, the President held that he obtained noevidence on the actual perception of the Windowstrade mark from Microsoft and reiterated thatMicrosoft had not demonstrated that potentialmalfunctions resulting from the remedy wouldhave a negative and significant effect on theperception of final consumers. The Presidentrejected the copyright argument because it was toovague and not sufficiently developed by Microsoft(paras. 468 to 474 of the order). In summary, thePresident found that Microsoft had failed todemonstrate that the implementation of the tyingremedy would be likely to cause serious and irrep-arable damage to Microsoft.

3. Conclusion

As is customary for summary proceedings oninterim measures, the order of the President of theCFI focuses on the requirement to establishurgency. It is interesting that the President did notenter into the exercise of balancing the interest ofthe parties given that Microsoft was unable toprove that a serious and irreparable damage wouldresult from the implementation of the remediesimposed by the Decision. As regards the primafacie case, the President was very careful not toprejudge the assessments that will have to becarried out by the Court in the main case. Asregards urgency, the President refused to lower theburden of proof for the establishment of risk ofserious and irreparable damage. This is essential tothe effective enforcement of EC Competition law,in particular in markets such as the ones identifiedin the Decision, which are both fast-moving(which can lead to a sweeping impact of the anti-competitive behaviour in a short period of time)and which exhibit high barriers to entry (which



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may make the harm to the competitive structurebrought about by an abuse of a dominant positionto a large extent irreversible).

On January 24 2005, Microsoft announced that itwould not appeal the order to the President of theCourt of Justice.

Antitrust


The needles case: how to find within a complex scheme ofbilateral agreements, a tripartite market sharing agreement

Christian ROQUES, Directorate-General Competition, unit F-1

Introduction

The conduct in question, subject of the Commis-sion decision adopted on 26 October 2004,consisted of a series of formally bilateral agree-ments that amounted to a tripartite agreementwhich had the object and the effect of sharing orcontributing to share the geographic market forneedles and the product market for needles andother haberdashery products. Such practices are bytheir very nature the worst kinds of violations ofArticle 81 of the Treaty to the extent that theyconcerned a product and geographic marketsharing between different markets and not simplyan allocation of quotas within one market and thatthe product market sharing agreements intervenedat different market levels, i.e. manufacturing anddistribution (both at the wholesale and retaillevels).

Three undertakings and their respective subsid-iaries, namely William Prym GmbH & Co. KGand Prym Consumer GmbH & Co. KG, CoatsHoldings Ltd and J & P Coats Ltd, Entaco Ltd andEntaco Group Ltd entered into a series of written,formally bilateral, agreements between 10September 1994 and 31 December 1999,amounting in practice to a tripartite agreementunder which these undertakings shared or contrib-uted to sharing product markets (by segmentingthe European market for hard haberdashery prod-ucts) and geographic markets (by segmenting theEuropean market for needles). These concertedpractices and agreements constitute an infringe-ment of Article 81(1) of the EC Treaty and had theobject and the effect:

For William Prym GmbH & Co. KG and PrymConsumer GmbH & Co. KG and Entaco Ltd andEntaco Group Ltd:

— of sharing the European hard haberdasherymarket by limiting the business activity ofEntaco Ltd to the hand sewing and specialneedles business, a fact which amounts toproduct market sharing between the handsewing and special needles market and thewider markets for needles as well as other hardhaberdashery markets.

— of segmenting the European market for needlesby restricting Entaco Ltd to the United

Kingdom, the Republic of Ireland and(partially) Italy and by preventing that under-taking from entering the Continental Europeanmarkets for needles (with the exception of so-called label accounts), thereby effectivelyreserving those markets for William PrymGmbH & Co. KG and its subsidiaries, a factwhich amounts to geographic market sharing inthe needles market.

For Coats Holdings Ltd and J & P Coats Ltd:

— notably, of protecting the undertakings' ownneedle brand (Milward) at the retail level fromcompetition on behalf of Entaco Ltd by way ofi) an exclusive supply and purchasing agree-ment with Entaco Ltd covering the UnitedKingdom and (partially) Italy, ii) and by way ofimposing on Entaco Ltd an obligation torespect the geographic market sharing agree-ment that undertaking had entered into withWilliam Prym GmbH & Co. KG and its subsid-iaries.

The Decision is based upon the existence of inter-conditional clauses contained in the above-mentioned series of written bilateral agreementsand upon certain contemporaneous documents.These clauses were renewed over time.

In this context it should be highlighted that aleniency application submitted on behalf of EntacoLtd confirmed all of the Commission's findings inthese proceedings. Prym in its reply to the State-ment of Objections confessed its participation tothe infringements.

The parties

— Coats Holdings Ltd (hereafter Coats) is aglobal leading thread producer, the secondworldwide producer of zips, the main distrib-utor of haberdashery products around the worldand notably in Europe. Coats has a turnover of1.7 billion Euros worldwide.

— William Prym GmbH & Co. KG (hereafterPrym) is a leader at the manufacturing level ofhard haberdashery products. It is the third zipproducer worldwide. It owns the well-known‘Éclair’ brand. Coats was a main shareholder ofPrym until 1994.



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For both companies most consumers wear one ormore of their products on a daily basis.

— Entaco Ltd (hereafter Entaco) was incorpo-rated in April 1991 following a managementbuy-out by former employees of Needle Indus-tries Ltd. Needle Industries Ltd was a wholly-owned subsidiary of Coats Viyella plc (laterknown as Coats plc, currently called CoatsHoldings Ltd) until February 1991. It is a smallcompany, mainly active in the needle business.

Relevant markets

The Commission has identified three relevantproduct markets i) the European market for handsewing and craft needles (including notablyspecial needles), in which the product andgeographic market sharing took place (marketvalue around €30m), ii) the European market of‘other sewing and knitting products including pins,knitting pins/knitting needles’ (market valuearound €30m), and iii) the European market forother hard haberdashery products including zipsand other fasteners (€1,5 billion), in both of whichthe product market sharing only took place (from10 September 1994 to 13 March 1997). Themarket for hand sewing and craft needles must bedistinguished from the market for industrialmachine needles which were not manufactured bythe undertakings during the infringement period.

Mechanism of the infringements

1. Coats was protected against Entaco and Prymcompetition at the retail level (for its Milwardbrand) since:

— Entaco could not compete with Coats by virtueof the agreements it had signed with both Coatsand Prym respectively for the UK and Conti-nental Europe at the retail level.

Under clause 2.2 of the Supply and Purchaseagreement, Entaco is restricted from supplyingCoats customers in the UK: ‘Entaco shall notsupply products to a customer of a UKPurchaser other than those customers to whomthe Supplier supplies Products prior to the datehereof at existing business levels’.

Under clause 2.2 of the Distribution agreementbetween Prym and Entaco, Entaco is restrictedfrom selling to customers of Coats and Prym inContinental Europe: ‘Entaco will not sell prod-ucts to any person in the territory [Europeexcluding the United Kingdom and theRepublic of Ireland] other than the label

accounts and/or the Distributor [PrymConsumer] and/or the Coats group.’

Therefore Entaco was not an independent forcein the market since it could effectively only sellto Coats or Prym.

— Prym needed the support of Coats to stopEntaco entering the Continental Europeanmarket. It must also be remembered that toenforce the market sharing agreements, allCoats (as the overwhelming buyer in UK) hadto do was to buy from Entaco rather than Prym.This kept Prym limited to low activity in theUK while it disciplined Entaco to remainoutside Continental Europe, because if it didnot then Coats would stop considering Entacoas an exclusive supplier, a fact which iscontained in clause 2.2 of the Supply andPurchase agreement between Entaco andCoats:

‘[…] (b) fulfil its obligations of cognate naturepursuant to an Agreement between theSupplier and Prym dated [10 September 1994]/[1 April 1997].’

In addition, Coats as the main distributor inEurope was in a position by using its orders ofproducts to 'play off' Entaco and Prym againsteach other, which represented another mode todiscipline Prym.

2. Entaco wanted to be the exclusive supplier ofCoats in the UK as a security for its production;otherwise it would not have entered into theproduct market sharing agreement, limiting itsbusiness development. Indeed Entaco agreed to avery substantial limitation of its activity:

In the Heads of Agreement: ‘Entaco agrees torestrict its manufacturing and distribution activi-ties in the haberdashery sector to needles only,and not to widen its activities to include pins,safety pins, four-piece fasteners, knitting pins, orany other haberdashery product without the prioragreement of Prym’ (in addition to clause 2.3 ofthe Purchasing agreement between Prym andEntaco).

In the Distribution agreement under clause 2.2 asquoted above which amounts to a geographicmarket sharing agreement.

Entaco did not receive a similar guarantee fromPrym. It needed as a consequence the security ofan outlet for its production in the UK from Coats,which is what it received.

Entaco, being a management buy-out of Coats'former needle business, was facing competition

Antitrust


from two major companies, Prym and Coats whichwere linked by shareholding interests and a 'spe-cial partnership'. For Entaco, entering in thistripartite agreement was the best possible dealsince it gained a secure outlet by just offering ‘aface of independence to the market’ in exchange.

3. Prym, without the approval of Coats, would nothave entered a market sharing agreement to thepotential detriment of its main shareholder and itsmain partner (Coats) in the European haber-dashery market.

Rationale of the infringing practices

The main line of defence adopted by Coats wasthat it was not making sense that as a distributor inthe needle sector, it would organise a cartelbetween its suppliers. However Coats is not only adistributor since it owns a brand at the retail level,namely ‘Milward’ competing with the other manu-facturers Prym and Entaco. Compelling evidencesfound during the investigations demonstrate theinvolvement of Coats in order to protect itsMilward brand from competition. Coats notablyobliged Entaco to enter with Prym in the productand geographic market sharing agreementsthrough a signed agreement. It seems quite irra-tional that a mere customer would knowinglyenable its two main suppliers to enter into aproduct market sharing agreement to its detriment.A statement by Coats serves as a striking explana-tion for the undertaking's actions: ‘in return,Entaco should not approach Coats' retail or

wholesale customer and especially not to offerbetter prices’.

Another explanation is given by looking at thelong-standing relationship between Coats andPrym which resulted in comprehensive agree-ments concerning the distribution of haberdasheryproducts throughout the European Union betweenCoats and Prym and their various subsidiaries.Indeed from 1975 onwards Coats and Prym agreedto cooperate in the area of sales and distribution ina large number of countries world-wide by actingas joint trading companies or exclusive distribu-tors of each other's products, according to theirrespective market strength in each Member State.

Conclusion

The infringements were considered as ‘veryserious’ as they had the object of partitioningnational markets and sharing product markets,thereby restricting competition and affecting tradebetween Member States. The infringements lasted5 years and three months.

As Entaco was the only undertaking to inform theCommission of the existence of the market sharingagreements and to bring decisive evidence withoutwhich the market sharing agreements might nothave been disclosed, and in the light of its contin-uous co-operation, the Commission made itbenefit from full immunity of fines.

Coats and Prym were condemned to a fine of€30m each, jointly and severally liable with theirrespective subsidiaries.



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Comment un armistice se transforme en cartel sur le marché dela bière française

Ann RUTGEERTS, Direction générale de la concurrence, unité B-2

Le 29 septembre 2004, la Commission a adoptéune décision infligeant une amende pour unmontant total de 2.5 millions d'euros aux deuxprincipaux groupes brassicoles de l'époque enFrance (Groupe Danone/Brasseries Kronen-bourg (1) et Heineken N.V./Heineken France). Cesgroupes sont sanctionnés pour avoir conclu unaccord " d'armistice ", destiné à établir un équilibreentre leurs réseaux intégrés de distribution de bièredans le secteur «horeca» (consommation horsdomicile) en France. L'accord visait également àlimiter les coûts d'acquisition des grossistes enboissons.

L'accord d'armistice a été conclu le 21 mars 1996 àla suite d'une «guerre d'acquisitions» de grossistesde boissons, au cours de laquelle chacun des deuxgroupes a racheté un grand nombre de grossistesen peu de temps, ce qui avait conduit à une infla-tion des coûts d'acquisition desdits entreprises.L'armistice avait donc pour but, d'une part, demettre rapidement fin à l'accroissement des coûtsd'acquisition des grossistes et, d'autre part, d'équi-librer les réseaux de distribution intégrés desparties.

Ceci ressort sans équivoque d'une note interne dugroupe Heineken du 22 mars 1996, dans laquelle lePDG de Heineken France informe le conseild'administration de Heineken N.V. de ce qui suit:«Hier nous sommes convenus avec Danone demettre fin à la guerre stupide et coûteuse des acqui-sitions. Nous partageons l'objectif qu'il doit existerun équilibre entre nos deux groupes conformémentà une règle générale selon laquelle aucun des deuxne doit être dominant sur le marché Horeca [… ]».Afin d'atteindre ces objectifs, les parties conve-naient notamment:

(1) d'arrêter provisoirement les acquisitions (inter-diction de procéder à de nouvelles acquisitions dedistributeurs en dehors d'une liste agréée),

(2) d'équilibrer le volume total de bière distribuéepar le réseau intégré de chaque partie, et

(3) d'équilibrer le volume des marques de bièrecommercialisées par chaque partie qui seraitdistribué par l'autre.

L'«armistice» du 21 mars 1996 visait donc àcontrôler les investissements des deux groupes ets'assimilait à un accord de partage du secteur del'horeca en France. Cet accord constitue ainsi uneinfraction par objet à l'article 81 du traité CE. LeGroupe Danone et Brasseries Kronenbourg n'onten outre pas contesté l'existence de l'accord.

L'accord n'a cependant pas été mis en œuvre. Cettecirconstance a été prise en compte par la Commis-sion lors de la détermination du montant desamendes.

Dès lors, compte tenu de sa nature, son absenced'impact et son étendue géographique, l'infractiona été qualifiée de «grave». L'accord n'ayant pas étémis en œuvre, il n'y avait pas lieu de majorer lemontant de base de l'amende pour la durée.

Au titre de circonstance aggravante, la récidive aété retenue contre Danone/Brasseries Kronen-bourg, Danone (alors BSN) ayant déjà étécondamnée en 1984 pour des accords de partagedu marché visant notamment à maintenir un statuquo et à établir un équilibre dans le marché.

Aucune circonstance atténuante n'a été retenue. LaCommission a, au contraire, clarifié pour lapremière fois que dans des procédures concernantdes cartels secrets, la coopération (en l'espèce lanon contestation par les deux parties des faitsdécrits dans la communication des griefs et la noncontestation par le Groupe Danone/BrasseriesKronenbourg de l'existence de l'armistice) doit



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(1) En 2000, soit plusieurs années après l’infraction, Brasseries Kronenbourg SA a été acquise par le groupe brassicole britanniqueScottish & Newcastle.

en principe être prise en compte sur la base descommunications sur la clémence (1) et non passous les lignes directrices pour le calcul desamendes (2), afin de ne pas miner l'objectif descommunications sur la clémence. Or, comme lacommunication sur la clémence de 2002 (3) neprévoit pas de réduction de l'amende pour noncontestation des faits, la Commission a concluqu'il n'y a pas lieu de retenir cette circonstanceatténuante en l'espèce.

En rejetant cette circonstance atténuante, laCommission a cependant également constaté quela non contestation des faits et de l'existence del'armistice n'a pas contribué de manière significa-tive à l'établissement de l'existence de l'infraction.

La Commission a dès lors infligé une amended'1 million euros à Heineken N.V. et HeinekenFrance et d'1,5 million d'euros au Groupe Danone/Brasseries Kronenbourg.

Cartels


(1) La communication de la Commission concernant la non-imposition d’amendes ou la réduction de leur montant dans des affairesportant sur des ententes (JO C 207 du 18.7.1996, p. 4) ou la communication de la Commission sur l’immunité d’amendes et laréduction de leur montant dans les affaires portant sur des ententes (JO C 45 du 19.2.2002, p. 3).

(2) Lignes directrices pour le calcul des amendes infligées en application de l’article 15, paragraphe 2, du règlement n° 17 et del’article 65, paragraphe 5, du traité CECA (JO C 9 du 14.1.1998, p. 3).

(3) La Communication sur la clémence de 2002 aurait été applicable ratione temporis, mais aucune partie n’a introduit de demande autitre de cette communication.

Commission fines companies for colluding on raw tobacco pricesin Spain

Carlota REYNERS FONTANA, Directorate-General Competition, unit B-2Massimo DE LUCA, Directorate-General Competition, unit B-2Rafael MORILLAS, Directorate-General Competition, unit F-1

On 20th October 2004, the European Commissionadopted a prohibition decision imposing a totalfine of € 20 million to five companies active in theraw tobacco processing market for colluding onthe prices paid to and the quantities of tobaccobought from Spanish producers of raw tobacco.The Commission also imposed a symbolic fine tothe producers' representatives for agreeingminimum prices and price brackets. Following aninvestigation which started in 2001, the Commis-sion established that the infringements lasted from1996 to 2001.

Regulatory framework

The production of raw tobacco is subject to bothCommunity and national legislation.

The common organisation of the market in rawtobacco (‘CMO in raw tobacco’) (1) requires eachproducer or producers' group and each processor toenter into ‘cultivation contracts’ at the beginningof each year's campaign. These contracts mustinclude the prices or price brackets for each qualitygrade of the tobacco as agreed by the parties to thecontract. Such ‘contract prices’ constitute theframework to be used at delivery of tobacco to fixits final price.

In Spain, a Law of 1982 and a Royal Decree of1985 discipline the bargaining and the conclusionof ‘standard’ cultivation contracts betweenproducers' representatives and processors. Thisregulatory framework (to include the action takenby the Agriculture Ministry thereafter) at leastencouraged collective negotiations of ‘contractprices’ in the form of both minimum prices andprice brackets between producers' representativesand processors. Since 2000, a new law clarifiesthat parties to the cultivation contract must agreecontract prices individually.

Summary of the infringements

The processors' cartel: The four Spanish proces-sors of raw tobacco (Compañía española de tabacoen rama SA (Cetarsa), Agroexpansión SA, WorldWide Tobacco España SA (WWTE) and Tabacosespañoles SL (TAES)) as well as the Italianprocessor Deltafina, SpA. agreed, either directlyor, from 1999 onwards, through their associationANETAB, the (maximum) average price theywould pay to producers at delivery for each varietyof tobacco and the quantities of tobacco that eachof them could buy. By so doing, the processorsaimed at avoiding that final transaction prices atdelivery may be pushed above the level they wouldconsider acceptable. Since 1998, they put in placea sophisticated monitoring and enforcement mech-anism made of regular exchanges of informationabout prices and quantities throughout thecampaign and transfers of tobacco at the end of itfrom processors that would purchase more tobaccothan agreed to those that would purchase less.From 1999 to 2001, processors also agreedbetween themselves price brackets for each qualitygrade of the tobacco and minimum average pricesper producer and per producers group for eachtobacco variety (the ‘contract prices’) which theywould then jointly offer to producer representa-tives during the negotiation of the annual standardcultivation contract.

The producers' cartel: The three agriculturalunions representing the tobacco producers inSpain (ASAJA, UPA and COAG) as well as thecooperatives confederation CCAE (2) agreedbetween themselves on the ‘contract prices’ (seeabove) which they would then jointly propose toprocessors during the negotiation of the standardcultivation contract. By their very nature,minimum average prices would still be open toincrease following negotiation at delivery.



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(1) The CMO of raw tobacco was established in 1970 and replaced in 1992 by a new Regulation which was substantially amendedin1998. A complete overhaul of the tobacco CMO was adopted in April 2004 to take effect from 2006.

(2) Asociación agraria de jóvenes agricultores (ASAJA), Unión de pequeños agricultores (UPA), Coordinadora de organizaciones deagricultores y ganaderos (COAG) and Confederación de cooperativas agrarias de España (CCAE).

In the decision, the Commission finds that thesepractices constitute two separate (single andcontinuous) infringements of Article 81 of theTreaty.

The practices cannot be exempted under CouncilRegulation No 26 of 4 April 1962, which providesfor certain derogations from competition rules inrespect of the production of and trade in agricul-tural products since they cannot be regarded as‘necessary’ for the attainment of the objectives ofthe Common Agricultural Policy. In fact, the 1992reform of the CMO in raw tobacco was preciselydesigned to enhance price competition.

The decision also concludes that neither theSpanish regulatory framework nor the Ministerialpractice required the processors to agree onmaximum average delivery prices for raw tobaccoor to share out quantities of tobacco to be boughtby each processor. Nor did such regulatory frame-work require processors and producers to agreecollectively on 'contract prices' or otherwiseremove all possibility of competitive behaviour ontheir part. Consequently, the conducts at issue arecaught by Article 81 of the Treaty.

Calculation of the fines

The Commission characterised the conducts inquestion as ‘very serious’ infringements of thecompetition rules. However, it also took accountof the relatively limited size of the market (approx.€ 25 million) when setting the starting amount ofthe fines (the highest starting amount was set at€ 8 million).

Fines were adjusted in consideration of the contri-bution to the illegal conduct of, and the marketposition enjoyed by, each party involved. Bearingthis in mind, the decision concluded that Deltafinashould receive the highest starting amount for itsprominent market position. Its position was furtheraggravated by the fact that it also acted as the cartelleader. The contribution to the illegal conduct bythe Spanish processors was broadly taken as beingsimilar. The starting amounts however took into

account the different size and the market shares ofeach processor involved. Cetarsa is the leadingSpanish first processor (67% market share duringthe last year of the infringement) and received thehighest starting amount of the fine. Agroexpansiónand WWTE had both market shares of approx.15% each and received the same starting amountof the fine. Taes, by far the smallest processorinvolved, received the lowest starting amount ofthe fine. Further adjustment was made in the caseof WWTE and Agroexpansión to reflect theirbelonging to multinational groups of considerableeconomic and financial strength.

The decision concludes that only a symbolic fineof € 1,000 to each producers' representative isappropriate in consideration of the fact that thenational regulatory framework and the involve-ment of the Agriculture Ministry engendered aconsiderable degree of uncertainty as to thelegality of their conduct. Such regulatory frame-work was also considered in respect of the proces-sors but only as a mitigating circumstance as theirconduct exceeded by far the scope of such frame-work.

The 10% worldwide turnover limit mentioned inArticle 15(2) of Regulation 17 was applied toCetarsa to limit the fine imposed on it.

The Commission notice on the non-imposition offines in cartel cases of 1996 was applicable in thiscase and in particular section D since all theprocessors came forward only after the Commis-sion's inspections. Reductions of the fines weregranted to all in accordance with the value of theirindividual cooperation.

The decision finally finds that the parent compa-nies of WWTE (Standard Commercial Corpora-tion, Standard Commercial Tobacco Co. Inc. andTrans-Continental Leaf Tobacco CorporationLtd.) and of Agroexpansión (Dimon Inc.) exer-cised decisive influence on their subsidiariesduring the period considered and are thereforefound to be jointly and severally liable for the finesimposed on their subsidiaries.

Cartels


Commission adopts cartel decision imposing fines on copperplumbing tube producers

Harald MISCHE, Directorate-General Competition, unit B-2

In September 2004, the Commission imposed finestotalling EUR 222.3 million on the major Euro-pean copper plumbing tube producers for oper-ating a 13-year cartel in the copper plumbingtubes market. These companies include the KMEgroup, the IMI group, the Boliden group, theOutokumpu group, the Wieland group, Halcor andHME Nederland BV. The Commission grantedMueller Industries full immunity under the 1996Leniency Notice for disclosing the cartel existencefirst. This is the Commission's first decisionagainst hard core cartels adopted in 2004. Some ofthese copper tubes producers were recently finedfor being involved in another contemporaneousEEA-wide cartel (in the Commission's IndustrialTubes decision of December 2003).

On 3 September 2004, the Commission adopted adecision imposing fines on the leading Europeancopper plumbing tube producers for operating aprice-fixing and market-sharing cartel in the EEAmarket for copper plumbing tubes, in breach ofArticle 81 EC, between at least June 1988(concerning the first SANCO-club meetings) andMarch 2001. Some of these copper tube producerswere recently fined by the Commission in theIndustrial Tubes Decision (1) for being involved inanother EEA-wide cartel, which was contempora-neous to the present one.

The participants in the cartel include the followingcompanies: (i) the KME group (Europa Metal AGand its wholly-owned subsidiaries Europa MetalliSpA and Tréfimétaux SA), the IMI group (IMI plcand its former subsidiaries IMI Kynoch Ltd. andIMI Yorkshire Copper Tube Ltd.); (ii) the Bolidengroup (Boliden AB and its former subsidiariesBoliden Fabrication AB and Boliden Cuivre &Zinc S.A., hereinafter ‘BCZ’); (iii) the Outokumpugroup (Outokumpu Copper Products Oy and itsparent company Outokumpu Oyj); (iv) theWieland group (Wieland Werke AG and its fullycontrolled subsidiaries Austria Buntmetall AG andBuntmetall Amstetten Ges.m.b.H.); (v) HalcorS.A.; (vi) HME Nederland BV; and (vii) MuellerIndustries, Inc. (together with its subsidiaries

WTC Holding Company, Inc., Mueller EuropeLtd., DENO Holding Company, Inc. and DENOAcquisition EURL), which was the first companyto approach the Commission and cooperate underthe 1996 Leniency Notice.

Copper plumbing tubes are generally used forwater, oil, gas and heating installations in theconstruction industry. These include two sub-families of products, i.e. plain copper plumbingtubes and insulated (or plastic-coated) copperplumbing tubes. For the purposes of the decision,both plain tubes and insulated tubes were treated aspart of one product group, which the Commissionestimated to be worth some EUR 1.15 billion in theEEA in 2000.

In consideration of different customers, end usesand technical specifications, the Commissionconsidered that copper plumbing tubes and indus-trial tubes are different products (2). Unlike indus-trial tubes, which are generally sold to industrialcustomers, original equipment manufacturers andpart manufacturers, main customers for copperplumbing tubes include distributors, wholesalersand retailers, who sell these to installers and otherend-consumers.

Tubes made of other materials, such as plastic orcompounds (i.e. plastic with layers of aluminium),which have increasingly been used for the produc-tion of plumbing tubes since the early 1990s, put acertain amount of competitive pressure onplumbing tubes made of copper. However, for thepurposes of this decision, the Commission treatedcopper plumbing tubes as a separate product.

The Commission launched an investigation inMarch 2001, after Mueller Industries disclosed thecartel existence and started to cooperate with theCommission under the 1996 Leniency Notice. TheCommission carried out dawn raids at somecompanies' premises in March 2001 (3) and sent aStatement of Objections to the parties inSeptember 2003. The Commission found that thecopper tube producers had participated in a single,continuous, complex and, with respect to KME,



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(1) Commission Decision of 16 December 2003, Commission Press Release IP/03/1746 of 16.12.2003.

(2) In line with the Commission findings in Case No COMP/M.3284, Outokumpu/Boliden.

(3) See Commission Press Release MEMO/01/104, 23 March 2001.

Wieland and Boliden, a ‘multiform’ infringement(relating to both the wider European cooperation,the SANCO club and/or the WICU/Cuprotermarrangements) of Article 81 of the EC Treaty andArticle 53 of the EEA Agreement of long duration.In particular, the companies operated a price-fixing and market-sharing cartel in which theyagreed on allocating volumes, market shares andcustomers, as well as on fixing price targets andjoint price increases, discount rates and othercommercial terms for plain copper plumbingtubes. As far as KME and Wieland are concerned,the agreement also covered plastic-coated copperplumbing tubes. The cartel members also estab-lished a system for monitoring the implementationof the anti-competitive arrangements, through anexchange of confidential information (on sales,orders, market shares and prices) and a marketleader agreement, based on which each national‘market leader’ reported on developments in itshome market to the other participants, so that thesecould better coordinate their behaviour.

The anti-competitive conduct took place at boththe European-wide and national level. However,the decision is principally limited to the European-wide arrangements. The cartel operated throughregular meetings at both a top management level(so-called ‘Elephant meetings“ as of 1997) and anoperational level (so-called "Sweepers meetings"as of 1997).

Producers market their copper plumbing tubesunder different brands, depending on the variousapplications and on whether copper plumbingtubes are plastic-coated. Three brands, ‘SANCO’,‘WICU’ and ‘Cuproterm’, were critical to theorganisation and implementation of the cartel bothat an initial phase and throughout its entire dura-tion. ‘SANCO’ is a trademark for plain copperplumbing tubes produced by the KME Group,Wieland and BCZ. ‘WICU’ and ‘Cuprotherm’ arebrand names for plastic-coated copper plumbingtubes produced by Wieland and KME (until 1998,also BCZ produced insulated tubes under the‘WICU’ trademark). The SANCO brand provideda framework within which the SANCO producers,by regularly meeting in a so-called ‘SANCO-club’, were able to organize their co-operation andto implement their agreements, among other thingsthrough an exchange of confidential information.KME and Boliden started their illegal cooperationin June 1988 at the latest. Wieland joined later in1989. KME and Wieland also cooperated withrespect to WICU®- and Cuprotherm plastic-insu-lated copper plumbing tubes.

The cartel was organized at three levels, theSANCO club representing the first and oldest level

of the cooperation between the copper plumbingtubes producers. In parallel to the SANCO club,the largest European copper tube producers starteda broader level of cooperation from at leastSeptember 1989, i.e. KME, Wieland, Outokumpuand IMI. Mueller joined this group in 1997, toform the so-called ‘group of the five’. Asdescribed in the minutes of a participant in the firstEuropean-wide meeting, the objective was ‘tokeep the prices in the high price level countrieshigh — if possible to increase even more’, bylimiting quantities according to demand. Further-more, the plan was to increase prices by creatingshortages.

The cooperation reached its third level in 1998,when four smaller producers joined the ‘group ofthe five’, i.e. Halcor (just until August 1999),HME Nederland BV, Boliden and Buntmetall (toform the so-called ‘group of the nine’). Thesecompanies, as well as Mueller, had occasionallyparticipated in the cartel between 1989 and 1994.However, the Commission could not establishcontinuity of the infringement with respect to thesecompanies because it was not proven that they hadany contacts at the European level during theperiod from 1994 until 1997 or 1998.

The way the meetings were organized and theintensity of the contact between the participantsvaried throughout the cartel duration.

The Commission characterised the behaviour inquestion as a ‘very serious’ infringement of Article81 EC and Article 53 EEA and imposed fines for atotal amount of EUR 222.3 million. The highestfine was imposed on the companies of the KMEgroup, amounting to EUR 67.08 million. The IMIgroup was fined EUR 44.98 million, the Bolidengroup EUR 32.6 million, the Outokumpu groupEUR 36.14 million, the Wieland group EUR27.8411 million, Halcor S.A. EUR 9.16 millionand HME Nederland BV EUR 4.49 million.Mueller was granted full immunity.

The addressee companies had undergone internalrestructuring by the time of the Commission'sdecision. This resulted in a complex allocation ofliabilities.

For instance, as concerns the KME group,including KM Europa Metal (‘KME’), EuropaMetalli and Tréfimétaux, two different periodswere distinguished for the purposes of allocationof liability. During the first period (between 1988and 1995), Tréfimétaux was wholly-owned byEuropa Metalli and the two companies' manage-ment was closely interlinked so that they wereconsidered to have formed a single undertaking,

Cartels


implying joint and several liability for the infringe-ment. Although in 1990 their ultimate parentcompany, SMI (Società Metallurgica ItalianaSpA), acquired some 77% of Kabelmetall AG(renamed later KM Europa Metal), the Commis-sion found that Kabelmetall AG formed a separateundertaking from Europa Metalli and Tréfimétauxuntil the restructuring of the group in 1995. KME'smanagement was separate from that of its sistercompanies until this restructuring, when KMEacquired 100% shareholding in both EuropaMetalli and Tréfimétaux. During the period from1995 to 2001, the KME group was treated as asingle undertaking with joint and several liabilityfor the infringement.

In a similar way, two different periods were distin-guished for the purposes of the allocation ofliability within the Wieland-group. WielandWerke AG acquired sole control over theBuntmetall group in 1999. Accordingly, WielandWerke AG and the Buntmetall group were treatedas a single undertaking with joint and severalliability for the infringement only as of 1999.

Calculation of fines

In fixing the amount of the fines, the Commissiontook into account the gravity and duration of theinfringement, as well as the existence of aggra-vating and/or mitigating circumstances, as appro-priate. All the companies concerned were found tohave committed a ‘very serious’ infringement. TheKME group, the Wieland group, the Outokumpugroup, the IMI group and the Boliden groupcommitted an infringement of long duration(exceeding five years). Fines were adjustedaccording to the companies' relative importance onthe market concerned. Further upward adjustmentfor ‘deterrence’ was made in Outokumpu's case,with regard to its larger size compared to othercompetitors and its overall resources.Outokumpu's fine was also increased for recidi-vism, since the company had been the addressee ofa previous decision finding an infringement of thesame type (Commission Decision 90/417/ECSC,Cold-rolled Stainless steel flat products (1)). Onthe other hand, Outokumpu was rewarded by anattenuating factor for being the first undertaking todisclose the whole duration of the cartel extendingover more than 12 years, by analogy to the 2002Leniency Notice, which is not applicable in thiscase (see below). Its fine was therefore reducedaccordingly. The KME group was also granted amitigating factor for its cooperation in the

proceedings, since it was the first undertaking toprovide sufficient evidence enabling the Commis-sion to establish the existence of a continuousinfringement with respect to the WICU/Cuprotherm arrangements starting from at leastthe beginning of 1991.

Application of the 1996 Leniency

Notice

Since the copper plumbing tubes investigationstarted in 2001, the 1996 Leniency Notice appliedin this case. Mueller was granted full immunityfrom fines for having approached and cooperatedwith the Commission first. With the exception ofHME, all the other companies involved in theproceedings cooperated with the Commission'sinvestigation, but only after inspections had takenplace. Since the inspections had produced suffi-cient evidence allowing the Commission to openproceedings and adopt a decision imposing fines,the Commission applied Section D of the 1996Leniency Notice.

Outokumpu applied for leniency immediatelyafter the Commission's inspections. It began coop-erating with the Commission significantly earlierthan the other participants and its cooperation wascomplete and extensive. As mentioned above,Outokumpu disclosed the whole cartel durationfrom the end of the 1980s until 2001, for which itwas granted an attenuating circumstance and itsfine was reduced accordingly. The company wasgiven a 50% discount, which is the maximumreduction allowed under Section D of the 1996Leniency Notice.

Wieland Werke and KME started cooperating withthe Commission at a later stage in the procedure,more than a year and a half after the inspectionstook place and after the Commission had sentformal information requests in the context of theIndustrial Tubes investigation (Case IV/38.240),in which these companies were also involved.KME was the only company besides Outokumputo have provided an overall description of thearrangements for the period 1988 to 2001. Also, itcontributed by providing explanations for thecontent and duration of national arrangements.Wieland provided a detailed description of meet-ings from 1993 until 2001, numerous minutes ofcartel meetings of its employees, which helped inparticular to establish continuity of the infringe-ment. As a result, KME and Wieland wererewarded with a reduction of 35%.



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(1) OJ L 220, 15.8.1990, p. 28.

Halcor also started cooperating after havingreceived a formal request for information.Although the company provided detailed descrip-tions of how the cartel functioned and of its partici-pation in the meetings at the European level in1998 and 1999, and submitted contemporaneousnotes of certain cartel meetings, its cooperationhad only limited value because the Commission

was already in possession of evidence proving theinfringement for the relevant period. Also, Halcordid not clarify its role in meetings between 1989and 1994 or at a national level. As a result, Halcorwas rewarded with a 15% reduction. Since IMIand Boliden started cooperating after receiving theStatement of Objections, they could only benefitfrom a 10% reduction for not contesting the facts.

Cartels


Commission fines members of the monochloroacetic acid cartel

Christopher MAYOCK, Directorate-General Competition, unit E-1

In a decision adopted on 19 January 2005 theCommission found that four groups of undertak-ings had participated in a cartel in the market formonochloroacetic acid. The cartel ran for 15years from 1984 until 1999 and covered the wholeof the European Economic Area. Fines totallingalmost EUR 217 million were imposed on Akzo,Hoechst and Atofina (now know as Arkema) fortheir involvement in the cartel. Clariant escapedthe imposition of a fine altogether in view of itscooperation with the Commission under the 1996Leniency Notice.

Summary of the infringement

Monochloroacetic acid (MCAA) is a reactiveorganic acid which is a chemical intermediate usedin the manufacture of detergents, adhesives, textileauxiliaries and thickeners used in food,pharmaceuticals and cosmetics. The participantsheld over 90% of the European Economic Area(EEA) wide market for MCAA which had a valueof approximately EUR 125 million in 1998, thelast full year of the infringement.

Four groups of undertakings were involved in thecartel:

— Akzo (Akzo Nobel NV, Akzo NobelNederland BV, Akzo Nobel Functional Chemi-cals BV, Akzo Nobel Chemicals BV, AkzoNobel AB, Eka Chemicals AB, Akzo NobelBase Chemicals AB);

— Atofina (Atofina SA (now Arkema SA) and itsparent company Elf Aquitaine SA);

— Hoechst AG (involved 1984-1997 after whichtime it sold its MCAA business to Clariant);and

— Clariant (Clariant GmbH and its parentClariant AG - involved 1997-1999).

The cartel ran from at least 1984 to 1999 with theprincipal aim of market sharing through a volumeand customer allocation scheme. The participantswould meet 2-4 times a year with these meetingstaking place on a rotating basis in the respectivecountries of the participating undertakings. Bilat-eral contacts were also made, as well as the partici-pants having contact during specially arrangedmeetings and on social occasions.

The cartel became more formalised from 1993with implementation rules being laid down, thedevelopment of a mechanism to directly exchangesales statistics and the introduction of a compensa-tion system. AC Treuhand, a Zurich based statis-tical agency, was also retained at this time toprovide aggregated statistical data and generalmarket information. The participants would typi-cally meet the AC Treuhand representative twice ayear close to Zurich airport. These legitimateTreuhand meetings served to provide a cover forthe participants to meet unofficially, usually theevening before at a different location, to discussthe cartel arrangements. A total of 12 Treuhandmeetings took place between May 1994 andJanuary 1999 with cartel meetings taking placealong side the Treuhand meetings and with othermultilateral and bilateral contacts continuingthroughout the period.

The Commission found that the participants hadinfringed Article 81 EC Treaty and Article 53(1)EEA Treaty by (i) allocating volume quotas, (ii)allocating customers, (iii) agreeing concerted priceincreases, (iv) agreeing on a compensation mecha-nism to ensure the implementation of quotas, (v)exchanging sales volumes and prices to ensureimplementation, (vi) participating in regular meet-ings, both multilateral and bilateral, as well asother contacts to set up and to ensure the properfunctioning of the cartel.

Calculation of fines and application of

the 1996 Leniency Notice

In fixing the amount of fines, the Commission tookinto account the gravity and duration of theinfringement, as well as the existence, as appro-priate, of aggravating and attenuating circum-stances. The role played by each undertaking wasassessed on an individual basis.

All the undertakings concerned were found to havecommitted a very serious infringement. Withinthis category, the undertakings were divided intothree groups according to their relative importancein the market concerned. Akzo as the largestproducer of MCAA in the EEA was placed in thefirst category. Hoechst and Clariant were placed inthe second category with Atofina in the third.Upward adjustment of the fine was made in thecase of the Atofina and Akzo groups having regard



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to their large size and overall resources. All partic-ipants, except for Clariant, committed an infringe-ment of long duration (exceeding five years) forwhich the amount of the fine was increasedproportionally to the term of their involvement.

As an aggravating circumstance the Commissiontook into account that both Hoechst and Atofinahad been addressees of previous Commissiondecisions which established an infringement of thesame type. In the case of Atofina the aggravatingcircumstance applied only to Atofina SA and didnot extend to its parent company Elf Aquitaine SAas the latter was not in control of the former at thetime of the previous infringement.

One attenuating circumstance was identified. In itscooperation with the Commission (see below)Akzo provided information that three of its compa-nies (Eka Chemicals AB, Akzo Nobel ChemicalsAB and Akzo Nobel AB) had participated inde-pendently in the infringement for a short eightmonth period prior to becoming part of the Akzogroup. The result of the information provided byAkzo is that it would face a higher fine than itwould have done without its cooperation. Accord-ingly, having regard to the particular circum-stances of the case and in line with the principle of

fairness, the fine imposed on the above threecompanies was reduced to zero on the basis of aspecial attenuating circumstance of cooperationoutside the Leniency Notice.

On the issue of leniency, as the investigationstarted prior to the introduction of the 2002Leniency Notice, the 1996 Notice was applicablein this case.

Clariant was the first undertaking to provide deci-sive evidence of the cartel which triggered theCommission investigation. Clariant, having ful-filled the required additional conditions, wasaccordingly granted full immunity under the 1996Leniency Notice. Atofina was the second under-taking to come forward and, as a result of its closecooperation with the Commission, it was granted a40% reduction. Akzo was the third undertaking tocooperate with the Commission and it received areduction of 25%.

Following application of the Leniency Noticethe total level of fines imposed was almost EUR217 million. On an individual basis the finesimposed were as follows: Akzo EUR 84.38 mil-lion, Hoechst EUR 74.03 and Atofina EUR58.5 million.

Cartels


Merger control: Main developments between 1 September and31 December 2004

Mary LOUGHRAN and John GATTI, Directorate-General Competition

Recent cases — Introductory remarks

In the four months to December, the Commissionreceived 72 notifications, some 23% fewer than inthe previous period. As regards final decisions thetrend was also downwards with 75 final decisionsbeing adopted as compared to 84 between May andAugust. Of these final decisions over 50% wereadopted under the simplified procedure.

However, there was a significant increase in thenumber of decisions adopted after an in-depthinvestigation as well as an increase in the numberof decisions adopted in Phase I with conditions.One prohibition decision was adopted during theperiod pursuant to Art. 8 (3) and one case wascleared unconditionally pursuant to Art. 8 (2).Three other conditional clearance decisionspursuant to Article 8 (2) were also adopted in theperiod. The Commission also referred one case tothe national authorities pursuant to Article 9.

A – Summaries of decisions takenunder Article 8 of the MergerRegulation

AREVA / Urenco / ETC JV

AREVA, the French nuclear group, and Urenco, acompany set up by the governments of the UK, theNetherlands and Germany are the main Europeanproviders of uranium enrichment services whichare needed to produce fuel for nuclear powerplants. As a result of this transaction, AREVAacquired joint control over Enrichment Tech-nology Company (ETC), Urenco's subsidiaryactive in the development and manufacturing ofthe centrifuges used to enrich uranium. Centrifugetechnology offers significant advantages over theolder gas diffusion technology currently used byAREVA. ETC is to supply both its parents andthird parties with centrifuge equipment.

The operation was jointly referred to the Commis-sion by France, Sweden and Germany in April2004. The Commission's investigation identifiedcompetition problems in the downstream market

for enriched uranium. The Commission wasconcerned that the concentration could lead to thecreation of a joint dominant position in this marketin the European Union. In particular, the Commis-sion considered that ETC could be used byAREVA and Urenco to co-ordinate, through theexercise of their respective veto rights, theircapacity developments.

The case was also of interest in view of the effi-ciency claims made by the parties. These related tothe substantial cost savings that AREVA wouldachieve by being able to adopt the modern centri-fuge technology of Urenco. The Commission was,however, not sufficiently convinced of the merger-specificity of these claims, in particular withregard to the more restrictive aspects of the jointventure.

In order to eliminate the Commission's concerns atan early stage in Phase 2, AREVA and Urencoundertook to remove their respective veto rights inrelation to future capacity expansions. Secondly,the flow of commercially sensitive informationbetween ETC and its parents will be blocked by aseries of measures which will be closely moni-tored. Finally, the parties have undertaken toprovide the European Supply Agency ("ESA")with additional information, which will enableESA to monitor the provision and pricing ofenriched uranium more closely and to respond, ifnecessary.

Sonoco / Ahlstrom / JV

In May 2004, the Commission received a notifica-tion of a proposed concentration by which twomajor players of the coreboard and cores industry,Sonoco (USA) and Ahlstrom (Finland), intendedto create a joint venture combining their Europeanactivities.

Cores are tubes produced from coreboard, which isitself produced mainly from recycled paper. Coresare used as the base around which various prod-ucts, such as paper, film and yarn are wound.Among cores, high-end paper mill cores are highquality products used by the printing industry toroll magazine paper. Low value cores are standardproducts used in many industries.


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The Commission's in-depth investigation identi-fied concerns in the markets for high-end paper-mill cores in the whole Scandinavia and for low-value cores in Norway and Sweden, where thejoint venture would have high market shares andwhere the significant competitive pressure exertedby Sonoco on the market leader Ahlstrom wouldbe lost. To remedy these concerns, the partiesproposed to divest Ahlstrom's only Norwegiancore manufacturing facility in Sveberg. They alsooffered not to implement the merger before a buyeris found.

The European Commission approved the concen-tration on this basis, since it considered that thisdivestiture will allow for the entry of a newsupplier in Scandinavia and will also remove themain part of the parties' overlap in the affectedScandinavian countries. Indeed, in late October,the Commission approved the acquisition ofSveberg by Abzac, a French core manufacturerwhich has significant activities in ContinentalEurope, but which was absent from the Scandina-vian markets.

Continental/Phoenix

The acquisition of Phoenix AG (Hamburg) by theGerman undertaking Continental AG involvedtwo rubber companies which mainly serve theautomotive industry. The transaction wasapproved subject to divestiture commitmentswhich removed the competition problems arisingfrom the parties' dominant position in the marketsfor air springs for commercial vehicles and forheavy steel cord conveyor belts. The proposedtransaction involved the acquisition of sole controlof Phoenix AG, a company which is also active inthe production of technical rubber products (e.g.suspension systems, anti-vibration systems, hosesand conveyor belts) by Continental, a producer oftyres, brake systems and technical rubber prod-ucts. Phoenix jointly controls Vibracoustic GmbH& Co KG, Germany, through which it distributesair springs for trucks and cars.

The acquisition would have led to significant over-laps in various technical rubber markets, in partic-ular the markets for air springs and for steel cordconveyor belts. Air springs are used as suspensioncomponents in commercial vehicles, cars and railvehicles. Heavy steel cord conveyor belts are usedfor the transport of heavy goods over longdistances, in particular in the field of lignitemining.

In its first phase investigation the Commissionidentified potential competition concerns in the

markets for air springs for commercial vehicles,cars and rail vehicles as well as for heavy steel cordconveyor belts and for filter belts. The Commis-sion's extensive market investigation confirmed itsconcerns in the markets for air springs forcommercial vehicles (sold to original equipmentmanufacturers and suppliers — ‘OEM/OES’) andfor heavy steel cord conveyor belts. Indeed, theacquisition combines the two leading players inthese two markets and would lead to a combinedmarket share in both markets of well above 60%,with only a few small competitors remaining.Furthermore, the Commission found evidence thatthere are significant barriers to enter both markets.This is mainly because the production and distri-bution of air springs and conveyor belts involvesspecific production and customer know-how.Accordingly, new suppliers have to undergo alengthy qualification procedure before they can beconsidered as potential suppliers.

In order to eliminate the Commission's competi-tion concerns, Continental undertook to divestPhoenix' 50% co-controlling stake in the jointventure Vibracoustic to the only other shareholder,Freudenberg (Germany). In addition, Continentalwill cause Phoenix to completely divest its produc-tion of air springs for commercial vehicles (OEM/OES), located in a plant in Hungary. These twocommitments remove entirely the overlap of theparties' activities in the field of air springs forcommercial vehicles (OEM/OES).

Continental also committed to sell a productionline for wide steel cord conveyor belts to itscompetitor, Sempertrans. This divesture willenable Sempertrans to compete over the full rangeof steel cord conveyor belts with the mergedentity, thereby eliminating the competitionconcerns in the field of steel cord conveyor belts.

Oracle/PeopleSoft

The Commission approved Oracle Corp's acquisi-tion of PeopleSoft Inc. The two companies arerival makers of software applications for busi-nesses. After a detailed investigation, the Commis-sion concluded that there was insufficientevidence of competitive harm. Especially as thelarge and complex companies (often multina-tionals) that use the software to automate theirfinancial management systems and their humanresource processes have other suppliers to servetheir needs in addition to the merging parties.

In June 2003 Oracle, the world's second largestsoftware company launched a hostile bid for itssoftware rival, PeopleSoft. The transaction was


Merger control

notified in Europe in October 2003 under theMerger Regulation, whilst also being subject toscrutiny by the US Department of Justice.

Enterprise application software allows corpora-tions to automate and manage some critical busi-ness functions such as financial planning andreporting (FMS), human resources processes(HR), relationships with customers and supplychain management. FMS and HR applications arecritical to large multinational corporations.

The Commission's detailed investigation estab-lished that there are separate markets for ‘high-function’ HR and FMS software purchased bysuch enterprises which require high standards ofperformance and support. This market is known inthe industry as ‘enterprise software’ or ‘tier-onesoftware’ and is different from so-called ‘mid-market’ software. The Commission also estab-lished that the markets are world-wide in scope.

The Commission concluded that even though theproposed merger reduced the number of bigplayers from three to two, with SAP remaining thelargest player in the sector and the relevantmarkets, the markets would remain competitive.Typically customers invite various vendors to bidfor "enterprise software" projects (both FMS andHR) and evidence shows that other vendors suchas Lawson, IFS, Intentia and QAD have won bidsto supply systems to large and complex enterprisesin competition with Oracle, PeopleSoft and SAP.Also Microsoft, a recent entrant into businessapplication software and still perceived mainly asa mid-market player, managed occasionally to winbids in the ‘enterprise software’ market andappears to pose a competition constraint in thismarket.

The Commission reached this conclusion afteranalysing hundreds of HR and FMS bids launchedby large enterprises in recent years. The Commis-sion also carried out various econometric testswith this data which revealed that Oracle's biddingbehaviour was not particularly affected by thespecific identity of the rival bidders in the finalrounds of a given bidding contest, i.e. the presenceof PeopleSoft or SAP as rival did not necessarilygive rise to more aggressive discounting comparedto Oracle's behaviour vis-à-vis other bidders.

The heterogeneity of the products, the asymme-tries in the market shares of the different playersand the lack of price transparency also renderedcoordinated effects implausible in the industry.

The Commission conducted its investigation inclose cooperation with the antitrust division of the

US Department of Justice. It also took into accountevidence that became available during the US trialin the US District Court of Northern California.

B – Summaries of decisions takenunder Article 6

Owens-Illinois / BSN Glasspack

In October the Commission unconditionallyapproved the acquisition of the French glasscontainer manufacturer BSN Glasspack S.A. by itsUS-based competitor Owens-Illinois Inc. Theglass containers produced by the merging firms areused to package products such as soft drinks, wine,mineral water, olive oil, ketchup and other foodproducts.

Owens-Illinois is an international manufacturer ofglass containers, machinery for manufacturingglass containers, and plastic containers and associ-ated equipment. In the European Union it has glassmanufacturing operations in Finland, Italy, Spainand the United Kingdom. BSN manufactures andsells glass containers for beverages and food andhas production facilities in France, Belgium,Germany, the Netherlands and Spain. The twocompanies European plant networks were in factlargely complementary. However, Owens-Illinoisand BSN Glasspack are direct competitors in tworegional markets comprising, North-EasternSpain/South-Western France and South-EasternFrance/Northern-Italy. Glass containers are bulkyproducts which are typically delivered within arange of 300-400km from the production plant.The delivery area of a plant can thus encompassregions on both sides of a national frontier.

The transaction, as originally notified, would haveled to high market shares in the regions concernedand would have removed an important competitorin what are already highly-concentrated markets.Besides the merging partners, the only other majorplayer in these regions is French company St.Gobain, the other competitors in the affectedregions being rather small. Therefore, in theseareas, the effect would have been to reduce thenumber of significant suppliers from three to two.

In order to remove the Commission's concerns,Owens-Illinois offered to divest a production plantto an independent and viable competitor in each ofthe two affected regions, in Milan and Barcelona .

The deal did not raise concerns in the rest of theEEA as the two partners' business activities either



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do not overlap or, where they do, the merged entitywill face competition from a number of largecompetitors, including St. Gobain, Rexam,Ardagh, Weigand and Allied Glass.

Syngenta CP / Advanta (1) and

Fox Paine/Advanta (2)

The Commission authorised, subject to conditions,the proposed acquisition of Dutch-based seedproducer Advanta B.V. by Swiss-based SyngentaCrop Protection AG. Syngenta Crop ProtectionAG is a subsidiary of Syngenta AG which, likeAdvanta B.V., is active in the breeding, produc-tion, processing and sale of various kinds of seeds.

The Commission's market investigation pointed toserious competition concerns in a number ofnational seed markets within the EU. These weresugar beet seeds in Belgium, Finland, France, theNetherlands, Portugal, Spain, Austria, Ireland andItaly, maize seeds in Denmark, the Netherlandsand the United Kingdom, sunflower seeds inHungary and Spain as well as the French marketfor spring barley seeds and the UK market forvining pea seeds (a type of pea seeds).

The operation would have created a very strongmarket leader, often twice or more the size of itsnearest competitor. In the market for sugar beetseeds, the proposed operation would also havebrought together two of the three major Europeansugar beet seed breeders, which are also the mainsuppliers of sugar beet seeds in Europe.

In order to remove the Commission's concerns,Syngenta offered to divest Advanta's whole Euro-pean seed business to an independent purchaser,thereby removing entirely the overlap of theparties' operations on all relevant markets withinthe European Union. Based on this commitment,the Commission was able to clear the operation.

A few days later, the Commission approved theproposed acquisition by Fox Paine, a US managerof investment funds, of Advanta's worldwideactivities in seeds for sugar beet, oilseed rape,sorghum, sunflower, grasses as well as the maizeand cereals businesses outside North America. Thecommitments given by Syngenta in the Syngenta/Advanta concentration will be fulfilled through theimplementation of this transaction.

The Commission's review of the Fox Paine/Advanta transaction showed that Fox Paine has

interests in several sectors, including a majorityholding in US seed-producer Seminis, whichdevelops, grows and sells fruit and vegetable seedsincluding in Europe. The activities of Seminis andAdvanta overlapped in the markets for vining peaseeds and onion seeds, but the market investiga-tion did not reveal any particular competitionconcern as the parties would continue to facecompetition from other important players.

Total/Gaz de France

La Commission européenne a autorisé le projetd'acquisition par Total auprès de Gaz de France(GDF) de plusieurs actifs gaziers dans le Sud-Ouest et le Centre de la France, dont certainsétaient déjà co-détenus par Total avec GDF. Le feuvert a été possible après que Total s'est engagé àmettre en œuvre diverses mesures visant à garantirun accès adéquat et équitable des tiers à son réseaude transport et à ses installations de stockage degaz naturel dans le Sud-Ouest.

La Commission a reçu une notification parlaquelle Total acquiert auprès de GDF le contrôleexclusif d'un ensemble d'actifs gaziers situés dansle Sud-Ouest et le Centre de la France. Dans leSud-Ouest, les actifs en question consistent essen-tiellement en la société Gaz du Sud Ouest(«GSO»), plusieurs canalisations de transport degaz naturel et les installations de stockage de gaznaturel situées à Izaute (département des Pyré-nées-Atlantiques). Dans le Centre de la France,Total acquiert auprès de la Compagnie Françaisedu Méthane («CFM», société filiale de GDF) unportefeuille de clients éligibles ainsi que lepersonnel commercial afférent à ces clients.

Total est un groupe français actif principalementdans les secteurs pétroliers et gaziers. Les actifsgaziers de Total en France résultent essentielle-ment des positions historiques dont bénéficiait ElfAquitaine avant son acquisition par Total enfévrier 2002.

GSO est une société française active dans le trans-port et la fourniture de gaz naturel aux clients éligi-bles uniquement dans le Sud-Ouest de la France.

La présente opération s'inscrit dans le cadre dudénouement des participations croisées de Total etGDF, l'opérateur historique sur le marché du gazen France, dans les sociétés GSO et CFM.

En ce qui concerne le Sud-Ouest de la France,l'enquête de la Commission a révélé que l'opéra-


Merger control

(1) COMP/M.3465-Syngenta/Advanta, 17.8.2004.

(2) COMP/M.3506-Fox paine/Advanta, 20.8.2004.

tion notifiée soulevait des problèmes de concur-rence verticaux dans la mesure où elle conduisait àconférer à Total, via GSO, une position forte sur lemarché de la fourniture de gaz aux clients éligiblesainsi qu'une situation de monopole sur l'ensembledes infrastructures de transport et de stockage degaz naturel. Compte tenu des capacités limitées detransport et de stockage de gaz naturel disponiblesdans cette région, la Commission a estimé quel'opération aurait pour effet de renforcer les incita-tions et la capacité de Total à restreindre l'accèsdes tiers à ses infrastructures gazières afin deprotéger et de renforcer sa position sur le marchéaval de la fourniture de gaz aux clients éligibles.

Afin de résoudre les problèmes de concurrence etéviter, ainsi, une enquête approfondie, Total aproposé de mettre en œuvre diverses mesuresdestinées à faciliter et à garantir un accès adéquatet équitable des tiers à son réseau de transport et àses installations de stockage de gaz naturel dans lazone GSO. En particulier, les engagementsprévoient, en cas de changement de fournisseurpar un client donné, le transfert au bénéfice dunouveau fournisseur des capacités de transport etde stockage nécessaires à l'approvisionnement dece client dont bénéficiait l'ancien fournisseur.

BayerHealthcare/Roche

(OTC Business)

In November the Commission decided to authorisethe acquisition of the worldwide Roche OTC (1)business by Bayer in a deal which creates thelargest European OTC consumer health company.

The operation raised serious competition concernsin the OTC segments of the nonnarcotic analge-sics (N2B) market in Austria and of the topicalantifungals (D1A) market in Ireland. In examiningpharmaceutical markets the Commission uses as astarting point the Anatomical Therapeutic Chem-ical classification (ATC) system, which subdi-vides medicines into different therapeutic classes.The ATC system is hierarchical and has 16 catego-ries (A, B, C, D, etc.) each with up to four levels.The first level (ATC 1) is the most general and thefourth level (ATC 4) the most detailed.

In the Austrian market nonnarcotic analgesics forthe OTC sales Bayer and Roche market the wellknown brands Aspirin and Aspro respectively. Theparties would have a combined market share ofmore than 50%. The Commission market investi-gation revealed that Aspirin and Aspro are direct

competitors, that there exist entry barriers to theOTC market for these products in the form of thehigh level of advertising/marketing costs and thatthere is a substantial level of brand loyalty toexisting OTC brands.

In the market for topical antifungals sold as OTCin Ireland, the new entity would have attained avery strong market position with a significantincrement of market share. The operation wouldhave brought the number one and two market oper-ators together, while the remaining competitorswould have been very small. As a result, theCommission considered that the transaction wouldgive rise to serious doubts.

In order to remove the competition concerns, theparties offered the following commitments:

— as regards non narcotic analgesics : to divestthe Aspro and Aspro C products in Austria

— as regards topical antifungals: to divest themarketing authorisation and trademarks for theexisting formulations of Caldesene andDesenex, which are the two Roche products inIreland.

Cytec/UCB Surface Specialities

The Commission cleared the proposed acquisitionof UCB's Surface Specialties (Surface Specialties)business by Cytec Industries Inc. (Cytec) of theUS. The Commission's review highlighted seriousconcerns in two amino resins markets, but Cytecwas able to address these concerns by offering todivest Surface Specialties' Fechenheim plant(Germany), which accounts for almost all ofSurface Specialties European production. Thisdivestment eliminates the competition concernsresulting from the transaction.

Cytec produces specialty chemicals and materials,including mining and water treatment chemicals,coating chemicals, adhesives and composite mate-rials and building block chemicals. SurfaceSpecialties, part of the Belgian chemicals andpharmaceutical company UCB, produces coatingchemicals, adhesives and chemicals used forgraphic arts applications.

The Commission's market investigation identifiedserous competition concerns resulting from thecombination of the merging parties' activities inthe markets for amino resins used as crosslinkersin industrial liquid coatings and for use as adhesionpromoters for reinforced rubber. The Commission



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(1) OTC: over the counter.

has also verified whether the combination of Cytecas an important supplier for acrylamide withSurface Specialties buying acrylamide as an inputfor the production of adhesives and resin additivescould foreclose acrylamide supplies for third

parties. The market investigation has not confir-med these concerns, since Cytec faces crediblecompetitors for the supply of acrylamide andSurface Specialties' total needs appear to accountfor only a marginal part of Cytec's output.


Merger control

First experiences with the new merger regulation : Piaggio /Aprilia

Mario TODINO, Directorate-General Competition, unit F-3

Introduction

On 22.11.2004, the Commission authorised underthe Merger Regulation, the proposed acquisition ofAprilia S.p.A. by Piaggio & C. S.p.A. subject to acondition intended to safeguard competition in theItalian market for small scooters, where the twomotorbike producers are strongest. The transactionraised serious doubts that competition might bereduced to the detriment of Italian customers ofscooters with engines up to 50cc. However,Piaggio was able to allay these doubts by offeringto supply its most advanced 50cc engine to allproducers that express an interest.

The Commission decision in this case is inter-esting in many respects as it shows a number ofnovel features relating to the application of theprocedural and analytical framework set out by thenew merger regulation.

The case is one of the first competition sensitivetransactions to be referred to the Commissionbased on the new pre-filing referral procedurepursuant to Article 4(5) of the new Merger Regula-tion. According to the new rules governing thereferral system of Regulation 139/2004, before aformal filing has been made in any EU jurisdic-tion, the parties to a merger can request their trans-action, lacking Community dimension, to bereferred by the Member States competent toreview the deal to the Commission for the purposeof its competitive assessment.

In this case the referral to the Commission wasappropriate for a number of reasons. The central-ised treatment by the Commission avoided thecosts of multiple filings in a large number of coun-tries (the transaction was reviewable in sevenMember States) as well as the risks of conflictingdecisions in parallel national proceedings. More-over the transaction was genuinely cross-border asit affected competition in almost all the MemberStates in which it was reviewable. The fact that anumber of national markets were significantlyaffected by the transaction militated in favour ofthe European Commission dealing with the casewith a view to securing a coordinated investigationand a coherent set of remedies across the EU.

As regards the substantive assessment, the caseillustrates well a gradual shift in emphasis which isprogressively being recorded in the analysis of theeffects on competition stemming from a mergerrelating to differentiated products. While the anal-ysis was conducted based on the traditionalconcept of single dominance and conventionalmarket definition, consistent with the newCommission guidelines on horizontal mergers theinvestigation was mainly focused on the issue ofcloseness of substitution of the models manufac-tured by Piaggio and Aprilia.

The most cogent evidence substantiating theCommission concerns resulting from the mergercame from the pattern of substitution which wasrecorded in the segment of "up to 50 cc scooters"over the first semester 2004 in Italy, as a result of adramatic drop in Aprila's sales due to its financialtroubles.

A third noteworthy aspect of the case concerns theremedies submitted by the parties. As a result ofthe investigation it was concluded that a ‘pure’structural remedy, i.e. a traditional divestiture of a‘stand alone business’ was somehow ‘unrealistic’,given the features of the industry. Conversely,Piaggio's commitment to supply its unique, state ofthe art four stroke engine to competitors enablesthem to fill part of the gap and exercise more effec-tive competitive constraint on the merged entity bybroadening the range of their models' motoriza-tion.

Background

The operation concerns the sector of two-wheeledmotor vehicles. Like the automobile sector, thisindustry is going through a process of consolida-tion. Over the last few years, four factors seem tohave been driving this industry: i) the need to attaina critical mass in order to obtain economies ofscale and to reduce production costs; ii) invest-ments in research and development in order toensure technological innovation; iii) the need todevelop a complete range of models; iv) marketingand advertising to promote the brand. These char-acteristics lead competitors to either consolidate orleave the market.



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The global market for two wheeled motor vehiclesis characterized by the preponderant presence ofAsian producers, who supply approximately 90%of worldwide demand. Among these, the Japaneseproducers — in particular the leader Honda,followed by Yamaha and Suzuki — are activepractically in all the developed areas of the globe,with a presence in both the Asian and the westernmarkets (mainly Europe and United States). TheJapanese producers have i) a complete range ofmodels (from small scooters to high poweredmotorbikes), focused on the most profitable nicheof the market. i.e. motorcycles above 400 cc; ii)impressive production volumes (Honda andYamaha produce respectively approximately 9and 7 million models a year); iii) renowned brands,supported by huge advertising investments; iv) areliable distribution network based mostly onexclusive relationships.

Against this global background, the Europeanmarket appears to be still quite fragmented. TheJapanese producers are well established on thecontinent with local production, a complete modelrange and leading market positions (both Hondaand Yamaha have market shares of around 18%,and Suzuki is third with 12%). Europeanproducers, on the other hand, lack a completerange of models and cannot count on importantvolumes of sales. The European companies areessentially operating in "niches", usually special-izing in a few segments of the two wheels sector(e.g. Piaggio, which created the famous Vespa, hastraditionally focused on scooters).

The market for two wheeled vehicles in Europehas some pro-competitive characteristics, both atthe level of production where there are numerous,aggressive competitors who market a wide rangeof models, and at the distribution level where,unlike in the automobile sector, multi-branddistributors constitute the main sales channel (70%of total sales in Europe). The contractual power ofthe producers is greater vis-à-vis exclusive dealersthan multi-brand ones. Another pro-competitiveelement, particularly for low-powered two wheelvehicles, is the wide-spread presence of sub-dealers, distributors that source from the officialdealers and have no direct contractual link with theproducer.

Both Piaggio and Aprilia are Italian motorcyclesmanufacturers. Piaggio is the fourth largest Euro-pean manufacturer, with a market share, in value,of 10% in the EU and is the market leader in thescooter segment. It has a marginal presence in theother two-wheel segments. Its main brands are‘Piaggio’, ‘Vespa’, ‘Gilera’ and ‘Derbi’. Aprilia,whose main brands are ‘Aprilia’, ‘Moto Guzzi’

and ‘Moto Laverda’, is a smaller producer with amore mixed portfolio, and some popular brands inmotorcycles (Aprilia and Guzzi). It has a share ofabout 6% in the EU.

In the course of 2004, Aprilia experienced aserious financial crisis, with a debt exposure ofapproximately 320 million Euro. The companywas forced to interrupt its production for approxi-mately two months in the course of the firstsemester of 2004, which caused serious negativerepercussions on its market position.

Through the acquisition of Aprilia, Piaggio aimedat increasing its own critical mass in terms ofproduction volumes and reaching considerableeconomies of scale in components sourcing andresearch and development. The operation wouldalso enable Piaggio to widen its range of modelsand enter the segments of motorcycles thanks tothe renowned Aprilia brands (among whichAprilia and Motoguzzi).

The Commission's analysis covered numerousEuropean countries, and focused on the marketsfor scooters and for small motorbikes, where theactivities of the two companies overlapped.

Market definition

The product markets

Following a thorough market investigation, theCommission concluded that two distinct marketsfor scooters could be identified: (a) scooters withengines smaller than 50cc; and (b) scooters withengines bigger than 50cc.

The existence of a distinct market for scootersbelow 50cc is due mainly to the fact that demandfor these models is largely captive. Indeed, in thethree main European markets (Italy, France andSpain), young people between 14 and 16 years canonly drive scooters with engines below 50cc. Thiscategory of consumers has progressively becomethe most important source of demand for smallscooters, while older consumers increasinglyprefer larger engines. The market has shrunkconsiderably in the last ten years (from 96% of allscooters sold in Italy in 1994 to 37% in 2003), andsome industry experts forecast that it may all butdisappear, should legislation on driving agebecome more restrictive in the countriesmentioned above. As regards supply-side sub-stitutability, this segment can be distinguishedfrom that of scooters with larger engines. In partic-ular, smaller operators (i.e., Malaguti, Kymco andPeugeot) produce scooters with engines of lessthan below 50cc segment, while the Japanese


Merger control

leaders, with the exception of Yamaha, are practi-cally absent from such segment.

Some competitors have suggested that the marketof scooters with engines larger than 50cc could befurther subdivided into those whose engines arebetween 50cc and 125 cc and those above 125cc,due to the fact that the 50cc-125cc segment is alsocaptive, since in many countries youth between 16and 18 years-old are only allowed to drive scootersof up to 125cc. This phenomenon is similar to theone that explains the segmentation of scooters upto 50cc and above 50cc. Nonetheless, there is asubstantial proportion of older customers, particu-larly women, that opts for scooters below 125ccfor urban usage. As a consequence, a considerablepart of the demand is not captive, and is subject togreater price elasticity (as these customers can optfor a more powerful scooter), and thereforescooters between 50cc and 125cc should notconstitute a separate relevant market. Further,from the supply point of view, there is a highdegree of substitutability between the two sub-segments, since the models in between 50-125 arethe generally same as the less powerful ones,except for the obvious difference of a morepowerful engine. Finally, the competitive pictureis homogeneous, since more or less all the compa-nies operating in the lower segment are also activein the higher one. In any case, further investigationproved unnecessary, since, regardless of themarket definition, the operation would not causeany reduction of competition for scooters withengines larger than 50cc.

Geographic market

The notifying party claimed that the geographicmarket had a community dimension in view of thefollowing considerations: i) the competitivepicture is quite homogenous within the EU terri-tory, and there are no pronounced differences fromcountry to country; ii) producers have centralisedtheir production in a few productive plants thatserve the whole European territory; iii) transportcosts are not excessive; iv) there are no barriers totrade between Member States; v) technical specifi-cations have been harmonised at EC level; vi) driv-ers' licenses regulation are being harmonised; vii)models' selling prices do not vary much; and viii)national distribution systems are substantiallycomparable.

However, the Commission ascertained that therewere still a number of elements militating infavour of national geographic markets, such asprice differences, driver's licence regulations anddistribution channels. Particularly regardingprices, the results of the preliminary investigation

showed that there were non-negligible price differ-ences for the same model scooter from country tocountry. These differences varied from a minimumof 5% difference to up to 20-30%, with an averageof 10% price difference. As regards distributionand retail sales, no significant parallel importswere recorded, with the exception of small coun-tries (e.g. Slovenia). In view of the above, theCommission concluded that the geographicmarkets were national.

Assessment: horizontal aspects

The investigation focused on the market ofscooters up to 50cc in Italy, where the maincompetition concerns were identified.

The market of scooters up to 50cc in Italy

The evolution of the market of the scooters up to50cc in Italy clearly indicates declining trend, interms of both volume and value. Unit prices havealso fallen in the last decade. The factors that havecontributed to the decline of the market include thesignificant increases of the cost of insurance of thistype of vehicles and the competitive pressureexerted by the neighbouring market of morepowerful scooters. The recent introduction oflicensing requirements has accelerated this down-ward trend. For these reasons, the market of motor-cycles with engines of less than 50cc is progres-sively becoming a residual market, that serves thedemand of young people between 14 and 16 years-old who are not allowed to drive more powerfulmotorcycles.

From a competition stand-point, Piaggio is theleading supplier in the market (with a market shareof 35-40% in 2003) and Aprilia number 2 (marketshare of 16-20%). The combined market share isbetween 55% and 60%. The next competitors(Yamaha and Malaguti) have relatively smallmarket shares (between 10 and 15%), while Hondahas withdrawn from the market and is planning tore-enter only with a niche product.

In its assessment of the transaction, the Commis-sion analysed the models offered by the variousproducers with the aim of understanding the close-ness of substitution of the models manufactured byPiaggio and Aprilia. To this end, two main sub-segments of small scooters were identified: i) highwheels scooters and ii) sport scooters. In the stra-tegic high wheels segment, Piaggio was the uncon-tested leader (Liberty 50cc, which accounts forapproximately half of the sales), followed byAprilia (Scarabeo, with around a quarter of thesegment's sales). The evolution of market shares in



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the first semester of 2004 with respect to theprevious year was then analysed, to understandwhich models had benefited most from Apriliasudden sales drop following the production cutsinduced by its financial difficulties. The figuresshowed that Piaggio's Liberty 50cc gained almostall of Aprilia's losses, increasing its market sharebyabout 11%.

Despite this evidence, the parties argued that themarket was tiny in terms of value, in constantdecline and likely to disappear over the time as aresult of the toughening of the driving licenserequirements. Moreover, it was a trendy, fashion-able and volatile market. This implies that if amanufacturer meets the tastes of the youth with aparticular model, its sales will immediatelyincreaseonly to fall once the fashion is over.Finally, according to the parties, large competitorswith small market shares in this segment, yet wellestablished in neighbouring segments (Honda andYamaha), can easily expand their sales.

However, based on the evidence collected in thecourse of the investigation, the Commissionconcluded that the acquisition of Aprilia byPiaggio raised serious doubts as to its compati-bility with the common market. The merger wouldenable the new entity to dominate the Italianmarket for scooters with engines below 50ccthrough a broad portfolio (Vespa in classicscooters, Piaggio and Aprilia in the segment highwheel, Aprilia and Gilera in the sports segment) ofvery well-known brands and models, some ofwhich are close substitutes.

The market of scooters above 50cc in

Italy

Regardless of the product market being retained(i.e., a single market of all scooters above 50cc, ora further break down into i) scooters between 50and 125cc, and ii) scooters above 125cc), thecompetitive situation would be similar. Themerger involves the market leader and the number4, number 2 being Honda, and number 3 Yamaha.

In the first semester of 2004, aggregate marketshares of the merging entity varied between 39%(scooters above 50cc) and 47% (scooters between50 and 125cc). Honda and Yamaha have both astrong presence (roughly 20% each).

As regards closeness of substitution, most respon-dents have indicated that players like Piaggio,Honda, Yamaha, and Aprilia, produce inter-changeable models across the whole range ofscooters with engines above 50cc. With respect,for example, to the best selling models in this

segment, the market investigation shows thatAprilia's Scarabeo, Honda's SH and Piaggio'sLiberty are perceived as very close substitutes.The figures of the first semester 2004 showed that,unlike the situation for smaller scooter (below 50cc), Aprilia's big losses were to the advantage ofYamaha, Piaggio, and Honda (the latter gainedprimarily in the up to 125 cc sement).

In the light of all the above, the Commissionconcluded that Japanese manufacturers wouldprovide strong post-merger competitiveconstraints . In particular, Honda has the bestselling model in the low-end of the segment (SH125), while Yamaha, and to a lesser extent Suzuki,are very strong in the upper end (400 and 500 cc).More importantly, the Japanese manufacturershave a broad portfolio, a strong brand image,supported by massive investments in marketing aswell as an established own distribution network,mainly based on exclusive dealerships.

The scooter markets outside Italy

As to the competitive assessment of the transactionwith respect to markets other than Italy, the mergerwould give rise to some overlaps in a number ofcountries. On average, in both scooters markets(below and above 50cc), the merging entity wouldreach aggregate market shares of something in therange of 35-40% in the UK, France, Spain (withPiaggio between 30-40%, and Aprilia between 5-15%), with peaks of 45% in one or the othersegment. In Slovenia, the merging entity wouldreach an aggregate market share of 65%, althoughthe market was minuscule, and heavily influencedby cross-border trade.

However, after the market investigation theCommission reached the conclusion that nocompetition concerns should arise from themerger. First, the market investigation has shownthat Aprilia is not considered a sufficiently strongplayer outside Italy. Aprilia suffered a significantdrop in sales over the first semester of 2004. It lostsomething between 30-40% of its market share.Further, Aprilia does not have a well establisheddistribution system in all countries, which has onsome occasions affected its after sales service.Additionally, in all these countries, the Japaneseplayers are very well established and capable ofexerting a strong competitive constraint over themerging entity. Typically, Yamaha has a verystrong presence in the low end of the spectrum ofscooters (segment of scooters up to 50 cc) and intop-end (scooters of 500 cc), while Honda isgenerally the market leader in mid-range scooters(125-200 and 250cc). Moreover, the Japaneseproducers are present across the whole portfolio.


Merger control

Another important element is the fact that, in anumber of countries there are also important localplayers, such as Peugeot in France. Finally, anumber of new entrants from Asiatic countries(above all the Taiwanese Kimco), favoured by theease of entry due to multi-brand distributionsystems, are aggressively penetrating the Euro-pean market with cheap and good models.

Vertical foreclosure

The Commission also considered carefullywhether foreclosure could arise at the distributionlevel in Italy as a result of the merger.

However, the investigation has shown that, incontrast to car distribution, multi-brand dealer-ships are popular for two-wheel vehcles both in theform of multi-brand dealers (official dealers whopurchase from several manufacturers), and multi-brand sub-dealers, i.e. those retailers that have nocontractual relation whatsoever with the manufac-turer and source from various official dealers.These two channels are by definition open andcontestable. About 70% of the total sales of motor-cycles in the EU is performed by multi-brandingdealers, and similar figures apply at national level.Moreover, while Piaggio, as well as Aprilia, typi-cally resort to this channel, the Japanese leadersseem to opt for the exclusive dealership.

In Italy, post-merger, Piaggio would have itsmodels sold in roughly 63% of the total number ofoutlets active in Italy, while Aprilia in 30% of theoutlets, with some of Piaggio and Aprilia outletsoverlapping due to multi-brand dealerships sellingboth marques. However, only a fraction of theseoutlets were tied to Piaggio/Aprilia by exclusivecontracts(about 12% of the total number ofdealers, and about 6% of the total number ofoutlets). In terms of volume of sales Piaggio/Aprilia exclusive channel would make about 32%of Piaggio/Aprilia aggregate sales, which repre-sented around 16% of the total market in volume inItaly. None of the multi-brand dealers proved to bede facto exclusive dealers for Piaggio or Aprilia, asit appeared from their sales mixes.

Remedies

In order to address the competition concerns iden-tified in the investigation with respect to themarket for scooters up to 50cc in Italy Piaggiooffered to supply, for an indefinite duration,Piaggio's four stroke engine currently mounted on

Piaggio's 50cc scooter Liberty, to any competitor,under competitive terms and conditions. After anin-depth market testing, the Commissionconcluded the remedy would address the competi-tion concerns stemming from the operation moreeffectively than other pure structural remedies. Inparticular, the Commission market survey showedthat a traditional divestiture of a ‘stand alone busi-ness’ was considered ‘unrealistic’ by the actors ofthe market, given the features of the industry. First,the parties had no plants to divest, and in any eventthere was spare capacity, thus every manufacturerwas attempting not to expand its capacity, rather toimprove productivity, by running production sitesat full capacity in order to improve economies ofscale. Moreover, it was argued that there is littleadded value in a plant, as two wheel vehicle manu-facturers are largely brand owners, the bulk of thevalue added of a scooter being supplied by compo-nent manufacturers. The market expressed nointerest for a solution involving the divestiture of abrand. Finally, such a remedy would have alsoraised an issue of proportionality as it would havesignificantly affected a number of markets inwhich no competition concerns were identified.

Conversely, the feedback from the market of theremedy proposed by Piaggio was positive in allrespects. First, supply of engines by motorbikesmanufacturers to competitors proved to be acommon practice in the industry. Thus, no orlimited problems of monitoring would arise, giventhat a contractual model, including pricing,already existed,and could be used a relevantbenchmark. Second, Piaggio was the only scootermanufacturer to market in the EU a four strokeengine for a 50cc scooter. Third, Piaggio's salesfigures showed that its models equipped with suchan engine (Liberty 4t, and Vespa), were quitesuccessful and were outperforming the sales of thesame but cheaper models equipped with a twostroke engine. Moreover, the industry expressed acertain interest in purchasing this engine, andacknowledged its value, in terms of technical char-acteristics, performance and environmentalimpact. Against this background, the Commissionconcluded that the availability of this engine tocompetitors at competitive conditions wouldenable some of them to exercise more effectivecompetitive constraint on the merged entity's posi-tion by broadening the range of engines availablefor their models. As a result of this, the mergedentity would come under stronger pressure fromcompetitors acting as a more effective constraint tothe parties' ability to raise prices.



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EDP/ENI/GDP: the Commission prohibits a merger between gasand electricity national incumbents

Giuseppe CONTE, Guillaume LORIOT, François-Xavier ROUXEL,Walter TRETTON (1), Directorate-General Competition, units A-2 and B-3

On 9 December 2004, the European Commissiondecided to block the proposed acquisition of Gásde Portugal (GDP), the incumbent gas company inPortugal, by both Energias de Portugal (EDP), theincumbent electricity company in that samecountry, and ENI, an Italian energy company.After an in-depth investigation, the Commissionconcluded that the deal would have strengthenedEDP's dominant position, notably in the Portu-guese electricity wholesale and retail markets, andGDP's dominant position in the various gasmarkets in Portugal, as a result of which effectivecompetition would have been significantlyimpeded.

This case illustrates how a given merger may leadto different anticompetitive effects. The Commis-sion's decision relies on the horizontal effects ofthe merger on some of the affected markets (elimi-nation of a significant potential competitor), aswell as on various vertical effects (essentially,input foreclosure in the wholesale electricitymarket and customer foreclosure in some gasmarkets).

I. The notified operation

On 9 July 2004, Energias de Portugal (‘EDP’) andENI notified a concentration concerning the acqui-sition of joint control over Gás de Portugal (GDP).The former Merger Regulation, Regulation 4064/89, was applicable in this case as the underlyingbinding agreement was concluded before 1 May2004, the date of entry into force of the newMerger Regulation (2).

EDP is the incumbent electricity operator inPortugal. As such, its main activities consist ofgeneration, distribution and supply of electricity inPortugal. EDP has also recently acquired jointcontrol of Portgás, one of the six Portuguese localgas distribution companies (‘LDCs’). In addition,EDP is active in Spain where it has substantial

electricity and gas activities through its Spanishaffiliates (Hidrocantabrico and Naturcorp) (3). ENIis an Italian company active internationally at alllevels of the energy supply and distribution chain.

GDP is the incumbent gas company in Portugal. Itis a wholly owned subsidiary of the Portuguesecompany Galp Energia currently jointly controlledby the Portuguese State and ENI, with interests inboth the oil and gas sectors. GDP and its subsid-iaries cover all levels of the gas chain in Portugal.GDP has exclusive rights for import, storage,transportation and wholesale supply of natural gas.Natural gas is imported into Portugal by GDP'ssubsidiary, Transgás, through a Maghreb-Spain-Portugal pipeline and through the Sinès liquefiednatural gas (LNG) terminal. GDP is also respon-sible for the transport and supply of natural gasthrough the Portuguese high-pressure gas pipelinenetwork and is about to operate the first under-ground natural gas storage caverns in Portugal.Finally, GDP is active in the natural gas supply tolarge industrial customers and also controls five ofthe six LDCs in Portugal.

The notified concentration was part of a wideroperation including the transfer of the gas trans-mission network, currently owned by GDP, toRede Eléctrica Nacional SA (‘REN’), the Portu-guese electricity grid operator. The transfer of thenetwork constituted a distinct concentration,which fell under the competence of the PortugueseCompetition Authorities.

II. Market definitions retained by the

Commission

a. Relevant electricity markets

As regards electricity, the Commission identifiedthe following affected markets: the market for thewholesale supply of electricity, the provision of


Merger control

(1) The authors are part of the EDP/ENI/GDP case team which was managed by Paul Malric-Smith and also comprised Miguel de laMano, from the Chief Economist team, Concetta Cultrera, Beatrice de Taisne, and Luis Blanquez.

(2) Council Regulation (EC) N° 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ 29.1.2004,L 24, p. 1.

(3) See Cases COMP/M 3448 — EDP / Hidroelectrica del Cantabrico. and COMP/M.2684 — EnBW/EDP/Cajastur/Hidrocantabrico.

regulating/balancing power services (1), and themarkets of retail supply of electricity to largeindustrial customers and to smaller customers (2).All these markets were found to be of nationaldimension.

Wholesale supply of electricity

As in previous decisions, the Commission consid-ered the market for wholesale electricity as adistinct market, which encompasses the produc-tion of electricity at power stations as well as elec-tricity imported through interconnectors for thepurpose of resale to retailers. The Commissiontook specific account of the ongoing evolution ofthe current Portuguese regulatory framework.Until 2004 most of the electricity produced inPortugal (around 80%) was supplied by powerstations pursuant to long-term power purchaseagreements (‘PPAs’) that provided for the exclu-sive supply of electricity to a single buyer, REN,under regulated tariffs. EDP was the main gener-ator operating in this regulated segment of themarket. However, in view of the future terminationof the PPAs and the end to the exclusive relation-ship between REN and the producers, theCommission took the view, as the parties did, thatthe wholesale market includes all the previouslyregulated generation, given that the latter will alsobe available on the open market.

With respect to the geographic scope of the whole-sale market, the level of interconnections (as wellas the frequency of congestions) with Spain clearlyconfirmed that it currently remains a nationalmarket. The parties nevertheless called for a ‘tran-sitional market approach’, arguing that the marketwould become Iberian in scope once the Iberiantrading market, called MIBEL, was established.This view was not confirmed by the Commission'sin-depth investigation. In particular, the Commis-sion established that many important regulatorybarriers would still have to be removed for thepurpose of the establishment of the MIBEL andthat competitive conditions between Spain andPortugal were likely to remain significantlydifferent even after the launch of the MIBEL. Theinformation gathered by the Commission alsoshowed that the projected level of interconnectioncapacity between Spain and Portugal would not

allow effective integration of both markets in theforeseeable future.

Retail supply of electricity

As concerns electricity retail supply, whichinvolves the sale of electricity to the finalconsumer, the Commission came to the conclusionthat two distinct markets should be considered forthe purpose of the decision: the supply of elec-tricity to Large Industrial Customers (‘LICs’)which are connected to the high and mediumvoltage (‘HV’ and ‘MV’) grid, and the supply ofelectricity to smaller industrial, commercial anddomestic customers which are connected to thelow voltage (‘LV’) grid (essentially, because oftheir respective consumption patterns as well asthe terms and conditions under which theypurchase electricity). Conversely, no furtherdistinction was made between customerspurchasing electricity in the regulated system (inwhich tariffs are determined by the national regu-lator) and those who are in the non-regulatedsystem, since consumers can choose freely to besupplied under either system depending on theprices and conditions applied.

b. Relevant Natural Gas markets

By contrast to the electricity markets, which havebeen fully open to competition since mid-2004, thePortuguese gas markets were still under a legalmonopoly at the time of the proposed transaction.However, the second gas directive (EC/2003/55)provides for a clear and binding calendar pursuantto which 33% of the Portuguese gas market shouldbe liberalised at the latest by 2007, all non-residen-tial customers at the latest by 2009 and allcustomers at the latest by 2010. In addition, infor-mation provided by the parties showed that thePortuguese government had then decided to antici-pate the liberalisation process by making thesupply of gas to power producers open to competi-tion possibly in 2005.

The Commission, taking into consideration thisregulatory framework, identified four distinctaffected gas markets: (i) supply of gas to powerproducers (gas-fired power plants, so-called‘CCGTs’ (3)); (ii) supply of gas to LDCs; (iii)supply of gas to LICs; and (iv) supply of gas to



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(1) See also Case COMP / M.3268-Sydkraft/Graninge. In the EDP/ENI/GDP decision, the Commission identified the provision ofbalancing power and ancillary services as an emerging market, the exact delineation of which could be left open. For the purposeof the present article, this market is not discussed further.

(2) The markets relating to the operation of transmission (high voltage) and distribution (low voltage) grids was not affected by theconcentration.

(3) CCGTs stands for ‘Combined Cycle Gas Turbines’ power plants.

small industrial, commercial and domesticcustomers.

The question arose as to whether non-retailcustomers, i.e power producers, LDCs and LICsshould be considered as part of a single, widerwholesale market. Several elements gatheredduring the in-depth investigation revealed thatthey were strong differences between thesemarkets. As regards more specifically the supplyof gas to power producers, it was apparent that notonly it would be the first market to be opened tocompetition in Portugal, but also that powerproducers have unique demand needs in terms ofquantity and flexibility of supply. More generally,the market investigation also revealed significantdifferences between power producers, LDCs andlarge industrial customers in terms of margins,customer relationships, commercial needs andgrowth dynamics.

III. Competitive assessment

a. Electricity markets

Wholesale electricity

The Commission found that EDP holds a dominantposition on the wholesale market for electricity inPortugal, irrespective of whether it is consideredunder the current structure or after the terminationof the PPAs. The Commission noted in particularthat EDP's generation portfolio would remainunmatched. In addition to being the largest impor-ter of electricity, EDP indeed holds [70-80]% ofgeneration capacity and accounts for [70-80]% ofgeneration in Portugal. Pursuant to the Court'scase-law (1), the Commission also took account ofthe advantages that would derive from the state aidscheme to be put in place in order to compensateexisting power generators for the termination ofthe PPAs. Finally, the in-depth investigationrevealed that EDP's new CCGT (‘TER’) would bea significant element of EDP's market powerwhereas the construction of new CCGTs by otherelectricity operators in the near future was stillvery uncertain.

In assessing the effects of the transaction, theCommission then found that the operation wouldsignificantly impede effective competition throughthe strengthening of EDP's dominant position as aresult of horizontal and non-horizontal effects.

As for the horizontal effects, the Commissionconsidered that, absent the merger, GDP wouldhave been the most timely, likely and effectivecompetitor in the wholesale electricity market inPortugal. The Commission noted inter alia thathaving access to competitive gas resources confersa significant advantage in electricity as CCGTsnow constitute the most common way of gener-ating new power. The entry of GDP in wholesaleelectricity was all the more likely to be successfulas it could have relied on its national brand and itsexisting gas customers, to whom it could haveoffered a joint supply of gas and electricity. Thisanalysis was largely confirmed by confidentialdocuments gathered by the Commission. Thissignificant potential competition would have beenlost after the merger without being compensatedby other elements, thereby strengthening furtherEDP's dominant position and significantlyimpeding effective competition.

The Commission also found that, by allowing EDPto acquire the dominant supplier of gas, which isthe main input for the production of electricitytoday, the operation would have caused variousnon-horizontal effects, each of which would havesignificantly impeded effective competitionthrough the strengthening of EDP's dominant posi-tion.

First of all, EDP would have had a significantcompetitive advantage over its existing competitorby gaining immediate access to proprietary infor-mation regarding its gas supplies (both in terms ofprices and daily needs). Given the volatility of aCCGT's production, such information would haveallowed EDP to raise its prices at critical moments.Such a structural advantage was also likely to deterfurther entries. Second, EDP would have had theability and the incentive to maintain a privilegedand preferential access to the Portuguese gas infra-structure (Sinès LNG terminal, import pipelineand underground storage) to the detriment ofcompanies actually or potentially involved in elec-tricity generation. Given the lack of free capacityfor third parties even if third parties' access wereapplied, the operation would thus have providedEDP with all the necessary means and incentivesto make access to the gas network more difficultfor its competitors. Finally, the merged entitywould have had, immediately or in the near future,the ability and the incentive to raise its rivals' costs,thereby foreclosing actual and potential competi-tion.


Merger control

(1) Case T-156/98, RJB Mining / Commission, [2001] ECR II-337.

Retail markets for electricity

On the retail markets, the Commission's investiga-tion confirmed that EDP currently holds a domi-nant position. Such a position would have beensignificantly strengthened and effective competi-tion significantly impeded because of the elimina-tion of GDP, which would have been the mostlikely and effective potential entrant on thesemarkets thanks to its wide gas customer base, itswell-known national brand as well its ability tomake dual-fuel offers. Moreover, after the acquisi-tion of its main potential competitor, EDP wouldhave remained the only company able to proposewithin a short period of time dual-fuel offerswhereas, absent the merger, both companieswould have been in a position to do so for thebenefit of consumers.

b. Gas markets

As regards GDP's position on the affected gasmarkets, the Commission's investigationconfirmed that GDP was currently dominant(except for the distribution of gas in the area ofPorto where Portgás — a company in which EDPhas recently acquired joint control — is active) andwould continue to enjoy this position after theopening of the markets thanks to its significantincumbency advantages. According to theCommission, GDP's dominant position wouldhave been strengthened in various ways by themerger, depending on the gas markets underconsideration, as a result of which effectivecompetition would have been significantlyimpeded.

Gas supply to power producers and to LDCs

With respect to these markets, the Commissionrelied on the vertical effect of the merger byconsidering that the merger would lead to a signifi-cant foreclosure of the challengeable demand. Onthe market for gas supply to CCGTs, the operationwould have foreclosed all the gas demand ofCCGTs which, absent the merger, could have beenchallenged by competitors of GDP once CCGTsare eligible. As to gas supply to LDCs, the mergerwould have foreclosed the gas demand of the onlyLDC which is so far not controlled by GDP,

namely Portgás. Further to the operation, gassupply to LDCs would have no longer been chal-lengeable by gas competitors.

Gas supply to LICs and to small customers

On these markets, the Commission's investigationrevealed that, absent the merger, EDP would havebeen the most likely and effective potentialentrant. Apart from the fact that effective entry ofelectricity incumbents in gas markets has beenwitnessed in other Member States, EDP hasalready access to large quantities of gas for theoperation of its CCGT, which confers a strongincentive to enter the gas supply markets. Besides,EDP can rely on its electricity customers, to whichit can offer a joint supply of gas and electricity(dual-fuel), as well as on the experience, the repu-tation and the customer base of the gas distributorPortgás, which it jointly controls. ConcerningPortgás, the Commission also noted that, absentthe merger, this company would have been theonly gas supplier independent of GDP alreadyestablished in Portugal. At the moment of themarket opening, it would have therefore been theonly company ready to compete with GDP imme-diately and effectively for the supply of gas tosmall customers.

The Commission came therefore to the conclusionthat the concentration would remove GDP's mainpotential competitor and raise further the barriersto entry in these markets, thereby significantlyimpeding effective competition through thestrengthening of GDP's dominant position.

Conclusion

Remedy proposals were submitted by the parties atdifferent stages of the procedure. On the basis ofthe analysis of these proposals, and followingmarket testing, the Commission concluded thatthese commitments were insufficient to eliminatethe various competition concerns identified and,consequently, had to declare the proposed concen-tration incompatible with the common market.Since then, an action for annulment has beenbrought by EDP against the Commission'sdecision before the Court of First Instance (CaseT-87/05).



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Décision finale positive dans le dossier des centres decoordination belges

Jean-Marc HUEZ, Direction générale de la concurrence, unité G-3

Le 8 septembre 2004, la Commission adoptait unedécision finale au sujet du nouveau régime belgedes centres de coordination prévu par la loi du24 décembre 2002 modifiant le régime des sociétésen matière d'impôts sur les revenus et instituant unsystème de décision anticipée en matièrefiscale (1). Cette décision est l'aboutissement deprès de cinq années d'enquête menées par laCommission. Dès 1999, elle s'était intéressée àl'ancien régime des centres de coordination, envigueur depuis 1983, qu'elle avait autorisé àl'époque. En 2002, c'est le nouveau régime notifiéqui fait l'objet de son attention.

L'historique de ce dossier, les questions de prin-cipe qu'il a soulevées, sa sensibilité politique etéconomique liée à la taille et au caractère multina-tional des groupes bénéficiaires, en ont fait et enfont encore un dossier intéressant à de nombreuxégards.

L'ancien régime des centres de

coordination

Aux termes de l'arrêté royal n°187 du 30 décembre1982, un centre de coordination est une entreprisefaisant partie d'un groupe multinational et fournis-sant des services au profit exclusif des entreprisesdu groupe. La législation limitait le type d'activitéséligibles. Il devait s'agir d'activités dites acces-soires parmi lesquelles la gestion du personnel, del'informatique, la comptabilité, le conseil fiscal, larecherche ou encore la gestion financière (gestioncentralisée de la trésorerie, financement d'investis-sements, émission de titres). Pour bénéficier durégime, le centre doit obtenir l'agrément des auto-rités fiscales, délivré pour une durée de 10 ans,mais qui peut être renouvelé.

L'intérêt principal du régime réside dans le modede calcul du revenu imposable des centres , nonpas selon les règles du droit commun, mais selonune méthode alternative de type «cost plus» ou«coût de revient majoré». Cette méthode,reconnue par l'OCDE, vise d'ordinaire à éviter ladouble imposition et à limiter l'évasion fiscale.Elle consiste à fixer le revenu imposable du centreà un pourcentage de ses frais de fonctionnement

(«cost»). La particularité de la législation belgeprovient de l'exclusion de postes de frais impor-tants, comme les frais de personnel et des fraisfinanciers. Quant au taux de marge (le «plus»), ilétait fixé de manière forfaitaire pour l'ensembledes activités du centre et, à défaut d'informationsdisponibles, à 8% des frais. La base imposableainsi obtenue était soumise au taux plein de l'impôtdes sociétés.

Autre intérêt du régime, les centres étaientexonérés du droit d'apport, un droit d'enregistre-ment de 0.5% qui frappe les apports en capital(«capital duty»), et du précompte mobilier («with-holding tax») sur les revenus mobiliers distribués.

Cette combinaison de mesures permet, a poste-riori, d'expliquer le succès rencontré par le régime,en particulier pour l'exercice des activités finan-cières. En effet, le financement des investisse-ments et des opérations d'un groupe requiert descapitaux propres importants. Or, la société mèrepouvait apporter au centre d'importants montantssans devoir s'acquitter du droit d'apport. De plus,hormis les frais de personnel et les frais financiers,les activités financières génèrent peu, voire pas defrais. Pour les centres dont l'activité principale estla gestion financière du groupe, le résultat était unebase de coûts, donc une base imposable et unimpôt virtuellement inexistants. Finalement, lecentre pouvait distribuer les bénéfices engrangéssous la forme de revenus mobiliers — dividendes,intérêts, redevances — en exonération deprécompte mobilier.

Code de conduite

En décembre 1997, les États membres réunis ausein du Conseil s'engagent, dans un Code deconduite dans le domaine de la fiscalité des entre-prises (2), à supprimer les mesures fiscales «poten-tiellement dommageables», et à ne plus enintroduire de nouvelles. Un groupe de travail«Code de Conduite» est créé.

Á la demande des États membres, la Commissions'engage à examiner — ou réexaminer — lesmesures dommageables à la lumière des articles 87et 88 du traité applicables en matière d'aides d'État.


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(1) Cf. Moniteur Belge du 31 décembre 2002 (Ed 2), p. 58817 et suiv.

(2) Cf. Journal Officiel de l’Union européenne — JO°C 2 du 6.1.1998.

Par mesure dommageable au sens du Code deconduite, on entend «les mesures fiscales établis-sant un niveau d'imposition effective nettementinférieur, y compris une imposition nulle, parrapport à ceux qui s'appliquent normalement dansl'État membre concerné». Des critères plus précisseront ensuite définis. L'évaluation du caractèredommageable prendra notamment en compte si lesavantages sont accordés exclusivement pour desactivités isolées du marché national, s'ils le sontmême en l'absence d'activité économique réelle ousi les règles de détermination des bénéfices issusdes activités internes d'un groupe multinationaldivergent des principes généralement admis sur leplan international, notamment les règles approu-vées par l'OCDE.

Dans son rapport (1) au Conseil ECOFIN, ennovembre 1999, le groupe «code de conduite»identifie 66 mesures potentiellement dommagea-bles. Le régime des centres de coordination en estl'une des plus importantes (2).

En juin 2003, une étape importante du travail de cegroupe est franchie: le Conseil décide quel'ensemble des mesures, une fois adaptées par lesÉtats membres, cesseront de constituer desmesures dommageables. Dans le cadre de cetaccord, la Belgique s'est engagée à modifiercertains aspects de l'ancien régime.

Comme elle s'y était engagée, la Commissionentame l'évaluation des mesures dommageables auregard des règles applicables en matière d'aidesd'État. Le 11 novembre 1998, la Commissionadoptait une Communication sur l'application desrègles en matière d'aides d'État aux mesures rele-vant de la fiscalité directe des entreprises (3) et,dès 1999, de nombreux régimes figurant sur la listedes mesures dommageables font l'objet d'investi-gations. Le 11 juillet 2001, la Commission adoptesimultanément 15 décisions à l'égard de régimesfiscaux visant à favoriser notamment les activitésoffshore et les activités de financement intra-groupe. Outre les centres de coordination belges,la Commission s'intéresse à des régimes en Alle-magne, en Finlande, en France, en Grèce, enIrlande, en Italie, au Luxembourg, aux Pays-Bas,au Royaume-Uni (Gibraltar) ou en Suède.

Aide existante, confiance légitime

Une particularité évidente de l'ancien régime descentres de coordination est d'avoir été approuvé par

la Commission en 1984. À l'époque, elle avaitconsidéré que le régime ne soulevait pas d'objec-tions. Quinze ans plus tard, cette ancienne décisiondéterminera le choix de la procédure à suivre pour leréexamen du régime des centres de coordination.Elle aura également des implications pour la déter-mination de la période d'extinction de certains effetsde l'ancien régime et aura même des répercussionssur l'examen d'autres mesures fiscales.

Pour avoir été autorisé antérieurement par laCommission, le régime est qualifié de régimed'aide existant. Par opposition au statut d'aidenouvelle, celui d'aide existante est plus favorableen termes de procédure puisque l'État membre et laCommission doivent, selon le traité, collaborerpour déterminer quelles modifications il convientd'apporter à la mesure concernée. Ce statut est plusfavorable aussi pour les bénéficiaires puisque,quoiqu'il arrive, le remboursement des aides qu'ilsont reçues par le passé ne leur sera pas réclamé.Dans certains cas, ils pourront même bénéficierd'une période transitoire, pendant laquelle ilscontinueront à bénéficier des avantages de lamesure.

Malgré ce statut protecteur, la Belgique et lesbénéficiaires ont contesté que la Commission aitun quelconque droit de réexaminer ce régime,fusse en tant qu'aide existante, parce qu'elle avaitelle-même décidé qu'il ne s'agissait pas d'unrégime d'aide, qu'en l'absence d'aide, il ne peut yavoir d'aide existante, ni de réexamen de lamesure. Cette position n'a pas été suivie par laCommission qui a estimé que le caractère d'aideest une notion objective donc indépendante del'appréciation qui a pu en être faite — à tort ou àraison — dans le passé. Le seul impératif quis'impose à la Commission dans ce cas précis est lerespect des droits acquis ou de la confiance légi-time que la décision précédente avait pu susciterdans le chef des bénéficiaires. En qualifiant lerégime d'aide existante et en lui appliquant laprocédure propre à ce type d'aide, la Commissionest convaincue d'avoir répondu à cet impératif.Après avoir initié la procédure de coopérationprévue à l'article 17 du règlement de procédure (4),la Commission a adressé, le 11 juillet 2001, unesérie de recommandations concrètes à la Belgique,une «proposition de mesures utiles» visant à lamodification du régime.

Comme mentionné précédemment, la Commis-sion a pris en compte les effets de la décision posi-


State aid control

(1) Cf. http://europa.eu.int/comm/taxation_customs/resources/documents/primarolo_fr.pdf.

(2) Est-ce un hasard, le régime porte le numéro « A-001 » dans la liste.

(3) JO C 384 du 10.12.1998.

(4) Règlement n° 659/1999 portant modalités d’application de l’article 88 CE — JO L 83 du 27.3.1999.

tive de 1984 à propos des centres de coordinationbelges dans d'autres dossiers également. Ainsi, il aété tenu compte de la confiance légitime que cettedécision avait pu susciter dans le chef des bénéfi-ciaires de régimes de mesures fiscales adoptées pard'autres États membres sur le modèle — ou dansl'esprit — du régime des centres de coordinationbelges. Ces régimes n'ayant pas été notifiés à laCommission, les aides accordées par le passéauraient dû être récupérées. Mais la Commission aappliqué la jurisprudence de la Cour selon laquellela récupération des aides ne peut être exigée si elleconstitue une atteinte à un principe fondamental dudroit communautaire, comme le respect de laconfiance légitime que la Commission a elle-même créée dans le chef des bénéficiaires.

La décision finale du 17 février 2003

concernant l'ancien régime

Les mesures utiles proposées par la Commissionn'ayant pas été acceptées par la Belgique, laCommission se voit contrainte, en février 2002,d'ouvrir la procédure formelle d'examen à l'égardde ce régime.

Le 17 février 2003, la Commission clôture cetteprocédure et adopte une décision finale (1) néga-tive. Elle estime que ce régime n'est plus compa-tible avec les règles applicables en matière d'aidesd'État et que la Belgique doit y mettre fin au plustôt. Selon l'évaluation faite par la Commission, lerégime apparaît extrêmement avantageux — destaux de taxation effectifs de l'ordre de 2 à 3% sontévoqués — et très sélectif — le centre doit appar-tenir à un groupe multinational implanté dansquatre pays au moins et répondre à des critèresrestrictifs de total de bilan et de chiffre d'affaire.

En ce qui concerne le «cost plus», la Commissionreconnaît que le recours à une méthode alternativepeut se justifier dans certaines circonstances maiscritique l'application qui en est faite dans le cadredu régime belge, l'exclusion des frais de personnelet des frais financiers du calcul de la base de coûts,l'application d'un taux de marge forfaitaireinadapté et, in fine, une imposition effective artifi-ciellement réduite, presque inexistante alors que letaux d'imposition applicable en Belgique dépasseles 40%. La Commission critique également lesexonérations de précompte mobilier et de droitd'apport accordées aux centres ou aux entreprisesmultinationales dont ils font partie.

La décision finale interdit donc à la Belgiqued'accorder le bénéfice du régime à de nouveau

entrants et autorise une période transitoire pour lescentres agréés avant le 31 décembre 2000. Cescentres peuvent bénéficier du régime jusqu'à la finde leur agrément en cours et au plus tard le31 décembre 2010. Ce dispositif repose sur l'argu-ment, avancé par la Belgique, que les agrémentsaccordés par la Belgique aux centres de coordina-tion avaient une durée fixe de 10 ans et que laBelgique devait donc garantir aux centres le béné-fice du régime jusqu'à l'expiration de ces dix ans.Les agréments ayant été accordés ou renouvelés demanière étalée depuis 1983, ils arriveront progres-sivement à expiration entre 2003 et fin 2010, et lerégime perdra de son influence sur le plan écono-mique jusqu'à ne plus revêtir qu'une importancemarginale à la date de son échéance.

La Commission ayant approuvé le régime àl'origine, les bénéficiaires ne sont pas tenus derembourser les aides qu'ils auraient pu percevoirdans le passé.

Le contentieux

Peu après la notification de la décision aux auto-rités belges, il est apparu que celles-ci n'étaient passatisfaites par la période transitoire accordée par laCommission. L'agrément de certains des centresexpirait entre juillet 2003 et décembre 2005 et laBelgique avait l'intention de prolonger les avan-tages du régime pour tous ces centres, jusqu'à la finde l'année 2005.

La Belgique a dès lors introduit un recours devantla Cour de Justice demandant la suspension immé-diate et l'annulation de la décision de la Commis-sion en ce qu'elle interdit tout renouvellement desagréments après le 17 février 2003. Forum187,l'association qui défend les intérêts des centres decoordination, a également introduit un recoursdevant le TPI en vue d'obtenir l'annulation del'intégralité de la décision et d'en suspendre leseffets immédiats. Par ordonnance du 26 juin 2003,le Président de la Cour a fait droit à la demande dela Belgique et de Forum187 et, en attendant lejugement sur le fond, a ordonné la suspension de ladisposition de la décision qui interdit le renouvel-lement du régime.

En parallèle, les autorités belges avaient demandéau Conseil de prendre une décision au titre del'article 88 paragraphe 2, alinéa 3 du traité CE pourautoriser le renouvellement du régime aux centresdont l'agrément arrive à échéance entre le 17 fé-vrier 2003 et le 31 décembre 2005. Cette disposi-tion du traité permet au Conseil, à la demande d'unÉtat membre, d'autoriser une mesure d'aide d'État



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(1) Cf. JO L 282 du 30.10.2003.

pour autant que l'État concerné établisse l'exis-tence de circonstances particulières. Le 16 juillet2003, le Conseil décide (1) d'autoriser le renouvel-lement du régime des centres de coordinationdemandé par la Belgique. Le même jour, laCommission publie (2) un communiqué annonçantson intention de former un recours contre la déci-sion du Conseil. La Commission estime en effetque l'article 88, paragraphe 2, alinéa 3 du traité nes'applique plus après que la Commission ait prisune décision finale sur la mesure concernée (3), et,par voie de conséquence, que le Conseil a détournéle pouvoir que lui confère cette disposition.

Le nouveau régime des centres de

coordination

Les critères d'évaluation établis dans le cadre ducode de conduite visent à éviter une concurrencefiscale déloyale — ou dommageable — entre Étatsmembres. Les critères «aides d'État» visent, eux, àéviter en principe qu'un État membre n'offre desavantages — fiscaux ou autres — à certaines entre-prises au détriment d'autres entreprises établies surson territoire. Ces deux processus — «Code deconduite» vs «Aides d'État» — ont donc en prin-cipe des objectifs différents. Pourtant, dans denombreux cas, on a constaté que la suppressiondes aspects dommageables d'une mesure permet-tait, en même temps, d'en supprimer le caractèred'aide d'État, et vice versa.

En mai 2002, la Belgique notifie le projet d'unrégime de centres de coordination modifié. Lamodification répond aux exigences du code deconduite (elle sera avalisée par le Conseil en juin2003) et, en partie, aux critiques adressées àl'ancien régime en matière d'aides d'État. Mais laréforme proposée reconduit des éléments identi-fiés, dans l'ancien régime déjà, comme des aidesd'État.

Le nouveau régime de cost plus est corrigé demanière à inclure l'ensemble des coûts du centredans la base du calcul cost plus. Autre évolution, letaux de marge (le «plus») appliqué à cette base decoûts sera désormais fixé, pour chaque activité etpour chaque centre, en fonction du taux du marché.Ces taux de marge seront fixés par une décisionanticipée (ou «ruling»), valable 5 ans, délivrée aucentre par l'administration fiscale.

En avril 2003, la Commission autorise (4) lenouveau régime de ruling cost plus. Elle estime eneffet que le simple fait d'accorder des agréments oudes décisions anticipées aux centres de coordina-tion ne constitue pas une aide d'État. L'applicationd'une méthode alternative n'est pas non plus uneaide d'État et la méthode cost plus répond désor-mais aux standard internationaux. La décisionprécise néanmoins: «(…) que cette évaluations'applique au régime tel que présenté par les auto-rités belges — tenant compte des règles d'établis-sement des décisions anticipées — et moyennant lerespect des engagements pris par la Belgiquequant à certaines modalités pratiques d'applica-tion du régime. Elle ne couvre en aucun casd'éventuelles mesures d'application (arrêtésroyaux, ministériels, circulaires, etc) ou décisionsanticipées individuelles qui, s'écartant des prin-cipes décrits ci-dessus, auraient pour effetd'octroyer un avantage économique à certainscentres ou aux entreprises des groupes auxquelsces centres appartiennent».

Mais le nouveau régime reconduit les exonérationsde précompte mobilier et de droit d'apport, déjàprésentes dans l'ancien régime et que la Commis-sion a qualifiées d'aides incompatibles, en 2001déjà et encore en février 2002 dans sa décisiond'ouverture (5). Vu la détermination de l'Étatmembre à maintenir ces exonérations, la Commis-sion ouvre la procédure formelle d'examen, le23 avril 2003, en même temps qu'elle autorise lapartie cost plus du régime. Elle ouvre également laprocédure au sujet de la non taxation des avantagesanormaux et bénévoles (6) (éventuellement)perçus par les centres. Sorte d'effet secondaire del'application du cost plus, cette non taxation étaitsusceptible de remettre en cause l'objectif formulépar la Commission d'aboutir, pour les centres, à unniveau d'imposition comparable à celui des autresentreprises établies en Belgique.

Dans le courant de l'année 2004, des réunions tech-niques ont permis aux autorités fiscales belges et àla Commission de dégager des pistes pour unesolution. Deux voies s'offraient à la Belgique: soitéliminer l'avantage du régime des centres en lessoumettant au régime de droit commun, soit géné-raliser l'avantage réservé, jusqu'à présent, auxseuls centres de coordination.


State aid control

(1) Cf. JO L 184 du 23.7.2003.

(2) Cf. IP/03/1032 du 16 juillet 2003 sur http://europa.eu.int/rapid/

(3) Cette position apparaît confortée, entre-temps, par l’arrêt de la Cour rendu le 29 juin 2004 dans l’affaire C-110/02 Commission desCommunautés européennes/Conseil de l’Union européenne.

(4) Cf. JO C 209 du 4.9.2003.

(5) Cf. JO C 147 du 20.6.2002.

(6) Cette expression désigne par exemple des services prestés à un prix anormalement bas (avantage anormal) ou gratuitement(avantage bénévole).

En ce qui concerne le précompte mobilier, laBelgique s'est engagée à généraliser l'exonérationlitigieuse en l'étendant aux autres entreprisesétablies en Belgique. Pour le droit d'apport, lasolution proposée consiste à soumettre les opéra-tions de centres au droit d'apport comme les autresentreprises, droit d'apport dont le taux serait réduit.Enfin, les centres devraient, à l'avenir, êtreimposés sur les avantages anormaux et bénévolesreçus, pour autant qu'ils auraient été imposés selonle régime de droit commun. C'est en tenant comptede ces engagements que la Commission décidait,le 8 septembre 2004, d'autoriser le régime descentres de coordination, qui une fois modifié, nedevrait plus contenir d'élément d'aide.

À suivre…

Á l'instigation du Conseil et de la Commission, lerégime des centres de coordination, sous sesanciens atours, semble voué à l'extinction progres-sive entre 2006 et 2010. Dans le courant de l'année2005, la Cour devra tout de même se prononcer surles recours en suspens, notamment sur la qualifica-tion du régime en tant que régime d'aides d'État,mais aussi sur l'étendue des pouvoirs accordés auconseil dans le cadre de l'article 88, paragraphe 2,alinéa 3 du traité.

Suite à la décision du 23 avril 2003 autorisant lecost plus, la Belgique semble avoir éprouvé desdifficultés à mettre en œuvre une méthode quiréponde de manière satisfaisante à l'objectif, aurespect duquel elle s'était engagée, d'aboutir à unetaxation comparable à celle qui aurait été obtenuepar application du droit commun, et ce quelles quesoient les opérations effectuées par le centre.

Les autorités belges se sont donc tournées vers dessolutions alternatives au régime des centres sous laforme de mesures générales. Des discussions tech-niques exploratoires ont eu lieu entre la Belgiqueet les services de la Commission et, récemment, lapresse a relayé le consensus dégagé au sein dugouvernement belge en faveur de la déductiond'intérêts notionnels. Cette mesure permettrait àtoute entreprise établie en Belgique de déduire desa base imposable des intérêts notionnels corres-pondant à un pourcentage de ses fonds propres.

À l'heure ou cet article est rédigé, le projet définitifn'a pas été présenté à la Commission. Le caséchéant, elle s'attachera à vérifier que la mesure esteffectivement générale et n'accorde pas, en droitou en fait, d'avantage économique à certainesentreprises ou à certaines productions et suscep-tible de constituer des aides d'État incompatiblesau sens de l'article 87 du traité.



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State aid for restructuring the steel industry in the new MemberStates

Max LIENEMEYER, Directorate-General Competition, unit H-1 (1)

1. Introduction

Steel is an important industrial sector in many ofthe new Member States. Altogether they produce23 million tonnes of liquid steel: Poland producesabout 9 million, the Czech Republic about 6 mil-lion, Slovakia 5 million, Hungary 2 million andSlovenia about 0.5 million tonnes. Moreover, thefour candidate countries, i.e. Bulgaria (2 million),Romania (6 million), Croatia and Turkey have alsoa significant steel production. Altogether theyhave an annual output of almost 50 million tonnes(about 5% of the world production) and provideabout 220,000 jobs.

The steel producing capacity in the new MemberStates is today about 30 million tonnes. As thecapacity has been above 50 million tonnes in thebeginning of the 90ies it has already significantlydecreased. Similar overcapacities occurred also inthe old Member States in the 80ies and 90ies,where an intensive restructuring has taken place. Itwas complemented by privatisation and consolida-tion of the former State owned companies. There-after, the ECSC Treaty, and after its expiry in June2002, the EC Treaty have implemented sectorspecific rules prohibiting any kind of rescue andrestructuring aid.

However, there is a common understanding thatthese rules cannot immediately be applied toacceding Member States but that they should alsohave the opportunity to restructure and privatisetheir industry before being subject to the strict EC

State aid rules. Therefore, after a short overviewabout the EC State aid rules on steel (2), this articlewill present the existing transitional rules for somenew Members States (3-5) and some candidatecountries (6).

2. The EC State aid rules for steel

Financial support of Member States to theirindustry generally amounts to State aid, which isunder the EU rules, Article 87 (1) EC Treaty,prohibited. However, the Communication fromthe Commission on Community guidelines onState aid for rescuing and restructuring firms indifficulty (hereinafter ‘EC Restructuring guide-lines’) (2) expresses that restructuring aid to firmsin difficulty may if certain strict conditions aremeet not be contrary to the Community interest.

On the other hand, the 1996 Steel Aid Code (3) ofthe European Coal and Steel Community (ECSC)prohibited restructuring and investment aidcompletely. This was the result of lessons learnedfrom the overcoming of the steel crisis whichstarted in the early 80ies and continued until themid 90ies. A reduction of overcapacity was onlyachieved after the Steel Aid Code made capacityreduction a precondition for State aid. (4)

Since the expiry of the ECSC Treaty in 2002 (5),the general EC State aid rules apply to the steelsector (6). However instead of the EC Restruc-turing guidelines, the EC issued a so calledCommunication from the Commission on Rescue


State aid control

(1) This Article summarises the result of the work of many colleagues in the Commission Services with whom DG Competition hascollaborated on this issue. In DG Competition, many issues have been in the last two years successfully solved thanks to thecontribution of Ewa Szymanska.

(2) OJ C 244, 1.10.2004, p. 2.

(3) Commission Decision No 2496/96/ECSC, OJ L 338, 28.12.1996, p. 42.

(4) These principles were embodied in the person of the former EC Industry Commissioner, the Belgian Etienne Davignon. TheDavignon plan resulted in the dismantling of about 32 million tonnes of hot rolled steel in 1985 in exchange for about € 40 billionof State aid. In the 90ies 19 million tonnes of hot rolled capacity were closed, 100,000 people laid off, while about € 17 billion ofaid was granted.

(5) See the Communication from the Commission concerning certain aspects of the treatment of competition cases resulting from theexpiry of the ECSC Treaty, OJ C 119, 22.5.2002, p. 22.

(6) That means that various horizontal regimes were opened to the steel sector, including all State aid block exemption regulations, forexample the Commission Regulation 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to deminimis aid, OJ L 10, 13.1.2001, p. 30.

and Restructuring aid and closure for the steelsector (1) which stipulates that rescue and restruc-turing aid in the steel sector is not permitted. Onlyclosure aid, as an exception from the prohibition togrant restructuring aid, is exceptionally allowed.Such closure aid may be aid to redundantemployees that are laid off or aid to supportcompanies to close their facilities. The latter ishowever only accepted if the entire legal entity isclosed.

In addition, also regional investment aid is prohib-ited under point 27 of the Multisectoral frameworkon regional aid for large investment projects. (2) Insum, essentially any kind of significant investmentaid in the steel sector, be it for restructuring orother purposes, is prohibited. The Commission hasmade sure that its laws were not circumvented byabusing the defence that the investments wereallowed in view of the market investor prin-ciple (3). Consequently, the Commission has inrecent years only authorised a very limited amountof aid for objectives such as environmental protec-tion or research and development (R & D).

3. Overview of the transitional rules

for the new Member States

The restructuring of the steel industry was initiatedon the basis of several Europe Agreements. Thiswas the case for Poland, the Czech Republic,Hungary, Slovakia, and Slovenia. For example,Article 8(4) of Protocol 2 of the Europe Agreementwith Poland stipulated that, during the first fiveyears after entry into force of the Agreement,Poland could exceptionally, as regards steel prod-ucts, grant State aid for restructuring purposes,given three conditions.

These conditions are that:

• restructuring leads to the viability of the bene-fiting firms under normal market conditions atthe end of the restructuring period;

• the amount and intensity of restructuring aid isstrictly limited to what is absolutely necessaryin order to restore viability and that the aid isprogressively reduced; and

• restructuring is linked to a global rationalisationand reduction of overall production capacity.

In the event the restructuring could not be achievedin the five years grace period, which was the caseof Poland and the Czech Republic, an extension ofthe grace period for granting State aid in the steelsector was negotiated. However, the EU indicatedthat it would consider the prolongation undercondition that a national restructuring programmewas set up, which was eventually accepted by aCouncil decision and then incorporated into theTreaty of Accession. In fact, the Treaty of Acces-sion signed in Athens on 16 April 2003 by theHeads of State and Government of the enlargedEU incorporated Protocol No 2 on the restruc-turing of the Czech steel industry and Protocol No8 on the restructuring of the Polish steelindustry (4). Moreover, point 4 (2) of Annex XIVallows the application of a fiscal aid scheme to theSlovakian steel sector.

These rules essentially provide for an exception ofthe rule that restructuring aid for the steel sector isprohibited and are also lex specialis to the normaltransitional rules in the Accession Treaty (5).

Thus, Protocol 2 of the Europe Agreement and theAccession Treaty protocols provide the legal back-ground for the steel restructuring. The nationalrestructuring programmes are the commondenominator of most transitional regimes and havegenerally been a precondition for the EU'sapproval exceptionally allowing the candidateStates to derogate from the normal rules.

4. Key Parameters of a National Steel

Restructuring Programme

There are no clear EC Guidelines for setting up asteel restructuring programme. However, Proto-col 2 of the Europe Agreement indicates the mainparameters of a restructuring programme, i.e.viability, the minimum amount of State aid neces-sary to achieve viability and the reduction ofcapacity. Moreover, the overall aim of the require-ment to produce a national restructuring program-me in a pre-accession context is clearly to obtaintransparency in the steel sector.



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(1) OJ C 70, 19.3.2002, p. 22.

(2) OJ C 70, 19.3.2002, p.8. The Commission also emphasised in this framework the incompatibility of investment aid to the steelsector for large individual aid grants made to small and medium-sized enterprises (SMEs) within the meaning of Article 6 ofCouncil Regulation (EC) No 70/2001, which are not exempted by the block exemption regulation.

(3) Commission Decision Carsid of 15 October 2003, OJ L 47, 18.2.2005, p. 28.

(4) OJ L 236, 23.9.2003, p. 934 (Protocol No 2) and p. 948 (Protocol No 8).

(5) This means that steel restructuring aids were not subject to the so called ‘existing aid mechanism’ under the Accession Treaty. Thiswas confirmed in Commission Decision of 14 December 2004, Restructuring aid to the Czech steel producer Trinecké Zelezárnya.s, OJ C 22, 27.1.2005, p. 2.

In addition, some guidance can be drawn from thegeneral EC Restructuring guidelines. While theseguidelines are not directly applicable to the steelindustry because the EC regime prohibits restruc-turing aid for the steel sector, these general rulesshould however at least be considered as a sourceof inspiration for the exceptional case whererestructuring in the steel sector is neverthelessallowed. Although the rules in the EC Restruc-turing guidelines appear to limit the availability ofaid far more than it can be observed during therecent steel restructuring, point 56 of the guide-lines mitigates against this presumption as itallows for less stringent rules in assisted areasespecially regarding the implementation ofcompensatory measures and for the beneficiary'sown contribution. The candidate countries andespecially the steel regions could generally beviewed as assisted areas.

4.1. Viability

The first point of Article 8 (4) of Protocol 2 of theEurope Agreement and the EC Restructuringguidelines are based on the principle that theoverall aim of any restructuring is to achieve longterm viability of the companies concerned. Therestructuring programme must therefore show thatviability of the beneficiary companies undernormal market conditions will be restored at theend of the restructuring period. In order to do soindividual business plans of all beneficiaries ofState aid must be presented.

Viability for the Commission essentially impliesthat the companies return to profitability at the endof the restructuring period. According to long-standing practice, which is also reproduced inAnnex 3 of the Polish and Czech Steel restruc-turing protocol, the Commission considers that thecompanies should achieve a reasonable operatingmargin (i.e. an EBITDA over turnover of at least10% for steel companies and 13,5 % for integratedmills) and a minimum return on sales (i.e. theEBIT must be at least 1.5% of the sales) (1).

While it remains that the above two criteria are thebenchmarks of financial performance in theCommission's viability test, some specialaccounting conditions must also be observed,which have the purpose to safeguard againstcompanies ‘under-investing’ to boost short-term

performance as a means of satisfying the viabilitycriteria. These special accounting conditionsinclude minimum levels of financial charges(3.5%) and depreciation (5% for steel companiesand 7% for integrated mills), expressed as apercentage of steel sales revenue, and a price-costsqueeze. If the special accounting criteria are notmet in the companies actual forecast, the projec-tions need to be adjusted by simulating that finan-cial charges and depreciations are meeting thespecial accounting criteria.

The viability test should be performed on the basisof an individual business plan of a company whichconcentrates on the company's steel productsrelated revenues and costs only. Therefore, thevariable costs associated with non-steel productsrevenue must be ignored. The viability test shouldbe applied to a sound set of financial projectionsfor the restructuring period, i.e. profit and lossaccounts, balance sheets and cash-flow state-ments. The financial projections should beprepared in current, not constant, prices taking intoaccount inflation and exchange rate movements.This is necessary since costs are subject to widelydiffering inflation rates, some of which have norelationship with product prices.

4.2. Minimum amount of State aid

necessary to restore viability

The main condition for establishing the amount ofadmissible State aid is emphasised in the secondpoint of Article 8 (4) of Protocol 2 as well as in theEC Restructuring guidelines, i.e. that the intensityof aid should be strictly limited to the necessaryamount to reach the objective of the restructuringprogramme (i.e. viability).

The ‘minimum necessary’ is determined by twofactors. It is the result of the total amount of fundsneeded to achieve viability minus the amount thatthe beneficiary himself is able to contribute. Whilein the EU a significant own contribution is neces-sary, this rule has in the past not been appliedsystematically in the accession countries (2).Indeed, in cases where State owned companies indifficulties are on the brink of privatisation, anown contribution by the old owner does, in mostcases, not make sense, as the restructuring is notassessed in view of the credibility of the existingowner but because of the envisaged privatisation.


State aid control

(1) It cannot be excluded that the Commission will review the viability criteria in the near future, in particular in order to take accountof changes in the International Accounting Standards.

(2) The EC Restructuring guidelines establish in their 2004 version in point 44 the rule that the contribution must be at least 25% incase of small enterprises, 40% for medium and 50% for large enterprises. Owner contributions were for example not an issue inPoland and the Czech Republic.



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On the other hand, the more a company's eligibilityfor restructuring is questionable given that thecompany is on the verge towards viability, themore an owner contribution is indispensable.

In order to assess the ‘minimum necessary’, therestructuring programme needs to provide infor-mation about the total amount of restructuring aidgranted to the steel industry from the entry intoforce of the grace period until the end of therestructuring period. The information should begiven at a company level and per year.

Apart from restructuring aid, also all other aidshould be identified for each company. If theseaids are compatible under the other rules appli-cable in the EC they will not be considered asrestructuring aid and need not to be compensated.However, it is doubtful whether other aid, with theexception of closure aid or aid that is exemptedunder a block exemption, can be compatible, asaids, such as environmental aid or aid for R & D,are normally apt to promote public policy objec-tives and it is doubtful whether firms in difficultyare the right vehicle to promote such objective (1).But that does not mean that such aid is prohibited.Rather, if financial support is for example given tohelp an ailing company to comply with environ-mental standards it should simply be considered asrestructuring aid.

Another difficulty is to properly quantify theamounts of State aid. There are certain rules tocalculate the aid values. For instance, for directsubsidies (2) the Commission accepted in thepast (3) that the aid values were assessed bylooking at their net grant equivalent, whichreduces the subsidy by the amount of potential taxliability on the gross amount. This is howeverquestionable, as restructuring aids are normallyassessed by reference to their gross grant equiva-lent whereas the concept of net grant equivalent isonly used in the context of regional investment aid.A net calculation makes indeed sense for regionalaid in order to compare aids in different regionswith different tax systems and in order to achievesimilar standards of living. This is however notnecessary for restructuring firms in difficulty(which should hardly be liable for tax) where the

aim is solely to achieve viability of the companywith the minimum necessary amount of State aid.

Finally, for certain instruments the aid value needsto be established. For example, in case of a creditthe aid is the difference between the interest paidcompared with an average rate, the so called refer-ence rate, which may need to be increased by 4%or more for companies in difficulty depending onthe financial risk involved (it can be up to 100% ifno bank would provide the loan without a guar-antee) (4).

In the end, in order to assess the proportionality ofthe aid, the restructuring aid is considered andassessed on a case by cases basis. The main factoris whether the granting of restructuring aid is suffi-ciently compensated, in particular throughcapacity reductions.

4.3. Compensatory measures — Capacity

reductions

In exchange for restructuring aid, the Commissionnormally requests that capacities are reduced overthe restructuring period to offset the distortiveeffects of the aid granted (5).

However, this must be seen against the back-ground of the factual situation in the last centurywhere there was a clear presumption of the exis-tence of overcapacities. Their reduction was there-fore a logical prerequisite to make any publicsupport compliant with the common interest.Today, the focus has shifted onto the reduction ofinefficient capacities. The degree of reduction canthus only be established on a case-by-case basis.Where no inefficient capacities exist also othercompensatory measures may be feasible (6).

While the restructuring programme should indi-cate the historical evolution of the national capaci-ties up to the end of the restructuring period, theemphasis should clearly be on identification ofeach company's capacities (see in this respectAnnex 2 of the Protocols). The identification of anindividual capacity is necessary to monitor thatcapacity reductions have been/will be realised.Capacities will only be considered reduced whendesignated facilities are permanently closed, i.e.

(1) Point 20 of the EC Restructuring guidelines.

(2) In addition, in case of subsidies that will be disbursed in the future their current net present value must be calculated by discountingthe aid value to the base year.

(3) This was the case in Poland and the Czech Republic but not any longer in Romania.

(4) Commission notice on the method for setting the reference and discount rates, OJ C 273, 9.9.1997, p. 3.

(5) The Commission normally looks at reductions in finished products capacity only.

(6) See point 40 of the EC Restructuring guidelines. The Commission has for example accepted production and sales caps in Slovakia,see details under 5.3.

where the key elements of a facility are physicallydestroyed so that they cannot be restored toservice (1).

In the past, the reduction in capacity was consid-ered mainly at an aggregated national level.Although this may very well have been the motiva-tion and starting point for many restructuringprogrammes, it is de jure not enforceable. Instead,a capacity reduction can only be requested fromcompanies that have received aid. Only for themconcrete capacity reductions are negotiated andcan be remedied by recovery of State aid in case ofnon-compliance. Other companies, which havenot received State aid, must in a market economyremain free to do what they want and may thus alsoincrease capacity.

4.4. Scope of a restructuring programme

The scope of a restructuring programme followsmainly from the above analysis. The companiesparticipating in the programme are selected by theGovernment depending on being eligible in viewof the prospect of viability and proportionality.

The length of the restructuring programme, i.e. therestructuring period also follows from the timingfor achieving viability. To this end, the programmemust be as short as possible. In any event, a limitedperiod of ideally five years is recommended inorder to work with realistic assumptions.

Moreover, the restructuring period does not needto be identical with the grace period within whichthe granting of aid is permitted. It is rather logicalthat the restructuring period will be longer, asviability is so to speak the fruit of the State aid.Furthermore, restrictions on capacity shouldgenerally last at least throughout the restructuringperiod.

5. The existing transitional regimes in

the new Member States

5.1. Poland

Poland is the biggest steel producer amongst thenew Member States, with a crude steel output of9.1 million tonnes in 2003 (about 8.5 milliontonnes hot rolled products). The country is a netexporter of steel. Exports in 2003 amounted to3.5 million tonnes.

The basis for the Polish steel restructuring:

Protocol 8

The rules for granting State aid to the Polish steelindustry are laid down in Protocol No 8 to theAccession Treaty on the restructuring of the Polishsteel industry. The Protocol is based on a nationalrestructuring plan (Restructuring and Develop-ment Plan for the Polish Iron and Steel Industry).

Background is that in March 2003 this nationalrestructuring plan was adopted after extensivework and after in-depth assistance of variousconsultants. The Commission assessed the restruc-turing programme in a proposal for a CouncilDecision on the fulfilment of the conditions laiddown in Article 3 of Decision 3/2002 of the Asso-ciation Council (extension of the grace period forpublic aid in the steel sector). The Member Statesapproved the proposal in July 2003, and prolongedthe grace period to grant State aid as foreseenin the Europe Agreement retroactively as of1 January 1997 until 2006 (provided however thatState aid is granted only until 2003).

In the end, Protocol No 8 transforms the results ofthe negotiation about the national restructuringplan into law. It comprises 18 paragraphs, whichstipulate all the conditions for the exception to therule that restructuring aid for the steel sector isprohibited. The Protocol also comprises proce-dural rules for a revision of the rules on the basis ofchanges in the individual business plans or thenational restructuring plan (point 10).

In order to ensure that the conditions laid down inthe Protocol are complied with, Protocol No 8 setsout detailed provisions for monitoring andreporting. Poland has to submit reports to theCommission every six months concerning thefulfilment of the obligations and requirementscontained in the Protocol. In addition, an inde-pendent evaluation is carried out by a consultant in2003, 2004, 2005 and 2006. Last summer theCommission presented a Communication to theCouncil and Parliament about the progressachieved during 2003, the first year of monitoringthe Polish and the Czech steel restructuring (2).

State aid, Viability and Capacity

On the basis of the plan, the Protocol accepts thegranting of State aid for the period of 1997 until2003 up to a maximum of PLN 3.39 billion (in


State aid control

(1) Capacity reductions are defined in Commission Decision 3010/91/ECSC OJ L 286, 6.10.1991, p. 20.

(2) Report from the Commission to the Council and the European Parliament — First monitoring report on steel restructuring in theCzech Republic and Poland, of 07.07.2004 — COM(2004)443 final.



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2003 about € 770 million (1)). The granting of aidis made subject to several conditions, inter aliathat viability is reached by 2006. Moreover, theProtocol lays down that during the restructuringperiod from 1997 to 2006 restructuring aid mayonly be granted to companies listed in Annex 1 ofthe Protocol (point 6, last sentence). Poland hasselected 8 companies to be included in this list (2).

The monitoring shows that Poland granted a totalamount of PLN 2.75 billion (€ 625 million) in theperiod 1997-2003. The majority of aids wasgranted in 2003 (PLN 2.1 billion). The figures oftotal State aid granted are below the ceilings speci-fied in the Protocol. As no more State aid may beprovided after 2003, the amount of State aid whichhas been approved by the Protocol but was notgranted, i.e. 20% of the Protocol ceiling, isforgone.

The aid was focused primarily on financial restruc-turing to address the debt burden of the companiesso as to facilitate their access to financing and theiracquisition by strategic investors. The abovementioned Commission Communication conclu-ded that the fact that the amount of State aidgranted is lower than envisaged will not have acritical effect on the financial projections of thebeneficiary companies, as the aid granted isdeemed sufficient to help the companies to achieveviability by 2006. Nevertheless, the Commissionis putting pressure on Poland to profit from thecurrent favourable conditions as much as possibleand to advance its investments.

Since the beginning of the 1990s, the Polish steelindustry has gone through a process of restruc-turing and conversion. As a result, the productioncapacity was reduced considerably between 1992and 2002, inter alia, the overall crude steel capa-city was reduced from 19.7 million tonnes perannum in 1992 to 12.2 million tonnes per annum atthe end of 2002, representing a 40% reduction overthat period. Reductions in hot rolled productioncapacity were not as significant. They werereduced from 10.5 million in 1992 to 9.27 millionin 1997.

Protocol No 8 specifies that the net reduction ofcapacities in the years 1997-2006 will amount to aminimum of 1.35 million tonnes. Details as well as

a timetable for the closure and dismantling ofinstallations are set out in Annex 2 of ProtocolNo 8. In 2003 about 900,000 tonnes were closed inPoland as scheduled.

The restructuring of the Polish steel industry hasfollowed the process of the EC steel restructuring.As the Commission concludes that Poland is so farmeeting its Protocol obligations concerning Stateaid and capacity reduction, the restructuringprocess is, apart from some investments that havenot been made, successful.

The prohibition of granting additional

restructuring aid to the steel industry

In order to ensure that no additional restructuringaid is granted for the period of 1997 until 2006,point 18 of the Protocol gives the Commission thepower in case of non-compliance to take ‘appro-priate steps requiring any company concerned toreimburse any aid granted’. The Commissionconsiders this as an appropriate basis to openproceedings under Article 88 (2) EC Treaty.

Therefore, the Commission has, on 19 May 2004,taken its first decision to launch an in-depth probeinto possible aid granted to a steel company in anew Member State (3). The company concerned isthe Polish steel producer Huta Czestochowa S.A.As the company is in financial difficulties, Polandis currently planning financial measures in order torestructure the company. The Commission istherefore seeking clarification whether restruc-turing State aid was and will still be granted to thecompany.

5.2. Czech Republic

The factual and legal conditions for the restruc-turing of the Czech steel industry were similar tothose of Poland. The Czech restructuring was orig-inally based on Article 8(4) of Protocol 2 of theEurope Agreement. On the basis of a nationalrestructuring plan the grace period was prolongedby a Council decision and special rules are nowlaid down in the special protocol to the AccessionTreaty, Protocol No 2 on the restructuring of theCzech steel industry (4).

(1) 1 € = 4.3996 PLN, average exchange rate in 2003.

(2) There are 17 steel companies in Poland. The main steel group is MPS, Mittal Steel Poland, formerly called Polskie Huta Staly(PHS), which has been taken over by LNM holdings (see Commission Decision of 5.2.2004 — Case IV/M.3326 — LNM / PHS).The Protocol concerns the following eight steel producing companies: PHS, Huta Bankowa, Huta Buczek, Huta Lucchini-Warszawa, Huta Labêdy, Huta Poküj, Huta Andrzej and Huta Batory. The last two in the meantime went bankrupt.

(3) OJ C 204, 12.8.2004, p. 6.

(4) As Protocol 2 and 8 are in most points identical the Czech Protocol will not be discussed in detail.


State aid control

State aid, Viability and Capacity

Protocol No 2 stipulates that State aid may begranted to three beneficiary companies (1). It islimited to a maximum of CZK 14.14 billion (€ 444million (2)) to be granted in the period 1997-2003and specifies maximum amounts for each of thethree beneficiary companies.

The monitoring shows that the Czech Republicgranted a total amount of CZK 12 billion(€ 377 million) in the period 1997-2003. In 2003,a total of CZK 4.4 billion (€ 138 million) ofrestructuring aid was granted.

The aid also focused primarily on financialrestructuring to address the debt burden of thecompanies so as to facilitate their access tofinancing and their acquisition by strategic inves-tors. The Commission's monitoring communica-tion concludes again that although the amount ofaid granted is lower than envisaged, this will nothave a critical effect on the financial projections ofthe beneficiary companies and the aid granted isdeemed to be sufficient to help the companies toachieve viability by the end of the restructuringperiod.

The Protocol specifies that the net capacity reduc-tion to be achieved by the Czech Republic forfinished products (hot rolled and cold rolled)during the period 1997-2006 must reach aminimum of 590,000 tonnes. A timetable for thedismantling of installations, as well as for newcapacities to be installed, is specified in Annex 2 ofthe Protocol. Companies confirmed that theclosures scheduled for the years 2004-2006 will berealised (3).

Similar to Poland also the restructuring of theCzech steel industry is comparable with the ECsteel restructuring, whereas the reduction ofcapacity goes beyond the ratio of State aid andcapacity reduction in the EU in the past. TheCommission concluded in its Communication thatthe Czech Republic is meeting its Protocol obliga-tions concerning State aid and capacity reduction.However, the Commission is insisting that theCheck Republic profits from the current favour-able conditions as much as possible and advancesits investments.

The prohibition of granting additional

restructuring aid to the steel industry

In order to ensure that no additional restructuringaid is granted in the period from 1997 until 2006,point 20 of Protocol No 2, similarly to the abovementioned provision in the Polish Protocol,provides for the possibility to take appropriatesteps requiring any company concerned to reim-burse any aid granted.

Therefore, on 14 December 2004, the Commissiondecided under Article 88 (2) EC Treaty to launchan in-depth probe into possible State aid in favourof Trinecké Zelezárny, a.s. (4), a steel producer inthe Czech Republic. The Commission has reasonto believe that certain transactions between theCzech Government and the company executed inApril 2004 could involve State aid which mightnot be compatible with EC State aid rules.

Similar as in the above mentioned Polish case, theCommission underlined with the opening ofproceedings in this case its readiness to follow upthe granting of any illegal restructuring aid to thesteel sector, even if it was granted before the acces-sion of Poland or the Czech Republic to the EU.

5.3. Slovakia

Protocol 2 of the Europe Agreement with Slovakiais identical to those of Poland and the CzechRepublic. It states that State aid for the restruc-turing of the steel sector could only be grantedduring the grace period, which expired in March1997.

However, initially and in contrast to the two othercountries, Slovakia did not request a prolongation,so that aid to the steel sector should have beencovered by the general rules on State aid fromApril 1997 on. However, in 1999, Slovakiaadopted a law providing for an income tax exemp-tion to certain sensitive sectors with the aim ofstabilising employment. This measure was alsoapplied to Kosice Steel Works, the largest Slovaksteel company, which was taken over by US Steelin 2000.

The Commission considered this measure as abreach of the Europe Agreement. Therefore, it was

(1) The beneficiaries are Ispat Nova Hut, Válcovny plechu Frýdek-Místek (VPFM) and Vitkovice Steel.

(2) 1 € = CZK 31.846, average exchange rate in 2003.

(3) The Czech Republic has obtained on 3 March 2005 the Commissions agreement for a postponement of the closure of capacity ofhot rolled products in VPFM from the end of 2005 until mid 2006 (case N 600/04).

(4) Commission Decision of 14 December 2004, Trinecké Zelezárny a.s, OJ C 22, 27.1.2005, p. 2.

agreed in 2002 to limit the authorisation of Stateaid in form of the tax regime under Annex XIV ofthe Accession Treaty to an amount of USD 500million for a period of up to 2009, under the condi-tion that production would be capped at 3% andsales would be capped at 2%. Annex XIV of theTreaty of Accession thus entailed a transitionalexemption from the EU State aid rules, underwhich Slovakia could continue to grant fiscal aidto US Steel Kosice until 2009.

However, the level of production of productscovered by the agreement was already in 2002more than 3% higher than the corresponding 2001level and even higher in 2003. As the Commissionfound this to be a breach of the Accession Treaty, itadopted in 2004 a decision of appropriatemeasures, essentially requiring US Steel Kosice topay back some of the aid and reducing the ceilingfor permissible aids of USD 500 million consider-ably (1).

5.4. New steel producing Member States

without transitional rules

Several other new Member States with consider-able steel production capacities have not requestedany transitional mechanism. However, restruc-turing aid was granted by these States beforeaccession under the Europe Agreements.

Slovenia's Protocol 2 to the Europe Agreementcontains identical provision than Article 8(4) ofPoland. Therefore, Slovenia has come up with arestructuring programme allowing State aid of apermissible amount of € 220 million until the endof 2001 in return for capacity closure. TheCommission confirmed in 2001 that the Sloveniansteel restructuring programme was considered incompliance with Protocol 2 and established thatonly € 162 million of State aid had been granted.

Slovenia has thereafter voluntarily reported on theimplementation of the restructuring programme.However, privatisation of State owned companieswas not achieved and thus leaves room for doubtsregarding the viability of the steel companies.

Hungary granted restructuring aid for its steelsector on the basis of the Europe Agreement.In the period between 1992 and 1996 about

€ 670 million of aids were granted for restruc-turing or as operating aid. Hungary envisaged aprolongation of the grace period, because the steelproducer DAM was receiving aid between 1997and 1999. However, when DAM was liquidated inMarch 2000, Hungary withdrew its request for aprolongation. In the meantime, the mainHungarian steel producers, Dunaferr, DAM andOAM are privatised.

6. Transitional regimes in Candidate

countries

All four candidate countries have a significantsteel production and asked for a grace period togrant State aid for restructuring their steel indus-tries. While discussions with Croatia and Turkeyare still ongoing, the EU has agreed on a transi-tional regime with Bulgaria in 2004 and theCommission has agreed on the main parameters ofa national restructuring programme with Romaniain the beginning of 2005.

The concept of the regimes for Bulgaria andRomania is based on the Protocols for Poland andthe Czech Republic. However, in particular asregards Romania the EU is introducing a series ofadditional safeguards, amongst others the post-ponement clause, which allows the Council withqualified majority in case of non-compliance withthe main parameters of the steel restructuringcommitments (inter alia that no State aid isgranted after 2004) to postpone enlargement forone year (2).

6.1. Bulgaria

The total crude steel capacity of the entireBulgarian steel industry amounted to about3.2 million tonnes in 2002. The national produc-tion capacities for hot-rolled steel were 4.4 milliontonnes in 2002.

For Bulgaria, Article 9(4) of Protocol 2 of theEurope Agreement stipulated the usual exceptionas described above. After expiry of the five yeargrace period, Bulgaria requested a prolongationand submitted a national restructuring plan to theCommission in March 2004, which was approvedby the Council. Because the restructuring will befinalised before accession, no special protocol tothe Accession Treaty will be necessary.



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(1) Commission decision of 22 September 2004, C (2004) 349 fin in case SK 5/04, Reduction of a tax concession granted by Slovakiato U. S. Steel Kosice, Slovakia, not yet published.

(2) See K. Van de Casteele, Next EU enlargement, Romania and State aid control, in this edition.


State aid control

The national restructuring programme includes thegranting of State aid up to 2005 for one steelcompany, Kremikovtzi AD, in order for it to attainviability by the end of 2007. In sum, theprogramme fixes an amount of about BGN450 million (around € 220 million) in exchange fora capacity reduction of about 0.5 million tonnes.

6.2. Romania

Also Romania was, under 9(4) of Protocol 2 of itsEurope Agreement, allowed to grant public aid forsteel restructuring purposes. In the beginning ofthis year, a prolongation of the grace period hasbeen accepted by the Council and a Protocol to theAccession Treaty similar to those of Poland andthe Czech Republic has been drawn up.

The national restructuring programme, which isthe basis for the Protocol, authorises an overallamount of State aid of about ROL 50 billion(approximately € 1.3 billion) for the grace periodbetween 1993 and 2004 for six companies. Since31 December 2004, no further State aid could begranted to any steel mill.

Most of this aid relates to the amounts granted inthe privatisation of Ispat — Sidex in the past. Italso includes State aid that resulted from theprivatisation agreements of other companies. Thelargest part of the State aid consists of debt write-offs and waivers of penalties related to the latepayments of the debt. In exchange, the programmeidentifies a reduction of capacities in finished

product of a minimum of 2 million tonnes to beclosed until 2008.

7. Conclusion

Not only because of the very favourable economicconditions in the steel sector, restructuring of thesteel industry in most of the new Member Statescan so far be seen as a success. Inefficient capaci-ties have been closed, privatisation has beenachieved in most new Member States and it seemsthat many companies will restore viability.However, the steel industries still have to increasetheir efforts and make the scheduled investments,and should not rely on a continuation of the posi-tive economic situation.

The Commission will continue to closely monitorthe results. Moreover, the Commission will followup cases where Member States do not comply withthe restructuring programmes, in particular whereaid is given to companies which are not foreseen asbeneficiaries in a restructuring programme (also ifthey are situated in countries that have not madeuse of the possibility of a restructuringprogramme).

In so far as the restructuring has been successful, itis certainly also due to the pre-accession coopera-tion between the stakeholders, i.e. the steelindustry and the administration in the AccessionStates as well as the Commission services (besidesDG Competition also DG Enterprise, DG Enlarge-ment and DG Trade).

Flemish region authorized to participate in the capital increaseof the R&D company OCAS

Christophe GALAND, Directorate-General Competition, unit H-1

On 20 October 2004, the Commission authorizedthe region of Flanders, Belgium, to participate tothe capital increase of O.C.A.S, whose initialsstands in Dutch for Research Centre for the Appli-cation of Steel. Up to that date the company was a100% subsidiary of the steel group Arcelor.Within the latter, OCAS was charged withresearch and development in the flat carbon sectorwith a specialisation on application for the auto-motive sector.

Arcelor wished to transform OCAS from an auto-motive-focused centre to a general-industry dedi-cated centre. This meant a shift from a concen-trated to a highly fragmented customer base,requesting a more client oriented approach.Consecutively and in parallel, Arcelor planned totransform OCAS from a research department fullyfinanced by the group to a profit centre, whichmeans a more autonomous company responsibleto generate its own revenues.

The new business plan of OCAS comprises threemain fields of activities:

(1) First, OCAS will continue to carry outresearch for the Arcelor group, its mainactivity up to now, but will start to charge thelatter for this service. The price will cover thecosts incurred increased by a profit margin.

(2) Secondly, OCAS will start to offer R&Dservices to third parties, more precisely steel-using companies. OCAS has indeed at itsdisposal very specialized staff and infrastruc-ture which allow it to become a competitiveprovider of R&D services in this field. Theseservices will be charged to the client.

(3.a) Thirdly, OCAS will start to undertakeresearch activities for its own account.

(3.b) The business plan foresees to value theresults of this activity by means of licencessold to third companies or through thecreation of spin-off companies responsible tobring niche products to the market andorganise appropriate selling.

In order to realize this ambitious business plan, thecompany needs additional equity. The first twoactivities mentioned above do not require a lotmore equity than OCAS had until now at its

disposal. Indeed, these activities mainly useexisting infrastructure. In addition, they generatecontinuous revenue from the clients, limiting theneed for increased working capital. Conversely,the launch of the third activity will require a lot offresh capital. Indeed, research activities requireyears of investment before being able to generatethe first revenues from it. Moreover, as theoutcome of research is uncertain, the risk of thisactivity is very high and a buffer in the form ofadditional capital is required.

The Flemish region notified its participation inthe capital increase of OCAS not as an aid but forthe sake of legal certainty. Indeed it consideredthat its investment would be acceptable for anormal market economy investor, as the outlookfor profit was sufficiently promising. In addition,Flanders underlined that a private sector company,namely Arcelor, was participating in the samecapital increase, buying the other half of the newshares.

The Commission undertook a detailed analysis ofthe case. It first verified whether or not the invest-ment of the Flemish government fulfilled the defi-nition of State aid under Article 87 (1) of the ECTreaty. It came to the conclusion that the profitforecasts were not precise and high enough toconclude that this investment would generate areturn which was sufficient to remunerate the highrisk endured. The importance of the risk followsfrom the kind of activities undertaken and theturn the project represents compared to currentorganisation. The comparison of the investmentwith the one of a private sector company was notconsidered as applicable because the company,Arcelor, is able to benefit from its investment byother means than the mere dividends and capitalgains.

The two first activities included in the businessplan, R&D services for Arcelor and third parties,were deemed to contain few or no elements of aid.Indeed, these services will be charged to the clientson the basis of the costs increased by a profitmargin. They therefore have the potential to beprofitable and should not create any advantage forthe clients. On the other hand, the third activity thatOCAS would like to develop, namely own R&Dactivities and valorisation of it, which should



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consume the majority of the financial resourcescollected, was more problematic. Indeed, a provi-sion of the shareholders agreement provides thatthe Arcelor group can use for free the intellectualproperty developed by OCAS, while all the othercompanies will of course have to pay. Even if thisprovision is the counterpart of the access of OCASto the know-how of the Arcelor group, the Belgianauthorities were not able to prove that this does notrepresent an advantage to Arcelor. The Commis-sion therefore concluded that the participation ofthe Flemish region to the capital increase ofOCAS, which will mainly be used to finance theown research activities of OCAS (3.a here above),creates an advantage to Arcelor through the freeaccess of this group to the result of these activities.However, the creation of spin offs in order to valuethe result of the research activity as describedunder 3.b was considered as free of aid. Indeed,Arcelor, main shareholder of OCAS, can notderive any advantage from the activity of the spinoffs other than the mere financial return, as itgenerates no or few intellectual property. There-fore, this private sector company will authorise thecreation of such spin offs only if the profit outlookis sufficient, which implies that there is no aidelement included in the simultaneous provision ofcapital by the Flemish region to these spin offs.

Given the conclusion that the participation in thecapital increase of OCAS represented, State aid infavour of Arcelor as far as activity 3.a is concer-ned, the Commission services analysed its compat-ibility with the Treaty and came to the conclusionthat it was compatible under the R&D guidelinessince the research activities at stake represent addi-tional research for Arcelor compared to the onesnormally undertaken. Indeed, these latter, includedin the first activity of OCAS, will be charged toArcelor and were deemed to contain no aid. Inaddition, the State intervention has a real incentiveeffect. As this ambitious project to transformOCAS requires a lot of resources and presents ahigh level of risk, it is unlikely that it would havebeen undertaken without public support. Thirdly,given the fact that Arcelor owns the current sharesof OCAS and will contribute to half of the capitalincrease, the aid intensity in favour of OCASderived from the public participation to the capitalincrease will in any case remain below the level of50% authorised for industrial research.

This case illustrates that public measurespromoting innovation and competitiveness of theEuropean industry can, if correctly designed, beapproved by the Commission on the basis of theexisting guidelines.


State aid control

Aid in favour of Trinecké Zelezárny, a.s. a steel producer in theCzech Republic

Ewa SZYMANSKA, Directorate-General Competition, unit H-1

On 14 December 2004 the Commission decided tolaunch a formal investigation on possible State aidin favour of Trinecké Zelezárny, a.s. (TZ), a steelproducer in the Czech Republic. The Commissionhas reasons to believe that certain transactionsbetween the Czech Government and TZ executedin April 2004 could constitute a disguised restruc-turing aid to a steel producer.

Facts

Restructuring State aid may be granted to theCzech steel industry only under the NationalRestructuring Programme accepted by the EU inProtocol No 2 of the Treaty of Accession (1) andonly to companies included therein. TrineckéZelezárny is not one of these companies and thus itis not eligible for restructuring aid. TZ was priva-tised in the mid 1990s, has been fully restructuredwithout state support and has been making profitsince 1997.

On 12 November 2003 the Czech Governmentadopted a resolution concerning the finalisation ofthe restructuring of the steel sector and proposing asolution for TZ. In the resolution, the CzechGovernment gave its consent to the followingtransactions:

• An acquisition by the Czech Government ofshares in ISPAT Nova Hut (steel company)from TZ. The price for these shares was to bedetermined by the Ministry of Finance in anagreement with the Ministry of Industry andTrade.

• A transfer of 10,000 bonds, issued by TZ andcurrently held by CCA, back to their issuer —TZ, for only 10% of their nominal value. Thedifference between the nominal value of thebonds and the price to be paid by TZ shouldrepresent the value of the State aid to beprovided to TZ for a number of projectsconcerning R&D, environment, training andclosure.

The Commission was assured by the Czechauthorities, that the proposed State aid measureswould only be implemented upon a positive deci-sion of the Czech Office for the Protection of

Competition (OPC) issued after consultation withthe Commission. On 22 and 30 April 2004 theCzech Competition Office authorised both above-mentioned transactions, although the technicalconsultation with DG Competition had not beenfinished and despite the fact that the Czech author-ities were fully aware of all concerns raised by theCommission in respect of these measures.

Assessment

Protocol No 2 of the Treaty of Accession on therestructuring of the Czech steel industry allows thegranting of restructuring State aid to the Czechsteel industry in connection with its restructuringin the period between 1997 and 2003 of up to amaximum of CZK 14.147 million (€ 453 million).The Protocol combines the granting of State aidwith several conditions, inter alia with re-estab-lishing viability and the commitment to reducecapacity.

Point 1 of Protocol No 2 provides that ‘notwith-standing Articles 87 and 88 of the EC Treaty, Stateaid granted by the Czech Republic for restruc-turing purposes to specified parts of the Czechsteel industry shall be deemed to be compatiblewith the common market’ if, inter alia, the condi-tions set out in the Protocol are met.

Point 3 of the Protocol provides that ‘only compa-nies listed in Annex 1 shall be eligible for State aidin the framework of the Czech steel restructuringprogramme.’ Trinecké Zelezárny is not mentionedunder Annex 1.

The last sentence of point 6 provides that ‘nofurther State aid shall be granted by the CzechRepublic for restructuring purposes to the Czechsteel industry’.

Point 20 provides that ‘the Commission shall takeappropriate steps requiring any companyconcerned to reimburse any aid granted in breachof the conditions laid down in this Protocol’ incase the monitoring of the restructuring showsnon-compliance by way of granting ‘additionalincompatible State aid to the steel industry’. Thisprovision enables the Commission to open a



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(1) OJ L 236, 23.9.2003, p. 934.

formal investigation, as in the absence of specificprovisions in Protocol No 2 normal rules and prin-ciples should apply (1).

The Protocol aims at ensuring a transition betweenthe arrangements concerning State aid for therestructuring of the Czech steel industry under theEurope Agreement and the end of the extendedrestructuring period (31 December 2006). In orderto achieve this objective, it covers a time-frameextending before and after accession. Moreprecisely, it authorises certain aid measuresgranted or to be granted until the end of 2003 andforbids any further State aid for restructuringpurposes to the Czech steel industry until the endof 2006, i.e. the end of the restructuring period. Inthis respect, it clearly differs from other provisionsof the Treaty of Accession such as the interimmechanism set out in Annex IV of the Treaty ofAccession (the ‘existing aid procedure’), whichonly concerns State aid granted before accessioninsofar as it is ‘still applicable after’ the date ofaccession. Protocol No 2 can therefore be regardedas lex specialis which, for the matters that itcovers, supersedes any other provisions of theTreaty of Accession. Consequently, although Arti-cles 87 and 88 of the EC Treaty would notnormally apply to aid granted before accession andnot applicable after accession, the provisions ofthe Protocol extend State aid control under the ECTreaty to any aid granted for the restructuring ofthe Czech steel industry between 1997 and 2006.

The Protocol does not apply to other State aidmeasures granted to the Czech steel industry forspecific purposes that can be declared compatibleon other grounds, such as research and develop-ment aid, environmental protection aid, trainingaid, closure aid, etc. These aid measures do not fallunder the scope of Articles 87 and 88 if they aregranted before accession and are not applicableafter accession. In any event, the Protocol does notlimit the possibility to grant other kinds of aid toCzech steel companies in accordance with theCommunity acquis. Of course, it does not rule outthe possibility to adopt measures that do notqualify as aid, e.g. capital injections in accordancewith the market economy private investor test. Onthe other hand, a measure concerning Czech steelcompanies that constitutes State aid and cannot beheld to be compatible with the common marketunder other rules shall be considered as restruc-turing aid — given the residual character of this

qualification — or, in any event, as aid related tothe restructuring of the Czech steel sector and willtherefore be subject to Protocol No 2.

The Commission can thus open the formal investi-gation procedure provided for in Article 88(2) ofthe EC Treaty in case it suspects that the Czechauthorities have granted aid to steel companies thatis not compatible with the common market ongrounds other than restructuring and, as a result theCzech Republic does not comply with to ProtocolNo 2. Council Regulation (EC) No 659/1999laying down detailed rules for the application ofArticle 93 (2) is also applicable here.

Before opening a formal procedure the Commis-sion analysed information submitted by the CzechGovernment and considered that the aid grantedfor environmental and R&D projects is compatiblewith the relevant EC State aid rules. However, itraised doubts as to the compatibility of the aidgranted for closure and training projects.

The Commission has assessed the closure aidaccording to the Communication from theCommission on Rescue and restructuring aid andclosure aid for the steel sector (3).

In its decision of 30 April 2004 the Czech Compe-tition Office stated that the aid is in line with theabove-mentioned Communication and coversmeasures involving the shutdown of a part of thefurnace. In the Commission's opinion this assess-ment is not correct because a shutdown of a part ofthe furnace cannot be treated as a total or partialclosure of a steel plant. A furnace is a single pieceof equipment and partial closure is not possible.Moreover, the Commission has doubts that all theredundant workers are working for the part of thefurnace which is planned to be closed. TheCommission has also doubts about the calculationof the redundancy costs.

The Commission has assessed the training aidaccording to Commission Regulation (EC) No 68/2001 on the application of Articles 87 and 88 of theEC Treaty to training aid (4).

The vague and contradictory information providedin the decisions of the Czech Competition Officedoes not allow the Commission to verify that thedefinitions of general and specific training arerespected. In addition, the incentive effect of theaid is not demonstrated.


State aid control

(1) See also point 1 of Protocol No 2 which states ‘notwithstanding Articles 87 and 88 of the EC Treaty…’.

(2) OJ L 83, 27.3.1999, p. 1.

(3) OJ C 70, 19.3.2002, p. 1.

(4) OJ L 10, 13.1.2001, p. 3.

As regards the purchase of shares from TZ, theCommission will investigate whether the pricepaid by the Czech Government for the shares(CZK1250) was a market price. This price wasbased on two experts' valuations. However, otherinformation suggests that these two valuationsmight have overestimated the price. Should this bethe case, this transaction would involve State aid,which could not be found compatible.

Final comments

Trinecké Zelezárny a.s. is neither covered byProtocol No 2 nor by the ‘Updated NationalProgramme of the Czech Steel Industry Restruc-

turing’ submitted to the Commission in December2002. None of the documents which the Commis-sion formally adopted even mention TZ in thecontext of the restructuring.

At the same time, documents submitted to theCommission in 2004 give the impression that themeasures concern restructuring aid to TrineckéZelezárny a.s. or, in any event, aid granted to thatcompany and linked to the restructuring of theCzech steel sector. Also the title of the Resolutionof the Government of the Czech Republic No.1126adopted on 12 November 2003 states that this reso-lution ‘concerns the finalisation of the restruc-turing of the steel sector — proposal to TrineckéZelezárny a.s.’



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German Landesbanken: Recovery of more than €3 billion, plusinterest, from WestLB and six other public banks

Martha CAMBAS, Elke GRÄPER and Yvonne SIMON,Directorate-General Competition, unit H-2, andStefan MOSER and Annette SÖLTER,formerly Directorate-General Competition

On 20 October 2004, the European Commissionconcluded its long-standing investigation of thetransfer of public assets, in the 1990s, to sevenGerman public banks (Landesbanken) by orderingGermany to recover €3 billion plus interest. Thedecisions end the probe of the aid to theLandesbanken which occupied the Commissionfor about 10 years and which culminated in a land-mark agreement, in 2001, to abolish the state guar-antees known under the term ‘Anstaltslast andGewährträgerhaftung’ attached to the banks'statute.

At the beginning of the nineties, the introductionof the Own Funds and Solvency Ratio Directivesrequired European banks to increase their capitaladequacy ratios. If the banks' level of activitieswas to be maintained, this required them to take upfresh capital. This was the background for most ofthe Landesbanken subject to the Commission'sinvestigation. In all cases, the capital was providedby the German Länder, which partly or fullyowned the banks, by way of a transfer of publichousing and other assets.

The financial transfers triggered a complaint bythe Association of German Private Banks (BdB) asthey were under the same obligation to increasetheir solvency ratios without, however, being ableto rely on public support. The complaint addressedthe following seven banks:

Westdeutsche Landesbank Girozentrale (WestLB),then the biggest of the German public banks, towhich the Land of North Rhine-Westphalia trans-ferred at the beginning of 1992 a housing asset(Wohnungsbauförderanstalt, Wfa). Of this asset,about DM 2.5 billion were to be used for the exten-sion of business and DM 3.4 billion as a guarantee.WestLB was transformed into a private lawcompany (WestLB AG) as of 1 August 2002;

Landesbank Berlin, a bank owned entirely by theLand Berlin which transferred at the beginning of1993 a special reserve (Zweckrücklage) worth

DM 1.7151 billion and liquid cash (WBK Grund-kapital) worth DM 187.5 million;

Norddeutsche Landesbank, to which the Land ofLower Saxony transferred in 1991 three Landes-treuhandstellen of a total value of DM 1.754billion;

Bayerische Landesbank, to which a specialreserve in form of trustee claims of Bavaria wastransferred in two instalments, the first one worthDM 655 million at the end of 1994, and the secondone worth DM 542 million at the end of 1995;

Hamburgische Landesbank (1), fully owned bythe City of Hamburg which transferred assets ofHamburgische Wohnungsbaukreditanstalt worthDM 959 million at the beginning of 1993;

Landesbank Schleswig-Holstein (1), to which theLand of Schleswig-Holstein transferred at thebeginning of 1991 a housing asset (Wohnungsbau-kreditanstalt) and an economic promotion asset(Wirtschaftsaufbaukasse) worth DM 1.306 billion.At the beginning of 2000 a real-estate reserve ofsome DM 300 million was transferred as well;

Landesbank Hessen-Thüringen, a fairly recenttransfer dating to the end of 1998 where the Landof Hessen invested into a silent partnership basedon its claims in respect of loans granted to promotesocial housing construction with a cash value ofDM 2.3 billion.

In 1999, the Commission adopted a first negativedecision concerning the transfer to WestLB andordering the recovery of some € 800 million. In2003, the Court of First Instance annulled the deci-sion taking the view that the Commission had notsufficiently explained its calculations of the aidelement but confirmed the decision on thesubstance.

The Commission's assessment of the cases showedthat the remuneration agreed by the Länder inreturn for the transfer of assets was very low (about


State aid control

(1) The Landesbanken of Schleswig-Holstein and Hamburg merged in 2003 to become HSH Nordbank AG.

1% p.a.) and did not correspond to the normalreturn on investment that a private investor wouldhave required. The appropriate remuneration wascalculated at some 6-7%, except for LandesbankHessen-Thüringen where it was found to be lower.

The Commission therefore established that theagreed remuneration constitutes State aid withinthe meaning of Article 87(1) of the EU Treaty andordered Germany to take measures to recover thedifference from the Landesbanken.

Although the seven cases are similar in manyrespects, they differ in the overall amount, form ofcapital transferred, the date of transfer and theamount of capital actually used to underpincommercial business, amongst other things. As aresult, the amounts to be recovered from each bankare:

— WestLB: €979 million plus interest

— Landesbank Berlin: €810 million plus interest

— Norddeutsche Landesbank: €472 million plusinterest

— Landesbank Schleswig-Holstein: €432 mil-lion plus interest

— Bayerische Landesbank: €260 million plusinterest

— Hamburgische Landesbank: €90 million plusinterest

— Landesbank Hessen-Thüringen: €6 millionplus interest

The closing of the procedures was facilitated bybilateral negotiations and an ensuing agreementreached in September 2004, between the Landes-banken, the Länder (regions) concerned and thecomplainant, BdB, on the appropriate remunera-tions for the transferred assets. The Commissionreviewed these remunerations and considered thatthey were in conformity with the market economyinvestor principle.

As of January 2005, the overall amount of €4.3billion (including interest) had been paid back byall banks concerned to the respective Länder(regions).



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Information Section

Contents

113 Organigramme — Directorate-General Competition

115 New documentationa) Speeches and articles — 1 August 2004 – 31 December 2004b) Publications (new or appearing shortly)

117 Press releases on competition — 1 August 2004 – 31 December 2004

121 Index of cases covered in this issue of the Competition Policy Newsletter


INFO

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Directorate-General for Competition — Organigramme(1 February 2005)

Director-General Philip LOWE 02 29 65040/02 29 54562

Deputy Director-Generalwith special responsibility for Mergers Götz DRAUZ 02 29 58681/02 29 96728

Deputy Director-Generalwith special responsibility for Antitrust Gianfranco ROCCA 02 29 51152/02 29 67819

Deputy Director-Generalwith special responsibility for State aid . . .

Chief Economist Lars-Hendrik RÖLLER 02 29 87312/02 29 54732

Internal Audit Capability Johan VANDROMME 02 29 98114

Assistants to the Director-General Nicola PESARESI 02 29 92906/02 29 92132

Linsey Mc CALLUM 02 29 90122/02 29 90008

DIRECTORATE RStrategic Planning and Resources Sven NORBERG 02 29 52178/02 29 63603

Adviser: Consumer Liaison Officer Juan RIVIERE Y MARTI 02 29 51146/02 29 60699

1. Strategic planning, human and financial resources Michel MAGNIER 02 29 56199/02 29 57107

2. Information technology Javier Juan PUIG SAQUÉS 02 29 68989/02 29 65066

3. Document management, information and communication Corinne DUSSART-LEFRET 02 29 61223/02 29 90797

DIRECTORATE APolicy and Strategic Support Emil PAULIS 02 29 65033/02 29 52871

1. Antitrust policy and strategic support Michael ALBERS 02 29 61874

Deputy Head of Unit Donncadh WOODS 02 29 61552

2. Merger policy and strategic support Carles ESTEVA MOSSO 02 29 69721

3. Enforcement priorities and decision scrutiny Joos STRAGIER 02 29 52482/02 29 54500

Deputy Head of Unit Lars KJOLBYE 02 29 69417

4. European Competition Network Kris DEKEYSER 02 29 54206

5. International Relations Blanca RODRIGUEZ GALINDO 02 29 52920/02 29 95406

DIRECTORATE BEnergy, Water, Food and Pharmaceuticals Götz DRAUZ (acting) 02 29 58681/02 29 96728

1. Energy, Water Maria REHBINDER 02 29 90007

Deputy Head of Unit Dirk VAN ERPS 02 29 66080

2. Food, Pharmaceuticals Georg DE BRONETT 02 29 59268

3. Mergers . . .

DIRECTORATE CInformation, Communication and Media Angel TRADACETE COCERA 02 29 52462

1. Telecommunications and post; Information societyCoordination Eric VAN GINDERACHTER 02 29 54427/02 29 98634

Deputy Head of Unit Reinald KRUEGER 02 29 61555

— Liberalisation directives, Article 86 cases Christian HOCEPIED 02 29 60427/02 29 52514

2. Media Herbert UNGERER 02 29 68623/02 29 68622

3. Information industries, Internet and consumer electronics Cecilio MADERO VILLAREJO 02 29 60949/02 29 65303

4. Mergers Dietrich KLEEMANN 02 29 65031/02 29 99392



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DIRECTORATE DServices Lowri EVANS 02 29 65029/02 29 65036

Adviser Fin LOMHOLT 02 29 55619/02 29 57439

1. Financial services (banking and insurance) Bernhard FRIESS 02 29 56038/02 29 95592

2. Transport . . .

Deputy Head of Unit Maria José BICHO 02 29 62665

3. Distributive trades & other services Arianna VANNINI 02 29 64209

4. Mergers Joachim LUECKING 02 29 66545

DIRECTORATE EIndustry . . .

1. Chemicals, minerals, petrochemicals,non-ferrous metals and steel Paul MALRIC-SMITH 02 29 59675

2. Construction, paper, glass, mechanical andother industries . . .

3. Mergers Dan SJOBLOM 02 29 67964

Deputy Head of Unit John GATTI 02 29 55158

DIRECTORATE FConsumer goods Kirtikumar MEHTA 02 29 57389/02 29 59177

1. Consumer goods and agriculture Yves DEVELLENNES 02 29 51590/02 29 52814

Deputy Head of Unit Andrés FONT GALARZA 02 29 51948

2. Motor vehicles and other means of transport Paolo CESARINI 02 29 51286/02 29 66495

3. Mergers Claude RAKOVSKY 02 29 55389/02 29 67991

DIRECTORATE GState aid I: aid schemes and Fiscal issues Humbert DRABBE 02 29 50060/02 29 52701

1. Regional aid schemes: Multisectoral Framework Robert HANKIN 02 29 59773/02 29 68315

Deputy Head of Unit Klaus-Otto JUNGINGER-DITTEL 02 29 60376/02 29 66845

2. Horizontal aid schemes Jorma PIHLATIE 02 29 53607/02 29 69193

3. Fiscal issues Wouter PIEKE 02 29 59824/02 29 67267

DIRECTORATE HState aid II: manufacturing and services, enforcement Loretta DORMAL-MARINO 02 29 58603/02 29 53731

1. Manufacturing Jean-Louis COLSON 02 29 60995/02 29 62526

Deputy Head of Unit Karl SOUKUP 02 29 67442

2. Services I: Financial services, post, energy Joaquin FERNANDEZ MARTIN 02 29 51041

3. Services II: Broadcasting, telecoms, health,sports and culture Stefaan DEPYPERE 02 29 90713/02 29 55900

DIRECTORATE IState aid policy and strategic coordination Marc VAN HOOF 02 29 50625

1. Policy and coordination . . .

Deputy Head of Unit Alain ALEXIS 02 29 55303

2. Transparency and Scoreboard Wolfgang MEDERER 02 29 53584/02 29 65424

3. Enforcement Dominique VAN DER WEE 02 29 60216

Reporting directly to the Commissioner

Hearing officer Serge DURANDE 02 29 57243

Hearing officer Karen WILLIAMS 02 29 65575


Information section

New documentation

European CommissionDirectorate-General Competition

This section contains details of recent speeches orarticles on competition policy given by Communityofficials. Copies of these are available fromCompetition DG’s home page on the WorldWide Web at: http://europa.eu.int/comm/competi-tion/speeches/index_2004.html

Speeches by the Commissioner,

1 August 2004 – 31 December 2004

9 Dec: Introductory remarks at press conferenceon Choline Chloride cartel and EDP/ENI/GDPmerger decisions – KROES Neelie – Brussels,Belgium (Press conference)

28 Oct: A reformed competition policy: achieve-ments and challenges for the future – MONTIMario – Brussels, Belgium (Center for EuropeanReform)

22 Oct: Competition for consumers' benefit –MONTI Mario – Amsterdam, The Netherlands(European Competition Day)

7 Oct: International Antitrust – A PersonalPerspective – MONTI Mario – New York, USA(Fordham Corporate Law Institute)

21 Sep: Energy liberalisation: moving towardsreal market opening – MONTI Mario – Brussels(European Commission, DG Competition)

17 Sep: Private litigation as a key complement topublic enforcement of competition rules and thefirst conclusions on the implementation of thenew Merger Regulation – MONTI Mario –Fiesole, Italy (IBA – 8th Annual CompetitionConference)

Speeches and articles,

Directorate-General Competition staff,

1 August 2004 – 31 December 2004

22 Oct: The Microsoft Decision – promotinginnovation – MENSCHING Jürgen – London, UK(Sweet and Maxwell, 4th Annual CompetitionLaw Review Conference)

15 Oct: Electronic communications markets:current activities / objectives of DG Competition

and review of recent cases – VANGINDERACHTER Eric – Brussels, Belgium (IBC9th Annual Conference, Communications andCompetition Law)

5 Oct: European music cultures and the role ofcopyright organisation – competition aspects –UNGERER Herbert – The Hague, The Nether-lands (European Music Cultures – Sound orSilence)

20 Sep: Application of EU Competition Rules toBroadcasting, Transition from Analogue toDigital – UNGERER Herbert – Naples, Italy(Universita di Napoli)

17 Sep: Consumers and competition policy; theCommission's perspective and the example oftransport – WEZENBEK Rita – Groningen, TheNetherlands (University of Groningen)

Community Publications on

Competition

New publications and publications coming upshortly

• EU Competition policy and the consumer

• Competition policy newsletter, 2005,Number 2 – Summer 2005

• Report on competition policy 2004

Information about our other publications can befound on the DG Competition web site: http://europa.eu.int/comm/competition/publications

The annual report is available through the Officefor Official Publications of the European Commu-nities or its sales offices. Please refer to the cata-logue number when ordering. Requests for freepublications should be addressed to the representa-tions of the European Commission in the Memberstates or to the delegations of the EuropeanCommission in other countries.

Most publications, including this newsletter, areavailable in PDF format on the web site.



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Press releases1 August 2004 – 30 December 2004

All texts are available from the Commission'spress release database RAPID at: http://europa.eu.int/rapid/start/ Enter the reference (e.g.IP/05/14) in the ‘reference’ input box on theresearch form to retrieve the text of a pressrelease. Note: Language available vary fordifferent press releases.

Antitrust

IP/04/1525 – 21/12/2004 – Telecommunications:the Commission calls on Luxembourg to complywith a Court judgment

IP/04/1513 – 20/12/2004 – Competition: Alrosaand De Beers offer diamond trade commitments

IP/04/1372 – 16/11/2004 – Commission createslevel playing field for all grain brandy producers inGermany

IP/04/1335 – 29/10/2004 – Commission author-ises Wendel to acquire exclusive control of BureauVeritas

IP/04/1330 – 29/10/2004 – Commission approvesFlextronics' acquisition of Nortel manufacturingactivities

IP/04/1325 – 28/10/2004 – EU and the Republic ofKorea agree terms for bilateral competitiondialogue

IP/04/1314 – 26/10/2004 – Commission closesinvestigation into contracts of six Hollywoodstudios with European pay-TVs

IP/04/1313 – 26/10/2004 – Commission finesCoats and Prym for a cartel in the needle marketand other haberdashery products

IP/04/1310 – 26/10/2004 – Commission confirmsthat territorial restriction clauses in the gas sectorrestrict competition

IP/04/1301 – 26/10/2004 – Commission disagreeswith Austrian regulator on transit services in thefixed public telephone network

IP/04/1279 – 21/10/2004 – Commissionwelcomes France's ending of the discriminationagainst suppliers of telephone services on cablenetworks

IP/04/1256 – 20/10/2004 – Commission finescompanies in Spanish raw tobacco market

IP/04/1254 – 20/10/2004 – The Commission actsagainst the discrimination of mail preparationservice providers in Germany

IP/04/1247 – 19/10/2004 – Commission close tosettle antitrust probe into Coca-Cola practices inEurope

IP/04/1235 – 15/10/2004 – Accessing technicalinformation for motor vehicles: manufacturersmust do better

IP/04/1213 – 13/10/2004 – Commission adoptsWhite Paper on liner shipping conferences

IP/04/1153 – 29/09/2004 – Cartel fine in theFrench beer market

IP/04/1133 – 23/09/2004 – Public procurement:Commission consults on more open and efficientdefence procurement

IP/04/1125 – 22/09/2004 – Commission approvesrestructuring of British Energy

IP/04/1110 – 17/09/2004 – New cartel procedureused for the first time for the liberalisation of thecentral marketing of Bundesliga rights

IP/04/1101 – 14/09/2004 – Industrial property:Commission proposes more competition in carspare parts market

IP/04/1065 – 03/09/2004 – Commission finescompanies in copper plumbing tubes cartel

State aid

IP/04/1494 – 16/12/2004 – Tax incentives forItalian companies participating in trade fairsabroad are illegal

IP/04/1484 – 15/12/2004 – Commission launchesin-depth investigation into French tax scheme for‘fiscal economic interest groupings’ (EIGs)

IP/04/1475 – 14/12/2004 – Commission launchesprobe into Czech steel company Trinecké�elezárny

IP/04/1430 – 01/12/2004 – Commission opensformal investigation into UK Nuclear Decommis-sioning Authority



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IP/04/1429 – 01/12/2004 – Commission declarescompatible the aid linked to stranded costs in theenergy sector in Italy

IP/04/1427 – 01/12/2004 – Commission approvesreal estate transfer tax exemption for housingcompanies in Eastern Germany

IP/04/1424 – 01/12/2004 – Commission gives thego-ahead for restructuring aid to Bull

IP/04/1371 – 16/11/2004 – Commission approvespublic funding of broadband projects in Pyrénées-Atlantiques, Scotland and East Midlands

IP/04/1370 – 16/11/2004 – Commission opensformal investigation into possible subsidies toFinland's Componenta

IP/04/1367 – 16/11/2004 – The EuropeanCommission approves German on-board trainingaid in favour of seafarers

IP/04/1366 – 16/11/2004 – The EuropeanCommission authorises Belgian aid scheme exten-sion until 2010 to boost the use of inland water-ways

IP/04/1365 – 16/11/2004 – New Member Statesgrant more subsidies than old ones, but amountlikely to fall

IP/04/1269 – 20/10/2004 – Commission givesconditional authorisation for most of the aid paidto the French company Sernam

IP/04/1268 – 20/10/2004 – Air transport / outer-most regions: theCommission authorises social aidfor Guadeloupe

IP/04/1267 – 20/10/2004 – The Commissionapproves public financing to maritime ports inBelgium

IP/04/1266 – 20/10/2004 – Commission adoptsdecision in favour of the development of Geronaairport

IP/04/1265 – 20/10/2004 – Air Transport / Outer-most regions:Commission authorises French aid toAir Caraïbes

IP/04/1263 – 20/10/2004 – The Commissionapproves the Italian aid scheme for shippingcompanies

IP/04/1261 – 20/10/2004 – Commission ordersGermany to recover more than �3 bln, plusinterest, from WestLB and six other public banks

IP/04/1260 – 20/10/2004 – Commission adoptsdecisions on German, Spanish and Greek ship-yards

IP/04/1259 – 20/10/2004 – Commission approvesrisk capital scheme for small and medium sizedenterprises in Northern Ireland

IP/04/1258 – 20/10/2004 – Commission clearspast Hungarian aid in favour of Postabank (nowErste Bank Hungary); opens probe regardingpotential post-EU accession subsidies

IP/04/1257 – 20/10/2004 – The Commissionclears Swedish tax-relief programme for energy-intensive industries that cut their power consump-tion

IP/04/1253 – 20/10/2004 – Italian law on disasteraid: the Commission says the aid must be linkedwith and in proportion to the damage caused

IP/04/1252 – 20/10/2004 – La Commissionautorise une aide régionale en faveur de TotalFrance

IP/04/1228 – 14/10/2004 – Commission approvesItalian tax breaks to SMEs investing in informa-tion technology projects

IP/04/1187 – 06/10/2004 – Commission approvesItalian regional aid to restructure the freightmarket and to develop road-sea combined trans-port

IP/04/1186 – 06/10/2004 – Commission author-ises German aid to support its railway infrastruc-ture for freight transport

IP/04/1125 – 22/09/2004 – Commission approvesrestructuring of British Energy

IP/04/1124 – 22/09/2004 – Commission approvesItalian public financing of Elba airport

IP/04/1123 – 22/09/2004 – Commission author-ises public compensation for stranded cost inPortugal

IP/04/1119 – 21/09/2004 – Statement on GermanLandesbanken

IP/04/1082 – 08/09/2004 – Centres de coordina-tion en Belgique: la Commission approuve uneversion modifiée du régime fiscal

IP/04/1081 – 08/09/2004 – Commission author-ises State cofinancing of theme park project inAlsace


Information section

Merger

IP/04/1542 – 23/12/2004 – Commission opens in-depth investigation into Bertelsmann/Springerrotogravure joint venture

IP/04/1538 – 23/12/2004 – Commission approvesacquisition of Sovereign by Henkel

IP/04/1537 – 23/12/2004 – Commission clearsECT and P&O Nedlloyd joint venture to createnew Rotterdam container terminal

IP/04/1536 – 23/12/2004 – Commission clearsCarlyle's and Advent's joint acquisition of HTTroplast

IP/04/1535 – 23/12/2004 – Commission approvesacquisition of SNECMA by SAGEM

IP/04/1531 – 22/12/2004 – Commission clearsacquisition of HMG by Sovion in abattoir andmeat products sector

IP/04/1511 – 20/12/2004 – Commission clearsCytec's acquisition of UCB's Surface Specialtiesbusiness, subject to conditions

IP/04/1492 – 16/12/2004 – Commission clearsSlovak Telecom's acquisition of sole control overEuroTel's mobile telephony business

IP/04/1465 – 13/12/2004 – Commission approvesacquisition of Menlo Worldwide Forwarding byUnited Parcel Service

IP/04/1464 – 10/12/2004 – Commission clearsacquisition of HDW by ThyssenKrupp

IP/04/1455 – 09/12/2004 – Commission prohibitsacquisition of GDP by EDP and ENI

IP/04/1452 – 09/12/2004 – Commission clearsacquisition of RMC by Cemex

IP/04/1451 – 09/12/2004 – Commission clears theacquisition of Schils by Van Drie

IP/04/1425 – 01/12/2004 – Commission decidesto allow Fortum to increase its shareholding inGasum in the Finnish energy sector

IP/04/1420 – 01/12/2004 – Commission clearsKörber's acquisition of Winkler + Dünnebier

IP/04/1405 – 25/11/2004 – Commissionwelcomes Council agreement on making cross-border mergers easier

IP/04/1397 – 24/11/2004 – Commission refersShell and Cepsa aircraft refuelling joint venture toSpanish competition authorities

IP/04/1393 – 23/11/2004 – Commission approvesplanned acquisition of Aprilia by Piaggio subjectto conditions

IP/04/1386 – 19/11/2004 – Commission approvesplanned acquisition of Roche Consumer Health byBayer subject to conditions

IP/04/1380 – 18/11/2004 – Commission approvesIBM's acquisition of Maersk Data and DMdata

IP/04/1378 – 17/11/2004 – Commission clearsacquisition of Magneti Marelli Sistemi Elettroniciby FIAT

IP/04/1359 – 16/11/2004 – Commission clearsretail joint venture between Kesko and ICA in theBaltic States

IP/04/1354 – 11/11/2004 – Commission clearsvideo-on-demand JV between Walt Disney andColumbia Pictures in the United Kingdom andIreland

IP/04/1347 – 08/11/2004 – The Commissionapproves a joint venture between Adecco,Manpower and Vediorbis in France

IP/04/1329 – 29/10/2004 – Commission clearsCargill acquisition of Brazilian pork and poultryproducer

IP/04/1326 – 29/10/2004 – Commission clears theacquisition of two manufacturers of printing inksby CVC

IP/04/1312 – 26/10/2004 – Commission clearsOracle's takeover bid for PeopleSoft

IP/04/1311 – 26/10/2004 – Commission clears theacquisition of Phoenix by Continental

IP/04/1262 – 20/10/2004 – Commission clears thejoint acquisition of regional German watersupplier by Midewa and Stadtwerke Halle

IP/04/1200 – 11/10/2004 – Commission givesconditional clearance to Total's purchase fromGDF of several gas assets in South-West andCentral France

IP/04/1190 – 06/10/2004 – Commission clearsSonoco core board and cores JV with Ahlstromsubject to conditions

IP/04/1189 – 06/10/2004 – Commission clearsuranium enrichment equipment joint venturebetween AREVA and Urenco

IP/04/1174 – 05/10/2004 – Commission clearsacquisition by tobacco manufacturing groupAltadis of Italy's tobacco distribution company,Etinera



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IP/04/1170 – 04/10/2004 – Commission clearsacquisition of Volvo's axle production business byArvinMeritor

IP/04/1157 – 30/09/2004 – Commission initiatesin-depth examination of the planned Austrianfertilizer wholesale joint venture

IP/04/1141 – 27/09/2004 – Commission clearsacquisition of New Venture Gear by Magna

IP/04/1140 – 27/09/2004 – Commission clearsTeliaSonera's acquisition of Orange's Danishmobile telephony business

IP/04/1122 – 22/09/2004 – Commission clears JVbetween Seiko Epson and Sanyo in the field ofsmall LCD screens

IP/04/1108 – 17/09/2004 – Commission clearsnorth England passenger rail JV between Sercoand NedRailways

IP/04/1106 -16/09/2004 – Commission clears TVratings joint venture between VNU and WPP

IP/04/1105 – 15/09/2004 – Commission clearsBanco Santander's takeover bid for AbbeyNational

IP/04/1098 – 14/09/2004 – Commission approvesacquisition of Shell's Portuguese activities byRepsol

IP/04/1097 – 13/09/2004 – Commission clearsacquisition of Polish slaughterhouse Sokolów byDanish Crown and Finnish HK Ruokatalo

IP/04/1093 – 10/09/2004 – Commission clears theacquisition of Synstar by HP

IP/04/1092 – 09/09/2004 – Commission author-ises EDP acquisition of sole control overHidrocantábrico


Information section

Cases covered in this issue

Antitrust rules

31 BdKEP/DPAG

59 Coats

67 Copper plumbing tube producers

59 Entaco

49 Ficora

63 French beer market

45 GDF/ENI, GDF/ENEL

53 Microsoft

71 Monochloroacetic acid

59 Prym

65 Spanish raw tobacco

49 TKK

Mergers

73 Areva/Urenco/ETC JV

77 BayerHealthcare/Roche OTC Business

19 Cimpor

74 Continental/Phoenix

77 Cytec/UCB Surface Specialities

84 EDP/ENI/GDP

76 Fox Paine/Advanta

74 Oracle/PeopleSoft

75 Owens-Illinois/BSN Glasspack

79 Piaggio/Aprilia

73 Sonoco/Ahlstrom

76 Syngenta CP/Advanta

76 Total/Gaz de France

State aid

89 Centres de coordination belges

35 Kvaerner Warnow Werft

108 Landesbanken

103 OCAS

3 Spanish shipyards

105 Trinecké Zelezárny

© European Communities, 2005Reproduction is authorised, except for commercial purposes, provided the source is acknowledged.



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Competition DG’s address on the world wide web:

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Europa competition web site:

http://europa.eu.int/comm/competition/index_en.html

competition policy newsletter - European Commission

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