ECC 8th Report: Competition Practice

HL Deb 26 April 1982 vol 429 cc737-62

5.9 p.m.

Lord Scarman rose to move, That this House takes note of the Report of the European Communities Committee on Competition Practice (8th Report, 1981–82, H.L. 91).

The noble and learned Lord said: My Lords, I beg to move that the House takes note of the 8th Report this Session of the Select Committee on the European Communities. The report is entitled "Competition Practice" and it is concerned with a scrutiny undertaken by the Select Committee of the practices and procedures of the institutions of the European Economic Community concerned with the enforcement of the provisions in the Treaty of Rome dealing with competition between trading undertakings in the member states of the Common Market.

My Lords, the report does not deal in any way with the economic policy that lies behind the rules in the treaty concerned to promote fair and free competition. The report is solely concerned with the problems associated with the practice and procedure of enforcing those rules. A common lawyer would immediately say that it was concerned with the natural justice of the way in which the institutions of the Community, and particularly of course the Commission, carry out their tasks of enforcement. The Select Committee undertook this examination because they were faced with growing concern and critical comment on some of the procedures employed by the Commission in the investigation, prosecution and decision of competition cases.

Before I embark upon any sort of explanation—and my explanation will be very short—of the complexities which inevitably surround this subject, let me say at once that none who gave evidence, and many did give evidence, to the Select Committee had anything but admiration for the way in which the appropriate directorate-general of the Commission—DG IV—fulfilled its very trying responsibilities under the treaty. Indeed, it would be fair to say that such criticisms as were made arose from matters which it is immensely difficult—be you administrator or judge—to control: questions of delay, questions of a fair opportunity to deal with a complicated set of economic facts.

Nobody doubted the will and determination of the European Commission to carry out its task justly, fairly and efficiently. Nevertheless, there was a considerable body of evidence expressing concern. When the Select Committee, through its legal sub-committee, came to take evidence both orally and in writing, this concern was expressed by businessmen and professional men, and not only English businessmen and professional men, but by professional men, and businessmen from other member states.

We had in the course of our scrutiny the invaluable assistance of Senor Aurelio Pappalardo, who was in charge of the very important directorate in DG IV which is concerned with competition matters. He and his colleague came and assisted the subcommittee in oral discussion. That discussion I am glad to say is printed as an appendix to the report, and any interested person who studies the contribution that Senor Pappalardo and his colleague M. Bail made to the deliberations of the Select Committee will immediately see that there was a great willingness on their part to see where deficiencies had arisen or where criticisms might be made, and an eagerness to correct such deficiencies, if any were shown, and to approach all such matters in a very constructive way. I say this not through any desire to flatter but because in effect it will make my task of opening this debate very much easier than it might otherwise have been.

After we had had the benefit of these deliberations and of taking the evidence to which I have referred, my noble and learned friend Lord Fraser of Tullybelton and I went to Brussels to discuss these problems of enforcement of the competition rules with senior persons in DG IV, the appropriate directorate. We learnt from those discussions, as we also learnt from the oral assistance that Senor Pappalardo gave us, that the Commission was itself reviewing its procedures and, quite independently, was moving towards very much the same sort of conclusions as, at that time, was the sub-committee of the Select Committee. Greatly heartened by that, my noble and learned friend and I returned. We proceeded with the other members of the sub-committee to a final consideration. The draft report was considered and eventually accepted, with, of course, modifications, by the Select Committee, and was published in February this year.

Almost at the same time—I am not sure of the exact date—the Commission published its 11th Report on Competition Policy, and it included some 14 paragraphs dealing with the matter that your Lordships' Select Committee had under review—namely, the practice and procedures of the Commission in the enforcement of the competition policy. Those 14 paragraphs contain very much what is to be found in the report that your Lordships' Select Committee is now presenting to the House. I am hoping, therefore, that there is really very little left in controversy and I hope that we shall hear from my noble and learned friend the Lord Advocate that the Government will be doing their best, in co-operation with the Commission and others, to see that improvements—most of them merely administrative in character, but some of them perhaps legal—will be implemented.

I have spent time on this part of the story because it is an indication of the value of your Lordships' Select Committee on the European Communities. If, with the co-operation—co-operation which I salute—of the Commission, we can proceed towards a cool and dispassionate review of difficulties and defects and then proceed, of course along our different lines and quite independently, towards a formulation of reform, there are really ways and means here of developing the flexibility and justice of the relations between member states and the institutions of the Community. That is perhaps the most important feature to which I would wish to draw attention in this debate.

I shall now come very shortly to just some of the matters which are covered by the report, which is of substantial size. I should not dream of trying to cover all the matters covered in the report. Fair and free competition has been enshrined as a principle of the Treaty of Rome ever since the treaty came into being. It is provided in one of the early articles of the treaty that member states are required to institute a system for ensuring that competition in trade within the member states shall not be distorted. This has been in the Treaty of Rome from the inception, and I would just say that when, on 1st January 1973, the United Kingdom acceded to the treaty, we acceded to a treaty which had had those policy provisions in it from the beginning.

The treaty also contains rules to promote fair and free competition. As regards the treaty, those rules can be summarised as two prohibitions and one escape clause. The first prohibition is against agreements between trading undertakings or concerted practices whose object or effect is to prevent, restrict or distort competition. Such agreements and concerted practices are prohibited; they are automatically void. There is, however, an escape clause. An undertaking which notifies an agreement which may contravene Article 85—which is the article with which I am now concerned—can get it considered by the Commission and even though the Commission should hold that it infringes the article, the Commission can grant exemption. There are two types of exemption—exemptions in individual cases, and block exemptions. The other prohibition is a prohibition against abuse of a dominant position in the trade within the member states. Again, that abuse, if proved—if the Commission is satisfied—is itself prohibiting.

Plainly, those are very great powers. They are absolutely prohibited—automatically prohibited, to use the language of the treaty—and there is exemption only if an undertaker who wishes to get exemption can satisfy the Commission that the prohibition against his concerted practice need not be declared applicable.

These prohibitions and the exercise of the escape clause were entrusted for fulfilment not only to the institution of the Community—namely, the Commission—but also to the administrative and judicial authorities of the member states. Nevertheless, as time has gone on, it has become clear that the main burden of the task of ensuring that these prohibitions were effective has fallen to the Commission, and that was, indeed, envisaged in Article 89 of the treaty. In the very early days the Council adopted a regulation—I think it was Regulation 17 of 1962—which elaborated the procedures and defined the functions of those institutions of the Common Market concerned with the enforcement of these prohibitions and, indeed, with the enforcement of the rules.

That regulation empowered the Commission to impose fines and penalties for infringements upon those undertakings which failed to comply with some legitimate requirement made by the Commission in the course of the Commission's investigation of a complaint of infringement. Again, they were, of course, unique powers. However, the Commission—and the function of the court was defined in Regulation 17—was subject to the jurisdiction of the European Court of Justice.

Regulation 17 did one other thing: it added a further escape clause. It provided a procedure called negative clearance. Negative clearance is when the Commission, upon application by a trading undertaking, takes a look at a proposed joint trading venture to see whether, upon the information provided, it—that is, the Commission—thinks that it is or will be an infringement. If, upon the information supplied, the Commission takes the view that it will not be, then it may issue a negative clearance.

So I hope that I have said enough—it is, of course, over-simplified—to indicate that the European Commission, in discharge of its duty under Article 89 of implementing the rules dealing with competition, has very great powers. Some of them would appear to be judicial; some of them are administrative. Again, I emphasise that these powers have been with the Commission, and have been in active exercise by the Commission, ever since the inception of the Common Market, long before the United Kingdom entered the Common Market; and when we acceded—as we did in 1972—and entered the Market on 1st January 1973, we must be taken to have known, to have understood and to have accepted this distribution of power and the exercise of this power by the Commission.

Again, I make these points clear, because to a common lawyer accustomed to our form of administrative law, judicial review and so forth, it might seem that the Commission was put in a position which was really too strong to be safe. But—and I think that history has shown this—this is not fair either to the treaty and its provisions, or to the way in which those provisions have been exercised.

First, let me admit that in our terms—not necessarily terms that would be used the other side of the Channel—the Commission is investigator, prosecutor and decider, subject only to the right of appeal to the European Court of Justice. But essentially the Commission's function is an administrative one. It has to consider questions which are administrative in character—questions of policy—in the way in which it deals with its responsibilities under Articles 85 and 86. It has, of course, judical functions in that administrative context. It deals with those subject, of course, to the review of the European Court of Justice. This is something which is implicit in the treaty and has been, and is in fact, consistent with the way in which administrative law has developed on the Continent of Europe. Nevertheless, clearly there are dangers. It is to those dangers and those risks that the report under consideration was directed.

Let me just mention a few of them. First, the procedure of investigation is essentially written in character. Business undertakings have felt that they have not been able to see all the relevant documents considered by the Commission in dealing with their case, whether it be a case of infringement or a case of application for exemption. True, as the investigation proceeds, there is a good deal of interchange and meetings, and so forth, between the undertaking under review and the Commission. There comes a moment, if it feels that there is very possibly an infringement, when the Commission is under an obligation to provide to the undertaking under investigation a statement in writing of its objections to the practice, or agreement, or abuse, which it is considering, and that statement of objections does indicate the documents upon which the Commission has founded its opinion. If thereafter the undertaking wishes it, it can have an oral hearing with the officers of the Commission in which it can clarify its position and indicate its defence. Of course it has always the opportunity of putting its case in writing.

The fear voiced by witnesses to the committee was that, although all the documents on which the Commission relies will in this process be shown to the undertaking there may be other relevant documents which do not support the Commission's case for infringement but which would perhaps support, or enable the undertaking under review to develop, a defence to the case of infringement made against it. This point of course could be met, as witnesses said, if there was a rule—it could be introduced by an administrative decision—that in the course of an investigation the Commission must make available to the undertaking under review all the relevant documents in its possession, subject only to certain safeguards for other people's trade secrets and for confidential matters.

I am glad to say that this matter is no longer in dispute. In their 11th Report, to which I have referred, the Commission have said that there is much to be said in principle for allowing, subject to safeguards, access to the file. The Bar of England, and others, made it absolutely clear that this was the major reform which practitioners in competition matters in Brussels and before the court in Luxembourg want. They feel that if they are given access to the file then much of their fears that justice may not be done will be dispelled. They will have a fair chance of refuting the case against them, or of developing their own case.

I pass to another matter. Of course powers of investigation have to be conferred upon a body like the Commission undertaking an investigation into practices believed to be incompatible with the Common Market. These powers are of course set out in Rule 17 of 1962. They include—I can take it quite shortly—the power based upon such a decision (I use "decision" in the formal Common Market law sense) to arrive one morning at the premises of the undertaking and to demand entry, and to demand the power to examine relevant documents. This is a power which can be exercised by a decision of the Commission without the authority of any judge or judicial figure.

Of course, it appears as something very abnormal, to put it mildly, to an English lawyer. But again we were told by our witnesses that in practice this power, which is an essential power, is reasonably exercised. However, there clearly is a case, and the Select Committee accepted it, that this power should be subject to some independent review before it is exercised. It might be done by one judge of the European Court nominated for the purpose by the President of that Court. It could also be done by some other independent person.

That leads me to another proposal which the Select Committee had under review. It is clear that there is something unsatisfactory, likely to cause lack of confidence, in the administrative body which investigates and formulates the case of infringement; something upon which they should then have the power to decide whether or not an infringement has taken place. Many of our witnesses suggested some independent person from outside should come in at the stage of the oral hearing after the statement of objections, and make up his mind as to whether there was an infringement.

Unfortunately, it would be difficult to do that without revising the treaty because it would be creating a new institution in the Economic Community. It might conceivably be done by a judge of the European Court, but your committee came to the conclusion that it could be done administratively by introducing into the appropriate Directorate General an officer who, although a servant of the Community, was in an independent position and only took charge of the proceedings at the stage in which the Commission had to consider at the oral hearing the statement of objections and the answers to it. I shall not trouble you with it. We thought that there might be introduced a further preliminary hearing, but that is a matter of detail into which clearly I have not got time to go.

That was our recommendation. The Commission, in its 11th Report, has accepted that at that stage, the stage of the oral hearing, there should be a new officer; a hearing officer who should come in at that stage and then take charge of the proceedings. That is, in other words, exactly what our proposal is. I have mentioned those matters just to show how there has been this coincident consensus of views reached quite independently.

I have time to deal with a final matter, and that is the role of the European Court of Justice, which can review all penalties and fines imposed by the Commission and, under the general powers contained in the treaty, can review the decisions of the Commission. The court is suffering from a very great overload. Delays are serious, and yet the evidence which the Commission has considered, as has your Lordships' Select Committee, is clear that many people are concerned at the quality of the fact-finding and economic analysis to be found in the Commission's decisions on competition matters and are concerned that the European Court is not geared sufficiently so as to be able to review both questions of fact, which are often complicated economic questions, and questions of law. Indeed, the Commission here go further than your Lordships' Select Committee; in their report they say that to satisfy the business community as to the objectivity and genuine autonomy of the decisions reached by the Commission, there should be introduced what they call a two-tier system of judicial review; that is, the European Court, or some other court added to it, reviewing at first instance questions of fact and law, and a subsequent appeal on questions of law only.

The Select Committee, like myself, and the chairman of its legal sub-committee, are, of course, timid characters; we dare not go that far. We merely suggested—because I have great respect for judges—that the European Court might review its structure and arrangements so as to make there available a more effective form of judicial review. The Commission has taken, I am glad to say, the bit between its teeth and has said, "Let us have a two-tier judicial system". If those—there are others as well—reforms are introduced, then I can tell your Lordships that those who gave evidence to the Select Committee would be perfectly happy with the way in which the competition rules and procedures of the Common Market are being enforced. I am aware that I have taken an unconscionably long time exploring this subject, but it is important and I am reporting very satisfactory developments both inside and outside this House. My Lords, I beg to move.

Moved, That this House takes note of the report of the European Communities Committee on Competition Practice (8th Report, 1981–82, H.L. 91).—(Lord Scarman.)

5.44 p.m.

Baroness Seear

My Lords, the whole House will be grateful yet again to the noble and learned Lord, Lord Scarman, and Sub-Committee E, for the very lucid report he has given to your Lordships and, if I dare say so, for the brilliant exposition we have just heard of the content of that report. Reading the report, one is struck, as a non-lawer—looking at it primarily from a political point of view—by the great change in attitude (a change by no means for the better) which has taken place since the treaty was signed to the present day.

After all, one of the major purposes of the treaty was just the development of that fair and free competition, the administration of which is dealt with in the proposals and report before the House today. It was in the pursuit of that fair and free competition—although it was not the only reason for it—that those of us who, in the early days were enthusiastic for the treaty and Britain's entry into the Community gave it such wholehearted support. We recognised that it was a means by which the prosperity of the countries of the Community could be enhanced and the benefit of consumers inside the Community advanced.

Yet as we look as what has happened and as we look at attitudes today, we see how far we are from a consensus on the importance, even against immediate national interest, of the pursuit of fair and free competition. We hear far more about cases in which individual national interest is voiced against the overall development of Community policy in that area, rather than the way in which there is strong united support for the development of free and fair competition and the measures which are to be taken to ensure that that happens.

Along with a determination to pursue that objective, in the days when the treaty was being signed and the United Kingdom signed and entered the Community, it was accepted that the Commission was the appropriate institution, the instrument for implementing those policies, subject always of course to appeal to the European Court. Yet today one hears far more of criticism, often ill-informed and often bigoted, of the work of the Commission, rather than a recognition of the vast and important task it has to perform and the extent to which, with all its admitted limitation, it has been trying to carry out that task. Those of us who still profoundly believe in the importance of the objectives of the treaty, and the institutions that have been established, will be grateful to the noble and learned Lord for emphasising how much the Commission has been attempting to carry out the tasks with which it has been charged to the benefit of all members of the Community.

Just because there has been such a change in attitude and such a falling away from the enthusiasm for the purposes and instruments of the institutions of the Community, it is of the first importance that any legitimate criticism should be met and that where it can be made out that there are defects, or even the suspicion of defects, in the way in which the policy is being administered, those criticisms should be met and changes brought about so that they can no longer be levelled. In looking at the recommendations made by Sub-Committee E, I would draw particular attention to two areas which—from the point of view not of those concerned primarily with the legal aspects of the treaty but who are concerned with the way in which it works and its impact on ordinary businesses, producers and consumers—require attention.

The noble and learned Lord, Lord Scarman, gave us a great deal of information and advice about the problems arising from the inevitable concentration of powers in the hands of the Commission. He made it clear that it was inevitable that those powers should be so concentrated. But he also made it clear—particularly perhaps for those of us brought up in a legal tradition and with assumptions about legal practices different from those in continental Europe—that that concentration of power rouses anxieties which we should wish to have relieved. Therefore, the suggestions in the report are designed to make it clear that, in the old cliché, not only is justice done but is seen to be done, and that people can be satisfied that the ordinarily laws of natural justice by which people know the circumstances and facts under which they are being judged are in fact being adequately met by the provisions under which the regulations are carried out. That is surely an improvement which we must all desire to see come about.

The second criticism that seems to me of great importance from the point of view of the people who are directly affected by the application of the regulations is the question of delay. The law's delays is an old joke, but it is not a joke for the people who are affected by them, and when we read that a case can go on not just for weeks, but even for years, and when we think of the implications of delay, surely this situation urgently needs to be rectified. After all, the people who are waiting for decisions, the organisations, the companies concerned, are the people who at present are struggling to maintain the wealth-creation of the Community. If they are held up, they, and not only they, but members of the Community, and individuals in the Community, are impoverished thereby. Surely such delay is not only harmful to the economic development of the Community but also very harmful to the respect and regard in which the Community is held.

For those reasons it seems to me that the recommendations put forward in the report are of very great concern to the effective working of the Community and to those of us who believe that the effective working of the Community is still of the very greatest importance for the development of the wealth of all members of the Community and indeed for the employment prospects of people inside the Community. Only if the competition policy is working properly and swiftly can we derive the full benefits, and today it is all too clear that we need those benefits as we never needed them before.

So although this might not appear to be a matter of the highest and most obvious political importance, it is, I believe, something to which we need urgently to pay attention and to the importance of which we need to attach great emphasis. I very much hope that the Government will accept the recommendations and, having accepted them, will push in every way open to them to see that the recommendations are in fact implemented within the institutions of the Community, and that the public know what is being done, and why it is being done.

We are leaving it very late to re-establish understanding and popularity of the workings of the European Community, to re-establish a realisation of how much, properly developed, the Community can be for the wellbeing of this country. The Government have here an opportunity, on the basis of the recommendations so carefully worked out by Sub-Committee E, to take this development a stage further, and to do so quickly.

5.53 p.m.

Baroness Elles

My Lords, I, too, should like to add my thanks to the noble and learned Lord, Lord Scarman, not only for his impressive introduction, but also, if I may dare to say so, for the charm and brilliant persuasion that he used in Brussels in order that such a positive contribution as the 11th competition report should be produced very much at the same time as the Select Committee's report which is before your Lordships' House. It is indeed a most welcome step, and those of us who have been involved in this matter for some time receive it with the greatest of pleasure.

As the noble Baroness, Lady Seear, has pointed out, the subject before your Lordships' House might appear rather esoteric and of concern only to lawyers, but the recommendations in the report very generally reflect the anxieties and concern of businesses not only in the United Kingdom but throughout the Community over the uncertainties and delays resulting from Commission practices in administering the rules governing competition policy. It cannot be stressed too often that, since competition policy lies at the heart of European Economic Community policies creating a common market, the efficient and fair conduct of that policy is essential. In this country, we are well aware that it is the business community who are looking to the benefits of the European Community as a whole, who need support in their progress and economic development. Therefore it is up to us in this country to see that businesses receive fair treatment and can understand the workings of the Commission in this field.

As the noble and learned Lord, Lord Scarman, has pointed out, the powers of the Commission are formidable and, unfortunately comparatively unknown. As he has also pointed out, it is the scrutiny of the powers—how they are used, and how they affect the rights of those against whom they are used—which forms the basis of the report, which I heartily endorse. Indeed the inclusion in the Commsision's own recently published 11th Report on competition policy of modifications and changes in their procedures, many in line with the recommendations of the Select Committee's report (as the noble and learned Lord has pointed out), is most welcome. It undoubtedly reflects the willingness of the directorates of the Commission concerned to listen to the comments and criticisms of your Lordships' Select Committee and, if I may add, members of the European Parliament, in a positive and constructive manner. This is a most welcome approach, and one which I know your Lordships' House will certainly commend.

The Commission must surely accept, however, that, despite their undoubted good faith in a difficult task, some public discussion of their methods and procedures and the effects on industry as a whole is necessary. Of course it is well known that officials do not like public discussion of their administrative actions, and over this I sympathise with the Commission. Nevertheless, we must get on with our task. Businesses were alerted to some of the problems by the use in this country for the first time, in June 1979, of the investigation procedure, without previous notification, under Article 14(3) of Regulation 17. This was in the case of National Panasonic. Here I would add to the comment of the noble and learned Lord, Lord Scarman, when he said that the Commission had stated that it had had no previous complaints about this situation. It is understandable that it had no previous complaints, because the procedure had not previously been used in this country. In fact seven cases involving this part cular procedure were used by the Commission for the first time in June 1979, so it was perfectly logical that there should not have been any previous complaint.

The powers of the Commission have been further highlighted not only by the use of that particular procedure, which was unknown to businesses in this country, but also by the very heavy fines which have been imposed in recent competition cases; for instance, about £3 million was recently imposed on Pioneer. The Commission cannot therefore be surprised that the public's attention has been drawn to their implementation of procedures which, even though they may be fair, must be seen to be fair (as the noble Baroness has already mentioned) by those affected by the Commission's decisions.

The role of the Commission as investigator, prosecutor and judge has repeatedly been stressed, and I would therefore refer to just one or two examples under these heads contained in the recommendations of the committee. First, I shall refer to investigations. During the National Panasonic investigation (which has been referred to as a dawn raid) the legal adviser's presence was not awaited before the investigating procedure began. He was in fact some distance away and was not available for some hours. Although it was submitted to the European Court by the Commission that his absence in no way prejudiced Panasonic's interests, I was very pleased to see that both our Select Committee's report and the Commission's 11th Report recommended the desirability of the legal adviser's presence, although there does not happen to be mention of this in Regulation 17/62. Whether or not that position will need amendment, I do not know. Whether it will become part of the administrative practice of the Commission to allow this to happen, again I do not know, but I very much hope that my noble and learned friend the Lord Advocate will be taking up this point at a later stage.

Secondly, there is the procecutor's role and the introduction of "hearing officers", very much in line with our own recommendation from the Select Committee. Here again, I very much welcome the proposal, since personally I did not think that the idea of an independent person was practicable or could be instituted in view of the difficulties of having possibly to amend the treaty. Whereas originally the hearings may have been conducted with a certain autonomy and objectivity, in the new proposal that can be not only assured, but seen to be assured.

Thirdly, there is the judicial role. In the discussions which took place in the Select Committee and from evidence from many legal and business organisations, it became clear that some more effective and less time-consuming procedure should be established to provide judicial review or control over the Commission's administrative acts. Reflected in paragraph 41 of our report and spelt out in the Commission's own report is the proposal for the introduction of the two-tier system to which the noble and learned Lord, Lord Scarman, has already referred, with the court of first instance examining questions of fact and law and the second considering questions of law. As I understand it, as it is at present constituted, the European Court does not have time, let alone any other power, to examine questions of fact in so many cases before it, and I firmly believe that this proposal in our recommendations and those of the Commission would be a great improvement on the present practice.

The last point I wish to raise is the question of obtaining exemptions or negative clearance for agreements which may be in breach of Article 85, which has been referred to already by the noble and learned Lord. It is not often appreciated that there is an enormous backlog of agreements which have been notified but which are awaiting decision. The 11th Report reveals that as at 31st December 1981 there were over 4,300 cases outstanding—that means agreements notified to the Commission and waiting for some answer—while during that year Directorate-General IV took only 11 formal decisions and settled about 200 informally. In fact, of course, the Commission is slipping further and further behind. During 1981 itself there were 185 fresh notifications or applications, 45 complaints from companies against other companies and 63 proceedings opened on the Commission's own initiative.

To meet this problem, the Commission has suggested an increased use of what are known as "comfort letters" (I am not quite sure to whom they give comfort except possibly the writer) and the division of cases into those that are relatively straightforward and those that are not. I believe that the former is the wrong answer and detrimental to companies' interests. If these "comfort letters" are to be used more extensively, companies will go on being persuaded to cede ground to the Commission for commercial reasons, and ground thus ceded has already had great value as a series of precedents to the Commission. Publication of such letters in the Official Journal—which is, of course, proposed by the Commission—is unlikely to strengthen their legal impact because comments received will still remain only expressions of opinion, whatever the wishes of the Commission may be.

Far better, I submit, is the Select Committee's proposal, set out at paragraph 37 of the report, that a notified agreement should be automatically exempted for three years unless the Commission acts within 90 days or the agreement has been fraudulently filed. This might usefully be combined with earlier publication of the intention to exempt.

Even with the proposal of the Commission, there would still be two lacunae. There will be, first, clearing up the backlog of notifications, which may well require additional, even if only temporary, staff to deal with the enormous number of cases; and, secondly and more seriously, unless the Select Committee's proposal is accepted, rights of third parties will be affected by the decision of the Commission that any agreement is in breach of Article 85. New agreements affecting, for instance, joint ventures or know-how agreements, all part and parcel of European Community industrial activity, should not be subject to administrative blocks because suitable methods of procedure cannot be found. The present system cannot be helpful to businesses whose search for new outlets and projects is one of the urgently-needed means of creating new jobs and reducing unemployment.

In conclusion, I think it is fair to say that on the whole the recommendations put forward by your Lordships' Select Committee, and those of the Commission in the 11th Report on Competition Policy, will go a long way towards meeting the very serious objections and concern which have been raised by businesses throughout the Community. I should like to heartily endorse the recommendations before your Lordships' House, and to add my thanks also to the staff of the Commission, who have given of their time to deal with these problems and to discuss the problems with the Select Committee, and who are always prepared to talk and discuss with Members both of your Lordships' House and of the European Parliament on matters which concern us all. So I would turn now to my noble and learned friend the Lord Advocate, hoping that he will press these points home and see that businesses in Britain are protected in the ways recommended by your Lordships' House.

6.5 p.m.

Lord Plowden

My Lords, as an industrialist I welcome this report, and I am grateful to the noble and learned Lord, Lord Scarman, for the lucid and powerful way in which he opened this debate. Much that comes out of the European Community can be likened to the curate's egg—good in parts. It is good that the Commission should endeavour to promote economic activity throughout the Community by fair competition, but, as so often, the methods and procedures it adopts to execute its policies can hamper and even injure the organisations that produce the wealth upon which all else depends. This is succinctly described in paragraph 5 of the report: It needs little imagination to appreciate the extent to which the competition rules impinge on the business community not only in requiring its members to ensure that their agreements and practices are not in infringement but also in subjecting them to the rigours of investigation". This debate is taking place very soon after the publication of the report, and there has not really been time for its recommendations to be fully considered by all those interested. Nevertheless, I am quite sure that all in industry will welcome the general tone and thrust of the report. We can all endorse the principle that the rules and procedures of the Commission should be seen to be just and fair, as well as effective. The evidence presented in the report about the disquiet on this score is a most useful record of such fears, and one which can be drawn upon by those endeavouring to get changes.

The proposal that there should be access by the accused undertaking to all the relevant information in the Commission's file—subject, of course, to the need to protect confidentiality—is a most important one. I believe that there are signs from the Commission's 11th Report on Competition Policy that it is itself inclining in this direction, albeit gently—extremely gently. I hope that the report (which, like others from your Lordships' House, will I know be studied carefully in Brussels) will overcome any residual hesitation that they still have about this.

The proposal of the report for a preliminary hearing to clarify the facts of any particular case is most helpful, as are its recommendations with regard to the procedures of the advisory committee. I am quite sure that all those in industry who have urged these reforms will be most grateful for the backing that they have received by this report.

I am not sure how far those in industry—at least, those represented by UNICE and the CBI—will regard the report's recommendations for the appointment of an additional director of DG IV to preside over both the preliminary hearing and the formal oral hearing as satisfying their proposal for an independent person; but there is no doubt at all that it is a step in the right direction, and again I understand, as the noble and learned Lord, Lord Scarman, said in his speech, that the Commission is considering the appointment of hearing officers of some kind. Perhaps the recommendation made by the report is one which they might accept with good grace.

I am quite sure that I am not alone in being surprised, even horrified, at the statistics in paragraph 34 about the delays in decision-making in cases of negative clearance and exemption. I endorse wholeheartedly the opening sentence of paragraph 35 which says that these delays are simply not acceptable. I do not feel competent to comment on the contribution to reducing these delays which will be made by the proposals put forward in paragraph 37 but they are a step in the right direction. Industry will be glad to see the suggestion in paragraph 39 which urges the Commission to review the consultation procedures by which the competition directive takes into account the views of other directives. Competition policy is not an end in itself, although it is quite understandable that those whose job it is to enforce Community competition rules can lose sight of the wider issues under the heavy pressures to which, undoubtedly, they are subject. But reminders about other dimensions of industrial policy are at least healthy. I hope that the report will lead to further improvement in this area.

Finally, the Commission's 11th Report on Competition Policies, to judge from the extracts which have so far been seen in this country, or, so far as I have been able to see them, takes a defensive line on the whole about amendments to procedures, let alone to regulations or even to the Treaty of Rome itself. Its standpoint seems to be that the current arrangements have stood the test of time and that all that is necessary to allay the apprehensions which have been expressed is to allay them—but there is no indication of how they propose to do this without some changes of procedure.

I believe that further effort, perhaps much more effort, will be needed to emphasise the reality and validity of these apprehensions which have come from both industry and the legal profession if we are to achieve the real improvements which are absolutely essential if competition practice and policy is to be useful rather than a hindrance. I am quite sure that this report, particularly in view of its distinguished judicial parentage, will be of great help in achieving this, and I welcome it as a significant step along a very difficult road.

6.13 p.m.

Lord Benson

My Lords, I, too, hope that this report by the sub-committee will commend itself to your Lordships' House. Under the Treaty of Rome, the Commission—and their responsibilities are in no way challenged in the report—have the responsibility of stamping out unfair competition and improper trade practices. The sub-committee directed its attention to the procedures and came to the conclusion, it seems to me, that in four respects they were open to criticism. The first has already been emphasised in this House: that the Commission is investigator, prosecutor and judge in its own cause. That is contrary to the principle of natural justice. I emphasise that at no point was the integrity of the Commission in challenge. The second was that facts and information which might have a bearing on the decision were not automatically disclosed to defendants. The third was that fact-finding by the directorate was inadequate and the co-ordination with other directorates was not satisfactory. The fourth was that there were unacceptable delays and, as has been mentioned, in extreme cases the delays were exceptional, stretching to 15 years and 18 years.

I think it is important for us to bear in mind what the European Convention on Human Rights decided before the Treaty of Rome. In Article 6 it said: In the determination of his civil rights everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal". To some extent, therefore, it would seem that the Commission's procedures fall short of the articles set out in the treaty. The sub-committee proposed six remedies. If those remedies are acceptable to the Commission, they perhaps will not wholly expunge but will go a long way to removing all these difficulties.

The first is that an additional director should be appointed who would take control of proceedings at a preliminary stage and should also take the chair at the oral hearing. I think it is doubtful whether, on the strictest interpretation, that amounts to an "independent and impartial tribunal", but, whether it does so or not, it will go a long way towards overcoming the objection. The second remedy is that all the facts (subject to satisfactory safeguards) should be made available to defendants so that they know the charges against them. The third is that there should be a preliminary meeting before the oral hearing to establish the facts. The fourth is that the staffing of the directorate should be examined. I believe that this is where some of the major problems arise because, by the exigencies of the budget, they have been seriously starved of efficient and competent staff. None of these four remedies requires any change in the law.

The fifth remedy is that, to overcome the unacceptable delays, claims for exemption should automatically be granted if they are not dealt with within a specified time. The last remedy suggested is that there should be some restructuring of the European Court so that cases may be brought to trial more quickly. These last two remedies may require some change in the law and, possibly, some revision of the treaty itself. It is clear that there has been a good deal of frustration and disquiet among trade and industry in all parts of the Community about these procedures. I hope that if this report commends itself to your Lordships' House it may be reviewed by the Commission and that they will be willing to smile upon some of the remedies which have been suggested.

19 p.m.

The Earl of Onslow

My Lords, I must apologise for not having put down my name as a speaker in this debate. I can think of no excuse except that I just did not read the piece of paper before me. I want to talk about one aspect only of this report. I had the enormous privilege of serving on this committee under the noble and learned Lord, Lord Scarman—and when one serves under somebody like him, one gets one's mind stretched and one is left with a nice feeling afterwards to see that perhaps one can be more capable than one sometimes gives the impression of being. I want to draw attention to the recommendation which deals with the right of entry under Article 14.3 of Regulation 17.

As the noble Baroness, Lady Seear, said earlier, it is essential that the Community does not get itself a bad name. I suspect that at the moment it is going through a resurgence of popularity because of the reaction in Brussels to the Falkland Islands crisis. I can think of nothing which would put that reaction more at risk if the rights of entry, which are absolute under the treaty, could be misused by a civil servant of DG IV. They have not done so; they are men of the utmost integrity, but mistakes can happen. We in this country like people to have warrants before they search. As the report says, the Inland Revenue and value added tax authorities have much greater powers than DG IV. But there is one major difference. They have to go to a High Court judge and say, "Here is the evidence. Please may we act on it?"

DG IV does not have to do that. It can go to a High Court judge and say, "They will not let us in". That High Court judge then has to give them a warrant. He has no option under the law but to give them a warrant. He has no power of discretion. Mr. Pappalardo gave long and detailed evidence. One has the feeling that there are not many people from this country who could give evidence to an Italian court in fluent Italian as well as he gave evidence to the English sub-committee in good and fluent English. Obviously, we thank him very much for it. He was saying that he did not have enough powers.

However, Mr. Pappalardo possibly did not understand the powers that he had. The noble and learned Lord, Lord Scarman, in the course of the evidence, said that he thought that Mr. Pappalardo did have the powers that I thought he had and Mr. Pappalardo thought that he did not, which were these absolute powers. He says he does not have a power to take documents but he has the power, it appears, to read the documents and photograph them. I cannot see any difference between taking a document, and putting it through a copying machine and having a copy of it. I suggest to your Lordships that recommendation (f) is really fundamental to and extremely important for our future relationship with the Community. We as a sub-committee recommended that the judge of the European court, or a court nominated by him, should have the power to sign warrants.

It was interesting that several Community judicial proceedings do not have warrants in them. It appears that it is very dear to our hearts but is not so dear to some of the Community people. This is something which is worrying for us. It is something which could bring to the Community a bad name and I sincerely hope that this recommendation is acted upon very strongly by Her Majesty's Government.

6.24 p.m.

Lord Bruce of Donington

My Lords, we on this side of your Lordships' House should like to congratulate the noble and learned Lord, Lord Scarman, and his committee on the detailed and excellent report that they have produced. We are also indebted to the noble and learned Lord personally for the very lucid way in which he described the contents of the report and gave us the benefit of his views upon them. It will be quite unnecessary for me—and indeed when replying to the noble and learned Lord of such legal distinction almost an impertinence on my part—to comment over-much on the more detailed legal questions with which he has dealt and which, I shall freely admit to your Lordships, I am quite unequal to dealing with.

These are very considerable legal questions. Much of the debate has centred on the powers of DG IV, the directorate general in charge of competition policy. If I understood the noble and learned Lord aright, he was inclined to favour—I was unable to detect whether it was with enthusiasm or reluctance—the establishment of a new section within DG IV, a new directorate, which would itself separately exercise the judicial function.

I must say that my immediate reaction to that—and with all due deference to the noble and learned Lord—is one of tremendous unease. I do not like, and we in the United Kingdom have never liked at any time, the situation that one body should be competent to accuse, investigate, hear and also pronounce decisions. I speak subject to historic or other correction, but we have always prided ourselves in the final analysis on the complete independence of the judiciary itself as against any administrative function that is not associated with the particular functions of a court.

Therefore, I am not very happy about that. I am even less happy that, as I think will be generally conceded, the Commission is a body which in itself is responsible to no one at all. Were it responsible ultimately to the European Parliament or something of that kind, I would feel a little happier. I am well aware, of course, that its decisions are open to the appeal before the European Court.

However, the method of its operation and indeed the field of its activity are determined by its own interpretation of Articles 85 to 90 of the Treaty of Rome, as jndeed amplified by the Council Regulation No. 17 to which many of your Lordships have referred. That is the area of activity with which I should like to deal this afternoon, without discussing too much the political and economic context within which its activities fall, because that would raise the whole question of the proper influence of market forces and other dark subjects of that kind that are possibly more suitable for a more controversial debate.

I am therefore concerned with the area within which DG IV functions in practice. One matter has not been revealed this afternoon—and I do not say in any sinister sense that somebody has concealed it; the facts may not be known. Something which has not been revealed or discussed is the impact that the activities of the competition directorate have had, either on industry or the services in Europe or indeed upon consumers.

The figures provided—and the noble Baroness, Lady Elles, has already referred to them—indicate a remarkably few number of cases which have been dealt with, and the arrears, as she said and as were indicated by the noble Lord, Lord Benson, are horrific. Many noble Lords made the same point.

What then has been the impact on the European Community of the activities of DG IV? Is it possible to quantify them in any way? One could say that whatever cases have been decided—and there have been remarkably few—some of them may have affected only small or medium-sized businesses and may have had a deterrent effect on those who have become aware of the results of the decisions of the Commission.

If the noble and learned Lord opposite has any information to the contrary I should be very glad to have it, but my own feeling is that competition as between countries in the EEC that has been mitigated by the actions of DG IV, would probably be very considerably below the distortions caused by differences in exchange rates which have been artificially stimulated at one time or another, that have been due to disparate energy prices or to transport costs. I would have thought that these particular factors, some of which have already been the subject of complaint by industry in the United Kingdom, have probably had a far greater detrimental effect than some of the restrictive practices that have been dealt with by the Commission. I would not wish to condemn it on that account, but I think we ought to get it into proportion.

More particularly I am disturbed by the cases that the Commission, DG IV, have seen fit not to handle. They have, on complaint or of their own accord, brought a certain number of cases and the statistics set out the number of cases settled, either formally by decision or informally after discussion. I would hazard a guess that when the full story is told the economic impact of the result has not been considerable. What bothers me are the cases which the European Commission, DG IV, have not taken into account and have not, so far as one can see, endeavoured to deal with.

I would refer in particular to the case of airline fares in Europe. I am bound to refer to those because the artificial cartel in European air fares, arrived at quite clearly by state or quasi-state agreement, is a public scandal of the first magnitude. Moreover, I would have thought—I speak subject to correction—that they are covered most explicitly in Article 90 of the Treaty of Rome. In pointing this out, I know that I run the risk of detailed dissection, and possibly destruction, by the noble and learned Lord opposite, and possibly even by the noble and learned Lord, Lord Scarman, himself; but I read Article 90 as follows: In the case of public undertakings and undertakings to which member states grant special or exclusive rights, member states shall neither enact nor maintain in force any measure contrary to the rules contained in this treaty, in particular to those rules provided for in Article 7 and Articles 85 to 94 inclusive". In Part 2 of the same article it says: Undertakings entrusted with the supply of services of general economic interest or having by way of a tax monopoly shall be subject to the rules contained in this treaty, in particular to the rules of competition, in so far as giving effect to such rules does not obstruct the achievement in law or in fact of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community". I may be wrong—I stand open to correction by people who are more trained in legal affairs than I—but I would have thought that Article 90, read in conjunction with Articles 85 and 86 which are reproduced at Appendix 1A of the Report of the Select Committee, gives full power and indeed is an open challenge and authority to DG IV to take action in pursuance of the aims set out in Articles 85 and 86 in order to break this wretched air fares monopoly under which most of Europe languishes at the present time. I do not think that would be beyond its capability, and if somebody produces a detailed argument in the tortuous legal language that is sometimes not wholly comprehensible to laymen like myself, that of course it is all perfectly in accordance with the law that the Commission should take no action of that kind, then with the greatest possible respect I shall reiterate the popular saying: "The law is an ass"—and the European law is even worse than that.

It should not have been left to the noble Lord, Lord Bethall, with whom I have had no conversations whatsoever in regard to this matter, to bring a case against the Commission before the European Court in order to establish this point. So I am a little worried about the way in which DG IV sets about its task. Bearing in mind the quantity of cases still on their books it may well be that they consider they have enough on their plates without embarking on an enterprise of that kind. If so, let them say so. In any case, the numbers are inadequate. According to the particular section of the report which deals with this, their personnel amounted to some 270—at any rate that was the establishment at the time of the report, but they do not say the actual numbers.

I also observe from the information given in Appendix 3, which deals with qualifications of the officials working within the Directorate-General, that 50 per cent. have been working in that field for more than 10 years and a further 10 per cent. for more than five years. Then it says: In terms of academic training, roughly 50 per cent. of Grade A officials have legal background, more than 20 per cent. are economists, the rest having had university training in various other fields". I half expected that the noble Lord, Lord Benson, would raise an eyebrow at this because it does not appear that the accountancy profession has any profound representation inside DG IV. I raise no particular personal complaint about that. I myself am very busy. But investigations of companies' affairs must involve a good deal of investigating books and accounts of one type or another, in order to ascertain the facts upon which some decision is due to be made, and it might have been desirable that the continental or EEC accounting profession were rather more heavily represented than is indicated in this report. Quite clearly, the total numbers will have to be increased. The noble and learned Lord, Lord Scarman, said that in his report and he emphasised it again today.

One thing is certain. The report itself, with which I have no quarrel, has been so well produced and so well thought out that, evidently, the European Commission think it proper to carry out about 75 per cent.

of its recommendations. This is a very great tribute to the work carried out in your Lordships' House by the committee concerned, and by the noble and learned Lord himself. My misgiving, once again, is that, on the face of it, DG IV appears to have tackled only the peripherals of the main competition problem in Europe. One hopes that it will endeavour to cast its net much wider, unless it is prevented from doing so.

Although the noble and learned Lord did not have time to mention it in his speech, under Rule 17 of the Council there is an advisory committee which, in effect, acts as a filter or as an overall supervising body—if I understand the wording of Rule 17 correctly—over the activities of DG IV itself or of the Commission, in so far as it deals with matters of competition. This general advisory council, to whom all decisions must be communicated and with whom a continuous liaison is obviously maintained—at least, it should be if Rule 17 is complied with—is composed of representatives of member states. Are we once again back into the situation where we have a minor version of the Council of Ministers, where the general advisory council, with all its representatives of the various countries, gets together and decides, "No, this is not a case with which the Commission ought to proceed"? That would explain the position about air fares, if, on the general advisory council, which, in effect, acts as a supervising body of DG IV, agreement had been come to by member states that it might be better not to tackle this problem.

I may have got it wrong. I am making no accusation. I am not even implying anything undesirable. But I think that I am entitled to a frank answer to the question. I am quite willing to accept a correction in the matter and, if I have got it wrong in any way, I shall humbly accept it. In the meantime, the authors of this report, your Lordships, DG IV, the Council of Ministers and the lot should bear in mind that the ultimate purpose of these activities is the protection of the consumer at large. Never, never should that be forgotten.

6.45 p.m.

The Lord Advocate (Lord Mackay of Clashfern)

My Lords, I should first like to add my voice to those of your Lordships who have already congratulated the Select Committee on their comprehensive and very helpful report. In particular, I should like to join in thanking the chairman of the sub-committee which produced the report, and the noble and learned Lord, Lord Scarman, who also introduced it to your Lordships' House with such characteristic clarity in opening the debate today. I must say that I, for my part, was not able to detect any amount of timidity in that introduction. In addition to the noble and learned Lord himself, I should also like to mention all of your Lordships who participated in the work of the sub-committee and all of those who gave evidence before the sub-committee. Like the noble and learned Lord, I feel sure that your Lordships would wish to express our appreciation to them, because the quality of this is, to a considerable extent, assisted by the quality of the evidence which they were prepared to give—and to come some distance to give—and to give with a great deal of expertise as well as courtesy.

Although the subject of the report may not be of such universal interest as that of the other report, which is generally known by the noble and learned Lord's name, it is nevertheless a most important subject not only to lawyers but to men of business, and indeed to everyone who is interested in the economic wellbeing of our own country and of the other countries of the Community. I should like to endorse on that aspect what has been said by the noble Baroness, Lady Seear, by my noble friend Lady Elles and I think, also, by the noble Lord, Lord Plowden.

The Government greatly welcome this report as providing a valuable analysis of the European Commission's competition procedures and the criticisms that have been made of them. I emphasise that I understand the debate today to be taken up with questions about the procedures which the Commission uses, rather than the scope or subject matter of particular cases. Your Lordships' committee have examined the issues very thoroughly, setting the procedures in their proper context, and have offered a number of constructive suggestions for ways in which the procedures might be improved.

As your Lordships know, and as the noble and learned Lord, Lord Scarman, said in introducing the report, the basic rules of the treaty are set out in Articles 85 and 86. They are designed to ensure that there is free and fair competition in trade between member states, and that the trade barriers which have been abolished by the treaty are not replaced by private barriers erected by firms which would defeat the treaty's objective of creating a common market in goods and services within the Community.

The Government, of course, give their wholehearted support to these aims, and therefore believe that the rules need to be enforced effectively. We recognise, however, like your Lordships' Committee, that there may be room for improvement in certain aspects of the Community's procedures for operating these rules. But I should like to make it clear at the outset that we should not wish to see any changes introduced which would lead to a weakening in the enforcement of the Community's competition rules.

Complaints have been made—and your Lordships have heard examples today—that under the present procedures justice may not always be seen to be done, and that firms ought to be able to operate their businesses with a greater degree of legal certainty. The Government believe that there is some justification in the present situation for these complaints. It is right that ways should be sought to avoid them in the future, and the Select Committee's report addresses itself to this important task. As has been mentioned, the Commission itself has been reviewing its procedure and, in its recently published 11th Report on Competition Policy, it also proposes some improvements. It is therefore extremely timely for your Lordships today to be discussing this issue. We should recognise, however, that responsibility for initiating any changes to the Commission's internal procedures or to Community regulations lies with the Commission and not with Her Majesty's Government. We are naturally very willing to discuss the proposals of your Lordships' committee with the Commission and hope to do so, but I want it to be clear that if I indicate that the Government agree with a proposal, it does not necessa rily mean that it lies in our power, in our own hands, to implement it.

We also need to bear in mind that any changes would apply throughout the Community, not just in the United Kingdom, and that they therefore need to be broadly acceptable to other member states. It is in this context particularly that I should like to welcome the visit of the noble and learned Lord, Lord Scarman, and the noble and learned Lord, Lord Fraser of Tullybelton, to Brussels and thank them. It is important that what we feel about these matters should be understood not only here but also in Brussels and throughout the Community generally.

I should like to turn now to the conclusions in the report and, I hope, to fulfil the expectation which the noble and learned Lord expressed in opening regarding our attitude to it. I am pleased to be able to say that the Government agree with almost all of the recommendations in the report. However, I should like to say a little about each of the principal recommendations separately. In the general part of their conclusions the committee recognise that the Commission must be primarily responsible for the task of enforcing the competition rules and that they must also have some judicial powers. They emphasise, however, that in exercising these functions the Commission must, so far as possible, apply the recognised standards of natural justice in adjudicating in contentious or disputed cases. The Government naturally strongly agree with these views. They do not call for any specific action but they do set the context for our consideration of the detailed suggestions which follow.

May I deal first with the reforms which, it seems to us, would not need a change in the law. The first of these is that the Commission should give the accused undertaking access to the whole of their file. This was strongly supported by the noble Lord, Lord Plowden, and the noble Lord, Lord Benson. We would regard this as a most important recommendation. A major criticism of the existing procedures has been that undertakings are not always made aware of the full extent of the case against them or of the evidence on which the Commission are relying in reaching their decision. Full disclosure of the Commission's file should go a long way to meet this criticism.

And, of course, as the noble and learned Lord, Lord Scarman, pointed out, it goes further than that, because it would also give the accused undertaking access to information favourable to that undertaking which is in the possession of the Commission and of which, but for such a provision as this, the accused undertaking might not be aware. Therefore I am very glad to see that the Commission itself now seem to intend acting along the lines proposed by your Lordships' committee. The precise form of the implementation remains to be seen but there will, as the committee recognise, need to be safeguards to protect the secrecy of information about the complainant's business or some third party's business which may be mentioned in the documents. If these safeguards are not provided, the Commission could find that information is no longer available from sources on which they are to some extent dependent. Therefore it is obvious that certain safeguards, as the committee recognise, require to be worked out. But the principle seems to us to be entirely acceptable.

The report also proposes that the undertakings should be able to have a preliminary meeting with the Commission to clarify issues arising from the statement of objections. While the Government support this proposal, they believe that if the new procedure were available as a matter of course it might become an excuse for unwarranted delay or merely duplicate the formal oral hearing. I hope that some way can be found to avoid this difficulty, since it would be a useful improvement and might in certain circumstances save a great deal of time if an undertaking were able at an early stage to clear up any doubts about the basis of the case against it and correct any misunderstandings by the Commission.

A number of those who, as the committee records, submitted evidence to the committee proposed that there should be an "independent person" to review the Commission's actions in competition cases. While the committee conclude that it would not be possible to appoint someone outside the Commission to carry out this role without amendment of the treaty, they do make a very useful proposal for the appointment of a new director within Directorate-General IV whowould be separate from those responsible for investigating and prosecuting the cases. The new director would chair the preliminary meeting and the oral hearing and would be responsible for drafting the Commission's decision. If it were implemented, this would go a considerable way towards separating the functions of prosecution and adjudication which are at present carried out by the same officials.

The Government regard this as among the most important of the Select Committee's proposals since, if it were combined with a satisfactory procedure for access to the Commission's file, it should largely allay the criticisms that have been made. I noticed that the noble Lord, Lord Plowden, while welcoming this was inclined to think that perhaps it did not go quite far enough. But at least it seems to us to be a proposal which is of considerable value and which, as he said, goes in the right direction.

I come now to those reforms suggested by your Lordships' Committee which would, as we understand them, require a change in the law. First, the committee conclude that the Commission's power to carry out investigations at a firm's premises, which has been the subject of some criticism, is a necessary power. However, they recommend that before such an investigation is carried out it should be necessary to obtain the leave of a judge of the European Court or the leave of the new independent director. The Government would welcome this innovation. We understand the concern that has been expressed about these powers by my noble friend Lady Elles, by my noble friend Lord Onslow and others. We believe that there is some doubt about whether the treaty would permit a single judge to act in the manner envisaged by the committee. On the other hand, to require the leave of the court as a whole would be an impossibly cumbersome procedure for authorising a surprise visit. Obtaining the leave of the judge would, moreover, in any event require an amendment to Regulation 17, which would need the support of other member states who have not so far shown the same concern about this matter as critics in the United Kingdom. Obtaining the leave of the new director, if there is to be one, would in the Government's view be an improvement, and we would support this if the judicial alternative turns out not to be available.

We also support the proposal that an undertaking should be allowed to have its legal adviser present during an investigation, which I believe is, anyway, the normal practice. I am including this in reforms which require a change in the law to make them necessary, although, so far as the practice is concerned, it can happen now. However, we can see that it might not be practicable in the case of unannounced visits to delay the start of an investigation to allow for the arrival of the legal adviser, since this could afford, in certain circumstances, too great an opportunity to destroy documents and hence frustrate the whole purpose of the visit.

The proposals of your Lordships' committee for avoiding the present delays in dealing with applications for negative clearance or exemption we welcome, and we hope to have an opportunity to explore them with the Commission. Could I say here that we strongly endorse the views which have been expressed on all sides of the House about the need for reasonable expedition and about undue delay in matters of this kind being extremely damaging. And, of course, in certain circumstances, it is quite clearly beyond what is in any degree acceptable. The proposal for an automatic exemption for notified agreements after the lapse of a suitable time would require an amendment to Regulation 17. The administrative and legal implications require further study but we hope that any difficulties can be overcome so that the present legal uncertainty can be removed from the backlog of notified agreements.

The question of the confidentiality of communications between a lawyer and his client, to which the committee refers, is an important one. As the issues are currently before the European Court, we can only agree with the Select Committee's conclusion that consideration must await the court's decision.

The Select Committee's Report also deals—and the noble Lord, Lord Bruce of Donington, referred to this—with the procedure of the advisory committee of national competition experts which gives the Commission its opinion on individual cases. The Government agree with the recommendation that the undertaking concerned should be informed of the documents which the Commission submit to the advisory committee and that these should always include the minutes of the oral hearing. We are, however, more doubtful about the further recommendation under this heading; that the committee's opinion should be communicated to the undertaking. The question arises, what use would the undertaking be able to make of the information? If it could be used, for example, in a case before the European Court, this would be equivalent to publishing the opinion—which your Lordships' Committee do not recommend. There would be a danger that the independence of the advisory committee's opinion could be jeopardised if it were made public. On balance, on the basis of the information so far available, the Government feel that the current procedure whereby the committee's opinion is not made available to the undertaking should probably be retained.

Your Lordships' committee also considered the role of the European Court in competition cases. Their primary concern was with the time it takes to obtain a ruling from the court and they recommend that the court should examine its own structure and responsibilities. The Government welcome this recommendation since there would clearly be benefits in providing arrangements which allowed the court to rule with less delay and possibly more effectively. It is possible, however, that if some of the other recommendations of the Select Committee are implemented, particularly the disclosure of the Commission's file, there will he fewer appeals to the court and the need for considering its restructuring will therefore diminish. Thus we think that the primary emphasis should be on improving the Commission's procedures rather than extending the court's ability to review the Commission's work; thus dealing with the problem at the base stage.

Like your Lordships' Committee, the Government welcome the European Commission's internal review of their competition procedures. The adequacy of the staffing of the competition Directorate-General, their co-ordination with other Directorates-General, and their internal procedures for fact finding and economic analysis are all subjects which merit examination. We now have some of the fruits of the review in the Commission's 11th Report to which reference has been made, both by myself and by other noble Lords earlier. However, it is fair to say that the report does not seem to cover all the issues which the Select Committee considered should be examined. Nevertheless, we are encouraged by the Commission's report to think that they are not unreceptive to proposals for improvements in their procedures and this leads me to believe that there will be scope for a useful discussion with the Commission of the proposals we have been considering in your Lordships' House today as well as the proposals put forward by the Commission themselves.

May I conclude by saying that the Government strongly support the need for effective and reasonably expeditious measures for enforcement of the competition rules of the treaty. We believe that a number of the proposals of your Lordships' Committee would, if implemented satisfactorily, go a considerable way towards meeting the criticisms which have been made of the present arrangements. The Government are also very grateful for the opportunity given to us by today's debate to hear the views of so many of your Lordships. We shall take note of them all and will make the best use of them that we possibly can in the discussions which we hope to have with the Commission. The noble Lord, Lord Bruce of Donington, raised some questions about particular cases—particularly that which the noble Lord, Lord Bethell, is engaged upon. Since that is a matter which is before the European Court, I believe it would be inappropriate of me to deal with it.

7.4 p.m.

Lord Scarman

My Lords, in thanking noble Lords for their various instructive and valuable contributions to this debate, I would like to say that I believe it to have been a very valuable discussion of an extremely important topic. The attitude of Her Majesty's Government as illustrated by the speech of the noble and learned Lord the Lord Advocate clearly must be encouraging not only to the Select Committee (which, perhaps, hardly matters) but to the businessmen and professional men of Europe as well as of this country who gave evidence and voiced their anxieties which I am satisfied will now largely be met if the recommendations—or a substantial amount of the recommendations—contained in the report can be implemented.

I wish to mention only two matters because I touched on neither of them directly when introducing this debate. First, several noble Lords—I think particularly of the speeches made by the noble Baroness, Lady Seear, the noble Baroness, Lady Elles, and the noble Lord, Lord Plowden—stressed the danger of delay in the processes of the Commission. The committee took the view that the delays revealed by the evidence in the negative clearance and exemption notification cases were intolerable. Strangely enough, the delays in dealing with infringement cases are nothing like so serious as those suffered by applicants in negative clearance and exemption cases. The figures are quite horrifying. The noble Lord, Lord Plowden, referred to them and they are found set out in the report. Unless these delays are tackled it is hopeless to expect that the business community will be satisfied with the procedures of the Commission.

The second point I should like to mention was that made by the noble and learned Lord Advocate at the very end of his speech, when he emphasised that what is really of first-rate importance is to improve the quality of the investigations and decisions made by the Commission, and that improving the review processes of the European Court of Justice, although important, is not of the same significance. I wholly agree with the noble and learned Lord, the Lord Advocate; we must concentrate on improving the quality of the Commission's work. If that can be achieved, then the review process by the European Court of Justice does not assume anything like the same importance. I think that this has been a useful debate to a large number of very important trading enterprises—important to the future prosperity of the United Kingdom as well as to that of the other member states.

On Question, Motion agreed to.