VERTICAL AGREEMENTS AND LAND AGREEMENTS (Hansard, 20 October 1998)

§ Lord Simon of Highbury

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 34. This amendment is grouped with Amendment No. 45.

Noble Lords will recall that we spent a considerable time in Committee and on Report on the treatment of vertical agreements and, to a lesser extent, land agreements. This new clause allows the Government to provide special treatment including exclusion from the Chapter I prohibition of vertical agreements and land agreements. I should like to outline in some detail the Government's thinking in respect of these types of agreements and how we intend to use the power to be granted by this new provision.

I shall deal, first, with vertical agreements. We have said on a number of occasions that we believe that there is significant merit in granting exclusion or other special treatment for vertical agreements under the Chapter I prohibition. We believe that the new power proposed is 1379 important in ensuring that we are able to provide special treatment which is of real, practical value for business. We have discussed the approach in detail with representatives of the CBI and it has their support. There is already provision in the Bill to make exclusions, but we have considered whether additional flexibility is required. Working with the CBI, OFT and MMC on the vertical agreements task force, we concluded that the existing powers in the Bill to make exclusions may not be adequate to provide special treatment for vertical agreements which is legally sound while being of real, practical value to business. The new clause we are debating will enable special treatment or exclusion to be given specifically to vertical agreements.

We have already provided an initial draft of the order excluding vertical agreements to a few contacts, such as the CBI and the National Consumer Council, on an informal basis to see whether they agree that we are on the right track. We propose, in the light of these informal contacts, to issue formal consultation documents to a wider audience of business and other interested parties.

Finally, I should perhaps say a word on how the new power will be used after the consultation period. I am happy to explain now how we propose to define vertical agreements in the draft order to be made under the provision in the new clause. As many noble Lords may be aware, the European Commission has been conducting a review of the treatment of vertical restraints. The Commission has circulated a paper setting out its findings following its review. The paper contains possible descriptions of vertical agreements which could form the basis for a description of vertical agreements which would benefit from the special treatment under the Chapter I prohibition. The Commission is still working on these proposals. However, one definition used in the papers which we propose to adopt in our first draft is: agreements between two or more undertakings, each operating on a different level of the supply chain ... and in respect of the delivery and/or purchase or marketing of goods destined for resale or transformation or in respect of the marketing of services". We see great merit in using the same language as that proposed by the Commission. Many UK businesses are already subject to EC competition law and it may be burdensome for them to apply two different tests at the EC and UK level when deciding whether they come within the scope of the UK and EC prohibitions.

The European Commission proposal for a new wide ranging block exemption is, however, still subject to numerous qualifications. We recognise that not all vertical agreements are benign and some can cause serious competition concerns. We do not intend to copy all the various qualifications and conditions that the EC propose. Nevertheless, we recognise that some vertical agreements can cause competition concerns which may not be readily dealt with by reliance on the Chapter II prohibition or the complex monopoly provisions of the Fair Trading Act.

Therefore, we need the consultation process and will continue with it. That the European Commission is still refining its proposal emphasises how right we are to deal with vertical agreements in secondary legislation. 1380 There is a powerful reason why the Bill should contain powers not only to define vertical agreements but to modify how the Bill should apply to them. I confirm, however, that we intend that the exclusions for both land and vertical agreements should be in place well before the prohibitions come into force, even if the European Commission has not concluded its review of vertical agreements by then. We are consulting now and we hope that the finalised orders will not be long delayed.

Moved, That the House do agree with the Commons in their Amendment No. 34.—(Lord Simon of Highbury.)

§ Lord Fraser of Carmyllie

My Lords, ordinarily the Opposition grumble if the approach taken is one of secondary rather than primary legislation. However, I believe that on this occasion there is sound reason underlying the thinking of the Government in allowing for much that has to be filled in to be done by way of secondary legislation. There must also be some force in what the Minister has said about drawing the provisions into line with what may emerge in a European context. The last thing we want is for British business to be required to observe two separate sets of rules. My only grumble is that, while this is a very reasonable approach to take, had it not been for the hesitancy of the previous President of the Board of Trade this is a conclusion to which the noble Lord would have come many months ago. We might have saved a good deal of time and effort with the matter ping-ponging around this Chamber or between this Chamber and another.