Restrictive Trade Practices (Hansard, 18 July 1989)

§ Mr. Maude

The Government's conclusions on the review of restrictive trade practices (RTP) policy are being published today in a White Paper "Opening Markets: New Policy on Restrictive Trade Practices" (Cm. 727).

The Government strongly believe that open markets are the best guarantee of efficiency in the economy. By 122W reducing interference in markets and strengthening competition between businesses, we have unlocked enterprise and effort, so clearing the way towards increased economic growth.

We are keen to ensure that competition is maintained and enhanced, and have therefore confirmed proposals to introduce significant new legislation to replace the RTP Act 1976. The planned legislation is also expected to incorporate the provisions of the Resale Prices Act 1976. It will focus on the economic effects of an agreement rather than the form which it takes and will also ensure that a substantial number of agreements, which are caught by the present law but which have no effect on competition in the relevant market, will no longer need to be scrutinised by the authorities.

These proposals, which were first put forward in a Green Paper in March 1988 ("Review of Restrictive Trade Practices Policy"; Cm. 331) have received strong support from a substantial majority of those who responded. They agree that the current Act is too formalistic and does too little to deter the formation of illegal cartels. The proposals will be incorporated into new legislation as soon as the parliamentary timetable permits.

The proposed legislation will incorporate a prohibition on agreements which prevent, restrict or distort competition. It will, however, be possible for businesses to gain exemption from the prohibition for agreements with economic or technical benefits which are shared with consumers. Guidance will be issued on the type of restriction which would not by itself bring an agreement within the prohibition. Some categories which would qualify individually for exemption will be exempted by means of a statutory instrument known as a block exemption to reduce both the costs of administering the law and its regulatory impact on firms. In this and other ways, the legislation will be closely aligned with the competition regime which operates under article 85 of the EEC treaty, with which many large and medium-sized businesses will already be familiar.

The Government consider that very few sectors of the economy should escape the new legislation. We believe firmly in the benefits of professional self-regulation and recognise the key role professional bodies have played and will continue to play in maintaining professional standards. This does not, however, mean that the professions should not need to comply with competition legislation. We have, therefore, decided that those rules of the professions which are not required by statute, or subject to the approval of a Minister, will be subject to the new RTP legislation in the normal way. The professional bodies will be free to determine their own rules, but will have to justify any anti-competitive effects of these under the new legislation. The relationship between professional rules in the legal profession in England and Wales, possible legislation in that area and the proposed RTP legislation will be clarified further in an announcement on legal services to be made by the Lord Chancellor shortly.

Applications for exemption from the prohibition will be considered by the Director General of Fair Trading (DGFT) whose conclusions will, if uncontested, become binding decisions. Where an objection is raised, the Government have decided that a final decision on the case should be made by an independent RTP tribunal to be established within the Monopolies and Mergers Commission. There will be rights of appeal beyond the tribunal to the High Court (Court of Session in Scotland).

123W

The DGFT will have increased powers to investigate suspected agreements, similar to those which are currently exercised in the United Kingdom by the European Commission's competition staff with the assistance of the DGFT. Restrictive agreements that infringe the prohibition and have not received exemption will he void, and the parties to the agreement would be liable to civil penalties of up to 10 per cent. of their annual turnover or £250,000, whichever is the greater. These penalties would be imposed by the tribunal, or by the High Court if the proposed penalty exceeded £1 million. The court would also be able to impose penalties of up to £100,000 on directors and managers of companies who negotiate or operate prohibited agreements. In deciding to separate the powers in investigation and the imposition of fines in this way, the Government have taken account of concerns expressed by a number of those who responded to the RTP Green Paper.

Agreements between small firms will be covered by the legislation and could be investigated and found to be anti-competitive. But if the parties have a combined turnover of less than £5 million, they will not be subject to penalties. even though they have not applied for an exemption. This concession will not apply in the case of price-fixing agreements, including those involving resale price maintenance.

In addition to publishing the White Paper giving full details of the proposals, my Department has produced a simplified guide which is being distributed widely to the business community. Further copies of this will be available on request.

The Government believe that these proposals will ensure that blatant cartels. which in the past have gone undetected and unpunished, will be substantially eradicated. The resulting increase in competition will benefit the economy as a whole and consumers in particular.