IV. EXPERIENCES WITH IMPROPER PRACTICES CONTROL IN FOREIGN COUNTRIES Now I want to report to you some experiences with improper practices control in foreign countries.

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1. GREAT BRITAIN

Until 1948, Great Britain, the country with the most highly developed legislation on improper practices, had only from time to time taken measures against restriction of competition. For a long time England had no particular interest in monopoly problems. Finally, however, the economic concentration and the expansion of power of large enterprises could no longer be overlooked. Thus it happened that in 1948, notably at a time when increase in production had outstanding national priority," the Monopolies and Restrictive Practices (Inquiry and Control Act) was enacted.

This law represents Great Britain's first attempt to enforce a systematic monopoly control." It established, as may be seen from the subtitle, "Inquiry and Control Act," an improper practices control authority. Among other things, it made it possible for the Monopolies Commission to investigate enterprises of concerns controlling not less than 25 percent of demand. A material definition of market-dominant enterprise as such was not given. The investigations tend to establish whether or not the behavior of market-dominant enterprises is against the public interest. Accordingly, in England a behavior which is against the public interest is considered improper. However, no measures are provided against the creation and growth of market-dominant enterprises. Until 1960, the Monopolies Commission rendered 22 reports. A number of economic sectors were investigated. In the majority of cases in which improper practices on the part of market-dominant enterprises were established the practices objected to were eliminated by the respective enterprises on a voluntary basis. Only two cases were found to warrant official directives. In 10 out of 13 cases investigated by the Commission, to the files of which I had access and which refer to market-dominant enterprises, the Commission ruled on market domination in the affirmative. In 5 out of these 10 cases of market domination on the part of the enterprises, market-dominant practices adverse to the public interest were established. In some cases the Commission made recommendations for elimination of such improper practices. The following were considered improper practices, among others: For want of competition, prices and profits too high; impeding independent producers (of matches) by means of blocking delivery to producers controlled by market-dominant enterprises of production machinery important for the independent producers; excessively priced delivery of raw materials by the market-dominant enterprise; equalization payments to foreign competitors in order to prevent foreign supply reaching the British market; keeping partnerships (Dunlop) confidential in substitution competition enterprises because of its interference with the effective and reasonable organization of this branch; keeping partnerships in smaller enterprises (subsidiaries or affiliates confidential) being used as fighting companies these practices serve, in the opinion of the Monopolies Commission, to strengthen the monopoly position (in the "Supply of certain industrial and medical gases case"); exclusivity contracts.

Among the recommendations made by the Monopolies Commission for elimination of the practices objected to, it is of particular interest to note that in one case (export of matches) the decentralization of a concern into several competing enterprise groups was proposed (this recommendation was actually complied with by the market-dominant enterprise). Further suggestions were: Examination of the cost position and fixing of maximum prices and maximum profits by the Government (this recommendation was not complied with); filing of partnership agreements and their amendments with the Board of Trade (this recommendation was complied with).

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In a critical analysis of the work of the Monopolies Commission it was recognized that the Commission had indeed achieved a certain general propagandistic and informational success, but that beyond the investigated enterprises the effect on the rest of the industry was nil; that the Commission's reports had not been able, in effect, to convince the industry of the validity of its findings.

43 European Productivity Agency of OEEC, "Guide to Legislation Restrictive Business Practices," vol. I-III. 44 P. Hutber, "Wanted-a Monopoly Policy," 1960, p. 9.

45 P. Hutber, op. cit., p. 1.

46 P. Hutber, op. cit., p. 14f.

2. CANADA

The Canadian legislation upholds, with respect to market-dominant enterprises, both the principle of prohibition and that of improper practices. Certain practices are prohibited; others, insofar as they are determined by structure, are subject to improper practices control. The concept "dominant enterprise" does not appear in Canadian law. Enterprises may be considered market-dominant when they are in a position to determine market prices, business conditions, rebates, etc., within a market. A behavior is considered improper when its effect is "detrimental to or against the interest of the public" [sic]. When this is the case has not yet been "authoritatively settled in the courts."

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The Court ruled in the most important monopoly case, Rex v. Eddy Match Company (1954) that the systematic exclusion of competitors or competition gives rise to such a great presumption of detriment to the public that the burden of proof of nondetriment is on the defendant. More recent decisions, however, demand that competition be virtually eliminated.

3. THE NETHERLANDS

In the Netherlands, too, the criterion for taking improper advantage of a dominant position is the public interest. The concept is not further defined. Its interpretation is left to the administration and the courts. Dominant positions are described in section 1 of the Economic Competition Act as, "a de facto or de jure relationship in trade or industry which entails a predominant influence of one or more owners of enterprises on a market for commodities or services in the Netherlands."

Here too, it is not a matter of concept but of the effects of dominant position within the market. The Netherlands has not yet had much experience with proceeding against market-dominant positions. In Dutch opinion, dominant market influence may be manifested in high prices, discriminatory business policy, imposition of unfavorable delivery and payment conditions. The extent to which an embarrassed enterprise may have substitution goods available; i.e., alternatives for the free exercise of its trade, is considered a decisive criterion. A case which involved the exclusion of a food chain wholesaler from delivery by all cigar producers was decided in the sense that such action constitutes improper practice. In a similar case, a food chain wholesaler was likewise excluded from delivery by 31 of the existing total of 35 cigar producers. Four cigar producers made delivery. In this case, the existence of improper practice was denied because, in the opinion of the deciding authority, sufficient alternatives existed for supply. In another case, a single producer of certain household goods-though a very large and important concern-refused delivery to a leading retailer. The behavior of this enterprise, although its market share of individual commodities was estimated to be less than 20 percent, was considered improper on the grounds that the brand of this enterprise was so significant that a leading retailer in household goods could not afford not to carry this brand.

4. BELGIUM

In Belgium, too, improper practices control over market-dominant enterprises is carried out in accordance with a general provision. Enterprises which are able to exercise a dominant influence on the supply of a market for goods and capital, or on the prices or quality of certain goods and services, are considered market dominant. The behavior is improper when the public interest is affected by practices disturbing or restricting the normal competition or impeding the economic freedom of producers, dealers, or consumers or the development of products and commerce. There is no knowledge of improper practices proceedings in Belgium.

5. SWEDEN

In Sweden, market-dominant enterprises have posed no special problem in the application of legislation against restrictions of competition. Only very few actual monopoly cases have been brought before the monopoly control authority. A definition of "market-dominant enterprise" does not exist. Individual enterprises or groups of enterprises which are responsible for a considerable portion of the total business activity of a certain production sector within the kingdom

47 Rex v. Eddy Match Company, Ltd. et al. (1951), 104 CCC 39.

97-586-63-pt. 1-7

or within a substantial part of it are considered market dominant. The behavior of these enterprises is improper if, from the viewpoint of public interest, it has detrimental effects. There are no special regulations for market-dominant enterprises. Most cases of established improper practices on the part of market-dominant enterprises have so far concerned refusals to make delivery for a variety of reasons.

6. NORWAY

In Norway, market-dominant enterprises are groups of enterprises are those which are presumed to hold 25 percent of the production or distribution of one or more commodities within the Kingdom. Norway does not have a definition of the concept "to take improper advantage of a dominant position." Enterprises with a market share of at least 25 percent are required to register. Up to March 1962, registrations of 54 enterprises of that nature were filed. Most cases involving improper practices related to high prices or unreasonable business conditions, or to other detrimental practices. Intervention also occurs in Norway when an enterprise or a concern attempts to exclude competitors by setting prices too low or by other improper methods. As a rule, the authorities are not in a position, however, to counteract the strengthening of a market position, possibly through partnerships or through any other increase in market influence.

7. DENMARK

In Denmark, single enterprises and financial amalgamations which exercise or may exercise a substantial influence on prices, production, distribution, or transportation are considered market dominant. Market-dominant enterprises are subject to compulsory registration. Approximately 200 market-dominant enterprises are registered. The purpose of compulsory registration is for the authorities to be in possession of a comprehensive survey and eventually to proceed against improper practices on the part of those enterprises. The behavior of the market-dominant enterprises is considered improper if it has "detrimental effects", especially if it results in unreasonable prices and business conditions, or discriminatory or unreasonable restrictions of the freedom of trade. The obligation to register is based on the ratio between total sales of the respective interprises and total sales of relevant goods. A fixed market share to serve as a criterion has not been established. Other factors also taken into consideration are, such as for example, the number of enterprises, or the extent to which an enterprise may pursue an independent price policy. In one case, the existence of market domination was denied, although the enterprise held a 25-percent market share, because the number of competitive enterprises was growing continuously and because the prices of the respective sector were evidencing a downward trend. The problems in connection with the market behavior of dominant enterprises have been concentrated up to now mostly on questions of refusal to make delivery or on discriminatory behavior, on exclusivity contracts and on unreasonable prices and profits. The interpretation of the term "reasonable profit" has posed a particular problem. Because of the difficulty of finding comparable material of similar enterprises, a satisfactory criterion for cost and price comparisons in connection with prices of market-dominant enterprises has frequently been found not to be available. In Denmark, the solution of problems in connection with market-dominant enterprises has presented serious difficulties. Findings.-The experiences of foreign countries have also shown that it has been possible to establish the unequivocal existence of improper practices only in relatively few cases, and that improper practices control alone would hardly suffice to impede decisively the creation of market-dominant positions and to change fundamentally the behavior of existing market-dominant enterprises. That does not mean to say, however, that improper practices control would be entirely unnecessary.

V. FINAL CONCLUSIONS

My final word on the subject is that the meaning of the phrase, "to take improper advantage of a dominant position within the Common Market or within a substantial part of it," in article 86 of the EEC Treaty is very problematic. Due to the absence of economically unequivocal and legally practicable criteria for market delimitation, establishment of a market-dominant position, and judgment of improper practices, the application of article 86 will be closely restricted. Only in the very rarest cases will it be possible to prove that the fact of improper practice has been absolutely accomplished. The facts will-by way of simplification-be clearly recognizable only when the behavior appears "contra

bonos mores." In these circumstances improper practices control would seem possible only in a very restricted sense.

The problem of taking improper advantage of market-dominant positions, with the resultant disturbances of the economic order of the Common Market and of the integration process, is therefore difficult to solve by means of improper practices control regardless of the strictness of its application. The practical obstacles alone which stand in the way of effective improper practices control are extremely difficult to conquer. It has been clearly shown by the considerations submitted on the subject that, fundamentally, there is only one effective method for preventing the "taking of improper advantage of a market-dominant position”—and that is competition. In order to solve the complexity of problems extremely difficult to cope with, it would be necessary to reexamine and use a new and consequent approach to the problem of restriction and distortion* of competition by market-dominant enterpirses. To prohibit agreements restricting competition or to render them more difficult-i.e., collective monopoly behavior on one side-does not correspond to improper practices control on the other side. Instead: Wherever market domination comes to light every instrument of governmental policy on competition should be employed for the purpose of:

(a) impeding the creation of market-dominant positions, and

(b) throwing the markets of existing market-dominant enterprises open to competition.

(c) The advantages for large enterprises-which are contained in the rules of law, particularly in those relating to taxation and corporations, and in economic measures-should be eliminated and new benefits should not be admitted.

(d) The processes of economic concentration should be watched carefully so that development toward market-dominant positions may be recognized in time and, if necessary, countermeasures may be adopted.

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COMMISSION OF THE EUROPEAN ECONOMIC COMMUNITY

COMPETITION IN THE COMMON MARKET

(By Hans von der Groeben, member of the Commission of the European Economic Community)

(Speech made by M. von der Groeben during the debate on the draft regulation pursuant to articles 85 and 86 of the European Economic Community Treaty in the European Parliament, October 19, 1961)

Mr. President, ladies and gentlemen, in December last year the Council of Ministers laid before this House for its consideration the draft of a first regulation to implement articles 85 and 86. From January to July of this year your Internal Market Committee, which is responsible in this matter, carefully studied the draft. The Commission highly appreciates the outstanding work done by this committee and the others concerned, and I should like to take this opportunity of thanking the Committee and in particular its rapporteur.

It is not for me to anticipate M. Deringer's detailed and most interesting report or to deal, even before the discussion begins, with the individual provisions of the draft. Nor would I wish to make a survey of the work so far done in the field of cartel policy; for this first European cartel regulation concerns the future. My aim is rather to define the role that will in future be played by the European policy on competition and the place which this draft cartel regulation will fill in the overall economic policy of the Community.

We must remember that the first stage in building up the Common Market will be virtually completed at the end of the year. By that time internal duties will be reduced by at least 40 percent. All quantitative restrictions on imports and exports will be abolished. The common external tariff has been settled and is already the object of international negotiations. In short the customs union, which forms the nucleus of the Community, has to a large extent become a reality.

This brings us to a new, a second stage in the development of the Community. Of predominant importance during this stage will be the evolution of the cus*TRANSLATOR'S NOTE.-The German term should have been translated into English more correctly as "misrepresentation", or "falsification."

toms union into an economic union; i.e. the transformation of our six national economies into one European economy with the characteristics of a domestic market. In other words, we must put substance into the frame of the Common Market.

Already the regulation and recommendations which facilitate capital movement and the first regulation on the free movement of workers have taken us an important stage further toward economic union. Common policies are being worked out on external trade, economic policy, transport, regional affairs, agriculture and, last but not least, on our subject of today, competition; all this is being done with an eye to the establishment of an economic union.

Why do we in fact need such a policy on competition in the Common Market? Anyone for whom the problems of competition form the daily round of work— as they do for me will be inclined to regard the answer to this question as selfevident. However, the widely differing reactions which our cartel regulation has called forth in the general public and in the circles directly concerned have convinced me that it would be useful, before we begin this debate, to explain once more very clearly why such a regulation is necessary.

It is one of the objectives of the treaty to guarantee steady expansion, balanced trade, and a speedy raising of the standards of living. Consequently, duties and quotas are to be abolished, the factors of production are to be allowed to move freely, and the economic conditions for the opening of the market are to be established. All these are means to achieve a better division of labor and to make better use of specific local conditions within the Common Market.

It is however beyond dispute and the authors of the treaty were fully aware of this—that it would be useless to bring down the trade barriers between the member states if the governments or private industry were to remain free through economic or fiscal legislation, through subsidies or cartel-like restrictions on competition, virtually to undo the opening of the markets and to prevent, or at least unduly to delay, the action needed to adapt them to the Common Market.

A subsidy or an inflated disproportionate compensatory tax on imports may have the same effect as an import duty. If there were no article 85, business could simply set up international regional cartels by which the nascent European markets could be redivided into national markets, thus canceling out the reduction of internal duties. Or, if there were no effective cartel legislation in the Community, the national import quotas which had been abolished could be replaced by private import cartels with the same effect of restricting imports by quotas. There is yet a fourth possibility: a firm which thanks to temporary tax exemption has so far enjoyed better sales conditions than its foreign competitors may decide, once the tax exemptions have been canceled, that it will supply only those retailers who do not deal in the competing product from abroad. By means of such exclusive agreements it is possible to cancel the increase of competition which is the very purpose of the abolition of state aids.

I could quote many more examples. They show why restrictions on competition are as incompatible with the Common Market as are duties and quotas. It is the aims of the Common Market which themselves render a policy on competition necessary.

I should now like to go a step further and ask whether competition policy in the Common Market does not perhaps serve an even more fundamental purpose than just insuring that the markets are kept open.

If we scrutinize the treaty carefully we will find that it prohibits not only those restrictions on competition which seem calculated to render illusory the opening of the market, or to cancel the reduction of duties and quotas, but that it requires the establishment of a system which will provide a general assurance that competition in the Common Market will not be distorted; this is stipulated in article 3 and dealt with in greater detail in articles 85, 92, 96, 101, and elsewhere.

Why this effort to protect competition? In my view the answer can only be because in the Common Market competition has an important part to play in giving guidance to producers, and because any distortion of competition is a threat to the best supply of goods in the Community.

In all our six national economies the day-to-day coordination of individual economic plans and measures depends on the functioning of the market; the supplies the consumers wish to have and those the producers are able to provide are so attuned to one another by the play of prices that the maximum of satisfaction results.

Competition on the markets has the effect that consumers adapt their wants as far as possible to what can be produced and suppliers make the best possible