UK: New Legal Framework Proposed For Motor Vehicle Distribution And Servicing Agreements

Last Updated: 27 July 2009
Article by SJ Berwin's EU & Competition Team

The European Commission ("Commission") has set out its proposals for a new legal framework in relation to motor vehicle distribution agreements and repair and maintenance agreements. The current Block Exemption Regulation expires on 31 May 2010 and the Commission has been assessing how this has performed and whether there is a need for reform.

Block exemptions create safe harbours for categories of agreements, relieving companies from the need to individually analyse whether agreements comply with Article 81 EC. The motor vehicle sector, which includes passenger cars and commercial vehicles, has been the subject of specific block exemptions since the mid 1980s.

Overall, the Commission considers that the objectives underlying the current block exemption remain valid however a distinction should be drawn between the markets for (i) the sale of new vehicles and (ii) repair and maintenance and spare parts.

No significant competition shortcomings have been found in the market for the sale of new vehicles. To the contrary, this market is identified by structural overcapacity and falling prices. The Commission is therefore keen not to impose disproportionate regulatory constraints. In light of this, and to align its approach, the Commission proposes that motor vehicle distribution agreements should be covered by the general block exemption for vertical agreements (which is also currently under review).

The specific motor vehicle block exemption would therefore be phased out; however, in order for a smooth transition, it is proposed that the current block exemption would be extended to 31 May 2013 as regards new vehicles. Specific sectoral guidance would also be provided.

The after sales market, which accounts for some 40% of consumer expenditure on cars, was found to be less competitive largely due to its brand-specific nature. Again the Commission intends to apply the new general vertical competition rules to such agreements; however this will be in conjunction with sector specific guidelines and/or an additional more focused sectoral block exemption. Such specific provisions are considered necessary in order to address a number of problematic areas in the sector; such as ensuring that independent repairers have access to technical information and spare parts (in order to ensure that they can compete with the authorised networks). It would also tackle the misuse of warranties aimed at excluding independent repairers. This part of the new regime is proposed to apply from 31 May 2010.

Interested parties have until 25 September 2009 to submit observations.

Commission imposes €61 million fine on calcium carbide and magnesium cartel

In January 2007 the European Commission ("Commission") carried out dawn raids on the premises of a number of calcium carbide and magnesium based chemical reagent producers. The raids were prompted by a leniency application from Azko Nobel under the Commission's 2002 Leniency Notice. Calcium carbide powder and magnesium granulates are the base ingredients for a number of products used in the steel production process with sales of the products within the EEA estimated at some €175 million.

The dawn raid led to evidence of three separate cartel arrangements which involved market sharing and allocation of customers in the calcium carbide powder market, coordinated behaviour and exchange of anticompetitive information in the calcium carbide granulate market and collusion in the supply of magnesium granules, which may form a substitute for calcium carbide powder. These cartels involved closely coordinated multilateral meetings across the EEA and appeared highly organised and specific.

The Commission imposed a total fine of €61 million on nine companies: Almamet, Donau Chemie, Ecka Granulate, Holding Slovenske Elektrarne (for its former subsidiary TDR Metalurgija), Novácke chemické závody and its former parent 1.garantovaná, SKW Stahl-Metallurgie and its former parent companies Evonik Degussa and ARQUES industries.

Akzo Nobel and Evonik Degussa's fines were increased by 100% and 50% respectively to take account of previous fines for breaches of Article 81 EC - in line with the Commission's strict policy on recidivism, which is viewed as a very serious aggravating factor (Akzo Nobel has been found to have been involved in four prior cartels). Akzo Nobel however received full immunity from any fines in light of its leniency application. The most significant individual fine was the €35 million imposed on Donau Chemie.

Commission issues proposals to improve security of gas supplies

The European Commission ("Commission") has issued proposals for a new regulation to improve security of gas supplies within the framework of the internal gas market. Commission President, José Manuel Barroso noted that energy security will be one of the top priorities in the coming year. The proposed new regulation would require Member States to be fully prepared in the event of a disruption to the supply of gas through clear emergency planning. The Commission would oversee this to ensure a coordinated approach.

The European gas market is fed by a relatively small number of pipelines and production fields and most Member States are connected to the same basic supply network. On this basis, a problem in one part of the EU may spread very quickly to other parts. It is hoped that the new regulation will alleviate this problem by making it easier for energy companies to plan ahead, leading to more investment in, for example, new cross-border interconnections, import corridors and gas storage.

The proposals respond to a specific request from the European Council, the European Parliament and the Energy Council which asked the EU Energy Commissioner, Andris Piebalgs, to prepare new legislation to improve the EU emergency response framework for gas. With more than 25% of energy supply in the EU coming from gas and over 60% of all gas used in the EU being imported, legislation to deal with threats to gas supplies is considered a priority. The gas dispute between Russia and Ukraine in January 2009 also confirmed many of the weaknesses of the existing legislation.

Gas companies would continue to have the main responsibility for keeping gas flowing to customers, with public authorities only intervening as a last resort (particularly where companies are unable to deal with issues on their own). The proposals should also assist in avoiding the risk of unilateral measures by one Member State jeopardising the supply of gas in other territories.

The Energy Commissioner has encouraged the European Council and Parliament to adopt the proposals as swiftly as possible.

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