Standing Committee G
Thursday 4 June 1998
(Afternoon)
[Mr. Peter Atkinson in the Chair]
Clause 18
Abuse of dominant position
Amendment moved [this day]: No. 61, in page 10, line 38, at end insert--
`(2A) Nothing in this section prevents--
(a) offering bulk discounts or promotional discounts,
(b) the operation of existing contracts that have been cleared under previous competition legislation,
(c) specifying the manner in which a brand is to be supported by retailers, or
(d) franchise agreements.'.
4.30 pm
Mr. John Redwood (Wokingham): I had almost concluded my remarks. I had taken the Committee through the Opposition's line of thinking on amendment No. 61, and we had just reached consideration of the fourth paragraph, (d)--``franchise agreements''.
Mr. Desmond Browne (Kilmarnock and Loudoun): I listened carefully to the right hon. Gentleman as he set out his arguments. He said repeatedly this morning that clause 18 will make illegal the types of commercial practice listed in his amendment, and that, accordingly, such practices required ``comfort''--I think that that was the word that he used--otherwise, there is no point to the amendment. As subsection (1) sets out a general prohibition of abuse of a dominant or monopolistic position in the market, and as subsection (2) merely lists examples of what might constitute abuse, can the right hon. Gentleman explain what interpretation of the clause necessitates his list of exceptions?
Mr. Redwood: That is exactly what I argued this morning. The clause works in an interesting way, as the hon. Gentleman said. First it sets out a general prohibition, then, for the benefit of people trying to follow the Bill, it specifies a series of examples of abuse. It does so for no apparent good reason, because the list is not comprehensive; it is merely a series of suggestions--presumably of the more likely cases of abuse--that leaves open the opportunity to bring a case outside the framing of paragraphs (a) to (d).
Mr. Browne rose--
Mr. Redwood: May I finish answering the hon. Gentleman, and then he can have another go?
In the spirit of the Bill, the Opposition have said that if the Under-Secretary thinks it necessary to give examples of abuse, it is also necessary for the guidance of businesses to give counter-examples of legitimate business practices that would not constitute abuse. The four examples are largely modelled on threats and problems we foresee with the examples of abuse set out in the Bill.
I have not argued that all of the things that I am trying to exempt would definitely be caught by the Bill. I hope to draw the Under-Secretary into confirming my interpretation that in normal circumstances none of the examples in the amendment would be caught by the Bill. I trust that the hon. Gentleman will agree that they should not.
I have said that it would be helpful if the Under-Secretary confirmed for the record that our four categories are not intended to be caught. He has confirmed that in his view half of one of them would not be caught. It would still be better for the proper guidance of the courts to add the provisions of our amendment to the types of abuse listed in subsection (2).
Mr. Browne: Is it the right hon. Gentleman's intention that practices that fall within his examples of exceptions in the amendment will in no circumstances be considered an abuse of a dominant or monopolistic position in the market. If not, what value would the amendment add to the clause as drafted?
Mr. Redwood: The intention is that in normal circumstances the four ideas listed in our amendment would not constitute abuse, but of course it would be for the authorities to decide whether a practice was a genuine bulk discount or whether it was
``applying dissimilar conditions to equivalent transactions'',
as stated in clause 18(2)(d), which would be an abuse as constituted.
If the Bill refers to one side of an argument, in fairness the other side should also be mentioned, so that business can see that there is both a threat and a defence. The clause is worded strangely because it sets out the threats to business and opportunities for consumers, but it does not set out a defence. There are defences, but it will ultimately be a matter for the competition authority to make a judgment.
Mr. Browne: I am very interested in the vocabulary that the right hon. Gentleman is using to explain his amendment. It cannot be correct to say that the amendment sets out a defence. The only defence to an accusation of a breach of the prohibition in the clause is that it is not an abuse of a monopolistic or dominant position in the market. One could list examples indefinitely, but it would make no fundamental difference to the clause, or its application.
Mr. Redwood: The drafting of the original legislation is then extremely difficult to explain. The amendment mirrors the drafting of the existing clause, which sets out examples of abuse. I would have more sympathy with the proposal if it were left at clause 18(1) and it was entirely up to the competition authority and the court to decide what is an abuse, or if the legislation neither suggested what an abuse was or how to defend oneself against a charge of an abuse of a dominant position. But, if there are examples in the Bill on how an abuse is established, how to establish a defence should be mentioned.
Mr. Andrew Lansley (South Cambridgeshire): I imagine that like me, my right hon. Friend has looked at the draft guidance prepared by the Office of Fair Trading. What is in the Bill is reflected directly in those draft guidelines. The Director General of Fair Trading elaborates in the guidelines the examples of what might represent an abuse, as contained in the Bill. Therefore, it should be for the director general to elaborate how the examples in the amendment might not be considered as an abuse of a dominant position.
Mr. Redwood: My hon. Friend makes a powerful and sensible point. The Government should explain why they think it is appropriate to specify examples of abuse but not necessary to offer lines of defence?
More importantly, the main intention behind the amendment is to tease out from the Government what they are trying to catch. That brings us back to the fundamental problem with the Bill. The many business men to whom I have spoken, who are worried about the Bill, always come back to the same question. They say, ``As a Committee member and a shadow spokesman, can you tell us whether what we are doing now, which we think is in the interests of customers as well as our business, will or will not be legal?'' By asking question of the Under-Secretary, I am trying to respond to the questions put to me by business. Business needs to know the answers.
The Minister for Competition and Consumer Affairs (Mr. Nigel Griffiths): The right hon. Gentleman is not a lawyer.
Mr. Redwood: The Under-Secretary says that I am not a lawyer. Neither, I hasten to add, am I charging for the service. But I am a legislator, and it is perfectly reasonable for business interests to ask me or any other member of the Committee what is the intention of the legislation? I find it difficult to answer that question, as does the Under-Secretary. But he owes us a little more information in response to our important amendment.
Mr. Tim Boswell (Daventry): If it is impossible for either my right hon. Friend, with his experience, or the Under-Secretary to answer those questions definitively, it merely intensifies our case that businesses of all shapes, sizes and types that act responsibly will have to have recourse to their lawyers, at considerable expense, in order to elucidate whether they are compliant with a law of which they do not know the details?
Mr. Redwood: Indeed. In summary, the Opposition believe that, in usual circumstances, offering a bulk discount is helpful not only to the company producing the goods or service, but to the customer. We believe that promotional discounts are reasonable business practice and that existing contracts, save those that are under examination by the competition authority, or could be put under examination immediately by the President of the Board of Trade, should be regarded as being reasonable and deserve grandfather rights during the transition period. We believe that reasonable support to a brand enforced or encouraged on retailers by a manufacturer is a reasonable business practice, and we believe that most franchise agreements are reasonable.
What is the Government's objection to specifying that in the Bill, to give comfort to all the many businesses that do not indulge in anti-competitive practices under the current legislation? We think that they should get similar comfort from the Bill. That is the amendment's intention. It will have made progress if the Under-Secretary can tell me that all current legitimate business practices will not be prevented by the new legislation. It would be even better if he would concede the desirability of including it--or something similar--in the Bill.
I do not believe that my list is comprehensive enough, just as I think that the list of abuses--the four paragraphs in subsection (2)--does not do full justice to the range of abuses that dominant players can perpetrate. My list does not do full justice to the number of legitimate defences there could be, and I should be happy if the Under-Secretary were to point out some more and add them as well.
Dr. Stephen Ladyman (South Thanet): I rise briefly to point out an abuse that will be allowed if the amendment is accepted. Clause 18, in conjunction with European jurisprudence, sets out a mechanistic way in which to determine whether pricing is being set appropriately. That method involves the cost of production and supply to the person who sets the price.
Mr. Oliver Letwin (West Dorset) rose--
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