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Proposal to continue Short form Opinions under new CMA regime welcomed

September 30th, 2013

A new consultation by the CMA proposes to continue the pilot of the Short form Opinion (SfO) process introduced in 2010.   The consultation document reads:

4.1 In 2010, the OFT reviewed its approach to opinions under the Modernisation guideline (OFT442) in response to concerns raised by business and other stakeholders that some forms of beneficial collaboration were not proceeding for fear of infringing competition law.
4.2 Following this review, the OFT introduced a SfO process on a trial basis. SfOs were designed to provide guidance, within a prompt timetable, to businesses and their advisers on the application of competition law to prospective agreements between competitors raising novel or unresolved questions, the clarification of which would benefit a wider audience. The OFT’s trial SfO
process was only available for a limited number of cases per year in order to avoid a return to a notification regime.41

Proposed adoption and extension of the SfO process
4.3 The Transition Team has reviewed the OFT’s SfO trial as a part of the transition process and considers that SfOs should continue to be offered as a part of the CMA’s practical guidance and advocacy work. The Transition Team also considers that SfOs assist the future development of competition law and policy in the UK.
4.4 The Transition Team has therefore proposed that the CMA Board (once
established) should adopt the OFT’s SfO process on a trial basis, subject to
certain modifications described below, designed to extend the use of the tool
and clarify the process of requesting an SfO. There is no proposed end date
for the SfO trial. However, the CMA will review the SfO trial as appropriate.

Summary of proposed changes to the SfO process
4.5 The Transition Team proposes to clarify that businesses and their advisers as  well as government policy advisers are able to submit a request for an SfO, subject to their agreeing to comply with the CMA’s procedural requirements. The Transition Team also proposes to extend the scope of the SfO process to  cover not only prospective horizontal agreements between competitors but
also prospective vertical agreements between parties who do not compete with each other.
4.6 With regard to procedural enhancements, the Transition Team proposes that the CMA Board (once established) should adopt revised procedures in order to provide businesses and their advisers with greater clarity on the process for requesting and issuing an SfO. These will include setting out clearly the process of submitting a request for an SfO, how the CMA will prepare, issue
and publish an SfO, and how the CMA will treat information that it receives in the context of SfO enquiries or requests.
4.7 If the Transition Team’s proposal is accepted by the CMA Board, the revised or new procedures and practices will be set out in further detail closer to, or shortly after, 1 April 2014.
CONSULTATION QUESTION
Do you agree with the Transition Team’s proposal to extend the availability of SfOs to prospective vertical agreements in addition to prospective horizontal agreements? Please give reasons for your view.

Responses to cmaconsultation@bis.gsi.gov.uk by 5pm on 11th November.

Andrew Dakers, Founder, said:

“This news is welcome and I hope the start of a new conversation with the CMA around how the SfO process can be improved – as well as the wider guidance around when businesses should compete or collaborate to achieve responsible business outcomes.  The initial suggestions regarding opening up the SfO process are encouraging as well as the idea of broadening the process to include vertical agreements. However, there are additional barriers that need”

EU launches Better Self- and Co- Regulation Community of Practice

July 15th, 2013

There is growing evidence that self- and co-regulation can only be effective and efficient if they respect basic design principles, such as openness, inclusiveness and accountability. This calls for a new culture of relationships between civil society organisations, the business community and policy-makers.

In response the European Commission has consulted on a set of principles (to which The Cooperatition Incubator contributed) and launched a new Community of Practice to help build capacity amongst key actors.  Given the broader nature of The Cooperatition Incubator’s work we would also recommend reading the new EU Regulation on European Standardisation.

We would encourage you to join the community.

Marks & Spencer call for Government action on Competition Law flaws

July 15th, 2013

In Marks & Spencer’s response to the Department for Business consultation on Corporate Responsibility (7 July 2013) the company calls for action on Competition Law flaws saying:

“The Government should encourage all major sectors to adopt a common sustainability framework such as the one (A Better Retailing Climate) developed for the retail sector by the British Retail Consortium (BRC). This approach is particularly valuable where issues of competition (both legislation and corporate concerns) would otherwise prevent open collaboration. However, as with the BRC framework, reporting of progress is conducted by sector and not disaggregated by company…. UK competition law currently creates significant barriers to greater collaboration on supply chain management and should be reviewed.”

 

Government calls for renewed input on Corporate Responsibility

July 15th, 2013

“Corporate responsibility is sometimes known as corporate social responsibility. It is defined as the responsibility of an organisation for the impacts of its decisions on society and the environment above and beyond its legal obligations, through transparent and ethical behaviour.”

This call for views seeks to gather your thoughts and ideas on aspects of corporate responsibility. It looks at what government, business and others should and could do in order to realise the full benefits that corporate responsibility can bring. It covers themes including:

  • voluntary reporting and disclosure of non-financial information
  • responsible supply chain management
  • corporate responsibility in small and medium sized enterprises

“Your comments will contribute to a framework for action on corporate responsibility. We intend to publish the framework by the end of 2013.”

 

Environmental Audit Committee calls on Government to ensure CMA remit takes account of sustainable development

May 13th, 2012

The Government must develop a joined-up strategy to change the UK’s unhealthy and environmentally damaging food system, as fears mount about global food security, MPs on the Commons Environmental Audit Committee warn.

Crucially the Environmental Audit Committee’s Sustainable Food report recommends that:
the Office of Fair Trading’s remit should be amended so supermarkets are not blocked from cooperating on sustainability initiatives.

The full report reads…

43. ‘Choice editing’ involves retailers limiting the range of products they make available to customers. Supermarkets, for example, might be able restrict the sale of produce with high environmental impact, for example, by reducing the numbers of some out-of-season and imported goods. The Food Ethics Council has argued that retailers pursuing choice editing strategies are likely to be at a competitive disadvantage. With the exception of a minority of businesses that position themselves specifically as leaders in the ‘ethical’ market, businesses that raise the prices of their products or reduce choice risk losing customers to their competitors. They concluded that, in the absence of regulatory intervention by Government, only a coordinated effort by the major businesses across a sector could get past this obstacle. By co-operating and adopting similar choice editing strategies, supermarkets would be able to reduce the risks of pursuing such strategies. However, such collaboration would potentially contravene competition law and expose those involved to challenge by the Office of Fair Trading or by the European Commission. And any regulatory regime with similar aims could also be construed as interference with EU Single Market rules. This barrier would also apply to public procurement through Government Buying Standards (paragraph 45). The Food and Drink Federation’s preferred approach was therefore for industry to continue its efforts to make its products as healthy and sustainable as possible, while offering consumers appropriate choices.81 When we raised this issue with the Minister, he regarded this as primarily an issue for industry to judge:

I recognise that the supermarkets are extremely nervous about competition law. … We do have periodic meetings with the senior chief executives of the supermarkets, but it is on a very clear agenda that makes sure that … we can’t talk about price or anything that could be construed as collusion. I can see the argument that they would be very nervous of it, yes. You would need to ask a lawyer whether in reality there is something in competition law that says they should not work together on sustainability. I don’t know. That would be for a lawyer to judge, but I am very conscious of their sensitivity over anything like that.

44. In March 2012, the Government announced proposals to create a new Competition and Markets Authority that would bring the Competition Commission and the OFT’s competition functions into a single organisation. The Government should amend the Office of Fair Trading’s remit to take account of sustainable development while protecting competition, and task the OFT and the Competition & Markets Authority to investigate and clarify the scope for supermarkets to cooperate in developing shared sustainability good practice.

Queens Speech confirms new competition legislation

May 9th, 2012

The Enterprise and Regulatory Reform Bill will:

  • Overhaul the employment tribunal system, and transform the dispute resolution landscape.
  • Improve the effectiveness and efficiency of competition enforcement and the competitiveness of markets, by strengthening the regime and improving the speed and predictability for business.
  • Set the purpose of the UK Green Investment Bank and ensure its independence.
  • Strengthen the framework for setting directors’ pay by introducing binding votes.
  • Extend the Primary Authority scheme, reduce inspection burdens on business and strengthen the legal framework for sunset clauses on regulation.
  • Repeal unnecessary legislation, cutting the burden on business and citizens.

The Cooperatition Incubator and our partners will review the draft legislation closely in the month’s ahead to ensure that  public interest factors are fully addressed.

Government announces plans for future UK competition regime

March 15th, 2012

The Government has announced its response to the competition regulation regime consultation in A Stronger Markets Regime, published today.  Key extracts relevant to the work of The Cooperatition Incubator are:

  • pg 6 – Opinion on proposals to enable the CMA to provide independent reports to Government on public interest issues was divided. The Government has decided that the Secretary of State will have the power to request the CMA to investigate public interest issues alongside competition issues as this can put the competition regime at the heart of inquiries currently undertaken by ad hoc ‘commissions’. This approach is designed to enable faster implementation of competition remedies than an ad hoc inquiry. This will also bring the public interest markets regime in line with the public interest mergers regime where CC panels can be required to consider certain public interest issues alongside competition issues.
  • pg. 27 – The Secretary of State will have the power to request the CMA to investigate public interest issues alongside competition issues. 
  • pg 30 – CMA reports to Government on competition and public interest issues 

RELEVANT EXTRACTS IN FULL…

Summary of Responses
4.10
The Secretary of State currently has the power to ‘call in’ market inquiries that affect defined public interests. In these cases, the CC reports to the Secretary of State on its findings on the competition issue but does not consider the public interest. The Secretary of State must accept the CC’s competition findings but has the power to decide on remedies in light of his own views of the public interest. Opinion on proposals to enable the CMA to provide a report to Government on public interest issues alongside competition issues was divided. Some respondents were attracted to the proposal as it would enable the Secretary of State to consider recommendations from experts on the relevant public interest issue under consideration. Other respondents considered such powers could dilute the CMA’s primary competition function and politicise it. A minority of respondents argued that the CMA will lack the appropriate expertise.

The Government’s Decision
4.11
The Government has decided that the Secretary of State will have the power to request the CMA to investigate public interest issues alongside competition issues at phase 2. By utilising the expert competition knowledge of the CMA and supplementing this with specialist public interest expertise to consider, holistically, competition and public interest issues, the Government considers this can put the competition regime at the heart of market inquires currently undertaken by ad hoc ‘commissions’. This approach is designed to enable faster implementation of competition remedies than an ad hoc inquiry.

4.12
This will bring the public interest markets regime in line with the public interest mergers regime where CC panels can be required to consider certain public interest issues alongside competition issues. The merger regime does not provide for the appointment of further public interest experts for this purpose, but the Government considers that such experts may need to be appointed to advise on public interest matters in market investigations because the issues in these can be wider than in merger inquiries.

4.13
The Government is committed to preserving the independence of the CMA and wants to ensure that it retains a strong focus on competition. The Government believes that appropriate checks will preserve the independence of the CMA and guard against excessive use. Specifically:

  • The scope of public interest issues that may be considered in a markets case is not being widened by this reform. An affirmative Order from Parliament will be required to add a new public interest consideration to the current list (national security is currently the only public interest consideration specified in the markets regime).
  • As now, the competition test will need to be met for the CMA to be able to carry out a market investigation.
  • The role of the public interest experts will be limited to providing advice on the public interest issue under consideration.
  • The Secretary of State will retain his current decision-making role on remedies where he considers the public interest consideration affects these.

Environmental Audit Committee discusses Competition Law

December 29th, 2011

On 26 October 2011 the Environmental Audit Committee discussed barriers to co-operation among supermarkets:

Q246 Katy Clark: The Food Ethics Council said that competition law may be preventing co-operation among the major supermarkets to use their buying power to support more sustainable products being developed. Do you recognise that as a problem?

Jane Bevis: Certainly in terms of their impact on the supply chain, supermarkets do need to be very cognisant of competition law and be careful about the way they go about things. In areas where they have relatively little influence, then coming together and agreeing with other partners in the supply chain that there is a better way of doing things and moving forward so that everybody feels this is a win-win situation, you can still make progress, but yes, there will be times where they feel they can’t come together to do something precisely because they would risk being in breach of competition law.

Bob Gordon: I would just add that I sit on the steering group of the Product Research Forum with a number of retailers, brands, WRAP and Defra. We talk very openly about what the issues are, what potential opportunities there are, and we talk about that in a pre-competitive context, so we are understanding the context and then, if any voluntary commitment is established as a result of those conversations, the individual businesses that sign up to that commitment will compete vigorously to achieve it in a way that not only gets them to achieve those sustainability goals, but also improves their market share.

[Ed – The key word in Bob Gordon’s analysis is “if”.  As a result of competition law regulation too many agreements are being scuppered.]

On 7 December 2011 this issue was further explored by the Environmental Audit Committee:

Q362 Zac Goldsmith: The Food Ethics Council-I am just checking it was them-has said the competition law could be preventing co-operation between the supermarkets in relation to pursuing sustainable food consumption. Is that a problem that you recognise?

Mr Paice: I recognise that the supermarkets are extremely nervous about competition law. You may be aware that a few years ago most of the major supermarkets were fined pretty heftily by the OFT for collusion on the issue of milk prices. It is not for me to judge the rights and wrongs of the case, but that is what has happened, and a consequence of that is that they are extremely wary about even being in the same room together. We do have periodic meetings with the senior chief executives of the supermarkets, but it is on a very clear agenda that makes sure that there is nothing-we can’t talk about price or anything that could be construed as collusion. I can see the argument that they would be very nervous of it, yes. You would need to ask a lawyer whether in reality there is something in competition law that says they should not work together on sustainability. I don’t know. That would be for a lawyer to judge, but I am very conscious of their sensitivity over anything like that.

Coalition may be ready to “rethink competition law” observes Wintour

December 29th, 2011

Writing in The Guardian on 28 December 2011, Patrick Wintour  identifies competition law as an area where consensus in the coalition could drive reform:

“Jesse Norman’s latest attack on crony capitalism shows there is a thirst for action amongst influential thinkers on the Tory benches. He says of the two distinguishing features of crony capitalism: “Business action loses any relation to the wider public interest and business reward is separated from business merit. Crony capitalism is what happens when the constraints of law and markets and culture cease to be effective. Entrepreneurship and value creation are replaced by rent-seeking, and certain groups become enormously wealthy without taking risks.”

“Norman argues that this makes for a less efficient and unbalanced economy. This could be the big domestic political dispute of 2012. Conservatives in this camp believe Cameron can pull off an intellectual heist by presenting himself as the man to rescue Britain from the predatory crony capitalism that Labour had allowed to develop.

“Their argument is that crony capitalism really took root in the late 1990s when the Bank of England ceased to be responsible for systemic risk in financial markets, the doctrine of inflation targeting was institutionalised, and the banks were allowed to ramp up borrowing. All this occurred under a Labour government, 10 years after the sudden deregulation of financial markets under Thatcher that was known as Big Bang.

“Under this argument, issues such as corporate governance, tackling short-termism among investors, rethinking competition law and building strong regions around new democratic institutions such as city mayors will come to the fore. They will be the building blocks for economic growth.

“There is an appetite for this agenda across the coalition. Ed Miliband’s half-formed outburst against predatory capitalism could be wrested from him and become the new consensus. Politics is that fast and cruel.”

Reflections on inelasticity/elasticity and voluntary agreements

November 29th, 2011

INTRODUCTION
When a business seeks to implement an ethical change in what it is doing (where ‘ethical’ connotes some public policy/sustainability objective) then there will be some different types of economic impact that it will experience. In summary some key elements of these delineations include:

  1. Win-win versus non-win-win (i.e. whether, at the same time as the public policy objective ‘wins’, the business(es) and consumers can also do so, or whether consumers and possibly the business(es) will be out of pocket).
  2. Within non-win-win (which implies that consumers will now be paying more for their products), those situations where businesses can keep their profit margins intact versus those situations where those profit margins dip.

WIN-WIN VERSUS NON-WIN-WIN SITUATIONS
Win-win situations are on the face of it straightforward for business as ethical and profit considerations are aligned.   We would argue this is where most progress has been made by voluntary Corporate Responsibility initiatives over the past 25 years.

However, situations that are win-win in the long-term may be non-win-win the short-term. This creates a tension between the interests of those involved in the business (investors and employees) on long-term versus short-term bases.

There may also be a necessity for joint research by businesses to achieve the public policy objectives on a win-win basis (which if not handled carefully could come up against competition law information exchange restrictions).

ELASTICITY WITHIN NON-WIN-WIN SITUATIONS
Non-win-win situations are less straightforward than win-win ones. This is because it may or may not be possible for businesses to pass costs onto consumers, depending upon considerations of the price elasticity of demand. We need to consider two situations:

  • In some situations (where there is ‘price inelasticity of demand’ (for example for absolute essentials such as mains water or insulin for diabetics (ignoring NHS provision effects here) and other examples, noting the ranges for elastic and inelastic businesses can pass on costs to consumers without consumption dropping and profits thereby being dented. So business, if acting together across a market sector for public policy objectives (enabled through much clearer support from the competition authorities), will have the ability to pass on price increases without their businesses suffering. This means that they will require little or no additional incentive to make such changes.
  • In other situations (‘price elasticity of demand’: leisure air travel, spirits, coca-cola, cars (see the list above)) businesses are likely to have trouble passing on costs to consumers. For example for leisure air travel, price elasticity of demand means that if prices are increased then people will curb their holiday plans. So business comes out a loser – which means voluntary agreements likely to have a less favourable reception. Furthermore competition law as it is presently regulated in the UK and EU would be a barrier to the collaboration.

It is for this reason that in such circumstances co-regulation would be necessary – either from traditional regulatory sources, or increasingly from e-democratic/internet-based mechanisms.   Changes in the regulation of competition law will be required, as well as either pressure from above (government promoting a co-regulatory initiative) or perhaps e-democracy (see below).  There are other levers of change too (e.g. media/NGOs) but these are potentially less significant.  The media/NGOs could of course be important contributors to future platforms for e-democracy.

Of course, in all these situations, companies could appeal to ethical investment/ethical consumerism in order to support actions that they (as individual companies, or perhaps small groups of companies, comprising a limited proportion of the market) wanted to pursue. But as described in past briefing papers, these alternative methods have limitations in application and therefore scale of impact.

ACCELERATED DESIGN OF ROBUST VOLUNTARY AGREEMENTS  DEMANDS A NEW ONLINE PLATFORM

Will new case studies arise in the future?  Well, co-regulation under the existing law can to some extent enable new collaborations, as the recent Responsibility Deals have demonstrated. But it is not going to make the big social/environmental impact that the challenges of our time demand.

For a transformational impact we need new a new approach from regulators and an online platform – we have given it the working title of RaceToTheTop.org.  Initially this will make future voluntary agreements more transparent and risk-free (in terms of -ve cartel behaviour).  The online platform for tracking the development and implementation of voluntary agreements would be underpinned by discussion forums/comment tools  and also host the minutes of face-to-face engagement between key stakeholders in an agreement. With the addition of wider-stakeholder functionality such an Online Platform could ultimately become a broader marketplace application underpinning e-democracy.

The type of e-democracy that we ultimately envisage would be a key enabler in further developing the Big Society.  Government participation and goodwill could enable huge results in this space for relatively low cost.

The e-democratic platform (which would include the marketplace functionality we envisage) would also give greater depth to the Big Society rediverting people’s energies/frustrations towards participation, away from,  more passive or destructive activities.

OVERALL IMPACTS OF SUCH INITIATIVES
Of course, the overall effect of our thinking is the internalisation of externalities throughout the economy, which means a ‘bad news message’ for the economy overall – certainly if you are looking at things in a short-term, profit-based manner. Similarly this is a ‘bad news message’ for any area or nation that has previously had the ability to externalise costs to other areas or nations.

However, our thinking is a ‘good news message’ inasmuch as it represents the emergence of an economy with the facility to prioritise in a balanced way objectives of all kinds. Furthermore, although the project outlined here can be seen in isolation as one entailing overall the internalisation of externalities and therefore decreasing global productivity, the picture is different when one factors-in ongoing technological advancement and innovation (including that enabled by information technology (IT) that allows much of the change we advocate) and the resulting growth. With that wider picture then the outlook can still be for growth, just in a newly responsible fashion.

Notes

1) It is worth pointing out the implausibility that all positive social and environmental agendas in life might correlate to positive profit outcomes, amongst all the other possibilities. Therefore there will have to be a balancing between profit and other objectives in numerous areas.

2) It seems likely that trends would emerge: for example essentials would be less affected by the introduction of the mechanisms we suggest than (short life) luxuries.

3) Elasticity considerations tie in very powerfully with market definition. The first thing any businesses need to do when thinking about a voluntary agreement is think about who they need to reach agreement with (this essentially should identify/deal with problems of elasticity before it arises). In particular, if they do not have enough market players at the table then any agreement they make is going to run the risk of driving their customers away to nearby products/services. Consider this list of determinants when thinking about these questions.

4) It may be beneficial for markets to work together if they currently share the same environmental/social harm or can achieve the same benefit.

Researched by Tom Linton and edited by Andrew Dakers.