7 April 1995
EUROPEAN UNION DEVELOPMENTS
In this issue
How does the EU work?
This issue covers the main developments in the EU over
the last six months. To assist readers there is an outline
of the most important EU agencies and how to deal with
them. Following a description of the EU law-making process,
there is a brief introduction to the functions and powers
of the European Commission and the possibilities for taking
action in the European Court of Justice.
What significant events have occurred
in the EU in the last six months?
Specific events include EU enlargement, integration with
Eastern Europe, employment rules, tax incentives, advertising
rules, broadcasting, postal rates, travel agent commissions,
prohibiting information exchange between competitors, and
EU energy market liberalisation.
Why are EU competition (trade practices) rules so
An overview is given of the impact of competition rules
on government and cross-border business. Tougher restrictions
on grants of Government aid which distort competition are
of considerable concern. Recent decisions show how important
the competition rules have become.
What is the impact of EU development on trade and
The EU is imposing new controls on dual-use (military
and civilian) products and counterfeit goods, and is negotiating
special arrangements with Switzerland. Restrictions on
biotechnology inventions will probably be relaxed. De
facto compulsory licensing of intellectual property
in the telecommunications sector has been removed.
Dealing With European Union Authorities
To put into context recent developments in the European
Union (EU) it is necessary to know how EU institutions
work and how EU law is made and administered.
The five main institutions of the EU are the European
Commission, the Council, the European Court of Justice,
the Court of Auditors and the European Parliament. Two
other institutions referred to in the law-making process,
but with limited powers, are the Economic and Social Committee
and the Committee of the Regions. There are also about
twenty agencies which have a separate legal status (for
example, the European Monetary Institute, Europol and the
In general, EU laws are made in the following way: The
Commission sends a proposal to the Council, Parliament,
Economic and Social Committee, and the Committee of the
Regions. The last two give their opinions to the Council,
then their job is largely over, unless the Council seeks
further consultations. The Parliament however, can block
certain proposals and can delay many, depending on the
issue concerned. When the Parliament gives its opinion
to the Council on a Commission proposal, the Council may
accept, amend or reject the proposal. If Parliament and
Council disagree, representatives meet in a conciliation
committee to agree a common position. The Council then
introduces the agreed proposal into EU law by way of a
Decision, Regulation or Directive. It is the Council which
ultimately has the power to make EU laws.
The Council is made up of EU government Ministers from
each of the Member States. The Council does not always
have the same members for example, if a matter concerns
trade the Council will be made up of the Ministers responsible
for trade from each Member State. In many cases, the Council
delegates legislative power to the Commission. This is
done, for example, in agriculture, competition matters
and external trade. It is the Commission which makes many
of the laws which implement Directives or Regulations made
by the Council. The Commission does this generally by Decision
or Regulation, and sometimes by way of a Directive.
For Australian individuals and companies, probably the
most important EU institution is the European Commission
in Brussels. It is responsible for proposing new measures
and ensuring that EU Treaties and laws are applied throughout
the EU. The Commission is a valuable source of information,
has wide regulatory power, and considerable powers of persuasion
over the national administrations. (Many officials in the
Commission were formerly officials in the EU national administrations.)
Generally, Commission officials are helpful but are increasingly
under pressure to perform with fewer resources.
Formal complaints can be made to the Commission through
the division in the Commission which is responsible for
the sector concerned. If the problem concerns a special
agency of the EU such as the Trade Mark Office or the European
Monetary Institute, inquiries should be made directly to
that agency. The Commission has regular meetings in committees
made up of representatives of each of the Member States.
Often a complaint will be considered in the context of
the responsible committee and a solution found. In some
instances the committee or the Commission itself can make
a decision on the complaint or issue.
Appeal to the European Court of Justice
An appeal on virtually all decisions can be made to the
European Court of Justice in Luxembourg. A complainant
can only go directly to the Court of Justice when either
an EU rule, or a decision or law of one of the EU institutions
is concerned, and the decision is addressed specifically
to the complainant or to a definable and restricted class
which includes the complainant.
If the problem is more general, action must first be
taken in a national EU Member State Court which then refers
the question to the Court of Justice. An alternative is
to convince the Commission to take up the case and bring
an action before the Court for infringement of EU Treaties.
In certain circumstances the Court can now fine an EU country
which fails, within a certain time limit, to comply with
the Court's judgment.
Important Recent Events:
Compensation for Australia?
Sweden, Austria, and Finland became members of the EU
on 1 January 1995, increasing membership to 15. Norway,
in a referendum on 28 November 1994, decided against membership.
Australia, Japan, New Zealand, Indonesia, Canada, Thailand
and other countries are expected to seek compensation for
the higher customs duties that will now be applied to some
of their exports to the three new Member States. (GATT
Article XXIV.6 allows for such compensation to be agreed
when a new customs union raises applicable tariffs.)
The USA already has an interim compensation agreement
in force which follows enlargement of the EU. At the last
enlargement, when Spain and Portugal joined, compensation
for lower USA sorghum and maize exports was agreed in the
form of reduced EU tariffs for a wide range of unrelated
agricultural, chemical and industrial products.
Integration of Eastern European Countries
The Council has issued a report which provides guidelines
for Central and Eastern European countries as they prepare
for accession to the EU. This is likely to mean that many
EU policies and laws will be incorporated more quickly
into the laws of the Central and Eastern European countries.
The EU strategy includes the development of infrastructure,
cooperation in transport, telecommunications and energy,
the environment, common foreign and security policy, judicial
and home affairs, culture, education and training. The
integration process will be supported by economic assistance
from the EU's PHARE program.
Access to Documents
A 'user's guide', part of the new policy on access to
Commission documents, has been published. It states that
individuals may request access to any document, in particular
those relating to policy initiatives.
The guide includes a description of how to submit access
requests, which documents are covered by the new policy
and the procedures to follow when access has been refused.
The Commission stresses that it is not under any obligation
to make available documents which have not yet been adopted
by the Commission.
European Lawyers to Practice Anywhere
The Commission has proposed a new Directive which would
permit a lawyer qualified in one Member State to practice
in another Member State for five years. During that period,
the lawyer would be able to give advice and appear in the
courts of the host Member State, possibly along with a
locally admitted lawyer. Registration with the relevant
authority of the host state and observance of local ethical
rules would be required.
Automatic access to the legal profession in the host
Member State would be possible upon proof of three years'
continuous practice in the law of that Member State and
European Union law. No aptitude test would be required.
The Commission has announced that it will put forward
a proposal on part-time and fixed-term employment relations.
This announcement follows the UK decision to veto the existing
EU draft Directive on part-time employment which had been
watered down considerably following objections.
In the meantime the European Court of Justice has ruled
that part-time workers are not entitled to an increased
rate of pay for overtime work if such work is performed
during the normal working day fixed by law for full-time
workers. The Court found that part-time workers were entitled
to an increased rate when working outside normal hours
and that part-time workers must receive the same overall
pay for the same number of hours as their full-time colleagues.
The ruling affirms the view that increased rates would
dissuade employers from recruiting part-time workers.
A parallel decision by the UK House of Lords requires
the UK Government to change its legislation so that part-time
workers are treated in the same way as full-time workers.
Protection of Young People at Work
The EU Council has introduced new rules designed to protect
young people at work. A new Directive requires Member States
to take the necessary measures to prohibit work by children
and to ensure that work by adolescents is strictly regulated
New Agency for Safety and Health At
This new EU Agency has just started operations in Bilbao
in the north-west of Spain. The Agency is required to collect,
exchange and publicise widely all the available technical,
scientific and economic information on health and safety
at work. Particular attention will be paid by the Agency
to the prevention of accidents in small and medium-sized
enterprises (SMEs). The Agency will also manage an information
network in cooperation with all the EU countries and will
keep European institutions, national authorities and other
bodies fully informed on issues concerning health and safety
at work. The agency seems likely to become a valuable source
of information and informal advice.
Money and Finance
Wide Currency Band Normalised
EU Finance Ministers have decided that the wide (15%)
currency fluctuation band in the European Monetary System
(EMS), introduced after the currency crisis of August 1993,
will remain in operation and will become the 'normal' band.
The EU Treaty requires currencies seeking to become part
of a single European currency to have been within the 'normal'
EMS band for at least two years. The European Ministers
seem to have decided that the wide band will be the point
of reference for the purposes of the Treaty. The decision
means that most EU currencies should be able to meet the
monetary stability criterion in the event of monetary union
proceeding in 1997.
Irish Tax Incentives
Ireland has been given approval by the EU to extend for
six years its favourable tax regime for foreign financial
services businesses. Companies set up in the international
financial services centre in Dublin before 2000 will be
liable to company tax of ten per cent until 2005. This
compares with the UK rate of 33 per cent.
Trade In Goods and Services
Europe-Wide Rules of Origin
The Commission has approved a Communication to the Council
on the future harmonisation of the rules of origin of the
EU, European Free Trade Agreement (EFTA) and Central and
Eastern European Countries. In many cases this will enable
businesses to reduce their customs duty payments and will
clarify the rules on products produced from components
made in different European countries.
The Commission proposes a three-stage strategy to unify
rules of origin and to extend possibilities of cumulation
of origin across the three regions. At the end of the process
the three regions will be treated as one for the purposes
of the rules of origin. The document also contains an analysis
of the impact this will have on three sensitive sectors:
textiles, cars and consumer electronics.
The European Court of Justice has held that EU institutions
have exclusive competence to conclude multilateral agreements
on trade in products, and mixed competence with the Member
States to conclude the Uruguay Round GATS agreement (on
services) and the TRIPS agreement (on intellectual property).
The World Trade Organisation
The European Court of Justice held that cross-border
delivery of services (that is, not entailing establishment
or movement of persons) had similar characteristics to
trade in goods. Such trade should therefore be deemed a
common commercial policy issue, falling within the exclusive
competence of the EU institutions.
However, competence for the conclusion of international
agreements regarding other modes of delivery of services
is shared between the Member States and the Union. The
underlying reasoning of the Court was that other modes
of service delivery involved (1) rights of establishment,
and (2) policy issues such as personal taxation or immigration,
both of which are not entirely within the scope of the
European Union Treaties.
Agreements with Switzerland
Following the Swiss 'no'-vote against European Economic
Area (EEA) membership in December 1992, the EU and Switzerland
have decided to continue negotiations on a bilateral basis.
Mandates have now been adopted by the Council of the EU
enabling the Commission to conclude sectoral agreements
on: free movement of people, public procurement, agricultural
products, RD and mutual recognition in conformity of products.
Negotiations in the more controversial sectors of air and
road transport are expected to follow soon.
Protection Against Counterfeit Goods
The Council has adopted a Regulation strengthening EU
protection against counterfeit and pirated goods. The system
will now cover not only trade marks but also copyright
and neighbouring rights such as the rights of performers.
Customs authorities will be permitted to delay customs
clearance of suspicious goods.
Where goods are found to be counterfeit or pirated, they
may, upon application by the holder of the right in question,
destroy or dispose of those goods, and will take measures
to ensure that the wrongdoer receives no economic benefit
from the goods. The Regulation will come into effect on
1 July 1995.
Exports of Dual-Use Goods
The Council has adopted a harmonised licensing regime
for the control of exports of 'dual-use' (civilian and
military) goods. A Joint Action, adopted under the common
foreign and security policy, lists the products subject
to the licensing regime, which is set out in a separate
Regulation. Exporters must also keep detailed records.
Member States retain responsibility for exports of dual-use
goods not listed in the Joint Action, but are committed
to cooperating whenever necessary. For a transitional period,
authorisation must also be sought for the movement of certain
dual-use goods within the EU.
The Council has reached agreement on several aspects
of proposals for the liberalisation of the EU electricity
supply industry. The key issues outstanding relate to how
liberalisation should take place. The Commission and Member
States will now be studying different approaches of 'third
party access' by utilities to grids in other Member States,
and the new concept of a 'single purchaser' system.
Charter Open for Signature
Following lengthy negotiations which included Australia,
the European Energy Charter was finalised at the end of
1994. Focusing on Central and Eastern Europe, the aim is
to make available technology, know-how and capital to explore,
develop and exploit oil and gas resources while minimising
the environmental impact in over 50 European countries.
Objectives of the Charter include improvements in the supply,
production, safety, transport, distribution and uses of
New Intellectual Property Policy
The European standardisation body in the field of telecommunications,
ETSI, appears to have solved a difficult issue in intellectual
property rights. In 1994 some ETSI members rejected ETSI's
policy of limiting the freedom of members to refuse the
licensing of their intellectual property. Companies with
a large portfolio of intellectual property rights filed
a complaint with the Commission arguing that this policy
leads to de facto mandatory licensing and would infringe
EU competition rules. The new policy will place the onus
on ETSI to approach a company and request permission to
use its proprietary technology. The complaint has now been
The European Parliament and the EU Council have reached
agreement on a proposed Directive on biotechnological inventions.
The proposal seeks to reconcile ethical concerns with the
need of the biotech industry to protect its inventions.
The proposal now provides that elements of the human body
may not be patented unless they form part of an industrial
invention and are modified in such a way that they are
no longer directly linked to a specific individual. Genetically
produced animals may not be patented if their suffering
is considered disproportionate to the potential benefit.
The EU Council, through changes in the current Directive
on genetically modified organisms, has also simplified
procedures for the deliberate release into the environment
for genetically modified plants. Measures which the EU
Council has introduced include:
- reduction of administrative requirements without reducing
- avoidance of duplication and multiple testing
- greater encouragement of development of small and medium-sized
The objective is to reinforce the EU's competitiveness
on the world market for biotechnology products, as well
as increase public understanding of modern biotechnology.
In a related development, the EU Council has now established
a sole and exclusive EU industrial property right for plant
varieties. The new rights will be administered by the Community
Plant Variety Office.
The Commission has adopted a non-binding Recommendation,
aimed especially at helping SMEs, on measures to reduce
payment delays in business transactions. The Commission
recommends that contracts should deal specifically with
delays in payments, that in public procurement contracts
the maximum payment delay should be 60 days, that procedures
for enforcement should be more effective and that any Value
Added Tax (VAT) should only be due when payment is received.
The Commission will review the situation within three
years and may then propose making these recommendations
Government Procurement: Utilities Contracts
The Commission has decided to adopt a more robust approach
with Member States which fail to ensure equal opportunities
for foreign companies bidding for public sector contracts.
The Commission is threatening to seek an injunction to
prevent work starting on a DM 400m German power station
contract following complaints by a German subsidiary of
a US company that it was unfairly excluded from the final
round of price negotiations.
The Commission wants the recently privatised East German
electricity company to reopen bidding for the contract.
In addition to the threat of legal proceedings, the Commission
is warning EU governments that, if proper procedures are
ignored, EU loans and grants from the Structural Funds
may not be available for public works..
In 1993 the EU ECO-labelling scheme was introduced. However
difficulties have arisen since then. The scheme is operating
extremely slowly, mainly because the Commission does not
have the structure and expertise to contribute to, or to
supervise, the scientific work necessary to establish the
This is defeating one of the purposes of the scheme,
to prevent proliferation of national schemes (such as the
German 'green dot' scheme). EU Member State bodies are
being consulted on ways to speed up the establishment of
ECO-label criteria for dozens of product groups. Because
of delays, it is expected that future criteria in this
area will be developed by the European Environment Agency.
Nevertheless, in November 1994, the Commission adopted
the final criteria for the European Union's ECO-label for
kitchen and toilet paper. A system of points is linked
to the use of recycled or renewable resources and lack
of polluting emissions. In respect of virgin fibre, the
criteria specify that the wood must come from sustainable
Marketing and Broadcasting
The Commission has presented an amended version of the
1989 'Television without Frontiers' Directive. The new
version would impose stricter rules on viewing time dedicated
to European audio-visual works and would limit the definition
of the term 'audio-visual work' to films, series and documentaries.
It would also recommend that these European-produced works
must form a majority of all TV broadcasts. The proposal
would also introduce a certain level of deregulation of
the rules on advertising.
German Pharmaceutical Advertising Ban
The European Court of Justice has upheld Germany's ban
on advertising of pharmaceuticals from other Member States.
Although it restricted the free movement of goods, it was
justified on the grounds of public health.
German law requires prior national approval of all pharmaceuticals,
including those from other Member States. Certain products,
authorised in other Member States can be marketed without
authorisation when ordered in limited quantities for prescriptions,
however, such imports may not be advertised. The Court
found that, since there is no EU harmonising legislation,
Member States are free to decide the degree of health protection
they wish to maintain. The advertising ban was intended
to uphold the exceptional character of the exemption from
the normal rules (the normal rules allow only German authorised
pharmaceuticals to be marketed and advertised in Germany.)
The Court accepted that without the advertising ban there
could be a systematic evasion of the German national authorisation
The competition rules set out in EU Treaties are powerful
tools used to ensure full and free competition in the EU.
An infringement of the EU competition rules can lead to
an agreement being void and unenforceable, fines of up
to 10% of the worldwide turnover of an enterprise, damages
payments to competitors or third parties, and/or compulsory
repayment of subsidies or aid granted by an EU Member State
Competition law in the EU provides that an agreement
or concerted practice is illegal if it has as its object
or effect the prevention, restriction, or distortion of
competition in trade between the Member States. The agreement
or practice is void if found to be illegal, and the participants
are subject to fines imposed by the Commission. A third
party can also claim damages for illegal conduct in the
national courts of the EU. If one or more enterprises abuses
its dominant position in the market, fines can also be
imposed and damages claimed by injured parties.
Exemptions from Competition Rules
When an anti-competitive agreement or business practice
has economic, technical and/or consumer benefits which
outweigh the competitive detriment, the Commission can
exempt such an agreement or practice from the competition
rules. Because of the administrative impossibility of considering
each of many thousands of such agreements and practices,
the Commission has introduced a number of block exemptions
from the competition rules.
If an agreement falls within the detailed provisions
of any particular block exemption, the agreement is automatically
exempt from the competition rules and thus is enforceable
(that is, not void). Block exemptions from the competition
rules exist in respect of:
- exclusive purchasing, supply, and distribution agreements
including special provisions for the beer, motor vehicle
and service-station sectors
- patent and know-how (technology) licences
- specialisation and R D agreements
- franchise agreements
- certain agreements in the maritime and air transport
sectors (for example, reservation systems and ground-handling
There are also Commission competition guidelines on commercial
agents, on cooperation and subcontracting agreements, as
well as on agreements of minor importance.
In general, if an agreement might infringe the competition
rules, an attempt should be made to draft the agreement
so that it falls within one of the block exemptions and
hence is automatically exempted from the rules. If this
is not possible an individual exemption must be sought
from the Commission. This involves filing with the Commission
detailed information on the market and the effect of the
While awaiting a response from the Commission, conduct
executed pursuant to the terms of the filed agreement is
immune from fines. If an exemption is granted, it is normally
granted from the date of original filing with the Commission.
Large Mergers and Takeovers
As well as rules prohibiting anti-competitive conduct
there is a Regulation which requires prior notification
of all of the largest mergers, acquisitions and certain
joint ventures, formed between companies active in the
The Commission has the power to block completion of these
large transactions but has done so only on two occasions.
A number of notifications have however, been withdrawn
or the terms of the transaction have been amended so as
to avoid objections of the Commission. Only a few very
large Australian companies have been required to file such
notifications (eg TNT, Brambles, TELSTRA). It should be
noted that even if a merger or takeover involves companies
which are all based outside the EU, notification may still
be necessary. An example is Trans-Natal Coal Corporation's
takeover of Randcoal, both of which are South African companies
and mainly mine coal in South Africa.
Government Assistance and Competition
If an EU Member State authority gives subsidies or other
assistance or aid to an enterprise, the Commission can
force the repayment of the aid or withdrawal of the assistance
if the aid prevents or distorts competition in trade between
the Member States.
All state aid of the Member States is kept under review
by the Commission which may approve the aid following an
investigation. Certain types of aid is exempt from notification
while other aid is automatically approved if it falls within
certain detailed criteria. Special rules apply to state
guarantees, and the textile, motor vehicle, shipbuilding,
transport, fisheries, coal and steel sectors. The restrictions
on state aid are relaxed in less-developed regions, for
environmental reasons and for research and development
activities, but only if strict conditions are satisfied.
Enterprises which are disadvantaged by state aid granted
by EU Member State authorities can complain to the Commission
which has the power to intervene and has done so on many
Possible New Anti-Trust Agreement
The EU Council has given the Commission a mandate to
begin negotiations with Canada for an agreement on cooperation
in anti-trust matters. The agreement would set up mechanisms
for consultation between the respective competition authorities
and would undoubtedly build on experience from a similar
agreement with the United States. The US agreement is currently
in the form of a proposal since the formal agreement concluded
in 1991 had been annulled by the European Court on procedural
grounds. However, a new US-EU Agreement is expected to
be finalised soon.
Information Exchange Between Competitors
The European Court of First Instance rejected an appeal
by tractor manufacturers against a 1992 Commission Decision
prohibiting an information exchange agreement between tractor
manufacturers in the UK. The agreement made available to
manufacturers up-to-date detailed information on sales
by geographic area, product and manufacturer. In effect,
the Court held that in an oligopolistic market an agreement
to exchange confidential information of this nature, even
without any evidence of anti-competitive conduct following
from that exchange, was enough to diminish competition
between the parties to the agreement and to create a barrier
to new entrants, thereby restricting competition.
Record Fines Imposed
Fines totalling ECU 248 million (A$385 million) have
been imposed by the Commission on 33 cement producers and
9 cement trade associations, variously located in the EU,
Norway and Switzerland. The companies and associations
were found by the Commission to have colluded to reduce
price differences between EU countries so as to remove
any reason to export. The level of the fines was justified
by the Commission on the basis of the extended period of
the violations (over 10 years), the seriousness of the
infringements, the size of the cartel and the size of the
Proposed Block Exemption Regulation
Following the proposed prolongation of the exclusive
distribution agreements block exemption for automobiles,
the EFTA Competition Surveillance Authority has voiced
its disapproval of a Commission proposal for the first
time. The Authority calls for an opening-up of the national
automobile markets to create an EU-wide market. The Authority
is willing to grant a maximum of five years' grace to the
automobile producers to enable them to adjust to the idea
of EU competitive forces taking over national car markets.
Commission Blocks Multimedia Venture
The Commission has blocked a joint venture between state-owned
Deutsche Telekom and two big German media companies notified
under the rules of the Merger Control Regulation.
This is only the second time since the entry into force
of the Merger Control Regulation that the Commission has
blocked a transaction. The Commission considered that the
dominant position of the two media companies in the pay
television market would have been unacceptably reinforced
by the almost total control of Deutsche Telekom over the
German cable network. The Commission was concerned that
this control might assist in preventing or delaying the
emergence of competitors.
Exemptions for Small Agreements
The Commission is proposing to raise to ECU 300,000 (approximately
A$470,000) the turnover threshold of enterprises entering
into agreements not considered to have an appreciable effect
on competition in the EU. The parties to such agreements
must still satisfy the test of not having market share
over 5 per cent.
Opposition to Price Increase by Post
At a meeting of the International Post Corporation (IPC)
which groups together 25 EU and North-American postal administrations
The Netherlands and Spain rejected the adoption of an agreement
to increase terminal dues (cross-border charges) levied
between postal authorities.
Should the increase go ahead, the Dutch PTT Post indicated
that it will challenge the IPC cartel and file a complaint
with the Commission on competition grounds. PTT Post argues
that the increases will not be linked to improved quality
of service. Any price increases will almost certainly have
an impact on companies which channel their international
post through low cost mailing centres such as The Netherlands.
Changes to Procedural Rules and Reforms
The Commission has adopted a number of measures mainly
directed at clarifying the EU competition rules on mergers.
These comprise a Regulation on notifications, time limits
and hearings, and several Commission Notices. The main
changes concern the distinction between concentrative and
cooperative joint ventures (see Legal Practice Briefing No.
12, pp.1112), the calculation of turnover, and the notion
of 'concentration' and 'undertakings'. As regards notification
for clearance of agreements, the standard Form CO has been
revised so that a new short-form notification procedure
will now apply to concentrations which have little impact
within the European Economic Area (that is, the EU plus
Norway, Iceland and Liechtenstein).
New Block Exemption on Technology Tranfer
The Commission's proposed Regulation on technology transfer
agreements, replacing the two block exemptions on patent
and know-how licences, has raised considerable concern.
Under the proposal, high market shares (as small as 10%
in some cases) would deprive enterprises of the benefits
of the block exemption. Opponents suggest that this would
probably increase legal uncertainty and hence the number
of agreements which would need to be notified individually
in order to obtain clearance. In view of the controversy,
the Commission has announced further consultations and
a six-month extension to the block exemption regulation
for patent licences which was to expire at the end of 1994.
Regulation of Flight Reservations
The Commission has indicated that it may propose rules
aimed at charging travel agents for all reservations made
by computer. These rules, intended to clarify the 1993
Computer Reservation Systems (CSR) code of conduct, would
aim to reduce phantom reservations and subsequent over-booking
problems. Travel agents argue, however, that such a system
would threaten the future financial basis for this sector.
They also claim that it would force them to use telephone
services, thus lowering the quality of service offered
to consumers. Some airlines may make up for the added costs
by increasing the commission given to travel agents on
Challenge to Air France Aid Decision
The recent Commission decision authorising the French
Government's FF.20billion aid to Air France is the object
of applications for annulment before the EU Court of First
Instance. The UK Government and a group of European air
carriers claim that the aid is excessive, could hinder
restructuring and may distort competition between carriers.
The aid was approved by the Commission with conditions:
the submission of a restructuring plan and a ban on acquiring
stakes in other airlines or increasing capacity.
More Subsidies for Iberia
The Commission has adopted revised guidelines for its
intended future treatment of government subsidies (known
as state aids) to the air transport sector. The guidelines
limit approvals of aid to exceptional and unforeseeable
circumstances. Spain has since applied to the Commission
for permission to inject another 130 billion pesetas (A$1.2
billion) into Iberian Airlines. This will probably be the
first application to be considered under the new guidelines.
Shipping Cartel Prohibited
The Commission has prohibited an agreement between 15
shipping companies known as the Trans-Atlantic Agreement
(TAA), although no fines have been imposed. The decision
is in response to complaints from European-based exporters
that the TAA had resulted in the freezing of approximately
20% of capacity, leading to price increases of 20%60% for
1993 and 15 % for 1994. The decision coincides with the
replacement of the TAA by a revised agreement known as
the Trans-Atlantic Conference Agreement (TACA).
ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)
The material in this briefing is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please contact
the Legal Practice before any action or decision is taken
on the basis of any of the material in this briefing.