Ruairi Quinn (Dublin South East, Labour)
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Question 59: To ask the Minister for Enterprise, Trade and Employment if his attention has been drawn to the practice in many market sectors of exclusive distribution contracts for specific products or product lines; if his further attention has been drawn to the fact that such contracts often divide the European Single Market into sections by country or group of countries; his views on whether such exclusive distribution contracts, which prevent, for example, an Irish company purchasing machinery from a German supplier at the rates prevailing on the German market and instead forces it to purchase from whomever has the exclusive distribution rights for Ireland, are against the rule and spirit of the Single Market; the steps he intends to take to protect small and medium business owners, who are most affected by this problem, from this behaviour; and if he will make a statement on the matter. [18564/06]

Micheál Martin (Cork South Central, Fianna Fail)
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I welcome the first opportunity to answer Deputy Quinn's queries on Question Time and hope we will have constructive engagement in the context of his portfolio.

My attention has not been drawn specifically to this matter. However, the Competition Act 2002 prohibits anti-competitive arrangements between undertakings and the abuse of a dominant position by undertakings. The Competition Authority was established by statute and one of its functions is to enforce the Act. It is also empowered to apply Articles 81 and 82 of the EU treaty as well as national competition law provisions where the agreement or conduct being examined may have an effect on trade between member states.

It would appear the products referred to in the question are distributed throughout the EU under exclusive distribution-type agreements. The main feature of such sole distributor or exclusive distribution agreements is that the manufacturer or supplier generally agrees to supply certain goods for resale to only one party, the exclusive distributor, within a defined territory and no other party will be supplied with the goods within that area.

Generally, competition law does not prevent manufacturers, wholesalers or retailers from entering into or concluding exclusive distribution agreements. European and Irish competition law permits such agreements, provided certain conditions are met, on the grounds that the beneficial aspects of such agreements outweigh their anti-competitive effects. The relevant guidance for making this assessment where there is an effect on trade within the European Union is contained in EC Regulation 2790/99 and the accompanying EU guidelines on vertical restraints. Where the effects of the agreement are confined to the State, the Competition Authority's declaration in respect of vertical agreements and concerted practices applies. The authority's website, www.tca.ie, provides comprehensive information in this regard.

I accept that prices for similar products continue to differ significantly across the European Union despite the existence of the Single Market. Competition law cannot prescribe how a particular company determines how to distribute or price its products throughout the EU, which remains the prerogative of the individual firm. Price differentials between geographic markets may occur for a variety of reasons. For example, local supply and demand conditions and the number and type of competitors in each market may differ. Further differences might exist in marketing, distribution and transportation costs or the degree of rivalry among competitors in local markets.

However, I understand the EU Commission and courts have previously considered and ruled on matters such as restrictions on passive selling by distributors in an exclusive distribution network. Therefore, I would encourage anyone who feels aggrieved as a result of such an exclusive distribution agreement to contact the Competition Authority or the Commission directly.

Ruairi Quinn (Dublin South East, Labour)
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I thank the Minister for his reply and kind remarks. Ten or 15 years ago, it was normal practice for a particular company as a wholesale distributor in any member state to get the exclusive right to purchase the product from the manufacturer and be the sole sales agent into the retail trade across the territory of, for example, the Republic of Ireland. Consequently, all retailers were buying from one distributor at the same basic price subject to the normal laws of discount, volume and so on.

Is the Minister unaware of a practice that has arisen whereby large multiples, be they Aldi, Lidl, Woodies or anyone with substantial purchasing power, can go directly to the manufacturer of the product in question? In the case I am citing, the details of which I can give the Minister, the manufacturer is German. Due to the bulk volumes involved in selling to large retail outlets, the large retailer operational in Ireland can sell at a price less than the wholesale price at which a domestic retailer can purchase from the distributor.

The distributor in this case, an Irish company based in Tallaght, has the sole right to buy from the German manufacturer and sell into the Irish market. If the Minister and I, as competing retailers, wanted to go to Germany to buy that product at domestic volumes instead of large, Woodies-type volumes, we would be prevented from doing so because of the legal contract between the German manufacturing company and the Irish domestic distributor, who is essentially a middle-man. No more, no less. No value is added other than warehousing. In many cases, the products are shifted straight from the manufacturer in Germany to the retail premises in question. Is the Minister saying that in these circumstances, the only redress available to the Irish retailer is to go to the Competition Authority or access the legislation to which he referred?

Micheál Martin (Cork South Central, Fianna Fail)
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Yes. I need to get the details of the specific case. If the Deputy provides them, I will ask my officials to scan through them and determine if there is any basis on which to send the case to the Competition Authority. The retailer in question could do so also.

From my observation of the brief before me, if a domestic company went unsolicited to Germany to make a purchase, a refusal to sell could be contrary to EU competition law. This matter could be explored. On the wider issue, there is competition across the EU and situations such as that described can materialise. I would like to see the full details of the case. My Department will examine it and determine to what degree it may contravene EU competition law.

Ruairi Quinn (Dublin South East, Labour)
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I thank the Minister for his reply and I will happily give him the individual details. They may be of interest to his colleague, the Minister of State, Deputy Killeen, because the company is based in a town in County Clare.

The practice is widespread and has been for decades. This was the way business was traditionally done. The arrival of big multiples in this sector, such as those I mentioned, has changed the set of circumstances. Previously, if the Minister or I had gone as retailers to a manufacturer in Britain, France or Spain to purchase into our own market, we would have been told "No" and that we needed to deal with such and such a person who had the agency for Ireland.

This was fine if no one else was bringing the product into Ireland, as the same price was being charged, by and large. One can see the colour advertisements for the likes of Lidl and the relative differences in price, which are significant. Irish retail distributors and shop outlets cannot access those types of products at the prices Lidl does due to the volume involved. The viability of many small retail outlets across the country is at risk.

Micheál Martin (Cork South Central, Fianna Fail)
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The other side of that coin is that some of these exclusive arrangements can be detrimental to competition and competitive pricing. They could have had the impact of keeping prices artificially high. We held a significant debate on this matter in the context of the groceries order and so forth.

There is no question that the market has changed. The convenience sector has grown considerably. From appearances, it seems that price is not a determining factor. Convenience, however, is a factor in that people continue to pay over the odds but are happy to do so because of access issues and so on. I would be interested, in the context of competition law, to see if there are breaches and if people are being discriminated against by the practices of certain firms.