The importance of competition policy
An Office of Fair Trading case study

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Page 7: Restrictive trade practices

All commerce is based on agreements of one form or another. Some agreements however, may restrict competition. The most obvious are those involving price fixing and market sharing.

The Restrictive Trade Practices Act covers agreements affecting goods and services. The OFT must be notified of all arrangements, not just formal written agreements, made by two or more parties in business who accept specified restrictions on their freedom to compete. Details are then entered in a public register.

Companies must inform the OFT about agreements containing restrictions on:

  • prices or charges;
  • terms or conditions of business;
  • geographical areas of business;
  • people with whom business may take place;
  • the quantities or types of goods to be produced;
  • the manufacturing process to be used.

Although a large number of restrictive agreements are sent in for registration, the OFT continues to discover agreements which, by accident or design, have not been notified. Businesses may not always recognise that an agreement can restrict freedom to compete. If, however, the Director General has reason to believe that any harmful agreement has been concealed deliberately, he almost always refers the matter to the Restrictive Practices Court, which strikes down any restrictions it finds against the public interest.

In most agreements, the restrictions are insignificant and do not warrant reference to the Court. In such cases, the Secretary of State is asked to agree that there should not be a reference. In the occasional cases that warrant investigation by the Court, the parties must satisfy the Court that the restrictions in their agreements are in the public interest, using any of the possible grounds laid down in the Act. Otherwise, the restrictions are again struck down by Order of the Court.

The government is proposing to reform competition law with a new Competition Bill. It will, amongst other things, replace the Restrictive Trade Practices Act with a law similar to Article 85 of the Treaty of Rome (see European Union competition law). Restrictive agreements will be prohibited, rather than able to operate until struck down. Parties to such agreements will be liable for a fine, unless they receive an exemption from the Director General or successfully appeal to a Tribunal or the High Court. There will also be increased powers to secure information on such agreements.

Office of Fair Trading | The importance of competition policy