Proposals for reform of UK competition law have moved up the government's agenda with the publication of a new consultation paper, 'Tackling cartels and the abuse of market power'.It confirms many of the government's earlier proposals in its 1989 white paper 'Opening markets' (Cm 727) and its 1992 green paper 'Abuse of market power' (Cm 2100).

However, the new paper tentatively puts forward substantially watered down proposals for dealing with restrictive trading agreements.

In the 1989 white paper, the government proposed replacing the Restrictive Trade Practices Act 1976 (RTPA) with legislation so closely aligned with art 85 of the Treaty of Rome as to form a virtual mirror image of the European legislation.

Following extensive lobbying, notably by the CBI, the government now suggests that the practical advantages of this legislation may be outweighed by the burden imposed by a regulatory system that starts from an all embracing prohibition of agreements that have the object or effect of preventing, restricting or distorting competition.If the UK does opt for a 'less than art 85' solution it will be out on a limb in Europe as the majority of EU countries have chosen domestic competition laws closely aligned with the Treaty of Rome.

It seems that much will depend on the responses to the current consultation document.Cartels and restrictive tradingThe consultation paper repeats the government's commitment to replace the RTPA and Resale Prices Act 1976 by domestic art 85-type legislation, which prohibits agreements by reference to their restrictive object or effect.

The domestic legislation will, of course, extend to agreements which do not significantly affect trade between EU members states and which accordingly fall outside the scope of art 85.

Art 85(1) imposes an all embracing prohibition on activities ranging from cartel-like practices, such as price fixing and market sharing, through to commonplace commercial contracts, such as exclusive distribution agreements and patent licences.

The European Commission has sought to narrow the scope of art 85(1) by issuing block exemptions under art 85(3) for defined categories of agreements.

However, they are restrictively drawn and technically complex and must be narrowly and strictly construed (see Delimitis v Henninger Brau [1992] 5 CMLR 414).The government's proposals to cut down the scope of the prohibition could involve one or more of the following solutions:-- Restricting the scope of the prohibition to agreements which are substantially, or on balance, restrictive, applying an economic text.

Such a proposal runs the danger of imposing considerable uncertainty.-- Excluding vertical agreements (such as purchasing and distribution agreements and most intellectual property licences) entirely from the prohibition.

These would still be subject to review under the monopolies provisions of the Fair Trading Act 1973, but would only be illegal if investigated under that Act and found to be against the public interest.-- Drawing block exemptions in terms wider than the European block exemptions.Whatever solutions are adopted, the new law will replicate art 85 in many respects.

Prohibited agreements will be illegal, and will subject the parties to possible fines of up to 10% of their annual turnover.

Prohibited agreements will also be void, although the paper suggests that this sanction should be subject to a 'blue pencil test'.

Finally, illegal agreements will leave the parties open to the possibility of third party legal action.

The government proposes to go beyond art 85 in two respects.

First, parties could be fined even if they have duly notified agreements to the Office of Fair Trading (OFT) with a view to gaining a clearance or individual exemption decision.

The paper suggests that notification should not operate as a cloak for illegal restrictive agreements.

Secondly, the legislation would provide for imposition of fines of up to £150,000 on directors and other senior officers, in addition to the fines on the participating companies.Abuse of market powerThe most contentious aspect of the consultation paper is the proposed approach to abuses of a dominant position, or 'market power', the term preferred by UK regulators, which is prohibited under art 86 of the Treaty of Rome.Many commentators (including the former director-general of fair trading, Sir Bryan Carsberg and the House of Commons trade and industry select committee) have argued forcefully for a similar prohibition in domestic law.The government, however, is against introducing a domestic version of art 86.

Its main objection is that the concepts of abuse and market power entail difficult economic judgments, and that prohibition would give rise to legal uncertainty, as well as stirring up speculative private party litigation.

The government has therefore chosen to keep in place the existing Competition Act 1980, which regulates anti-competitive practices, and the Fair Trading Act 1973, which provides for investigation of the public interest effects of monopoly and complex monopoly legislation.

The legislation will be strengthened by giving the OFT the power to enter and search premises, and to impose interim measures prohibiting the continuation of abusive practices whilst they are under investigation.TimescaleThe consultation paper calls for re sponses by 1 May 1996, and the government is apparently giving itself room to introduce a Bill in the next Queen's speech.

However, since legislation has been promised for some five years, readers should not hold their breath! When legislation is passed, the government proposes a six-month delay before commencement to give time for the drafting of block exemptions.

Thereafter, current agreements will benefit from a transitional period of relief from one to five years, the longer period being for agreements which have been notified and cleared under the RTPA.If the legislation proceeds on a fast track then it is possible that agreements drafted today will be subject to the new law in 1999.

It will be advisable for draftsmen to bear in mind that the law may change during the currency of long term commercial agreements, and to discuss the implications of any possible changes with their clients.