Out-Law Analysis | 01 Apr 2022 | 8:02 am | 5 min. read
Businesses will need to follow these guidelines in order to avoid antitrust violations when cooperating with competitors.
The draft revised horizontal cooperation guidelines are accompanied by two draft revised horizontal block exemption regulations on research and development and specialisation agreements. There is an open public consultation which runs until 26 April 2022. The final regulations are to come into force on 1 January 2023.
In addition to revising the existing exemptions, the new guidance includes a dedicated chapter on how businesses can cooperate to achieve sustainability goals without infringing competition law. "The proposed revised rules aim to keep up with developments so that beneficial cooperation can take place," the Commission’s executive vice-president Margrethe Vestager said.
Existing EU competition law contains relatively limited exemptions or guidance to encourage the introduction of sustainability initiatives. For example, there are limited exemptions relating to certain agricultural products. Under certain conditions, the ban on cartels does not apply if a standard is pursued that contributes to environmental goals, reduced pesticide use or increases animal health and welfare.
However, there is an increasing need for all sectors to engage in ambitious sustainable and ethical practices such as the reduction of packaging waste or ensuring minimum living wages. Where industry-wide action is required, competitors need to join forces, but the current horizontal guidelines do not provide a clear framework for such cooperation to take place. Businesses must assess for themselves whether cooperation with competitors to achieve sustainability goals is permitted or not under the competition law rules.
The new guidelines, expanded to include sustainability aspects, will be of great importance in practice when it comes to this self-assessment. Such guidance is also likely to reduce the legal uncertainty that has in the past prevented businesses from cooperating with their competitors in the interests of sustainability. Indirectly, this is the contribution of antitrust law to the EU's "Green Deal" – a broad programme of reform designed at encouraging investment in measures to tackle climate change and help the environment.
The term sustainability is interpreted very generously in the guidelines and also refers to social aspects, including labour and human rights. For example, activities that aim to combat climate change, respect human rights, reduce food waste or ensure animal welfare are mentioned. The term ‘sustainability agreement’ used in the guidelines refers to any type of horizontal cooperation agreement that genuinely pursues one or more sustainability objectives, regardless of the form of cooperation. This could, for example, include research and development agreements, or purchasing cooperation designed to benefit the environment,
There will be many sustainability initiatives that do not raise antitrust concerns because competition parameters such as price or sales are not affected. As an example, the European Commission mentions industry-wide campaigns to make customers aware of the ecological footprint of their consumption, or a database to collect information on suppliers using a sustainable production process.
A common type of cooperation which is likely to warrant greater scrutiny includes the setting of industry-wide sustainability standards. For example, where competitors may seek to phase out non-sustainable products and processes, remove them from the market or replace them with sustainable alternatives. Businesses may also want to harmonise packaging sizes to reduce waste, or agree to only buy products that have been produced sustainably. However, such agreements can lead to higher production or purchasing costs and thus higher sales prices for the products concerned. Even positive effects such as the improved product quality or the improved delivery conditions can also restrict competition, for example by discriminating against certain low-cost competitors.
To balance these conflicting positions, the guidelines list various conditions which, if met, mean that the agreement is unlikely to be prohibited (a "soft safe harbour"). For example, the process of developing the standard must be transparent and open to all interested competitors. The businesses must also be free to apply even higher standards.
Such a change would represent a shift from existing case law, and allow for a more flexible approach to justifying industry cooperation initiatives that pursue sustainability goals.
In addition, a decisive factor will often be whether consumers receive a fair share of the benefits resulting from the agreement. Businesses must therefore prove that their cooperation leads, for example, to certain product improvements or a reduction of pollution or carbon footprint. These benefits should - according to the guidelines - outweigh the harm caused by the agreement, so the effect on consumers in the affected market is at least neutral. The guidelines also open the possibility for businesses to argue that benefits exist not only for the individual users of the products concerned, but also a wider group of consumers. Such a change would represent a shift from existing case law, and allow for a more flexible approach to justifying industry cooperation initiatives that pursue sustainability goals. The guidelines also describe the kinds of evidence parties may rely on to demonstrate sufficient ‘pass-on’ of benefits to consumers.
The Horizontal Guidelines also include a revised chapter on information exchange between competitors which is a risk for sustainability initiatives. The Commission will assess the nature and characteristics of the exchange as well as the market characteristics at stake. To avoid competition law infringements, companies must ensure that appropriate safety measures are put in place.
The Dutch Competition Authority is considered a pioneer in the field of sustainability and competition law and submitted updated guidelines on this topic for discussion in January 2021. The authority has also already submitted a statement on the horizontal guidelines with proposed amendments, endorsing that the guidelines classify many sustainability cooperations as unproblematic under antitrust law.
Recently, the German Federal Cartel Office (FCO) has examined several sustainability initiatives and their effects on competition. In January, the FCO assessed an initiative of the German retail sector and Deutsche Gesellschaft für Internationale Zusammenarbeiton relating to living wages in the banana sector and found there were no antitrust concerns. Against the backdrop of the German Supply Chain Act coming into force in 2023, the initiative aims to agree on common standards and strategic goals along the supply chain for private label bananas on a voluntary basis. The initiative is intended to help improve the wages of workers in banana production and raise social standards. The FCO considered that competition concerns would not arise as there will be no exchange on procurement prices, other costs, production volumes or margins among participating retailers as part of the initiative. Nor will any mandatory minimum prices or price premiums be introduced at any point in the supply chain.
The FCO had also no serious competition law concerns against a collective agreement in the milk industry which aims to improve animal welfare in milk production. According to the FCO, the programme includes the introduction of a label for products which fulfil certain animal welfare criteria and the financing of the additional costs incurred through a so-called animal welfare surcharge payable to farmers. The FCO, however, took a different view of a cooperation of German milk producers, which was aimed at area-wide price surcharges by milk producers. This was seen as damaging competition and did not sufficiently pursue sustainability goals.
The UK Competition and Markets Authority (CMA) has also recently published advice to the government on how sustainability considerations can be incorporated into the UK’s competition and consumer protection regimes. The CMA said that no fundamental change in law is required - for example a specific sustainability block exemption - to ensure that sustainability initiatives are not inhibited by competition law concerns. It said it is already possible for businesses to work together to reduce the environmental impact of their sector by pooling resources or expertise without breaching competition rules. However, CMA admitted that more clarity on what is allowed and what is not could help businesses.
31 Mar 2022