As a continuation of our previous article that focused on ‘green communications’, in this article we will address the potential and developing role of sustainability in the field of restrictive agreements.
Sustainability in the area of restrictive agreements is a complex and challenging issue, both for businesses and enforcers. Fear of harsh enforcement action may significantly hinder joint “green” initiatives in the private sector (especially in markets where industry wide cooperation would be required to remedy market failure). In addition, enforcers are reluctant to give the green light to such cooperation, as past experiences show that it is uncertain whether cooperation efforts do in fact serve green objectives, or whether they were introduced as a cover for illegal activity. As a result, successful cooperation in the pursuit of green initiatives requires a more flexible approach from enforcers, who – with a few exceptions – currently seem reluctant to demonstrate such flexibility.
What role does sustainability play in the field of restrictive agreements?
Sustainability can operate both as a “sword” and as a “shield”, meaning that it can be used both by competition agencies as a theory of harm to impose punitive or corrective measures, or by undertakings to formulate a case defence for otherwise anticompetitive conduct.
- Sustainability as a “sword” encompasses cases where the harm deriving from restrictive agreements occurs in relation to sustainability considerations, and not in relation to increased prices, which serves as a basis for the theory of harm.
- In a recent relevant case conducted by the European Commission (“Commission”), major car manufacturers colluded on technical developments in the area of nitrogen oxide cleaning. The Commission highlighted the fact that the car manufacturers worked together to delay more efficient technology (i.e. technology that would have reduced harmful particle emissions from the exhaust gases of new petrol-fuelled passenger cars). As expressed by Margrethe Vestager, the commissioner in charge of competition policy, “[…] car manufacturers […] possessed the technology to reduce harmful emissions … [b]ut they avoided competing on using this technology’s full potential to clean to higher standards than what is required by law.”
- Sustainability as a “shield” encompasses cases where an undertaking’s otherwise anti-competitive conduct is exempted on the grounds of sustainability benefits.
- The pesticides cartel case from the Netherlands can be pointed to as a recent example. Following the initiation of this case by a trade association (Dutch Garden Retail Sector), the Netherlands Authority for Consumers and Markets (“ACM”) confirmed that some restrictive agreements and arrangements within a certain and well-defined framework may be concluded between the competitors of the floricultural sector for the sake of the reduction of illegal pesticides by plant growers.
- However, such initiatives are less likely to be accepted while there are examples where companies aim to disguise their illegal activity under the auspices of alleged ‘green benefits’. Such behaviour amounts to the antitrust type of “greenwashing”, which is to be distinguished from the consumer protection type of “greenwashing” that we addressed in our previous article. The President of the Hungarian Competition Authority (“GVH”) drew attention to case VJ/43/2015 (Energizer et al.) in his presentation during the Host’s session on sustainability and competition law at the International Competition Network’s conference in 2021. There, the parties formulated their defence, in part, based on sustainability related elements without, however, providing any detailed analysis, quantification, or substantiation for their sustainability claims. Since the parties did not adequately corroborate their sustainability-based claims, the GVH did not exempt the illegal conduct, although their openness to such a properly formulated defence was clearly articulated in this respect.
How do enforcement agencies react to sustainability in restrictive agreements?
- The international survey of the GVH had some interesting findings in this area. The survey showed, inter alia, that while the number of relevant cases is limited, sustainability considerations will probably emerge more often and will become geographically more widespread in the future. The survey underlined that sustainability in restrictive agreements can mostly be considered a European issue at the moment since the most active enforcement agencies and the most relevant cases are in Europe. The survey also revealed that some competition agencies experienced an expertise gap concerning sustainability and competition, and while a limited number of them have already taken actions to deal with the expertise gap, the majority are still planning to do so.
- The Commission has taken a major step forward by devoting a specific chapter to this issue in the new draft of the horizontal guidelines, which describe how horizontal cooperation agreements will be assessed under Article 101 when they pursue sustainability objectives. For the time being, there are some controversial points in the draft. These include the ongoing debate on what is meant by a “fair share for consumers” in article 101(3) TFEU within the context of sustainability. The horizontal guidelines clarify that full compensation is required when “[c]onsumers receive a fair share of the benefits when the benefits deriving from the agreement outweigh the harm caused by the same agreement, so that the overall effect on consumers in the relevant market is at least neutral.” In contrast, the ACM, in its public legal memo, underlined that in its view, neither the wording of the Treaty nor the case law requires that consumers be fully compensated. Nevertheless, the Commission took a big step when including sustainability agreements in the draft, which signals to the market that the Commission is open to approaches based on sustainability.
- The Austrian legislator also enlarged the scope of the exemption from the cartel prohibition in the Austrian Cartel Act, the intent of which is to create an adequate legal basis for sustainability considerations to be taken into account within the course of the assessment of restrictive agreements. The Austrian Federal Competition Authority (“FCA”) has issued its draft guidelines to provide guidance on how the FCA interprets and intends to apply this new provision. For agreements falling under the scope of the new “sustainability exemption”, the FCA developed a modified scheme for assessment including five cumulative conditions which must be met for an exemption (i.e. cooperation leads to efficiency gains, indispensability of the restrictions of competition, contribution to an ecologically sustainable or climate-neutral economy, significance of the contribution, no elimination of competition).
- The ACM is a pioneer in this field in the EU as it was among the first competition authorities to address the business community about this issue in a soft law document (see the guidelines on the subject). More recently, the ACM has also compiled a list of cooperation opportunities in its guidelines for actors in the agricultural sector. In addition to communicating in a ‘soft’ manner, the ACM has also started to actively implement the guidelines in practice, which can be evidenced by its approach to the pesticides cartel mentioned above, as well as in various energy sector cases. In the latter cases, the ACM supported two initiatives where competitors worked together to reach sustainability goals in the energy sector. Specifically, these included the joint purchase of electricity from a wind farm by businesses and organisations, and the agreement of distribution system operators to use a uniform price for CO2 in calculation models for grid investments.
- The Greek competition authority (“HCC”) is also actively involved in the development of best practices guidelines in this area, having set up a so-called ‘sandbox’. In so doing, market actors have the opportunity to upload their innovative and sustainable business solutions, which are then evaluated by the HCC. The HCC has also cooperated with the ACM in this field, which resulted in publishing a joint soft law document that provides a broad overview of empirical tools for measuring sustainability benefits.
- The German competition authority (“BkArtA”) is also open to moving away from the classical rigid approach to a more flexible attitude towards agreements promoting sustainability. Recently, the BkArtA assessed a case where four companies specialising in sugar production (Nordzucker, Südzucker, Pfeifer & Langen, and Cosun Beet) were planning to work together to ensure the processing of sugar beets in the event of gas supply shortages. In exercising its discretionary powers, the BkArtA decided not to initiate proceedings, and allowed the one-time temporary cooperation project between sugar producers to move forward.
Currently, the overall number of relevant cases is limited. As the responses to the GVH's above mentioned survey suggest, however, the numbers are slowly trending upwards, and enforcement agencies are preparing for a further increase in the number of sustainability related cases.
What can we expect in the near future?
Competition agencies cannot exist in a vacuum that disregards the growing societal demand for more sustainable solutions. Therefore, it is expected that with the growing importance attributed to sustainability around the globe, the willingness of competition agencies to negotiate, and their flexibility towards accepting certain otherwise anticompetitive agreements, will continue to grow in the near future. The above examples show that there are already some pioneer agencies (especially in Europe) that provide the possibility for businesses to declare and launch sustainable cooperation, and to negotiate the framework of such initiatives with the enforcement agency.
By shaping the future approach of enforcement agencies, it will be interesting to see what impact the Commission's horizontal guidance will have and what processes it will set in motion in each member state. The extent of the impact this guidance will have is uncertain at the moment, but the upcoming months will raise interesting questions. Such questions include whether we can expect other competition authorities to issue soft law documents similarly to the ACM, or whether they will instead follow the Commission's practice in the context of the new horizontal guidance? Will meetings with businesses take place in a formal or informal setting, if at all? If the agreements at hand will have cross-border effects, how will competition agencies coordinate international negotiations among themselves?
Clearly, many questions and uncertainties remain, but since the number of agencies willing to engage in a dialogue with businesses is growing, now may be the right time to develop initiatives to serve sustainability. Due to the uncertainties in the system, businesses are strongly advised to seek expert legal support when deciding to pursue sustainability driven goals through a cooperation agreement.
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The article was co-authored by Kristóf Keresztes.