European Competition Law Newsletter – January 2024

January 2, 2024

Table of Contents

UK CMA Provides First Informal Guidance on Environmental Sustainability Agreement

On 14 December 2023, the UK Competition and Markets Authority (CMA) published its first informal guidance on the application of UK competition law to an environmental sustainability agreement.

The guidance was provided to the Fairtrade Foundation following a request made under the open-door policy of the CMA’s Green Agreements Guidance, which was published in October 2023. The Green Agreements Guidance sets out how UK competition law applies to environmental sustainability agreements between actual and potential competitors to help them act on climate change and environmental sustainability.

Fairtrade is a nonprofit, multistakeholder association that implements a global certification system designed to promote social, economic and environmentally sustainable trade for all participants in the food supply chain. The request related to Fairtrade’s planned Shared Impact Initiative for the sourcing of Fairtrade banana, coffee and cocoa products by participating UK grocery retailers. The stated objective of the initiative is to use long-term supply arrangements between the retailers and participating Fairtrade producers to provide the producers with the security they need to invest in sustainable practices, including farming practices that reduce the environmental impact of production.

The retailers would commit to purchase, on an annual basis, additional Fairtrade banana, coffee and/or cocoa products where there is scope to source additional products (i.e., the retailer does not already have a 100% Fairtrade category commitment) from suppliers selected to participate on the basis that they currently sell low levels of Fairtrade products. When a retailer has made a commitment in respect of one (or more than one) of the three commodities, it is required to meet overall minimum supply thresholds for that commodity so that the desired objective of enabling investments thanks to a certain demand over a sufficiently long period can be achieved. Beyond this minimum threshold, the retailer is free to choose from where to purchase any additional demand (and it is open to the retailer to purchase additional volumes from the pool of suppliers).

The CMA sets out in the informal guidance that it considers the initiative is unlikely to raise concerns under UK competition law. This is because the agreement as a whole is unlikely to affect the main parameters of competition and is unlikely to have appreciable effects on competition in view of its limited scale relative to the overall size of the potentially affected markets. It is also likely to result in additional availability and choice of Fairtrade products for UK consumers. Further, to the extent that any specific provisions within the initiative may have some restrictive effects, the provisions are likely to be objectively necessary to implement, and proportionate to achieve the overall objective of, the agreement (i.e., are “ancillary” to it and therefore outside UK competition law for that reason).

This doesn’t appear to have been a difficult case for the CMA (the initiative is described as a “pilot” and clearly has been carefully designed). Nevertheless, the guidance is important in itself as the initiative should encourage more environmentally sustainable farming practices, which have various benefits including tackling biodiversity loss and reducing greenhouse gas emissions. More generally, where there is legal uncertainty, the speed with which the guidance was provided should also encourage other entities considering environmental sustainability agreements to approach the CMA (recognising, however, that significant work would have been involved in designing the initiative in this case and then presenting it to the CMA in an appropriate light).

European Commission Investigates Trade Association and Consultancy for Alleged Cartel Behaviour

On 30 November 2023, the European Commission announced that it had sent a statement of objections (SO), a preliminary statement of case, to five automotive starter battery companies, their trade association and the association’s service provider. The Commission has concerns that between 2004 and 2017, the five manufacturers created, published and agreed to use new indices in their price negotiations with car producers. The aim of this alleged conduct was to fix an important element of the final battery price. The Commission also is concerned that the trade association and its service provider were aware of the alleged conduct and actively contributed to it by assisting the battery manufacturers in creating and running the system. Such behaviour would infringe EU competition law and likely give rise to fines.

The Commission and national regulators, including in the UK, regularly investigate and fine trade associations and their members for infringements of competition law linked to trade association activities, including cartel behaviour and information exchange.

In addition, facilitators of behaviour that infringes competition law, including not only trade associations but also independent consultants, have been fined on numerous occasions. Companies need to take particular care in their dealings with and attendance at trade associations, and third parties need to be aware that a cartel facilitator will be treated as a cartelist. The Commission’s SO deals directly with these issues and serves as another warning of these dangers.

Local, Short-Term and Narrow Cartel Fined in the UK

National competition law regulators often investigate very small markets and companies. Part of the rationale for this is to produce decisions that act as a deterrent to others.

In a good example of this, the UK Financial Conduct Authority (FCA) announced on 30 November 2023 fines on three small money transfer firms for infringing UK competition law. The FCA is the UK’s financial services regulator, but it also has powers to enforce the prohibitions under UK competition law on anti-competitive agreements and conduct in relation to the provision of financial services. Its competition law functions are “concurrent” because the main UK competition law regulator, the CMA, also may exercise such powers in this sector.

The case concerned price fixing on in-store exchange rates and transaction fees for customers using branches of two of the companies in Glasgow, UK, to convert UK pounds into Pakistan rupees and transfer the money to Pakistan. The third company involved did not operate a branch but was found to have facilitated the conduct. As well as being very limited in its geographic scope and product coverage, the duration was short. The FCA found that the coordination took place for just over three months in 2017.

Reflecting the small size of the companies involved and their admission of infringements of competition law, the fines ranged from only £3,600 to £139,500. Nevertheless, those sums may be significant for the companies in question.

The FCA commented that it is “determined to use its powers to ensure that local retail markets are competitive across the UK and therefore prioritised this investigation.” The CMA takes a similar view, and the case serves as a good reminder that even small traders selling in local UK markets need to consider, in an appropriate manner, competition law compliance.

European Commission Publishes Guidelines for Sustainability Agreements in Agriculture

On 7 December 2023, the European Commission published guidelines on the application of EU competition law to sustainability agreements in the field of agriculture. This follows its June 2023 “Horizontal Guidelines,” which provide general guidance on the application of EU competition to sustainability agreements between actual and potential competitors and include a section on sustainability agreements.

The agriculture guidelines use a novel exclusion from EU competition rules introduced by the recently reformed Common Agricultural Policy (CAP). The exclusion is contained in Regulation 2021/2117, which introduced Article 210a of the CMO Regulation. This provision allows agreements aimed at achieving a set of sustainability objectives by applying standards higher than what is mandatory under EU and/or national laws, provided that any restrictions of competition that result from such agreements are indispensable for the achievement of those objectives.

The aim of the guidelines is to clarify how operators active in the agri-food sector can design joint sustainability initiatives in line with Article 210a. In particular, they define the scope of the exclusion and the eligible sustainability objectives: (i) environmental protection; (ii) reduction of pesticide use and antimicrobial resistance; and (iii) animal health and welfare. They also set requirements for agreed sustainability standards, explain that the agreements can include any type of restriction of competition provided that the restriction is indispensable to achieve a sustainability standard and define the scope for ex-post intervention by competition authorities.

The guidelines include several useful examples illustrating when a situation is likely to be considered anti-competitive in the first place, so that the Article 210a exclusion could become relevant. These include an example considering a certain rice cultivation technique that uses less water than traditional rice cultivation techniques, does not use artificial fertilisers and is pesticide-free. The use of this technique contributes to the sustainable use and protection of landscapes, water and soil, and to reducing pesticide use.

In the example, a nongovernmental organisation (NGO) that is promoting the technique develops a quality mark to be used in marketing Arborio rice produced using it. The NGO licenses the quality mark to wholesalers and producers. Among the conditions for the use of the quality mark is that a grain wholesaler must pay a premium per ton over a reference price for Arborio rice.

The Commission indicates that this price premium is likely to restrict competition because it is not the result of a direct negotiation between buyer and seller, but rather an agreement regarding the terms on which one entity is allowed to negotiate with an independent third party. The position would be different if a grain wholesaler were to agree directly with a rice production cooperative that the former will pay a price premium (calculated, for example, based on a composite commodity price index) per ton over the reference price. That premium payment is unlikely to restrict competition because it is simply a formula agreed between a buyer and a seller for setting the price at which the buyer buys the product from the seller.

Additional EU and UK competition law news coverage can be found in McGuireWoods’ news section.

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