The cartel prohibition and sustainability

Some sustainability initiatives require a widely supported approach. Initially, it seems a good idea to make agreements with your competition, so that everyone experiences the same (financial) disadvantage to the benefit of the environment or society. Nevertheless, these agreements can be dangerous in the context of the cartel prohibition under competition law. Well-known initiatives such as “De Kip van Morgen” (The Chicken of Tomorrow) and the early closure of coal-fired power stations in the “SER energy agreement” were considered violating on the basis of this by the Netherlands Authority for Consumers and Markets (“ACM”). In this article, the cartel prohibition is first briefly discussed. It then describes how such initiatives violate Dutch and European competition law. Finally, a number of developments to combat these infringements are discussed, first by ACM and then by the legislator.

The cartel prohibition

The cartel prohibition is laid down in art. 101 Treaty on the Functioning of the European Union (“TFEU”) and Art. 6 of the Competition Act (“Mw”). This concerns a prohibition of cooperation if this restricts competition. Some agreements are by their nature already sufficiently restrictive of competition (a scope restriction), for example, mutual coordination of prices, while in other agreements it must be examined whether they actually have an anti-competitive effect. There are a number of exceptions to the cartel prohibition:

A minor exemption for small agreements (in terms of participants, turnover or market share);
The De Minimis exception, which does not apply to scope restrictions. Here we look at the market share of the parties involved in the relevant market;
The ancillary restriction arising from European case law relating to a justification based on public interests, which could also include sustainability;
The block exemptions for certain types of agreements;
The balancing test ("the efficiency defence") of paragraph 3, with which companies can consider for themselves whether the benefits outweigh the adverse effects of cartel agreements. This must include:
i. (objective) benefits
ii. that sufficiently benefit users, where
iii. the restriction is necessary and
iv. residual competition is not substantially eliminated.

In the first instance, the latter exception is intended for companies to make a self-assessment in advance whether the agreement is permitted under competition law. In special circumstances, however, ACM can monitor the situation.

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Sustainability initiatives and the cartel prohibition

Although an agreement in the field of sustainability has many advantages for the environment, this is no guarantee that it will succeed as an exemption. The exemption that seems to apply best for this, namely the efficiency defence, is not always accepted. In 2013, for example, ACM decided that the closure of five coal-fired power stations in the SER Energy Agreement provided little benefit to consumers, despite the fact that this could benefit the environment. In 2015, ACM ruled that the “Chicken of Tomorrow”, an initiative to improve animal welfare in chickens, significantly limits residual competition. This was due to the condition that the regularly produced chicken meat had to disappear from the shelves in this initiative. In addition, ACM indicated that it did not provide sufficient consumer benefit. These two examples show that in the current ACM assessment little weight is attached to non-economic benefits, such as animal welfare or the environment.

Sustainability Agreements guideline

ACM’s Draft Guide to Sustainability Agreements appears to facilitate the efficiency defence better. Firstly, with regard to the benefits from the first condition, because it looks at the objective benefits not only for the user, but also for society in general. The circle of users in the second condition is also expanded to include future and indirect users. Benefits outside the user circle can also be taken into account when it comes to agreements to limit environmental damage. If an agreement contributes to a policy goal from an (inter) national standard to which the Dutch government is bound, for example from the Paris Agreement, it is also not required to compensate the users for the perceived disadvantage by means of the agreement. The other conditions for the efficiency defence remain in force. The Guideline also mentions a few more categories of sustainability agreements that are not restrictive of competition because, for example, they do not influence important competition parameters (such as price, quality and innovation).

These additions to the current policy increase the scope of the efficiency defence when it concerns sustainability agreements. As long as competition is not unduly restricted and it is a necessary restriction, a sustainability agreement by means of this Guideline may soon be permitted. In addition, ACM offers the possibility that agreements in the field of sustainability that have been discussed with ACM in time and in which ACM has not seen any major risks, but which later nevertheless prove to be contrary to competition law, are not eligible for a fine. This also applies to sustainability agreements that have been made publicly known and where the Guidelines have been followed in good faith. However, this remains risky, because the Dutch cartel prohibition must be interpreted and applied in the same way as the European cartel prohibition by ACM if the Dutch Competition Act remains unchanged. At the European level, such a relaxation of competition law in the context of sustainability has not yet been achieved. In any case, cases with an international character still risk a fine from the European Commission.

Bill on room for sustainability initiatives

Fortunately, the legislative proposal on space for sustainability initiatives can further improve the position of companies that want to make sustainability agreements. If the above-mentioned Guideline does not offer a way out, a company can request a ministerial regulation on the basis of the bill. Once this request has passed a successful assessment (looking at, among other things, feasibility, enforceability and proportionality) and the entire procedure has been completed (public consultation and a preliminary procedure in both Chambers of Parliament), the scheme can be adopted. After that, there is a five-year period in which the scheme will either lead to regular legislation if it is successful or it will lapse if it is not successful. This bill offers a solution to conflicts with competition law because competition law is in principle not applied to government regulation. At the beginning of this year, the bill will be subject to plenary debate in the Second Chamber of the Dutch Parliament. It will therefore take some time to come into effect. Nevertheless, the European Commission also recognizes that it is time to become more sustainable in the field of competition law. Hopefully, the necessary developments will also take place on European level soon.

Do you want to start a collective sustainability initiative, and do you have doubts in your self-assessment whether this constitutes a violation of competition law? Or are you unfortunately already involved in a dispute about this? Then contact Law & More. Our lawyers are specialized in both competition law and sustainability and are happy to help you.