Issues like climate change and global supply chain responsibility spur a growing number of companies, in the face of public debate, to take voluntary sustainability initiatives. Some sustainability targets cannot be reached, though, without a certain level of coordination between companies.
In the Netherlands, when this results in agreements that may affect parameters of competition (such as higher prices), the question arises whether such joint sustainability initiatives are eligible for an individual exemption of the cartel prohibition (Article 101(1) TFEU and Article 6 Dutch Competition Act ( DCA)).
An agreement qualifies for individual exemption if it can be established that the consumer benefits resulting from the agreement outweigh the negative effects on competition. Up until recently, there was little guidance on the economic assessment of consumer benefits resulting from sustainability initiatives. Balancing the positive and negative effects poses specific challenges in these cases, because the benefits may be non-economic in nature or may only occur in the future. In the case of agreements that cover the complete market, the requirement for individual exemption that there is sufficient residual competition may pose additional difficulty.
The Dutch government recently addressed this topic in new policy rules to be applied by the Dutch competition authority (the ACM) when assessing sustainability initiatives under the cartel prohibition. Simultaneously, the ACM has published a corresponding position paper, in which it sets out how it intends to implement the policy rules in practice.
These documents provide interesting guidance on the application of the four criteria of Articles 101(3) TFEU and 6(3) DCA as set out below, on sustainability initiatives. The policy rules and position paper have been discussed with the European Commission.
- With regard to the first criterion, requiring the agreement to “contribute to economic and/or technical progress”, the documents adopt a broad welfare perspective. This implies that not only direct benefits to consumers in terms of price, quality or product variety are taken into account, but also broader benefits such as environmental effects, public health, animal welfare and fair trade. An interesting (and unprecedented) quantification of the benefits of emission reductions can be found in a recent assessment of the ACM of the “Energy Agreement for promotion of sustainable growth” entered into between Dutch private and (semi-)public organizations.
- The second criterion is that “a fair share of the benefits” goes to consumers. The policy rules require the ACM to take into account the interests of both current and future consumers in its assessment. The existing European Commission Guidelines on the application of Article 101(3) clarify that the term “consumer” must be defined as follows: “all direct or indirect users of the products covered by the agreement”. This could be read to imply that negative effects on consumers in a specific geographic market or product market cannot be compensated by positive effects that occur in different markets. However, in its position paper the ACM explains that it does see room to take into consideration benefits that cover an extended period of time and that may apply to a larger group than the current users of the relevant product.
- The third criterion of Section 3 concerns the “necessity” of the restrictions. This criterion is generally not applied too strictly in practice. The key factor is if the restriction to competition can be reasonably considered necessary to achieve the planned benefits. When assessing the necessity of agreements implementing a sustainability initiative, the ACM will take into account that due to the “first mover disadvantage” the initiative might not come about without underlying agreement.
- Undertakings involved in a sustainability initiative can comply with the fourth requirement of “residual competition” in various ways. Residual competition can easily be assumed in the case of slight market coverage. Where market coverage is high, it can be sufficient if residual competition remains with regard to competition parameters other than those to which the arrangement applies, such as price, quality or service.
These developments in the Netherlands represent welcome steps towards increased clarity on the assessment of sustainability initiatives. In specific cases, the ACM may give informal guidance on the compatibility of an sustainability initiative with the competition rules.
However, it remains up to the parties involved in a sustainability initiative to duly confirm that their arrangements comply with the cartel prohibition.
The ACM will continue to take fierce action against cartels, whether or not they are flying the banner of green.