José
Rivas
Partner, Abogado
Hammond Suddards Edge, Brussels
Article 6 of the EC Treaty requires that environmental
considerations must be integrated into all other areas
of Community policy. This commitment was inserted
in the EC Treaty by the Treaty of Amsterdam in 1997
and is indicative of the Community's increasing activity
in the area of environmental protection. In contrast,
the Treaty's commitment to "a system ensuring
that competition in the internal market is not distorted
" has been one of the cornerstones of the Community
and one of the most discussed and analysed areas of
European Commission policy from the very beginning
of the common market. While one can argue whether
or not the Commission is always willing to feel encumbered
by the imperative of Article 6, there is no doubt
that environmental concerns play a growing role in
the Commission's considerations particularly as it
is being increasingly called upon to adjudicate on
commercial practices relating to environmental protection
especially in the area of packaging waste disposal.
This
paper will discuss the relevance of the following
three areas of competition policy as they have been
applied in relation to issues of environmental concern:
- Agreements between undertakings
- The abuse of a dominant position
- The State aid rules
I
will conclude with some brief comments on the question
of the granting of special or exclusive rights to
undertakings.
Agreement Between Undertakings
Article
81(1) EC prohibits collusive agreements, understandings
or practices between undertakings, which have as their
object or effect the prevention, restriction or distortion
of competition . The absolutism of the Article 81(1)
prohibition is moderated by the possibility of exemption
contained in Article 81(3). Under Article 81(3) such
agreements, understandings, or practices which contribute
to the improvement of the production or distribution
of goods or to the promotion of technical or economic
progress, while allowing consumers a fair share of
the resulting benefit may be exempted from the Article
81(1) prohibition provided that they are no more restrictive
of competition than is necessary to achieve the goals
envisaged nor such as to afford the undertakings involved
the possibility of eliminating competition in respect
of a substantial part of the market for the product
in question.
The
power to grant exemptions under Article 81(3) is the
exclusive competence of the European Commission. It
grants such exemptions by two means:
- Individual exemptions where the Commission produces
a decision that a particular agreement notified
to it by the parties involved has satisfied the
requirements of Article 81(3); or
- A block exemption under which categories of agreements
are exempted from the Article 81(3) prohibition.
The
Commission's guidelines on horizontal co-operation agreements.
In order to help undertakings and their legal advisers
and in order to give an insight into its policy in
applying Article 81 to horizontal agreements, the
Commission has published guidelines. Section 7 of
these guidelines addresses the area of so-called "Environmental
Agreements". By this the Commission means agreements
under which the parties undertake to achieve pollution
abatement or other environmental objectives, in particular
those set out in Article 174 EC. The guidelines specifically
mention agreements that set out standards on the environmental
performance of products or production processes, as
well as agreements between companies at the same level
of trade providing for the common attainment of an
environmental goal such as the recycling of certain
materials, emission reductions or energy-efficiency.
The
guidelines acknowledge that agreements that do not
impose precise obligations on the parties but which
loosely commit them to environmental targets are unlikely
to fall under the Article 81(1) prohibition. This
also applies to agreements that have only minimal
effect on product diversity or purchasing decisions.
Furthermore, agreements which give rise to genuine
market creation, for instance certain recycling agreements,
will not generally be considered to be restrictive
of competition provided that, and for as long as,
the parties to the agreement would not be capable
of pursuing the relevant activities on their own,
and provided that other alternatives or competitors
do not exist.
Unsurprisingly,
the guidelines point out that any environmental agreement
between competitors, which is in reality a disguised
cartel will always be prohibited. Agreements may be
prohibited where they restrict the parties' ability
to make decisions regarding the characteristics of
their products or the way in which they are produced
such as to grant them a way of influencing each other's
production and sales. This could apply, for example,
in the case of agreements under which parties allocate
individual quotas. Agreements whereby parties holding
significant market shares appoint an undertaking as
an exclusive provider of collection and/or recycling
services for their products, may also be considered
to be appreciably restrictive of competition provided
that actual or potential alternative providers do
in fact exist.
In
applying the exemption procedure under Article 81(3),
the Commission expressly states that it adopts a positive
stance on the use of environmental agreements as a
policy instrument to achieve the goals enshrined in
the Treaty regarding environmental policy. In essence
the Commission's analysis is based on the belief that
environmental agreements caught by the Article 81(1)
prohibition may offer economic benefits both on an
individual and collective level that outweigh their
negative effects on competition. However, the competitive
restrictions must be shown to be indispensable to
achieving the environmental goal envisaged as well
as being cost-effective.
CECED
An example of a Commission decision granting such
an individual exemption is found in CECED . This related
to an agreement between manufacturers and importers
of washing machines that led to the phasing-out of
older models that were less environmentally efficient.
In fact the Commission guidelines expressly cite this
case as an example of its method of analysis under
Article 81(3).
The
agreement was caught by Article 81(1) since:
- It granted
the parties control of individual production and
imports relating to an appreciable amount of their
sales and total output, whilst also reducing third
parties' output such as for components and spare
parts;
- Consumer
choice was reduced; and
- Prices
would probably rise as a result.
However,
exemption was granted under Article 81(3) given that:
- The newer products were more technically
advanced and more environmentally more friendly;
- The net contribution in terms of environmental
improvement outweighed the increased costs;
- Consumers would recoup the additional costs
of the newer machinery as their running costs were
lower; and
- Other alternatives to the agreement were
less certain and less cost-effective in delivering
the same net benefits.
Eco-Emballages.
In July 2001 the Commission cleared the contracts
concluded by the French company Eco- Emballages concerning
its system of selective collection and recovery of
household waste . This system was intended to meet
the obligations imposed on firms by the French Decree
92-377 and by EC Directive 94/62 on packaging and
packaging waste. Under the scheme, the producers pay
a financial contribution to Eco-Emballages in return
for having their legal obligations in the area of
the recycling of packaging discharged. Eco-Emballages
then redistributes the money to the local authorities
that are responsible for the collection of household
waste in their local areas. This flow of funds to
the authorities is intended to compensate them for
the additional cost of having to selectively collect
and sort this type of waste. The local authorities
then sell the sorted waste to private companies, which
recover it.
Eco-Emballages
notified the agreements establishing their system
in December 1993. In 2000 it was informed by the Commission
that certain amendments would need to be made to the
various contracts involved. These amendments were
made and the Commission issued a negative clearance.
The key changes made related to the duration and scope
of the agreements as well as to the granting of sub-licences
for the use of the 'Green Dot' logo.
Under
the amended contracts:
- Producers may now leave the system after
a year and at the end of every subsequent year;
- Local authorities may immediately terminate
their contracts with the Eco-Emballage, while Eco-Emballages
must honour their side of the contract for the full
term of six years in the absence of any default on
the part of the local authorities;
- Producers may now conclude a contract for
all or only some of their packaging and local authorities
may conclude an agreement for all or only some of
the packaging waste materials they collect;
- The possibility of using the "Green
Dot" logo is offered to all undertakings that
legitimately need to use this symbol to carry on business.
Adelphe, Eco-Emballage's main competitor, has obtained
such a sub-licence to use the Green Dot in its system;
- Eco-Emballages has furthermore agreed to
grant such sub-licences even to undertakings that
wish to make individual arrangements for some or all
of their packaging while availing of another system
either in the rest of France or in other countries.
Duales System Deutschland.
In September 17 2001, three months after the Commission's
decision regarding Eco-Emballages, and some six months
after finding that the company abused its dominant
position (as discussed in the next section), the Commission
granted negative clearance to the notified statutes
of Duales System Deutschland (DSD) .
DSD
is the only undertaking in Germany operating a comprehensive
packaging take-back system. The system is intended
to meet the requirements of the German packaging ordinance
and EC Directive 94/62 on packaging and packaging
waste. Under the ordinance every distributor and manufacturer
using sales packaging is obliged to take back free
of charge used sales packaging from customers at,
or in the vicinity of, the point of sale. However
undertakings may delegate this responsibility to third
parties which will fulfil this responsibility for
them (so-called "self-management solutions")
or may even be excused from the take back obligation
where they participate in a comprehensive system such
as that of DSD which guarantees regular collections
of used sales packaging from the final consumer. Membership
of the DSD scheme is centred on a trade mark agreement
between DSD and its customers under which the customers
are licensed to display the distinctive Green Dot
on their packaging and DSD guarantees the participating
company that it will collect, sort and recycle used
sales packaging in such a manner as to fulfil the
requirements of the packaging ordinance.
DSD
does not perform the collection tasks itself but rather
contracts this work out to local collecting companies.
Once the waste is collected and sorted it is then
conveyed directly to a recycling plant either by the
collector or is handed over to so-called guarantee
companies, which have given DSD an assurance that
they will recycle the waste.
The
Commission recognised three competition concerns in
addressing the DSD agreements:
- The
free marketing of secondary material: Collected
and sorted packaging material can be reused as a
secondary raw material for various new products.
Under DSD's original agreements the collector was
not entitled to market the collected material itself.
The Commission objected to this restraint on the
basis that it threatened to give DSD and its guarantee
companies a dominant position on the market for
secondary raw material. The collectors are now free
to market the collected and sorted waste.
·
- The duration of service agreements: In the agreements
as originally notified to the Commission the service
agreements between DSD and its local collectors
were concluded for periods of up to 15 years. Given
the fact that DSD had only one collector per district
and was the only provider of a comprehensive recycling
system in the country, contracts of such duration
were sufficient to foreclose the market. In response
to the Commission's concerns, DSD set a termination
date of 31 December 2003 for the agreements which
meant that in effect the longest lasting of the
agreements would be terminated after 11 years.
- Access to collection infrastructure: The Commission's
investigation concluded that the collection and
sorting of household packaging waste is characterised
by a number of features which make the duplication
of existing collection infrastructure economically
unviable. Therefore to ensure the existence of competition
in the downstream market for organising the takeback
and recovery of used sales packaging, DSD agreed
to provide unrestricted access to, and unlimited
sharing of, its collection facilities by its competitors.
Abuse of Dominance
Duales System Deutschland.
Article 82 EC prohibits abusive unilateral behaviour
by an undertaking holding a dominant market position
in a significant part of the Common Market. Its potential
application in the field of packaging and waste management
is illustrated by the Commission's recent decision
in DSD .
In
its decision the Commission found DSD to hold a quasi-monopoly,
with over 80% of the market. The so-called "self
management" solutions, mentioned above, provided
no more than competition at the fringes.
The
Commission objected to a provision of the agreement
between DSD and its customers under which DSD had
to pay fees that corresponded to the volume of the
packaging sold in Germany bearing the Green Dot rather
than the quantity of packaging recycled. Thus the
Commission held that the system did not uphold the
principle of "no use no fee". The Commission
held that an abuse of a dominant position occurred
every time an undertaking that :
a) decided to avail of DSD's exemption service in
respect of only part of its packaging waste in Germany;
or
b) chose not to avail of DSD's service at all in Germany
while still participating in recycling systems which
used the Green Dot mark in other Member States and
wished to use the same Green Dot bottles as it used
elsewhere ,
was charged fees by DSD for the total volume of packaging
the undertaking released onto the German market.
DSD
maintained that such undertakings were under an obligation
to pay collection and retrieval fees to it in respect
of all packaging used in Germany bearing the Green
Dot symbol since it owns the sole rights to the Green
Dot logo in that country. Such a scenario, the Commission
concluded, led inevitably to a double payment situation
where the licencee had to pay both DSD and the company
that actually provided the waste management service.
The
Commission further concluded that obliging undertakings
not to mark packaging that was not to be covered by
the DSD system in Germany with the Green Dot was not
realistic as this would oblige them to produce at
least two different packaging lines, the additional
cost of which could well offset the advantage of availing
of the services of DSD's competitors.
State
Aid - The Example of Ecotaxes
Article
87 EC sets out the principles on the basis of which
the compatibility of State aids with the common market
is to be judged. Article 87(1) enunciates the general
principle that State aids fulfilling certain broadly
defined criteria are incompatible with the common
market. This general principle is qualified by "ipso
jure" exceptions, listed in paragraph (2) and
discretionary exceptions listed in paragraph (3).
For
the purposes of today's discussion I would like to
consider briefly the Community's State aid discipline
as applied to the question of derogations from so-called
ecotaxes. As in the area of horizontal relationships
between undertakings as discussed earlier with regard
to the Article 81(1) prohibition, the Commission has
issued Guidelines on the grant of State aid for environmental
protection.
Guidelines on State aid for environmental
protection.
The Commission's first guidelines in this area were
adopted in 1994 for a period of five years. However
these guidelines were subsequently prolonged for another
two years and it was not until 2001 that new guidelines
were adopted . They are a useful starting point for
anybody wishing to get to grips with Community policy
in this area.
Paragraphs
22 to 24 of the guidelines specifically address the
question of ecotaxes as applied in the energy sector.
The Commission noted the developing trend among Member
States of adopting taxes in order to encourage the
protection of the environment. The guidelines go on
to note that in some cases exemptions from or reductions
in taxes are granted to firms in particular categories
in order to avoid placing them in a 'difficult competitive
position'. The guidelines are clear that such exemptions
or reductions are capable of constituting State aid.
However the negative effect of such aid may be offset
by the benefits accrued. Therefore where such exemptions
or reductions are considered necessary to ensure the
adoption or continued application of the taxes applicable
to products in general, the Commission takes the position
that they are acceptable provided that they are subject
to certain conditions and last only for a limited
period of time. Under the guidelines this period may
last for up to 10 years although the Member State
in question is free to re-notify its arrangements
to the Commission after the expiry of that period.
Paragraphs
47 to 53 of the Guidelines go on to consider the rules
applicable to operating aid granted in the form of
reductions in or exemptions from environmental taxes.
Operating aid is aid that is not justified under any
of the Commission's guidelines or regulations and
is purely intended to reduce a firm's current expenses.
The Commission's guidelines consider two scenarios:
Scenario
1: A Tax Imposed as a Result of a State Measure.
If
the tax levied is purely an autonomous measure taken
by a Member State then the Commission accepts that
firms affected may have difficulty adapting rapidly
to the tax burden. In such circumstances there may
be justification for a temporary reduction or exemption
enabling certain firms to adapt to the change and
in such cases the exemption will be compatible with
the common market. From the Guidelines the key consideration
would seem to be whether, in the absence of the possibility
of a reduction or an exemption for the particularly
sensitive industries, the entire scheme would be feasible.
Scenario
2: A Tax Imposed as a Result of Community Harmonisation.
In
the case of a tax resulting from a Community measure
two further scenarios are envisaged:
1.
A Member State applies tax to certain products at
a rate higher than the minimum rate laid down in the
Community directive and grants an exemption to certain
firms which, as a result pay tax at a rate which is
lower, but still at least equal to the minimum tax
set by the directive. The Commission sees such variations
are justified to enable firms to adapt to the higher
taxation;
2.
A Member State applies tax to certain products at
the minimum rate laid down in the directive and grants
an exemption to certain firms, which are therefore
subject to the tax at a rate lower than the minimum.
If such an exemption is not authorised by the directive
in question, it will constitute aid incompatible with
the common market. If it is allowed for under the
directive then it will be compatible with Treaty rules
in so far as it is necessary and not disproportionate
in light of the community objectives pursued.
The German Situation.
For an example of the approach taken by the Commission
in applying these principles, we might consider the
situation of ecotax derogations notified to the Commission
by the authorities in Germany. In 1999 the German
government notified to the Commission its ecotax laws,
which provided for reduced tax rates for the producing
industry, the agriculture and forestry sector and
for rail transport services . Thus while all companies
had to pay a higher rate than before, companies in
these sectors paid less than that applied to companies
in general. While the Commission acknowledged that
such a benefit favouring certain industries or sectors
may have to be considered to be State aid, it decided
not to raise any objection to the German scheme since
it was in line with the 1994 guidelines which recognised
that such State aid could be approved in cases where
the application of the general rate would affect the
competitive position of certain undertakings. Germany
agreed to renotify the scheme after three years.
Since
then the German authorities have progressively raised
the levels of these ecotaxes while maintaining derogations
for energy intensive industries. In February of this
year the Commission gave its decision on Germany's
renotified arrangements . While the Commission's decision
to approve the latest German programme covers a number
of reductions relating to various taxes, a number
are worth emphasising in particular as they exemplify
the Commission' s approach under the Guidelines on
State aid for environmental protection:
·
An 80% reduction to be applied for ten years to the
increase in the mineral oil tax for heating purposes
for the production sector, including companies active
in sectors covered under the ECSC Treaty, agriculture,
forestry and fishery. This measure has been held to
be compatible since the rate of tax levied is still
higher than the minimum as set out in the Council
Directive 92/81/EEC of 19 October 1992 on the harmonisation
of the structures of excise duties;
·
A favourable tax treatment of Combined Heat and Power
(CHP) installations as regards their input fuel requirements
of oil and gas was held to fulfil the requirements
of the guidelines insofar as the measure constituted
State aid. Paragraph 31and 66 of the guidelines combine
to approve of both operating and investment aid for
CHP as long as it can be shown that:
The conversion efficiency (the ratio between the quantity
of primary energy used and the amount of secondary
energy produced) is particularly high;
The measures will lead to a reduction in the overall
amount of energy produced; or
The production process will be less damaging to the
environment.
The Grant of Special or Exclusive Rights.
As a final point I would just like to note that the
Community competition rules do not prevent a Member
State from granting (a) selected undertaking(s) special
or exclusive rights, even if such a grant amounts
to the award of a monopoly position to a particular
undertaking. One could feasibly imagine a scenario
in which a Member State might choose to grant such
a right in the case of a nationwide recycling system.
Under Article 86 (1) EC, Member States are obliged
not to enact nor maintain in force any measure contrary
to the Treaty rules, including those relating to competition,
in relation to public undertakings or undertakings
to which the Member State has granted special or exclusive
rights. However, Article 86(2) states that undertakings
entrusted with the operation of services of a general
economic interest or undertakings having the character
of a revenue-producing monopoly shall only be subject
to the rules of the Treaty, including those relating
to competition in so far as the application of such
rules do not obstruct the performance of the particular
tasks applied to them.
In principle the mere grant of an exclusive right
is not incompatible with the EC Treaty and only the
abuse is subject to Article 82. However the Court
of Justice has found that the grant of such rights
may infringe the Community rules if:
· It results in discrimination against imports
or the cross border provision of services ;
· The undertaking enjoying these rights is
manifestly incapable of satisfying market demand ;
or
· The grant of exclusive rights to an undertaking
induces that undertaking to breach Article 82 EC .
An example of one such situation arose where one operator
in the market for dock-work services in the Port of
Genoa was given the exclusive right to supply its
competitors with temporary labour . The Court of Justice
judged the undertaking to be thus placed in a situation
wherby the mere exercise of its monopoly would lead
to an abuse of its position given that it would certainly
retain the best staff for itself.
Conclusions.
It
is likely that the coming years will see the European
Commission increasingly called upon to apply environmental
thinking in formulating competition policy. The plethora
of initiatives witnessed in fields such as waste recycling,
whether initiated as a result of national or European
legislation, have seen the emergence of new operations,
which while environmentally beneficial, may not sit
easily in the existing competition framework. Formulating
effective competition models, which can serve the
twin imperatives, set forth in the Treaty of free
competition and environmental protection is in its
early days. However it looks likely to be an engaging
topic of analysis and debate for years to come.
