Introduction
Fighting cartels is one of the most important objectives of the Commission. Cartels are akin to cancerous tumours on the open market economy, which forms the basis of the Community. By destroying competition they cause serious harm to economies and consumers. Further, cartels undermine the competitiveness of the industry involved, because they eliminate the pressure from competition to innovate and achieve cost efficiencies. Recent anti-cartel actions of the Commission demonstrate that despite the best of efforts cartels continue to exist. It has to be borne in mind that cartels are secret and therefore difficult to uncover and hence their number cannot be estimated exactly.
The EU competition policy is based on three closely related mainstays, which bring the benefits of effective competition to the consumer and enhance the competitiveness of European industry. These are, first, vigorous enforcement of the antitrust rules which prohibit undertakings from engaging in unjustified restrictive agreements or practices and from abusing dominant positions that they hold in the market. Here the focus is on the prevention of anticompetitive behaviour by the market players, such as price fixing or market sharing cartels, and from the disruption of effective competition.
Simultaneously, the control of concentrations is essential in order to circumvent a situation in which dominant positions on a market are created or reinforced through mergers and acquisitions. Secondly, the opening up of economic sectors in which effective competition has not been firmly established is pursued through a gradual liberalisation policy which accompanies legislative measures to further integrate the single market.
Thirdly, EU competition policy covers the control of state aid on a supranational level to ensure that state intervention does not distort the competitive situation of the market through subsidies and tax exemptions. EU competition policy plays an important role in achieving the competitiveness goals of the Lisbon agenda. It encompasses not only antitrust and merger rules which are fundamental to any well-functioning market economy, but also the application of an efficient and firm state-aid discipline.
In view of the world economic situation and efforts in Europe to ncourage growth, it is essential that the interaction between the various policy instruments at the Commission’s disposal is used to the best effect and that the improvement of the EU’s competitiveness remains high on the Commission’s agenda.
The legal meaning of conspiracy
Article 81 of the EC prohibits co operation between independent undertakings, which prevents, restricts or distorts competition. Specifically, its endeavour is to eradicate cartels and hardcore restrictions of competition. Article 81 also applies to co operation achieved through the decisions of trade associations or more informal understandings, known as concerted practices.
A difficult issue arises as to whether parallel behaviour by firms in an oligopolistic industry is attributable to an agreement or concerted practice between them, in which case Article 81(1) would be applicable; or whether it is a natural effect of the structure of the market, necessitating a different competition law response. In several decisions, particularly in the context of distribution systems, conduct which appeared to be unilateral has been held to be sufficiently consensual to fall within the scope of Article 81(1).
Different types of Agreements
A legally enforceable contract is an agreement. Some of these are compromise of litigation such as a trade mark delimitation agreements[ or the settlement of a patent actio. “Gentleman’s agreements” and simple understandings have also been held to be agreements, although neither is legally binding and the requirement that an agreement should be supported by enforcement procedures is lacking. A protocol which reflects a genuine concurrence of will between the parties constitutes an agreement within the meaning of Article 81(1)[6].
Connected agreements may be treated as a single agreements. It is permissible for agreements to be oral. The Commission treats the contractual terms and conditions in a standard-form contract as an agreement within Article 81(1). A time barred agreement whose effects continue to be felt can be caught by Article 81(1).
The constitution of a trade association is an agreement as per Article 81 and an agreement entered into by a trade association is an agreement by its members. An agreement to create a European Economic Interest Grouping (EEIG) or the bye-laws establishing it may be caught by Article 81(1). Although there is no formal agreement this does not preclude the finding of an agreement. In respect of agreements entered into unwillingly, the Commission may reduce a fine, not impose a fine or not institute proceedings at all.
Agreements, Concerted Practice
The Commission views agreements and concerted practices as distinct. However, it is not of much significance in defining the exact point at which an agreement ends and concerted practice begins. The Commission while holding parties guilty of concerted practice does not consider it necessary to determine whether they are party to an express or tacit agreement.
In the PVC decision, the Commission concluded that the parties to the cartel had participated in an agreement “and/or” a concerted practice. At the appellate stage the CFI upheld the Commission’s conclusion. The CFI held that joint classification was permissible where the infringement included elements of an agreement and of a concerted practice, without the Commission having to prove that there was both an agreement and a concerted practice throughout the period of the infringement. The Commission adopted a joint classification approach in British Sugar, in Cartonboard and in Pre-Insulated Pipe Cartel.
In Bayer AG v Commission of the European Communities it had transpired that between 1989 and 1993 the prices of Adalat, a drug used in the treatment of cardio vascular disease, was about 40% lower in cost in Spain and France than in the United Kingdom. This made wholesalers in those countries to export the product to the United Kingdom.
The Bayer Group, envisaging a huge loss of revenue, discontinued the fulfilment of the increasingly large orders placed by wholesalers in France and Spain and accepted orders only for volumes corresponding to the quantities traditionally sold in their home territories. The Commission alleged that there was an agreement between Bayer and the French and Spanish wholesalers to restrict exports to the United Kingdom. The Court of First Instance set aside this decision of the European Commission, because the Commission had not proved the existence of an agreement to restrict exports between Bayer and its distribution network.
The court further said that “proof of an agreement must be founded upon the direct or indirect finding of the existence of the subjective element that characterises the very concept of an agreement, that is to say of a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective or the adoption of a given line of conduct on the market.”
The Concept of A “Single, Overall Agreement”
The Commission has developed the concept of a “single, overall agreement” based on a series of decisions from the 1980’s, for which undertakings bear responsibility, even though they may not be involved in its operation on a continuing basis. In Polypropylene the Commission investigated a complex cartel agreement in the petrochemicals sector involving 15 firms over many years. It held that the detailed arrangements whereby the cartel operated were all part of a single, overall agreement, which was oral, not legally binding and with no sanctions for its enforcement.
Having established that there was a single agreement, the Commission was able to hold that all 15 firms were guilty of infringing Article 81, even though some had not attended every meeting of the cartel and had not been involved in every aspect of its decision-making. On appeal the Court held that participation in the overall agreement was sufficient to establish guilt. The Commission reached similar conclusions in PVC, LdPE and in its second decision on PVC.
The CFI in PVC upheld the Commission’s view that an undertaking can be held responsible for an overall cartel even though it had not participated in all of its constituent elements “if it is shown that it knew, or must have known, that the collusion in which it participated … was part of an overall plan intended to distort competition and that the overall plan included all the constituent elements of the cartel”.
In Tréfileurope v Commission, one of the appeal in the Welded Steel Mesh case, the CFI held that the fact that an undertaking does not abide by the outcome of meetings which have a manifestly anti-competitive purpose does not relieve it of full responsibility for its participation in the cartel, if it has not publicly distanced itself from what was agreed upon in the meetings; this was reiterated in BPB de Eendracht NV v Commission, an appeal in the Cartonboard case. In Steel Beams the CFI held that attendance by an undertaking at meetings involving anticompetitive activities suffices to establish its participation in those activities in the absence of proof establishing the contrary.
The cumulative effect of these judgments is beneficial to the Commission in its anti cartel policy, since the Community Courts have deliberately refrained from construing the expressions agreement and concerted practice in a legalistic or formalistic manner.
Decisions by associations of undertakings
Independent undertakings co ordinate with each other by a trade association and this fact has been acknowledged by Article 81(1) of the EC, which has proscribed decisions of the trade associations which might restrict competition. The application of Article 81(1) to decisions implies that the trade association itself will be held liable and will thereby be fined. It has been held that the constitution of a trade association is in itself a decision, and such a constitution serves as the regulations governing the operation of an association.
An agreement entered into by the association might be a decision and a recommendation made by an association has been held to be a decision, and it has been clearly established that the fact that the recommendation is not binding upon its members does not prevent the application of Article 81(1). In IAZ International Belgium NV v Commission an association of water supply undertakings recommended to its members to refrain from connecting their dishwashing machines to mains system bereft of a conformity label supplied by a Belgian association of producers of this equipment.
The ECJ confirmed the Commission’s contention that this recommendation would restrict competition since it attempted to discriminate against appliances produced elsewhere in the EC. The regulations made by a trade association may amount to a decision within the meaning of Article 81(1).
A decision does not acquire immunity merely because it is subsequently approved and extended in scope by a public authority, nor does a trade association fall outside Article 81(1) because it is given statutory functions or because its members are appointed by the Government. In Commission v Italy the ECJ has specifically stated that the public law status of a national body does not prevent the application of Article 81. Article 81(1) is also applicable to decisions by associations of trade associations. If a trade association is not an undertaking, but is an association of undertakings, then Article 81(1) would be applicable to its decisions and not to its agreements.
Concerted Practices
The implication of the inclusion of concerted practices within the proscription of Article 81 is that conduct which is not attributable to an agreement or a decision might infringe Article 81(1). Though loose, informal understandings to limit competition have to be prevented, it is difficult to define the type or degree of co-ordination within the mischief of the law and to apply that rule to the facts of any given case.
In particular parties to a cartel may do all they can to destroy incriminating evidence of meetings, e-mails and correspondence, in which case the competition authority will infer the existence of an agreement or concerted practice from circumstantial evidence such as parallel conduct on the market. This is dangerous, as sometimes firms act in parallel not because of an agreement or concerted practice but because their individual appreciation of market conditions tells them that a failure to match a rival’s strategy could be damaging or disastrous.
The application of the law in this area is complex and competition authorities must proceed with care in order to distinguish covert cartels from rational and innocent commercial activities. The legal meaning of the term concerted practises will be considered in the sequel.
ICI v Commission or the Dyestuffs case was the first important case on concerted practices to be heard by the ECJ. The Commission fined several producers of dyestuffs, which it held had been guilty of price fixing through concerted practices. Its decision relied upon various pieces of evidence, including the similarity of the rate and timing of price increases and of instructions sent out by parent companies to their subsidiaries and the fact that there had been informal contact between the firms concerned. The ECJ upheld the Commission’s decision.
In Suiker Unie v Commission the Commission held that various sugar producers had taken part in concerted practices to protect the position of two Dutch producers on their domestic market. The producers denied this, as they had not worked out a plan to this effect. The ECJ held that it was not necessary to prove that there was an actual plan, because Article 81 strictly precluded: “any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market”.
These two cases provide the legal test of what constitutes a concerted practice for the purposes of Article 81, namely that, there must be a mental consensus whereby practical co-operation is knowingly substituted for competition, but the consensus need not be achieved verbally and can come about by any direct or indirect contact between the parties.
In Züchner v Bayerische Vereinsbank AG the ECJ quoted both of these extracts when repeating the test of a concerted practice. In Polypropylene, PVC[52], and LdPE the Commission stressed that a concerted practice did not require proof of a plan and in LdPE BP, Monsanto and Shell were held to be parties to a concerted practice even though they were on the “periphery” of the cartel. In Sodaash/ Solvay the Commission pointed out that it would be unlikely that one would find a written record of an illegal resolution but held that, there are many forms and degrees of collusion and it does not require the making of a formal agreement. An infringement of Article 81 may exist where the parties have not even spelled out an agreement in terms but each infers commitment from the other on the basis of conduct.
The ECJ held in Hulls, one of the Polypropylene cases, that “a concerted practice… is caught by Article 81(1) EC, even in the absence of anti-competitive effects on the market”. In reaching this conclusion, the ECJ stated that, as established by its own case law, Article 81(1) requires that each economic operator must determine its policy on the market independently. In British Sugar, the Commission specifically concluded that there can be a concerted practice even in the absence of an actual effect on the market.
The onus is on the Commission to establish that there has been a concerted practice and the Community Courts have annulled decisions where they were unsatisfied with the evidence on which it relied. In particular, the ECJ’s judgment in Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v Commission established that, whereas parallel behaviour can be circumstantial evidence of a concerted practice, it cannot be conclusive where there are other explanations of what has taken place.
In 2002 the Office of Foreign Trade UK received complaints that British Vita plc, Vitafoam Limited, Kay-Metzeler Limited and Carpenter Limited had entered into anti competitive agreements or concerted practices, after the conduct of an investigation the OFT closed the investigation as these allegations proved to be false.
In 2001 the Commission established that six companies had operated a cartel in relation to zinc phosphate and accordingly imposed fines amounting to € 11.95 million. The CFI dismissed the appeal of four of these companies against these fines. The appeal was against the manner in which the Commission had calculated the fines and not the commission’s decision that they had breached Article 81(1) of the EC Treaty. This decision of the CFI provides useful guidance on the Commission’s approach to imposing fines in cartel cases[62].
In 2002, the Commission mulcted € 290.71 million on a total of sixteen firms after establishing that they had operated an illegal cartel in the plastic industrial bags market. This information was brought to the Commission’s attention in 2002 by a member of the cartel, British Polythene Industries (BPI), which received full immunity under the Commission’s 2002 Leniency Notice.
Several of the other firms received a reduction in the fine amount due to their co operation with the Commission. Six of Paris’ most prestigious hotels were fined for sharing commercial information in order to keep prices artificially high. These hotels the Crillon, Bristol, Meurice, Piazza Athene, Ritz and George V hotels were found by the French Competition Council to be exploiting their position at the luxury end of the market to effectively regulate prices.
It was held that they had regularly shared confidential information, including details of room rates and marketing plans, for the hotels’ commercial benefit. As these six hotels were in a league of their own in Paris, their practices had altered the normal rules of competition and created an unfair market.
Conclusion
In conclusion it can be surmised that hardcore cartels are among the most serious violators of competition rules. What distinguishes them from other anticompetitive practitioners is that they are secret agreements or concerted practices between competitors. It is due to this characteristic that they are considered to be cardinal sins. Cartels diminish social welfare, create allocative inefficiency and transfer wealth from consumers to the participants in the cartel.
Cartels are harmful over the long run and result in the creation of artificial, uneconomic and unstable industry structures, lower productivity gains or fewer technological improvements and sustained higher prices. Furthermore, the weakening of competition leads to a loss of competitiveness and threatens sustainable employment opportunities. For all these reasons, the detection, prosecution and punishment of secret hardcore cartel agreements is one of the central elements of the Commission’s competition policy and a number of instruments have been implemented to aid in this endeavour.
The decision to create a special unit was triggered by the fact that cartel members make use of ever more sophisticated tools enabling them to conceal their activities and to cover their tracks. The fight against cartels was given increased priority around the end of 1998. The Commission increased the resources devoted to the work and a unit specialising in the fight against cartels has been established in the office of the Competition Directorate-General. The year 2001 saw the culmination of investigations into 10 cartels involving a total of 61 firms. Some of the cartels were genuinely international while others affected only the European market. These decisions show the variety of industries which are afflicted with this malaise and some of these industries are chemicals, banks, airlines, beer and paper.
The fines imposed in 2001 totalled more than €1.8 billion. In dealing with individual cases, the Commission has recently taken a more economics-based approach in its state aid policy. It has reoriented its state aid policy towards cases and issues of significance for the further development of the internal market.
Another important issue has been the question of fiscal aid, where the exercise under the Code of conduct against harmful tax competition has lead to the identification of a number of potentially harmful tax measures which subsequently were the subject of state aid enquiries. A number of cases have been decided in this context, in some cases granting Member States a certain transitional period in order to adjust their systems.
EU competition policy plays an important role in achieving the competitiveness goals. It encompasses not only antitrust and merger rules which are fundamental to any well-functioning market economy, but also the application of an efficient and firm state-aid discipline. In view of the world economic situation in general and efforts in Europe to encourage growth, it is essential that the interaction between the various policy instruments at the Commission’s disposal is used to the best effect and that the improvement of the EU’s competitiveness remains high on the Commission’s agenda.
The Commission’s objective is to consolidate the commendable results achieved so far and at the same time to further intensify the fight against cartels. A second unit, also, devoted to the fight against cartels has been set up in the Directorate-General for Competition and this represents a substantial increase in the resources devoted to this all important work. From the foregoing discussions it is evident that the Court of First Instance and the European Court of Justice have contributed greatly to the strengthening of the anti – cartel enforcement policy and this is the prime objective of the European Commission’s agenda.
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