Dutch Authority for Consumers and Markets proposes bold guidelines on sustainability

Netherlands

On 9 July 2020, the Dutch Authority for Consumers and Markets (ACM) opened a consultation for revised guidelines on sustainability agreements. It seeks to widen the scope of the statutory exemption from the cartel prohibition for those agreements aimed at achieving certain sustainability objectives, and in particular environmental benefits. This should apply both with respect to the cartel prohibition laid down in Section 6(1) of the Dutch Competition Act and Article 101(1) of the TFEU.

The consultation period ends on 30 September 2020.

Sustainability agreements

According to the ACM, sustainability agreements are agreements between companies that restrict or mitigate the negative impact of economic activities on people (e.g. working conditions), animals, the environment, or nature. These agreements can be concluded between competitors (i.e. horizontal agreements), but can also be sealed between companies active at different levels of the distribution chain (i.e. vertical agreements). 

For many years, sustainability agreements have been a priority for the ACM, which always gave inquiries or requests for guidance that concerned sustainability the highest degree of attention. Ironically, the outcome of these cases often led to disappointment on the part of the companies involved. In spite of their intentions and perceived sacrifices for the purpose of achieving certain sustainability goals, the ACM often advised that the cartel prohibition prevented parties from implementing their planned cooperation.

A telling example is the "Kip van Morgen" case, in which the ACM effectively prohibited cooperation in the production and distribution of chicken meat. This cooperation would have resulted in improved welfare to animals and environmental benefits, but would have entailed significantly higher prices for chicken meat. The companies involved had not demonstrated, according to the ACM, that consumers would get their fair share of the alleged benefits.

The ACM's decision not to support this scheme, considered an important initiative to improve a dramatically unsustainable distribution chain, did not go down well in the Netherlands.

Against this backdrop, and in light of the ever-increasing significance of sustainability, the ACM has now revised the guidelines on sustainability agreements. The ACM clearly seeks to push boundaries, and explicitly challenges the current position of the European Commission where it concerns the interpretation of the statutory exemption to the cartel prohibition.

Statutory exemption

If a sustainability agreement restricts competition, companies must assess whether or not the statutory exemption to the cartel prohibition applies, and establish that the following four cumulative criteria are fulfilled:

  • The agreement offers efficiency gains, including sustainability gains;
  • The users of the products in question are allowed a fair share of those benefits;
  • The restriction of competition is necessary for reaping the benefits; and
  • Competition is not eliminated for a substantial part of the products in questions.

In regard to the first bullet point above, only objective sustainability goals will be taken into consideration. Objective benefits are those that are useful not only to consumers, but also to society in a broader sense. They are often associated with a reduction in negative externalities, which are factors that do not affect companies but represent costs for society. 

Regarding the second bullet point, the ACM acknowledges that, according to the European Commission, users should be compensated for any harm incurred by the restriction of competition. In this context, users should, for each relevant market, be viewed as a group.

The ACM, however, believes there is good reason to deviate from this basic principle if two criteria are met: the agreement aims to prevent or limit any obvious environmental damage; and secondly, the agreement efficiently promotes compliance with an international or national standard (to which the government is bound) to prevent environmental damage. These criteria should be considered cumulative.

Therefore, the ACM distinguishes between environmental-damage agreements and other sustainability agreements. Environmental-damage agreements are agreements that aim to improve production processes that cause harm to humans, the environment, and nature. The other sustainability agreements are for instance agreements that set requirements for labor conditions and animal welfare.

In regard to environmental-damage agreements, ACM states it should be possible to take into account benefits for other parties than just the users, provided that the points under the two criteria described above are fulfilled. For example, if companies in a certain sector jointly decide to use carbon-neutral energy only, greenhouse emissions will decrease as a result, which benefits both customers and Dutch society as a whole. 

As for other sustainability agreements, the ACM follows the basic principle that users must be fully compensated. This means that if a sustainability agreement leads to a quality improvement in production, but also involves a price increase, the users as a group will have to attach sufficient value to those quality improvements to offset the price increase.

Irrespective of whether it concerns an environment-damage agreement or another sustainability agreement, the companies involved need to substantiate the benefits of sustainability initiatives either qualitatively (i.e. descriptively) or quantitatively. The most appropriate substantiation will vary in each individual case.

The revised guidelines state that it is not necessary to quantify the effect of an agreement if:

  • the companies involved have a limited combined market share (30% or less); and
  • the harm to competition is obviously smaller than the benefits of the agreement.

If these criteria are met, a qualitative substantiation of benefits is sufficient. This not only assumes that the consumers will have their fair share of those benefits, but – as the guidelines state – assumes that all the statutory exemption's criteria are fulfilled. 

For quantitative assessments, both the pros and cons of sustainability initiatives must be identified as accurately as possible. Benefits of environmental-damage agreements are expressed in monetary terms using "environmental prices". These environmental prices (shadow prices) are values that indicate, among other things, the harm of pollutive emissions and greenhouse gas emissions.

In respect to the criteria under bullet points three and four of the statutory exemption, the revised guidelines do not provide any particular information on sustainability agreements.

Consultation

The publication of the ACM's draft guidelines will fire up debate on competition rules and sustainability within the EU. The Commission has already confirmed the need for clear guidance in this, but has refrained from endorsing the ACM's position at this stage. The question remains: will the ACM put its foot down regarding the essence of the proposed revision of the guidelines, given the clear tension with principles adopted under European competition law?

This bold move puts the ACM back in the leading position, again blazing a trail after a period of relative invisibility on the international stage. The ACM's initiative also coincides with an increase in cartel enforcement in the Netherlands after a long period of drought.

For more information on the consultation ending  on 30 September, the guidelines and the ACM, contact your regular CMS advisor or local CMS experts: Edmon Oude Elferink, partner and Roderick Nieuwmeyer, senior associate