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Dutch Competition Authority: countering illegal activities does not restrict competition

ountering illegal activities does not restrict competition

In a letter dated 2 September 2022 (Guidance), the Dutch Competition Authority (ACM) informally assessed the initiative of the Dutch Horticultural Branche Organisation (TBNL) to counter the use of illegal pesticides in the horticultural sector (Initiative). According to the ACM, this Initiative does not restrict competition as it prevents “unfair competition“.

Brief description of the case

Illegal pesticides are still sometimes used in growing ornamental plants. TBNL wants to counter this through the Initiative. In short, the Initiative consists of a number of measures.

1. Purchase conditions clause

Participating retailers will include the following clause in their (general) purchasing conditions: “The Supplier is liable for and indemnifies the Buyer against any damage that the Buyer may suffer on account of the presence of prohibited substances (in the relevant crop) in the item supplied by it“.

2. Enforcement mechanism

Step 1 first detection of an illegal pesticide

(i)the retailer where the plant is found informs the relevant supplier or grower of the (suspected) use of an illegal pesticide
(ii)the retailer removes the supplier’s or grower’s plant species in question from the shelves
(iii)the supplier or grower may not trade the plant species again with the retailer concerned until it (a) declares that it has not used illegal pesticides and (b) has carried out an additional residue measurement

Step 2 repeated detection of an illegal pesticide

(i)all participants in the Initiative are informed of the repeated use of an illegal pesticide by the relevant grower for the specific plant species and are required to follow steps 1.ii and 1.iii before being allowed to trade again with the supplier or grower for that specific plant species
(ii)TBNL reports findings to both MPS/Global GAP and the Netherlands Food and Consumer Product Safety Authority (NVWA)

Participation of market participants

Participation in the Initiative is voluntary and non-exclusive. According to TBNL, about 70% of the retail market for the sale of ornamental flowers and plants will participate. In addition, a number of trading parties will also take part.

Guidance

Scope of the Initiative

With the Initiative, retailers do not agree on joint prices, try to divide the market or limit production. Therefore, according to the ACM, the Initiative does not aim to restrict competition. Currently, growers who use illegal pesticides have an (undue) advantage over growers who do comply with the law. With reference to paragraph 27 of its 2e draft Sustainability Agreements Guidelines, the ACM states that the competition rules are not meant to protect this “below legal standard competition“. On the contrary, by preventing the violation of the legal rules, TBNL promotes sustainability in the horticulture sector. This protects people, animals and the environment.

Necessity and proportionality

Despite public oversight and private initiatives in the horticultural sector, the use of illegal pesticides still takes place. This is partly due to the:

(i)fear effectindividual retailers are reluctant to take independent action and report violations to the NVWA because of the risk of disrupting the trading relationship
(ii)waterbed effectplants on which illegal pesticides are found are still supplied to other retailers and end up with consumers anyway

The ACM concludes that the Initiative does not restrict competition, but pursues a legitimate (legal) objective and does so in a necessary and proportionate manner. As a result of the Initiative, a fair(er) competitive process can take place, enabling the horticultural sector to become (more) sustainable.

Indemnity for fine

The fact that the ACM does not see any competition concerns at present does not alter the fact that the Initiative may be subject to further investigation at a later stage. If “new facts and circumstances” subsequently reveal that the Initiative is nevertheless contrary to competition rules, the ACM will not impose a fine. After all, the ACM was consulted prior to the introduction of the Initiative. Where appropriate, a solution will be sought together with TBNL in order to comply with the competition rules.

Comments

Combating below legal standard competitionby market participants

Countering unfair competition by market participants is deemed permissible by the ACM without any substantiation. This is remarkable. Indeed, in its response to the European Commission’s (Commission) draft Guidelines on Horizontal Cooperation Agreements (Draft Guidelines), the ACM is less adamant. “Restriction of competition below national or international legal standards Agreements whose sole purpose is to respect national or international legal standards that apply to doing business in or outside Europe, particularly in developing countries, should fall outside Article101 (1) TFEU“. The “ACM believes that competition below national or international legal standards does not deserve protection by our competition laws“. This caution is understandable. For example, David Bailey states that “EU Courts have said that the way to control such matters is by public law regulation or by recourse to the courts in a private law action […] for unfair competition“. He refers, inter alia, to the Slovenská sporiteľňa judgment. According to this judgement “it is up to public authorities and not private undertakings or associations of undertakings to ensure compliance with legal regulations. […] “the application of legal provisions [may in fact] require complex assessments […] which do not fall within the competence of […] private undertakings or associations of undertakings” (recital 20).

Countering unfair competition may thus be reserved for national government agencies and courts. But then, of course, they have to act. Perhaps public authorities are not aware of an infringement because of the fear effect mentioned by the ACM. Courts in turn usually only act when they are called upon. Market participants faced with a case of unfair competition may therefore be forced to raise the issue jointly with a public authority or court. See, for example, Article 5(2) and marginal 31 of the UTP in the agricultural sector Directive in this context. Thus, a joint action limited to a complaint or legal action and in particular not involving “price fixing, sharing of markets or customers, restrictions on production or limitations on quality or innovation” (marginal 570 Draft Guidelines) is likely to be sufficiently proportionate. Where appropriate, it is not likely to restrict competition.

Given the above, however, it is questionable whether the Initiative is in line with the case law of the EU Court of Justice. For instance, enforcement is entirely in private hands. The ACM notes “that an independent decision, or the possibility of appeal, on the use of illegal substances by the supplier or grower is still lacking“. Moreover, according to an ACM news release dated 2 September 2022, growers who continue to use illegal pesticides after an initial warning will be “barred from supplying all affiliated garden centres“. Judging from the Guidance, this “exclusion” is only likely to end once the affected growers have completed steps 1.ii and 1.iii of the enforcement mechanism. According to the ACM, this exclusion does not qualify as a collective boycott of the offending growers as “only plants with illegal residues are excluded from the market“. Nevertheless, it is conceivable that growers might feel pressured by the aforementioned exclusion, or the threat of it, to “not market products that do not meet the sustainability standard”. Such agreements restrict competition by object according to the Draft Guidelines (marginal 571).

Watertight guarantee?

The indemnity offered by the ACM in the Guidance for a fine in case the Initiative is subsequently found to be in breach of competition rules after all is striking. Moreover, it probably does not provide complete certainty. According to the Schenker judgment, the Commission is not bound by a decision of a national competition authority. Hence the Commission can take enforcement action and impose a fine in defiance of such a decision. Especially in cases that are new or not yet crystallised, it is therefore advisable also to ask the Commission for a so-called “guidance letter”as referred to in the Notice on informal guidance.

* photo by jag2020 via pixabay.com

Als advocaat ben ik gespecaliseerd in mededingingsrecht, staatsteun, marktordening in de landbouw (GMO) en compliance. Naast mijn werk voor DVAN advocaten ben ik buiten promovendus bij de Rijksuniversiteit Groningen en de Wageningen Universiteit en onderzoek ik de ‘De rol van producentenorganisaties in het gemeenschappelijke landbouwbeleid’.

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