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Cooperations for sustainability and animal welfare permissible under antitrust law – the European Commission gets specific


Whenever there has been talk of sustainability exceptions in antitrust law recently, it was mostly about a newly created provision in Section 2 (1) of the Austrian Cartel Act (see also the recently published guidelines of the FCA on sustainability cooperation). A – at least in Austria – less noticed but in practice not to be underestimated regulation on European level can be found in Art 210a of the Regulation on a Common Organization of Agricultural Markets (“CMO Regulation“). This provision has been significantly concretized by a draft guideline published a few days ago.

What is it all about?

Art 101 (1) of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements and concerted practices between companies that restrict competition. Art 210a of the CMO Regulation, introduced in December 2021, creates a broad sectoral exemption from Art 101 (1) TFEU for certain agreements in the agricultural sector, which includes the livestock industry, that restrict competition but serve certain sustainability goals.


However, not every agreement that has sustainability aspects in mind is covered by the exemption. While actors at all levels of the production, processing and distribution chain, up to food retailers, may be involved in the agreement, Art 210a CMO Regulation only applies if at least one of them is an agricultural producer. Consequently, a sustainability agreement (only) between two food retailers could not benefit from the sectoral exemption.


There are also requirements regarding the content of the agreement: It must concern the production or distribution of agricultural products (excluding fishery and aquaculture products), listed in Annex I to the TFEU. In case of an agreement that, for example, deals with the sustainable production of tomatoes for processing into pasta sauces, the cartel exemption would only apply to the part of the agreement that relates to tomatoes, as sauces are not products in the meaning of Annex I.


Furthermore, a sustainability agreement according to Art 210a CMO can only be assumed if it pursues one of the eligible objectives. These can be roughly divided into environmental protection, reduction of the use of pesticides and animal health and welfare. Other objectives, such as better working conditions or fairer wages, are not covered by Art 210a of the CMO Regulation (however, Federal Cartel Office, B2-90/21, “Sustainability Initiative to Promote Living Wages in the Banana Sector”, indicated otherwise).

Which standard?

The sustainability standard to be applied must go beyond that of Union law or national law – depending on which standard applies a higher sustainability standard in the specific case. In any case, simply adhering to existing standards is not sufficient. Due to the diversity of the issues and regulatory complexes in question, no general minimum level is specified by which an agreed sustainability standard must exceed an already prescribed one. The extent to which the standard is exceeded must therefore be examined on a case-by-case basis; it does not have to be measurable, but at least accessible to a comprehensible description. However, the draft guidelines made it clear (which, by the way, is entirely in line with our considerations on this) that an agreement can also fall under the exemption even if no binding standard has previously existed. In this case, the agreement must raise the de facto level of sustainability in terms of the targets, thereby setting a new sustainability requirement, so to speak. However, as soon as equivalent or more ambitious standards come into force at EU or national level, the agreement is no longer covered by the exemption of Art 210a CMO Regulation.


If standards differ in individual Member States or regions, the applicable (higher) standards form the relevant benchmark for the admissibility of the sustainability cooperation. Especially in cross-border situations, this requirement could raise further questions (think, for example, of requirements for the transport of live animals, insofar as these are not harmonized under EU law).

No further restriction than necessary to achieve the objective

Last but not least, the exemption is only applicable if the restrictions on competition associated with the agreement are essential for the achievement of the higher sustainability standard. The draft guidance provides detailed information on the concept of indispensability and the individual test steps that can be used to determine whether a restriction of competition is indispensable. If all the requirements of Art 210a CMO are fulfilled, the agreement is exempt from the ban on cartels. Prior approval is not required.

No favorability principle for “old agreements”

The draft guidelines also contain a noteworthy clarification on the temporal scope of application of Art 210a CMO Regulation: Sustainability agreements have only been covered by it since it came into force on December 8th, 2021. Agreements concluded earlier will benefit from the cartel exemption as of that date. Prior to that date, the competition rules in force at the time apply, which of course does not necessarily mean the inadmissibility of the agreement.

What’s next?

The European Commission has launched a public consultation in which interested parties can comment on the draft guidelines until April 24th, 2023 (the consultation process for the revised horizontal guidelines, which contain a separate chapter on sustainability agreements, runs for a similar period, namely until April 26th, 2023). After evaluation of the comments received, a final version of the guidelines is supposed to be available by December 8th, 2023. If you are interested in submitting a statement, we will be happy to assist you.

Disclaimer

This article is for general information only and does not replace legal advice. Haslinger / Nagele Rechtsanwälte GmbH assumes no liability for the content and correctness of this article.

 

20. January 2023

 
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