The Netherlands move ahead with Competition and Sustainability

By the end of January 2016 the public consultation by the Dutch Minister of Economic Affairs on the new Guidelines Competition and Sustainability will have closed. The Minister will then take into account the remarks made, for example those by the Social and Economic Council of the Netherlands, and finalize the Guidelines calling upon the ACM – the Dutch Competition Authority  – to take into account sustainability-benefits when assessing an otherwise anti-competitive agreement. This is quite revolutionary.

To give a general picture of how things stand in European competition law: if an agreement between competitors to – say – enhance animal welfare raises consumer price (because of higher production costs), it will generally be prohibited under European competition law. The gains in animal welfare are not only difficult to quantify, but they must offset the price-increase resulting from the agreement. If an agreement between – say – sportswear brands to have owners of factories in the developing world pay a fair ‘living wage’, and this agreement results in a consumer price increase in the EU, there is again a risk of infringing competition law: the benefits for workers there cannot easily be taken into account as they do not accrue to consumers here. These outcomes are the result of European competition law being (solely) applied so as to maximize consumer-welfare. This economic interest is difficult to square with the non-economic interest involved in these examples.

Obviously, competition law is a cornerstone of the EU’s internal market; it ensures growth and welfare and is thus not to be trifled with. But the EU (and others, e.g. OECD) also push companies towards greater corporate social responsibility. Intra-company initiatives towards sustainable production can be one of the results, especially in circumstances where the first-mover disadvantage occurs (the problem that one company alone cannot change towards sustainable production modes, because it would make only its products more expensive and thus bad for business). And so there is a tension between values or paradigms of thought. This has recently become especially visible in the Netherlands (but let me know of examples elsewhere: A.Gerbrandy@uu.nl). The Guidelines now do call upon ACM  to take sustainability issues seriously. If quantified analysis is possible, that is the way to go, but if quantification of benefits is difficult, ACM is tasked to qualitatively weigh the interests involved. These can be long-term benefits, for future generations, and can also apply to sector-wide agreements. Whether the weighing also involves benefits elsewhere – outside the Netherlands/the EU – is still uncertain, however.

There are several interesting elements to this legislative initiative. Substantively, the Dutch Guidelines deviate from the way the European Commission’s D-G Comp applies competition law. The Commission places ‘consumer welfare’ at the center of its assessments. Future benefits, benefits elsewhere, and sector-wide agreements are difficult to fit in this assessment. Also, the Commission demands quantification of benefits, whereas the Guidelines leave room for a more qualitative assessment. Though the Guidelines formally only apply to the Dutch Competition Act (obviously the Dutch Minister cannot issue Guidelines on European law), in practice, because national and European competition law is very much entwined, the Guidelines will be applied to (national) cases in which European competition law applies. Questions arise: (a) is an assessment according to the Guidelines in line with European competition law as guarded by the Treaties and the Court of Justice?  (b) What happens in the European Competition Network, where the Commission can take over a case from a national competition authority? (c) What is the role of the uniform application doctrine? (d) More generally, what about the legitimacy of a competition authority in weighing – in essence  – incommensurable values? Though a blog is too short a piece to answer these questions, let me try to give you a glimpse into possible answers.

As to (a), it is my contention that yes, an assessment under European competition law taking into account sustainability gains is in line with European constitutional boundaries. This is by no means a widely held position, so it needs grounding (which I have done elsewhere, see, among others, my article in the Nederlands Tijdschrift voor Europees Recht 2013(9)). Briefly: Articles 2 and 3 TEU prescribe no hierarchy between the values of the EU; from Article 11 TFEU, it follows that environmental protection should be integrated into all of the EU’s policy domains. At the very least this means no hierarchy of competition over sustainability, and one might even argue the contrary position. Protocol 27 (on competition policy) does not change this at all. This constitutional setting needs to be further shaped and interpreted. This is a legal exercise, but the law does not function in a vacuum:  it is influenced by societal developments, such as, arguably, the push towards CSR-action by companies. It is, however, the Court of Justice who has the final interpretative say. In competition cases, the Court has – yes – ruled that consumer welfare is a goal of competition law. But not the single, only goal. Taking the overall case law into account, the Court has not accepted consumer welfare as the alpha and omega of European competition law. At the very least taking sustainability benefits into account is within these constitutional boundaries.

Question (b) is interesting not so much from a legal point of view – the Commission has the power to take a case into its own hands through Article 11 (6) of Regulation 1/2003 –  but from a power-play point of view. Would the Commission do so? What if the ACM were to be dissatisfied about the Guidelines and would actually welcome interference from the Commission? What happens in the EU vs. national, government vs. executive power-balance? To sum up: interesting times.  

The question of uniformity (c)  concerns a more general European law principle. Others (such as Chris Townley have tried to set out the boundaries of this constitutional principle, also for European Competition law. How much divergence from the Commission’s application is allowed? The requirement of uniformity has never meant “exactly the same”, but neither is it a particularly good idea that national authorities apply European competition law in 28 different ways. But now that, as set out above, the Guidelines actually stay within the boundaries of the European constitutional context, should some divergent application not be allowed? Possibly, other competition authorities could follow?

Finally (d), the question of legitimacy of competition authority action. Opinions differ: it has been suggested, quite strongly (most recently Loozen 2015), that taking into account sustainability gains will lead to subjective and politicized decision-making by the administrative authority. When thinking about these arguments, it comes to mind that perhaps the concept of legitimacy itself needs reconsideration by taking heed of the above mentioned push for companies to care for the impact on public interests of their actions. When companies do so – and if they do so collectively so that choices for consumers are limited – their actions are coercive in the same way the legislator’s proscribing of the same outcome would be coercive. Public coercion, in the public interest, needs legitimacy and usually – in the EU – this is obtained through democratic involvement. But now this collective market-action, which is aimed at the public interest as well (covering up a cartel obviously is not in the public interest), would also need legitimating, right? Now, there seem several ways of doing so. The Social and Economic Council, in their reaction to the consultation on the Guidelines, advocates a scaled decision-tree: the best outcome would be state action through legislation in the public interest, but where this is not possible or not happening, the state (or the OECD or the UN or the ILO) would have to provide some way of defining and accounting for the public interest that companies take on. Starting from a different perspective is a notion that Claassen and I have brought forward regarding consequential decision making by companies: as long as it is possible that the companies’ action is overruled, legitimacy must be (provisionally) accepted (Claassen & Gerbrandy, ‘Doing good together. The Ethics and Politics in Competition Law’, forthcoming in 2016). And there are also options to enhance legitimacy of the decision-making process (Gerbrandy European Law Review 2015). As to the idea that this all leads to subjective decision-making; honestly, this seems a silly argument. Qualified weighing does not equal subjective decisions: there are the Guidelines and decisions can be appealed (if formal decisions are taken, of course). But in this respect also the notion of granting ‘room to experiment’ to companies, under supervision and for a limited period of time, is interesting. During this period of grace, companies can implement their initiative after which data should be available to substantiate the acclaimed benefits. Though not necessarily brought up in the context of legitimacy (but to lighten the burden of substantiation ex ante), such leeway for experimentation might actually be part of the answer to this issue.