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GREAT insights Magazine

The sustainability dilemma in competition law

28-02-2019

Giancarlo Piscitelli and Anna Gerbrandy, ECDPM Great Insights magazine, Winter 2018/2019 (volume 8, issue 1).

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The business world is inherently dynamic, as demonstrated by the growing number of collective agreements involving companies and other stakeholders – such as civil society organisations – aimed at fulfilment of the Sustainable Development Goals (SDGs). Yet, these agreements can put companies on a head-on collision course with European competition law. Giancarlo Piscitelli and Anna Gerbrandy spell out possible avenues to accommodate such agreements in competition law, thus integrating sustainability initiatives.


Why is competition law relevant at all?


European competition law seeks to prevent or halt anti-competitive conduct. Such conduct often takes the shape of agreements between firms with potentially negative repercussions on end consumers. Such agreements could lead, for instance, to higher prices or to less variety in products. Competition law pertains exclusively to the private sector. However, as progressive liberalisation is putting many traditionally public services, such as energy, healthcare and transport, into private hands, the reach of competition law is expanding. Alongside liberalisation of public services, recent years have witnessed a shift in paradigm: the traditionally for-profit sector is becoming increasingly aware of its ecological footprint and social impact, discovering the appeal of charitable causes and sustainability-oriented initiatives – concerns usually conceived as alien to the private sector.

Firms may even find it efficient to join forces with competitors, and with civil society organisations, to achieve more sustainable production lines. This could lead to industry-wide initiatives towards human, animal and environmental sustainability goals, for example, agreements on child labour, living wages and livestock welfare. Such agreements are likely to result in higher prices (among other things), since organic and ethically-harvested products come at a cost. Competition law, in principle, outright forbids agreements between competitors that produce economic harm to end consumers by increasing prices.

Sustainability agreements, however, are not, at least on the face, aimed at increasing firms’ revenues. Rather, they pursue morally upstanding goals, and often enjoy widespread popular and even governmental support; they pursue, in competition law jargon, non-economic goals.

Competition law matters because this new breed of privately-led agreements pursuing non-economic goals has met stubborn resistance by this field of European law. Indeed, competition law has as yet been incapable of determining exactly how non-economic interests, such as social and environmental sustainability, measure up against the familiar economic interests, such as price effects, in its assessments of private agreements.


Sustainability: Friction between law and values


There exists an undeniable friction between European competition law and non-economic interests. Sustainability-oriented private agreements are a sub-category that often experiences this friction. At the root of the incompatibility between competition law and non-economic interests lies the purely economic standard by which competition law assesses private agreements. Starting in the early 1990s, the European Commission, as chief enforcer of European competition law, progressively embraced quantifiable economic standards for assessing the competitive conduct of firms, and whether that conduct could be justified. This so-called ‘economisation’ of competition law was designed primarily to quantify the impact of anti-competitive agreements on consumer welfare (such as changes in prices, quality, diversity and innovation), by adopting only quantifiable economic tools (such as models of supply and demand, market shares and pricing effects, and consumer and producer surplus). This made the analysis of competition law more predictable for undertakings and practitioners, and somewhat more ‘rational’. In that respect, competition law practice has remained virtually unchanged to date, and competition authorities at the central level of the European Commission and within each member state are still adamant that economic effects on consumer welfare remain the yardstick of competition law assessments.

But in a system that is so determinedly focused on efficiencies and economic effects on consumers, what room can there be for non-economic societal concerns, such as a clean environment and access to healthcare? With this question, the debate essentially becomes one of whether interests that are not strictly speaking ‘economic’ can too become part of the equation.

On a superficial level, this manifests in case law as a legal conflict. But more fundamentally, it is a conflict at the level of the values that one considers central to competition law. A look at Dutch experience in integrating sustainability with competition law may cast light on possible avenues for a more socially and environmentally friendly European competition law.


The Dutch legal laboratory


The Netherlands has been thrown into the European spotlight by a number of leading test cases experimenting with the interaction between competition law and sustainability. One of these concerned the ‘Kip van Morgen’ (‘Chicken of Tomorrow’), involving an industry-wide, government-brokered agreement to improve living standards for chickens. It was brought to the Dutch competition authority (ACM) for review of its compliance with competition law. In its assessment, the competition authority quantified in monetary terms both the impact of the agreement in terms of harm to consumer welfare (it would lead to a price increase of €1.46/kg) and its benefit to the environment and animal welfare (consumers’ willingness to pay for these benefits was calculated as €0.82/kg). Because the benefits were €0.64/kg shy of neutralising the consumer cost, the ACM concluded that the agreement contravened competition rules, and was thereby forbidden.

Leaving aside objections as to whether the willingness-to-pay surveys were an adequate method to quantify environmental benefits, what is striking here is that the Dutch ‘reconciled’ environmental goals with competition law by simply monetising them (i.e., analysing the price effects). In other words, the Dutch reframed the arguably non-economic goal of chickens’ welfare as a mere monetary issue, bringing it under the aegis of consumer welfare (‘how much are consumers willing to pay for an environmentally friendly chicken?’).

This is certainly one way to go about integrating sustainability with competition law, though a conservative one. It essentially denies the existence of friction in the first place, in terms of both law and values, because sustainability is taken to be adequately assessed using an ‘economicised’ approach to competition law.

The question then arises of whether there are other possible avenues to accommodate more boldly sustainable initiatives within competition law – avenues that acknowledge the non-quantifiable, qualitative nature of certain non-economic interests.


The faiths of sustainability in competition law


The current debate, in both academic and legal practice circles, ranges from calls for simple clarifications on the stance of competition law with regard to such non-economic interests, to proposals for radical law reforms overthrowing the system. Below we conceptualise three possible avenues for creating consonance between competition law and sustainability. Rather than being mutually exclusive, these may very well work conjointly. They help us visualise possible solutions and are presented in order of increasing, shall we say, ‘intrusiveness’ in their law-reforming effects:

1. An integrated approach, whereby sustainability is reduced to monetary standards. Like the ‘Chicken of Tomorrow’ example, this solution rests on economic analysis; it all comes down to hard numbers. But it has the disadvantage of being a short-term and tentative response to the sustainability deficit in competition law.

2. Clarification of the law through soft law instruments. In this method, the enforcement authorities, chief of which is the European Commission, issue non-binding instruments clarifying their views on the role of sustainability in the enforcement of competition law.

3. Re-interpretation of the pervasiveness of economic analysis in competition law. This need not entail a legislative reform, but could take the shape of a precedent before a national competition authority, or the European Courts, in which economic analysis is attenuated and non-economic interests are given their due. This long-term and radical solution would allow authorities to factor in non-economic interests, such as social and environmental sustainability, without having to reduce these to monetary standards.

On the spectrum of available courses of action, it is contested whether and how competition law should in fact accommodate the attempts of the private sector to move towards sustainable business practices. No consensus between scholars and practitioners is yet on the horizon, for one main reason: choosing one of the above options instead of another betrays a clear vision on the means to implement sustainability as a goal on the one hand, and the raison d’être of competition law on the other – and both these issues are far from set in stone.


About the authors

Giancarlo Piscitelli is a research assistant at the Utrecht University School of Law (g.piscitelli@students.uu.nl).

Anna Gerbrandy is a professor of law, economics and governance, also at the Utrecht University School of Law (A.Gerbrandy@uu.nl).


Photo: Organic free range chicken


This article was published in Great Insights Volume 8, Issue 1. Winter 2018/2019

Economic Transformation and TradeBusiness and DevelopmentCivil societyThe Netherlands

External authors

Giancarlo Piscitelli

Anna Gerbrandy