EU competition law and sustainability coming together

recent conference organised by the Fair Trade Advocacy Office and hosted by the European Economic and Social Committee on competition law and sustainability brought together two communities that don’t often meet. EU competition lawyers, academics and other experts on the topic rarely mingle with civil society advocates and others focusing on socially and environmentally sustainable development. I found it fascinating to be part of this promising meet-up, in the spirit of getting together and building bridges rather than divides.

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      Why does EU competition law matter for sustainability and vice versa? The Treaty on the Functioning of the European Union prohibits agreements between companies that prevent, restrict or distort competition and abuse of dominant market positions. I’ll spare you here the precise provisions – although trust me, references to articles and sub-articles were quite popular among the participants – but just note that exceptions can be made. The million dollar question discussed at the event was the extent to which agreements between companies – and possibly other stakeholders – to enhance the social and environmental sustainability of their supply chains are/can/should be exempted. Also high on the agenda was the question to which extent sustainability considerations are/can/should be taken into account when assessing mergers and acquisitions.

      To make it concrete, think of the ‘Chicken of Tomorrow’ case in the Netherlands in 2015. Parties to the agreement intended to ban chicken meat produced in a certain manner from supermarkets and on minimum standards providing chickens with a better life. The competition authority in the Netherlands (ACM) considered the agreement to be anti-competitive. It argued that the benefits in terms of animal welfare did not outweigh the adverse effect on competition leading to a price increase. Another typical example is an agreement between competing companies operating in global value chains on the payment of higher wages/prices and better working conditions in sourcing countries. Recent research by the Fairtrade Foundation UK presented at the conference indicates that competition law prevents companies in the cocoa sector from engaging in such agreements to tackle low farm-gate cocoa prices.

      The Chicken of Tomorrow case illustrates that it is not always crystal clear from the outset what is allowed and what is not when it comes to collective agreements to enhance sustainability.  It very much depends on how the European Commission and national competition authorities value the sustainability improvements and weigh this against the possible reduction in competition. Calculations done by the ACM, which were a key motivation for not approving the agreement, showed that the willingness of consumers to pay for the increased welfare of the ‘chicken of tomorrow’, was lower than the expected price increase. However, why only take into account the willingness of current consumers and not of future generations that will also be affected by unsustainable practices today? And why take the willingness to pay as a starting point and not another method?

      It may therefore not come as a surprise that there seemed to be a general consensus among participants that a promising way forward in this debate is to bring well-substantiated sustainability agreements to national competition authorities in EU member states for approval, so that they take a stance. Ultimately, the case(s) could be moved up from the national level to the European Court of Justice to set a useful precedent for the future. So far, the European Commission has not allowed much space for taking non-economic benefits into consideration, but a European Court of Justice court case could overrule that.

      Another avenue could be to encourage the European Commission to issue general guidelines to clarify under which conditions the private sector can come together to agree on collectively increasing sustainability in a sector without breaching competition law, as recommended by the EU multi-stakeholder SDG platform recently. Considering legislative changes was generally felt to be less promising by participants, as this is even more challenging and can be expected to take very long.

      You may have gotten the impression so far that all participants, or me personally, have an unconditional belief in the merit of broadening the interpretation of competition law in answer to sustainability challenges. Wrong impression! Adapting competition law is not the solution to everything, and creating more space for sustainability initiatives is not without risks as it could be abused. Let’s also not forget that it is possible for individual companies to move towards more sustainable production modes without sustainability agreements, so it is not a one size fits all solution.

      In any case, we haven’t seen the end of this debate. Further clarity on the integration of social and environmental sustainability considerations in competition rules – when it comes to sustainability agreements as well as mergers and acquisitions – will continue to require different communities to engage.

      Do you want to know more? This topic is also covered in the Winter issue 2019 of ECDPM’s Great Insights magazine which focusses on partnerships between businesses and civil society organisations. Fairtrade UK also published a study on competition law and sustainability. Furthermore, the Fair Trade Advocacy Office plans to (co-)organise a follow up public conference on EU competition law and sustainability later in 2019. 

      In addition to structural support by ECDPM’s institutional partners: The Netherlands, Belgium, Estonia, Finland, Ireland, Luxembourg, Sweden, Switzerland, Denmark and Austria, this blog post also benefits from funding by UK aid from the Department for International Development (DFID), United Kingdom.

      The views expressed are those of the author and not necessarily those of ECDPM.

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