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Intermediary September 2007
Maritime competition law, new challenges for pool managers
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1. INTRODUCTION
Due to the recent competition law reforms, the shipping industry is today faced with the obligation of complying with European Community competition rules, namely, Article 81 of the EC Treaty containing a prohibition against anticompetitive agreements, and Article 82 of the EC Treaty containing a prohibition against abuse of a dominant position.
Competition rules are relevant for pool managers and other participants of a tramp pool given that the pool arrangements imply (horizontal) cooperation between the pool members. Furthermore, for the pool managers, it is important to note that competition assessments will have to be conducted by the pool managers themselves and their advisers. Companies can no longer rely on an “ex-ante” clearance by the European Commission.
This is due to the 2004 abolition of the system of notification and approval by the European Commission. Competition concerns may be raised towards a pool (or its members) individually or towards its relations with other pools.This article provides a brief introduction to the legal framework relevant to pool managers.
2. LEGAL FRAMEWORK
The Community competition rules were applicable to tramp shipping even before the recent amendments, however they were not enforceable by the European Commission at that time because they were excluded from the applicable procedural rules.This situation changed in 2006 when the Council adopted the European Commission’s proposal to include tramp-vessel services and cabotage under the procedural rules.
Under this new regime, tramp pools risk falling into investigations and sanctions by the European Commission and national competition authorities.Thus, the European Commission has all of its normal enforcement powers and may investigate and impose fines on shipowners and/or pool managers.
3. INDIVIDUAL POOLS
The relevant market For a competition assessment the markets in which the pool operates must be defined. How the market is defined (from a competition law point of view) is crucial to determine the pool’s market power and its competitors.Thus, pool managers should be familiar with competition law market definitions.
Anticompetitive agreements Under Article 81 of the EC Treaty conduct such as price fixing, output limitation, and sharing of markets is considered anticompetitive. Agreements between competitors involving price fixing will always be presumed anticompetitive and be subject to a competition assessment irrespective of the parties’ market power.
Pools are less likely to be considered anticompetitive if: i) pool members are not actual or potential competitors; ii) they are competitors but do not have any other means of providing the service object of the agreement; iii) the pool does not influence competition because they are of minor importance (for this criterion to apply, the pool cannot have provisions regarding joint price fixing and joint marketing) and/or do not have an appreciable effect on trade between Member States.
Pools do not have as their object to restrict competition, however, even so, pools could nevertheless be seen to generate anti-competitive effects.Thus, the effects of the pool will be analyzed in its economic context taking into account the nature of the agreement and the parties’ combined market power, together with structural factors of the relevant market. Such considerations include the possibility of affecting neighbouring markets; inclusion of clauses prohibiting members from being active in the same market outside the pool; exchange of commercially sensitive information; stability of market shares over time; structural links between pools; market entry barriers; and market transparency.
Even if a pool raises competition concerns, the question is nevertheless whether it has an appreciable effect on competition and if so whether it has positive effects on the market despite the apparent reduction in competition (e.g. benefits consumers).The European Commission has suggested that while horizontal cooperation may produce anticompetitive effects in the market, in many cases cooperation may lead to substantial pro-competitive benefits. Given the fact that pools have different characteristics a case by case analysis will be required.
Thus, in the event a pool is found to fall within the scope of Article 81(1) of the EC Treaty it could still benefit from an individual exemption (under Article 81(3) of the EC Treaty) provided certain conditions are met, which ultimately translate in the agreement producing benefits that outweigh its anti-competitive effects.
Abuse of a dominant position A company will be regarded as having a dominant position if it is economically strong enough to act independently on the market, i.e. independently of its competitors, suppliers, and customers. Numerous factors are used to determine whether a company has a dominant position. However, market share is often the most important.
The term abuse has been given a wide interpretation by the Commission and includes inter alia excessive pricing, predatory pricing, price discrimination, fidelity rebates, refusal to supply and abuse in the form of bundling/tying.
4. COOPERATION BETWEEN POOLS, INFORMATION EXCHANGES
Cooperation between different pools will almost always raise competition concerns. In this respect, the exchange of information between competing pools can constitute an infringement of competition rules. Here, a distinction should be made between cases where it forms part of a broader infringement; or a separate infringement under Article 81(1).
It is difficult to establish general rules to distinguish between information exchanges that are neutral or even pro-competitive from those that are restrictive of competition.The European Commission has adopted a case by case approach. However, the nature of the information, frequency with which it is disseminated, and the persons to whom it is disclosed, are elements which will be taken into consideration by competition authorities. Pools are less likely to raise concerns if they only provide aggregated, historical, publicly available and general data to all market participants, while individual data is only accessible to the owner of such data.
Accordingly, pool managers should be careful not to exchange sensitive commercial information with managers of competing pools.This may lead competition authorities to believe that there is “collusion” or “coordinated behaviour” between competitors.This is especially relevant when pools have the same owners, members or managers. There must be a clear separation in administration and a system built to prevent the spill-over of information from one pool to the other (e.g. “Chinese walls”). The main purpose should be to guarantee the independence of different pools.
5. FUTURE GUIDELINES
The Commission will soon issue draft guidelines that will help clarify the application of competition rules to tramp shipping and maritime transport in general. For further information on applicable laws and future guidelines, please refer to the Commission’s website here.
Peter Appel and Bitten Thorgaard Sørensen of Gorrissen Federspiel Kierkegaard, Copenhagen