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A Comparative Study of Antitrust Implications in Indian and EU Competition Law with Specific Focus on Standardization Sustainability Agreements- Part I

The author is Siddhant Shinde, a third-year student at Maharashtra National Law University, Mumbai.


Introduction 


With the aim of making Europe the “first climate-neutral continent in the world”, the European Commission (‘EC’) adopted the European Green Deal, a package of policy initiatives to reach climate neutrality by 2050. This shift aligns with the EC’s commitment to implement the United Nations’ Sustainable Development Goals. In line with this, the Horizontal Block Exemption Regulations (‘HBERs’), which were entered into force on July 1, 2023, lay special emphasis on Standardization Sustainability Agreements (‘SSA’) i.e. agreements to uniformly define technical or quality requirements across products between competitors for sustainability objectives.[1] Following international precedence, even India has seen a shift towards sustainability at the level of both the legislature and the judiciary. For instance, the SEBI has adopted a fund labelling regime akin to international standards set by European Securities and Markets Authority and the US Securities and Exchange Commission.[2] Moreover, there's also a noticeable shift in India’s judiciary towards an “enviro-sensitive” regime from its previous “enviro-myopic” approach. Despite this, no statutes, legislations or circulars in India conclusively define SSAs. India has seen a surge in the adoption of Private Sustainability Standards (‘PSS’), which are voluntary standards developed by private entities aiming to promote sustainable production, operating under the secretarial oversight of the Quality Council of India. SSAs however, lack any acknowledgement within any legislative or financial framework.

 

This unregulated area in law thus leaves the Competition Commission of India (‘CCI’) with only Section 3 of the Competition Act, 2002 (‘CA’), which defines the scope of anti-competitive agreements. In light of the emphasis on SSAs in the EU 2023 Horizontal Guidelines, and the benefits they offer, this article juxtaposes the soft safe harbour created by Art. 101 of The Functioning of European Union Treaty (‘TFEU’) with the exemption clause of Section 3 CA, specifically with reference to SSAs, and aims to evaluate the existence of a potential "soft safe harbour" in India and its implications. It then goes on to argue that Section 3 CA finds SSAs anti-competitive ipso facto

 

How SSAs Fit Within the Legal framework - Comparative Analysis of Art. 101, TFEU and Section 3, CA

 

In the context of Competition Law, sustainability is often negatively affected by individual production and consumption decisions.[3] Thus, certain residual market failures caused due to inadequacy of regulations in certain areas can only be addressed through cooperation agreements between stakeholders.[4] TFEU, which is part of the EU’s foundational documents, creates a safe-harbour for agreements made for the purpose of sustainability, and the HBERs explicitly recognizes that SSAs fall under this category. The conditions are not explicitly recognised in the codified law i.e. TFEU, but are ruled out in the EU 2023 Horizontal Guidelines, which outline conditions for SSAs to avoid negative competition effects, thus forming a “soft” safe-harbour as long as six cumulative criteria are met.

 

SSAs are used to specify requirements that have to be met in relation to a range of sustainability metrics. They usually provide rules that must be adhered to, with the aim of standardizing processes, products, raw materials etc., across the board in a particular market segment.[5] With the aim of promoting sustainability, individual players may phase out, withdraw, or replace non-sustainable products, packaging or processes with sustainable, but potentially more expensive alternatives. However, a single market player making such a move not only puts them in a precarious position within the market, considering the increased costs that might lead to higher prices and affect market perception, but also limits the magnitude of the impact the shift to a sustainable alternative can have. This is where SSAs become useful, by standardizing such practices across various players in a given market.


However, SSAs can also facilitate anti-competitive behaviour by disguising price fixing and market allocation. They can hinder market entry for new players with different sustainability approaches, or those which merely meet minimum legal standards rather than striving for more ambitious environmental goals. Further, in cases where a player holds the intellectual property rights essential for implementing a standard and automatically acquires control over the use of the standard, they allow undertakings to behave in an anti-competitive way by refusing to license the necessary IPR, or inordinately high royalty fees by a dominant player, thus “holding-up” access to the standard.


Broadly, for SSAs to fall under the soft safe harbour, they must be transparent, non-imposing on non-participants, must protect sensitive information, ensure access, and not significantly affect price or quality, or exceed a combined market share of 20%.[6] Not only are these conditions wide enough to accommodate most SSAs, but the HBERs read with the TFEU also provide for conditional exemption with self-assessment. Therefore, failure to comply with the conditions under Art. 101 TFEU doesn’t automatically imply that the SSA is anti-competitive in nature, but merely necessitates self-assessment under Art. 101 TFEU.

 

In the Indian regime however, Section 3 of the CA defines the scope and extent of anti-competitive agreements, and establishes that any agreement having an appreciable adverse effect on competition (‘AAEC’) is anti-competitive. It sets out two distinct standards for assessment - rebuttable presumption of causing AAEC on competition for certain agreements, and a "rule of reason" analysis for all other agreements. Certain agreements such as those regarding prices, quantities, bids and market sharing are presumed to not serve any useful or pro-competitive purpose, and therefore are not subject to the “rule of reason” test.[7] The Court has highlighted the difference between these categories as pernicious agreements, which invite a rebuttable presumption of illegality, and less pernicious agreements which must be assessed with reference to Section 19 of the CA.  SSAs seek to uniformly define technical or quality requirements for a range of products, and thus they acutely fall within the ambit of Section 3(3)(b) of the CA. By virtue of being agreements between competitors, they can be classified as “pernicious”, and thus anti-competitive.[8] Thus, by their very fundamental nature of being agreements between competitors, they are likely to be anti-competitive in India.

 

Part II of the article can be accessed here.


Endnotes


[1] Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements 2023/C 259/01 (21 July, 2023), Cl. 9.1.

[2] International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations IFSCA/2021-22/GN/REG015 (July 16, 2021).

[3] Supra note 1, Cl. 9.1, para 520.

[4] Id.

[5] Supra note 1, Cl. 7.1.

[6] Supra note 1, Cl. 9.3.2.4.

[7] SM Duggar, Guide to Competition Act, 2002, 251 (Sudhanshu Kumar, Lexis Nexis 8th edn., 2019).

[8] SM Duggar, supra Note 17. 

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