Following the developments in the EU and the publication of the Motor Vehicles Sector Inquiry Report, the Turkish Competition Authority (TCA) initiated revision studies concerning the Block Exemption Communique on Vertical Agreements and Concerted Practices in the Motor Vehicle Sector Communique No:2005/4 (the Communique). Within this scope, a workshop entitled "New Era for Motor Vehicle Sector Communique: What Kind of Block Exemption Communique?" which attracted participation of various sector representatives, counsellors and attorneys, was carried out. After the workshop, the Revision Studies on the Communique was brought before the public's opinion.
At this point it will be useful to evaluate Commission's Regulation No: 461/2010, which is currently being implemented in EU, and the Communique before evaluating the effects of revision studies.
The Commission's Regulation No: 461/2010
In 2008, an evaluation report and a working report, which covers the impact of the Regulation No: 1400/2002 on industry practices and the effect of those practices on competition in the EU retail and after sales motor vehicle markets were published. These reports evaluate whether the 7 objectives set by the European Commission (EC) have been achieved in practice and to what extent the sector-specific rules in the Regulation No: 1400/2002 have proven to be effective1. At this point, the EC carried out its evaluation under the following titles;
- preventing foreclosure of market to the competing vehicle manufacturers and safeguarding access to the market
- reinforcing competition between the same brand dealers by encouraging diversity in distribution formats
- facilitating cross-border trade in motor vehicles
- enabling competition between the independent repairers and the manufacturer networks of authorised repairers
- protecting competition within the authorised networks
- facilitating access of spare part producers to the after sales market
- protecting dealer independence vis-a-vis vehicle manufacturers
As a result of the conducted evaluations, the EC determined that adopting a more effects-based and flexible approach would be a better solution for both the consumers and the market.
On 28 May 2010, the EC published the new block exemption Regulation No: 461/2010 for the motor vehicle sector along with a set of supplementary guidelines. It also extended the application of the Regulation 1400/2002 to the distribution agreements and concerted practices of new motor vehicles until June 2013. Until that date, such agreements have been regulated under the Regulation No: 330/2010. The Regulation No: 461/2010 sets a list of hard-core restrictions with respect to the after sales market for cars.
Accordingly, hard-core restrictions for the after sales market are listed as follows;
- restriction of the sales of motor vehicle spare parts by members of a selective distribution system to independent repairers which use those parts for repair and maintenance of motor vehicles
- restriction, agreed between a supplier of spare parts, repair tools or diagnostic or other equipment and a manufacturer of motor vehicles, of the supplier's ability to sell those goods to authorised or independent distributors or to authorised or independent repairers or end users
- restriction, agreed between a manufacturer of motor vehicles which uses components for the initial assembly of motor vehicles and the supplier of such components, of the supplier's ability to place its trademark or logo effectively and in an easily visible manner on the components supplied or on the spare parts
Therefore, it may be concluded that the EC still places great attention to competition between the independent repairers and the independent manufacturers of spare parts. Moreover, it may also be stated that the EC gives utmost importance to procurement of spare parts and collation of technical information which are deemed as necessary inputs for helping independent repairers be regarded as an alternative to the authorized services.
The Communique No: 2005/4
The Communique No: 1998/3 has failed to meet its objectives towards achieving a developed competitive distribution structure in the sector. Accordingly, the Communique, which is currently in force was published based on the survey results from sector representatives and researches conducted within the body of the TCA. In the preamble of the Communique, it is stated that the experiences obtained from the implementation of former regulation have indicated that some regulations of the Communique No: 1998/3 fell short of attaining the objective for a competitive market, and some of them gave rise to practical inconveniences. In the light of these establishments, the TCA concluded that it is necessary enact a new regulation, which;
- allows the providers with the flexibility to set up the distribution and servicing network,
- strengthens the position of the authorized sellers and services vis-a-vis the providers,
- ensures that manufacturers of spare parts are involved in competition,
- clears the way for independent repairers in order to enable them become an alternative for consumers by facilitating their access to the technical information, equipment and diagnostic devices related to maintenance and repair services2
Within this framework, there are 3 main rules which may be categorized as follows; general conditions of exemption, restrictions which exclude agreements from the scope of block exemption and specific conditions in the Communique.
In relation to general conditions of exemption, conditions which are required for vertical agreements in order to benefit from block exemption are listed in the Communique. Accordingly, the agreements shall not benefit from the block exemption in failure to meet one of these conditions. These conditions consist of the transfer of rights and obligations attached to vertical agreement to another undertaking in a defined distribution system, the duration of the agreement, the annulment of agreement and referral of disputes to an arbitrator. Besides, certain market share thresholds are stipulated in order to benefit from the block exemption in the Communique. Article 5 of the Communique regulates hard-core restrictions, which exclude agreements from the scope of the Communique. In case an agreement includes one of these restrictions, the agreement as a whole falls outside the scope of the block exemption. On the other hand, Article 6 of the Communique regulates specific provisions which shall not benefit from exemption. Therefore at this stage, an agreement shall not be excluded from the scope of block exemption as a whole but only the relevant provisions, which are regulated under Article 6, shall be left outside the scope of the exemption.
Revision Studies Concerning After Sales Market in the Communique
As previously stated, in line with developments in the EU, Turkey has initiated a revision studies concerning the current rules governing the motor vehicle sector. Within this framework;
- Problems concerning determination of market share thresholds in respect of after sales services have been discussed. At this stage, possible effects of a system, which is based on brand, region or warranty period, have been evaluated.
- While, issues of abolishing the rule of multi branding or including a non-compete obligations within the scope of general block exemption regulations have been discussed in respect of sales market, the importance of protecting multi branding rule for after sales market has also been brought up and underlined.
- The current approach, which is based on the other relevant legislations and which upholds that the periodic maintenance services may only be provided by the authorized services, have been considered to be risky for future.
- As an important point, any regulation obligating periodic maintenance to be provided by the authorized services was considered to be regarded as a hard-core infringement. Therefore, within the scope of the studies, the effects of receiving all maintenance and repair services from private services were also evaluated and it was discussed that vehicles may be left outside the scope of warranty in case damage emerges during maintenance and repair of private service.
- The problem of determining applicable law for mineral oil, auto paint and automobile tire was discussed as another essential issue. Currently, there are many individual exemption decisions which evaluate the usage of these products within the scope of general exemption in the decisions. However, such evaluation is not regarded to be useful due to the application of individual exemption. For this reason, some agree that such products should be included in the scope of the general block exemption communique. However as it is known, the EC does not adopt such an approach and the relevant products are considered to fall under the spare parts category in the EU.
We often come across distribution agreements in the motor vehicle sector in three essential markets which may be listed as; distribution of new motor vehicles, maintenance/repair services and distribution of spare parts. Due to importance of the motor vehicles sector for the economy and the consumers in Turkey, these agreements have been governed by different rules when compared to the general vertical agreements in the EU for 35 years.
The EC, which supports that the access of the independent spare part producers' to the after sales market will enhance competition, has enacted relevant provisions enhancing position of the independent spare part producers in the Regulation No: 461/2010.
After sales market may be defined as the market where competitive anxieties are higher because the consumers require services on expert maintenance/repair service and spare parts specific to the brand purchased. Thus, the authorized network of provider is considered to be more advantageous than independent undertakings in the market as the consumers who do not have enough information on technical specifications of vehicle tend to place more trust on the authorized networks over other undertakings. However, enhancement of independent market will be having positive impacts on competition and it will be reducing the spare part and maintenance/repair costs for consumers.
Considering the importance of after sales market in motor vehicle sector, drafting appropriate regulations that meet the needs of the sector is crucial. At this stage, revision studies are still continuing in Turkey. While conducting the revision policies, it is important to analyse characteristic differences between the market in the EU and Turkey. At this point, sectors which are closely related to motor vehicle sector, should also give consider this issue significant and take on good tips for consideration.
1 Commission Evaluation Report on the Operation of Regulation (EC) No:1400/2002 Concerning Motor Vehicle Distribution and Servicing, p.4
2 General Grounds For The Block Exemption Communique on Vertical Agreements and Concerted Practices in the Motor Vehicle Sector, p.4
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.