Turkey: A Safeguard To Guard Rails: The Competition Board Held That Members Of The Guard Rails And Road Safety Systems Association Have Not Violated Article 4 Of The Law No. 4054

Last Updated: 25 September 2019
Article by Gönenç Gürkaynak Esq

Most Read Contributor in Turkey, September 2019

The Authority published the Board's reasoned decision1 on the investigation initiated upon a complaint against the members of the Association of Steel Guard Rails and Road Safety Systems ("Association"), namely Alka San. İnş. ve Tic. A.Ş, Antakya Galvaniz Metal San. Tic. Ltd. Şti., - Çepaş Galvaniz Demir Çelik Madencilik İnşaat Nakliye Tic. ve San. A.Ş., Kıraç Galvaniz Telekominikasyon Metal Makine İnşaat Elektrik San. ve Tic. A.Ş., Kisan İnşaat Mühendislik San. ve Tic. A.Ş., Şa-Ra Enerji İnşaat Tic. ve San. A.Ş., Yimtaş Mühendislik İnşaat Taah. Turz. Metal San. ve Tic. A.Ş. (collectively the "Members") based on the allegations that the Members violated Article 4 of the Law No. 4054 through bid-rigging and price fixing in tenders.

The Board defined the relevant product market as "production and sale of steel guard rails'', while defining the relevant geographic market as "Turkey". As regards its substantial assessment, the Board initially evaluated the allegations on collusion in tenders, noting that the most common strategies in such collusions would be cover bidding, bid suppression, bid rotation and market allocation; as well as exchange of competitively sensitive information. According to the evidence submitted to the case file, the Board observed that the Members held frequent meetings to organize trainings and provide sector players with insights on the new standards for guard rails. The Board further established that the Members often discussed creating a mutual product which was a project led by the General Directorate of Highways ("Directorate") in the first place. In this regard, the Board did not find any evidences on exchange of strategic information. Additionally, economic analysis conducted within the scope of the case did not indicate collusive tendering by the Members. Therefore, the Board concluded that the Members did not violate Article 4 of the Law No. 4054 via bid rigging.

In the second part of its assessment, the Board focused on the activities of the Association, and found no evidence indicating that the Association had an object or effect to restrict the competition in the sector by way of facilitating collusion or enabling competitively sensitive information exchange among its Members. To that end, the Board also held that there was no concrete evidence demonstrating that the meetings of the Association had infringed competition law.

Accordingly, the Board particularly scrutinized whether the Association's role as a joint product development platform for its Members results in any competition law violations. To that end, the Board observed that the Members signed the Commitment Agreement to enable an efficient joint product development process and reduce their costs. In its analysis, the Board stated that taking into account that the Commitment Agreement was merely confined to joint research and development activities, in the absence of any solid evidences such activity in and of itself could not be deemed as having object of restricting competition. On whether there was an object to exclude any actual or potential competitors, the Board emphasized that such Commitment Agreement was yet to be implemented and it was explicitly set forth within the Commitment Agreement that any other players could partake to the Commitment Agreement provided that they comply with the contractual requirements.

Furthermore, the Board stated that the Commitment Agreement did not include any vertical restraints, exclusivity or contractual obligations that would limit the independent decision-making process of the Members significantly. Moreover, the Board indicated that the contemplated activities within the scope of the Commitment Agreement cannot be realized on an individual basis (i.e. such joint activities on this front have an objective necessity) and they would not limit the competition more than what is compulsory for achieving these goals. Accordingly, the Board indicated that the Commitment Agreement did not have the actual effect or potential effect of restricting the competition either.

That being said, the Board resolved that the horizontal cooperation agreements executed among the Members fell within the scope of Article 4 of the Law No. 4054 due to the coordination risks, given that (i) the parties had significant market power, (ii) the market solely constituted of tenders and there is high- level of cooperation due to joint participations to the tenders in the form of joint ventures/business partnerships, and (iii) the cooperation was among competitors. To that end, the Board resolved that these agreements could not benefit from the protective cloak of the block exemption provided within the scope of the Block Exemption Communique No. 2016/5 on Research and Development Agreements due to the scope of these agreements as well as the parties' market shares.

Accordingly, the Board analysed whether the agreements could qualify for an individual exemption in light of the following conditions: (a) the agreements should contribute to improving the production or distribution of goods or to promoting technical or economic progress, (b) the agreements should allow consumers a fair share of the resulting benefit, (c) the agreements should not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question, and (d) the agreements should not restrict the competition beyond what is strictly necessary to get the aforementioned positive effects (the proportionality and balancing principles).

In its assessment of these conditions, the Board considered that condition (a) of the individual exemption was met given that cooperation on R&D would facilitate emergence of new products and it would give access to know-how which was not previously available to the parties. Condition (b) was also satisfied, given that the cost reduction would be passed on to consumers and that the R&D project would positively affect traffic safety and development of lighter guard rails of a higher quality. As for condition (c), the Board noted that characteristics of the market should be taken into account and accordingly evaluated the importance of the CE marking requirement for public tenders. As of 2011, a requirement on crash tests which were carried out by foreign undertakings was introduced in relation to CE marking that was a prerequisite for guard rail tenders. The Board noted that even if the agreements could pose a constraint in tenders, this would not fall within the scope of the Law No. 4054, as the Directorate introduced the requirement in crash tests for its tenders. Accordingly, the Board held that the agreements would not enable the parties to eliminate competition in respect of a substantial part of the products. In relation to condition (d), the Board stressed that the possibility of restriction of competition was unlikely in cases where a new product or service was launched which, realistically, could not be produced only with the endeavors of a sole party to the agreement. In line with this, the Board held that condition (d) was also satisfied, given that the agreements enabled the Members to have these crash tests done, as there was no Turkish company technically capable to carry out these tests. In light of the foregoing, the Board granted these agreements an individual exemption.

Taking all of the above into consideration, the Board decided not to impose a fine in a majority decision. However, three members of the Board cast dissenting votes and argued that the Association and its Members had violated Article 4 of the Law No. 4054. Their arguments mainly included that the Association became a coordination platform by deviating from its purpose to produce mutual products given that the Members using mutual products and crash tests were in a dominant position in a very transparent oligopoly and their frequent meetings paved the way for exchange of sensitive information.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2019. A link to the full Legal Insight Quarterly may be found here

Footnote

1. The Board's decision dated November 22, 2018 and numbered 18-44/702-344

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