Turkey: Turkish Competition Board's Approach Against SMEs: The Case Of The Egg Producers

Introduction

The Law No. 4054 on Protection of Competition ("Law No. 4054") does not include a de minimis exception and any actions, no matter their impact, which violates competition under Law No. 4054 is punishable. However, there are several precedents where the Turkish Competition Board ("Board") has adopted a less stringent approach for small and medium-sized enterprises (SMEs), even for conduct which can be interpreted as infringing "hard-core" restrictions. This can be illustrated by the recent case of the Mardin egg producers¹.

Background

The Board initiated a preliminary investigation against four egg producers (BAYZA, DICLE, FIRAT and NAZ) in order to assess whether they have violated Article 4 of the Law No. 4054 by fixing sale price of goods.

The preliminary investigation was triggered by an anonymous complainant who had alleged that the four egg producers colluded to create a cartel and increase the sale price of a packaged egg as 1 TRY higher than the average price. The complainant also went on to say that the egg producers had initially aimed to establish an industry association but that this had eventually converted into a cartel.

In its assessment, the Board considered certain market facts such as the increase in the amount of production over the years and in the costs of egg production. The Board stated that the "radical increase in the prices in 2018 was due to increase in the foreign exchange rates" since many of the costs were associated with imported goods (such as chicken feed and additives).

The Competition Authority also conducted on-site inspections and interviewed the four undertakings that are subject to the preliminary investigation. During these interviews, it was understood that the relevant undertakings met in an hotel in late 2016. All of the undertakings except one, stated that the scope of the meeting was legitimate and the purpose was to found an association of undertakings. However, FIRAT explicitly stated during the interview with the case handlers that the aim of the meeting was to fix the prices and this only lasted for two months, as egg producers from outside the city started to offer competitive prices. FIRAT went on to say that it would like to come together with the other producers and it complained about the lack of trust among the manufacturers which makes it impossible to set a collective price. After the preliminary investigation, the Board decided not to launch an in-depth investigation as no evidence was found that the egg producers fixed the egg prices or collectively tried to exclude their distributors from the market.

Analysis of Board's Conclusions

This conclusion was surprising as the Board reached this conclusion even though one of the undertakings acknowledged that it participated in a meeting with its competitors with anticompetitive intentions.

The Board, relying upon the testimonies of the other three egg producers, stated that "even though it is understood that FIRAT participated in the meeting with the intention to restrict competition, the other participants of the meeting do not show an intention in this regard." It went on to say that the market behaviour and the of the relevant undertakings also supports this assumption. It concluded that as there is no concurrence of wills amongst the participants of the meeting, which is a prerequisite of an anti-competitive agreement, the relevant communication cannot be considered as an agreement under competition law.

The decision is interesting as the Board voted unanimously not to initiate an in-depth investigation even though one of the undertakings has stated clearly, most probably due to lack of competition law knowledge, that it participated in a meeting to make an anticompetitive agreement with its competitors.

The Board also took a similar and rather lenient approach in a recent case related to çiğköfte² (raw meatball) producers in Gaziantep³. In that case the Board decided to confine itself with an opinion letter (which was not published) pursuant to Article 9(3) of the Law No. 4054 even though there was a solid and undeniable cartel evidence where the relevant undertakings took a formal price-fixing decision with penalty and supervisory mechanisms to ensure compliance.

Conclusion

Although, unlike the case of the Gaziantep raw meatball producers, there were no direct evidence in the case of Mardin egg producers, it can be deducted from the decision not to initiate an investigation that the Board took a rather tolerant stance. One can argue that the Board may not have taken such decision if the parties had not been local SMEs. There are several decisions where the Board has initiated fully-fledged investigations where there is less compelling evidence, let alone direct testimony of anticompetitive intent from a participant.

According to the Council of State, which is the highest court for judicial review of Competition Board decisions in Turkey, in order not to initiate an investigation the Board must show that there are no doubts that an action, decision or agreement restricts competition⁴ and this is without reference to any threshold level. Thus, the Board must have been certain that the other undertakings did not act in any anti-competitive way. This decision does not mean that the Board is reluctant to initiate investigations regarding anti-competitive practices, but this is likely to be an example of its lenient approach that is confined to small local businesses. In our experience, the investigations usually do not find witness testimony as open as in the case of the egg producers of clear anti-competitive intent. It is worth bearing in mind that at present there were 41 ongoing detailed investigations as of mid-2019 and the Board imposed a total of TL 264 million⁵ administrative monetary fines in the first half of 2019⁶. Unfortunately, most cases do not end as happily as the Mardin egg producers.

Footnotes