UK: Commission Guidelines on the Effect on Trade Concept Contained in Article 81 and 82

The "Modernisation Package" issued by the Commission on 1 October 2003 relating to Regulation 1/2003 included a Draft Notice on The Effect on Trade Concept contained in Articles 81 and 82 EC Treaty.

This article presents the salient points contained in the Commission’ notice and highlights the main issues that competition law practitioners need to be aware of when interpreting the trade concept of Articles 81 and 82.

The Effect on Trade Concept

The effect on trade criterion is a jurisdictional criterion that defines the scope of application of Community competition law. Articles 81 and 82 are only applicable to agreements and practices that are capable of appreciably affecting trade between Member States. It is an autonomous Community law criterion which must be assessed separately in each case. The Commission makes it clear that this concept is distinct from an assessment of what constitutes a restriction of competition.

In the case of Article 81, if an agreement as a whole is capable of affecting trade between Member States, the entire agreement is subject to Community law, including any parts of the agreement that individually do not affect trade between Members. Community law "does not require that each individual clause in an agreement should be capable of affecting intra-Community trade."1

The participation of any undertaking in appreciably affecting trade is immaterial when determining Community law jurisdiction, what is crucial is that the agreement itself is capable of affecting trade between Member States.2

Also, when determining Community law jurisdiction, no link needs to be established between the alleged restriction of competition and the capacity of an agreement to affect trade between Member States.

In the case of Article 82, Community law is applicable if at least one practice, forming part of an overall strategy, is capable of affecting trade between Member States. In Hoffmann-La Roche, a case involving an abuse of dominant position in the vitamins market, the Court of First Instance ("CFI") held that the actual wording of a number of the clauses in the agreement implied that the partitioning of the markets would be maintained making it possible in particular to charge different prices from one Member State to another. This, according to the Court, "shows that the course of conduct at issue was capable of both affecting competition and affecting trade between Member States."3

The Concept of Trade between Member States

Trade as a concept is defined as all economic cross-border activity, including agreements/practices that affect the competitive structure of the market. For example, in Züchner,4 the European Court of Justice ("ECJ") held that the concept of trade has a wide scope which includes monetary transactions by banks from one Member State to another. This interpretation is derived from the fundamental objective of Community law of promoting free movement within the EU. This implies that trade includes not only the flow of goods and services between Member States but also other forms of economic activity such as setting up a new business in a member state. It should be noted that the trade criterion is independent of the definition of a geographic market because trade may also be affected in cases where the relevant market is national or regional.

The Notion of "May Affect"

The expression "may effect" implies that within a sufficient degree of probability5 an agreement is capable of having an effect on trade between Member States. The CFI has developed a test in order to establish whether an agreement or practice is liable to affect the competitive structure inside the Community by altering the patterns of trade. This test looks at three elements:

A Sufficient Degree of Probability

This assessment must be based on a set of objective factors. However, the reference to a sufficient degree of probability implies that, for Community law jurisdiction to be established, it is not necessary that an agreement has had or will have an effect on trade between Members. It is sufficient that the agreement or practice is capable of having such an effect.6 In determining whether an agreement is capable of having an effect on trade it is not necessary to calculate the actual volume of trade between Member Stares affected by the agreement. The assessment will depend upon a number of factors such as the nature of the agreement or practice, the nature of the product/service in question and the position and importance of the undertakings concerned. In Béguelin, the ECJ held that in order to determine whether a contract which contains a clause conferring an exclusive right of sale has an effect on trade, "account must be taken in particular of the nature and quantity, restricted or otherwise, of the products covered by the agreement; the standing of the grantor and of the grantee of the concession on the market in the products concerned; whether the agreement stands alone or is one of a series of agreements; the stringency of the clauses designed to protect the exclusive right or on the other hand, the extent to which any openings are left for other dealings in the products concerned in the form of re-exports or parallel imports."7 In particular, the market position of the undertakings and their sales volume provide a quantitative element that is necessary if such assessment is to be based on factual and objective criteria.

An Influence on the Pattern of Trade

The term pattern of trade does not imply that trade is restricted or reduced as a result of an agreement or practice. Community law jurisdiction is established if the pattern of trade is altered as a result of the agreement/practice, regardless of whether trade is reduced or increased. In Tréfileurope the CFI explained the rationale behind this concept by stating that "the fact that an agreement between undertakings, is conducive to an increase, even a large one, in the volume of trade between Member States is not sufficient to exclude the possibility that the agreement may affect that trade in such a way as to detract from attainment of the objectives of a single market between those Member States."8 This interpretation highlights the fact that the effect on trade criterion is a jurisdictional one that is needed to distinguish those cases which are capable of having cross-border effect and therefore need to be examined under EC competition rules. This legalistic approach makes the analysis less dependent on an economic assessment of trade patterns.

A Direct or Indirect, Actual or Potential Influence

Direct effect on trade between Member States occurs in relation to the products covered in the agreement or practice. On the other hand, indirect effect occurs in relation to products that are related to those covered in the agreement. These can occur in relation to intermediate products which are used to manufacture the final product which is then traded between Member States. In BNIC v Clair, a case concerning spirits used to produce cognac, the ECJ held that "any agreement whose object or effect is to restrict competition by fixing minimum prices for an intermediate product is capable of affecting intra-Community trade, even if there is no trade in that intermediate product between the Member States, where the product constitutes the raw material for another product marketed elsewhere in the Community."9

Actual effects on trade are those that come about as a result of an agreement or practice once it is implemented. It is not necessary that actual effects are demonstrated, it is sufficient that the agreement is capable of having such effect. Potential effects are those that might occur in the future with a sufficient degree of probability. This implies that foreseeable market developments and changing market conditions must be taken into account. In AEG, a case concerning the marketing of consumer electronics products, the ECJ held that "the mere fact at a certain time traders applying for admission to a distribution network or who have already been admitted are not engaged in intra- Community trade cannot suffice to exclude the possibility that restrictions on their freedom of action may impede intra-Community trade, since the situation may change from one year to another in terms of alterations in the conditions or composition of the market both in the common market as a whole and in the individual national markets."10 However, the Commission makes it clear that the inclusion of indirect and potential effects does not mean that the assessment on the effect on trade can be based on hypothetical or abstract effects. The probability of an agreements having an effect on trade must be explained carefully.

The Concept of Appreciability

This concept introduces a quantitative element and provides for an economic analysis of the impact on trade patterns caused by a particular agreement or practice.

For Community law jurisdiction to be established the agreement must have effects of a certain magnitude. Appreciability can be measured in both absolute terms (turnover) and in relative terms by comparing the undertakings to the other players in the market (market share). In Musique Diffusion Française,11 the products in question accounted for just above 3% of sales on the market concerned. The CFI found however that the agreements, which held up parallel trade, were capable of effecting trade between Member States due to the high turnover of the parties. To determine appreciability it is not necessary that the relevant markets be defined and market shares calculated. The sales of an undertaking in absolute terms may be sufficient to find that the impact on trade is appreciable.

In order to quantify appreciability, the Commission has set out a general rule indicating when agreements are not capable of appreciably affecting trade. The Non Appreciably Affecting Trade-rule ("NAAT") is a negative rebuttable presumption according to which an agreement is not capable of affecting trade if these two elements are met:

  • The aggregate market share of the parties within the relevant market in the Community does not exceed 5%; and
  • In the case of horizontal agreements, the aggregate annual turnover of the undertakings in the products concerned does not exceed €40 million. In the case of vertical agreements, the aggregate turnover of the supplier in the products covered concerned does not exceed €40 million.12

Note that both elements need to be satisfied at the same time. The market share threshold implies that both the relevant product and geographic market need to be determined. The rule applies also when, during two successive years, the turnover threshold is not exceeded by more than 10% and the market share threshold is not exceeded by more than 2%. This provides a degree of flexibility.

The Commission also holds the view that there is a positive rebuttable presumption that, when an agreement is by its very nature capable of affecting trade, for example, because it concerns imports and exports covering several Member States, such an agreement will be deemed to have an appreciable effect on trade when the turnover of the parties concerned exceeds €40 million.

In addition to the above presumptions, the Commission has stated that agreements between small and medium sized enterprises ("SMEs") are normally not capable of affecting trade between Member States because they are deemed to be active on a local/regional market.13 However, this shall be determined on a case by case basis as there might be exceptions, for example, in the case of SMEs engaging in cross-border economic activity.

The Application of the Effect on Trade Concept

The capacity on an agreement or practice to affect trade between Member States will depend upon the nature of such agreement or practice. The Commission provides an analysis of various forms of agreements and practices in order to give some indication of how the trade effect concept is to be applied in practice.

Agreements and Practices Covering or Implemented in Several Member States

Agreements or practices involving several Members States are in almost all cases by their very nature capable of affecting trade. These can be agreements concerning exports and imports or cartel practises covering more than one Member State. For example in Kerpen & Kerpen, the CFI found that the French exports of cement to the Federal Republic of Germany amounted to about 350 000 tonnes per year and that the quantity covered by the contract at issue represented more than 10% of French exports to Germany. The CFI concluded that under those circumstances, "it is impossible to take the view that such a contract could not appreciably affect trade between Member States."14 In this kind of case the very purpose of the agreements is to prevent the flow of goods and services between Member States, therefore, there is an inherent link between the restriction of competition and the effect on trade. In cartel cases involving price fixing and market sharing, the purpose of such agreements is to allocate geographic territories and to eliminate the price competition that would have enticed market participants to engage in cross-borders activates. In these cases pattern of trade at Community level are clearly altered.

Horizontal cooperation agreements such as non-full function joint ventures15 engaging in activities in more that one Member State16 are normally by their nature capable of affecting trade. Patterns of trade are, for example, affected when undertakings use the joint venture for the purpose of establishing a new source of supply in the Community. In assessing the effect on trade the sales of the parents and not just those of the joint entity should be taken into account. When dealing with vertical agreements implemented in several Member States, these are also usually capable by their very nature of affecting trade. Networks of selective distribution agreements limit trade between the members of the network, therefore effecting the pattern of trade through foreclosure effects. Agreements between suppliers and distributors involving resale price maintenance are also deemed to have an effect on trade between Member States. In VBVB and VBBB, a case involving a vertical agreement between suppliers and distributors of books, the ECJ found that the agreement involved a restriction on competition within the common market by reason of both the collective exclusive dealing system and the collective resale price maintenance system. The exclusive dealing system involves a prohibition of purchasing, stocking or encouraging the sale of books published in the other state by a publisher who is not recognized. Through the resale price maintenance system publishers in both states are required to fix a single retail price for each of their publications and sellers are required not to sell a book in the other state at a retail price other than that fixed by the publisher. The agreement, according to the Court, is therefore such as to hinder freedom of trade between Member States.17

In the case of an abuse of dominant position through agreements or unilateral conduct covering more that one Member State, the capacity of the abuse to affect trade will normally be appreciable. This is the case for both exclusionary abuses (those raising barriers to entry or aimed at eliminating competitors) and exploitative abuses (those where the undertaking exploits its economic power by charging excessive or discriminatory prices). When undertakings engage in exclusionary practices such as loyalty rebates and predatory pricing trade between Member States is capable of being affected because these practices have an impact on the competitive structure inside the Community. The negative impact is relevant for existing competitors as well as potential competitors. Community jurisdiction is established in this case regardless of whether the undertaking that risks being eliminated mainly engages in exports to third countries.18

Agreements and Practises Covering a Single or Only Part of a Member State

When analysing agreements and practices that cover the territory of a single Member State, it is necessary to carry out a more in-depth analysis in order to establish whether such agreements and practises are capable of affecting trade between Member States.

Cartels covering a Member State have the effect of reinforcing the partitioning of markets on a national basis by altering trade patterns and are therefore contrary to the objective of the EC Treaty of increasing European economic integration. Normally, undertakings participating in a cartel involving a tradable product in one Member State aim to exclude competitors from other Member States.19 If there is evidence that the members of the cartel have deliberately fixed the price according to the price level prevailing in other Member States (limit pricing), it is an indication that the product in question is tradable and that trade between Member States is capable of being affected.

In the case of horizontal cooperation agreements covering one Member State, trade can be affected when the agreements establish standardization and certification regimes which exclude other Member States or are more easily fulfilled by undertakings from the Member State in question. These practices create a barrier to trade. The same foreclosure effects occur when an agreement between distributions reduces the possibilities for suppliers from other Member States of gaining access to the national market. When analyzing vertical agreements covering one Member State the same foreclosure effects can occur meaning that the agreement is capable of affecting trade between Member States. This might occur, for example, when a supplier imposes exclusive purchasing obligations on a buyer. In Delimitis20 the vertical agreement was between a brewer and the owners of premises where beer is consumed. The owners of the premises undertook to buy beer exclusively from the brewer. The ECJ held that the agreement excluded other competitors by precluding them from gaining access to the market. This barrier to entry is bound to effect trade between Member States. However, trade can be effected even in cases where no direct obstacles to trade are created by an agreement. When RPM occurs the pattern of trade is altered as imports into the Member State increase due to artificially high internal prices and exports from the Member State in question are reduced.21

When assessing agreements that cover only part of a Member State trade is normally capable of being affected if the foreclosed share of the national market is significant in proportion to the overall volume of sales of the product concerned inside the whole territory of the Member State concerned. Coverage of areas with a high concentration of demand will weigh more than agreements covering areas where demand is less concentrated. This assessment is not simply based on geographic coverage. The market share of the undertakings involved must also be taken into account.

In the case of an abuse of dominant position within a single Member State, such agreements will be deemed to affect trade if the abusive conduct makes it more difficult for competitors to penetrate the market of the Member State in question. In Nederlandse Banden Industrie Michelin the ECJ found that the system of loyalty rebates set up by the undertakings foreclosed competitors from other Member States and therefore affected trade between Member States. When price discrimination and excessive pricing take place within one Member State trade may be affected when these practices are used to prevent imports. By offering lower prices to customers that are likely to import products from other Member States such practices make it more difficult for competitors from other Member States to enter the market. However, if the abuse of a dominant position is purely local and involves insignificant market shares within the Member State in question then trade is unlikely to be appreciably affected. In cases where the dominant positions only cover part of a Member State, that coverage must constitute a substantial part of the common market. Such assessment should be based on the size of the market in terms of sales volume.

Agreements and Practises Involving Undertakings Located in Third Countries

Articles 81 and 82 apply to all agreements capable of affecting trade, even if one of the parties is located outside the Community. The same principles that apply for the other agreements mentioned above also apply to practices implemented in the Community irrespective of where the undertakings are located, as long as the agreements have an effect on trade between Member States. When the object of the agreement/practice is to restrict competition inside the Community it is easier to foresee that such arrangements will have an effect on trade. However, even in the case of arrangements whose object is not to restrict competition within the EU, patterns of trade within the Community can be altered. For example, in Compagnie Maritime Belge the CFI held that agreements concerning shipping companies operating between the Community and West African ports were "capable of indirectly affecting competition between, on the one hand, the various Community ports by altering their catchment areas and, on the other, between activities in those catchment areas"22 and thus were capable of indirectly affecting trade between Member States by altering the activities of other operators within the Community.

Concluding Remarks

The Commission’s guidelines provide a useful tool for assessing whether an agreement or practice is capable of affecting trade between Member States. However, no definite answers are provided. In practice this assessment still requires having to work through an agreement step by step and analyse the relevant elements on a case by case basis. The Commission’s application of the effect on trade concept is very wide and includes rather than excludes situations where there might be an effect on trade between Member States. Overall the concept remains too vague to apply with precision and uniformity.

 Endnotes

1 Case 193/83, Windsurfing, [1986] ECR p. 611, paragraph 96.

2 Case T-2/89, Petrofina, [1991] ECR II-1087, paragraph 226. According to the Court of First Instance Community law does not require demonstration that an undertaking’s participation in an agreement and a concerted practice had an appreciable effect on trade between Member States. All that is required is that anti-competitive agreements and concerted practices should be capable of having an effect on trade between Member States.

3 Case 85/76, Hoffmann-La Roche, [1979] ECR p. 461, paragraph 126.

4 Case 172/80, Züchner, [1981] ECR p. 2021, paragraph 18.

5 Joined Cases 240/82 and others, Stichting Sigarettenindustrie, [1985] ECR p. 3831, paragraph 48. The Court held that "for an agreement to be considered likely to affect trade between Member States it must be possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or of fact that the agreement in question may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States."

6 Case T-228/97, Irish Sugar, [1999] ECR II-2969, paragraph 170.

7 Case 22/71, Béguelin, [1971] ECR p. 949, paragraph 16.

8 Case T-141/89, Tréfileurope, [1995] ECR II-791.

9 Case 123/83, BNIC v Clair, [1985] ECR 391, paragraph 29.

10 Case 107/82, AEG, [1983] ECR 3151, paragraph 60.

11 Joined Cases 100/80 and others, Musique Diffusion Française, [1983] ECR p. 1825, paragraph 86.

12 In the case of purchasing agreements giving rise to buyer power concerns, the relevant turnover shall be that of the buyer(s). In the case of licence agreements the relevant turnover shall be the aggregate turnover of the licensees in the products incorporating the licensed technology and the licensers’ own turnover in such products. The turnover threshold of 40 million Euro is calculated on the basis of total Community sales excluding tax during the last financial year of the undertakings concerned. Sales between entities that form part of the same undertaking are excluded. In the case of networks of agreements entered into by the same supplier with different distributors, sales made through the entire network are taken into account.

13 Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty, OJ 2001 C368, p.13.

14 Case 319/82, Kerpen & Kerpen, [1983] ECR 4173, paragraph 8.

15 In simple terms, joint ventures are temporary in nature and/or limited in scope.

16 Joint ventures performing as an autonomous economic entity are covered by the Merger Regulation. In a non-full function joint venture the joint entity does not operate as an autonomous entity on the market, but merely serves the parents, who themselves operate on the market.

17 Joined Cases 43/82 and 63/82, VBVB and VBBB, [1984] ECR 19, paragraph 9.

18 United Brands, [1978] ECR 207, paragraphs 197 to 203. The Court found that when the occupier of a dominant position, established in the common market, aims at eliminating a competitor who is also established in the common market, it is immaterial whether this behaviour relates to trade between Member States once it has been shown that such elimination will have repercussions on the patterns of competition in the common market. Consequently the refusal to supply a long standing regular customer who buys with a view to reselling in another Member State has an influence on the normal movement of trade and an appreciable effect on trade between Member States.

19 Case 246/86, Belasco, [1989] ECR 2117. The Court held that since in this case the market concerned is susceptible to imports, the members of a national price cartel can retain their market share only if they defend themselves against foreign competition. The members of this particular cartel undertook, with a view to precluding any increase in the competitiveness of other undertakings, particularly foreign undertakings, not to transfer any production plant to any third party, not to manufacture for third parties and to obtain possession of the production plant of any of them which might become insolvent. These practices were found to affect intra-Community trade.

20 Case C-234/89, Delimitis, ECR I-935.

21 Volkswagen (II), OJ 2001 L264, p.14.

22 Joined Cases T-24/93 and others, Compagnie Maritime Belge, [1996] ECR II-1201, paragraph 203. 

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a combination of two limited liability partnerships: one named Mayer Brown LLP, established in Illinois, USA; and one named Mayer Brown International LLP, incorporated in England.

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If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions