General principles of EU/EEA Competition law
The European Union has a strict competition law regime in order to maximise consumer welfare. The three regulation principles of EU competition law that also apply to the shipping and offshore sectors are: (1) prohibition on anti-competitive agreements, (2) prohibition on abuse of dominant position and (3) merger control. Norway, Iceland and Liechtenstein have implemented the same regime through the EEA Agreement, which has the same regulations as the EU member states.
Article 101 (1) of the Treaty on the Functioning of the European Union (“TFEU”) corresponds to Article 53 EEA, and prohibits agreements and concerted practices that are anti-competitive either as their object or effect. This goes for horizontal relations (between actual or potential competitors) and vertical relations (between firms at different levels of the supply chain). Typical agreements and concerted practices that are covered by Article 101 (1) include price-fixing, co-operative purchasing, co-production, market sharing, information sharing and exclusivity.
Where a restriction of competition under Article 101 (1) has been established, Article 101 (3) can be invoked as a defence. Four cumulative conditions must be met in order for exemption to apply: the restrictive agreement/practices must lead to efficiency gains; the restrictions must be indispensable to the attainment of the efficiency gains; consumers must receive a fair share of the resulting efficiency gains attained by indispensable restrictions; and the agreement/practices must offer the parties no possible elimination of competition. Where these four criteria are met, the efficiency gains generated can be considered to offset the restrictions of competition generated by it. The burden of proof is at the undertaking claiming Article 101 (3) as a defence. In addition, there are a few block exemptions, but the policy of the European Commission is to govern every sector by a general regime. The Norwegian Competition Act § 10 implements Article 101 TFEU and Article 53 EEA in Norwegian law.
Article 102 TFEU prohibits abuse of dominant position. The provision corresponds to Article 54 EEA and the Norwegian Competition Act § 11. Undertakings in a market are allowed to hold a dominant position – the prohibition merely concerns the abuse of dominant positions. A 40 % market share normally constitutes a dominant position. Typical abusive actions from case law include refusal to supply, loyalty discounts, bundling of products, pricing below cost, etc. European case law shows may examples of abuse of dominant positions within the shipping industry.
Pursuant to the Merger Regulation (Council Regulation (EC) No 139/2004), which is implemented in the EEA Agreement and incorporated into Norwegian law, concentrations between undertakings are subject to merger control. The object of merger control is to block mergers that significantly impede effective competition. All mergers between undertakings over certain thresholds are subject to compulsory pre-merger notification. If the EU Commission, the EFTA Surveillance Authority or a national competition authority clears a merger, the merger is approved once and for all. Until such a decision has been issued, the undertakings subject to the merger are obliged not to implement the merger (standstill).
EU/EEA competition law applies to undertakings operating maritime services to and/or from a port or ports in the EU/EEA. What flag the ship carries is not decisive with respect to the application of EU/EEA competition rules. Under competition law, the “effects doctrine” applies. This means that a breach is sanction in the territories where the harm to competition occurs.
2. Competition law and the shipping industry in Norway and the EU/EEA
The shipping industry is a global and capital-intensive industry, and demand is generally derived from other sectors such as commodities. The market is competitive and highly fragmented. This makes the industry vulnerable and brings about a need for undertakings to cooperate and diversify and share risks. Cooperation can typically be organised as pools, where different participants contribute with similar ships and have a common commercial management. Their earnings are pooled and distributed to the vessel owners according to a prearranged agreement. There are many benefits to such pool agreements, but a specific assessment pursuant to Article 101 (1) must be conducted on a case-by-case basis.
We also refer to the fact that large investments in harbour infrastructure may spark the need for exclusive access to the harbour. However, if these arrangements are too extensive, they may be prohibited under both Article 101 and 102.
In 2018, the Norwegian Competition Authority (the “NCA”) published their statement to a proposal for a new act on harbours and waters. The proposal entailed a removal of the harbours’ duty of reception, to which the NCA was negative. As the proposal referred to the general rules on abuse of dominant position, and therefore that the duty of reception was not required, the NCA pointed at the difficulties establishing abuses of dominant positions, and the need for specific assessments and analysis. The NCA therefore suggested to retain the duty of reception in order to facilitate competition. When the Ministry of Transport and Communications submitted its proposal to the Norwegian Parliament in April 2019, the duty of reception was included in the final proposal.
At the EU-level, the former block exemption for liner conferences has been repealed, and the EU Commission is, as stated on the Commission’s webpage, advocating the gradual removal of the existing exemptions.
There is still a block exemption for liner shipping consortia. As liner shipping services require significant levels of investment, the services are regularly provided by several shipping companies cooperating in “consortia” agreements. The exemption relates to international consortia that sail from or to one or more EU ports, and its validity period is being extended regularly. The current exemption expires on 25 April 2020, and the Commission has invited stakeholders to comment on the legal framework within this field of shipping and competition law.
3. Recent cases relevant to the shipping industry
Concerning the container liner shipping companies’ former practise on so-called General Rate Increases (“GRI”) announcements, the EU Commission’s decision (case no. 39850) from 2016 is still in force. The GRI announcements indicated the amount of price increases per transported container unit, the trade routes and implementation dates. Due to the Commission’s competition concerns with respect to this practise, the carriers committed to implement several measures. The measures are legally binding on the carriers until the decision expires in December 2019, and they include restrictions as to how price announcement may be made and what information they may include.
In terms of sanctions on anti-completive behaviour, the Commission issued fines to four maritime car carriers, in addition to car parts suppliers, in February 2018 (case no. AT.40009). The fines amounted to € 395 million for the carriers as they all agreed to settle the cases. The carriers involved had formed a cartel for almost six years, and the means of communication included meetings in offices, bars, restaurants, social gatherings and telephone contact. Thereby, the carriers did not only coordinate prices and allocate customers, but also exchange competition sensitive information with regard to prices. As one of the cartel participants filed an immunity application, the Commission became aware of the coordination and started the investigation, which involved international cooperation with national competition authorities.