(Published in the Official Journal. Only the published text is
authentic:
L 258 , 22/09/97 )
Article 86
85. Under Article 86 of the EC Treaty any abuse by
one or more undertakings of a dominant position within the common
market or a substantial part of it is prohibited as incompatible with
the common market in so far as it may affect trade between Member
States.
The relevant product market
86. As the Court of Justice of the European
Communities stated in Hoffmann-La Roche v Commission[69],
"The concept of the relevant market in fact
implies that there can be effective competition between the products
which form part of it and this presupposes that there is a sufficient
degree of interchangeability between all the products forming part of
the same market in so far as the specific use of such products is
concerned."
87. In its Napier Brown-British Sugar
decision[70],
concerning certain restrictive practices relating to the sale of
granulated sugar, the Commission took the view that white granulated
sugar formed the relevant product market.
88. Speciality sugars, liquid sugars and syrups,
being used for different purposes than granulated sugars, do not meet
the same needs and are not therefore part of the product
market of white granulated sugar, because they are not substitutable
from the customer's point of view.
89. Industrially produced sugar substitutes such as
isoglucose, saccharin, cyclamates or aspartame only compete with
natural sugar in limited uses such as 'diet' products, and thus do not
form part of the same relevant product market as granulated sugar.
90. The Commission accepts, however, as was argued
by Irish Sugar[71],
that the market for white granulated sugar is further subdivided into
two markets, that of industrial sugar and that of retail sugar. The
two markets have overlapping characteristics; both involve the same
basic product, granulated sugar, and the total supply of both is
constrained by the common sugar regime. However, whilst there is a
degree of substitution on the supply side, in terms of the use to
which the products are put, the volumes sold and the types of
customers, the markets are different. Industrial sugar is sold in bulk
or large (e.g. 50 kg) bags and is either processed as part of food and
drink products or packaged as retail sugar. The customers for
industrial sugar are therefore largely food and drink manufacturers
and packers. Some sugar merchants or intermediaries are also present
on the industrial market in certain Member States. Retail sugar
is sold in smaller quantities, such as 1 kg packets and sachets, and
is used primarily within the home or by the catering trade. The
customers for retail sugar, as far as the sugar processor is
concerned, are the wholesale and retail trade. These differences in
the packaging, distribution and customer profiles for industrial and
retail sugar lead to different pricing structures in the two markets
throughout the Community.
The relevant geographical market
91. The relevant geographical market is defined by
the Court as[72]:
"a geographic area in which it [the product in
question] is marketed and where the conditions of competition are
sufficiently homogeneous for the effect of the economic power of the
undertaking concerned to be able to be evaluated."
92. The relevant geographical market within which
the market power of Irish Sugar has to be assessed is Ireland. This is
demonstrated by the following elements.
93. As indicated above, a major element of the
common organization of the sugar market is that, in the Community,
each Member State is given a basic quantity of beet-origin sugar,
which it divides up into quotas between its beet processing companies
("A/B sugar"). Irish Sugar, being the sole processor of
sugar beet in Ireland, receives the entire A/B sugar quota for that
country. This quota, which currently amounts to 200 200 tonnes
per annum, largely exceeds domestic consumption. Irish Sugar's
production has hitherto been sufficient to cover the entire
consumption of sugar in Ireland. In Suiker Unie and others v
Commission, the Court of Justice has recognized that the common
organization of the sugar market has a strong influence on the
production and sales of sugar in the Community[73]:
"It is beyond doubt that, as the
beforementioned system of national quotas stopped production moving
gradually to areas particularly suitable for the cultivation of sugar
beet and, in addition prevented any large increase in production, it
cut down the quantities which producers can sell in the common market."
"This restriction together with the relatively
high transport costs, is likely to have a not inconsiderable effect on
one of the essential elements in competition, namely the supply, and
consequently on the volume and pattern of trade between Member States".
However;
"Whatever criticism may be made of a system,
which is designed to consolidate a partitioning of national markets by
means of national quotas, the effects of which will be examined later,
the fact remains that it leaves in practice a residual field of
competition, that field comes within the provisions of the rules of
competition."
94. Irish Sugar is the only sugar producer with a
well-established distribution system through which it supplies
customers throughout the country. The overwhelming majority of
industrial and retail customers in Ireland source their supplies in
the country. They either buy their sugar from Irish Sugar or from
importers but do not engage in direct imports themselves.
95. Irish Sugar has argued that in Suiker Unie
the Court of Justice stressed that the Community system also contains
elements which either promote the development of trade between Member
States and, consequently, effective competition, or at least are
likely to moderate the countervailing effects arising from the
Community regime. In particular, reference is made to the fact that
intra-Community movement of refined sugar is built into the Community
system, by the creation of surplus and deficit areas[74].
Although the Irish A/B sugar quota largely exceeds domestic
consumption, Ireland is treated as a deficit area by the sugar regime.
The significance of this is that the intervention price for sugar is
higher in deficit areas such as Ireland, in order to encourage imports
into deficit areas from surplus areas. It is further argued by Irish
Sugar that huge surpluses of sugar in France, Germany, Denmark,
Belgium and the Netherlands exist which could in principle be sold
into Ireland. It should however be noted that imports of sugar into
Ireland have hitherto made up only a small part of total granulated
sugar consumption in Ireland[75].
A major barrier for importing sugar from the continent is the cost of
freight, particularly in the absence of a load travelling in the
opposite direction. Irish Sugar has argued[76]
that, despite the statement in Greencore's Corporate Plan of June 1994
on the use of dedicated containers referred to above that "the
absence of return loads is no longer an issue", because the
containers used to import sugar can now be used for return loads.
However, whatever the current situation, Irish Sugar's own
statement shows that the cost of freight was an impediment to raw
sugar imports for virtually all of the period under consideration. In
addition, imports of bagged sugar are facing the structural handicap
of industrial customers' having moved over the years to silos for
stocking their sugar. This results in an ever-declining market for
bagged sugar which currently is less than 7 000 tonnes.
96. Northern Ireland does not form part of the same
geographical market as Ireland. Although Irish Sugar has a fairly high
[...] market share in the province, the competitive climate is clearly
different from that in Ireland. No sugar is produced in Northern
Ireland. Imports by Irish Sugar are made through its subsidiary
McKinney, and retail sugar is sold under the McKinney brand. In
addition, the two UK producers, British Sugar PLC and Tate & Lyle PLC,
which are not present on the market of Ireland, compete on the
Northern Irish market and account for the remaining [...] There is
also a significant difference on the demand side of the market, as
many customers are part of groups which are also established in other
parts of the United Kingdom, and are therefore more likely to source
their sugar requirements from the UK producers. Furthermore, important
price differences exist between Northern Ireland and Ireland. In
particular, retail sugar has consistently been substantially
cheaper in Northern Ireland than in Ireland, and in Greencore internal
documents copied by the Commission there are references to the "home market
premium" on sugar. During the period where a sufficiently
large price difference between Northern Ireland and Ireland on the
market for retail sugar existed to attract imports from Northern
Ireland, Irish Sugar has shown itself able to resist any attacks on
its position in its "home market" of Ireland. During
the price war in the United Kingdom, Irish Sugar was able to continue
to maintain a substantial price difference for in particular retail
sugar in Ireland. As regards industrial sugar, Irish Sugar has also
been able to maintain significantly higher prices for those customers
operating only on the home market.
97. The relevant geographical market is therefore an
entire Member State, Ireland. This is a substantial part of the common
market. Total sugar consumption in Ireland in 1993/4 amounted to 173 000
tonnes. As noted above, sugar consumption per capita in Ireland is
higher than the average for the Community, reflecting its role within
the economically important food and drink manufacturing industry of
the country, as well as on the retail market.
98. On the basis of the above characteristics, the
Commission concludes that the relevant markets are those of retail and
industrial granulated sugar in Ireland. It is further concluded that
this is a substantial part of the common market within the meaning of
Article 86 on the basis of the volumes of production and consumption
of sugar.
99. Irish Sugar holds a dominant position on the
granulated sugar markets for both retail and industrial sale
in Ireland.
100. In Hoffman-La-Roche v Commission,
the Court of Justice defined the concept of dominance as follows[77]:
"The dominant position thus referred to [in
Article 86] relates to a position of economic strength enjoyed by an
undertaking which enables it to prevent effective competition being
maintained on the relevant market by affording it the power to behave
to an appreciable extent independently of its competitors, its
customers and ultimately of the consumers (...)
The existence of a dominant position may derive
from several factors which, taken separately, are not necessarily
determinative but among these factors a highly important one is the
existence of large market shares."
101. The factors which are taken into account for
deciding that Irish Sugar has a dominant position on the markets for
industrial and retail granulated sugar in Ireland are as follows:
102. In the period 1985-1995 Irish Sugar held above
90 % of the total granulated sugar market. Consequently, Irish Sugar's
competitors in both markets have had only marginal market shares. ASI,
the main importer of industrial, and, at certain periods, retail,
sugar to Ireland, held a market share of around [...] or below in the
period 1985-1995. Round Tower has had a [...] share of the smaller
retail market for a number of years, but since 1988 has bought most of
its industrial sugar from Irish Sugar. Gem Pack had a [...] share of
the retail sugar market in 1993/4, but also sources its industrial
sugar from Irish Sugar.
103. Irish Sugar's relatively small size in terms of
production of sugar as compared to sugar producers in other Member
States, some of them having major surpluses of sugar after supplying
their home market, is irrelevant for determining Irish Sugar's
position on the Irish market. The fact that Irish Sugar has made
losses in the first half of the 1980s is not inconsistent with the
existence of a dominant position[78].
104. The Community's sugar regime limits the sales
of Community-produced sugar in the Community to the total of national
production quotas. Irish Sugar is the sole producer of sugar on the
island and it is annually allocated the entire sugar quota of Ireland.
This quota is sufficient to cover the entire consumption of granulated
sugar in Ireland. It has a well-established distribution system
through which it supplies industrial, wholesale and retail customers
all over the country.
105. Competition afforded by imported sugar has not,
since 1985, prevented Irish Sugar from maintaining high market
shares, and thus from enjoying a dominant position within the meaning
of Article 86. Imports of sugar into Ireland represented only a small
part of total granulated sugar consumption in Ireland. In particular,
imports of sugar from Northern Ireland and France have had only a
marginal influence on Irish Sugar's competitive position.
106. Irish Sugar has argued[79]
that it is not dominant on the industrial sugar market in Ireland
because of the "position of strength vis-à-vis Irish
Sugar" of its major industrial customers, and in particular
its two largest customer [...] and [...] , which together account for
around [...] of its industrial sales and which, Irish Sugar argues "could
cease production in Ireland altogether if the factors of production
become too expensive. In such an event these companies would be likely
to produce elsewhere and therefore be lost to Irish Sugar for
good."
107. However, even if one accepts that these
particular customers have a certain buying power, they are
equally reliant on Irish Sugar for their supplies of bulk sugar. As
noted at paragraph 94 above, the effect of the sugar regime is to
reduce the volume of alternative supplies. Moreover, the cost of
transport of sugar overseas is a major barrier for importing sugar
into Ireland. As was stated above, the market niche for imported
industrial sugar, in particular bagged sugar, has been shrinking
gradually over the last decade, as a result of industrial users' switching
to silos to stock their delivered sugar. Furthermore, the small size
of the Irish market makes it more difficult for sugar producers
in the Benelux, France, Germany or Denmark to acquire a satisfactory
return on investment on sales on the Irish market. The fact that
companies are able to make relocation decisions in the long term does
not rule out current reliance on a particular supplier.
108. As the Commission argued in the merger decision
Nestle/Perrier[80],
the concentration of buyers must be compared to the concentration on
the supply side. In the case of the Irish industrial sugar market, on
which Irish Sugar has accounted for [over 90 %] of supply over the
period in question (and over [...] for most of the period), it is
abundantly clear that, despite the presence of two large customers,
the demand side is composed of a number of buyers which are not
equally strong and which cannot be aggregated to conclude that they
may constrain the market power of the supplier with over 90% of the
market. The share of sales of the two largest customers does not
counterbalance the dominant position of Irish Sugar. Furthermore, as
was argued in Nestlé/Perrier, in the enforcement of the
competition rules the Commission must also pay attention to the
protection of weaker buyers. As is explained hereinafter, Irish Sugar
has discriminated against particular categories of customers.
Furthermore, average ex-factory prices for granulated sugar in bulk in
Ireland have been among the highest in the Community. They have
consistently been higher than average prices in the United Kingdom,
which is the nearest Member State in which sugar is also produced.
109. Although Irish Sugar has had a slightly lower
share of the retail sugar market over the period in question
(above 85 %), it is also dominant in this market. The fact that the
large multiple chains, such as [...] and other retail
chains, have increased their share of the market over recent
years relative to the wholesale groups does not rule out dominance. As the Commission
has argued in both the Nestlé/Perrier and Procter & Gamble/VP Schickedanz
II[81]
merger decisions, the strength of consumer brand loyalty must be taken
into account in determining the relative bargaining power of retailers
vis-à-vis manufacturers. Irish Sugar has itself acknowledged
the "recognized branding advantage" of its Siucra
brand products. Even those few retailers that offer own-brand sugar
buy it from Irish Sugar, for reasons of customer loyalty to an
Irish-sourced brand. Furthermore, although there have been several
domestic competitors in the retail market over the last ten years
these companies have very small market shares and rely on Irish Sugar
for almost all their supplies of industrial sugar.
110. From the above it follows that Irish Sugar has been in a
position during the relevant period to behave to an appreciable extent
independently of its competitors in both markets, including companies
in Ireland which are packaging sugar for retail sales on the Irish
market and sugar producers established in other Member States.
111. Prior to 1990 Irish Sugar held 51% in SDH (the
parent company of SDL) and appointed half of SDH's Board. However,
Irish Sugar has stressed that it did not have management control of
SDH in this period. The Managing Director of Irish Sugar and a number
of other Irish Sugar Directors were on the Board of SDH and SDL, and
the responsibilities and co-responsibilities of Irish Sugar and SDL
were allocated as of mid-1982. SDL was responsible for sales and
pricing decisions. Furthermore, as can be seen from the above, Irish
Sugar openly discussed in joint monthly meetings with representatives
of its sales subsidiaries its commercial policy approach, including
the problems that both Irish Sugar and SDL/SDH faced as a result of
imports and the defensive measures to be taken. Details of prices for
individual customers, including details of sugar export rebates, were
also discussed in meetings between representatives of SDL/SDH and
Irish Sugar.
112. In addition to Irish Sugar's equity holding in
SDH, its representation on the Boards of SDH and SDL, the structure of
policy-making of the companies and the communication process
established to facilitate it, there were direct economic ties between
the companies. SDL was committed to buying all its sugar from Irish
Sugar. Irish Sugar paid for all consumer promotions and rebates
offered by SDL to individual customers. These economic links created a
clear parallelism of interest of the two companies vis-à-vis
third parties. The judgment of the Court of Justice in Italian
Flat Glass[82]
indicates that where two independent economic entities are, on a
specific market, united by such economic links and, by virtue of that
fact, together hold a dominant position vis-à-vis the
other operators on that market, then a position of joint economic
dominance can be found between them.
113. It is therefore concluded that, throughout the
relevant period, Irish Sugar held an individual, or at least, prior to
February 1990, a joint, dominant position on the granulated sugar
market for both retail and industrial sale in Ireland.
114. From the facts set out above, based on the
documentary evidence on the file, it follows that in the period from
1985 onwards a major element of Irish Sugar's commercial policy has
been the shielding of its home market in Ireland from, on the one
hand, imports from other Member States and, on the other hand,
competing sugar packers within Ireland. In addition, for a period of
at least the last ten years, Irish Sugar's commercial policy has
involved the imposition of a discriminatory pricing policy within its
home market. As part of these practices Irish Sugar has had recourse
to methods different from those which condition normal competition in
products or services based on traders' performance, the effect thereof
being that the maintenance of the degree of competition still existing
in the market or the growth of that competition has been hindered. It
is therefore concluded that Irish Sugar has abused its dominant
position on the sugar market in Ireland[83].
115. A finding that an undertaking has a dominant
position is not in itself a recrimination but simply means that,
irrespective of the reasons for which it has such a dominant position,
the undertaking concerned has a special responsibility not to allow
its conduct to impair genuine undistorted competition on the common
market[84]. The
fact that Irish Sugar through its quota production is entrusted with
certain responsibilities under the common organization of the markets
in sugar, and that, partly as a consequence thereof, Irish Sugar holds
a dominant position on the market of Ireland, does not dispense it
from the obligation not to act abusively. Article 1 of Council
Regulation No 26 of 4 April 1962 applying certain rules on competition
to production of and trade in agricultural products[85],
as amended by Regulation No 49[86],
provides that Articles 85 to 90 of the Treaty apply to all agreements,
decisions and practices referred to in Article 85(1) and Article 86 of
the Treaty which relate to production of or trade in the products
listed in Annex II to the Treaty. While, for the application of
Article 85, Regulation No 26 provides for certain exceptions, Article
86 applies without any exception in the field of agriculture.
116. To defend its market Irish Sugar resorted to
various forms of abusive conduct which were used alternatively or in
combination with one another whenever it was felt necessary,
throughout the period from 1985 onwards.
117. The actions taken by Irish Sugar before 1990
with regard to the transport restriction, by both companies with
respect to border rebates, export rebates and the the fidelity rebate
and by SDL with respect to the product swap and selective pricing,
were undertaken from a position of joint dominance.
118. From the documentary evidence on the file, the
Commission concludes that Irish Sugar and/or SDL engaged in the
illegal practices referred to below, which, as stated above, were part
of a sustained and comprehensive policy of protecting Irish Sugar's
home markets for both industrial and retail sugar.
I. Measures to protect the home market against
competition from imports from other Member States
(i) Imports from France
119. From 1985 onwards Irish Sugar and SDL took
steps to impede competition from French imported industrial and retail
sugar. The actions taken consisted of restricting the transport of
French sugar to Ireland, selective pricing including the granting of a
fidelity rebate, and product swapping.
* Transport restriction
120. In 1985 Irish Sugar took steps to prevent ASI
from having its French sugar shipped to Ireland by the State-owned B&I
shipping line company. Irish Sugar put pressure on this carrier used
by ASI, and the carrier gave in to that pressure. While at the time B&I
was not the only shipping line serving sea routes between France and
Ireland, it was contracted by ASI as being a possible shipper for its
sugar. Irish Sugar's action inevitably restricted ASI's business of
importing French sugar, resulting in ASI's initiation of legal
proceedings against B&I and Irish Sugar.
121. Irish Sugar has admitted before the Commission
that it advanced the proposition to B&I to withdraw its custom if
B&I continued to ship CFS sugar from France to Ireland. However it
argues that it felt itself under threat from CFS, a much larger sugar
producer. It also considered that B&I's provision of transport
services to CFS conflicted at the time with the former's obligations
to their common shareholder, namely the Irish State.
122. The Commission considers that this is not a
valid justification. Putting pressure on a carrier to prevent him from
transporting competing goods cannot be considered to constitute a
normal business practice. The object and effect of this action was the
protection of Irish Sugar's position in Ireland and therewith the
restriction of competition in that market to the detriment of
consumers. In those circumstances it is concluded that by putting
pressure on the B&I shipping company so that it would cease to
transport French sugar for ASI, Irish Sugar infringed Article 86.
* Selective pricing
123. In a note dated 8 March 1988 to the members of
the Irish sugar/SDL/JCC Executive regarding French sugar imports, Mr
Keleghan (then Sales Director of SDL) set out a policy of selective
low pricing to potential customers of ASI. Those low prices were not
to be offered generally, even to larger customers. Such a policy
infringes the principle set out in Michelin v Commission[87]
that a company in a dominant position has a special responsibility not
to diminish further the degree of competition remaining on the market.
* Product swap
124. When ASI introduced CFS' 1 kilo packet of "Eurolux"
retail sugar in 1988, the Commission has evidence that SDL agreed with
one wholesaler and one retailer to exchange its own sugar for Eurolux
sugar. This has been admitted by Irish Sugar before the Commission.
However, according to Irish Sugar, contrary to what has been stated in
the affidavit of Mr Brennan, Authorized Officer acting on behalf of
the Director of Consumer Affairs and Fair Trade before the Irish High
Court, there was no threat of a financial sanction. For Irish Sugar,
the swap was a reaction to insufficient demand for the poorly marketed
French product. The product swap did not, therefore, have the effect
of impeding the establishment of CFS on the Irish market.
125. Irish Sugar's reporting of the circumstances of
the product swap are difficult to accept. In the case of ADM, the swap
took place very shortly after ADM issued a bulletin on 15 April 1988
to all its members (i.e. the retail outlets of the Londis chain)
advising them of the availability of the Eurolux sugar. The parties
did not therefore allow the new product sufficient time to be
launched, positioned and marketed. With respect to Kelly's, it follows
from Mr Brennan's affidavit that the product at first sold well. There
is no explanation as to why Kelly's suddenly had to exchange the
Eurolux sugar for an equivalent quantity of Irish Sugar's
corresponding product. The Commission therefore concludes that in both
cases the apparent objective of Irish Sugar in carrying out the
product swap was to prevent Eurolux from gaining any market presence
in Ireland and thus obtaining the necessary commercial goodwill. The
swap itself had the effect of hampering the entrance of a new product
on the Irish market, which would compete with Irish Sugar's Siucra
brand. It should also be noted that the intervention of Mr Comerford
(General Manager of Irish Sugar) at the board meeting of SDL of 28 June 1988
shows that Irish Sugar did not at the time consider the Eurolux
competition as a matter of minor importance. Irish Sugar had been
informed by ASI of the action of SDL.
126. Product swapping by a dominant undertaking
constitutes an abuse pursuant to Article 86 whenever it has as its
object or effect the restriction or elimination of competition from a
new entrant in the market[88].
This is the case here. In fact, the product swap resulted into a
consolidation of Irish Sugar's and SDL's joint position as an almost
monopoly supplier of sugar in the market.
* Fidelity Rebate
127. The agreement between SDL and ADM whereby ADM
secured an advantageous price if it met a given target purchase level
(that is, the price for [3x] tonnes if it bought [x] tonnes) was
evidently not a normal quantity discount and represented a target or
fidelity rebate that had the effect of tying a customer to the
dominant supplier. This was therefore an infringement of Article 86
agreed by SDL and funded by Irish Sugar.
(ii) Imports from Northern Ireland
* Selective Rebates (discriminatory pricing)
including border rebates
128. Irish Sugar and SDL took measures to restrict
imports from Northern Ireland, particularly in the period 1985-1988,
by pursuing a policy of selective or discriminatory pricing on the
sugar market of Ireland. This policy included the grant of special
allowances to selected customers. In particular a special rebate was
granted to certain customers established in the border area with
Northern Ireland ("border rebate"). This rebate was
openly discussed between Irish Sugar and SDL and was funded by Irish
Sugar.The purpose of this rebate was to reduce the imports of cheaper
retail packets from Northern Ireland into Ireland. The border rebate
was unrelated to objective economic factors like the sales volume of
the customers. It was used and modulated whenever it was considered
that the price difference between Northern Ireland and Ireland might
have induced cross-border sales.
129. The application of the border rebate is an
abuse of Irish Sugar's and SDL's joint dominant position within the
meaning of Article 86. In fact, it means that Irish Sugar/SDL have
been applying dissimilar conditions to equivalent transactions with
other trading parties, thereby placing those who did not qualify for
the rebate at a competitive disadvantage. Moreover, this rebate was
intended to and did deter imports of sugar from Northern Ireland,
whether imports of sugar from Irish Sugar's competitors or re-imports
of its own sugar, thus limiting markets to the prejudice of customers.
The border rebate therefore forms part of a policy of dividing markets
and excluding competitors. The rebate was not based on an objective
economic justification, such as the quantities purchased by the
customer, marketing and transport costs or any promotional,
warehousing, servicing or other functions which the relevant customer
might have performed. It was granted on the sole basis of the
retailer's place of business, in particular whether or not the
relevant customer is established in the border area with Northern
Ireland. Such a practice of selective or discriminatory pricing has
been condemned by the Commission and the Court of Justice in earlier
cases[89].
130. In general Irish Sugar does not deny
that it, together with SDL, engaged in practices to compete with cheap
imports from Northern Ireland to Ireland. However, Irish Sugar has
submitted that the Commission should assess the relevant conduct
against its economic and factual background. In particular, reference
is made to the fact that the practices in question were pursued
principally from 1984 to 1986, at the time of the price war between
British Sugar and Tate & Lyle, which was also fought out in
Northern Ireland. Irish Sugar argues that since it was making heavy
losses at the time, it could not react to those cheap imports by
dropping its prices to the level of competing imports.
131. Irish Sugar has argued further in its response
to the Statement of Objections that its policy of selective pricing,
as regards both French and Northern Irish imports, was a defensive
measure. Irish Sugar have referred to a provision in the Commision's
decision for interim measures in ECS/AKZO[90]
to argue that "it is not abusive for a dominant supplier to
align its prices to match competing offers made to its existing
customers"[91].
Irish Sugar has contended in essence that by these practices it sought
to preserve its viability as a sugar supplier. Irish Sugar argues that
they were designed to ensure that Irish Sugar is capable of performing
its duties under the CAP by seeking to curtail trade in its own
products which was increasing its losses and threatening its
viability, trade which was only possible because of price
differentials not created by the undertaking in question and
aggravated by the expansionist pricing strategy of larger sugar
processors in other Member States.
132. Irish Sugar has also referred to the
Commission's Decision in the case of BPB Industries plc[92],
in which the price reductions offered by BPB Industries to customers
in a specific geographic area in which it faced competition from
Lafarge UK Ltd were not an abuse of its dominant position since
they "amounted to a small price reduction" (4-5.5%)
and were "not in themselves predatory, nor were
they part of any scheme of systematic alignment."
133. It should be noted, first, that the selective
pricing practised by Irish Sugar and SDL went significantly beyond the
practices that they have referred to. In particular, in the case of
the border rebates, as can be seen from the above, these were offered
to a wide range of customers in various border counties at various
periods. They also involved discounts of [higher than 5.5 %][93].
Moreover, the application of selective prices in both instances was
part of a systematic policy of deterring imports into the market in
which they had a joint dominant position, and therefore restricting
the limited competition that was present. In the case of offers made
to potential ASI customers, these sought to impede the growth of one
small company that was importing industrial and retail sugar into the
Irish market.
134. There is no doubt that a firm in a dominant
position is entitled to defend that position by competing with other
firms in its market. However, the dominant firm must not deliberately
attempt to effectively shut out competitors. It has a special
responsibility not to diminish further the degree of competition
remaining on the market[94].
Firms which may be strong or even dominant in one geographic market
are in a different position with respect to other geographic markets
where they are confronted with a local dominant undertaking. The
maintenance of a system of effective competition does, however,
require that competition from undertakings which are only small
competitors on the geographic market where dominance prevails -
regardless of their position in geographic markets which are separate
for the purpose of assessing dominance - be protected against
behaviour by the dominant undertaking designed to exclude them from
the market not by virtue of greater efficiency or superior performance
but by an abuse of market power. In the Commission's final decision in
ECS/AKZO[95]
it was held to be abusive for a company with a 50% or more market
share to offer selectively low prices to customers of a small
competitor whilst maintaining substantially higher prices for its
existing customers. This principle was upheld by the Court. In the
period in which it sought to restrict imports, Irish Sugar had over
90% of both the Irish industrial and retail sugar markets.
135. The Commission concludes that all of the
above-mentioned practices, i.e. the border rebates, transport
restriction and the product swap and fidelity rebate, were directed to
the same end, namely protecting the market position of Irish Sugar in
Ireland. The cumulative effect of these practices contributed to the
foreclosure of that market to competitors. It is therefore concluded
that Irish Sugar and SDL abused a joint dominant position by engaging
in these practices.
II. Pricing behaviour that discriminates against
particular categories of customer
(i) Sugar export rebates
136. By granting rebates to certain customers,
depending on the final destination of the sugar, Irish Sugar is
abusing its dominant position by discriminating on price, that is, by
applying dissimilar conditions to equivalent transactions within the
meaning of point (c) of Article 86, thereby placing them
at a competitive disadvantage.
137. In the first place, there is discrimination
within the export rebate system, since there are "exporters"
who do not benefit to the same extent as others, either because they
export only a small percentage of their production or because Irish
Sugar decides to grant them a relatively low export rebate for the
proportion that they do export. Some companies provide records of
their actual exports whereas for others it is simply assumed that a
high percentage is exported. Although Irish Sugar has argued
that a primary reason for the export rebate system has been currency
fluctuations and changes in other cost factors for exporters, the
facts show, and Irish Sugar admits, that once a particular level
of rebate has been agreed with a company, it has tended to remain in
place for years despite changes in relative exchange rates and other
production factor costs. Irish Sugar has stated in its Response to the
Statement of Objections that it will "revise" its system of
export rebates and, for example, audit claims for export rebates.
138. Furthermore, the system of rebates is in itself
discriminatory. The fact that the industrial sugar is processed and
exported to other Member States does not change the nature of the
transaction, and there is no difference in the nature of the product
sold or the costs of supply borne by Irish Sugar.
139. Moreover, Irish Sugar has argued that, over the
period in question, there has been an increase in the volume of
manufactured food products imported into Ireland. This, they argue, is
in part;
"the development of new trade alliances in
Ireland........between UK buying groups and southern Ireland buying
groups, as well as between mainland European buying groups and Irish
buying groups.These trade changes have brought significantly increased
competition, as well as different trade terms and prices coming from
large food manufacturers in the UK, UK multiples and UK buying groups.
Initially this has come through Northern Ireland....but more recently
directly into Ireland[96]."
Irish food manufacturers supplying the domestic
market, including, as Irish Sugar admits, sugar packers, have
therefore been faced with increased competition and a more difficult
market environment. Furthermore, according to Irish Sugar, this
appears to be a consistent trend, whereas exchange rates by their very
nature fluctuate in both directions. Yet Irish Sugar has
consistently chosen to practice price discrimination against domestic
food manufacturers.
140. The Commission does not accept Irish Sugar's
argument that sugar export rebates are not discriminatory because
those manufacturers who choose to sell only on the domestic market "are
not at a competitive disadvantage[97]"
compared to exporters. Irish Sugar has ignored the fact that, in an
economy which both exports to and imports from other Member States,
such factors as currency fluctuations affect all companies
manufacturing tradeable goods, whether "domestic" or "exporting".
A "domestic" Irish Sugar customer which competes with a
company from another Member State on the Irish market is clearly at a
competitive disadvantage when compared to a subsidised "exporting"
customer competing with the same "foreign" company in that
company's home Member State. In focusing on the relationship between
its customers, Irish Sugar has ignored the fact that they can be
placed at a competitive disadvantage vis-à-vis third
parties.
141. Secondly, Irish Sugar has not taken into
account the fact that export rebates cross-subsidise sugar that is
destined for the Irish market. As has been noted, the sugar export
rebate scheme is frequently applied to total sugar purchases without
any check on the volume exported in processed form. Even if the system
were adequately supervised, however, cross-subsidisation would still
occur. This is because, from the customer's point of view, its
purchases - whether ultimately for the home market or export - are
identical. Any rebates given are simply averaged out over all
purchases in the company's internal accounting, to give the average
cost price for sugar. This raw material cost price is used for all
processes.
142. In United Brands v Commission[98]
the Court placed an even wider definition on the notion of "competitive
disadvantage", when it found that United Brands had discriminated
on the price of green bananas between distributor/ripeners who
operated in different Member States "according to the
circumstances of the Member States", and had placed certain
distributor/ripeners at a competitive disadvantage "since
compared with what it should have been competition had thereby been
distorted". The Court therefore ruled against the geographic
price discrimination practised by United Brands, despite the existence
of different market conditions in the different Member States in which
these purchasers were operating.
143. The system of export rebates has the additional
effect of placing the sugar packagers on an unequal competitive
footing vis-à-vis Irish Sugar at the resale level, and
thus has elements of the vertical disparities found between
distributors/ripeners and UBC in the Chiquita[99]
decision of the Commission. Again, by comparing its customers only
with each other, Irish Sugar has ignored their competitive
relationship with third parties, including Irish Sugar itself.
144. Moreover, the discriminatory nature of the
export rebate scheme is emphasized by the fact that it is not in line
with the objectives of the common sugar regime. As Irish Sugar has
itself pointed out, Ireland is treated as a deficit area by the sugar
regime, and the intervention price for sugar is higher in order to
encourage imports of sugar. However, the company's export rebates are
likely to distort the regime by subsidising exports of sugar out of
Ireland to other Member States, acting as a barrier to imports
and increasing the isolation of the national market.
(ii) Active discrimination against competing
packers
* Price charged for industrial sugar
145. Whilst Irish Sugar's system of export rebates
might not have as its primary object discrimination against competing
sugar packagers, the system of additional rebates reveals a more
active bias against them. Irish Sugar is not only applying dissimilar
conditions to equivalent transactions, but is also unable to provide
any reason that does not seem like an ex-post attempt to
justify its discrimination against sugar packagers. The explanations
that Irish Sugar has given for "start-up" and "fast-growth"
rebates would be equally applicable to at least two of the sugar
packers.
146. Irish Sugar has argued that the practice of
offering no rebates to competing sugar packers was not an abuse
because the packers "cannot be placed at a competitive
disadvantage vis-à-vis other industrial customers because the
packers do not compete with them[100]".
This ignores the Court's ruling in United Brands v Commission[101]
that it is the interplay of supply and demand between the supplier and
initial purchaser, and not in the market in which the purchaser
operates, that should be taken into account when assessing whether
discrimination has taken place. The sugar packers bought exactly the
same product, bulk industrial sugar, from Irish Sugar as its other
customers, with the same standard conditions of sale and delivery.
147. Furthermore, in the Commission's Decision in
Napier Brown/British Sugar[102]
it was found that British Sugar, in refusing to supply only sugar of
beet origin to Napier Brown, on which the latter could receive an EC
storage rebate and therefore an effective reduction in the cost price,
had discriminated against it vis-à-vis other customers
which were not sugar packers and were guaranteed a supply of
beet-origin sugar. The Commission considered that, in denying
exclusively beet-origin sugar (and therefore effectively raising the
relative price of sugar) to Napier Brown while supplying it to
customers which were not sugar packers, British Sugar applied "discriminatory
conditions to equivalent transactions with other trading parties,
thereby placing them at a competitive disadvantage".
148. In contrast, the view that competing sugar
packers face no competitive disadvantage would, if followed to its
logical conclusion, imply that suppliers in a dominant position were
entitled to make unilateral decisions about the competitive conditions
and relevant product markets in which their customers operated,
including determining the substitutability of the differing products
that their customers produced, and to divide their customers into
different price categories accordingly. The prices set in one
arbitrarily determined category would, presumably, need to bear no
relation, in terms of volumes sold or other costs of delivery, to
prices in the other categories.
149. As a company in a dominant position,
irrespective of the reasons for which it has such a dominant position,
Irish Sugar should not "hinder the growth of the degree of
competition still existing in a market where, as a result of the very
presence of that undertaking, competition is weakened" (Hoffmann
La-Roche v Commission, as cited in Tetrapak[103]).
Its system of rebates demonstrates a clear abuse of its dominant
position.
150. Moreover, although there is no legal
requirement for a company in a dominant position to charge identical
prices or to publish its terms, the sheer lack of transparency of
Irish Sugar's entire rebate system, including export rebates, in which
neither the scale of rebates nor the volumes to which they relate is
either uniform or communicated in writing to customers may be seen as
an abuse of its dominant position. In Michelin the ad hoc,
unobjective (i.e. not comparable between customers) and
verbal nature of the company's rebate system was attacked by the
Commission as discriminatory. Furthermore, the Advocate-General
concluded that establishing a bonus and discount system that was fixed
on an individual basis and hence not communicated uniformly to all
dealers in advance made discrimination between them possible and was
in itself an abuse of Article 86[104].
Irish Sugar's non-transparent and variable system of rebates provides
an easy opportunity for it to restrict the already limited competition
on the industrial sugar market in Ireland.
* Target rebates and selective pricing
151. In Spring 1994, Irish Sugar offered the major
food wholesalers in Ireland discounts that were based on their
achieving certain increases in their purchases of its 1 kg Siucra
brand over three months. The reference period used to calculate the
increase was April-September 1993. In October 1994 a further
target-based discount was offered to wholesalers on Siucra, using the
same reference period. In early December 1994, Irish Sugar offered the
major retail chain [...] a target-based discount or "incentive"
to achieve an agreed increase in its purchases of Siucra 1 kg sugar in
1995, at a time when Irish Sugar was competing with Burcom to supply 1
kg own-label sugar to[...] . The fact that Burcom finally ceased
trading in mid-December does not mitigate the fact that, at the time
the target rebate was envisaged and arranged, Irish Sugar was
competing with Burcom for [...] business, and the likely effect of the
rebate was to tie [...] to Irish Sugar. In 1995 Irish Sugar offered a
target rebate to [...], a major customer of Gem Pack, again for a
one-year period. There is no evidence to suggest that Irish Sugar
has since ceased the practice of offering target rebates.
152. The granting of discounts by a company in a
dominant position, which are conditional on a company meeting
particular targets that are higher than previous purchase amounts is
an infringement of Article 86, because the practice is clearly aimed
at tying customers closely to the dominant company and making it
difficult for competitors to gain a foothold in the market. As the
Court determined in Michelin v Commission[105],
the effect of such practice is accentuated if there is a wide
divergence between the market share of the dominant firm and those of
its competitors. Moreover, given that five domestic competitors all
launched new retail brands in the summer of 1993 (i.e. after the start
of the reference period for the1994 promotions for wholesalers), the
volume-related discounts that Irish Sugar granted in Spring 1994 and
October 1994 based on purchases during the preceding summer must have
been closely related to the customer's total requirements for retail
sugar. The only other sugar packers on the retail market before
mid-1993 accounted for around [below 10 %] of sales. Irish Sugar
itself noticed that wholesale customers had stocked up with Siucra 1
kg sugar during the Spring 1994 promotion, and had subsequently
reduced their purchases of 1 kg sugar. This stocking-up must have
adversely affected purchases from competing sugar packers.
153. The fact that the rebates were dependent on
meeting volume targets did not make them quantity discounts, which are
normally unobjectionable. Quantity discounts are normally paid in
respect of individual orders (i.e. unrelated to the customer's
purchases over a period of time) and in return for cost savings
achieved by the supplier. This is not the case with respect to the
rebates which Irish Sugar has granted to certain customers on the
basis of individual weekly, monthly or annual targets. Such target
rebates are considered as abusive behaviour by dominant firms in the
meaning of Article 86.
154. These target rebates also involved price
discrimination between different customers, since they were dependent
on percentage increases in purchases rather than absolute purchase
volumes. The size of the target discount also varied between
customers. The target-based offers to particular customers of
competing sugar packers, such as [...] and [...] also involved
selective and discriminatory pricing. As stated in Michelin v Commission[106],
a company in a dominant position has a special responsibility not to
diminish further the degree of competition remaining on the market. By
offering the customers of much smaller competitors prices that were
not generally available, Irish Sugar was obviously flouting this
requirement. The target rebates offered to all wholesalers in 1994 and
to particular customers of competing sugar packers in 1994 and 1995
were part of a policy of restricting the growth of competition from
domestic sugar packers.
155. In Société Technique Minière
v Maschinenbau Ulm,
the Court of Justice stated that trade between Member States is
affected by anti-competitive behaviour whenever it is
"possible to foresee with a sufficient degree
of probability on the basis of a set of objective factors of law or
fact that it may have an influence, direct or indirect, actual or
potential, on the pattern of trade between Member States, such as
might prejudice the aim of a single market in all the Member States.[107]"
156. In this respect it should be noted that the
abuses, as described above, that Irish Sugar and/or SDL practised in
order to protect its home market from imports had as their object and
effect to protect the position of the sole producer of sugar in
Ireland against competition from imported or re-imported sugar from
Northern Ireland and France. In particular, the pressure put on the B
& I shipping company, the fidelity rebate granted to ADM and the
swapping of Eurolux sugar for Siucra sugar affected the volume of
sugar imported from France, and the border rebate affected the
(re-)importation of sugar from Northern Ireland. The Commission
therefore concludes that the abuses affected trade between Member
States within the meaning of Article 86.
157. Irish Sugar's practice of granting export
rebates on sugar exported, in processed form, to other Member States
is likely to distort trade in both industrial sugar and processed food
products containing a significant proportion of sugar, and thereby to
affect trade between Member States.
158. Irish Sugar's efforts to restrict competition
from competing sugar packers have also had an effect on trade between
Member States. Of the sugar packers which started competing with Irish
Sugar in mid-1993, one (ASI) used only imported sugar, one (Burcom)
used both imported and Irish sugar and the others used only Irish
sugar. Irish Sugar's cumulative efforts to hinder the growth of
competition on the retail market in Ireland, which have (as in Napier Brown/British
Sugar) the intention or forseeable result of precipitating the
removal of competitors from the market, therefore have a potential
effect on the structure of competition and trade within the common
market, and thus on trade between Member States within the meaning of
Article 86.
159. Irish Sugar is the only sugar processor on the
island of Ireland and throughout the period in question has had at
least 90% of the industrial sugar market and 88% of the retail sugar
market in Ireland. Throughout the relevant period prices on both
markets have been amongst the highest in the Community. Irish Sugar's
and SDL's practices to restrict competition from imports of industrial
and retail sugar and Irish Sugar's policy of subsidising exports of
processed sugar from Ireland and of restricting competition from
domestic sugar packers have therefore been an appreciable restriction
of competition affecting trade between Member States.
ARTICLE 3 OF REGULATION No 17
160. Pursuant to Article 3 of Regulation No 17,
where the Commission, upon application or upon its own initiative,
finds that there is an infringement of Article 85 or Article 86 of the
Treaty, it may by decision require undertakings or associations of
undertakings concerned to bring such infringements to an end.
161. As regards the measures taken between 1985 and
1990 to restrict imports of sugar from other Member States, the
Commission has no evidence that these practices have continued. As regards
the practice of discriminatory pricing on industrial sugar, whether to
subsidise sugar exports or to discriminate against competing sugar
packers, and the policy of selective pricing, including target
rebates, to customers of competing packers of retail sugar there is
evidence that this is on-going. It is therefore necessary for the
Commission to require Irish Sugar to bring the infringements to an
end, if it has not already done so, and henceforth to refrain from any
agreements or behaviour which may have the same or similar object or effect.
162. It is also considered necessary to require
Irish Sugar to submit to the Commission, at appropriate intervals,
details of the prices that it has charged to its customers for
industrial and retail sugar, together with details of the volumes of
sugar sold to those customers, so that the compliance of Irish Sugar
with the decision can be monitored. The requirement that Irish Sugar
refrain from selective or discriminatory pricing should not be limited
in time, but it is considered appropriate that the period during which
Irish Sugar should submit these details should be limited to three
years.
ARTICLE 15 OF REGULATION No 17
163. Under Article 15 of Regulation No 17,
infringements of Article 86 may be sanctioned by fines of up to ECU 1
million or 10% of the turnover of the undertaking in the preceding
business year, whichever is the greater. Regard must be had to both
the gravity and the duration of the infringement.
164. According to Article 1(1)(b) of Council
Regulation (EEC) No 2988/74[108]
concerning limitation periods in proceedings and the enforcement of
sanctions under the rules of the European Economic Community relating
to transport and competition, the power of the Commission to impose
fines or penalties for infringements of Article 86 is subject to a
limitation period of five years. Paragraph 2 of the same Article
provides that time shall begin to run upon the day on which the
infringement is committed. Article 2(1) of Regulation (EEC) No
2988/74 provides that any action taken by the Commission for the
purpose of the preliminary investigation or proceedings in respect of
an infringement is to interrupt the limitation period in proceedings.
Actions which interrupt the running of the limitation period include
inter alia investigations carried out on the basis of Article
14 of Regulation No 17. Article 2(3) of the Regulation provides that
each interruption starts time running afresh.
165. On 25 and 26 September 1990 the Commission
inspected the Head Office of Irish Sugar in Dublin. On 7 and 8
February 1991 inspections took place in the offices of SDL in Dublin and
on 13 February 1991 the office of McKinney in Belfast was inspected.
On 16 January 1995 the Commission inspected the offices of
Greencore in Dublin and Irish Sugar in Carlow.
166. In view of this, it should be established which
specific actions of Irish Sugar and SDL can be taken into
consideration for purposes of fines. In particular, the transport
restriction is not liable to fines. The specific action is to be
situated around July-August 1985.
167. The other abusive behaviour of Irish Sugar
and/or SDL, i.e. the product swap and fidelity rebate, border rebates,
sugar export rebates, price discrimination against competing sugar
packers, target rebates and selective pricing are not time-barred for
fining purposes. Irish Sugar has sought, by this behaviour, to
maintain or reinforce its dominant position and, in the period prior
to February 1990, Irish Sugar and SDL sought, by their behaviour, to
maintain a position of joint dominance. Moreover, the Community's
competition rules have been sufficiently developed by previous
decisions of the Commission and judgments of the Court of Justice
and the Court of First Instance, or are sufficiently clear from the
provisions of the EC Treaty in the areas covered by those abuses, for
Irish Sugar and/or SDL to have had to be aware of the illegality of
their actions. The Commission therefore considers that Irish Sugar has
intentionally or at least negligently abused its dominant position and
that, prior to February 1990, Irish Sugar and SDL intentionally or at
least negligently abused their joint dominant position.The Commission
therefore intends to impose a fine on Irish Sugar for its own
infringements and, as appropriate, as successor in title, for the
infringements of SDL prior to February 1990.
In fixing the fine in this case the Commission will
take particular account of the following factors:
Gravity of the infringement:
- All of the said actions are important abuses
which were designed to have the same effects; namely, to severely
damage or even eliminate any form of competition be it from imported
sugar produced in other Member States, re-importations of its own
sugar or sugar packed by competing sugar packers. However, the
Commission does accept that, on the basis of the documentary evidence
on the Commission's file, the product swap involved only small quantities.
- Sugar constitutes an important ingredient in the
food-processing industry and is used in its retail form frequently by
practically every household; thus the consquences of anti-competitive
behaviour have widespread effects.
- Irish Sugar is the dominant supplier of sugar in
Ireland and has protected its "home market" vigorously
against any form of competition from imports. It has practised a form
of discriminatory pricing which has had as its effect the subsidy of
sugar exports to other Member States, and the distortion of the common
market. It has also sought to protect itself from competing sugar
packers regardless of whether they were using imported sugar or Irish
Sugar's own industrial sugar.
- Through its infringements Irish Sugar has been
able to maintain a significantly higher price level for retail sugar
in Ireland compared with that in other Member States, notably in
Northern Ireland, and has been able to keep its ex-factory prices,
particularly for sugar for "domestic" consumption, among the
highest in the Community, to the detriment of both industrial and
final consumers in Ireland.
Duration of the infringement
- The product swap and fidelity rebate took place
in 1988, when Irish Sugar and SDL were abusing their joint
dominant position by seeking to restrict imports of sugar from France.
- The border rebates were operated at particular
periods during 1986-1988, when Irish Sugar and SDL were abusing
their joint dominant position by seeking to restrict imports of sugar
from Northern Ireland.
- The price discrimination against competing sugar
packers has existed since mid-1993, when several companies started to
compete with Irish Sugar on the retail market. The target rebates and
selective pricing are also part of a policy of restricting competition
from other sugar packers and have taken place at particular times
since 1993.
- The sugar export rebates have existed since
before 1985 and Irish Sugar has stated that the system originated in
the 1970s.
Intentional or negligent infringement of the
competition rules
- The abuses are serious infringements of the
Community's competition rules. Several have been recognized as abuses
of a dominant position by the Court of Justice. Irish Sugar and/or SDL
should have been aware of the illegality of their actions.
- Irish Sugar's parent company, Greencore, issued
in September 1992 a Competition Law Compliance Manual for its
employees in which the potential illegality of certain practices, such
as discriminatory pricing and payment of fidelity rebates "or the
like" by a firm in a dominant position are made clear. However,
despite the existence of the Manual, sugar export rebates, price
discrimination against competing sugar packers, selective pricing and
target rebates have all either been continued or operated by Greencore
employees after September 1992.
Relevant commercial data
- In the year ending 27 September 1996, Irish Sugar
had a turnover of IEP 134.7 million (29% of Greencore's aggregate
turnover) and an operating profit of IEP 27.2 million (56% of
Greencore's aggregate operating profit). Approximately 80% of Irish Sugar's
sales are within Ireland.
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