This article was originally posted to Competition Notes on April 6 2020.
The rapid spread of COVID-19 across the world, and notably Europe, in recent weeks is placing increasing strain on our economies, in addition to the tragic human impact. Several implications for competition law have already emerged.
In the update below, we summarise (non-exhaustively) potential competition law considerations for the mining sector.
Competition authorities are publishing/revising guidance on an ongoing basis, and this update summarises the position as at 5 April 2020.
Restrictions on horizontal collaboration could feasibly be lessened
In times of external events impacting particular sectors of the economy, we could see the formation of “crisis cartels”, wherein governments or authorities permit or sanction suppliers, such as of key food, cleaning and pharmaceutical products, to co-ordinate and level out their stock levels, and thereby mitigating against issues of panic buying, labour shortages and general supply chain disruption.
Although the focus of governments or authorities to date has been on consumer and healthcare products, these could extend up the supply chain. Examples we envisage in the mining sector include competitors coordinating to share infrastructure, for example if access to or availability of infrastructure is reduced, such as production facilities (e.g. smelting/refining), loading facilities (e.g. rail or port) or shipping.
Such coordinating behaviour, which could in principle raise anticompetitive concerns, could (in theory) be captured by exceptions (e.g. Article 103(1) TFEU) or, if mandated by law/governmental decrees, be exempt under the state compulsion doctrine (this is to be interpreted strictly and in principle only action that is truly determined by the government without any freedom on the part of the participating undertakings would be captured).
Alternatively, there could be a more general relaxation on rules forbidding horizontal co-operation within sectors more acutely affected by the outbreak. Under the UK Competition Act the Government can exempt certain agreements from competition law if there are exceptional and compelling reasons of public policy. This power was used in 2012 when panic buying of petrol led to fuel shortages, and an Order was published permitting communications between fuel companies to allocate supplies.
Iceland’s competition authority, for example, has granted a temporary exemption from anti-collusion rules to the Confederation of Tourism, enabling hotels, agencies etc., to co-ordinate their efforts to fight against the reduction of tourism.
The UK competition authority (CMA) has published “Guidance on its approach to business cooperation during the COVID-19 crisis” (see further here). The CMA does not intend to take enforcement action where businesses adopt temporary measures to coordinate conduct as long as these measures: (i) are appropriate and necessary to avoid shortages or to ensure security of supply; (ii) are clearly in the public interest (iii) contribute to the benefit or wellbeing of consumers; (iv) deal with critical issues arising as a result of the COVID-19 pandemic; and (v) do not last longer than is necessary to deal with these critical issues. The Guidance also provides information as to how the CMA will apply the standard exemption criteria in UK Competition law (which are similar to that under EU law).
The ECN, which consists of the European Commission and EU Member State competition authorities, has also issued a joint statement, indicating that it will not intervene in necessary and temporary cooperation between businesses aimed at ensuring the supply and fair distribution of essential products and services. In case of doubt, businesses can apply to the Commission or a national authority for informal guidance.
However, COVID-19 is not a carte blanche for coordination between competitors. Any coordination not explicitly covered by guidance from an authority should be assessed carefully for compliance with competition laws. Many reactions by companies to market volatility, such as pricing announcements, or changes to output in the face of weakening demand are highly unlikely to be covered. This may be the case even if other activity by the same firms is covered, given that competition authorities will want to maintain as much competition in a market as possible.
Companies should be mindful of the “abuse of economic dependence” provisions in various national jurisdictions
Several countries have pre-existing measures that prevent the abuse of relationships of economic dependence, including Austria, Belgium, Germany, France and Japan. The scope for such abuse could, in theory, be heightened in a more uncertain and difficult economic environment. Thus companies with others dependant on them must not exploit this advantage, e.g. by raising their prices or reducing their supply.
The Polish competition authority earlier this month launched an investigation into two wholesalers’ termination of contracts to supply medical equipment to doctors, which they did with the intention of re-signing the agreements at significantly higher prices. Whilst the authority is investigating an abuse of dominance, rather than economic dependence, it acts as a warning that the dominant parties in a commercial relationship must act fairly and not exploit the current situation.
European Commission urges Member States to screen foreign direct investment into strategic industries under strain from COVID-19
The Commission has stressed that the EU “will remain open to foreign direct investment but we need to balance this openness with the need to preserve our economic sovereignty”. In particular, on 25 March it encouraged tougher FDI screening in light of the health crisis, and has urged those Member States that do not currently have their own FDI regimes to consider introducing their own mechanism. Further detail is set out in the Commission guidelines; see also our FDI blog.
EU State aid notifications will be assessed in a much quicker and more flexible manner
The European Commission has indicated that it will take a flexible approach to the application of EU State aid rules in the context of the COVID-19 outbreak in order to support the EU economy (see our previous blog post). In line with this approach, the Commission has adopted a Temporary Framework setting out the types of aid measures (mainly concerning liquidity support) that it will be able to approve rapidly (further details available in our blog post). Indeed, since 19 March when the Temporary Framework was adopted, the Commission has approved over 25 “aid schemes” notified by a variety of Member States (see this Commission list of approved cases which is regularly updated).
Competition authorities are hot to respond to price gouging and exploitation allegations
Although we expect this will be less relevant to the mining sector, we note that numerous competition authorities across the world have given robust responses to seemingly rocketing prices of products experiencing high demand due to the virus, chiefly face masks and hand sanitizer. For example. the Italian authority announced on 12 March that it was investigating Amazon and eBay for the excessive price rises of hand sanitizer and face masks. Similarly, the French authority has launched an investigation into price surges, and also announced price regulation.
In the UK, the Competition and Markets Authority (the “CMA”) issued a warning to traders earlier this month against the exploitation of consumers in relation to prices and misleading product statements. They urged traders to price protective goods responsibly, whilst also warning that they will take robust action against potential breaches of competition law; and that they could, if necessary, advise the UK government to regulate prices. Warnings have been issued by the competition authorities in Spain and in the USA amongst others.
In this vein, companies need to remember competition law and other consumer protections at this time. Companies should be cautious about their pricing, especially against a backdrop of various recent findings of excessive pricing of products within this sector. They should also take care if imposing restrictions (e.g. around pricing) on resellers of their products; although in this context we note that restrictions on maximum pricing are often acceptable. Likewise if they are forming JVs or co-operating between competitors to develop or market new products, this should be done in a compliant manner.
Competition procedures at the Commission could slow down in light of teleworking arrangements – DG COMP has encouraged companies to delay merger notifications
Many authorities have decided that employees in non-critical functions will telework. For example, this is the case with the European Commission as of 16 March, with most people teleworking and those in critical functions in the office, but in shifts. Meetings or events involving employees travelling between countries will be held via video-conference or postponed. In their press conference on Friday 13 March, the Commission emphasised, however, that it will continue its business as usual.
In terms of merger review, in the Commission’s press conference Executive Vice-President and Commissioner for Competition, Margrethe Vestager, did not actually announce any emergency changes to merger control or the statutory merger review timetable. However, DG COMP has stated that it is encouraging companies to delay the filing of merger notifications, citing the impact of home working and the anticipated difficulties in collecting information over the coming weeks as reasons for this. Any in-person meetings, including State of Play meetings, will likely have to be postponed or held via video-conference. A reduction in merger notifications may also enable the Commission to focus more resources on reviewing and approving emergency state aid measures.
Given that in many jurisdictions transactions – including formation of some JVs – subject to merger control review cannot be implemented prior to clearance, this could have a material impact on closing of transactions, particularly those where prima facie competition concerns may arise.
Scheduled hearings at the ECJ and General Court in Luxembourg between 16 March and, respectively, 30 April and 15 May, have been postponed. However, opinions and judgments continue to be handed down whilst cases are still being processed (indeed, the CJEU reported that, as of 3 April, 86 cases have been resolved by the courts since staff began teleworking on 16 March).
And in the long term?
Governments are trying to contain the impact and the situation is continuously evolving. The impact on competition law and procedure is perhaps not high on the agenda but competition law remains of importance to business activity including in particular M&A. Longer-term competition implications could include:
- Continuation of a more permissive (and faster) state aid regime to enable aid to undertakings hit by the economic fall-out in the EU; or
- A possible increase in cartel investigations if the economic situation results in increased cartel activity which is not exempt or government mandated.
If you would like further information on any of the above, please do get in touch with your usual contact in the HSF competition team.