How to secure the functioning of an extended producer responsibility scheme : what does competition law say

AUTHOR : Romain MAULIN, Competition law lawyer, Paris Bar & Laetitia GOSSELET, Competition law lawyer, Paris Bar

No one is supposed to be ignorant of the law…This means that the legal explanations must be known in detail, particularly when national, European and international legal bodies add up and the effects of their decisions are increasingly combined.

Under the Extended Producer Responsibility (EPR) scheme, producers can choose to join a producer responsibility organisation (hereinafter “PRO”) to secure the collection and/or treatment and recovery of waste. They can also group together within professional associations such as, for instance, the French Committee for Plastics in Agriculture (hereinafter “CPA”), whose mission is to ensure the technical pro-motion of plastics in agriculture and thus contribute to the improvement of agricultural production yields.

No derogation for environmental protection

Yet, PROs, which under French law are mostly set up as limited companies, are all fully subject to the rules of competition law, as it was stressed by the French Competition Authority (hereinafter “FCA”)¹. That means that both the PRO and each of its members are required to comply with competition law rules, including in their relations with a public authority². Finally, the legitimate objective of pursuing environmental protection that is fulfilled by a PRO does not allow it nor its members to escape these rules. This means that PROs are being asked to fully comply in particular with the prohibition of anti-competitive agreements (i.e., all kinds of agreements between under-takings, decisions of association and concerted practices which are likely to distort competition), which is enshrined at Article 101 of the Treaty on the Functioning of the European Union (hereinafter “TFEU”) and Article L. 420-1 of the French Commercial Code.

In case of infringement…

When an anti-competitive practice is found, competition authorities may impose a fine of up to 10% of the company’s turnover or, in the case of a PRO, 10% of the turnover of each of its members. Moreover, an under-taking or association of undertakings participating in a cartel: “is likely to be held liable […] and risks heavy penalties if it contributes to running a cartel, even in a subordinate, ancillary or passive way, for example by tacit approval or by failing to report the cartel to the [FCA]”³.

Thus, the FCA explicitly recalls that professional associations :

“Play a crucial role in the implementation of competition proceedings, whether advisory or litigious, as well as in training and raising awareness on competition issues among their members”⁴.

While these rules do not strictly prohibit, within the framework of the PRO, any exchange of information between market players, they nonetheless imply a very strong compliance effort for all of their members. Such caution is all the more pivotal that commercially sensitive information⁵ is likely to be exchanged within a PRO when members (i) transmit sensitive data (such as information on the tonnages of waste received and treated and the tonnages of materials recycled⁶) in order to enable the PRO to calculate the amount of the eco-tax and/or (ii) discuss the likely impact of a contemplated regulation.

Putting safeguards in place?

It is therefore essential that appropriate safeguards be put in place in order to make sure that, as the OECD puts it, members of a PRO do not “use their co-operation in the context of a PRO as a covert for collusion regarding product markets⁷”.

The FCA recalled that, since :

“Professional bodies are, by definition, vectors of mee-tings and exchanges between competitors”⁸, their activities, even in the case of a PRO, “can reduce the autonomy of players in their decision-making and, consequently, the uncertainty that should govern the functioning of a competitive market”⁹.

Competitors meeting within the framework of a PRO can, for instance, share an economic interest and a strong incentive in exchanging information in order to: (i) pass-on a “visible” fee or charge (the OECD noted that “[a]n agreement to pass onto consumers the fee charged by a PRO is typically viewed as illegal price-fixing. This is the case even if making a fee “visible” is perceived as necessary to induce consumers to change their behaviour. An agreement to pass on the PRO fee reduces the scope for competition: Absent the agreement, competitors would decide individually what fraction of the PRO fee to pass on to customers”¹⁰), (ii) harmonise the packaging or their products¹¹ or (iii) jointly increase their prices.

As for potential agreements on a “visible” charge, the European Commission (hereinafter “Commission”) refused to agree an initiative proposed by an association of independent operators of storage tanks (VOTOB) that decided to increase their prices by a uniform, fixed amount, an “environmental charge” to (i) partially recoup the investment costs to reduce vapour emissions and (ii) invoice them separately. The Commission considered that the fixing was seen as eliminating competition on that price element, as well as reducing the members’ incentives to fulfil the objective with least cost.

Confidentiality and non-discrimination

Consequently, care must be taken when sensitive data is being exchanged between competitors, within a professional association or a PRO knowing that “[m]ore recent, more disaggregated information is more problematic”¹². Appropriate legal safeguards must therefore be put in place in order to limit exchanges to “historical” data only¹³ and/or aggregated data knowing that such aggregation should better be conducted by an independent third party.

On this subject, the Commission constantly recalls that: “exchanges of genuinely aggregated data, that is to say, where the recognition of individualised company level information is sufficiently difficult, are much less likely to lead to restrictive effects on competition than exchanges of company level data”.

And that :

“collection and publication of aggregated market data (such as sales data, data on capacities or data on costs of inputs and components) by a trade organisation or market intelligence firm may benefit suppliers and customers alike by allowing them to get a clearer picture of the economic situation of a sector” and, thus, “to make better-informed individual choices in order to adapt efficiently their strategy to the market conditions”.

It usually concludes that :

“The exchange of aggregated data is unlikely to give rise to restrictive effects on competition”¹⁴.

The FCA explicitly states that PROs must guarantee the confidentiality of information on the activity and operation of their members and, consequently, only share with them fully aggregated information¹⁵.

In the same logic of respecting competition law, it is also very important to ensure that PROs are “open to any producers of the products under a PRO’s purview”¹⁶. To this end, the conditions of access to the PRO must not be discriminatory because “if some producers receive advantageous terms from a PRO, then their competitors may be weakened or even forced out of the product market”¹⁷. However, “the structure of PRO fees may be discriminatory, for example against foreign suppliers or small suppliers”¹⁸.

Consequently, in order to limit the risks under competition law as much as possible, we recommend that you take at least the following recommendations:

^{¹ : AFC, opinion n°12-A-17, 13 July 2012, §28.
² : Commission, decision n°2001/663, 15 June 2001, §70; Commission, DG Competition Paper concerning issues of competition in waste management systems, 22 September 2005, §50: “This means that undertakings remain liable if the State merely encourages, favours or facilitates such conduct”.
³ : AFC, thematic study “Professional bodies”, 27 January 2021, §142; decision n°19-D-12, 24 June 2019, §95.
⁴ : Ibid, §73.
⁵ : In practice, depending on the circumstances, commercially sensitive information may include, but is not limited to, prices, price lists, discounts or rebates, market shares, customer lists, production costs, quantities, turnover, business strategies, investments, R&D programmes, commercial strategies, etc.
⁶ : FCA, opinion n°12-A-17, op.cit, §106.
⁷ : OCDE, Extended Producer Responsibility, Updated guidance for efficient waste management, 2016, p.117.
⁸ : AFC, thematic study “Professional bodies”, op.cit., §133.
⁹ : Ibid, §23.
¹⁰ : OECD, op.cit., p.145.
¹¹ : Ibid, p.149: “Where packaging affects buyers’ choices, harmonisation with respect to waste treatment need not imply harmonisation of design. Packaging may be more or less attractive yet have the same recycling costs”.
¹² : OCDE, op.cit., p.148.
¹³ : The Commission states that “[t]he exchange of historic data is unlikely to lead to a collusive outcome as it is unlikely to be indicative of the competitors’ future conduct or to provide a common understanding on the market” because “the older the data, the less useful it would be for timely detection of deviations and thus as a credible threat of prompt retaliation” (Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, C 11/01, 14 January 2011, §90). The analysis of the case law leads to the conclusion that the exchange of recent data, i.e. data less than one year old, is not likely to constitute an exchange of historical data, thus characterising an anti-competitive agreement (Commission, decision n°92/157, 17 February 1992, §50; decision n°98/4, 26 November 1997, §17).
¹⁴ : Commission, Guidelines op.cit., §89.
¹⁵ : AFC, opinion n°12-A-17, op.cit., §120.
¹⁶ : OCDE, op.cit., p.117.
¹⁷ : OCDE, op.cit., p.149.
¹⁸ : Ibid.
¹⁹ : The CPA has adopted competing guidelines with dos and don’ts.}

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