Knowledge Highlights 26 November 2024
CCCS consults on proposed Guidance Note on Business Collaborations Pursuing Environmental Sustainability Objectives
From 20 July 2023 to 17 August 2023, the Competition and Consumer Commission of Singapore (“CCCS”) is seeking feedback on a proposed Guidance Note on Business Collaborations Pursuing Environmental Sustainability Objectives (“proposed Guidance Note”).
The proposed Guidance Note aims to provide greater clarity to businesses on how CCCS will assess collaborations pursuing environmental sustainability objectives in the context of section 34 of the Competition Act 2004 (“Competition Act”), so that such collaborations may be pursued in a manner that does not harm competition. The proposed Guidance Note should be read together with CCCS’s Business Collaboration Guidance Note, which provides more general guidance on seven common types of business collaborations. For more on CCCS’s Business Collaboration Guidance Note, please read our previous article titled “CCCS issues Business Collaboration Guidance Note to enable businesses to collaborate with greater confidence”.
Section 34 of the Competition Act prohibits agreements between businesses, decisions by associations, or concerted practices that are anti-competitive (“section 34 prohibition”), unless they are excluded or exempted.
The proposed Guidance Note seeks to:
- clarify what are considered as environmental sustainability objectives;
- provide examples of collaborations pursuing environmental sustainability objectives that would typically not be harmful to competition;
- state the conditions under which competition concerns are less likely to arise from collaborations pursuing environmental sustainability objectives;
- for collaborations where competition concerns may arise, explain how CCCS would assess whether such collaborations generate economic benefits and whether they may qualify for the Net Economic Benefit (“NEB”) exclusion under Competition Act; and
- set out a streamlined notification process that CCCS is adopting for such collaborations should businesses wish to seek more legal certainty by notifying their agreements to CCCS.
Agreements pursuing environmental sustainability objectives
In determining whether a particular collaboration is one that is carried out in pursuit of environmental sustainability objectives, CCCS will consider the crux or main activity of the collaboration. This is a fact-specific exercise that will take into account matters such as the starting point and main focus of the collaboration, and the degree of integration of the different functions required in order to pursue the stated environmental sustainability objective.
Agreements that will not or are unlikely to raise competition concerns
CCCS considers that there are collaborations that pursue environmental sustainability objectives that are unlikely to raise competition concerns or are indeed excluded from the section 34 prohibition. Such collaborations include the following:
- Agreements that do not affect factors of competition: For example, industry-wide collaborative efforts to reduce the environmental footprint of businesses within the industry in non-competitive areas and an agreement between businesses in the same industry to pool together resources and expertise to encourage training in environmental sustainability-related areas.
- Agreements which none of the parties could do independently: For example, an agreement between businesses to jointly carry out certain activities which, objectively, none of the parties could do independently is similarly unlikely to be problematic.
- Agreements to comply with written law, or in acting on behalf of the government: For example, agreements which are made to comply with any requirement imposed by or under any written law are excluded from the section 34 prohibition. The proposed Guidance Note also provides that businesses which seek to rely on section 33(4)(c) of the Competition Act to exclude any collaborations pursuing environmental sustainability objectives on the basis that they are acting on behalf of the government or a statutory body should note that the exclusion is to be construed narrowly, and the mere encouragement or endorsement of a particular collaboration by a government agency or statutory body will not be sufficient for the collaboration to benefit from the exclusion. Further, the exclusion set out in section 33(4)(c) of the Competition Act will also only apply to the specific activity, agreement or conduct that businesses carry out on behalf of the government or statutory body.
Conditions under which competition concerns are less likely to arise
Where an agreement pursuing environmental sustainability objectives involves any of the collaborations described in the Business Collaboration Guidance Note, businesses should also take reference to the guidance set out therein. In particular, businesses may wish to take note of the guidance on conditions under which competition concerns are less likely to arise from the respective collaboration(s), and how businesses can potentially minimise competition concerns. The proposed Guidance Note provides guidance and examples in relation to the following types of business collaborations covered under the Business Collaboration Guidance Note:
- Standards development
- Joint production
- Joint commercialisation
- Joint research & development
For example, in relation to standards development, a business collaboration which develops industry-wide environmental standards or codes of practice and associated “green” quality marks to achieve specified environmental sustainability targets or metrics is less likely to give rise to competition concerns if the standards are established objectively, the process for developing them is transparent and inclusive, no commercially sensitive information that is not necessary or relevant for the collaboration is exchanged, compliance with the standard or code is voluntary and non-discriminatory, and businesses are not restricted from exceeding such standards or developing alternative standards.
Agreements where competition concerns may arise
Certain agreements pursuing environmental sustainability objectives could potentially be anti-competitive to an appreciable extent, and if so, such agreements are prohibited under the Competition Act, unless excluded or exempted. As agreements pursuing environmental sustainability objectives can entail various forms of collaboration, including those discussed in the Business Collaboration Guidance Note, the assessment of such collaborations will be governed by the principles and considerations discussed in the Business Collaboration Guidance Note and the CCCS Guidelines on the section 34 prohibition. Such collaborations include:
- Collaborations which restrict competition by object, i.e. by their very nature they are considered to be anti-competitive to an appreciable extent, such as those with the purpose of price-fixing, bid-rigging, market-sharing or imposing output limitations.
- Collaborations which would be subject to an economic assessment of their effects on competition (i.e. whether the effects of the agreement are anti-competitive to an appreciable extent), as they do not restrict competition by object.
NEB exclusion
Agreements pursuing environmental sustainability objectives which give rise to competition concerns may still qualify for the NEB exclusion if (i) the agreement leads to economic benefits that outweigh the negative competition effects; and (ii) these economic benefits cannot be achieved without the agreement and any restrictions in it; and (iii) competition is not eliminated in a substantial part of the market.
Claiming of economic benefits
Agreements pursuing environmental sustainability objectives can give rise to economic benefits for the purposes of the NEB exclusion. Any economic benefits claimed under the NEB exclusion must be objective in nature, and there must normally be a direct causal link between the agreement and the claimed benefit.
Businesses claiming that their agreements satisfy the NEB exclusion should demonstrate that the claimed economic benefits are significant enough to outweigh the anti-competitive effects of the agreement. To substantiate each benefit claimed, businesses will have to demonstrate the magnitude and the likelihood of achieving such benefits. CCCS will take into consideration relevant qualitative and quantitative evidence of environmental sustainability benefits.
There is no “one-size fits all” method to the substantiation of benefits under the NEB exclusion, and claimed benefits will be assessed on a case-by-case basis. Suitable quantification methodologies that are fact-based and scientifically supported will be considered by CCCS.
Indispensability
Businesses seeking to rely on the NEB exclusion must show that both their agreement itself, and the individual restrictions within the agreement, are reasonably necessary to obtain the benefits claimed. If the parties to the agreement are capable of achieving the efficiencies on their own, the agreement will not be regarded as indispensable.
No elimination of competition
CCCS will consider the degree of competition prior to the relevant agreement, and also the reduction in competition that the relevant agreement brings about. This criterion may be met even if the agreement in question that is pursuing environmental sustainability objectives covers the entire industry, as long as there remains at least one important parameter of competition on which businesses continue to compete strongly with each other.
Seeking guidance or decision from CCCS
There is no legal requirement for businesses to notify their collaborations to CCCS, generally or specific to collaborations pursuing environmental sustainability objectives. If a business is unsure as to whether a specific collaboration pursuing environmental sustainability objectives complies with the Competition Act, they may wish to notify the collaboration to CCCS for guidance or decision as to whether it would be likely to infringe or has infringed the section 34 prohibition respectively.
Where an agreement to which the section 34 prohibition applies has been notified, CCCS cannot impose a penalty in respect of any infringement of the section 34 prohibition, during the period beginning with the date of notification and ending on such date as may be specified in a notice given in writing to the applicant by CCCS on determination of the application.
Streamlined process
CCCS is adopting a streamlined process for the assessment of agreements pursuing environmental sustainability objectives. Under the streamlined process, CCCS will undertake a two-phase approach, with a Phase 1 review expected to be completed within 30 working days for simple cases, plus an additional Phase 2 review of 120 working days for complicated cases. The notified agreement may also be cleared with commitments at any time during Phase 1 or Phase 2 (including the period in between).
Separately, CCCS is open to having pre-notification discussions with businesses, during which businesses may wish to provide proposed quantification methodologies.
Reference materials
The following materials are available on the CCCS website www.cccs.gov.sg:
