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The Cooperatition Incubator is calling on UK government and the EU to focus on reform in six areas:

1.       ENSURE COMPETITION LAW AND SUSTAINABILITY/ PUBLIC INTEREST INTEGRATION – reaffirm and clarify that UK/ EU competition law can take public policy considerations into account.

1.1. Address conflicting signals by introducing new guidance: There appears to be a problem with rather contradictory guidance.  Broadly it appears the EU is more amenable to voluntary agreements (for example, environmental) than is reflected by Office of Fair Trading (OFT) / Department for Business, Innovation & Skills (BIS) guidance.  New guidance should address these apparent discrepancies and mixed signals to the business community.  Clearer advice and guidance is also needed on how to ensure agreements do not restrict market entry – or measures that mitigate against these problems.

1.2. Ensure the new UK CMA is designed to support the 21st century challenges of voluntary corporate responsibility and sustainability.

2.      IMPROVE THE QUALITY OF VOLUNTARY AGREEMENT DESIGN AND GOVERNANCE

2.1 Advocate the use of voluntary codes such as the ISEAL Code of Good Practice for social and environmental standards to ease the burden on competition regulatory authorities.

2.2 Research, and then encourage when appropriate, effective approaches to enforcing voluntary agreements (both for signatories and non-signatory ‘free-riders’). The issue of enforcement needs closer examination as it is essential to ensuring the integrity of voluntary agreements and promoting public trust.  The concerns with voluntary mechanisms are detailed extensively in ‘Undemocratic, ineffective & inherently weak – the voluntary approach‘ (Friends of the Earth, 2002).

The EU ‘Unfair commercial practices directive’ gives legal force to voluntary agreements to which companies are signatories as a consumer would be mislead by a voluntary agreement that a company was not honouring, but advertised through company channels from labels to CR reports.  Similar legislation gives force to voluntary agreements that businesses have joined in the US.

The capability of businesses to enforce on their peers using concerted action is an area for further research – both on the effectiveness of the mechanisms available and also the legalities.  This would be motivated by a desire to protect the reputation of the sector and voluntary agreement.

One option is to set up an independent monitoring & enforcement system to respond to concerns raised by any stakeholders.  It is a principle already applied in the enforcement of some existing voluntary agreements, but perhaps it could be scaled up?

It is also vital to deal with the problem of businesses ‘free-riding’ by not becoming signatories to in a voluntary agreement.  This will clearly be a deterrent to other participants.  Here the range of different models for voluntary agreements, and particularly the stronger force of a co-regulatory initiatives should be examined further.  The analysis in ‘Models of self-regulation’ (National Consumers Council, 2000)  is of particular note.

Of course, in the case of industry inertia or extensive free-riding, the threat of regulation provides an important backdrop.

3.  WEB REGISTER FOR VOLUNTARY AGREEMENTS – With the repeal of the Restrictive Trade Practices Act 1976 by the Competition Act 1998 the situation remains that:  “It is for businesses themselves to determine whether or not their agreements and/or conduct comply with competition law.” Whilst we have considered more radical alternatives, we have concluded that an online web database, possibly hosted by the new UK CMA, should be piloted where organisations collaborating on voluntary agreements/ standards can register the initiation, development and implementation of existing and new corporate responsibility/ sustainability agreements.  This would not lead to any formal approval from the CMA, but would enable transparency and provide a means of monitoring the application of best practice. The website would signpost to supportive best practice guidance in the development of agreements.

3.1 Optionally it might be considered whether the online register should be: a) compulsory for agreements claiming public benefit; and b) monitored by CMA staff and, to provide additional comfort to participants, it should be expected that any significant CMA concerns would be flagged with agreement co-ordinators within a month of registration.  This would clearly have ongoing resource implications, but it is worth noting that the OFT already operates a process for approving Consumer Codes of Practice which we believe could perhaps be extended.

3.2 Develop an independent complimentary website to encourage accountability, learning and new voluntary agreements. We have given the concept a working title of ‘RaceToTheTop.biz’.  Community involvement will be particularly important for those agreements where incorporating external social/ environmental costs will push up the price of goods/ services, and/ or where there needs to be participation from government (‘above’) or other stakeholders (‘below’).  Web based collaborative approaches offer exciting new possibilities for tackling problems conventionally solved through legislation/ regulation, with advantages in terms of drawing on a wide range of expertise, potential cost savings and more stretching targets delivering greater public benefit, for example.

4.  DEVELOP PROCESSES FOR REGISTERING VOLUNTARY AGREEMENTS/ STANDARDS AT AN EU & GLOBAL LEVEL, given the cross border nature of MNCs activities and guidance on the limits.   On issues such as climate change, clearly international cooperation is necessary to take collective and therefore effective action.  The development of international processes should engage the International Competition Network (ICN), DG Competition, CSR Europe and ISEAL Alliance.

All these actions would also help address the fear of companies that stand to potentially lose out from a poorly drafted/ designed agreement using whistleblower protection to bring proceedings to a close – or one competition authority not supporting the judgement of another with respect to a voluntary agreement.

5.  MAP, DEVELOP AND DEPLOY TOOLS TO DETERMINE WHICH ISSUES ARE APPROPRIATE FOR COLLABORATIVE ACTION AS A MEANS TO INCORPORATE EXTERNAL COSTS

Prioritisation, risk assessment and scenario planning tools such as REAP and EUREAPA from the Stockholm Environment Institute (SEI) can provide the evidence base to identify key areas for action on environmental sustainability.  Social development indicators collated by Defra might provide a similar social sustainability evidence base.  Business and other stakeholders may also be able to contribute to the prioritisation process.

In some high priority areas regulation or other market mechanisms may be most appropriate (i.e. climate change in light of very real time constraints), whilst voluntary agreement capacities are being expanded.    In other areas (e.g. resource consumption),  where voluntary agreements deemed most suitable, our proposals would see greater clarity around the different types of interactions in the marketplace.  The two sides of the economy being:

  • one where delivering environmental and social sustainability objectives is deemed more important than efficiency-focused competition and therefore subject to cooperation between entities where necessary; and
  • another where normal competition runs its course retaining the benefits of price efficiency that is so valuable within the current system, but social/ environmental standards are always at risk of neglect.

It may be that the consent and support of Government would be appropriate for controversial voluntary agreements (i.e. where higher standards demand more significant price rises).  Thus in such cases it could be optional or mandatory for the Office of Fair Trading (OFT)/ future CMA to refer a voluntary agreement to the Government/ Minister for a final decision based on recommendations.

Tools also need to be identified that can be recommended by the Competition Authorities/ Gov’t departments for parties to an agreement that are seeking to build a sound evidence base for the environmental, social and economic benefits of an agreement, particularly if it will reduce competition.

6. INVEST IN BUILDING THE CAPABILITIES & CAPACITIES OF TRADE ASSOCIATIONS & OTHER INTERMEDIARIES facilitating the development of voluntary agreements. Many voluntary agreements come about from the work of trade associations and NGOs.  There is a real risk that this work can fall foul of competition law.  Trade associations’ and other intermediaries capabilities in relation to competition law need to be enhanced if companies are to engage confidently in raising standards through membership of trade association or other voluntary initiatives.

Work in this area should focus on introducing more legal guidance for facilitators of / participants in these processes.  For example the experience of the Cement Sustainability Initiative, which has managed anti-trust/ competition law considerations with respect to the data sharing aspect of the initiative, should be shared more widely.   Business in the Community, the ISEAL Alliance and the UK Trade Association Forum may have roles to play in this area.