The Cooperatition Incubator

The problem & case studies | Cooperatition | Competition law and voluntary agreements | Country profiles |Responsibility Deals

All governments, whatever their political make-up, are reticent about raising social and environmental standards through substantially increasing the regulatory burden. This is particularly the case where those social and environmental standards conflict with consumer welfare (e.g. maintaining or reducing product price).  Governments want to maintain a level playing field that lets their nation’s private sector compete with international rivals in other, potentially less regulated, economies – creating an international ‘race to the bottom’ between states.  Greater international cooperation and harmonisation are required to overcome this.

This international race to the bottom means that legislation that will substantially drive up social and environmental standards rarely sees the light of day. Furthermore competition regimes in most states restrict businesses from engaging in collective action – encouraging a ‘race to the bottom’ between businesses subject to such competition rules in those states.

The Cooperatition Incubator is the only dedicated organisation campaigning for these restrictions to be lifted and for such collective action to be nurtured where appropriate.  It is generally difficult to identify examples of collective action of this type as businesses are typically unwilling to publicise such cases as they involve conflicts between competition law and the corporate responsibility agenda, and therefore risk inviting negative publicity and putting themselves onto the competition authorities’ radars. Case studies we have identified are:

• Binge-drinking – The relative price of alcohol in the UK has decreased dramatically in recent decades. Supermarkets, for example, seem trapped in a downwards spiral of price-centric competition; at least two MPs have called on them to clear their shelves of ‘cheaper than water’ alcohol. Tesco (a UK supermarket chain) has promised to review its pricing of alcohol if its rivals do the same, believing it would be commercial suicide to act alone. However, Tesco argues (in line with the Commission’s recent policy statements) that competition law prevents competitors discussing anything to do with price, making Tesco and the other supermarkets reluctant to act together to achieve these public health benefits.

• Dairy investigation – Well known and multiple perspectives, however the companies impacted stated and maintain that their actions were motivated by trying to help British farmers (although it may be that this did not happen in fact). At the time retailers and dairy firms were under pressure from farmers and politicians to give a better deal to their suppliers. This was eventually settled for £70m.

• Bankers bonuses – Robert Peston said on his blog “Britain’s biggest banks are talking to each about whether and how they can reduce the total amount of bonuses they would pay in the upcoming bonus season. I have learned that serious negotiations are taking place on this thorny issue under the umbrella of the British Bankers Association, their trade association. …There are formidable obstacles in the way of any kind of pact on pay. One great fear of bankers is that they’ll be seen to be colluding on a competitive issue, and could therefore be prosecuted by the Office of Fair Trading. ‘One of the great paradoxes about all of this is that ministers would love us to agree to cut bonuses, but they’re powerless to stop us being prosecuted under competition law,’ a banker said.”

At The Coooperatition Incubator we argue that Robert Peston’s suggestion that ministers are powerless is untrue, but these comments reflect:

• a lack of clarity in competition authorities’ application of UK/EU law or guidance with regard to industry-led voluntary agreements (‘Responsibility Deals’) that increase the price of goods or services as a result of incorporating external social or environmental costs. Traditionally competition law theorists have argued such externalities should be addressed through legislation, regulation or tax mechanisms, but this is not always most attractive from a practical, political or financial perspective;
• a backdrop of UK/EU competition authority action (e.g. the dairy investigation and more recently the laundry detergents case cited above) that has left a perception amongst corporates that collaborative action on social/ environmental issues that goes beyond efficiency measures is too risky;
• guidance from BIS (then BERR) in 2008 that discouraged collaboration;
• the application of SfOs being limited and the OFT no longer having a process for formally approving Responsibility Deal-like agreements (as originally occurred with The Portman Group Code, for example). One way this problem could perhaps be addressed is through development and wider application of the ISEAL Code of Good Practice for social and environmental standards;
• a lack of awareness and application of ministers’ existing exemption powers in exceptional cases;
• the need for many voluntary agreements/ standards to be approved at a EU/ global level, given the cross border nature of MNCs activities. Present application of competition law may be resulting in EU investment being diverted elsewhere.

• Plastic bags – A relevant illustration of an Impact Assessment relating to a potential voluntary agreement is the Defra study of powers to require charges for single-use carrier bags. This projected an annual cost of £0.1m against an Average Annual Benefit of £10m. To date this policy intervention has not been pursued, but the evidence base developed was potentially sufficient for adoption of a voluntary agreement that would have passed costs on to the consumer (i.e. non-win-win) on the basis that there was a wider community benefit. Progress has arguably been made on the issue, although not through simultaneously implemented voluntary policy (thus lessening the impact) and WRAP who has taken the lead has had to spend public funds on legal advice to navigate the competition law framework. Read more…

• Food portion size – In evidence to Public Health Commission (2009), John Dyson of the British Hospitality Association stated: “Whilst our members are committed to continuing their voluntary efforts as individual companies to enhance their product portfolios to provide healthier choices for consumers, it should be noted that competition law constrains the extent to which this can be driven forward as a collaborative effort… [this also] applies to any efforts to work collaboratively across companies on portion size.”

• Environmental impacts of laundry detergents – On 13 April 2011, consumer goods giants Procter & Gamble and Unilever were fined €315.2m (£280m) by the EC for breaching competition law in the laundry detergent market in eight countries (Belgium, France, Germany, Greece, Italy, Portugal, Spain, and the Netherlands). Henkel, another consumer goods company, was not fined after blowing the whistle on the anti-competition agreement, despite having been engaged in it. Joaquim Almunia, the European Union’s vice-president for competition policy, said the three companies: “sought to ensure that no one could use this initiative to gain a competitive advantage over the others, so they agreed to protect their respective market shares. They also agreed not to decrease prices when decreasing the size of packages, and afterwards, they agreed to a price increase.” The companies had launched a voluntary initiative to reduce the environmental impact of laundry detergents. The effort was designed to shift consumers away from big-box powder detergents and reduce energy, packaging and shipping, storage and selling space, and to
help with waste disposal. Later, the companies introduced cold-water concentrated detergent into the mix, reducing the energy use of washing
machines by 90% or more.

• Shipping infrastructure investment – A law firm working for the shipping sector advised that competition law (and the impossibility of getting an EU equivalent of an OFT ‘Short form Opinion’ at present) meant that investment was being diverted into infrastructure in other parts of the world. In the same sector we have become aware of proposals for a voluntary agreement to reduce emissions through slow shipping that could fall foul of the present application of competition law.

• Lack of approval structure within OFT for voluntary agreements – Leading corporate responsibility consultancy Good Corporation submitted a note to the OFT following the March 2009 conference ‘Business Leadership in Consumer Protection – An OFT Conference on self-regulation and industry-led compliance’. They highlighted the frustration shared by many NGOs that there is no pathway to getting voluntary standards/agreements formally reviewed/approved by the OFT under the existing ‘Approved codes’ structure for compliance with competition law.