Competition law affects aggregate industry

Consolidation has set the aggregates industry on a Collision Course with EU anti-Competition law. Robert Camp takes a look at the problem

The framework of EU competition law basically prohibits agreements or collusion between companies that may affect trade between EU member states. In essence there are three main elements to a breach of competition law - there must be some form of agreement or concerted practice which affects trade between EU member states in such a way that it restricts, prevents or distorts competition.

A number of European quarry operators have recently been accused of failing to operate within the EU competition laws and have had legal notices served on them. But how much of this supposed anti-competitive behaviour can be attributed to the wide-scale consolidation that has happened in much of Europe's aggregates market?

In practice, competition breaches cover a multitude of potential sins but broadly speaking it breaks down into two main areas: the regulation of market behaviour and controlling mergers. With the latter, mergers can be approved with or without conditions, or blocked, and this depends on whether the authorities feel there will be a significant reduction in competition in the markets where the parties to the merger operate. The term 'merger' can also be widely interpreted to the point that joint venture agreements, which are common in such a capital-intensive industry, may be caught.

An example of that was BHP Billiton's aborted iron ore venture with Rio Tinto which was dashed last year after concerns from regulators, inluding the EU. The 1022 European Commission was likely to have insisted on a series of divestments to the point that the deal wasn't worth doing.

Similarly, the small pool of potential industry bidders with the financial clout to acquire 868 Tarmac from 722 Anglo American for the £1.7billion asking price would likely have to dispose of some of their operations in order to stay the right side of the law.
The second plank of EU competition law relates to market behaviour rules, including abuse of a dominant position and illegal agreements like price fixing cartels.

Alleged anti-trust violations are a hot topic at the moment with eight companies being probed by the 3654 European Union for possible offences including price fixing and import limits. The investigation concerns makers of cement and related products in Austria, Belgium, the Czech Republic, France, Germany, Italy, Luxembourg, the Netherlands, Spain, and the UK.

But again the definitions are broad. An agreement need not be expressly made, or be in writing or legally binding to be caught by competition law. Direct or indirect contact between competitors, for example, the object or effect of which is to influence a competitor's conduct on the market, will be caught as a 'concerted practice'.

Furthermore, an 'appreciable effect' on trade between member states (and therefore a violation) is fairly easy to establish, and it may be either actual or potential. For example, it is usually enough if the agreement concerns the supply of goods across internal EU borders, or the operation of the agreement may make it more difficult for other businesses operating elsewhere in the EU to penetrate the relevant domestic market.

And then of course there is the vexed issue of what actually constitutes the 'market'.

Take Anglo American's disposal last year of part of Tarmac's aggregate activities to Eurovia. The European Commission found that Eurovia's acquisition of Tarmac's German and Polish activities would not significantly impact on competition in the European Economic Area.

But it also ruled that it threatened to have a significant impact on competition in some markets in France and in the Czech Republic, and referred the deal to the competition authorities in those countries.

The regulatory outcome can therefore vary widely from state to state even under the same deal, and this creates a minefield for operators who have to weigh very carefully the potential impact. And with continued industry consolidation, the chances for companies to have control over large market segments of particular commodities increases almost every day.

There are of course exemptions if the benefits that arise from an agreement outweigh its anti-competitive effects.

Examples include improving the production or distribution of goods, or promoting technical or economic progress or allowing consumers a fair share of the resulting benefits. But the stronger the parties' positions in the relevant market, the more difficult it becomes to justify.

So squaring the circle is not easy, and the risk of regulatory intervention will remain high. What companies need to ensure is that they have a clear regulatory compliance policy against which they can measure any activity that risks tipping the scales of competition law.