COMMISSION DECISION

of 16 September 1998

relating to a proceeding pursuant to Articles 85 and 86 of the EC Treaty

(Case No IV/35.134 - Trans-Atlantic Conference Agreement)

(notified under document number C(1998)2617)

(Only the Danish, German, English and Swedish texts are authentic)

(Text with EEA relevance)

(1999/243/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to the Agreement establishing the European Economic Area,

Having regard to Council Regulation No 17 of 6 February 1962, first Regulation implementing Articles 85 and 86 of the Treaty(1), as last amended by the Act of Accession of Austria, Finland and Sweden, and in particular Articles 3 and 15 thereof,

Having regard to Council Regulation (EEC) No 1017/68 of 19 July 1968 applying rules of competition to transport by rail, road and inland waterway(2), as last amended by the Act of Accession of Austria, Finland and Sweden, in particular Articles 11 and 22 thereof,

Having regard to Council Regulation (EEC) No 4056/86 of 22 December 1986 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport(3), as last amended by the Act of Accession of Austria, Finland and Sweden, and in particular Articles 11 and 19 thereof,

Having regard to the Commission Decision of 24 May 1996 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission and to present any other comments in accordance with Article 19 of Regulation No 17, Article 26 of Regulation No (EEC) 1017/68 and Article 23 of Regulation (EEC) No 4056/86, read in conjunction with Commission Regulations No 99/63/EEC(4), (EEC) No 1630/69(5) and (EEC) No 4260/88(6),

After consulting the Advisory Committee on Restrictive Practices and Dominant Positions, the Advisory Committee on Restrictive Practices and Dominant Positions in the Transport Industry and the Advisory Committee on Restrictive Practices and Dominant Positions in Maritime Transport,

Whereas:

THE FACTS

I. THE APPLICATION

(1) On 5 July 1994, the parties listed below ("the TACA parties", further details of which are set out in Annex I) submitted an application to the Commission pursuant to Article 12(1) of Regulation (EEC) No 4056/86 seeking an exemption under Article 85(3) of the EC Treaty and Article 53(3) of the EEA Agreement in respect of the Trans-atlantic Conference Agreement (TACA):

A.P. Møller-Maersk Line (Maersk)

Atlantic Container Line AB (ACL)

Hapag-Lloyd AG (Hapag Lloyd)

Nedlloyd Lijnen BV (Nedlloyd)

P& O Containers Limited (P& O)

Sea-Land Service, Inc. (Sea-Land)

Mediterranean Shipping Co. (MSC)

Orient Overseas Container Line (UK) Ltd (OOCL)

Polish Ocean Lines (POL)

DSR/Senator Lines (DSR/Senator)

Cho Yang Shipping Co., Ltd (Cho Yang)

Neptune Orient Lines Ltd (NOL)

Nippon Yusen Kaisha (NYK)

Transportación Maritíma Mexicana SA de CV (TMM)

Tecomar SA de CV (Tecomar) .

(2) Tecomar has been a subsidiary of TMM since January 1994. In 1997, Nedlloyd Lijnen BV and P& O Containers Limited merged to form P& O Nedlloyd. Also in 1997, Hapag Lloyd AG transferred its containerised liner shipping activities to Hapag Lloyd Container Linie GmbH and Hanjin Shipping Company Limited (Hanjin) acquired control of DSR/Senator.

(3) Pursuant to Article 4(8) of Regulation (EEC) No 4260/88, the TACA parties were informed and invited to comment on the fact that the Commission also intended to examine the application for individual exemption made under Regulation No 17 and Regulation (EEC) No 1017/68, for the reason that some of the notified activities fell outside the scope of application of Regulation (EEC) 4056/86.

(4) The TACA replaced the Trans-atlantic Agreement (TAA), an agreement originally notified to the Commission on 28 August 1992. The Commission adopted Decision 94/980/EC(7) on 19 October 1994 prohibiting the TAA (The TAA Decision). The TAA Decision prohibited the parties to whom it was addressed from engaging in, inter alia, price-fixing activities which have the same or a similar object or effect to those contained in the TAA.

(5) The parties formerly party to the TAA are all party to the TACA. Hanjin became a party to the TAA on 26 August 1994 and a party to the TACA on 31 August 1994. Hyundai Merchant Marine Co. Ltd (Hyundai) became a party to the TACA on 31 August 1995.

(6) On 15 December 1994, the Deputy Director-General of the Directorate-General for Competition of the Commission wrote to the TACA parties informing them of the preliminary assessment that certain provisions of the TACA did not appear to fulfil the conditions of Article 85(3), and inviting the observations of the TACA parties on the preliminary assessment.

(7) On 21 June 1995 and 1 March 1996, the Commission adopted a Statement of Objections and a supplementary Statement of Objections addressed to the TACA parties (with the exception of Hyundai, since it had not been a party to the TACA at the time of the adoption of the first Statement of Objections) stating that the Commission was disposed to adopt a decision withdrawing any immunity from the imposition of fines which resulted from the notification of the TACA in respect of the agreement between the parties to the TACA to fix prices for inland transport services supplied within the territory of the Community. A Decision to withdraw any such immunity was adopted on 26 November 1996(8).

(8) On 24 May 1996, the Commission adopted a Statement of Objections(9) addressed to the TACA parties stating, inter alia, that it considered that the TACA falls within the prohibition contained in Article 85(1) of the Treaty and that it contains a number of elements which do not fall within the scope of Article 85(3) of the Treaty. The Statement of Objections stated that the Commission was disposed to adopt a decision finding the TACA parties to be in breach of Article 85(1) and requiring them to bring to an end those practices which fall outside the scope of Article 85(3). The Statement of Objections also stated that the Commission considered that the TACA parties had abused their dominant position, contrary to Article 86 of the Treaty.

(9) A supplementary Statement of Objections was adopted by the Commission on 11 April 1997, in which it was stated that notwithstanding the notification of the TACA hub-and-spoke system (see recital (47)), the Commission remained disposed to adopt a decision finding the TACA parties to be in breach of Article 85(1) and requiring them to bring to an end those practices considered in the Statement of Objections of 24 May 1996 to fall outside the scope of Article 85(3), including the practice of the TACA parties of fixing prices for carrier haulage services supplied within the Community where these fall outside the scope of the TACA hub-and-spoke system.

(10) The TACA parties presented their views at oral hearings held on 6 May 1996 and 25 October 1996. Annex II contains an outline of the main procedural steps relating to the TAA and the TACA.

II. THE NOTIFIED AGREEMENT

(11) In the notification of the TACA to the Commission, the parties argued that it was a liner conference falling within the scope of the group exemption for liner conferences contained in Regulation (EEC) No 4056/86. The parties applied in the alternative for individual exemption. Although the TACA had been notified to the Commission on 5 July 1994, it did not come into effect until 24 October 1994, the earliest date on which it was permitted to do so under American law.

(12) Two weeks before notification of the TACA, Lord Sterling of Plaistow (in his capacity as Chairman of TACA) wrote to Mr Van Miert, Member of the Commission responsible for competition matters, in the following terms:

"It seems to me that the changes we propose are so substantial that they result in a new agreement rather than an amended old one.

This being so, I think the most clear-cut thing we can do is to notify the Commission that the lines are abandoning the old TAA and formally notify the new agreement."

(letter dated 21 June 1994).

(13) The TACA provides for agreement by its members on the rate, charges and other conditions of carriage applicable under its common tariff, including ocean rates, inland portions of through-rates and multimodal rates. The common tariff contains a matrix of prices for the carriage of cargo between defined points: 26 classes of cargo are defined and a rate is specified for each class. The tariff is published by the TACA and is available to all shippers.

(14) The scope of the TACA is eastbound and westbound shipping routes between, on the one hand, ports in Europe situated in latitudes from Bayonne, France to the North Cape of Norway (except non-Baltic ports in Russia, Mediterranean ports and ports in Spain and Portugal), and points in Europe via those ports other than points in Spain and Portugal, and on the other hand, ports in the 48 contiguous States of the United States of America and the District of Columbia and points in the United States via those ports (the Trade).

(15) Apart from the increase in membership from 11 to 17 lines (and down to 16 with the merger of P& O and Nedlloyd), among the more significant differences between the TAA and the TACA are the following:

(a) the TACA parties have abandoned their complex arrangements relating to the non-utilisation of part of their maritime capacities (the Capacity Management Programme);

(b) the TACA parties have formally abandoned the different categories of membership and the two-tier tariff structure which were features of the TAA;

(c) the TACA parties have abandoned their detailed provisions relating to the exchange between them of vessel slots and equipment;

(d) the TACA parties have modified their rules relating to the taking of independent action (IA)(10);

(e) the TACA parties have changed their rules on service contracts so as to allow unilateral action(11) on TACA service contracts and individual service contracts;

(f) the TACA parties have agreed among themselves to withdraw from membership of the Gulfway and Eurocorde Discussion Agreements(12).

(16) The TACA contains identical provisions relating to the fixing of prices for inland transport services provided within the territory of the Community to those contained in the TAA.

A. The July 1994 version of the TACA

(17) The July 1994 version of the TACA contained the following principal provisions:

(a) agreement on the rates, charges and other conditions of carriage applicable under its common tariff including ocean rates, inland portions of through rates and multimodal rates;

(b) entitlement to depart from all ocean tariff rates and inland portions by taking independent action(13) on the expiry of five working days' notice in writing. Independent action on other tariff rates and other charges required 10 days' written notice;

(c) agreement of service-contract rates, loyalty-contract rates and rates and charges for inland transport services and other services related to the maritime transport of cargo in the Trade. Examples of the latter include terminal handling charges, currency and fuel adjustment charges, equipment handover/usage charges as well as other charges relating to the use of containers on land such as detention and demurrage charges;

(d) agreement on the rates and other terms and conditions of service contracts (including charges for services provided in addition to maritime transport services) between shippers and one or more TACA parties in accordance with the following mechanism:

(i) parties to the TACA could, following the agreement of not less than a majority minus two of the parties voting under the agreement, enter into service contracts with any shipper that agrees a minimum cargo commitment of 100 teu (20-foot equivalent unit) or USD 100000 net ocean port/port freight revenue;

(ii) if a party to the TACA did not wish to participate in a particular service contract it could take "unilateral action"(14) in respect of not less than 100 teu (20-foot equivalent unit) in addition to the minimum agreed under that service contract, provided the unilateral action is for the same duration as the service contract, and

- where the minimum volume agreed under the service contract was not more than 1000 teu, the unilateral action was in respect of not more than 100 teu, or

- where that minimum volume was more than 1000 teu, the unilateral action was in respect of not more than 10 % of that minimum, subject to a maximum of 200 teu;

(e) agreement on prices for intermodal service contract rates and on independent action or unilateral action in respect of those rates;

(f) the restriction of all service contracts (other than for certain seasonal or non-containerisable cargo) to a maximum period of one calendar year (Article 14(2)(a)). None of the parties to the TACA could participate, individually or with any other party to the TACA, in more than one service contract at a time with any particular shipper in respect of cargo to be carried on the Trade (Article 14(2)(d));

(g) a prohibition on the inclusion in service contracts of any clause which provided for a reduction in the rate payable under that service contract by reference to terms agreed with other shippers under other arrangements (Article 14(2)(b)). Such provisions are called "contingency clauses" by the TACA and are discussed further at recitals (489) to (490);

(h) the regulation of the capacity available for carrying cargo in both the eastbound and westbound sectors of the Trade in accordance with the following principles:

(i) the parties to the TACA would continuously review conditions of supply and demand in the Trade and would consult with the services of the Commission and with transport users for this purpose;

(ii) the aggregate capacity to be made available would be 125 % of forecast demand for cargo carried between ports and points in the Trade, subject to quarterly adjustment. Of that aggregate capacity, 85 % would be allocated between the individual parties to the TACA and the remaining 15 % would be unallocated. The capacity of the TACA parties' ships in excess of 125 % of forecast demand could not be offered to the market.

(18) The TACA is said to be of indefinite duration (Article 9). Parties may withdraw without penalty on giving 90 days' notice in writing (Article 7(3)).

(19) The notification made reference to a further 25 provisions of the agreement which, in the view of the parties, might have affected their commercial freedom to take independent commercial decisions. These included provisions relating to:

(a) agreements concerning amounts, levels or rates of brokerage and freight-forwarder remuneration, including the terms and conditions for the payment of such sums and the designation of persons eligible to act as brokers (Article 5(1)(c)(3));

(b) minimum and maximum prices to be paid to rail, air, motor or water carriers for the European inland segment of through-transport services (Article 5(1)(c)(6));

(c) the ability to meet together and with other persons for the purpose of negotiating and entering into other agreements, including information-exchange agreements (Article 5(1)(f)).

(20) The July 1994 version of the TACA also contained detailed provisions relating to space/slot chartering and equipment exchange, although the parties did not include these provisions in their list of provisions of the agreement which, in their view, may affect their commercial freedom to take independent commercial decisions. These provisions allowed the parties to inform the other parties of any need for, or availability of, spare vessel capacity for chartering purposes. The parties to the TACA were also authorised to charter to other TACA parties space or slots on line-haul, feeder or relay vessels used for transporting cargo falling within the scope of the TACA (Annex B, Section 3).

(21) Article 10 of the TACA provides for the setting up of "the Enforcement Authority", whereby the parties agree to establish and finance an independent body to police the duties and obligations of the parties under the agreement. The role and scope of the Enforcement Authority are defined in Annex C of the TACA (Rules governing self-policing). Under these rules the Enforcement Authority may, acting on its own initiative or following a complaint, investigate any alleged breach of the terms of the agreement.

(22) The Enforcement Authority has "total unfettered access [...] to all documents which may be related to a carrier's activities in the Trade" and is authorised to inspect records and property, interview and take statements from persons. The Enforcement Authority is also authorised to impose fines of between USD 100000 and USD 150000 for any breach of the agreement and in particular the various price-fixing arrangements. Furthermore, any refusal to allow access by the party under investigation carries mandatory fines of USD 75000 for the first incident, USD 150000 for the second and USD 250000 for each incident thereafter within a two-year period. Recidivism, in respect of all breaches, is subject to maximum fines of USD 300000 within any one year period. All such sums collected are distributed to the other parties.

(23) In the Notification of 5 July 1994, the TACA parties also offered to make to the Commission the following undertakings, to come into effect if the Commission granted the TACA individual exemption or stated that the TACA fell within the scope of the group exemption for liner conferences.

(a) The TACA parties would produce an interim report to the Commission on actual capacity and forecast demand with a view to rationalising such services in the most efficient way.

(b) The TACA parties would consult with the services of the Commission and with transport users in order to assess the requirements of transport users and, in particular, to forecast future demand.

(c) The TACA parties would notify business plans and modifications of rates three months (including current month) before their entry into force.

(d) The TACA parties would, on request, review rate modifications which caused individual shippers substantial competitive disadvantage and, failing satisfaction after such review, the matter could be put to a panel of TACA and shipper representatives which would recommend a solution.

(e) Those TACA parties which were also parties to the Eurocorde Discussion Agreement and/or the Gulfway Agreement would withdraw from those agreements.

(f) The TACA parties would not exchange confidential business information with other carriers serving Europe/Canada and Europe/Canadian Gateway/USA trades except for the purpose of rationalising their services.

(g) The TACA parties would provide quarterly reports to the Commission on the operation of the Agreement.

(h) The TACA parties would inform the Commission of any contacts between the Agreement and other carriers concerning price-fixing or capacity regulation.

B. October 1994 version of the TACA

(24) On 17 October 1994, the TACA parties notified to the Commission the modifications to the TACA described below.

(25) The detailed provisions relating to capacity non-utilisation were deleted. Notwithstanding the deletion of the detailed provisions relating to the capacity regulation programme, the TACA continues to provide that the parties may cooperate with the objective of regulating the carrying capacity offered by each of them (Article 5(3)). The notification gives no explanation of how the TACA parties intend to do this.

(26) Article 5(1)(c)(6) which provided for common agreements with rail, air, motor, or water carriers for the European inland segment of multimodal transport services and the minimum/maximum prices to be paid to such carriers in connection with such transport services was deleted.

(27) Article 5(1)(f) concerning activities with other persons, including the exchange of relevant information, statistics and other data in connection with inter-conference agreements and exclusive, preferential or cooperative working arrangements with marine terminal operators or vessel or non-vessel operating common carriers was deleted.

(28) The notice period for taking independent action on ocean tariff rates and inland portions (under Article 13(1)(a)) was reduced from five to three business days.

(29) The minimum volume commitment for service contracts (referred to in Article 14(2)(b)) was reduced. A new provision that the unilateral action must be agreed with the shipper and provided to the TACA secretariat for filing with the Federal Maritime Commission (FMC) no later than 15 days following the filing of the original contract and must have the same termination date as the original contract was introduced.

(30) The formula for permitting TACA parties to enter into service contracts (a majority less two) was replaced by approval by any five of the parties to the agreement (Article 14(3)(b)). The arrangements for the negotiation of service contracts are described at recital (132).

C. February 1995 version of the TACA

(31) On 3 February 1995, the TACA parties informed the Commission that they had concluded a conditional settlement agreement with the FMC. In return for the FMC's agreeing to put an end to a number of investigations into alleged breaches of the American Shipping Act 1984 by the TACA parties, the TACA parties would abandon their 1995 business plan, revert to 1994 rates and make a number of modifications to the TACA agreement. The main provisions of the proposed Settlement Agreement were as follows:

(a) the cancellation of several other agreements between liner shipping companies relating to the Trade (including the Eurocorde and Gulfway Agreements);

(b) a number of technical modifications to the TACA's independent action provisions whereby the following requirements were imposed:

(i) that the secretariat would publish immediately notices of intention to take independent action,

(ii) that the TACA parties should have the right but not the obligation to discuss independent action with other parties in advance,

(iii) that each line should adopt its own policy as to who within the organisation was entitled to authorise independent action;

(c) space chartering arrangements (other than ad hoc arrangements)(15) were taken outside the scope of TACA: connective carrier arrangements(16) were cancelled;

(d) the promotion of greater carrier participation in service contract negotiations (but existing approval arrangements were retained and the TACA secretariat was given the option of attending service contract negotiations with shippers): the removal of certain discriminatory practices against non-vessel operating common carriers (NVOCCs);

(e) changes to the practices of a number of TACA parties in relation to charges for access to American land-based container pools;

(f) the roll-back of 1995 price increases to 1994 rates (at an estimated cost to TACA lines of USD 60 to 70 million).

(32) On 9 March 1995, the TACA parties informed the Commission that the FMC had imposed a further condition on the TACA parties. This condition required the TACA parties to amend the TACA so as to allow individual TACA parties to enter into 1996 service contracts without having received the approval of the other TACA parties, provided that those contracts complied with the provisions of Article 14(2) of the TACA.

D. October 1995 version of the TACA

(33) In October 1995, the TACA parties informed the Commission of a set of changes concerning "inland arrangements relating to import and export combinations of haulage under both carrier and merchant haulage" which had come into effect on 20 July 1995. These changes reflect recommendations made by the Intra-industry Intermodal Committee (IMC) concerning steps to be taken to remove "any discriminatory inland transport rules and regulations in conference tariffs"(17). The IMC had been set up by the liner shipping industry to ensure that the industry produced a coordinated reaction to the application by the Commission of the Community's competition rules to inland price fixing.

(34) According to the TACA parties:

"the effects of the changes are perceived to be as follows.

(1) So long as one party takes overall responsibility for the entire import/export movement, the shippers who actually make use of the import and export legs may be different.

(2) Now that the import movement may start and the export movement may finish in different ports, and now that the inland location for unloading the import movement and reloading the export movement may be different, more shippers will find that an import/export combination could be used to meet their haulage requirements.

(3) The import/export combinations remove the requirements to pick up an empty container from a port and to return it to the same port. They therefore reduce both empty container movements and reduce shippers' costs for such combinations"

(18).

E. November 1995 version of the TACA

(35) On 24 November 1995, the TACA parties informed the Commission that changes had been made to Article 14(2)(a) and 14(2)(f) of the TACA concerning service contracts. The changes increased the maximum duration of a TACA service contract from one to two years (19) and allowed for currency adjustment factor (CAF) levels to be subject to limits on their variation during the term of service contracts.

(36) On 29 November 1995, the TACA parties notified to the Commission the establishment of the "European Inland Equipment Interchange Arrangement" (EIEIA).

(37) The objective of the "European Inland Equipment Interchange Arrangement" is said to be to improve efficiency with regard to the inland positioning of empty containers in Europe by promoting interchanges of empty containers between the applicants. The Arrangement provides a computerised reporting system through which individual TACA carriers can enter information on their container surpluses and deficits at various European locations so that other TACA carriers can easily have access to the information to determine whether they can use the containers to serve a particular customer demand at that or a nearby location.

(38) For example, the Arrangement enables a TACA carrier requiring an empty container at a particular port or inland point, to ascertain from the information in the reporting system whether any other TACA carrier has or expects to have empty equipment available at or near that location. Equally, the Arrangement would enable a carrier with an actual or anticipated surplus stock of containers at a location to contact a carrier with a reported shortage to see if its equipment can be supplied for use by that carrier.

(39) This system went into operation with the first reporting under the Arrangement by carriers on 1 August 1995 for the Benelux area, and with reporting extended to other Member States within the TACA's geographic scope at various dates up to 10 October 1995(20). The key locations are, primarily, ports and cities (such as Antwerp or Paris), each of which are taken to include the surrounding region and, in some cases, named regions (the Rhine or the Ruhr). The Arrangement, like the TACA, is of indefinite duration, although any TACA party may terminate its participation in the Arrangement at any time.

(40) Each applicant reports:

(a) its name;

(b) the weeks to which the report relates;

(c) any surplus or deficit of each equipment type, namely standard equipment (dry van and high cube containers) at the key locations;

(d) details of the person at that carrier whom interested carriers should contact to reach agreement on a case-by-case basis for the interchange of equipment.

(41) Reports are made using standard "symbols". Imbalances are stated as (i) a significant surplus ["++"] (where a carrier has a significant number of surplus containers); (ii) a less significant surplus ["+"]; or (iii) a shortage ["-"]. The reports are made fortnightly with each report providing a summary of equipment inventory projections for the following two weeks. Reports of actual transactions under the Arrangement are made to the TACA secretariat every four weeks.

(42) The applicants have agreed standard documentation which may be used by the exchanging parties whenever they have not negotiated or will not in the future negotiate specific bilateral interchange agreements. This standard documentation consists of the pro-forma interchange agreement terms (pro-forma terms) and the Interchange Agreement (Shortform Agreement). The standard set of terms contained in the pro-forma terms deal with such aspects as maintenance and insurance of containers as well as the delivery re-delivery of containers. The Shortform Agreement would incorporate the pro-forma terms and add the particular details of the interchange in question.

(43) The applicants have agreed guideline per diem charges for each of the equipment types but are said to be free to negotiate other levels. The guideline per diems are said to reflect typical market rates on the basis of ad hoc or occasional interchanges.

(44) The TACA parties have stated (21) that during the first seven months of operation of the European Inland Equipment Interchange Arrangement over 3600 containers had been exchanged, "leading to a reduction in the number of container moves inland and to increased efficiency". However, this information was qualified by the following statement made by the parties:

"This figure represents the total number of container interchanges in which [the TACA parties] participated. In addition to the relevant authority under the EIEIA some of the respondents are also party to other agreements containing similar authority"

(22).

(45) Accordingly, the figure of 3600 exchanges of containers does not relate to exchanges of containers which have taken place as a direct result of the European Inland Equipment Interchange Arrangement. That figure relates to all exchanges between the TACA, including those pursuant to bilateral arrangements concluded before the European Inland Equipment Interchange Arrangement entered into effect. No information as to the practical effects of the European Inland Equipment Interchange Arrangement have been supplied to the Commission. At the oral hearing held on 6 May 1996, counsel for the TACA parties stated that it was impossible to determine how many of the 3600 exchanges of containers could be directly attributed to the European Inland Equipment Interchange Arrangement(23).

(46) Thus, in relation to the EIEIA, the TACA parties have provided no information as to the number of exchanges of empty containers which have resulted from the Arrangement. They have provided no information as to which of the TACA parties have participated in the exchange of containers. They have provided no information as to cost savings or other benefits. They have provided no information as to how any such benefits have been passed on to shippers. As will be seen below, the TACA parties have provided no evidence to support the conclusion that price-fixing for inland haulage can be said to be indispensable to the operation of the European Inland Equipment Interchange Arrangement.

F. January 1997 version of the TACA

(47) On 10 January 1997, the TACA parties notified the implementation, with effect from 1 January 1997, of a "hub-and-spoke" system of inland cooperation for three trial locations, Frankfurt/Mainz, Lyons and Munich. According to the notification, the TACA parties may extend the system to up to 15 hub locations.

(48) The TACA parties have argued that this new cooperation, in addition to the other forms of cooperation already existing between them, causes the conditions in Article 85(3) of the EC Treaty to be met for the grant of exemption for the collective fixing of prices for all their inland transport activities.

(49) Under the hub-and-spoke system, the price fixed by TACA parties for carrier haulage between an ocean port and an inland destination is calculated on the basis of two inland movements:

(a) the haulage between the ocean port and the inland hub (the trunk leg);

(b) the haulage between the inland hub and the shipper's premises (the local leg).

(50) For 1997, the trunk leg rates under the hub and spoke tariff (called the "basic hub rates") are claimed to have been fixed by the TACA parties at, or close to the average cost to the TACA parties of providing the inland service. The basic hub rates are composed of four elements:

(a) the average one-way laden transport cost incurred by the TACA parties

this is said to reflect the rates payable by the TACA parties to the relevant national inland operator. For example, where the trunk leg between a German port and Munich is served by rail, the applicable tariff rate will reflect the average rate at which that inland haulage is purchased by the TACA parties from the relevant inland operator - in that case, Transfracht; similarly, rates payable between Le Havre and the Lyons hub will reflect rates paid by the TACA parties to the French national rail freight operator, CNC.

It is claimed that the introduction of one-way rates will significantly reduce the amount payable by shippers and forwarders in respect of the repositioning of empty containers. (Under the existing tariff, the inland rate is a round-trip rate calculated on the basis of 100 % of the cost of transporting a full container from the ocean port to the point of destination and 85 % of that sum in respect of the cost of repositioning the empty container at the port);

(b) inland handling

this is said to include the following cost elements:

- release and receipt of the container at the terminal,

- inspection and reporting of the condition of the container equipment,

- lifting of the container onto/off a trailer/barge/rail wagon,

- movement of the container to/from a container stack, and

- storage of empty/laden containers;

(c) empty positioning/imbalance factor

this is said to be the average cost to the TACA parties of positioning empty containers at the hub locations in order to address cargo imbalances;

(d) administration

this is a fixed-fee charge to cover administrative matters such as completion of any necessary customs documentation.

(51) Under the hub-and-spoke systems, the trunk leg of a container move is required to be made either by rail or by inland waterway. The basic hub rate is fixed at a single level applicable to all carriers, regardless of the address of the nominated terminal and the election by the individual carrier to operate that leg via rail or barge.

(52) Where a shipper or forwarder elects also to use carrier haulage for the local leg, the tariff provides a rail/road or barge/road rate which is a combination of the basic hub rate and the tariff rate for the inland transport by road between the hub and the shipper's premises. However, a shipper may use carrier haulage for the trunk leg but switch to merchant haulage for the local leg. In such cases, that shipper will be allowed access to the inland depot subject to payment of the basic hub rate and payment of a handling charge. No further additional charge is payable by the shipper for the switch to merchant haulage for the local leg provided that the container is collected and returned to the same hub location. The shipper who is importing goods from the USA will be able to collect a laden container from the hub and subsequently drop off the empty container, and a shipper who is exporting goods will be able to pick up an empty container from the hub and drop off the laden box.

(53) Although it is claimed in the notification that the basic hub rates have been fixed by the TACA parties "at or close to the average cost to the TACA parties of providing the inland service"(24), subsequent information provided by the TACA parties has revealed that the trunk leg rates have been based not on the average costs of all of the TACA parties but on the costs of only seven of them. Furthermore, it is clear from this information that a nominal figure has been taken for administration costs and not an estimate of actual administration costs. While rates for Frankfurt and Munich appear to be close to the average of the seven lines, from information supplied by the TACA parties it would appear that the basic hub rates for the Lyons hub via Benelux ports are up to (Business secrets omitted) % higher than the average costs of the seven lines on which those hub rates are claimed to be based, as the following table shows.

Table 1

Comparison of Lyon hub rates with average costs

>TABLE>

(54) In their application for individual exemption with respect to the hub-and-spoke system, the TACA parties argued that the arrangements notified to the Commission contribute to improving transport services and thus fulfil one of the necessary criteria for the granting of an individual exemption in respect of the notified arrangements. They stated that "under the hub-and-spoke system, the trunk leg of a container move will be made either by rail or by inland waterway". The use of the TACA's hub-and-spoke system, therefore, would "contribute to a reduction in transport by road", thereby reducing congestion and bringing environmental benefits.

(55) On 17 February 1997, the Commission sent the TACA parties a request for information pursuant to the previsions of Article 16 of Regulation (EEC) No 4056/86 and Article 19 of Regulation (EEC) No 1017/68, requesting confirmation that the Munich and Lyons hubs could be served by container barge transport. The TACA parties replied on 10 March 1997 to the Commission, confirming that both hubs could be served by barge transport: "The TACA parties confirm that both the Munich and Lyons hubs may be served either by rail or by barge".

(56) Further, the TACA parties stated that "the hub-and-spoke system does apply to the transportation of containers by barge to and from the Munich and Lyons hubs. The basic hub rates set out for the Munich and Lyons hubs at Annex 5 to the notification of 10 January are equally applicable to barge moves".

(57) On 12 March 1997, the Commission sent the TACA parties a further request for information (also made pursuant to the provisions of Article 16 of Regulation (EEC) No 4056/86 and Article 19 of Regulation (EEC) No 1017/68) requesting further details of Munich/Lyons barge movements. In reply, the TACA parties on 26 March 1997 wrote to the Commission stating that there is no barge service operating between northern European ports and either the Lyons for Munich hubs.

(58) In a letter to the Commission dated 14 April 1997, the TACA parties stated that unless express agreement is made to the contrary, where a hub location is established by the TACA parties, a single set of rates will apply to and from the hub location, and those rates will be equally applicable to transport by rail and by barge and will not generally specify the actual mode to be used. Thus, the fact that the rates apply equally to rail and to barge does not necessarily mean that both modes of transport are geographically relevant to the particular hub. The TACA parties also explained that sections of the inland waterways connecting the Munich and Lyons hubs to northern European ports are not navigable by container barge.

(59) Finally, the rates established for the trunk leg between the Benelux ports and the Frankfurt/Mainz hub apply only to a barge move.

III. THE RELEVANT MARKET

(60) It was claimed in the application from the TACA members to the Commission that the parties face actual external competition from:

(a) other operators of containerised liner services on the direct trades;

(b) operators of containerised liner services on alternative routes;

(c) other operators of liner services;

(d) non-liner operators;

(e) air transport operators.

(61) In its judgement of 14 November 1996 in Case C-333/94 P Tetra Pak International v. Commission(25), the Court of Justice stated that the stability of demand for a certain product is the appropriate basis for defining a relevant market and that the fact that different products are, to a marginal extent, interchangeable does not preclude the conclusion that those products belong to separate product markets.

A. Relevant product market - maritime transport

(62) The Commission takes the view that air transport forms a separate market from containerised liner shipping for the reason, inter alia, that it has not been shown that a substantial proportion of the goods, carried by container could easily be switched to air transport(26). On the North Atlantic, air transport for cargo is up to 20 times more expensive than maritime transport and up to nine times faster. These figures do not include the additional delays and consequent costs of port congestion, particularly when it comes to unloading larger vessels which can amount to a further eight days at both ends(27).

(63) In the reply to the Statement of Objections the TACA parties no longer maintained their claim that air transport services were substitutable for maritime transport services.

(64) The Commission also takes the view that, for the vast majority of categories of goods and users of containerised liner shipping, the other forms of maritime transport, including conventional (break-bulk) liner transport, do not offer a reasonable alternative to containerised transport services on the routes falling within the relevant geographic market in this case and that these services constitute one or more markets in their own right.

(65) It is clear that many bulk commodities can be containerised and that before the advent of containerisation all goods travelled in bulk consignments of some description or another. In this case, in order to determine the competitive conditions in the relevant market, it is necessary to consider the effect of substitutability from carriage in container to carriage in bulk: substitution from bulk to container is irrelevant.

(66) Almost all cargo can be containerised and, over time, it is likely that the degree of containerisation in most maritime markets involving Member States will be very high. In mature markets, such as the northern Europe/USA or the northern Europe/Far East markets, the process of change towards containerisation is more or less complete and few, if any, non-containerised cargoes are left which are capable of being containerised.

(67) Furthermore, once a type of cargo regularly becomes containerised it is unlikely ever to be transported again as non-containerised cargo. The reasons for this are that shippers become accustomed to shipping in smaller but more frequent quantities and become accustomed to the fact that once cargo has been loaded into a container, it is easier to ship onwards from the port of delivery to the ultimate consignee using multimodal transport.

(68) Thus, as the degree of containerisation increases, shippers of non-containerised cargoes turn towards containerised services but once those shippers have become accustomed to shipping in containers they do not revert to non-containerised shipping. Such examples of one-way substitutability are not uncommon.

(69) Drewry(28) makes a cautious estimate that the containerised share of the world's general cargo trade has risen from 20,7 % in 1980, to 35,1 % in 1990, to 41,6 % in 1994. Drewry forecasts that by the year 2000, this percentage will rise to 53,8 %. The transformation from bulk shipping to containerisation reflects not only a change in the nature of the goods being shipped (essentially from raw materials to manufactured commodities), but also the inherent characteristics of containerised liner shipping.

(70) These characteristics include the following. Smaller, more frequent, shipments as is typically the case with container shipping lead to reduced inventory costs. Containerised goods are less likely to suffer from damage and pilferage. Containerised goods are easier to ship multimodally. For these reasons, once a commodity has made the transformation from bulk to container, possibly on a route-by-route basis, the differences in the nature of the service being provided mean that once that transformation period is over, a shipper is highly unlikely to revert to bulk shipping(29).

(71) In this context, it is not important that certain commodities may still travel by either means: the essential question for determining demand substitutability is whether the choice of mode is made on the basis of the characteristics of the mode. Thus, the fact that some steel products may travel by bulk and others by container does not show that the two modes are substitutable, since it does not take into account the diverse nature (and value) of steel products nor the delivery requirements of customers. The same is true for the other products for which the TACA parties claim substitutability between bulk and containers.

(72) The single specific example given by TACA parties ([Business secrets omitted]) is an interesting one since, as discussed at recitals (210) to (213), it demonstrates the ability of the TACA parties to price-discriminate so as to attract marginal products away from bulk carriers without affecting freight rates generally. There is no evidence that bulk carriers are likewise able to discriminate as between customers.

(73) So far as reefer (that is, refrigerated) services are concerned, the TACA parties argue that reefer containers are substitutable for bulk reefer services. Even to the extent that this may be the case(30), for the reasons given above this does not mean that bulk reefer services are substitutable for reefer container services. Apart from the advantages offered by liner container services such as smaller volumes and speed of transfer to other modes of transport, a wider variety of products can travel in reefer containers than can travel as bulk reefer cargoes. Such products include furs and leathers, pharmaceuticals, electronic goods and, because of the steady temperatures and the ability to control ripening, soft fruits.

(74) On this basis, while it is possible that in exceptional circumstances some substitution may occur between break-bulk and container transport, it has not been demonstrated that there is any lasting changeover from container towards bulk for the vast majority of cases.

(75) On the supply side, the TACA parties have argued that break and neo-break carriers could readily convert their vessels so as to enter the relevant market and for this reason should be regarded as potential competitors. Further, they have argued that there are a significant number of very large liner operators intending to enter the transatlantic trades. These questions of potential competition (and the evidence which the TACA parties have put forward to support their case, the Dynamar Report) are considered at recitals (278) to (282).

B. The relevant geographic market - maritime transport

(76) Similarly, while northern European ports are for some shippers substitutable for some Mediterranean ports, very few, if any, shippers find that Mediterranean ports are substitutable for northern European ports.

(77) First, notwithstanding the TACA parties' claims that all ports in the Mediterranean are substitutable for northern European ports falling within the scope of the TACA, there is no realistic possibility and no evidence has been provided that Mediterranean ports east of latitude 20° or south of longitude 36° (which includes parts or all of Greece, Turkey, Lebanon, Israel, Cyprus, Egypt, Libya, Tunisia, Algeria and Morocco) could, with the possible exception of Algeciras in Spain, be used by shippers in northern Europe as a substitute for northern European ports (or for that matter, vice versa).

(78) Secondly, the evidence of substitution of ports in France, Spain, Italy and Croatia does not lead to the conclusion that ports in those countries are substitutable to a sufficient degree, if at all, for the conclusion to be drawn that they are in the same market as northern European ports. The TACA parties have provided the following evidence of substitution by shippers of Mediterranean ports for northern European ports:

"[Business secrets omitted] diverted a significant proportion of its volume to Mediterranean ports in 1994/1995. Whilst TACA lines continue to carry some of the shipper's total volume, (business secrets omitted) continues to ship approximately (business secrets omitted) teus per annum via the Mediterranean.

"

"(Business secrets omitted) also moves an estimated (business secrets omitted) teu of cargo via the Mediterranean ports, both with SEAC carriers and with independent lines. Some of that cargo was previously carried via northern Europe. It is understood that cargo originating from (business secrets omitted)'s production plant on (business secrets omitted) continues to move through both northern European and Mediterranean ports.

"

"(Business secrets omitted) has switched approximately (business secrets omitted) teu of cargo from TACA services to Mediterranean services operated by Evergreen.

"

(79) On the basis of this evidence ( the alleged substitutability of some 8000 to 10000 teu), the TACA parties consider that some 48000 teu should be included in the overall market in which the TACA operates. According to the TACA parties, the effect of this would be to increase the total market by 2 %. Since they do not include in the TACA market share, cargo carried by TACA parties on trades falling outside the geographic scope of the TACA, this would decrease the TACA parties' share of the relevant market by approximately 1 %.

(80) The Commission does not consider that the evidence put forward by the TACA parties outweighs the evidence that ports in the Mediterranean are not substitutable for northern European ports. First, the inadequacy of Mediterranean ports for shipments to North America is demonstrated by the fact that the TACA parties which are also VSA parties operate two to three round trip rail shuttles a week between Milan and Rotterdam: the TACA parties have provided no evidence that any shipper has sent material quantities of cargo to Mediterranean ports from northern Europe with North America as the ultimate destination.

(81) Secondly, there is no evidence that the specific cargoes in question could have been carried via northern European ports. Thirdly, of the three examples given by the TACA parties, it would appear that in two of the three cases the shipments in question were made using the Mediterranean service of one of the TACA parties.

(82) In this context, it is relevant to note that Mediterranean ports do not appear to be substitutable for northern European ports even for Europe/Far East services, where the geographic advantages of Mediterranean ports are significantly greater than for trans-atlantic services. Thus, Drewry considers:

"By turning in the Mediterranean, Europe-Far East ships could save at least two weeks on their average nine-week round voyage time (a 22 % increase in vessel productivity), but this seems unlikely in anything like the foreseeable future, given the infrastructural limitations of the southern ports and the European rail system"

(31).

(83) Finally, the effect of marginal competition from other means of transport for certain categories of goods can be limited. This situation arises because liner shipping companies are able to identify shippers of such goods and, because of the differentiated price structure in liner shipping, offer lower prices to such shippers without affecting prices generally (see recitals (203) et seq.).

C. Conclusions as to relevant maritime transport market

(84) For the reasons given above, the Commission considers that the market for sea-transport services to which the TACA relates is that for containerised liner shipping between northern Europe and the United States using the sea routes between ports in northern Europe and ports in the United States and Canada(32).

D. Shares of the relevant maritime transport market

(85) Figures provided by the TACA parties for their market shares are set out in Tables 2 and 3. These figures include some bulk and break-bulk commodities going through the Canadian gateway in the product market and Iceland and Puerto Rico in the geographic market, none of which fall within the scope of the TACA: the consequence of this is that the figures given below underestimate the TACA's market share, although probably not to a significant degree. The effect of potential competition is considered at recitals (276) to (306).

Table 2

Market shares for containerised cargo 1994 to 1996

(Northern Europe/USA including via Canadian gateway)

>TABLE>

(86) These figures can be broken down into four distinct segments based on the coast on which the North American port of entry is located: these are the US east, gulf and west coasts and Canadian east coast ports for goods shipped to the American mid-west (the Canadian Gateway).

Table 3

Market share by segment 1994 to 1996

>TABLE>

(87) The relative importance of each of these segments is apparent from the diagram below.

Diagram

>PIC FILE= "L_1999095EN.001801.EPS">

(88) The following conclusions may be drawn from Tables 2 and 3 and from the diagram each of the three years 1994, 1995 and 1996, the TACA parties enjoyed market shares of some 60 %. In each year they also enjoyed market shares in excess of 55 % on each of the market segments for direct trade between northern Europe and the USA. In each year they enjoyed approximately 70 % of the northern Europe/US east coast segment, the market segment which is over four times larger than the next largest segment.

(89) According to Drewry(33), demand for maritime transport services between northern European ports and ports in the USA, Canada and Mexico grew by more than 7 % between 1993 and 1994 and by nearly 6 % between 1994 and 1995. On 1 October 1997, the Journal of Commerce stated that the trade was "growing between 6 % and 9 % per year".

(90) On 13 October 1997, the TACA parties, published their 1998 business plan: the plan included a forecast growth in 1998 of "approximately 8 % to 9 % westbound and 3 % to 4 % eastbound". The plan added, "The 1997 growth in the market has absorbed the capacity introduced by new trade entrants, both in terms of American direct services and cross-border via Canada. The continued growth in 1998 will thus translate into real growth for TACA carriers".

E. The relevant inland transport market

(91) The land transport services that are of relevance to this Decision are the inland transport services undertaken within the territory of the Community which shippers acquire together with other services as part of a multimodal transport operation for the carriage of containerised cargo between northern Europe and the United States of America. These services do not form part of the market for maritime transport services described above but form part of a distinct market.

(92) These land transport services can be supplied in one of two ways: merchant haulage or carrier haulage. Where supplied by carrier haulage, they are supplied by one of the liner shipping companies present in the market for sea transport services described above. In 1995 the TACA parties provided carrier haulage services within the territory of the Community for some 48 % of the cargo they carried between northern Europe and the United States.

IV. LINER SHIPPING CONFERENCES

(93) In general terms, liner shipping conferences are associations of shipowners served by a secretariat. The shipowners act together to set common or uniform freight rates and to make a common policy on the discounts or rebates which may be offered to certain shippers. Depending on the trade, they may share the cargo between themselves in various ways, coordinate sailing timetables, pool revenues and agree measures to combat competition from non-conference competitors. They deal with applications for membership(34).

(94) Unlike liner shipping consortia, conferences do not bring about the joint operation of a liner shipping service. The question of operational issues, other than scheduling, falls outside the scope of conference activity. It is not uncommon to find one or more consortia operating within a liner conference.

(95) Conference secretariats organise the meeting of the members of the conference and monitor trade conditions. They do the latter by collating statistics of trade volumes and prices which are supplied to the secretariat by the members of the conference. In the case of the TACA, the TACA secretariat has played an especially prominent role, becoming directly involved, inter alia, in service contract negotiations and in policing compliance by the TACA parties with the TACA's rules.

V. THE TACA TARIFF

(96) As with many conference tariffs, the TACA tariff is a five part tariff showing separate rates for each of the following services:

(a) inland transport to the port,

(b) cargo handling in the port (transfer from the mode of inland transport to the vessel),

(c) sea transport (maritime transport from one port to another),

(d) cargo handling in the port of destination (transfer from the vessel to the mode of inland transport),

(e) inland transport from the port of destination to the place of final destination.

(97) The first and fifth of these services are invoiced to the shipper in local currency. The second, third and fourth are invoiced in US dollars.

(98) A rate is also shown for: container service charges; forwarding and customs clearance charges (UK/Ireland); CFS/breakbulk service charges; terminal handling charges; CFS/pier cargo charges, stuffing/stripping charges; optional delivery/discharge - additional charges; diversion of cargo - administration fees; port drayage - (cotton in containers); advance charges - collection fees; temporary insulation kit - removal fees, liner bag or flexitank/flexibag removal fees, demurrage charges; stop-off charges - consolidated cargo; pick-up charges - consolidated charges; and wharfage and handling charges.

(99) The TACA tariff is based on the TAA tariff which was introduced in 1993. The TAA tariff replaced the tariffs previously used by conferences in the northern Europe/USA trades. The westbound tariff which was replaced by the TAA tariff has been described by the TAA secretariat as follows: published in six volumes, has close to 2 500 pages, covers approximately 10000 tariff positions, stacks one-quarter of a metre in height and weighs over 12 kg(35). According to the TACA parties the current TACA tariff runs to many thousands of pages: consequently, when the Commission requested a copy, the TACA parties preferred to supply it in electronic form.

VI. THE PROVISION OF INLAND TRANSPORT SERVICES BY THE TACA PARTIES

(100) The extension of liner shipping companies' activities to inland transport was discussed at recitals (12) to (29) of Commission Decision 94/985/EC(36) (IV/33.218 - Far Eastern freight conference: hereinafter "the FEFC Decision"). Those comments are equally applicable to the TACA parties and, indeed, 10 out of 15 of the TACA parties are also members of the FEFC.

(101) Thus, apart from the collective fixing of prices and conditions for carrier haulage, no inland transport activities are directly or indirectly organised through the medium of the TACA. The member lines of the TACA negotiate individually the terms and conditions on which they buy in inland transport. Until now, only some member lines of the TACA have invested in and own inland transport infrastructure (such as depots) or equipment (such as tractors), the most notable being P& O's inland depots in the UK and the various carrier-owned road haulage companies (such as Nedlloyd and Maersk).

(102) As was explained above, the TACA parties have established, and applied for exemption for, two arrangements which distinguish their situation from that described in the FEFC Decision: the European Inland Equipment Inland Equipment Interchange Agreement and the hub-and-spoke system.

VII. SERVICE CONTRACTS

A. The difference between tariffs and contracts

(103) The essential feature of conference agreements is that the members of the conference agree to operate under uniform rates. These rates make up the conference tariff which is published and available to all shippers. The conference tariff sets out a number of different rates: standard rates, time/volume rates, loyalty contract rates. Conference members sometimes also offer secret discounts from the conference tariff in order to gain market share at the expense of other conference members.

(104) Under American law, the right of members of an exempted conference to take independent action is mandatory with regard to tariff rates: this means that any member of a conference has the right to depart from the conference tariff in respect of a particular class of goods, provided that the other members of the conference are notified.

(105) Tariff arrangements include the carriage of cargo not only at standard tariff rates but also loyalty arrangements and time/volume arrangements where the goods will also travel at tariff rates, but rates which are lower than standard tariff rates. Under tariff arrangements certain terms of the relationship are determined by the tariff.

(106) Carriers operating under tariff arrangements are expected to hold themselves out to the public as common carriers. In brief, a common carrier is one who plies between fixed places, does not differentiate between those who demand to use his services, and accepts an obligation to carry any goods brought to him, if suitable and if he has space. Few liner shipping companies have legal obligations to act as common carriers, but there is nevertheless an expectation that they will behave as such(37). American law requires members of liner conference to act as common carriers if they are to benefit from antitrust immunity under American law.

(107) There is a major distinction to be drawn between tariff arrangements and contractual arrangements. Contractual arrangements do not depend on the terms set out in the tariff and the parties are free to negotiate the terms they consider appropriate.

(108) The main difference is that in the case of the tariff arrangements, the price is not an individually negotiated price but that set out in the tariff. In the case of contract carriage (for example, a service contract) the price is not one which appears in the tariff. The TACA parties acknowledged this distinction in a letter to the Commission dated 10 August 1995 in which it is stated that the TACA parties "use the term 'tariff' to refer to the document in which the conference rates are published".

B. Service contracts under American law

(109) The American Shipping Act (1984) specifically authorised for the first time a form of contract carriage for common carriers for use in American trades: service contracts. While their use was not unknown in American trades prior to 1984, their development had been impeded by legal uncertainty as to whether they were unlawfully discriminatory under American law.

(110) Section 3(21) of the American Shipping Act (1984) defines a "service contract" as:"[...] a contract between a shipper and an ocean common carrier or conference in which the shipper makes a commitment to provide a certain minimum quantity of cargo over a fixed time period and the ocean common carrier or conference commits to a certain rate or rate schedule as well as a defined service level - such as, assured space, transit time, port rotation, or similar service features; [...]"

(111) Service contracts were introduced following the prohibition of collective "loyalty contracts" by the American Shipping Act(38). At the time of enactment of the 1984 Act, the tariffs of some 33 conferences serving American trades contained loyalty contract rates. Conference or collective loyalty contracts were considered excessively anti-competitive by the USA because they could discriminate against small shippers. It was also considered that service contracts would serve the long-term interests of American export trade and would be one of the two counterbalances (the other being independent action) to ensure that antitrust immunity for conferences did not lead to an excessive reduction in price competition between liner shipping companies.

(112) Under US law, service contracts may be entered into by shippers either with individual carriers or with conferences. They must be filed with the FMC on a confidential basis. A concise statement of the essential terms(39) of service contracts must also be filed: this is published by the FMC and the same terms must be made available, "to all shippers similarly situated".

C. Loyalty arrangements

(113) The carriage of cargo under the tariff system does not preclude an additional contract between the shipper and shipowner relating to loyalty arrangements. Such a contract is, for the reasons explained above, of a wholly different nature from a purely contractual relationship such as a service contract. The definition of a service contract used by the American Shipping Act (see recital (110)) does not extend to contracts for a percentage or portion of a shipper's cargo.

(114) Unlike service contracts, loyalty arrangements are specifically referred to in Regulation (EEC) No 4056/86, and Article 5(2) of that Regulation attaches to the group exemption a number of detailed obligations relating to loyalty arrangements. The 10th recital of Regulation (EEC) No 4056/86 provides as follows:"[...] whereas, furthermore, loyalty arrangements should be permitted only in accordance with rules which do not restrict unilaterally the freedom of users and consequently competition in the shipping industry, without prejudice, however, to the right of a conference to impose penalties on users who seek by improper means to evade the obligation of loyalty required in exchange for the rebates, reduced freight rates or commission granted to them by the conference".

(115) The provisions of Regulation (EEC) No 4056/86 relating to loyalty arrangements should be considered in the light of the Unctad Code(40). Council Regulation (EEC) No 954/79(41) permitted but did not oblige Member States to ratify the Code, which eventually came into effect on 6 October 1983 but which has never been ratified by the United States. The Unctad Code, in particular Chapter III of the Code (Relations with shippers), clearly recognises no form of contract between shippers and conferences other than loyalty contracts, which are specifically dealt with in Article 7 of the Code.

(116) There are three types of loyalty arrangement: the deferred rebate system, the loyalty contract system and the dual-rate contract.

(117) Under the deferred-rebate system, a shipper who utilises exclusively the vessels of the member lines of the conference for the carriage of cargoes between the ports covered by the conference is initially charged at the full freight rate, but is entitled to receive a deferred rebate of a certain percentage of his total freight payments. The rebate is computed for a designated period (shipment period), usually three to six months, but is paid after a period (deferment period) of the same length following the shipment period, on the condition that the shipper has given his exclusive support to the conference lines during both the shipment period and the deferment period. The reward for loyalty in the past is thus made conditional on continuing loyalty in the future. The rebate is not a legal right which the shipper has, since there is no contract covering its payment.

(118) Under the loyalty contract system, the carrier offer an immediate discount to those shippers who sign a contract to the effect that they agree to give their entire support to the conference carriers. An example of this is the Far Eastern Freight Conference's (FEFC) General cargo contract: in return for a 9,5 % discount on conference tariff rates, shippers who sign the General cargo contract agree to "give the [conference] carriers their entire support", to "ensure that all contracts for the carriage of conference cargo [...] are made with one or more of the [conference] carriers" and to "refrain from participating directly or indirectly in any arrangements relating to the carriage of conference cargo by any vessel not operated by one of the [conference] carriers". Conference cargo is defined as cargo falling within the geographic scope of the conference and excludes a small number of commodities usually shipped in bulk.

(119) The third form of loyalty arrangement is the dual-rate contract. Under this contract, the full conference tariff rate is charged to shippers who do not sign an exclusive patronage contract with the conference lines, and a lower rate to shippers who do sign such a contract.

D. Time/volume rates

(120) Time/volume rates are part of the conference tariff: they are lower than standard tariff rates, depending on the volume of cargo offered over a specified period of time. Thus separate rates are shown for different volumes of a particular commodity undertaken to be shipped(42). Time/volume rates have no additional service element. Time/volume rates, like loyalty rates, are, in effect, discounts on standard rates and are designed to protect the overall market share of the conference by tying shippers to conference carriers.

(121) Under American law the possibility of independent action is mandatory on time/volume rates, since they are tariff rates: this means that any member of a conference has the right to depart from the conference tariff in respect of a particular class of goods, provided that the other members of the conference are informed.

E. Service contracts in practice

(122) In teh transatlantic trades, some 50 % to 60 % of cargo probably travels under service contracts(43), although most consolidated cargo(44) travels under conference time/volume rates (which form part of the conference tariff). The high proportion of service contracts on the transatlantic trades is due to the American prohibition of loyalty contracts, a prohibition which does not exist under other systems of competition law.

(123) In the transpacific trades westwards from the USA to the Far East, there have been, until recently, very few service contracts as a result of conference opposition to their conclusion and, where they existed, they were for very large quantities(45). In the opposite direction, there are apparently several hundred service contracts. In the northern Europe/Far East trades, where loyalty agreements are not prohibited, there are no service contracts of the type found in the American trades. Arrangements are either made with the FEFC, on the basis of a loyalty agreement, or are individual arrangements, on the basis of a discount for volume, and without the involvement of the FEFC secretariat. It is possible to negotiate all-in rates (prices which include surcharges) on these trades.

(124) As can be determined from the number of filings with the FMC, the popularity of service contracts grew tremendously following their introduction in 1984, reaching a pinnacle in January 1986. Shippers entered into service contracts in order to obtain a lower price than the standard tariff rates. Carriers offered them because they were the next best thing to the prohibited loyalty contracts, their main attraction being the chance to tie shippers to a particular carrier or conference, although they do also assist shipping lines to plan forward.

(125) By 1986 many service contracts required carriers to provide few, if any, extra services and they were used merely to obtain a lower rate than the standard conference tariff, ad hoc discounting from the conference tariff being prohibited under the American Shipping Act. It is reported that some service contracts covered as little volume as 3 teu and some were for as brief a period as seven days.

(126) To counteract their negative impact on revenues, conferences serving the transpacific trades began to prohibit individual service contracts from around the beginning of 1986(46). Furthermore, since independent action on service contracts is not mandatory under American law, these conferences also began to prohibit the taking of independent action on joint-service contracts. Conferences on the transatlantic routes had never openly permitted individual service contracts until their introduction by the TACA parties in 1996.

F. TACA service contracts

(127) The Commission has examined some 350 TACA 1995 joint-service contracts. Almost none of those contracts contain any individually negotiated terms relating to service. They merely set a tariff rate lower than the standard tariff rate, depending on volume. The TACA parties have disputed the Commission's finding in the Statement of Objections that very few of the 1995 service contracts contain individually negotiated services, claiming that 98 1995 service contracts contained one or more of 48 different types of additional service.

(128) In the Commission's view, only 16 of the 48 different clauses identified by the TACA parties could be classified as relating to service as opposed to price. Of those 16 clauses, 12 appear in one contract each and concern in total a mere seven shippers: four appeared only in the (business secrets omitted) contract, two in the (business secrets omitted) contract and two with (business secrets omitted). ([Business secrets omitted] each had a single clause of that type). Of the other four types of clause, two concern merchant haulage, one cash-on delivery payment and one in-transit storage.

(129) The mandatory right of independent action on time/volume rates under American law (a measure intended to promote competition) probably explains why shipping lines on the transatlantic routes have preferred to offer service contracts rather than time/volume rates(47). The attitude of the TACA parties towards independent action is apparent from a TACA briefing paper dated 15 February 1996, where it is described as "a tool of last resort".

(130) In its 1989 report on the American Shipping Act, the Federal Maritime Commission commented:"The 1984 Act expressly authorises time/volume rates, defining them as rates that '[...] may vary with the volume of cargo offered over a specified period of time'[...]. However, with the promulgation of service-contract provisions and the subsequent wider-ranging use of service contracts, few carriers or conferences have availed themselves of the time/volume rate provisions".

(131) The absence of independent action on service contracts and the TACA rules on the terms of service contracts, including the rules requiring disclosure to the other TACA parties, mean that less price competition is generated between the parties to the TACA than would be the case if the lines offered genuine time/volume rates rather than time/volume rates disguised as service contracts.

(132) Until the introduction of individual service contracts, all service contracts between a shipper and the TACA parties were negotiated by the TACA secretariat for and on behalf of the TACA members. Service contracts negotiated by the TACA secretariat are then put to the voting procedure of the TACA. A TACA party which does not wish to participate in that service contract may take "unilateral action" on that service contract. The scope of the "unilateral action" is limited in a number of important ways which are likely to prove disincentives to the taking of "unilateral action".

(133) First, the unilateral action must be agreed with the shipper and provided to the TACA secretariat for filing (with the Federal Maritime Commission) no later than 15 days following the filing of the original service contract. This "window of opportunity" is designed to limit significantly the possibility for shippers to negotiate with lines which do not wish to participate in TACA service contracts. It also means that shippers will be unable to take advantage of changing market conditions.

(134) The second important limitation on the scope of the "unilateral action" on service contracts is that such action can only be in respect of cargo which is additional to the minimum agreed to be carried under the service contract. Furthermore, the TACA party engaging in "unilateral action" will not then be allowed to participate in the service contract.

(135) The consequences of this are twofold. Shippers will normally seek a service contract for as great a volume as they think they are reasonably likely to require, since this enables them to get a bigger discount from the tariff rate(48).

Since "unilateral action" can only be in respect of volumes above the minimum quantity commitment, a shipper knows that if it negotiates a low minimum quantity commitment it will get a smaller discount from the tariff rate but it will be uncertain whether it will be able to obtain a lower rate for the rest of its needs by virtue of "unilateral action". Shippers are therefore unlikely to find "unilateral action" sufficiently advantageous for it to have any significant effect in increasing competition between the TACA parties.

(136) The second consequence of this limitation is that it makes "unilateral action" unattractive to carriers since they would be unable to carry any part of the minimum quantity commitment and would be obliged to carry goods only at the rate agreed under the "unilateral action". Furthermore the "unilateral action" must be effective for the duration of the service contract. "Unilateral action" is accordingly an inflexible system so far as the carriers are concerned and is unlikely to stimulate competition to any significant degree between the TACA parties.

(137) The third important limitation is that the quantities permitted to be carried under "unilateral action" are too small to make "unilateral action" widely useful. The quantity to be carried under the service contract will have to be smaller than overall requirements and the rest of a shipper's requirements will have to parcelled out for carriage by a number of other carriers. This limitation may be exacerbated because the TACA parties are likely to be in a position to anticipate the likely total annual requirements of individual shippers as a result of past commercial relations.

(138) The fourth important limitation arises from the fact that the "unilateral action" takes place within the context of the TACA service contract and cannot therefore be for a longer period than the TACA service contract.

(139) On 17 November 1995, the TACA parties informed the Commission that as at 10 November 1995, "no unilateral action has been taken with respect to TACA service contracts in 1995"(49).

(140) It is also important to note that under the TAA, those parties which were not members of the Contract Committee(50) were free to enter into individual service contracts at rates directly negotiated between a shipper and the individual line. Under the TACA as notified in July 1994, this possibility was removed and all TACA parties became bound by the restrictions contained in the TACA relating to service contracts.

(141) As was indicated at recital (32), on 9 March 1995 the TACA parties informed the Commission that they had amended the TACA so as to allow individual TACA parties to enter into 1996 service contracts without having received the approval of not less than five other TACA parties, provided that those contracts complied with the provisions of Article 14(2) of the TACA.

(142) In the reply to the Statement of Objections, the TACA parties stated that as at 28 August 1996 some 60 individual service contracts had been entered into with TACA parties. Such contracts were not put to the vote of the TACA parties although their terms were disclosed to the other TACA parties.

(143) These 60 contracts accounted for some 3,2 % of the TACA parties' carryings on the direct USA/northern Europe trades in the first two quarters of 1996. Some 75 % of the volumes carried under these contracts was carried by six carriers(51), all of them being traditionally non-conference members and none of them a member of the TAA's Contract Committee.

(144) This means that the former members of the TAA's Contract Committee carried between them less than 1 % (0,8 %) of the TAA's total carryings on the direct trades pursuant to individual service contracts, a figure which should be compared to the figure of 59,4 % of carryings carried pursuant to TACA service contracts.

(145) This shippers' representatives have argued that prior to the TAA and the TACA, service contracts on the transatlantic were negotiated individually and included a wide variety of different services. They were then submitted to the conference secretariat for information/approval and filing with the FMC. There was no direct contact between the secretariat and the shipper.

(146) Since the TAA and TACA came into operation, the possibility of negotiating service contracts which include different services has, apparently, disappeared. The role of the TAA/TACA secretariat has been much enhanced and, according to the shippers, is the main obstacle to individually negotiated contracts. The Commission has been told that sales representatives of the lines claim they are not allowed under the terms of the TAA/TACA to offer anything other than a standard service contract, namely a volume-related contract without additional services.

(147) Although conferences on the transatlantic have never openly permitted individual service contracts, the shippers' representatives have told the Commission that before the TAA there were unfiled individual service contracts, as well as conference service contracts of which not all the terms were filed. The TAA/TACA rules on service contracts have apparently put an end to the use of such terms. Examples of such unfiled terms were as follows:

(a) cash refunds to separate accounts,

(b) classification of cargo into a lower-rated category,

(c) no invoicing for services such as inland haulage,

(d) no charge for special equipment,

(e) lower rates with the same line on a different trade,

(f) non-enforcement of liquidated damages clauses for under-performance of a service contract.

(148) In a TACA briefing paper dated 15 February 1996, it is stated that "single factor intermodal rates" and "rates inclusive of CSC, THC, CAF, etc." are "cornerstone principles of TAA/TACA". This is borne out by the observation that service contracts with Neusara and Usanera (TAA/TACA's predecessor) could be negotiated on an all-in basis(52).

(149) In addition to imposing rules for the negotiation of service contracts, TACA has imposed a number of binding "guidelines" (Article 14(2)) concerning the contents of service contracts and the circumstances under which they may be concluded. The restrictions placed on the contents of service contracts include restrictions as to duration, bans on contingency clauses and multiple contracts, obligations as to non-confidentiality and agreement as to the level of liquidated damages for non-performance of the contract.

(150) It is apparent from a review of TACA's 1995 service contracts that a very large number of service contracts with no-vessel operating common carriers (NVOCCs) have been entered into only by those TACA parties(53) which were formerly unstructured members of the TAA(54) (see footnote 84). These lines were the former independent, non-conference lines operating on the transatlantic routes.

(151) The TACA parties have explained that the former structured members intentionally do not compete against the former unstructured members for this cargo(55). This should be seen in the light of the fact that, according to "Contracts between shippers and shipping conferences", the study carried out on behalf of the Commission Directorate-General for Transport by Brinkman-ship Ltd in February 1996, "on the north Atlantic some 23 % of all cargo is said to be booked by NVOCCs".

(152) Finally it is also apparent from a review of TACA's 1995 service contracts that a significant number (approximately one-third) contain a dual-rate structure whereby the former "unstructured" members of the TAA charge lower rates within the same service contract than the former "structured" members of the TAA. The reduction varies between USD 50 and USD 100 per teu although in at least one case it is as much as USD 150. These dual-rate structures are also found in TACA's 1996 and 1997 service contracts.

(153) The TACA parties have explained the dual-rate service contract pricing structures as follows:

"In the light of the Commission's TAA Decision, TACA 1995 service-contract offers have been made to prospective shipper parties at uniform rates i.e. rates which are equally applicable to all participating lines. This is to say that the TACA parties, acting on legal advice, agreed that, in order to comply with the TAA Decision on this point, service contract offers should not include or reflect a dual-rate structure, i.e. a predetermined spread of rates. Thus, in service contract offers, as in the tariff, a rate for a particular commodity or class of commodities is applicable to all (participating) TACA parties, as is consistent with the TACA comprising a sole class of members.

During the ensuing negotiation of a number of service contract offers, the prospective shipper party requested lower rates in respect of certain participating lines, in view of the shipper's perception of the different levels of service offered. Each such request was considered by the lines on a case-by-case basis. The final terms negotiated with each shipper were then submitted to the service contract voting procedures of the conference"

(56).

(154) No evidence has been put forward to support this assertion that, in each case, the initiative for a dual-rate service contract came from the shipper party to the contract. In any event, it is clear that the dual-rate structure was agreed by the TACA members acting together as a whole. The application for exemption dated 5 July 1994 describes the mechanism for agreeing service contract rates at paragraph 4.2.2. However, neither here nor elsewhere in the notification is any mention made of the fact that the TACA parties considered that their agreement permitted them to enter into service contracts with a dual-rate structure. The highly significant fact did not come to light until after the Commission had formally requested copies of the TACA service contracts.

(155) As discussed at recital (296), the effect of the reservation of the NVOCC service contracts to the former non-structured TAA members and the systematic inclusion of dual-rate prices in service contracts for the benefit of the former non-structured TAA members is to lead to an extension of the membership of the TACA to a much wider number of shipping lines than would otherwise be the case.

VIII. NON-VESSEL OPERATING INTERMEDIARIES

(156) Shippers acquire maritime transport services in one of three ways. First, they may approach carriers direct. Secondly, they may use the services of a non-vessel operating common carrier. Third, they may use the services of a freight forwarder. The TACA parties consider that, "the provision of multimodal transport services by the TACA parties is substitutable with the provision of such services by non-vessel operating intermediaries, namely freight forwarders and non-vessel operating common carriers"(57).

(157) This is a new argument, not reflected in the application for exemption where the TACA parties defined the relevant market as follows:

"The applicants face competition for the transportation of containerisable cargo between Europe and the USA in both the westbound and eastbound directions (sectors) from: (a) other operators of containerised liner services on the direct trades; (b) operators of containerised liner services on alternative routes; (c) other operators of liner services; (d) non-liner operators; (e) air transport operators, and (f) potential entrants and cross-entrants to the transatlantic trades"

(58).

A. Non-vessel operators

(158) A distinction must be drawn between two different types of non-vessel operators (NVOs) on the north transatlantic trades. The first type of NVO is the type which, although it does not operate vessels on the trade in question (buying in its requirements from actual operators, usually on a long-term basis), operates vessels on other trades. This type included parties to the TACA such as Hanjin and Hyundai. The price at which these NVOs buy in maritime transport services from the TACA parties which actually operate vessels on the north Atlantic is not fixed by the TACA parties acting collectively but is fixed on a bilateral basis. The level of such prices is regarded by the TACA parties as a business secret and confidential to the parties to the bilateral arrangement.

(159) The second type of NVO on the north transatlantic trade is the type which does not operate vessels anywhere. Examples of this kind of NVO include the Kühne & Nagel Group, Danzas, Schenker International and Panalpina Welttransport. In addition to undertaking the forwarding of goods these NVOs also provide other forwarder services such as documentation, customs clearance and warehousing. Such NVOs obtain their maritime transport services from the TACA parties in the same way as other shippers, either at tariff rates or (more usually) on the basis of a TACA service contract.

(160) Clearly, neither type of NVO competes with the actual carrier in terms of the quality of the maritime transport service provided. So far as competition on price is concerned, the first type of NVO (namely the type which operates vessels on other trades) is able to compete on price except to the extent that he has voluntarily restricted that freedom by becoming a party to an agreement such as the TACA and agreeing not to compete on price.

(161) The second type of NVO (namely the type which does not operate vessels anywhere) does not compete with the TACA parties on price at all. Whil such an NVO may have a degree of buying power and may therefore be able to obtain lower service contract prices (but not tariff rates) than other shippers, those prices are fixed by the TACA parties.

B. Freight forwarders

(162) Freight forwarders carry on the business of arranging for the carriage of goods for other people. They generally act in one of two ways vis-à-vis liner shipping companies. First, they may act as shippers themselves, undertaking to the consignors or consignees of the goods to ensure delivery of the goods to the agreed destination. The goods in question may less than a container load (LCL) or many container loads: in either case the freight forwarder deals with the shipping line as principal and not as agent. In such cases, the freight forwarder is rewarded by the margin he earns between what he pays the carrier for transporting the container and the price he obtains from the consignor or consignee (together with his payment for any other services rendered). Freight forwarders who act in this way may even hold themselves out as non-vessel operating common carriers (NVOCC) and publish a tariff.

(163) Alternatively, the freight forwarder may act as agent for a shipper. In this case his main task will be to arrange for a carrier to transport the goods and to negotiate the terms and conditions on which the transport takes place. He may also undertake other services such as the preparation of documentation and customs clearance. Crucially, when acting in this capacity the fright forwarder acts as agent for the shipper and not as principal. Freight forwarders who act as intermediaries in arranging for the provision of shipping services to shippers from shipping lines customarily receive a commission of around 2,5 to 50 % of the cost of those services (excluding ancillary charges) from a shipping line in addition to payment from their shipper clients.

(164) Under Article 5(1)(c)(3) of the TACA, the TACA parties agree the amounts, levels or rates of brokerage and freight forwarder remuneration including the terms and conditions for the payment of such sums and the designation of persons eligible to act as brokers. The TACA parties have claimed that the practice of conference members of fixing the levels of commission paid to freight forwarders acting as agents for shippers is a long-standing one and that within parts of the Community the practice dates back to the beginning of this century. The TACA parties have stated that it is not the practice for any ocean carriers serving the United Kingdom and Irish export trades to pay any commission or compensation to freight forwarders providing services in the United Kingdom and Ireland(59).

C. Arguments put to the Commission by NVOs

(165) Freight forwarders, through their pan-European trade association Clecat, have stated that they are customers of the TACA parties for sea transport services and not their competitors. This is acknowledged by the TACA parties, in their description(60) of NVOs as "large, powerful and well-informed buyers of ocean transport capacity".

(166) Separately from the arguments put to the Commission by Clecat, a trade association called Freight Forward Europe (FFE) also submitted arguments to the Commission. The members of FFE are Europe's nine largest freight forwarders, all of which are also members of Clecat.

(167) On 10 July 1996, FFE submitted a letter to the Commission setting out its members' position on the Transatlantic Conference Agreement, stating that they were in favour of conference agreements between shipping lines and supporting TACA's arguments concerning inland price-fixing. The TACA parties relied on this letter in the reply to the Statement of Objections (61) sent to the Commission on 6 September 1996 and included it as an Annex to that reply.

(168) On 1 August 1996, the TACA parties put into effect "a temporary incentive plan for non-vessel operating common carriers in the westbound trade from northern Europe to the USA". Under the plan TACA reduced its NVO rates by USD 75 per teu and USD 125 per feu.

(169) On 9 October 1996, in reply to a formal request for information, the TACA supplied the details of the contacts and meetings with FFE, including those described below.

(170) On 12 October 1995, the TACA secretariat wrote to the TACA parties concerning a meeting which had taken place between TACA and the members of FFE on 6 October 1995, in the following terms: "The FFE was particularly pleased that they are deemed to be customers in their business relationship with TACA". This relationship is also reflected in a letter dated 9 October 1995 sent by Charles F. McCann, President of Cho Yang (America) Inc., to the freight forwarders which attended the meeting on 6 October 1995, in which it is stated that, "[Cho Yang's] corporate policy is focused on the vital partnership with you and other global forwarder/consolidator operators[...]. We will diligently work to protect your interest as they are also Cho Yang's".

(171) On 21 June 1996 P& O circulated an internal memorandum concerning a meeting which had taken place between TACA and the members of FFE on 20 June 1996:

"FFE will contribute to the cause of 'stabilisation'. They do not want carriers to subsidise inland transportation from the ocean revenue. FFE will fire the bullets but TACA has to manufacture the bullets. Therefore, agreed that J. Pheasant [European special counsel to the TACA parties] will assist in developing a 'working paper' which is well-reasoned and cites the need for smaller shippers for stability with FFE".

(172) On 1 July 1996, FFE wrote to John Pheasant: "Dear John, In view of our meeting on July 3 at 8 am at your offices, please find a draft position as basis for our discussion. Best regards, Kurt Vandenberghe", attaching a draft version of the letter eventually sent to the Commission on 10 July 1996. A reading of the final version of the FFE letter sent to the Commission and the draft sent to Mr Pheasant reveals substantial differences. Unsurprisingly, these differences involve the introduction of a number of the key arguments put forward by the TACA parties, none of which is accepted by the Commission."conferences are not incompatible with lower freight rates,""despite the fact that the transatlantic trade has always been a conference environment, rates have continued to fall over time,""conferences doe not inhibit innovation or investment in the development of new services,""if service contracts were invisible, large shippers would get disproportionate benefits at the expense of small shippers[...],""it is important for conferences to determine common rates for service contracts,""if there were free competition on through rates or on inland rates, shipping lines would cross-subsidise their inland rates by reducing ocean rates to destructive levels."

(173) In October 1996, as a result of disagreement among its members as regards this support for the TACA parties, FFE wrote to the Commission to withdraw the letter.

IX. COMPETITION BETWEEN THE TACA PARTIES

(174) The first point concerning internal competition within the TACA relates to American law. Under the American Shipping Act 1984, conferences exempted from American antitrust laws are required to file their tariffs publicly with the Federal Maritime Commission and are required to adhere to those filed rates.

(175) Carriers are not allowed to grant any special discount or excuse a shipper from any charge for any reason, regardless of the commercial desirability or apparent necessity in any individual case(62). One consequence (and even purpose) of the obligation to adhere to filed tariffs is that members of a conference exempted under American law cannot discriminate in favour of large shippers. Thus, the difference in purchasing power between large and small shippers is substantially reduced.

(176) Each breach of this requirement may be sanctioned by civil penalties of up to USD 25000. Thus, policing against cheating of a substantial part of the TACA's activities is undertaken by an American regulatory authority. The policing activities of the Federal Maritime Commission are undertaken by its Bureau of Enforcement which employs seven lawyers and eight investigators to perform this task.

(177) Adherence to the TACA is also ensured by the extensive enforcement provisions described at recitals (21) and (22). Policing has taken the form of the payment of substantial guarantees, fines for exceeding quotas as well as the appointment of an independent body to act as "the Enforcement Authority" which has "total unfettered access [...] to all documents which may be related to a carrier's activities in the Trade".

(178) The independent body so appointed is called "The Adherence Group bv". The tasks entrusted to this body include the task of explaining the TACA's complex rules to the TACA parties. An example of this is found in a letter from The Adherence Group bv to Hanjin dated 28 April 1995 in which it is stated that "there is NO possibility [under TACA's rules] to apply an S.C. [service contract] rate together with an inland tariff-IA [independent action]".

(179) The TACA parties have also adopted measures which are intended to present the TACA parties as a single united body and so diminish pressure for price reductions from customers. Of particular importance in this respect has been the role of the TACA secretariat and the publication of annual business plans (see Annex III). The TACA secretariat has extens