OPINION OF MR ADVOCATE-GENERAL MAYRAS

DELIVERED ON 21 SEPTEMBER 1972 ( 1 )

Mr President,

Members of the Court,

I — Introduction

The present case belongs to a context with which the Court is already familiar from the application made in 1966 by Netherlands, Belgian and German cement manufacturers. Those cement manufacturers had entered into an agreement (the Noordwijks Cement Accoord) as early as 1956 with a view, in the words of Mr Advocate-General Roemer ‘to prolonging and reorganizing a set of rules for the Netherlands market in cement (which obviously the Netherlands producers cannot supply in sufficient quantities)’.

It is an undisputed fact that national production on its own is not in a position to satisfy demand in the Netherlands even though for about twenty years the dependence of that country as regards supplies of cement has greatly diminished.

The consumption of this product, which is indispensable for building, amounted in 1971 to some 5 million tonnes, a very great increase since in the decade from 1950 to 1960 alone the tonnage marketed in Holland tripled. But whereas in 1960 the Netherlands industry produced only 36 % of the cement used in the country, that proportion went up to 66 % in 1971, that is, more than 3 million tonnes. The remaining third of the consumption is supplied by means of imports slightly in excess of 1.5 million tonnes which in the main comes from Germany and Belgium.

Imports from other countries, even those in the Common Market, were and still are negligible, doubtless because of the cost of transport but also because of the agreements concluded between producers and dealers.

In the past these producers, Netherlands, German and Belgian, had concluded the agreement which I have just mentioned and which provided, with regard to the supply of the Netherlands market with cement and clinker, for quotas, uniform fixing of prices and conditions of sale, exclusive supply and purchasing undertakings, certain prohibitions on exportation and restrictions on the creation of new cement works.

The supply of cement on the Netherlands market was thus the subject of an international cartel into which the Commission of the European Communities immediately opened an inquiry. That cartel, although modified, still exists and is at present the subject of proceedings which should shortly lead to a decision.

But, and this is the subject of the present case, the trade in cement in the Netherlands has also been regulated, not by an agreement but by the decisions of an association of dealers amalgamated in the Vereeniging van Cementhandelaren (which I shall hereafter refer to by the initials VCH).

This association, which is already old, was founded in 1928 in Amsterdam. In 1971 it had 408 members, wholesalers, whose activities accounted for 67.5 % of the market; these traders sell both cement produced in the Netherlands and imported cement to undertakings engaged in public or private works and certain authorized retailers. The non-member traders, ‘outsiders’, the number of whom has indisputably increased in recent years, are 234 in number, but market only 32.5 % on the cement consumed in the Netherlands.

According to its constitution the object of the VCH is to ‘encourage its members’ trade in cement' and to ‘look after their interests, especially as regards their relationships with their suppliers’.

It endeavours to attain these objectives‘by legal means and, more precisely, by issuing opinions and information, organizing meetings and lectures, publishing surveys, concluding agreements and by using all legal means which are such as to promote the objectives of the association’.

The organs of the association are the general meeting with consultative functions and the board of management which has the power to issue binding provisions for the execution of both the agreements made by the VCH and the rules adopted by the general meeting. In addition, it supervises the ‘due compliance’ by members with the obligations imposed upon them.

On this basis the VCH adopted general rules on prices and conditions of sale, about which it need only be said for the moment that it introduced a system of fixed prices for the sales of cement in quantities of less than 100 tonnes and for sales of larger quantities a system of guide prices or ‘target’ prices.

The price-lists, which vary according to the quantities offered, the quality of the cement and its packaging, as well as the means of transport, the place of delivery and even the activities of the consumers are specified in these general provisions.

Finally, internal rules of the association, disciplinary rules and arbitration rules, have been adopted in order to ensure the application of the regulations on prices and conditions of sale.

This body of rules which under Article 5(1) of Regulation No 17 of the Council of 6 February 1962, the First Regulation implementing Articles 85 and 86 of the Treaty of Rome and, later, in 1965, the amendments and additions made to these rules, were notified by the VCH to the Commission of the European Communities. This notification was in order to obtain the exemption laid down in Article 85(3), that is to say, to obtain acknowledgement that those trade rules were in conformity with the provisions of Article 85.

The Commission examined the documents which had been notified to it but, because it considered that they were not compatible with the rules laid down by Article 85, it decided to initiate against the VCH the administrative proceedings laid down in Regulation No 17, the first measure of which consists in notifying the undertaking or association of undertakings concerned of the objections raised against it.

This notification, signed by the Director-General for Competition and made on 26 January 1970, brought forth written observations from the association on 29 May 1970.

Then, after the Commission had asked for further details and the VCH had replied, the latter was asked to put forward its arguments orally through its representatives in accordance with Article 19(1) of Regulation No 17. That hearing took place on 17 March 1971 and the report of it was approved by the representatives of the association subject to some mainly formal amendments.

Finally, after the opinion of the Advisory Committee on Restrictive Practices had been obtained, the decision of the Commission, which the VCH is bringing before this Court, was issued on 16 December 1971, according to which:

— ‘The General and Pricing Provisions including Price Lists I to VI, and the General Conditions of Purchase and Sale referred to in Paragraph III, Article 10 including also the Supplementary Conditions of Purchase and Sale are declared to be contrary to Article 85 of the Treaty establishing the European Economic Community.

— Secondly, the request for exemption made by the VCH under Article 85(3) in respect of the abovementioned regulations is rejected.

— Finally, that association is ordered to bring to an end immediately the infringement established.’

The VCH requests the annulment of this individual decision addressed to it. The Commission raises no objection of inadmissibility to its application and I consider that it is in fact admissible both as regards the capacity of the applicant, its interest in taking legal proceedings and in respect of the period prescribed for instituting proceedings.

II — Scope of the contested decision State of the proceedings

Before commencing an examination of the submissions put forward and consequently of the legality of the measure brought before the Court, it seems to me to be necessay to circumscribe and define the subjectmatter of the proceedings.

Among the decisions of the Cement Dealers' Association which the Commission considered had as their object or effect the restriction of competition within the Common Market, a distinction had to be drawn, and this was rightly done, between the rules laid down for supplies of cement in quantities of less than 100 tonnes and sales of quantities of 100 tonnes or more:

— In the first case, the trade rules sought simply to impose fixed prices and strictly uniform conditions of sale; they prohibited members from evading these provisions either directly or indirectly. The Commission deduced therefrom that those rules made it impossible for members of the VCH themselves to lay down prices and conditions of sale or to win for themselves orders for cement by agreeing lower prices or more favourable conditions;

— In the second case, on the other hand, the VCH merely determines target prices, by requiring its members to observe rules concerning price reductions which are laid down in a framework of rules and conditions of sale prescribed with regard to supplies of 100 tonnes or more.

Such was at least the content of the rules still in force at the end of the administrative procedure and especially at the time of the opinion given by the Advisory Committee on Restrictive Practices. But on 7 December 1971, that is, nine days before the Commission took its decision, the VCH decided to abolish the provisions applicable to deliveries of less than 100 tonnes, which were impossible, it says, to retain owing to the state of the market, especially because supervision of the application of the imposed prices could no longer be ensured.

Such an explanation does not seem to me entirely satisfactory and one is tempted to inquiry whether in fact the abolition of the system of fixed prices was not rather the result of the fact that those sales, which are only of secondary interest for most of the member wholesalers, were at that time made to an increasing extent by non-members. This could moreover lead one to think that the system of imposed prices had lost its interest for the association.

The Commission, on the other hand, considers that the VCH has given up the fixing of imposed prices because it became aware that those rules were incompatible with the rules of the Treaty. It is doubtless true that such a strict system constituted a more flagrant and direct infringement of free competition than that of target prices. Whatever the motives of the VCH were, it is not in dispute that the rules applicable to supplies of cement in quantities of less than 100 tonnes were abolished before the contested decision was made. Nor is it contested that the Commission heard of that abolition only later. Therefore I must draw the consequences of procedural law which stem from this situation.

In the view of the applicant, the Commission based its argument on the combination of the system of imposed prices and that of target prices and declared the two systems in conjunction to be contrary to Article 85 of the Treaty. The disappearance of one of the indissociable components of that body of rules removes an essential ground from the contested decision so that it can no longer be upheld; furthermore the fact that the VCH did not notify the Commission before 16 December 1971 of the repeal of part of its rules does not constitute a ground for complaint.

Like the Commission, I think that this analysis is incorrect.

On the one hand, when stating the reasons upon which its decision was based, the Commission did not argue as if the system of target prices was considered incompatible with Article 85 of the Treaty solely because of its alleged connexion with the system of imposed prices. The very wording of Recital No 16, paragraph (b) of that decision which concerns supplies of 100 tonnes and more and which follows paragraph (a) of the same recital relating to supplies of less than 100 tonnes, begins with the expression ‘in any case’ and indicates clearly that, in the view of the Commission, the system of target prices constitutes in itself and in an independent manner, an obstacle to competition. The following statements seek furthermore to show that the fixing of target prices aims at imposing on members ‘uniform and coordinated conduct’ in the light of the many provisions applicable to the conditions of sale analysed by the contested decision and to which I shall return.

On the other hand—and this appears essential to me—it is not contested that the proportion of sales in quantities of or exceeding 100 tonnes is considerable. They represent 76 % of all supplies by members of the VCH. This leads me to find that the Commission's decision is not invalidated by the repeal of only part of the contested rules. Its subject and consequently its operative part must henceforth be confined to the rules concerning target prices and the conditions of sale which are linked to them. As for the application of the VCH, it can clearly only seek the annulment of the contested decision to the extent to which the latter concerns only the rules which were in force at the date of its notification.

Objectively, whatever the reasons which led the VCH to give up the system of fixed prices, it complied in advance with the order to put an end thereto given it some days later by the Commission.

I can thus broach the substance of the case, beginning with an examination of the internal legality of the decision.

III — Internal legality of the contested decision

Without its being necessary to embark on a preliminary account of the arguments of each of the parties, on which the report for the hearing made a complete and clear analysis, I shall single out three main questions which I shall try to answer:

First question

What are the nature and scope of the decisions taken by the VCH?

Second question

Do these decisions have as their object or effect the prevention, restriction or distortion of competition?

Third question

To what commercial transactions are these decisions applicable and may they accordingly be regarded as affecting not only the cement trade in the Netherlands but trade between several Member States of the Common Market?

Paragraph 1

In the case of what may appropriately be called ‘economic cartels’, Article 85 of the Treaty distinguishes, as we know, between agreements between undertakings, decisions by associations of undertakings and concerted practices. Hitherto the Court has most often had to hear cases concerning agreements, that is to say, cartels which are the subject of negotiations between several undertakings which result in written agreements whereby producers or sellers or producers and sellers determine their mutual obligations in a given market.

The recent cases relating to the market in dye-stuffs, the subject of the Court's judgments of 14 July last, gave an example of the concept of concerted practice; without making any written agreement, undertakings adopt, generally after meetings, gatherings and discussions, a coordinated line of conduct and pursue a concerted policy which is not dictated by the state of the market but which is the outcome of a common will to act.

The decision by associations of undertakings constitutes the third type of cartel. Instead of undertakings binding themselves in law by a negotiated agreement or behaving in fact in a concerted manner, the cartel in this case takes the form of a general decision, which one might describe as of a ‘legislative’ nature, taken by a legal person (association or syndicate) embodying producers or traders, the object of which is the defence of the economic interests of its members. Decisions by associations of undertakings differ from simple agreements in that, by belonging to the association, traders, whether natural or legal persons, accept its constitution and its discipline and are bound by majority decisions adopted by the advisory or executive organs of the association. Such is the case here. Within the VCH, advisory power devolves upon the general meeting consisting in all the cement traders belonging to the association, the ordinary members. This general meeting takes its decisions by a simple majority of the members present. The executive power is held by the Board of Management, the Chairman and members of which are elected by the general meeting. This Board is authorized to adopt decisions binding on all members whether it is a question of implementing agreements made by the VCH (as was the case of the VCH contract regulating relationships between cement traders and Netherlands or foreign producers) or governing the activities of its members in accordance with the decisions taken at the general meeting, especially in the field of prices, conditions of sale, delivery, of discounts which may be given according to the quantity supplied or the means of transport used, and indeed even the nature of the purchasers: manufacturers of mortar, concrete object or articles made of asbestos cement or building undertakings.

The binding force of those decisions is ensured by a series of provisions which on the one hand enable the activities of the members to be supervised and on the other hand give to the Board the means of ascertaining that the former comply with the trade rules which have been laid down: thus members of the VCH must notify the association of any change made in the management, legal form or objects of their undertaking; they are subject to strict supervision, especially as regards the examination of accounts; if they have failed to observe the rules of the association, sanctions may be applied to them, where appropriate of a pecuniary nature (fines or periodic penalty payments) or they may be expelled from the association; lastly, all disputes which may arise between the VCH and its members or between the latter come within the exclusive jurisdiction of a court of arbitration.

Therefore decisions of a binding nature are involved, the implementation of which is ensured by means of a disciplinary system internal to the association and not only mere recommendations or directives unenforceable by sanctions.

Paragraph 2

Do these trade decisions come within Article 85 of the Treaty in the sense that their object or effect is to restrict competition?

Basing its argument on economic factors and the characteristics of the market in cement, the applicant submits that price competition is, in the present instance, of merely secondary importance:

— first, because the effect of the price of cement on the total cost of a building project is extremely small; this argument was emphasized especially by one of the representatives of the VCH during the oral proceedings;

— secondly, because the quality and safety guarantees implied in strict compliance with the rules of the association are enough to dissuade consumers from seeking cements which are cheaper but from indeterminate sources—customers have strong brand loyalty;

— finally, because price competition is very weak even at the production stage in view of the size of the investments and of the preponderance of the capital factor.

Thus competition is exerted mainly if not exclusively with regard to the services given to customers.

These explanations have not convinced me at all. The argument based on the small effect of the prices of cement on building costs is, in my opinion, the most irrelevant which could be put forward. Would it not be possible to apply the same reasoning in fact with regard to many other materials or products considered in isolation? What matters is whether the prices are the result of effective and practicable competition or whether they are determined by means of cartels or trade rules laid down in the interest of the sellers.

In fact cement is a homogeneous product, eminently interchangeable, offered in bulk when sold in large quantities. The quality norms correspond to standards which are well-defined internationally.

In the second place the result of the high level of fixed investments in production is above all to encourage producers to use their production capacity as fully as possible, even if it entails agreeing to price reductions, at least temporarily. As the Court has heard, it is very probably less damaging, at worst, to sell at a loss than to shut down a furnace.

Therefore prices are in fact an important factor in competition in the cement market. Further, it is doubtless largely true that the rules of the VCH are a guarantee to consumers of safety and quality as well as of regularity of supplies and deliveries, but safety, quality and regularity need not necessarily be accompanied by a pricing policy which hinders competition.

However, the applicant which has admitted by implication that the system of fixed prices is incompatible with Article 85 of the Treaty, submits that on the other hand the target prices applied to supplies of cement in quantities of 100 tonnes or more escape this criticism. It relies in this respect on the fact that member traders purchase the cement at varying prices from producers and that their only obligation is to sell at a ‘demonstrable profit’, but without any specific profit margin being imposed upon them. Consequently the selling prices may themselves vary according to the level of purchase prices and it is still in the interest of the producers, especially foreign producers, to offer their products at competitive prices on the Netherlands market. The system of target prices cannot therefore be regarded as adversely affecting competition since, in contrast to the system of minimum, standard and compulsory prices, this is only an open system of calculating the cost price.

This analysis of the rules on prices laid down by the VCH does not seem to me to correspond to reality. It is, to say the least, incomplete.

First of all, the target prices, although they differ from minimum standard prices, are on that account no less binding on all the members of the association and, by preventing them from themselves determining their selling prices completely independently, limit their commercial freedom of action no less. They are prices fixed by a binding majority decision; in this respect the trade rules in question certainly come within the field of application of Article 85(1) (a) which refers expressly to cartels which ‘directly or indirectly fix purchase or selling prices or any other trading conditions’.

Likewise, the applicant imposes upon its members a set of conditions of sale the objective of which is to close the cement market. This applies particularly to their duty to obtain supplies for resale only from other member of the association or from ‘authorized resellers’ so as to exclude non-members, and to the rule under which members may not supply building undertakings with more than the quantity of cement necessary for the particular site. The VCH is in any case so well aware that these rules are vulnerable to criticism that, changing its ground, it pleads that in fact the target prices are not adhered to.

But apart from the fact that it is very difficult to subscribe to such an assertion in view of the effective means of supervision and the disciplinary arsenal at the disposal of the VCH, I can but recall the very words of Article 85 which prohibit agreements or decisions ‘which have as their object or effect’ the impairing of competition.

The result of the fact that object or effect are presented as alternatives is that there is no need to take into account the concrete effects of a cartel or a decision by an association of undertakings once it appears that it clearly has as its object the prevention, restriction or distortion of competition. That is the principle which the Court laid down in its judgment of13 July 1966 in the Grundig case and although it has distinguished its view in other decisions by pointing out that account must be taken ‘of the economic and legal context of the agreement’—Judgment of 30 June 1966 in Société Technique Minière v Maschinenbau Ulm GmbH, Case 56/65, [1966] ECR 235, and Judgment of 9 July 1969 in Franz Vôlk v Établissements J. Vervaecke, Case 5/69, [1969] ECR 295—I think that in this case the very existence of rules to which penalties are attached and which aim to organize the market in cement by enclosing traders in a tight and closely-meshed network of provisions which not only relate to prices but also to the conditions of sale and delivery sufficiently reveals the aim pursued by the VCH.

And if further evidence were necessary, it would, in my opinion, be found in the fact that the rules laid down by the VCH corresponded, even recently, both to the agreements made between Netherlands, Belgian and German producers linked to that association of traders by the VCH contract and to the organization of selling agencies by German and Belgian importers.

In fact, this is an organization of the market which aims to reserve to affiliated traders a predominant share of the market in cement and to guarantee them prices which are as remunerative as possible.

Although it is true that for some years the sector of the market occupied by outsiders has, relatively speaking, been increasing, the members of the VCH nevertheless still dominate the market since they sell 67.5 % of the quantity of cement at present consumed in the Netherlands.

I therefore advice the Court without hesitation to hold that the trade rules which are the subject of criticism come within Article 85(1) of the Treaty.

Paragraph 3

I now come to the third question: is trade between a number of Member States affected?

The applicant submits that its rules apply only to commercial transactions carried out on the territory of the Netherlands. The association in fact is only a group of Netherlands traders; therefore, it claims, it is only a national organization of the market which does not come within Community law but only national law. Besides, the importation of cement is entirely free, as no restriction is placed upon it.

These two statements are correct. On the one hand the decisions of the VCH are only binding upon cement distribution undertakings in the Netherlands: on the other hand, the effect of the recent revocation of the reciprocal exclusive dealing arrangement which the VCH contract established between traders and their national of foreign suppliers was to free imports from the Federal Republic of Germany and from Belgium.

But the VCH must admit two facts which are not in dispute:

— First, national production supplies only 67.5 % of the demand for cement in the Netherlands. It is therefore necessary to import, at all costs, more than a million and a half tonnes of cement into that country each year.

— Secondly, 67.5 % of this imported cement, or approximately a million tonnes, is sold by traders affiliated to the VCH and these sales of cement are, for this very reason, subject to the system of target prices and conditions of sale which I have just analysed.

The latter consideration appears to me to be conclusive on its own. If the Court accepts that the decisions of the VCH have as their object—and cannot fail to have as their effect—the restriction of competition between affiliated traders to the detriment of cement consumers, it is enough to find that foreign producers who wish to sell in the Netherlands are faced with an organization which is imposed upon them and that the greater part of the cement which they import is in fact handled by that organization. In order to avoid this, it would be necessary for these producers to be able to approach only outsiders, the number of whom is certainly increasing relatively but whose activities are still very far from seriously threatening the preponderant influence of the VCH. It is easy to understand that this is not possible in fact and it is significant that the traders affiliated to the VCH sell proportionately as much imported cement as cement produced in the Netherlands.

Since, therefore, the selling prices of imported cement are still determined to a large extent by the decisions of the trade association, the necessary result of this is an influence on trade patterns between the Netherlands on the one hand and the Federal Republic of Germany and Belgium on the other, in a manner which contributes to the partitioning of the market and runs contrary to the economic interpenetration required by the Treaty.

The applicant's arguments must in my opinion be rejected.

IV — Submissions as to form

It remains to examine the submission as to form put forward in the application.

The first is based on the fact that the letter of 26 January 1970 notifying the VCH of the statement of objections against it was signed only by the Director-General for Competition by delegation. It is claimed that such a delegation is unlawful.

I need only recall that the Court expressly dismissed in some of its judgments of 14 July last in the dye-stuffs cases an identical submission raised by several of the applicant undertakings.

It stated that the Director-General for Competition merely signed the notification of objections which the member of the Commission who was responsible for competition problems in the exercise of the powers which the Commission had conferred on him had previously approved. That senior official therefore acted not pursuant to a delegation of powers but by virtue of a simple authorization to sign which he had received from the member responsible. Such a delegation constitutes furthermore a measure concerning the internal organization of the departments of the Commission in accordance with Article 27 of the Provisional Rules of Procedure laid down under Article 7 of the Treaty of 8 April 1965 establishing a single Council and a single Commission.

In addition after learning of this position during the oral proceedings, the representatives of the VCH left this point to the discretion of the Court.

Secondly, the applicant complains that the Commission gave an inadequate statement of the reasons upon which its decision was based both as regards its own powers, because of the influence on trade between several Member States, and as regards the anti-competitive nature of the contested rules.

Article 190 of the Treaty certainly requires that a statement of reasons upon which the decisions of the Commission are based should be given, but the Court has held many times that this rule is complied with when the statement of reasons for a decision indicates clearly and coherently the essential grounds of fact and of law on which it is based. On the other hand the Court does not consider it necessary for the wording of the decision to repeat expressly all the points which have been argued during the administrative procedure opened under Regulation No. 17 of the Council.

In the present case the contested decision repeated word for word and in detail each of the matters raised against the VCH from the beginning of the administrative procedure since it reproduces faithfully the statement of objections notified to the applicant. The decision is in that respect reasoned in an especially full and precise manner. As for the legal grounds based on the application of these provisions of the Treaty to the facts of the case, they are clearly set out, particularly in recitals No 16 and No 17 of the preamble to the decision, both as regards the anti-competitive object of the rules concerned and the influence on trade between the Member States.

When the VCH claims, lastly, that the Commission must reply in the decision itself to the arguments put forward during the course of the administrative procedure, it is mistaken because, as I have already had occasion to say in connexion with the dye-stuffs cases, those are precisely the arguments which are relied upon in support of the application brought before the Court. The Commission must, during the procedure before the Court, discuss and refute the arguments of the applicant in its statements, if it can, but it is in no way required to do so when the administrative decision is issued.

Since none of the submissions contained in the application appear to me to be well-founded, I am of the opinion that:

— Application No 8/72 should be dismissed;

— the applicant association should bear the costs.

( 1 ) Translated from the French.