2007/236/EC: Commission Decision of 20 October 2004 relating to a proceeding under Article 81(1) of the EC Treaty (Case COMP/C.38.238/B.2) — Raw tobacco — Spain (notified under document number C(2004) 4030)
Date: 2004-10-20
Institutions: European Commission
Subjects: Spain, cartel, fine, infringement procedure (EU), price agreement, restriction on competition, tobacco, unlawful agreement

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(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 20 October 2004

relating to a proceeding under Article 81(1) of the EC Treaty
(Case COMP/C.38.238/B.2) — Raw tobacco — Spain

(notified under document number C(2004) 4030)

(Only the Spanish, English and Italian texts are authentic)

(2007/236/EC)

On 20 October 2004, the Commission adopted a Decision relating to a proceeding under Article 81 of
the EC Treaty.
In accordance with the provisions of Article 30 of Council Regulation (EC) No
1/2003 (1), the Commission herewith publishes the names of the parties and the main content of
the Decision, including any penalties imposed, having regard to the legitimate interest of undertakings in
the protection of their business secrets. A non-confidential version of the full text of the decision can be
found in the authentic languages of the case and in the Commission's working languages at DG COMP
website at http://europa.eu.int/comm/competition/index_en.html

SUMMARY OF THE DECISION

1. INTRODUCTION

The decision deals with two horizontal infringements, one by
processors and the other by representatives of producers of raw
tobacco in Spain.

concerns

agreements

infringement

The processors’
and/or
concerted practices between the four undertakings engaged in
the first processing of raw tobacco in Spain, namely Compañía
española de tabaco en rama, SA (Cetarsa), Agroexpansión SA
(Agroexpansión), World Wide Tobacco España (WWTE) and
Tabacos españoles SL (Taes) (hereinafter referred to collectively
as the processors) and Deltafina SpA (Deltafina, an Italian
processor), either directly or,
through
the association ANETAB. The object of this secret cartel was
to fix each year, between 1996 and 2001, the (maximum)
average delivery price for each variety of raw tobacco and to
share out the quantities of each variety of raw tobacco that were
to be bought. During the last three years, the processors also
agreed among themselves the price brackets per quality grade of
each raw tobacco variety that are given in the schedules
annexed to the ‘cultivation contracts’ and the additional
conditions applicable (i.e.
the average minimum price per
producer and per producer group).

from 1999 onwards,

(1) OJ L 1, 4.1.2003, p. 1.

concerns

agreements

infringement

The producers’
and/or
concerted practices between the three agricultural unions in
Spain (2): ASAJA, UPA and COAG and the Confederation of
Agricultural Cooperatives CCAE (3)
referred to
collectively as the producer representatives). The object of this
cartel was to fix each year, between at least 1996 and 2001, the
price brackets per quality grade of each raw tobacco variety that
are given in the schedules annexed to the ‘cultivation contracts’
and the additional conditions applicable.

(hereinafter

2. ORIGIN OF THE CASE AND PROCEDURE

The Commission started this
ex officio procedure with
inspections at the premises of several Spanish processors and
other market participants between 3 and 5 October 2001.

By letter of 16 January 2002, the four Spanish processors and
their association ANETAB announced that they were committed
to cooperating with the Commission in the proceedings under
the terms of the 1996 leniency notice and supplied various
memoranda giving evidence on the facts at issue. They also
informed the Commission that, as of 3 October 2001, they
had put an end to their practices.

(2) Asociación agraria de jóvenes agricultores

(ASAJA), Unión de
pequeños agricultores (UPA) and Coordinadora de organizaciones
de agricultores y ganaderos (COAG).

(3) Confederación de cooperativas agrarias de España (CCAE).

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During the procedure, several requests were addressed to the
parties concerned,
including one to the Spanish Ministry for
Agriculture, Fisheries and Food (the Agriculture Ministry)
regarding the Spanish rules governing agricultural products.

On 11 December 2003, the Commission initiated proceedings
in this case and adopted a Statement of Objections (hereinafter
SO) to which the addressees were given the opportunity to
reply in writing and at the oral hearing which was held on
29 March 2004.

3. PARTIES

3.1. Processors’ side

The decision is addressed to the four Spanish processors
(Cetarsa, Agroexpansión, WWTE and Taes) and Deltafina as
well as to the parent companies of some of these companies.

Cetarsa is a public undertaking that held until 1990 a legal
monopoly in the processing of raw tobacco in Spain.
It is
still
in 2001
the largest Spanish processor, having bought
some 67,6 % of the raw tobacco bought in Spain that year.

WWTE’s
addressees
behaviour of the subsidiaries.

and Agroexpanión’s parent

are
for being jointly and severally liable of

companies

also
the

Intabex

and ANETAB.

Following the hearing of the parties, the Commission decided to
close the proceedings against Universal Corporation, Universal
Leaf,
For Universal Corporation,
Universal Leaf and Intabex, the Commission considered that it
had not sufficient evidence of their exercising decisive influence
on Deltafina and Taes (as far as Universal Corporation and
Universal Leaf are concerned) and Agroexpansión (as far as
Intabex is concerned). Liability is nonetheless found in respect
of Dimon, Agroexpansión’s ultimate parent. For ANETAB, the
Commission considered that it did not have sufficient evidence
that ANETAB’s behaviour was distinct from the behaviour of its
four member companies.

3.2. Producers’ side

The decision is also addressed to three agricultural union or-
ganisations (ASAJA, UPA, and COAG) and the confederation of
agricultural
tobacco
producers.

cooperatives, CCAE,

representing

all

Agroexpansión was set up in 1988 by its chairman as a family-
run enterprise.
In the first half of 1997 the firm Intabex
Netherlands BV (Intabex), a wholly owned subsidiary of
Dimon Inc., (Dimon), acquired all the capital. In 2001 Agroex-
pansión bought around 15 % of the raw tobacco bought in
Spain that year.

Following the hearing of the parties, the Commission decided to
close the proceedings against FNCT, ACOTAB and TABARES,
having concluded that they acted as sectoral branches of ASAJA
(as far as FNCT is concerned) and UPA (as far as ACOTAB and
TABARES are concerned).

Since May 1998 WWTE has been some 90 %-controlled by the
US multinational Standard Commercial Corporation (SCC)
through two wholly owned subsidiaries: Standard Commercial
Tobacco Co., Inc., (SCTC) and Trans-Continental Leaf Tobacco
Corporation (TCLT). From 1995 to May 1998, SCC, through
TCLT, held two thirds of WWTE's capital.
In 2001 WWTE
bought around 15,7 % of the raw tobacco bought in Spain
that year.

4. THE SECTOR CONCERNED: SPANISH RAW TOBACCO

The production of raw tobacco in the EU represents approxi-
mately 5 % of raw tobacco production worldwide. Greece, Italy
and Spain are the leading Member States in terms of tobacco
produced, covering 38 %, 37,5 % and 12 % of the production in
the EU respectively. Production of raw tobacco in the EU is
subject to a quota system (see below).

Taes is a subsidiary of the Universal Corporation Group. Until
Inc.,
December 2002 Universal Leaf Tobacco Company
(Universal Leaf), a wholly owned subsidiary of Universal
Corporation, held 90 % of Tae’s
shares. Since December
2002, Taes is a wholly owned subsidiary of Universal Leaf. In
2001 Taes bought around 1,6 % of the raw tobacco bought in
Spain that year.

is

Raw tobacco, as produced by growers, is not a homogeneous
product. Community law recognises eight different varieties. In
Spain, Bright
the most common variety. Within each
category, different quality grades can be distinguished. Determi-
nation of the grades is left to the industry and, ultimately, to
private negotiation. After drying, producers sell the tobacco to
processors in batches whose price differs depending on the
quality of the tobacco they contain.

is

the wholly owned subsidiary of Universal
Deltafina
Corporation in Italy and hence the sister company of Taes. It
is responsible for the activities of the Universal group in Europe.
It purchases most of the tobacco bought by Taes in Spain as
two other Spanish processors’
well as a significant part of
tobacco.

5. THE REGULATORY FRAMEWORK

Both the production of raw tobacco and its sale to processors
are subject to regulation under Community and national law.

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5.1. The CMO for raw tobacco

The common organisation of the market in raw tobacco (CMO
for raw tobacco) was established in 1970 by Council Regulation
(EEC) No 727/70 (1). It was replaced in 1992 by Council Regu-
lation (EEC) No 2075/92 (2) and substantially amended in 1998
by Council Regulation (EC) No 1636/98 (3) and Commission
Regulation (EC) No 2848/98 (4).

(i) a
The CMO in the raw tobacco sector provides
support of producers’
production quota
income through a premium system for the production of raw
tobacco.

system and (ii)

for

Premium is only granted in respect of tobacco produced within
the quota (with certain adjustments). Since 1998, the payment
of part of the Community premium (so-called variable part) has
been linked to the quality of the tobacco produced which is
reflected in the price. The payment of the variable part of the
premium is entrusted to the producers’ groups.

The CMO requires each producer or producers’ group and each
first processor to enter into so-called ‘cultivation contracts’ at
the start of each year’s campaign (around March-May, when
tobacco seedlings are transplanted) where they agree on
‘contract prices’
for each quality grade for each individual
this stage, prices are often expressed as a price
variety. At
range.
In Spain, contract prices are in fact expressed as a
series of price brackets for the various quality grades of a
tobacco variety (e.g. Bright). The price brackets
particular
featuring in the cultivation contracts are quite wide. To note,
however, that the final price (or delivery price) can only be
determined when the harvest takes place (i.e. between October
and January) and can vary significantly from the cultivation
contract price, depending on quality, quantities and further
bargaining.

Community law favours the creation of
inter-branch organ-
should
isations within which producers
cooperate for the efficient operation of the market. Practices
consisting of
the fixing of prices and quotas are expressly
forbidden. None of the associations involved in this case are
inter-branch organisations within the meaning of Community
law.

and processors

5.2. National legislation

In Spain, a 1982 Law and a Royal Decree of 1985 discipline the
bargaining and the conclusion of standard cultivation contracts
between producers’ representatives and processors. The purpose
of this overall regulatory framework (to include the action taken
by the Agriculture Ministry thereafter) was (until the year 2000)
to at least encourage joint negotiations between producers and

(1) OJ L 94, 28.4.1970, p. 1. Regulation as last amended by Regulation

(EEC) No 860/92 (OJ L 91, 7.4.1992, p. 1).

(2) OJ L 215, 30.7.1992, p. 70. Regulation as last amended by Regu-
lation (EC) No 864/2004 (OJ L 161, 30.4.2004, p. 48. Corrected by
OJ L 206, 9.6.2004, p. 20).
(3) OJ L 210, 28.7.1998, p. 23.
(4) OJ L 358, 31.12.1998, p. 17. Regulation as last amended by Regu-

lation (EC) No 1809/2004 (OJ L 318, 19.10.2004, p. 18).

processors on the cultivation ‘contract prices’. Since 2000, a
new law requires that the parties to cultivation contracts must
individually agree the contract prices.

6. PRACTICES ADDRESSED IN THE DECISION

6.1. The processors’ cartel

The four Spanish processors and Deltafina agreed on the
(maximum) average price they would pay at delivery for each
variety of tobacco,
irrespective of quality grades ((maximum)
average delivery price) and the quantities of tobacco that each
them could buy. By so doing the processors aimed at
of
avoiding that negotiation with producers at delivery could
push prices beyond the level they would consider acceptable.
The period covered by the decision is 1996-2001. Since 1998,
they also put
in place a sophisticated monitoring and en-
infor-
forcement mechanism (including regular exchanges of
mation and mandatory transfers of tobacco) concerning their
respective behaviour during delivery. As from 1999 to 2001,
processors also agreed among themselves the ‘contract prices’
(price brackets and additional conditions) which they would
then propose to producer representatives during the negotiation
of the annual standard cultivation contract.

6.2. The producers’ cartel

The producer representatives agreed on the ‘contract prices’
(price brackets and additional conditions) which they would
the
then propose to processors during the negotiation of
standard cultivation contract.

As to the additional price conditions, they take the form of
as per
minimum average prices per producer
producers group for each variety of tobacco,
irrespective of
the various quality grades. To note that, by their very nature,
average minimum prices per producers group would still be
open to increase following negotiation at delivery.

as well

7. LEGAL ASSESSMENT

In the decision,
the practices
the Commission finds
described above constitute two separate (single and continuous)
infringements of Article 81 of the Treaty.

that

All the participants in the infringements to which the decision
is addressed are undertakings, associations of undertakings or
associations of associations of undertakings within the meaning
of Article 81 of the Treaty.

and/or

Agreements
concerted practice which directly or
indirectly fix transaction prices or share quantities are by their
very object
restrictive of competition. These conducts are
specifically envisaged under Article 81(1) of the EC Treaty.

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to have an
Such conducts are capable, at
impact on the trade between Spain and other Member States,
as they cover the entirety of the Spanish market and relate to a
product
(raw tobacco) which is an intermediate product of
processed tobacco, a product which is largely exported.

least potentially,

accounts for 12 % of the Community production. The size of
the market is rather small (in 2001 the value of tobacco bought
in Spain was around EUR 25 million) and quite concentrated in
one region of Spain: Extremadura.

The decision addresses the issue of the application of Council
Regulation No 26 of 4 April 1962 applying certain rules on
and trade
competition to production of
in agricultural
products (1)
to the practices which are
(Regulation No 26)
being considered. It concludes that the restrictive practices at
issue cannot be regarded as being ‘necessary’ for the attainment
of the objectives of the Common agricultural policy and are
therefore fully subject to the application of Article 81(1) of
the Treaty.

Finally, the decision concludes that neither national law nor the
Ministerial practice obliged the processors to agree on the
maximum delivery average price for raw tobacco or to share
out quantities of
tobacco to be bought by each processor.
Moreover, such regulatory framework did not require processors
and producers to agree collectively on the ‘contract prices’ (price
brackets or additional conditions) nor did it remove all possi-
bility of competitive behaviour on their part. Consequently, the
agreements and/or concerted practices between the producer
representatives, on the one hand, and the processors, on the
other, are caught by Article 81(1) of the Treaty.

8. LIABILITY OF DELTAFINA AND THE MOTHER COMPANIES
OF WWTE AND AGROEXPANSIÓN

The decision finds that Deltafina fully participated in the
processors’ cartel, in spite of not being an active processor in
Spain, by playing a preponderant role in the Spanish raw
tobacco market by virtue of several circumstances, among
which: 1.
its being the most important customer of three of
the Spanish processors, 2. its being the ultimate biggest buyer
of tobacco in Spain and 3.
its being the subsidiary of the
Universal group responsible for the European market.

However, the nature of the infringements is considered as very
serious, since it concerns the fixing of the prices of the varieties
of raw tobacco in Spain and (as far as the processors are
concerned) the sharing out of quantities.

Although the Commission does not possess conclusive evidence
of the actual effects of the producers’ and processors’ infringe-
ments on the market; it can be said that at least since 1998, the
processors’ cartel was fully implemented and enforced and was
liable to have a real impact on the market.

the Commission
the considerations above,
On the basis of
concludes that both infringements must be qualified as very
serious. The Commission however takes account of the rela-
tively limited size of
the market when setting the starting
amount of the fines.

9.2. Individual weight and deterrence

(i) As far as the processors’ cartel

is
concerned, the Commission considers that fines should be
scaled down in consideration of the contribution to the
illegal conduct of and the market position enjoyed by
each party involved.

(to include Deltafina)

in mind,

that
Bearing this
Deltafina should receive the highest starting amount
for
its prominent market position as explained above under 8.

the Commission concludes

The decision also finds that Dimon (for Agroexpansión) and
SCC, TCLT and SCTC (for WWTE) exercised decisive influence
on their subsidiaries during the period considered and should
therefore be held jointly and severally liable for their subsidiary’s
conduct.

The contribution to the illegal conduct by the Spanish
processors can be broadly taken as having been similar.
The starting amounts should however take into account
the different size and the market shares of each processor
involved.

9. FINES

9.1. Gravity of the infringement

In assessing the gravity of the infringements, account must be
taken of the fact that the production of raw tobacco in Spain

(1) OJ 30, 20.4.1962, p. 993/62.

With a market share of around 67 % of the market for the
purchase of Spanish raw tobacco, Cetarsa is by far the
leading Spanish first processor and should be placed in a
category of its own and receive the highest starting amount
of the fine. Agroexpansión and WWTE have both market
shares of approximately 15 % each and should receive the
same starting amount of
fine. Finally, Taes, by far the
smallest processor involved, with a market share of only
1,6 % should receive the lowest starting amount.

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As Agroexpansión and WWTE are part of large groups that
are also addressees of the Decision, a multiplying factor is
applied to their fines to ensure sufficient deterrence of 2 and
11/2 respectively.

— COAG

— CCAE

EUR 1 000;

EUR 1 000.

(ii) Concerning the producer

the
Decision concludes that only a symbolic fine is appropriate
for the following reasons.

representatives’ behaviour,

tobacco.

Although the applicable national rules did not require the
producer representatives and the processors to agree jointly
on the price brackets and the additional conditions, the
standard ‘cultivation contracts’ negotiated between 1995
and 1998 mentioned that all the producer representatives
would negotiate jointly with each individual processor the
price schedules and the additional conditions relating to the
In 1999 the Agriculture Ministry even
sale of
approved the price schedules that had already been nego-
tiated jointly by all the producer representatives and the
four processors. These schedules were annexed to the
‘standard’ contract published in the Official Gazette that
in 2000 and 2001 the Agriculture Ministry
year. Lastly,
invited the representatives of the two sectors to a number
of meetings — some of which were held at the Ministry
itself — with a view to agreeing on the price schedules. In
so doing, the Ministry did at least encourage the producers
joint negotiations on those
to press ahead with their
schedules.

of

the

collective

negotiation

On this basis, the Decision accepts that the legal framework
surrounding
standard
agreements could engender a considerable degree of uncer-
tainty as to the legality of the conduct of the producers.
Moreover, the existence and the results of the negotiations
in the public
on standard contracts were generally well
domain and no authority ever questioned their compatibility
with either Community or Spanish law before these
proceedings started.

imposes

fine of
The Decision therefore
EUR 1 000 on each producer representative.
In view of
the application of a symbolic fine to producer represen-
tatives, the application to them of other criteria for setting
fines becomes irrelevant.

symbolic

a

In view of the above, the starting amount of the fines in this
case is set as follows:

— Deltafina

EUR 8 000 000;

— Cetarsa

— WWTE

EUR 8 000 000;

EUR 1 800 000 × 1,5 = 2 700 000;

— Agroexpansión

EUR 1 800 000 × 2 = 3 600 000;

9.3. Duration of the infringement

The restrictive practice involving the processors and Deltafina
lasted more than five years and four months. Therefore, the
fines of each producer should be increased by 50 %.

The following basic amounts of the fines are therefore witheld:

— Deltafina

EUR 12 000 000;

— Cetarsa

— WWTE

EUR 12 000 000;

EUR 4 050 000;

— Agroexpansión

EUR 5 400 000;

— Taes

EUR 300 000.

9.4. Aggravating circumstances

The documents in the Commission’s file actually prove that
Deltafina took the lead in designing,
implementing, enforcing
and arbitrating the agreements on (maximum) average delivery
prices and quantities concluded between the processors after
the processors’
1996.
anticompetitive
the basic
For
amount of the fine imposed on Deltafina should be increased
by 50 %.

the repository of

It also acted as

agreements.

reasons

these

9.5. Attenuating circumstances

The Spanish regulatory context in which the restrictive practices
and agreements took place applies as an attenuating circum-
stance for the processors in respect of
their agreement on
price brackets and additional conditions which preceded the
public negotiation of
the standard cultivation contract with
the producers’ representatives.

In respect of their secret agreement on (maximum) average
delivery prices and share-out of quantities, the conduct of the
legal
processors went beyond the scope of
the public negotiations and agreements with
framework of
the producers’
the Commission
considers that
the public negotiations determined to some
extent the material framework for the conduct of the processors
and therefore is to be considered as an attenuating circumstance
for the processors.

representatives. However,

the relevant

— Taes

— ASAJA

— UPA

EUR 200 000;

EUR 1 000;

EUR 1 000;

For these reasons, the overall attenuating effect of the circum-
stances discussed above is to be taken, as far as processors’
conduct is concerned, as leading to a reduction of 40 % of
the basic amount of
the fines which would be otherwise
applicable to the processors (to include Deltafina).

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The amount of the fines after taking into consideration the
aggravating and the attenuating circumstances are as follows:

— Deltafina

EUR 13 200 000;

— Cetarsa

— WWTE

EUR 7 200 000;

EUR 2 430 000;

— Agroexpansión

EUR 3 240 000;

— Taes

— ASAJA

— UPA

— COAG

— CCAE

EUR 180 000;

EUR 1 000;

EUR 1 000;

EUR 1 000;

EUR 1 000.

9.6. Upper limit to the fine

Article 23(2) of Regulation (EC) No 1/2003 provides that for
each undertaking and association of undertakings participating
in the infringement the fine shall not exceed 10 % of its total
turnover in the preceding business year.

In the present case SCC, SCTC, TCLT and Dimon,
in their
capacity of parent companies of WWTE and Agroexpansión,
are jointly liable for the fines imposed on their subsidiaries
and their worldwide turnover must be taken into account in
order to determine the 10 % limit.

As Cetarsa’s 2003 annual turnover amounted to EUR 48,42
million,
the fine imposed on it should be reduced to EUR
4,842 million. The fines imposed on all the other addressees
do not need any adjustment in this respect

9.7. Application of the 1996 Leniency Notice

Both processors and producer representatives have applied for
leniency under the terms of the Commission notice on the non-
imposition of fines in cartel cases of 1996 at different stages of
the investigation.

Cetarsa, Agroexpansión, WWTE, Taes and Deltafina have
claimed the benefits of the 1996 Leniency Notice before the
issue of the Statement of Objections and have provided the
Commission with information mainly as regards the market
applicant’s
functioning,
and the
context of the facts at issue.

restrictive

activities

the

In consideration of its particularly valuable cooperation during
the procedure (especially insofar as the involvement of Deltafina
is concerned) and of the fact that it never contested the facts as
set out in the Statement of Objections, Taes should be granted a
40 % reduction of the fine that would have been imposed if it
had not cooperated with the Commission in accordance with
the first and second indent of Section D(2) of
the 1996
Leniency Notice.

of

the

In consideration
the
Commission but given the fact that they contested the facts
in their replies to the Statement of objections, Cetarsa and
WWTE are granted a 25 % reduction of the fine.

information provided

to

of

the

information provided

the
In consideration
Commission but given the fact that it contested the facts and
the secret nature of the processors’ cartel
in its reply to the
Statement of objections, Agroexpansión is granted a 20 %
reduction of the fine.

to

Finally, in view of the limited value of its cooperation with the
Commission throughout the procedure, Deltafina is granted a
10 % reduction of the fine.

By way of conclusion the amounts of the fines to be imposed
pursuant to Article 23 of Regulation (EC) No 1/2003 are set as
follows:

— Deltafina

EUR 11 880 000;

— Cetarsa

— WWTE

EUR 3 631 500;

EUR 1 822 500
(SCC, SCTC and TCLT to be jointly and
severally liable);

— Agroexpansión

EUR 2 592 000
(Dimon to be jointly and severally liable);

— Taes

— ASAJA

— UPA

— COAG

— CCAE

EUR 108 000;

EUR 1 000;

EUR 1 000;

EUR 1 000;

EUR 1 000.