2006/901/EC: Commission Decision of 20 October 2005 relating to a proceeding under Article 81(1) of the EC Treaty (Case COMP/C.38.281/B.2 — Raw tobacco Italy) (notified under document number C(2005) 4012)
Date: 2005-10-20
Institutions: European Commission
Subjects: Italy, economic concentration, fine, infringement procedure (EU), merger control, price agreement, tobacco

13.12.2006

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Official Journal of the European Union

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COMMISSION DECISION

of 20 October 2005

relating to a proceeding under Article 81(1) of the EC Treaty

(Case COMP/C.38.281/B.2 — Raw tobacco Italy)

(notified under document number C(2005) 4012)

(Only the English and Italian texts are authentic)

(2006/901/EC)

SUMMARY OF THE DECISION

1.

Introduction

On 20 October 2005, the Commission adopted a decision
relating to a proceeding under article 81 of the EC Treaty (the
‘Decision’). In accordance with the provisions of Article 30 of
Regulation 1/2003,
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 web-site at http://
europa.eu.int/comm/competition/index_en.html.

From 1995 until the beginning of 2002 four major Italian
processors of raw tobacco, namely Deltafina, Dimon (now
renamed Mindo), Transcatab and Romana Tabacchi hereinafter
collectively referred to as ‘the processors’) entered into agree-
ments and/or participated into concerted practices aimed at
fixing the trading conditions for the purchase of raw tobacco in
Italy (in respect of both direct purchases from producers and
purchases from third packers), including price fixing and market
sharing.

The Decision also considers two separate infringements, which
took place at least between the beginning of 1999 and the end of
2001, consisting of the fixing by the professional association of
Italian tobacco processors (Associazione Professionale Trasformatori
Tabacchi Italiani, hereinafter ‘APTI’) of contract prices which it
would negotiate, on behalf of its members, for the conclusion of
Interprofessional Agreements with the Italian confederation of
associations of raw tobacco producers, Unione Italiana Tabacco,
(‘UNITAB’), and the fixing by UNITAB, of the prices which it
would negotiate, on behalf of its members, with APTI for the
conclusion of the same agreements.

2.

Origin of the case and procedure

Having received certain information on the existence of sector-
wide agreements setting price ranges for distinct qualities of one
or more varieties of raw tobacco, on 15 January 2002 the
Commission addressed requests for information to the proces-
sors’ and the producers’ trade associations (APTI and UNITAB
respectively) which replied on 12 February 2002.

On 19 February 2002, the Commission received an application
for leniency from Deltafina S.p.A. (‘Deltafina’, the leading Italian
processor) under
the then newly adopted
Commission notice on immunity from fines and reduction of
fines in cartel cases (the ‘Leniency Notice’). On 6 March 2002 the
Commission granted Deltafina conditional immunity status in
pursuance of point 15 of the Leniency Notice.

the terms of

On 4 and 10 April 2002 the Commission received other two
Leniency applications from Dimon S.r.l. (‘Dimon’) and Transca-
tab S.p.A. (‘Transcatab’) respectively.

On 18-19 April 2002, the Commission carried investigations at
the premises of Dimon, Transcatab Trestina Azienda Tabacchi S.
p.A. (‘Trestina’) and Romana Tabacchi s.r.l. (‘Romana Tabacchi’).

its
The Commission informed Dimon and Transcatab of
intention to apply reductions to them at
the
the end of
procedure (within bands of 30 %-50 % and 20-30 % respec-
tively) on 8 October 2002.

On 25 February 2004, 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 22 June 2004.

An Addendum to the SO of 25 February 2004 (hereinafter also
referred to as ‘Addendum’) was adopted on 21 December 2004.
A second oral hearing was thus held on 1 March 2005.

3.

Parties

3.1.

Processors’ side

Deltafina is the Italian wholly owned subsidiary of Universal
Corporation (‘Universal’), the world biggest tobacco merchant. In
2001 (the last full year of the processors’ infringement), Deltafina
bought some 25 % of Italian raw tobacco. Both Deltafina and
Universal are addressees of the Decision

Dimon and Transcatab were, at the time of the infringement, the
Italian wholly owned subsidiaries of,
respectively, Dimon
Incorporated (‘Dimon Inc’) and Standard Commercial Corpora-
tion (‘SCC’), i.e. the second and third biggest tobacco merchants.

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Since September 2004, Dimon has changed its name into Mindo
S.r.l (‘Mindo’) and is no longer part of the Dimon Inc. group.
Dimon Inc. and SCC have merged on 13 April 2005 to form
Alliance One International
In 2001, Dimon
Inc.
bought some 11,28 % and Transcatab 10,8 % of raw tobacco
produced in Italy. Mindo, Transcatab and Alliance are addressees
of the Decision.

(‘Alliance’).

5.

The Regulatory Framework

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

Romana Tabacchi is a family owned company. Until 1997, it
acted as the agent of an international dealer (which was then
acquired by Dimon Inc.). Since 1997,
it operates as an
independent dealer. In 2001, Romana Tabacchi bought 9,5 %
of raw tobacco produced in Italy.

5.1.

The CMO for raw tobacco

The CMO in the raw tobacco (1) sector provides for (i) a
production quota system and (ii) support of producers’ income
through a premium system for the production of raw tobacco.

APTI is the Italian association of processors of raw tobacco.
APTI’s members are 17, out of a total of 59 processors in Italy.

3.2.

Producers’ side

UNITAB Italia is the Italian confederation of tobacco producers’
associations, representing some 80 % of all producers.

4.

The sector concerned: Italian 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.

Raw tobacco is not a homogeneous product. In Italy, Burley and
Bright are the most common varieties. Within each category,
different quality grades can be distinguished. After drying,
producers sell the tobacco to processors in batches whose price
differs depending on the quality of the tobacco they contain.

Italian processors of
raw tobacco buy raw tobacco from
producers and producers’ associations in Italy (as well as
conditioned tobacco from other intermediaries), and process
(or re-process) it, and resell it in suitable form to the tobacco
manufacturing industry in Italy and worldwide. They are known
also as ‘first processors’ for their being first at processing tobacco
(as opposed to the second processing done by the cigarettes
manufacturers) or ‘tobacco leaf merchants’ for their role of
intermediaries between the producers and the final product
manufacturer.

The expression ‘exporter’
is generally employed in respect of
processors who have threshing equipment, which allows to
produce the finished processed product (strips) sought by the
cigarette manufacturers. Processors which are only able to
produce loose leaves are called ‘third packers’ or simply ‘packers’.
After their initial treatment (e.g. removal of
impurities and
sorting) packers forward the tobacco to exporters for further
treatment so that tobacco can be offered to manufacturers. The
the Decision qualify as
processors which are addresses of
‘exporters’.

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 variety. At this stage,
prices are often expressed as minimum prices or a price range. 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 organisa-
tions within which producers and processors should co-operate
for the efficient operation of the market. Prices and quota fixing
are however expressly forbidden. None of
the associations
involved in this case is an inter-branch organisation within the
meaning of Community law.

5.2.

National legislation

In Italy, Law 88/88 regulating interprofessional (meaning sector-
wide) agreements, cultivation contracts and sales of agricultural

(1) Council Regulation (EEC) No 727/70 of 21 April 1970 on the
common organisation of the market in raw tobacco, hereinafter
‘Regulation 727/70’
(OJ L 94, 28.4.1970, p. 1) as amended by
Council Regulation (EEC) No 2075/92 of 30 June 1992 on the
common organisation of the market in raw tobacco, hereinafter
‘Regulation 2075/92’ (OJ L 215, 30.7.1992, p. 70) (last amended by
Council Regulation (EC) No 864/2004 of 29 April 2004 (OJ L 161,
30.4.2004, p. 48)). See also Council Regulation (EC) No 1636/98, of
20 July 1998 amending Regulation 2075/92, hereinafter ‘Regulation
1636/98’ (OJ L 210, 28.7.1998, p. 23) and Commission Regulation
(EC) No 2848/98 of 22 December 1998 laying down detailed rules
for the application of Council Regulation 2075/92 as regards the
premium scheme, production quotas and the specific aid to be
granted to producer groups in the raw tobacco sector, hereinafter
‘Regulation 2848/98’ (OJ L 358, 31.12.1998, p. 17), as last amended
by Commission Regulation (EC) No 1983/2002 of 7 November
2002 (OJ L 306, 8.11.2002, p. 8).

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products. More specifically, Article 5(1)(b) of law 88/88 provides
that interprofessional agreements must determine the product
concerned by the agreement, the modalities and the timing for its
delivery and the minimum price. Incentives (especially in terms
of preferential aid) are offered to producers and processors
complying with the terms of interprofessional agreements. Law
88/88 has found application in a number of agricultural sectors,
including tobacco, where APTI and UNITAB concluded a
number of interprofessional agreements (providing for cultiva-
tion contract prices expressed in the form of minimum prices or
price ranges) between 1999 and 2001.

6.

Practises addressed in the decision

6.1.

The processors infringement

From 1995 until the beginning of 2002 Deltafina, Dimon,
Transcatab and Romana Tabacchi entered into agreements and or
participated into concerted practices aimed at fixing their trading
conditions for the purchase of raw tobacco in Italy (to include
both direct purchases from producers and purchases from third
packers), including: (a) The setting of common purchase prices
which processors would pay at the delivery of tobacco and other
trading conditions; (b) the allocation of suppliers and quantities;
(c) the exchange of information to co-ordinate their competitive
purchasing behaviour; (d) the determination of quantities and
prices in respect of surplus production; and (e) the co-ordination
of bids for public auctions in 1995 and 1998.

6.2.

APTI’s infringement

From 1999 and until the end of 2001 APTI determined its
negotiating position in respect of prices for each quality grade of
each tobacco variety to be agreed with UNITAB in the context of
the conclusion of the Interprofessional Agreements.

6.3.

UNITAB’s infringement

From 1999 and until the end of 2001 UNITAB determined its
negotiating position in respect of prices for each quality grade of
each tobacco variety to be agreed with APTI in the context of the
conclusion of the Interprofessional Agreements.

case affected fundamental aspects of their competitive conduct
and was also by definition capable of affecting the behaviour of
the same companies in any other market in which they compete,
including downstream markets. These conducts are specifically
envisaged under Article 81(1) of the EC Treaty.

Such conducts are capable, at least potentially, to have an impact
on the trade of raw tobacco between Italy and other Member
States, as they cover a significant amount of the purchases of
Italian raw tobacco and relate to a product (raw tobacco) which is
an intermediate product of processed tobacco, a product which is
largely exported.

The Decision addresses the issue of the application of Council
Regulation No 26 of 4 April 1962 (applying certain rules on
competition to production of and trade in agricultural products
— ‘Regulation No 26’)
to the practices which are 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
administrative practice obliged the processors to agree on the
average or maximum purchase 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’ nor
did it remove all possibility of competitive behaviour on their
part. Consequently, the agreements and/or concerted practices of
representatives, on the one hand, and the
the producer
processors, on the other, are fully caught by Article 81(1) of
the Treaty.

8.

Liability of the mother companies of deltafina,

Transcatab and dimon

The Decision also finds that Universal (for Deltafina), Dimon Inc.
(for Dimon) and SCC (for Transcatab) exercised decisive
influence on their subsidiaries during the period considered
and should therefore found to be jointly and severally liable for
their subsidiary’s conduct.

7.

Legal assessment

9.

Fines

In the Decision,
the practices
described above constitute three separate (single and continuous)
infringements of Article 81 of the Treaty.

the Commission finds that

9.1.

imposed in respect of UNITAB’s and APTI’s

Fines
infringements

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

Concerning the producers
representatives’
behaviour, the Decision considers that a fine of only EUR 1 000
is appropriate.

and processors

Agreements and/or concerted practices which directly or
indirectly fix transaction prices or share quantities are by their
very object restrictive of competition. More specifically, co-
ordination by the processors of their purchasing conduct in this

Although the conclusion of Interprofessional Agreements under
the terms of Law 88/88 was not mandatory and in fact no
Interprofessional Agreement was entered for several years, Law
88/88 (as further applied in the administrative practice of the
Ministry), created incentives for the conclusion of Interprofes-

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sional Agreements containing minimum prices. It should also be
considered that Law 88/88 had found application in several
instances in the agricultural sector before the conclusion of the
Interprofessional Agreements discussed in this Decision, includ-
ing in the tobacco sector, and the behaviour of the parties
negotiating them had never been challenged under either
national or Community law, notwithstanding these agreements
were in the public domain and communicated to the Ministry.

participation in the infringement is taken to have lasted for
more than 2 years and 9 months.

For these reasons, the basic amount of the fines to be imposed in
this case should be set as follows:

9.2.

Fines imposed in respect of the processors’ infringement

— Deltafina
— Transcatab
— Dimon (Mindo)
— Romana Tabacchi

EUR 60 000 000
EUR 20 000 000
EUR 20 000 000
EUR 12 500 000

9.2.1.

G r a v i t y o f

t h e p r o c e s s o r s’

i n f r i n g e m e n t

9.2.4.

A t t e n u a t i n g c i r c u m s t a n c e s

The nature of the processors’ infringement is considered to be
very serious, since it concerns the fixing of the prices of the
varieties of Italian raw tobacco and the sharing of quantities.
Buying cartels can in fact distort producers’ willingness to
generate output as well as limit competition amongst processors
in downstream markets. This is particularly so in cases like the
present one, where the product affected by the buying cartel (raw
tobacco) constitutes a substantial input of the activities carried
out by participants downstream (the first processing and sale of
processed tobacco in this case). The production of raw tobacco in
the Community in-quota
Italy accounts for some 38 % of
production. The overall
this production was
Eur 67,338 million in 2001 (the last full year of infringement).

value of

9.2.2.

I n d i v i d u a l w e i g h t a n d d e t e r r e n c e

The Commission considers that fines to the four processors
involved should be set in consideration their market position. A
higher starting amount should apply in respect of Deltafina as it
appears to be the bigger purchaser with a market share of around
25 % in 2001 (full last year of the infringement). In consideration
of their smaller shares in the market of raw tobacco in Italy
(between, 8,86 and 11,28) Transcatab, Dimon and Romana
Tabacchi should be grouped together and receive lower starting
amounts.

As Deltafina, Transcatab and Dimon (now Mindo) are (or, in the
case of Mindo, used to be) part of large groups that are also
addressees of the Decision, a multiplying factor will be applied to
their fines to ensure sufficient deterrence.

An attenuating circumstance is recognised in favour of Romana
Tabacchi for not taking part in certain aspects of the cartel and
for acting against the purpose of the cartel to the point of
causing the other participants’ joint reaction against it.

Mitigating effect is also recognised to Deltafina’s effective co-
operation during the proceedings. As explained below, Deltafina
has forfeited its entitlement to immunity from fines under the
terms of the Leniency Notice. However, in consideration of the
exceptional circumstances of this case (being this the first case
where an application under the Leniency Notice was made and
the first where a decision applies it), Deltafina’s co-operation
should be favourably taken into consideration. Deltafina’s
cooperation was indeed substantial and continued throughout
the procedure (with the exception of the facts discussed below)
and should therefore attract the application of a mitigating factor.

9.2.5.

U p p e r l i m i t

t o t h e f i n e

The 10 % turnover limit set out under Article 23(2) of Regulation
(EC) No 1/2003 does not appear to be exceeded in this case in
respect of
fines to be imposed on Universal/Deltafina and
Alliance/Transcatab-Mindo. However, as Mindo does no longer
maintain any link with the former Dimon group, its joint and
several liability should be apportioned within the 10 % of its
turnover in its most recent business year (i.e. Eur 2,59 million).

Reduction within the 10 % is necessary in respect of Romana
Tabacchi.

For these reasons, the starting amount of the fines in this case is
set as follows:

The resulting amounts are therefore as follows:

— Deltafina
— Transcatab
— Dimon (Mindo)
— Romana Tabacchi

EUR 37 500 000
EUR 12 500 000
EUR 12 500 000
EUR 10 000 000

— Deltafina
— Dimon (Mindo)
— Transcatab
— Romana Tabacchi

EUR 30 000 000
EUR 20 000 000
EUR 20 000 000
EUR 2 050 000

9.2.3.

D u r a t i o n o f

t h e i n f r i n g e m e n t

9.3.

Application of the Leniency Notice

lasted for
Deltafina’s, Dimon’s, Transcatab’s
approximately 6 years and 5 months. Romana Tabacchi’s

infringement

Deltafina, Dimon and Transcatab applied for leniency under the
terms of the 2002 Leniency Notice (see above under section)

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9.3.1.

D e l t a f i n a’s a p p l i c a t i o n f o r i m m u n i t y

The Leniency Notice makes the granting of
immunity
conditional upon the fulfilment of the cumulative conditions set
out in point 11 of the Notice. In particular point 11(a) requires
immunity) to
undertakings (having been granted conditional
cooperate ‘fully, on a continuous basis […]’.

final

At the oral hearing of 22 June 2004 it became apparent that
Deltafina had divulged its Immunity application on the occasion
of a meeting of APTI’s managing committee which was also
attended by representatives of Dimon, Transcatab and Trestina.
Such disclosure occurred before the Commission had an
opportunity to carry out the investigations and was well capable
of jeopardising them.

The Decision concludes that by so acting Deltafina breached the
co-operation obligation to which it was bound by virtue of point
11(a) of the Leniency Notice. Accordingly, immunity cannot be
granted to Deltafina.

In reply to Deltafina’s defence on this point,
the Decision
confirms that point 11(a) of the Leniency Notice includes a duty
to keep the immunity application confidential, which is justified
by the need to ensure that
the subsequent
investigations which the Commission needs to carry out be
not compromised. Deltafina was aware of the Commission’s
intention to carry out surprise investigations. Inspection were
actually organised and occurred as announced to Deltafina at a
meeting between Deltafina and the Commission services.

the result of

A certain degree of difficulty in keeping an immunity application
confidential is inherent in all cases where a cartel participant
decides to apply for immunity. However, any such difficulty (or
the fact of having informed the Commission of it) does not
licence the immunity applicant
to voluntarily disclose its
immunity application at meetings with competitors.

9.3.2.

D e l t a f i n a’s
r e d u c t i o n o f

a l t e r n a t i v e
t h e f i n e

a p p l i c a t i o n f o r

Deltafina’s application for immunity also included an application
for a reduction of the fine which would have been otherwise
applicable to it in this case, strictly subject to ‘rejection by DG
Comp of its application for full immunity’.

The Decision (based on the tenor of the Leniency Notice, as well
as on its teleological and systematic interpretation), finds that
subsidiary applications for reduction can only be accepted in
cases where conditional immunity cannot be granted at the time
an application is made and loses any legal value once conditional
immunity is granted. Given that Deltafina was initially granted
conditional immunity and lost it for breaching the cooperation
obligations to which it was subject, it cannot benefit from a
reduction of the fine.

9.3.3.

A p p l i c a t i o n o f
D i m o n a n d T r a n s c a t a b

t h e L e n i e n c y N o t i c e

t o

the non application of

The Decision concludes that
final
immunity to Deltafina does not have any direct bearing on the
way the Leniency Notice should apply to Dimon and Transcatab.
In particular, the Leniency Notice does not warrant any up-
grading of
final
immunity to Deltafina.

following withholding of

their positions

Both Dimon and Transcatab are found to have complied with the
conditions imposed on them by virtue of their application for
reduction. Upon assessment of the evidence supplied to the
Commission and their co-operation with the Commission during
the procedure, the Decision awards Dimon and Transcatab with
the highest level of reduction which is envisaged within the
brackets which were indicated to them following their applica-
tions for reduction (i.e. 50 % and 30 % respectively).

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

— Deltafina and Universal,

jointly

EUR 30 000 000

and severally,

— Dimon (Mindo) and Alliance One

EUR 10 000 000

International,
Alliance One International being responsible for the whole,
Mindo only being jointly and severally liable for EUR
3,99 million

— Transcatab and Alliance One
International, jointly and severally

EUR 14 000 000

— Romana Tabacchi
— APTI
— UNITAB

EUR 2 050 000
EUR 1 000
EUR 1 000