EUR-Lex - 31978D0921 - EN

(d) The existence of a joint venture in one field provides opportunities and inducements to parent companies who have related interests also in other areas to enlarge their common activities so as to impair competition between them also in those other areas. In this case, both parties have, apart from their activity in the joint venture, also other overlapping, related and competitive interests, notably in the fields of explosives in general, accessories for explosives and in particular in the manufacture and sale of safety fuse. This coincidence of activities and interests of the parties in other areas can be expected to lead to an impairment of competition between them also in these other areas. So far as ICI is concerned, participation on their part was motivated not solely by a sharing in the production of blackpowder, but also by an intent to establish an association with WASAG with a view to its subsequent enlargement into other related markets outside the field of blackpowder, including the market for safety fuse. In respect of safety fuse, ICI is the only manufacturer and supplier in the United Kingdom and WASAG is the only manufacturer in the Federal Republic of Germany and each party could have been regarded as the other's natural potential competitor in the other's national home market and throughout the Community. The combined safety fuse production of ICI and WASAG amounts to more than 60 million metres per annum, double the aggregate production of all other safety fuse producers in the Community. Through the control of the operations of the joint venture the parties would knowingly give themselves opportunities and strong inducements for cooperation in aligning their prices and in the sharing of markets for safety fuse. Moreover, the parties would jointly control the quantities and prices of any blackpowder to be sold by the joint venture for safety fuse production by any third-party competitors. ICI have stated (appendix 6 of the letter of 16 March 1976) that "it remains quite possible that NEC might at some future date seek to supply WASAG's safety fuse requirements".

(e) All the foregoing restrictive effects are significantly underlined by the considerable importance of the parties on the affected markets within the Community.

1. (a) The parties have argued in correspondance and at meetings that the notified agreements, if implemented, would not restrict competition. They submitted that, even in the absence of the notified agreements, the only possible supplier of blackpowder of acceptable grades and varieties and on acceptable terms for the entire or substantially entire United Kingdom demand was and would be likely to remain WANO. In addition, except in the case of the smaller countries, national markets within the Community were traditionally supplied by their national suppliers. So far as blackpowder for defence uses was concerned, this position was founded on military security reasons. Moreover, in general, the transport and storage of blackpowder was closely controlled by national regulations. These imposed requirements which non-national suppliers found it difficult and impractical to meet, mainly for reasons of cost. It was submitted for example that WANO could not, independently of ICI, export blackpowder direct into the United Kingdom. From this the parties concluded that there was no actual competition now and no real potential for future competition to be restricted by the notified agreements if these were put into effect. The relevant arguments of the parties have been the following: (i) even in the absence of ICI participation in WANO and in the absence of contractual commitments towards WANO, ICI would have no practical alternative to purchasing its blackpowder requirements for the United Kingdom demand from WANO. WANO had the only plant which was capable of supplying the right qualities of blackpowder for safety fuse, blasting, fireworks, propulsion and other applications which were suitable to meet United Kingdom demand;

(ii) so far as military requirements were concerned, the United Kingdom Ministry of Defence were insisting that these were fulfilled by WANO ; firstly, because only WANO could meet the specifications and, secondly, because WANO was an approved supplier to the Ministry of Defence and supplies from other sources would raise military security problems.

(b) The foregoing submissions are at variance with and are in all essential respects rebutted by the following: (i) manufacturers of blackpowder in France and Italy, namely, Société nationale des poudres et explosifs (SNPE), and SIPE Nobel Spa (SIPE) have stated to the Commission that they are able and willing to supply blackpowder (including sulphurless powder for military applications) for United Kingdom requirements. Both these companies have considerable overcapacities and have confirmed that they can supply blackpowder, also to meet any likely new specification requirements, for military and civil uses. During 1975 and 1977, SNPE supplied in four separate shipments a total of 2 550 kg of cartridge blackpowder for the United Kingdom. While the quantities concerned were relatively small, they were not entirely insignificant and tend to show that United Kingdom demand does not by its nature need to be wholly dependent on blackpowder available from WANO and also that it is not necessarily uneconomic to ship small quantities. ICI have themselves conceded in response to a direct question put to them by the Commission that blackpowder of suitable grades for fuse, blasting and fireworks applications could be supplied from Italy and for fireworks and blasting uses from France. Blackpowder for these uses represents a high proportion of the total United Kingdom blackpowder demand (see I (4) (b) (ii) above). But in this regard, ICI have in general terms referred to "transportation, security and economic factors" which made these other sources of supply "impractical" (1);

(ii) the alleged importance, stressed by ICI, of the security aspects of the importation into the United Kingdom of blackpowder for military uses is negatived by statements made by the United Kingdom Ministry of Defence according to which foreign supplies do not raise security problems;

(iii) so far as transport is concerned, all suppliers of blackpowder need to conform to public safety requirements and regularly take these into account. WASAG, SNPE and SIPE have geographically widespread markets and are accustomed to have their blackpowder dispatched by road, rail and sea. Apart from its inland distribution facilities in the United Kingdom, ICI operate two 500 tonne coasters which regularly carry explosives by sea. According to ICI, in response to Commission enquiries, shipments of explosives, including blackpowder, on the ICI coasters are made from time to time between United Kingdom ports and, for example, Rouen, Bremen, Hamburg, Lisbon, Barcelona and Norwegian and Finnish ports.

(c) The parties' submission therefore, according to which there is no likely prospect of potential competition for the supply for United Kingdom demand of blackpowder on the part of Community manufacturers other than WANO, is an assesment which cannot be sustained. While in past years the control by ICI within the United Kingdom of transportation, storage and distribution facilities for blackpowder may well have had the effect of precluding or of substantially limiting the marketing of blackpowder other than that of ICI's choice, it is apparent that there exists a demand for blackpowder within the United Kingdom for which suppliers other than WANO could compete, particularly if ICI were to be left free as a merchant to market blackpowder also from such suppliers.

1. Contrary to the submission of the parties, the agreements, if implemented, would affect trade between Member States in respect of all the restrictions referred to in II (2) above and, in particular, as follows. (a) The current demand for blackpowder in the Community is estimated at about 2 800 tonnes per annum, approximately as follows: (1)ICI letter of 29 June 1977.

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Blackpowder is currently manufactured in Community countries approximately as follows: >PIC FILE= "T0012855">

number of reasons, a competitive Community market for blackpowder did not exist prior to the making of the notified agreements and would not be likely to come about in the foreseeable future, so as to be affected by the notified agreements. These submissions raise in substance the points outlined in II (3) (a) above and cannot be sustained for the reasons set out in II (3) (b) above.

(d) Even if it were assumed that the circumstances put forward by the parties amounted at present to insuperable or near-insuperable obstacles to independent imports into the United Kingdom, this submission does not meet the Commission's case that ICI, in implementing the notified agreements and in participating in the joint venture, would: (i) no longer leave itself free to purchase blackpowder for resale on the best terms from time to time available from any source, whether WANO or not ; and

(ii) increase and ensure the continuation of the difficulties faced by independent importers.

1. The effect of the restrictions on competition outlined above would be likely to be appreciable because: (a) both parties are groups of significant industrial importance;

(b) both have considerable financial resources;

(c) WASAG controls a substantial share of the supply of and each party controls a substantial share of the distribution facilities for blackpowder in the Community ; and

(d) the product of the proposed joint venture is an essential homogeneous commodity in a highly oligopolistic market.

1. Article 85 (1) therefore applies to the notified agreements.

III. APPLICABILITY OF ARTICLE 85 (3)

Under Article 85 (3) of the Treaty, the provisions of Article 85 (1) of the Treaty may be declared inapplicable in the case of any agreement which contributes to the improvement of the production or distribution of goods or to the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not : (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

1. The implementation of the agreements would afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question in that the implementation of the agreements would result in the insulation of the United Kingdom market by precluding sales into the United Kingdom by suppliers other than WANO and by shutting out all possibilities of competition by WANO in respect of sales into the United Kingdom which are independent of ICI.

1. Accordingly, questions of contribution to the improvement of the production or distribution of goods or to the promotion of technical progress do not fall to be considered, although the parties have submitted that Article 85 (3) should be applied to the agreements. However, they have not demonstrated that the production of blackpowder would be improved as a result of the agreements. Although the parties initially alleged in their notification that the pooled technology and resources of ICI and WASAG would enable manufacture on a scale sufficient to justify developing new processes, it was later admitted that no really new processes were likely for the manufacture of blackpowder (1). The composition and method of manufacture of blackpowder have remained essentially the same for centuries and no radically new process or methods of manufacture can reasonably be expected to occur by reason of the joint venture. Although the supply by WASAG of all or part of the United Kingdom market for blackpowder would enable an increased rate of use of its plant and on the assumption (which has not been demonstrated) that this could result in economies of scale, these could be obtained independently of any participation by ICI in the capital of WANO.

1. The parties have also claimed that the implementation of the notified agreements would lead to a greater security of supply for blackpowder and that, in particular, ICI's participation in the joint venture was necessary for it to obtain suitable supplies of blakpowder and to guarantee supplies of suitable qualities to its customers in the United Kingdom and elsewhere. Security of supply in these circumstances, in which there are considerable under-used production capacities, is not a benefit sufficient for the purposes of Article 85 (3). The structure of the industry is such as to exclude any probability of long-term shortage.

1. Even on the asumption (which is not fulfilled) that the agreements, if implemented, could contribute to an improvement in the production or distribution of goods or to the promotion of technical or economic progress, a fair share of any such benefits would not become available to consumers. The result of the agreement would be to enable ICI, an existing monopoly distributor of blackpowder in the United Kingdom, also to become, jointly with WASAG, a monopoly producer of blackpowder for the United Kingdom. In that position ICI would be subject to negligible competitive pressure to pass on to the consumer any savings made by increased efficiency.

1. The agreements do not therefore satisfy the tests of exemption of Article 85 (3).

IV

In the agreements it was provided that they would not come into operation until approved by the Commission, but the parties in one important respect have been acting as if they were already in force. ICI have been buying from WANO and this necessarily affects the position of other suppliers.

Under the circumstances there remains an interest for the Commission to establish clearly, in particular for the benefit of third parties, that the agreements in question came under Article 85 (1) and could not benefit from the exempion under Article 85 (3). This decision is without prejudice to any view that the Commission may take of any other arrangement which the parties may make in the future,

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