Treaty on the Functioning of the European Union - Research Paper

Essential Facts in the Case

The European Union commission adopted a decision relating to a preceding under article 101 of the Treaty on the functioning of the European Union and Article 53 of the EEA agreement on the 19th of July 2016 ("Treaty on the Functioning of the European Union," n.d.). The commission was, therefore, supposed to publish the names of the parties and the main content of the decision which included any penalties imposed on them having regard to the individual party's legitimate interest of protecting their business interests according to the provisions of Article 30 of Council Regulation No 1/2003. The main issue in the case was the single and continued violation of Article 101 of the treaty on the functioning of the European Union and Article 53 of the EEA agreement by MAN, Daimler, Iveco, Volvo/Renault, and DAF thus leading to adverse effects to the economies of the involved countries. Following the application for immunity on the 20th of September 2010 by MAN, the commission had to carry out inspections between the 18th and 21st of January 2011, at the various truck producers ("Treaty on the Functioning of the European Union," n.d.). Following the inspections, Volvo/Renault applied for fines reduction on the 28th January 2011 and Daimler and Iveco followed on the 10th of February at 10:00 Am and 22:22 Pm respectively. However, on the 20th day of November 2014, the Commission initiated proceedings against DAF, Daimler, Iveco, MAN and Volvo/Renault pursuant to article 11(6) of the EC regulation No 1/2003 and then adopted a statement of objectives that it notified the parties. But after the statement of objectives adoption, the parties approached the commission formally and asked the commission to carry out the case under the settlement procedure and the commission agreed to launch the settlement of the cases upon the confirmation by the parties that they would engage in the discussions ("Treaty on the Functioning of the European Union," n.d.).

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Decision of the Case

The accusations on the parties were that the products involved in the infringements were those trucks that weighed between 6 and 16 tones and those that weighed more than 16 tones as both are rigid trucks and thus referred to as trucks collectively. The case, however, did not touch on other services offered on the trucks, aftersales services, and sale of the trucks or warranties for the trucks. The second breach was that the violations consisted of collusive arrangements regarding pricing and gross price increases in the EAA for trucks. Therefore these collusive agreements included agreements and practices on pricing and gross price increase with the aim of aligning the prices with the gross prices in the EEA as well as the passing on of the costs for the introduction of emission technologies that were needed by the EURO 3 to 6 standard trucks.

It is after this agreement that DAF, MAN, Iveco, and Vault/Renault submitted their formal request to settle the issues to the commission pursuant to Article 10a (2) of the Commission Regulation No. 773/2004. It is as a result of the discussions that the Advisory Committee on Restrictive Practices and Dominant Positions issued an opinion that was favorable to the parties on the 18th of July 2016 and the commission adopted the decision later on the 19th of the same month. The decision stated that the parties had participated in a plot and thus they bear liability for it as they had violated Article 101 of the treaty during the various periods they had been accused. However, Volvo/Renault was granted partial immunity in the application of Point 26 of fines guidelines for a period between 17th of January 1997 and the 15th of January 2001. With the application of the 2006 Guidelines on Fines, it imposed fines on all the parties apart from MAN that had been exempted since it had reported the existence of the cartel to the commission ("Treaty on the Functioning of the European Union," n.d.).

In regard to the setting of fines, the relevant undertakings of the sale of medium and heavy-duty trucks in the EEA prior to the end of the infringement were taken into consideration by the commission. Also, the fact that price coordination is among those harmful restrictions of competition, the high market share of the involved parties in the European market for their medium and heavy trucks, the duration of the infringement as well as the fact that this infringement covered the whole of the EEA were considered by the commission when applying fines on the parties. It is therefore with such considerations by the Commission that MAN was granted full immunity from fines, Daimler was granted a 30% reduction, Volvo/Renault was granted a 40% reduction and Iveco was granted a reduction in fines of 10% and upon the application of the settlement notice, a further fine reduction of 10% for all parties on fines was implemented ("Treaty on the Functioning of the European Union," n.d.). Therefore the parties suffered the fines of EUR 0 for MAN, EUR 670 448 000 for Volvo, EUR 1 008 766 000 for Daimler, EUR 494 606 000 for Iveco and DAF suffered a fine of EUR 752 679 000.

Effect of the Truck Producers Behavior to Consumers and Competition

The behaviors displayed by these companies are likely to harm competition as well as consumers as the truck producers were involved in activities that had been prohibited by the treaty on the functioning of the European Union and Article 53 of EEA that prohibits cartels and other restrictive business cartels. A cartel can be said to be an anti-competitive arrangement made by two or more competing businesses like the Truck producers and such anti-competitive arrangements that make up cartels affect consumers as well as competition in the market when compared to those other businesses that are not part of the agreement (Bishop & Walker, 2010). This is because a cartelized industrial sector like one created by the trade producers lacks competition which reduced competitiveness in the long run and also has an overall effect on the performance of the economy of a country.

Price fixing that was practiced by the truck producers was aimed at fixing, controlling and maintaining the prices of the trucks that they produced (Bishop & Walker, 2010). This practice resulted in an agreed selling price of the trucks, agreed on minimum prices as well as rebates that affect the consumers as they may end up being exploited by the cartel businesses as they do not enjoy the right prices in the market. Consumers could also be affected by this decision by the truck producers to form a cartel as they are not in the position to enjoy a variety of products as the companies may not allow competitive market forces to work. Therefore, the consumers and even businesses will have to pay more for the trucks, and thus distort the economic markets as well as slow innovation within a country since the companies will not take part in research and development as they do not face challenges in the market (Bishop & Walker, 2010).

Another negative effect that the behaviors by the truck producers could have on the consumers is that there will be lack of transparency in the market regarding their products as the companies may decide to hide prices or withhold information such as hiding some charges in the credit cards of the consumers and this would affect them in a great way. Also, consumers may be affected by this behavior as the companies may agree to limit the level of output in the market as well as carve up markets by agreeing to partition the markets into regions to avoid competing with each other. Such practices result in poor quality products as well as exploitation.

The Economic Implications of the Decision

The decision by the EEA commission to impose a fine on the truck producers for colluding to form an illegal cartel had a number of economic implications to the individual countries that the companies operated as well as on the companies themselves (Bishop & Walker, 2010). First, the fines imposed on the companies saw them shun away from the vice and thus brought sanity in the markets as consumers could get the trucks at the right prices without getting exploited as in the case when the companies had colluded. With this, customers used the surplus in other activities that grew the economies of the member states instead of going to the individual companies. Also, the fining made the companies work independently, and thus competition has begun in the market. With the competition, it was possible to get high-quality products as every company tried to manufacture trucks that were better than those of its competitors', thus encouraging research and innovation among the companies (Bishop & Walker, 2010). On the side of the companies fined, the decision also affected them economically as they lost money that could be used to expand their products were it not for the dubious acts they engaged in.

Conclusion

In conclusion, it is clear that the above mentioned companies had violated the EEA agreement by forming a cartel that manned their business operations as the cartel had adversely affected the economy of the member countries. It was therefore right for the decision taken by the Commission to fine them to make sure that such cartels were abolished and business run in an appropriate environment.

References

Bishop, S., & Walker, M. (2010). The Economics of EC competition law: Concepts, application, and measurement. London: Sweet & Maxwell.

Treaty on the Functioning of the European Union. (n.d.). European Union Treaties: Treaty on European Union Treaty on the Functioning of the European Union. doi:10.5040/9781472561862.ch-002