By Val Popovic and Terrance A. Barkan CEO, Association Global Services
Trade associations represent an important platform for gathering information and exchanging experience among member companies. Because these member companies normally operate in the same business sector, there is a potential risk to the association under European Union (EU) competition law. This type of legislation is having an impact on large U.S. companies that have operations, suppliers or clients in Europe. However, "for-profit" companies are not the only potential targets of EU competition law: trade associations are also subject to this legislation. International trade associations and other "not-for-profit" entities working globally must be aware of EU competition law and its impact on governance and operational issues. Here are six areas of concern as they apply to the association environment.
The risk and the consequences of infringement of EU competition law can be significant.
Some common trade association activities and member behaviors can place an organization in a vulnerable position regarding EU competition law.
- Trade associations should take steps to ensure transparency among member companies so they do not inadvertently create an anti-competitive environment. Practices – like the identification of potentially confidential, competition-sensitive information related to individual member companies, information about their transactions and the routine exchange of information that has a competition-enhancing effect (improved products, lower prices, etc.) – can be subject to competition law. Gathering of statistical information, market research, the exchange of opinion or experience, assessment of the overall economic situation in the industry, and even benchmarking, can lead to exposure.
- When sharing and comparing best practices of members, trade associations ought to ensure that the general exchange of experiences does not result in coordinated market conduct by the members (e.g. price fixing). Member organizations should be regularly informed to avoid any discussions of pricing, terms and conditions among members.
- If members of a trade association reach an agreement during a meeting of the association that violates competition law (even through spontaneous remarks), the association can be fined for merely providing the "forum" for the infringement. Agreements for price fixing, production fixing, terms and conditions of credit and sales, market sharing, group boycotts, resale price maintenance and so on are all subject to legislative control. Trade associations should be aware that spontaneous remarks and suggestions that might lead to proposals for specific joint market conduct need to be avoided.
- Recommendations from the association can also lead to uniform conduct in the market by its members creating an infringement risk. This is the case even if the recommendation is labeled as non-binding. The association should ensure its recommendations are compatible with EU competition law prior to issuing any recommendation or statement.
- Discriminatory membership rules may lead to competition concerns. Rules that restrict association access, prohibit member companies from joining alternative organizations, or restrict members from terminating their membership are all covered under this legal framework. The rationale here is that membership in a trade association may be essential for a company to compete in a specific market.
- An important role of any trade association is to keep its members updated on specific issues and developments relevant to their industry. Statements made by the association on specific issues may influence members to stop conducting business with certain parties. The European Commission may consider this practice a boycott measure. Not every single call by a trade association to its members to stop their business with other companies will necessarily result in a competition law infringement. However, there is usually a fine line between the permitted exercise of the trade association's activities and the prohibited call for a collective boycott.
International trade associations should be aware that the European Commission can fine them up to 100% of the total profit generated by the association in the previous financial year for a single violation of competition law. There have already been numerous cartel cases before the European Court of Justice (ECJ) involving illegal conduct in the context of meetings of trade associations, as these associations acted as platforms or starting points for causing competition law infringement (ex: Dutch Building Trade Association, Dutch Federation of Crane Rental Companies (FNK), Spanish Commercial Transport Association).
Currently, the best remedy is prevention. Trade associations and their member companies have begun to implement "compliance programs." These programs can include rules on internal organization, compliance guidelines, training sessions for management and staff, information sessions for member companies, and procedural checklists.
Every association working (or planning to work) in the EU must take steps to mitigate the impact of competition laws. Appropriate governance guidelines and organizational rules will protect them from the risk of any future violation. Such guidelines should be drafted internally with the support of local legal counsel or a qualified EU-established AMC.
Terrance Barkan is the CEO of Association Global Services (AGS) which provides trade and professional associations, not-for-profit organizations, federations and foundations, with a high quality, professional management and consulting service. This paper was prepared by Mr. Valeriu Popovici, an AGS European public affairs specialist.