Climate change, the world over, continues to be a pressing threat to humanity. The Kyoto Protocol was entered into force in 2005, with the intent of reducing the onset of global warming (then at 0.58°C above normal). Despite this, the year 2024 is on track to be the warmest year on record at 1.54°C above normal. Much more must be done to abate carbon emissions to avert catastrophic warming within the next decade. In line with the Paris Agreement, countries have made varying commitments to reducing their respective countries’ greenhouse gas emissions as part of climate change mitigation. Singapore, for its part, has pledged to achieve net zero emissions by 2050 and reduce emissions to around 60 metric tons of carbon dioxide equivalent (MTCO2e) in 2030.
The ability to meet commitments stipulated, whether by international organizations or local governments, are contingent on environmental sustainability initiatives (such as circular economy and recycling initiatives) being undertaken. Such initiatives cannot be undertaken in isolation and often require collaboration to achieve collective objectives. With collaboration, another critical area of the law hit upon is competition or antitrust laws. Competition law has an important role in ensuring that such collaboration does not stifle the functioning of healthy and competitive markets or operate as a guide for anti-competitive conduct. Without clear guidance, individuals and organizations may mistakenly assume that all forms of collaboration to achieve environmental sustainability objectives are pro-competitive, resulting in violations of competition law (whether inadvertent or otherwise). Conversely, collaboration on environmental sustainability objectives should not be deterred by competition law and result in a chilling effect on the promotion of climate action. Aptly, the International Chamber of Commerce had observed in 2022 that competition law had a chilling effect on environmental sustainability objectives, with businesses citing the “lack of sufficient clarity and comfort” around competition law as the primary reason.
This article explores the developments in how competition law in Singapore has evolved to allow in finding the optimum balance between preserving healthy competition and encouraging progress towards environmental sustainability objectives.
In Singapore, the Competition Act 2004 (“Competition Act”) governs the application of competition law and regulates the conduct of market players. The Competition and Consumer Commission of Singapore (“CCCS”) administers and enforces the Competition Act. In particular, Section 34 of the Competition Act prohibits agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition within Singapore, unless exempted pursuant to (amongst others) a net economic benefit exclusion (“Net Economic Benefit”). The Net Economic Benefit exclusion exempts an agreement which restricts competition appreciably from Section 34 of the Competition Act if the agreement generates economic benefits (e.g. lower costs, wider distribution or increased innovation), the economic benefits cannot be achieved without the agreement and its concomitant restrictions and competition is not eliminated in a substantial part of the relevant market.
Collaborations between undertakings on environmental sustainability objectives are, at their core, agreements which fall within the ambit of Section 34 of the Competition Act. It is not uncommon for undertakings, especially competitors in the same industry, to collaborate where none of the undertakings has the scale or resources to independently carry out the activity in question, where collaboration is necessary to achieve results quickly and at scale, or to overcome a first mover disadvantage. Such collaboration may entail information sharing, joint activities (such as joint production or joint research and development (“R&D”)) and standards setting or development. If done correctly, collaboration can promote competition by improving consumer choice and product interchangeability, ultimately generating positive externalities for the environment.
Drawing from decisions in the European Union, the European Commission approved voluntary commitments made in 1999 by the Association of Japanese Automobile Manufacturers and the Association of Korean Automobile Manufacturers to achieve an average target of 140 grams of carbon dioxide (CO2) per kilometer for cars sold in the EU by 2009. Importantly, these commitments did not require individual manufacturers to meet specific targets. Manufacturers could choose whether to apply stricter or more relaxed CO2 emission standards to their cars and were free to independently develop and introduce new CO2-efficient technologies, as long as the average target was met. A review of the effectiveness of the voluntary commitments in 2007 indicated that emissions from the average new car fell from approximately 190 CO2 per kilometer in 1999 to 170 CO2 per kilometer in 2004, which was primarily due to improvements in car technology.
It follows that undertakings which seek to collaborate to achieve environmental sustainability objectives must ensure that the collaboration can withstand competition law scrutiny. As with all forms of collaboration, it is important that the collaboration does not become a conduit for cartelistic conduct, which can have deleterious consequences on progress towards environmental sustainability. For instance:
(a) A prominent 2021 decision in the EU involved Daimler, BMW and the Volkswagen group, which colluded for more than five years to limit the harmful nitrogen oxide emissions cleaning capabilities of their cars to the minimum required under EU law despite possessing the technology to clean better. As a result, consumers were unable to purchase less polluting vehicles, bringing the EU no closer to achieving its Green Deal objectives.
(b) In another decision in 2017, the European Commission fined three recycling companies, Campine, Eco-Bat Technologies and Recylex, for colluding to lower the prices that they paid to scrap dealers to purchase used automotive batteries. The used automotive batteries would then be processed by the recycling companies into recycled lead, which would then be sold to battery manufacturers to produce new car batteries. The collusion disrupted the efficient and competitive functioning of the circular economy of automotive batteries in the EU.
In both decisions, the European Commission found that the undertakings involved had infringed Article 101 of the Treaty on the Functioning of the European Union. The European Commissioner for Competition, Margrethe Vestager, unequivocally stated that “Competition and innovation… are essential for Europe to meet our ambitious Green Deal objectives… we will not hesitate to take action against all forms of cartel conduct putting in jeopardy this goal”.
While there have not been any infringement decisions issued by CCCS in relation to collaborations between undertakings on environmental sustainability objectives, CCCS adopts a similar strict stance towards collaborations which are collusive or cartelistic and would clearly violate Section 34 of the Competition Act.
Apart from wielding competition law as a sword to ensure that collaborations which are contrary to Singapore’s environmental sustainability objectives are prohibited, CCCS arguably uses competition law as a shield to advance Singapore’s environmental sustainability objectives. The former entails the traditional application of competition law principles and the formulation of theories of harm to prohibit collaborations which are anti-competitive, while the latter explores how collaborations can be “shielded” from competition law prohibitions where they support sustainability. This is most evident from CCCS’ issuance of the Environmental Sustainability Collaboration Guidance Note (“Guidance Note”) in March 2024, which is discussed in the next section.
The Guidance Note, which “aims to afford greater clarity to businesses on how CCCS will assess collaborations pursuing environmental sustainability objectives”, is therefore a welcome development in markets relating to environmental sustainability in Singapore. In fact, there have already been collaborations relating to environmental sustainability objectives – for instance, a consortium of beverage producers comprising Coca-Cola Singapore Beverages, F&N Foods and Pokka have jointly incorporated a not-for-profit company to operate a beverage container return scheme in Singapore pursuant to a request for proposals from the government.
The Guidance Note focuses on seven common types of business collaborations, namely: (i) information sharing, (ii) joint production, (iii) joint commercialization, (iv) joint purchasing, (v) joint R&D, (vi) standards development and (vii) standard terms and conditions in contracts. CCCS makes clear that the Guidance Note applies only to collaborations which have as their crux the pursuit of environmental sustainability objectives. This is necessarily fact-specific, and the determining elements are the “starting point and main focus of the collaboration, and the degree of integration of the different functions required in order to pursue the stated environmental sustainability objective”. Consequently, such collaborations can benefit from the “shield” and potentially fall outside of the scope of Section 34 of the Competition Act.
It is important to note that the Guidance Note does not provide undertakings with a safe harbor. Rather, CCCS adopts a light touch approach in allowing undertakings to assess their collaborations with reference to the Guidance Note and decide whether the collaborations comply with the Competition Act. There is also no statutory requirement for undertakings to notify their collaborations to CCCS. Undertakings may nevertheless apply to CCCS for guidance under Section 45 of the Competition Act or for a formal decision under Section 46 of the Competition Act that their collaborations are compliant with the Competition Act. Indeed, given the scale of the collaboration between Coca-Cola Singapore Beverages, F&N Foods and Pokka, the collaboration was voluntarily notified to CCCS, marking the first collaboration to be assessed under the Guidance Note.
To aid undertakings in the self-assessment process, the Guidance Note sets out the following categories of collaborations which are “unlikely to raise competition concerns or are indeed excluded” from Section 34 of the Competition Act:
(a) Agreements that do not affect factors of competition, such as collaborations which do not involve factors of competition, including price, quantity, quality, choice of innovation of goods or services supplied;
(b) Agreements which none of the undertakings involved in could do independently, for instance, in circumstances where the undertakings involved do not have all the necessary technical capabilities or lack the necessary scale to individually undertake the activity;
(c) Vertical agreements, which are statutorily excluded from the application of the Competition Act; and
(d) Agreements to comply with law or in acting on behalf of the government.
The Guidance Note also sets out various forms of collaboration in which competition concerns are less likely to arise if certain conditions are fulfilled. In relation to standards development and information sharing in the form of a joint industry database or resource of environmentally sustainable suppliers, the Guidance Note recognizes that both forms of collaboration can help to reduce information asymmetry, build consumer trust and improve consumer choices, which in turn lead to a shift in consumption patterns towards more environmentally sustainable goods and services.
In line with the European Commission, collaborations on standards development and a joint industry database in Singapore would typically fall outside the scope of competition law if the collaborations are not used for exclusionary purposes. The Guidance Note states the following:
(a) For standards development, competition concerns are less likely to arise if (i) the standards are established objectively, (ii) the development process is transparent and inclusive, (iii) no commercially sensitive information that is unnecessary for the collaboration is exchanged, (iv) participation in the development and adoption of the standards is voluntary and non-discriminatory and (v) businesses are not prevented from exceeding the standards or developing alternative standards.
(b) For joint industry databases or resources, competition concerns are less likely to arise if (i) access to the database is open and non-discriminatory for both users and suppliers of the database, (ii) the database is compiled based on transparent, non-discriminatory and objective evidence-based criteria, (iii) no commercially sensitive information is exchanged via the database, (iv) participants in the collaboration are not obliged to purchase from, or prevented from dealing with, suppliers listed in the database and (v) other suppliers are not unjustifiably excluded from being listed on the database.
In addition to the above, the Guidance Note also considers the circumstances where competition concerns are less likely to arise in relation to joint production, joint commercialization and joint R&D. Here, two cumulative conditions must be fulfilled: the collaboration must not facilitate cartelistic conduct and the collaborating undertakings have aggregate market shares of less than 20% in the relevant market. The following circumstances also apply depending on the type of collaboration:
(a) For joint production of a common input, the collaboration is less likely to give rise to competition concerns if it (i) does not result in the collaborating undertakings having a significant proportion of common costs for the production of the competing product downstream and (ii) does not involve the exchange of commercially sensitive information.
(b) For joint commercialization, such as joint distribution through sharing logistical capacities or joint advertisement, the collaboration is less likely to give rise to competition concerns if it (i) does not involve joint determination of the prices or quantity of the product that each undertaking will sell, (ii) does not result in the collaborating undertakings having a significant proportion of common costs and (iii) does not involve the exchange of commercially sensitive information.
(c) For joint R&D, the collaboration is less likely to give rise to competition concerns if (i) the collaborating undertakings are not already engaged in independent R&D on the same or competing products and do not have the capabilities to conduct the full R&D process independently, (ii) the collaboration does not involve an agreement to restrict the pace of R&D, innovation and new product development, (iii) the collaboration does not remove a maverick competitor or innovator from the relevant market or (iv) there are multiple viable ongoing alternative R&D projects undertaken by competing innovators which can produce close substitutes to the collaborating undertakings’ resulting product or technology.
In all, the Guidance Note acknowledges the positive externalities brought about by collaborations on environmental sustainability objectives. Importantly, in operating as a shield, the Guidance Note recognizes that such collaborations may be necessary to achieve Singapore’s environmental sustainability objectives and supports these collaborations to the maximum extent possible by setting out the circumstances under which the collaborations would likely not be deemed as anti-competitive. Businesses which intend to engage in such collaborations are afforded greater clarity and certainty as they are able to assess whether a particular collaboration would raise competition concerns.
Even if a collaboration relating to environmental sustainability objectives gives rise to competition concerns under Section 34 of the Competition Act, undertakings may avail themselves of the Net Economic Benefit exclusion.
The application of the Net Economic Benefit exclusion to agreements which infringe Section 34 of the Competition in the first instance is not novel. However, the Guidance Note goes a step further by setting out a list of possible efficiencies and justifications which collaborating undertakings can rely. Notably, this approach differs from CCCS’ approach in its Guidelines on the Section 34 Prohibition (“Section 34 Guidelines”), which leaves undertakings relying on the Net Economic Benefit exclusion to craft their own efficiency arguments.
On the first limb of the Net Economic Benefit exclusion, which requires an agreement to contribute to (i) improving production or distribution, or (ii) promoting technical or economic progress, the Guidance Note illustrates how collaborations relating to environmental sustainability objectives can give rise to economic benefits. For instance, collaborations that adopt cleaner technologies to reduce emissions or enable more efficient production by consuming less energy may be considered as agreements that contribute to improving production or promoting technical progress.
More importantly, under traditional competition law architecture, the assessment of economic benefits flowing from agreements is generally confined to the relevant market in which the agreements relate. Yet, for collaborations relating to environmental sustainability objectives, the Guidance Note makes an exception by allowing economic benefits to Singapore as a whole to be assessed. Consequently, the overall economic benefits to Singapore from the collaboration may outweigh the harm to competition in a particular relevant market. Arguably, this makes it easier for collaborating undertakings to claim that the collaboration is, on balance, pro-competitive.
In addition, the Guidance Note also allows collaborating undertakings to highlight to CCCS if a detailed assessment of the economic benefits would be “onerous or not possible in the particular circumstances and provide the reasons and basis for this to facilitate CCCS’ consideration”. The rationale is that certain collaborations relating to environmental sustainability objectives may involve nascent products or technologies and therefore entail uncertainty as to the magnitude and timeframe in which the economic benefits would materialize. The flexibility provided ensures that innovation relating to environmental sustainability is not stifled in exchange for strict adherence to competition law procedures.
Taken together, these are perhaps the strongest indication of how the Guidance Note is intended to operate as a shield for collaborations relating to environmental sustainability objectives and signals the importance of competition law in promoting environmental sustainability objectives in Singapore.
On the second limb of the Net Economic Benefit exclusion, collaborating undertakings must demonstrate that the collaboration and the restrictions within the collaboration are “reasonably necessary to obtain the benefits claimed”. In other words, in the absence of these restrictions, the efficiencies which flow from the collaboration would either be eliminated or significantly reduced.
Apart from the assessment of whether the collaboration and its restrictions are indispensable for achieving the economic benefits claimed, the Guidance Note widens the scope of the assessment to include the additional benefits that “accrue directly as a result of achieving results more rapidly or on a larger, more efficient scale”. This provides collaborating undertakings with a greater runway to qualify for the Net Economic Benefit exclusion.
On the third limb of the Net Economic Benefit exclusion, competition must not be eliminated in a substantial part of the relevant market. This is a straightforward assessment in which CCCS will consider the degree of competition prior to the collaboration and the reduction of competition that the collaboration brings about.
Importantly, the Guidance Note states that this criterion can still be satisfied as long as post-collaboration, at least one important parameter of competition on which undertakings continue to compete strongly with each other remains. For instance, even if a standardization agreement results in the discontinuation of all non-environmentally sustainable products (i.e. no competition on product variety), the agreement can still satisfy this criterion if the collaborating undertakings continue to compete on price.
As stated above, for certainty, undertakings may apply to CCCS for guidance under Section 45 of the Competition Act or for a formal guidance or decision under Section 46 of the Competition Act that their collaborations are compliant.
To facilitate collaborations in support of Singapore’s environmental sustainability objectives, CCCS has adopted a streamlined process for the assessment of collaborations relating to environmental sustainability objectives. Under the streamlined process, CCCS will endeavor to complete a Phase 1 review within 30 working days for simple cases, with an additional Phase 2 review (if required) of 120 working days for complex cases. CCCS has in December 2024 issued its first guidance (relating to the joint collaboration between Coca-Cola Singapore Beverages, F&N Foods and Pokka) well within the timelines as set, reflecting the efficiency of the system.
To date, in Southeast Asia, CCCS is the only competition authority which has introduced express competition law guidelines specifically pertaining to collaborations on environmental sustainability objectives. This followed on the heels of various sustainability guidelines published by competition authorities around the world, including the Japan Fair Trade Commission’s Green Guidelines in March 2023, the European Commission’s revised Horizontal Block Exemption Regulations and Horizontal Guidelines in June 2023, and the United Kingdom Competition and Markets Authority’s Green Agreements Guidance in October 2023.
That said, while other competition authorities in Southeast Asia have yet to publish similar guidelines, environmental sustainability remains a priority and any collaborations relating to environmental sustainability objectives are assessed according to existing competition law architecture. For instance:
(a) The Malaysia Competition Commission’s Strategic Plan 2021-2025 indicates that the interplay between competition law and sustainability in Malaysia remains front of mind, stating that “Investment in green technology can be cost-prohibitive and businesses may want to cooperate with their competitors to achieve the ESG agenda. The MyCC may need to study on how Act 712 works to encourage the ESG agenda amongst the businesses in Malaysia.”
(b) The Indonesia Competition Commission (“KPPU”) has used existing competition law architecture to address collaborations relating to environmental sustainability objectives. In 2016, major palm oil companies in Indonesia entered into the Indonesia Palm Oil Pledge, a private standard which sought to reduce deforestation. Although the standard was well-intentioned, the KPPU faced pressure to prohibit it and ultimately held that the standard had “the potential to become a cartel that will lead to monopolistic practices and/or unfair business competition amounting to an infringement of Indonesia’s competition law.”
The Guidance Note comes at an opportune time where much more needs to be done to mitigate climate change. In fact, its contribution to Singapore’s environmental sustainability objectives should not be overlooked. By adopting a light touch approach and using competition law as a shield, the Guidance Note rightly leaves behind the chilling effect of competition law in favor of appropriate business collaborations which advance environmental sustainability objects. There is cautious optimism that more undertakings in Singapore will come together to collaborate on all things related to environmental sustainability and to make Singapore (and the world) a better place to live in in the years ahead.
