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Territorial supply constraints

From Wikipedia, the free encyclopedia

Territorial supply constraints (TSCs) are restrictions imposed by some multi-national manufacturers in the fast-moving consumer-goods sector to prevent retailers and wholesalers from sourcing where they wish within the European Single Market.[1]

Territorial supply constraints are practices used by multinational manufacturers that prevent retailers and wholesalers from buying products in an EU country other than where their company is established or operating in.[1] Therefore, distributors seeking to source supplies from non-domestic wholesalers or directly from suppliers in neighbouring markets are redirected to the national subsidiary of a multi-national manufacturer that is responsible for the EU country where the retailer is located.

Forms of restrictions

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Identifying TSCs has been particularly challenging, especially in a quantitative way, due to a lack of available data and public information on TSCs in general. However, the European Commission and businesses have pointed out how territorial supply constraints are implemented.[1]

TSCs can appear within a handful of practices, such as threatening to stop supplying a particular product, refusing to supply, limiting the quantities available for sale, limiting language options for the product packaging, and unexplained differentiation of product ranges and prices between member states.[1] Moreover, major brands often impose price discrimination and product differentiation specifically through composition and packaging, in the hopes of increasing profit maximisation and tailoring their products to each separate market. In practice, multinational brand suppliers who prevent retailers and wholesalers to source products cross-border segment the European Single Market and maintain significant price differences across Europe. Due to consumer brand loyalty, retailers are dependent on the supplier subsidiary for their region and have no way of acquiring the same or similar goods from outside of their member state.

AB InBev and Mondelez: TSCs in Practice

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In 2019, the European Commission fined AB InBev €200,409,000 for breaching EU antitrust laws.[1] AB InBev, the largest beer company in the world, was found guilty of abusing its dominant position on the Belgian beer market by impeding cheaper imports of beer from the Netherlands into Belgium. As a result, Belgian consumers had been paying more due to AB InBev’s deliberate actions to maintain high prices. While market dominance, as in the case of AB InBev, is not illegal in the EU antitrust rules, AB InBev was clearly pursuing a deliberate strategy to ‘restrict the possibility for supermarkets and wholesalers to buy Jupiler beer at lower prices in the Netherlands and to import it into Belgium’, according to the Commission. It was concluded that AB InBev approached its strategy in four different ways: by implementing significant packaging changes, limiting the volume supplied to the Netherlands, refusing to sell products to retailers under conditions, and creating customer promotions exclusive to the Netherlands so long as they were not offered to customers in Belgium. Through these strategies, prices for the popular beer were massively impacted in the Belgian market, and deprived European consumers of the central benefit of the European Single Market, i.e. the possibility to have more choices and get a better deal.[2]

In 2024, the European Commission fined US chocolate and biscuit producer Mondelēz International, Inc. (Mondelēz) €337.5 million for hindering the cross-border trade of chocolate, biscuits and coffee products between Member States, in breach of EU competition rules. The Commission found that Mondelēz engaged in twenty-two anticompetitive agreements or concerted practices between 2006 and 2019, in breach of Article 101 of the Treaty on the Functioning of the European Union by limiting the territories or customers to which seven wholesale customers could resell Mondelēz' products. One agreement also included a provision ordering Mondelēz' customer to apply higher prices for exports compared to domestic sales. Between 2006 and 2020, Mondelez also prevented ten exclusive distributors active in certain Member States from replying to sale requests from customers located in other Member States without prior permission from Mondelēz. Such agreements covered the whole of the EU. The Commission also found that, between 2015 and 2019, Mondelēz abused its dominant position, in breach of Article 102 of the TFEU, by refusing to supply a wholesaler in Germany to prevent it from reselling certain products in Austria, Belgium, Bulgaria and Romania (where prices were higher). Mondelez also stopped selling a specific product in the Netherlands to avoid them being imported into Belgium, where again Mondelēz was selling these products at higher prices.[3]

Effect on the European Single Market

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This pressure from multi-national manufacturers fragments the European Single Market and can contribute significantly to large wholesale price differences between countries. Demand and prices for some consumer goods differ between member states due to several reasons, such as average income, cultural attitudes, regulation, taxation and tastes. That is why the prices of distributors’ own brands also differ between countries. However, studies have suggested that there is a price difference which cannot be explained and may be due to territorial supply constraints imposed by manufacturers.[4][5]

A study by the European Commission has estimated that territorial supply constraints cost consumers € 14 billion.[1]

In the 2020 report “Towards more efficient and fairer retail services in the internal market for 2020”, the European Commission emphasised the existence of considerable price differences within the Single Market and concludes that the Single Market is still fragmented.[6] Territorial Supply Constraints were also identified as a Single Market Barrier for the retail ecosystem as part of the EU Industrial Strategy.[7]

The General Secretariat of the Benelux region has also investigated Territorial Supply constraints in their report in 2018, concluding that TSCs are found in the retail trade in all Benelux countries. Both micro, small, medium-sized, as well as large companies, are faced with them.[5]

The European Parliament has repeatedly called on the Commission to address territorial supply constraints.[8][9]

Competition rules

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Territorial Supply Constraints can be addressed in certain circumstances by EU competition rules (as in the investigation into AB InBev practices). However, EU competition law only applies when territorial supply constraints are the subject of agreements (as they would be contrary to Article 101 of the Treaty on the Functioning of the European Union or ‘TFEU’) or when they are carried out by a dominant operator (contrary to Article 102 of the TFEU, as found in the AB InBev case). The 2022 Vertical Block Exemption Regulation and the accompanying Guidelines on vertical restraints[10] provide guidance on the types of restrictions in vertical agreements between companies that can infringe competition rules.

However, Territorial Supply Constraints are often unilateral practices (therefore not agreements caught by Article 101 TFEU) imposed by certain manufacturers who may enjoy a dominant position for the purposes of Article 102 TFEU. Certain manufacturers would instruct their subsidiaries not to supply certain retailers or wholesalers located outside their member states – by refusing to supply or by implementing strategic packaging differentiation which are not justified by consumer preference or other reasons.

References

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  1. ^ a b c d e f European Commission. Directorate General for Internal Market, Industry, Entrepreneurship and SMEs.; VVA.; LE Europe. (2020). European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, Study on territorial supply constraints in the EU retail sector: final report, Publications Office, 2020. Publications Office. doi:10.2873/59256. ISBN 9789276189381.{{cite book}}: CS1 maint: multiple names: authors list (link)
  2. ^ "European Commission, Directorate-General for Competition, Video: Enabling Cross Border Trade, 2023". YouTube. Archived from the original on 2023-08-10. Retrieved 2023-08-08.
  3. ^ European Commission, Press Corner, https://ec.europa.eu/commission/presscorner/detail/en/ip_24_2727
  4. ^ "European Central Bank, GROCERY PRICES IN THE EURO AREA: FINDINGS FROM THE ANALYSIS OF A DISAGGREGATED PRICE DATASET, Economic Bulletin, Issue 1 / 2015" (PDF). Archived (PDF) from the original on 2023-08-10. Retrieved 2023-08-08.
  5. ^ a b "General Secretariat of the Benelux Union, TERRITORIAL SUPPLY CONSTRAINTS IN THE RETAIL TRADE IN BELGIUM, THE NETHERLANDS AND LUXEMBURG - Consequences for the Benelux internal market, February 2018" (PDF). Archived (PDF) from the original on 2023-08-10. Retrieved 2023-08-08.
  6. ^ Bergevin and Markt, “Retail Market Monitoring Report ‘Towards More Efficient and Fairer Retail Services in the Internal Market for 2020’
  7. ^ "European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, Co-creation of a transition pathway for a more resilient, digital and green retail ecosystem, Commission Staff Working Document, July 2023" (PDF). Archived (PDF) from the original on 2023-08-10. Retrieved 2023-08-08.
  8. ^ "European Parliament resolution on tackling non-tariff and non-tax barriers in the single market (2021/2043(INI)), February 2022". Archived from the original on 2023-08-10. Retrieved 2023-08-08.
  9. ^ "European Parliament resolution on competition policy – annual report 2021 (2021/2185(INI)), May 2022". Archived from the original on 2023-08-10. Retrieved 2023-08-08.
  10. ^ "European Union, Regulation (EU) 2022/720 on Vertical Block Exemptions and Guidelines on vertical restraints 2022/C 248/01, May 2022". Archived from the original on 2023-08-10. Retrieved 2023-08-08.