The Competition Board recently published

its reasoned decision on the Tyre Industrialist Association's application for

an exemption for its Waste Management Strategies and Implementation Plan for

Worn-out Tyres 2016 to 2020.

Worn-out Tyre Control Regulation

Pursuant to the Worn-out Tyre Control

Regulation (dated November 26 2006 and numbered

26,357) - which is based on the principle

of manufacturer liability - tyre importers and manufacturers must collect,

recycle and dispose of worn-out tyres within the framework determined by the

regulation.

The regulation indicates that

manufacturers must inform the Ministry of Environment and Urbanisation on an

annual basis of the tyre tonnage that they introduced to the market in the previous

year under the scope of the quota application provision. In order to fulfil

these obligations, manufacturers must establish their own waste management

system or participate in an established waste management system.

In line with the principle of manufacturer

liability under the Worn-out Tyres Control Regulation, Brisa Bridgestone

Sabancı Lastik Sanayi ve Ticaret AŞ, Otomotiv Lastikleri Tevzii AŞ, Goodyear Lastikleri

AŞ, Michelin Lastikleri AŞ, Türk Pirelli Lastikleri AŞ and Petlas Lastik San ve

Tic AŞ established the Tyre Industrialists Association to collect, recycle and

dispose of worn-out tyres for sellers, service providers, mechanics and similar

organisations.

Waste management plan

Article 12 of the association's waste

management plan designates certain collection regions within Turkey in which

multiple collectors can operate. Under the plan's proposals, the association

will arrange tenders to choose the contractor that will conduct the collection,

transportation and temporary storage of worn-out tyres in the relevant region.

The financial resources of the proposed

waste management system will be provided by:

a contribution share collected by consumers under the polluter pays

principle;

worn-out tyre collection and supply service sales conducted by users

under the prices determined by free market conditions; and

reimbursements made by association members for organisation, training,

publicity and awareness-raising event expenses.

In order to ensure that users contribute

to the waste management plan's costs under the polluter

pays principle, a recovery contribution

share will be collected for each tyre sold to real persons and legal entities.

Recovery contribution shares will be determined by the Tyre Industrialist

Association according to the annual cost of collecting worn-out tyres and may

be subject to quota increases, inflation costs and variations in oil prices.

The Tyre Industrialist Association's waste

management plan emphasises that members will determine their own tyre prices

and will not exchange information regarding new tyre prices with the

association or its members at any stage.

Assessment of waste management system

As regards the Tyre Industrialist

Association's structure, the Competition Board's assessment

emphasised that:

the association accepts membership under Article 5 of its Association

Regulation; and

there are no provisions setting out different conditions for

undertakings under said regulation.

In addition, the board determined that

members are free to revoke their membership at any point.

The board indicated that in order to

ensure competition in the waste management market, multiple waste management

systems should be established and manufacturers should not be forced to participate

in one single system. Therefore, manufacturers should be able to use different

waste management systems for the different types of waste product which they

are required to collect.

In its assessment of the case file, the board

found that Tyre Industrialist Association members can easily revoke their

membership and there are no provisions obliging undertakings to provide their waste

products solely to the association. In this regard, the board found that tyre

manufacturers can collect their waste products through agreements with other

waste management systems.

Assessment of collection activities

The board found that the most significant

difference between the Tyre Industrialist Association's 2016 waste management

plan and its 2010 waste management plan were:

exclusivity in favour of the collector and restrictions on the

collectors' marketing rights (Decision 10-67/1422-538 of October 27 2010); and

the (now abolished) exclusivity system, under which only one collector

operates on behalf of the Tyre Industrialist Association.

The 2016 waste management plan proposes

the operation of multiple collectors in each region.

The board also analysed whether collectors'

marketing rights are restricted under the waste management plan. It found that

collectors are deemed to have marketing rights if they can deliver waste

products to the recovery facility of their choice and are deemed not to have

marketing rights when they must deliver waste products to recovery facilities

determined by a waste management system.

The board found that the marketing rights

in question belonged to the Tyre Industrialist Association, as according to the

information submitted in the scope of its exemption application, contractors cannot

market products collected on the association's behalf. The Tyre Industrialist

Association claimed that this practice is essential in terms of its obligations

towards the Ministry of Environment and Urbanisation.

Further, the board examined the Tyre

Industrialist Association's position in the relevant market and found that it

was the only institution authorised by the ministry in this regard; however,

other undertakings which are not members of the association are responsible for

the collection, transportation, recovery and recycling of tyres.

Negative clearance and individual

exemption analysis

Following its assessment of the

association's waste management plan, the Competition Board found that:

the designation of recovery contribution shares by competitor

undertakings is one of the factors that constitutes the price of tyres; and

the revision of recovery contribution shares falls within the scope of

Article 4 of Law 4054 on the Protection of Competition.

In addition, the board found that the Tyre

Industrialist Association's proposal to retain the marketing rights of worn-out

tyres - which prevents collectors from choosing a recycling or recovery

institution - would fall under the scope of Article 4 of Law 4054 and did not

grant negative clearance in that regard.

Instead, the board determined whether the

waste management plan could benefit from an individual exemption under Article

5 of Law 4054.

In order to be eligible for an individual

exemption under the law, a restrictive agreement, practice or decision must:

ensure new developments and improvements - including economic or

technical developments - in the production or distribution of goods and the

provision of services;

provide consumers with a fair share of the resulting benefit; and

not eliminate competition in a significant part of the relevant market.

This is not an alternative test and all

conditions must be cumulatively met for an individual exemption to be issued.

The board determined that under the Tyre

Industrialist Association's proposal, the first condition had been met, as the

collection of worn-out tyres promotes efficiency and reduces costs, which would

enable the market to work more efficiently and thus enable new entries.

The board also found that the second

condition had been met, as the collection of tyres separately by individual

undertakings was not desirable due to the economies of scale and fixed costs.

The establishment of independent waste management systems by each manufacturer

would result in consecutive investments in the relevant sector, where fixed

costs are prominent. In addition, as stated in Article 5 of the Worn-out Tyre

Control Regulation, used tyres cause environmental pollution and damage which

threatens human health and collecting them in the fastest manner possible is

thus of utmost importance.

As regards the third condition, the board

stated that tyre producers and exporters which are not Tyre Industrialist

Association members must fulfil their obligations under the Worn-out Tyre Control

Regulation themselves or through other collectors. In addition, agreements

between collectors and the Tyre Industrialist Association do not include

exclusivity clauses in the  association's

favour, which means that collectors may:

work with undertakings other than the association;

participate in tenders; and

operate in different regions.

Having considered the association's

indicated aim to fulfil its obligations under the Worn-out Tyre Control

Regulation and the fact that its members must determine tyre prices on their

own and not exchange this information with the association or its members at

any stage, the board determined that the association's proposal would not

eliminate competition in a significant part of the relevant market. In this

respect, the board found that the agreement further satisfied the third

condition of Article 5 of Law 4054.

Finally, the board found that the fourth

condition had been met, as when the responses obtained from market undertakings

were evaluated, it was found that:

the practice of assigning used tyres by tender is convenient in terms of

establishing a competitive

market structure; and

undertakings are not obliged to deliver used tyres exclusively to the Tyre

IndustrialistAssociation

under its Waste Management Plan.

Therefore, the board decided that the

association's proposal would not limit competition in a manner which would

violate Article 5(i) and (ii) of Law 4054.

In light of the above, the board granted

an individual five-year exemption to the Tyre Industrialist Association for its

waste management plan.

Authors:

Gönenç Gürkaynak, Esq., ELIG, Attorneys-at-Law

First

published in International Law Office on November 16, 2017