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