1. The Facts

2. The Judgment

3. Analysis

Christoph Vedder¹

The survey of the European Court's cases regarding international law issues or contributing to the development of public international law as a whole begins with the coming into effect of the Single European Act on 1 July 1987.

I. Wood Pulp²

The Wood Pulp decision is the Court's most recent statement on the reach of the Community's jurisdiction in competition law.

1. The Facts

A number of Finnish, Swedish, American and Canadian wood pulp producers established outside the EC created a price cartel, eventually charging their customers based within the EC. On 19 December 1984, the Commission issued a Decision³ establishing several infringements of Article 85 of the Treaty by the said agreements and concerted practices and imposing fines.

The principal arguments of the Commission justifying the Community's jurisdiction to apply their competition rules to an undertaking outside the Community were as follows: the producers involved were exporting and selling directly to customers in the EC or were doing business within the Community through branches, subsidiaries or other agents. Not less than two-thirds of the total shipment and 60% of the consumption of wood pulp in the Community had been affected by the alleged restrictive practices.

Eleven of the forty addressees of the Commission decision brought an action for annulment of the decision. They had two main arguments, one based on Community law, the other on international law. First, the Commission's construction of Article 85 of the Treaty was challenged and, secondly, even if the conditions of Article 85 were fulfilled, it would be contrary to international law to regulate conduct restricting competition adopted outside the territory of the Community merely by reason of the "economic repercussions" produced within the EC. The American and Canadian applicants further claimed that the application of EC competition rules in these circumstances would constitute a breach of the general principle of non-interference and that the Community, by imposing fines, had infringed Canada's sovereignty and had breached international comity. Finally, the Finnish undertakings raised the special argument of the Free Trade Agreement concluded between the Community and Finland which by virtue of its Articles 23 and 27 would preclude the Community from applying EC competition law.

2. The Judgment

Compared to the Commission's decision and the Advocate General's Opinion the judgement of the Court is remarkable for its shortness, which inevitably gives rise to different interpretations and raises additional questions. As for Community law, the Court upheld the territorial scope of Article 85 of the Treaty as construed by the Commission. Article 85 prohibits all agreements or concerted practices between undertakings "which may affect trade between Member States and which have as their object or effect the prevention, restriction, or distortion of competition within the common market..."

The Court starts by stating the fact that as the producers involved in the case are the main source of supply of wood pulp they would constitute the principal actors of competition within the Community. From that it follows clearly

that where those producers concert on the prices to be charged to their customers in the Community and put that concertation into effect by selling at prices which are actually coordinated, they are taking part in concertation which has the object and effect of restricting competition within the Common Market within the meaning of Article 85 of the Treaty.
Accordingly, it must be concluded that by applying the competition rules in the Treaty in the circumstances of this case to undertakings whose registered offices are outside the Community, the Commission has not made an incorrect assessment of the territorial scope of Article 85.⁴

As to the question of compatibility of the decision with public international law the Court draws up a distinction between the formation of the concerted practice and its "implementation." The application of Article 85 depends not on the place where the agreement at issue is concluded but solely on the place where the agreement is implemented.

It should be observed that an infringement of Article 85, such as the conclusion of an agreement which has had the effect of restricting competition within the Common Market, consists of conduct made up of two elements, the formation of the agreement, decision or concerted practice and the implementation thereof...
The producers in this case implemented their pricing agreement within the Common Market. It is immaterial in that respect whether or not they had recourse to subsidiaries, agents, sub-agents, or branches within the Community in order to make their contracts with purchasers within the Community.
Accordingly the Community's jurisdiction to apply its competition rules to such conduct is covered by the territoriality principle as universally recognized in public international law.⁵

The Court leaves open the question whether or not a rule of non-interference actually exists in public international law. Nor did the Court does not see any contradictory duties deriving from differences between Community law and American law, in particular, from the Webb-Pomerene Act, which exempts export cartels from U.S. antitrust laws but does not require the formation of such cartels.

This question was submitted by the American applicants, who referred to the concurring opinion of Judge Fitzmaurice in the case of Barcelona Traction Light & Power Company⁶, which describes non-interference as a rule

according to which where two states have jurisdiction to lay down and enforce rules and the effect of those rules is that a person finds himself subject to contradictory orders as to the conduct he must adopt, each state is obliged to exercise its jurisdiction with moderation.⁷

Finally the Court quickly rejected the argument from international comity calling for prior disclosure to the states affected. The Court established that as the Community's jurisdiction does not contravene international law comity cannot be said to have been violated.

As far as the Finnish producers are concerned, the Court had to consider, in a more specific field of international law the relationship between Community law and the provisions of the Free Trade Agreement between Finland and the EC.⁸ Article 23 para. 1 of that Agreement states that agreements or concerted practices which have as their object or effect the restriction of competition are incompatible with the proper functioning of the Agreement insofar as they may affect trade between the EC and Finland. Article 23 para. 2 and Article 27 paras. 2 and 3 of the Agreement set forth a special bilateral procedure within the Joint Committee to be followed before the parties to the Agreement can take measures against the restricting practices.

The Court argues in two steps. Articles 23 and 27 of the Agreement presuppose that the parties to the agreement have rules enabling them to proceed against practices incompatible with Article 23.

As far as the Community is concerned, those rules can only be the provisions of Articles 85 and 86 of the Treaty. The application of these Articles is therefore not precluded by the Free Trade Agreement.⁹

The decisive reason, however, seems to be that the matter at issue is not a bilateral one concerning solely Finnish-EC trade. It is not bilateral trade which is affected - that constitutes the condition of Article 23 of the Agreement. It is intra-Community competition that is distorted by a concerted practice on a much larger scale including not only Finnish but also Swedish, American, and Canadian producers.

It should be pointed out finally that in this case the Community applied its competition rules to the Finnish applicants not because they had concerted with each other but because they took part in a very much larger concertation ... which restricted competition within the Community. It was thus not just trade with Finland that was affected. In that situation reference of the matter to the Joint Committee could not have led to the adoption of appropriate measures.¹⁰

After considering these arguments the Court held that the decision at issue is covered by Article 85 of the EEC Treaty and does not infringe public international law or the Free Trade Agreement. On the merits of competition law the Court assigned the case to a Chamber of the Court.¹¹

3. Analysis

The Wood Pulp decision is one of the rare examples of the "state" practice exercised by the Community and its relevant organs pertaining to general public international law.

a) The EEC under Public International Law

The tacit assumption of the Court's reasoning is that international law in general applies to the Community as an international organization. For the Court as well as for the Commission it seems without doubt that the EC, like a state, is bound by the rules of customary international law, at least, "mutatis mutandis."¹² While the effects of customary international law on international organizations have been mostly neglected by the literature, the conduct of the EC can be deemed a clear evidence of a practice confirming that international organizations are subject to customary international law. That result is in line with § 223 (b) of the Third Restatement¹³ that indicates that "subject to the international agreement creating it, an international organization has ... rights and duties created by international law or by agreement."

The application of rules of customary law, in particular the principles of territorial and personal jurisdiction to international organizations, is not self-evident, since both of these principles essentially apply to states. International organizations in general, and even the Community, are not endowed with a proper territory and citizenship.

The justification for such application can be, and has been provided in this case by the Advocate General,¹⁴ in that the Community exercises certain aspects of territorial and personal sovereignty, as it is endowed with powers transferred to it by the Member States. The scope of these "constitutional" powers of the Community limits the range of application of international law. This boundary may coincide with the limits of the restricted legal personality of international organizations under public international law.

b) The Community's Jurisdiction over Foreign Enterprises

Unlike the Advocate General, the Court did not touch this general consideration but turned directly to the question of whether Article 85 applies to concerted practices agreed upon by enterprises having registered offices outside the Community's territory, i.e. the territory to which the EEC Treaty applies. The crucial point is the term "effects", aiming both at the conditions of Article 85 and presumably at the delimitation of the Community's jurisdiction under public international law.

The Court surprisingly used the term effects exclusively to construe Article 85 on the Community law level and strictly avoided the "effects doctrine" as a basis for the Community's jurisdiction under public international law. The fact, however, that the territorial scope of Article 85 in Community law was correctly assessed¹⁵ does not lead to the proposition that the Community's competition law is applied per se to enterprises established outside the Community. The term "effects" in the wording of Article 85 only shows the existence of an infringement of that article but does not, in itself, establish the Community's jurisdiction over foreign enterprises under international law.

On the international law level the Court has partly overruled its former decision regarding the Community's jurisdiction in competition matters¹⁶ by its Wood Pulp ruling. In the prior Dyestuff decision the Court had relied upon the fact that the enterprises involved with registered offices outside the Community were "able to exercise decisive influence over the policy of the subsidiaries as regard selling prices in the Common Market and in fact used this power..."¹⁷

In Wood Pulp the Court does not take into account the fact that several of the applicants are acting through subsidiaries or agents based within the Community. That line of reasoning would not, in any event, be sufficient, as some of the undertakings were selling directly to their customers based in the Community without the intermediary of subsidiaries.

Thus the Court does not rely on any kind of relationship between foreign enterprises and their possible intra-Community representatives and bases its reasoning upon the distinction between the formation of agreements or concerted practices taking place outside the Community and the implementation thereof without going into further details. It has to be observed, however, that the term implementation is not a new finding of the Court. Already in Dyestuff the power to control intra-Community subsidiaries was considered by the Court an essential means of implementing the restrictive agreements¹⁸ even though the Court had directly imputed the measures taken by their agents to the foreign applicants.

This change in reasoning marks thus the significance of the present case. According to Wood Pulp the mere selling of products at coordinated prices to customers situated in the Community is deemed a sufficient link to found the Community's jurisdiction without any reference to subsidiaries or other agents actually under the territorial jurisdiction of the Community. That appears to be the effects doctrine, as was pointed out by the Advocate General M. Darmon.¹⁹ But the Court insisted that the application of Article 85 in this case was covered by the territoriality principle. Relying on the territorial jurisdiction the Court attempted to avoid discussion of the effects doctrine, as it has also done in Dyestuff.²⁰

This reasoning is not satisfactory under public international law. The Court does not differentiate between the fulfillment of the conditions of Article 85 and the applicability of that rule under international law,²¹ the former being only the prerequisite of the latter. It does not clearly separate between the elements of an infringement of Article 85 under Community law and the question whether or not Article 85 applies to undertakings based outside the Community's territory. The Court is obviously of the understanding that the "effects" fall under the territorial jurisdiction because they are already part of Article 85 of the Treaty, which it then simply applies. Thus, the question of whether or not the Community has jurisdiction under international law is reduced to the mere application of Article 85 of the Treaty.

Advocate General Darmon clearly established the effects doctrine as being the basis of the Community's jurisdiction. In an extraordinary and comprehensive study²² on the territorial and personal principle, as well as on the effects doctrine, the Advocate General, denying that there is a territorial link with the Community, emphasizes the existence and definition of that doctrine and the fulfillment of its conditions in the case. According to the Advocate General the only criterion for the jurisdiction is the "direct, substantial and foreseeable effect."²³ Thus, he does not apply the "balancing test" which American courts are particularly fond of.

Despite such clear and well-founded arguments the Court surprises by refusing the effects doctrine. This approach might be explained by the opposition the Community has always demonstrated to the attempts of American administrations and even courts to make use of the effects doctrine in relation to trade matters outside the U.S. to the disadvantage of the EC.²⁴ On the other hand, it has to be observed that in the fervent debates on the American pipeline embargo of 1982 the Commission, as it has also done in the Wood Pulp case,²⁵ has reluctantly accepted the effects doctrine as a possible basis of jurisdiction under international law. However, the Commission could not find any "direct, foreseeable and substantial effect" on the U.S. in the exports of pipeline material from the EC to the U.S.S.R.²⁶

c) The Applicability of the Free Trade Agreement

The additional Finnish argument, that Articles 23 and 27 of the Free Trade Agreement would preclude the Community from applying Article 85 without prior reference to the Joint Committee, is based on the priority of specific international treaty provisions prevailing over rules of general international law, such as the effects doctrine. It goes without saying that the agreement, by virtue of Articles 113, 114, 228 paras. 1 and 2 of the Treaty and according to the international law of treaties,²⁷ has binding effect on the EC as well as on Finland.

Without challenging this argument the Court comes to the conclusion that the scope of application of Article 23 of the Agreement is not touched. The aim of Article 23 is a different one. Even if the wording of Article 23 is almost identical²⁸ to that of Article 85 of the Treaty the relevant rules of the Agreement deal exclusively with distortions of bilateral trade as the first subparagraph of Article 23 of the Agreement shows. When the competition in the Community is distorted on a larger scale, including undertakings from other countries, Article 23 of the Agreement cannot produce precluding effect because, in this context, it is not to be regarded as a lex specialis.

1 University of Munich.

2 Friend, `The long Arm of Community Law', ELR (1989) 169; Mann, `The Public International Law of Restrictive Practices in the European Court of Justice', 38 Int'l. & Comp. L. Quart. (1989) 375; Breibart, `The Wood Pulp Case: The Application of European Economic Community Competition Law to Foreign Based Undertakings', 19 Georgia Journal of Int'l & Comp. Law (1989) 149.

3 Commission Decision 85/202 of 19 December 1984 relating to a procedure under Article 85 of the EEC Treaty, OJ (1985) L 85/1.

4 Para. 13.

5 Para. 16, 17, 18.

6 ICJ Rep. (1970) 105.

7 Para. 19.

8 Concluded 5 October 1973; OJ (1973) L 328/2.

9 Para. 31.

10 Para. 32.

11 Not yet decided.

12 Para. 5 of the Comments of the Commission of the European Communities on the U.S. regulations concerning trade with the U.S.S.R. of 1982, 27 German Yearbook of International Law (1984) 554, 555.

13 American Law Institute (ed.), Third Restatement of the Foreign Relations Law of the United States (1987).

14 Opinion of the Advocate General of 25 May 1988, para. 27.

15 As the Court, according to Community law, in particular, Articles 164 and 173 para. 2 of the Treaty, has the monopoly in deciding questions of Community law, its findings in construing rules of Community law cannot be questioned under general international law.

16 Case 22/71, Béguelin, ECR (1971) 949, 959; case 48/69, Dyestuff, ECR (1972) 619, 662; case 6/72, Europemballage, ECR (1973) 215, 242.

17 Dyestuff, supra note 15, para. 137.

18 Dyestuff, supra note 15, para. 130: "By making use of its power to control its subsidiaries established in the Community, the applicant was able to ensure that its decision was implemented on the market."

19 Opinion of 25 May 1988, para. 47 et seq.

20 Case 48/69, Dyestuff, ECR (1972) 619, 661; Advocate General Mayras had pointed out the effects doctrine justifying the Communities jurisdiction, Opinion of the AG, ECR (1972) 700.

21 Para. 16 of the judgement shows that the Court has established the "implementation" as an element of Article 85 and not of international law. See supra note 4 and accompanying text.

22 Referring largely to literature and case law of the Court and of international and in particular American courts.

23 Para. 57 of the opinion.

24 Above all by virtue of the Export Administration Act of 30 October 1984, Public Law 98-573, ILM (1985) 826.

25 Para. 79 of Commission Decision 85/202, OJ (1985) L 85/1, and according to the Report for the Hearing 27.

26 Comments of the EC Commission of 1982 on the U.S. regulations concerning trade with the U.S.S.R., paras. 12 and 13, 27 German Yearbook of International Law (1984) 554, 557.

27 Now being restated by the Vienna Convention on the Law of Treaties Between States and International Organizations or Between International Organizations of 20 March 1986, A/CONF.129/15.

28 According to the established practice of the Court, even an identical wording of rules set forth in the Treaty and in an international agreement concluded by the Community does not require an identical construction of the very rules: case 225/78, Bouhelier, ECR (1979) 3151, 3160; case 104/81, Kupferberg, ECR (1982) 3641, 3666; case 270/80, Polydor, ECR (1982) 329.

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