E1997C0120

EFTA SURVEILLANCE AUTHORITY DECISION No 120/97/COL of 24 April 1997 relating to a proceeding under Article 53 of the EEA Agreement in case COM 020.0099 - NSF (Only the Norwegian and English texts are authentic)

Official Journal L 284 , 16/10/1997 P. 0068 - 0090


EFTA SURVEILLANCE AUTHORITY DECISION No 120/97/COL of 24 April 1997 relating to a proceeding under Article 53 of the EEA Agreement in case COM 020.0099 - NSF (Only the Norwegian and English texts are authentic)

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic Area (the EEA Agreement), and in particular Article 1 of Protocol 21 thereto,

Having regard to Chapter II of Protocol 4 to the Agreement between the EFTA States on the establishment of a Surveillance Authority and a Court of Justice (the Surveillance and Court Agreement), and in particular Article 3 (1) thereof,

Having regard to the application for negative clearance and the notification for exemption submitted by Norges Skogeierforbund, pursuant to Articles 2 and 5 of Chapter II of Protocol 4 to the Surveillance and Court Agreement,

Having regard to the EFTA Surveillance Authority Decision of 3 July 1996 to initiate proceedings in this case,

Having given the undertakings concerned, as well as other natural or legal persons with a sufficient interest, the opportunity to make known their views on the objections raised by the EFTA Surveillance Authority in its statement of objections of 3 July 1996, in accordance with the provisions of Article 19 (1) and (2) of Chapter II of Protocol 4 to the Surveillance and Court Agreement and with Chapter IV of the same Protocol,

After consulting the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

PART I

THE FACTS

1. The notification

(1) On 18 July 1994, the EFTA Surveillance Authority received a notification from Norges Skogeierforbund (the Norwegian forest owners association, hereinafter referred to as NSF) requesting a negative clearance or an exemption from Article 53 of the EEA Agreement for the following agreements (1):

1. statutes of NSF (2);

2. standard statutes of forestry district societies (3);

3. standard statutes of forestry local squads (4);

4. framework agreement governing price negotiations for pulpwood between NSF and Treforedlingsindustriens Servicekontor (the service agency of the paper and pulp industry's branch association, hereinafter referred to as TFS) (5);

5. price agreement governing the contractual period of 1 January to 31 December 1994 between NSF and Treforedlingsindustriens Bransjeforening (the branch association of the paper and pulp industry, hereinafter referred to as TFB) (6).

(2) Subsequently, NSF has submitted the following decisions and agreements which suspends the framework agreement (point 4) indicated above:

6. guidelines for future pulpwood negotiations (7);

7. decision by NSF regarding pulpwood negotiations in 1995 (8);

8. Agreement governing price negotiations for pulpwood in 1995 between NSF and TFB (9);

9. framework agreement governing pulpwood negotiations between NSF and TFB (10).

(3) Finally, the notification contained information about an agreement between NSF and TFS regarding the level of commission to be paid to NSF and the NSF forestry district societies, hereinafter referred to as the Commission Agreement (11).

(4) The decisions and agreements which relate to price negotiations and other cooperation between NSF and the industrial buyers of round wood, i.e. points 4 to 9 above as well as the Commission agreement, are being dealt with in two separate cases (COM 020.0131 - NSF+TFB I and COM 020.0132 - NSF+TFB II). Consequently, the present decision relates only to the organization of NSF and its constituent parts (points 1 to 3 above), hereinafter referred to as the NSF system.

2. The NSF system

(5) Organizationally, the NSF system is of a cooperative nature. Individual forest owners are members of local squads. All the squads in a given district are organised in a district society. As a member of a squad, the forest owner is automatically a member of the district society and the central association, NSF. NSF, in turn, consists of the individual members, the squads and the district societies, and is the joint coordinating organization for its members and the activities of the district societies.

(6) Some 57 000 forest owners, mostly small suppliers, are organised in 446 local squads. Most of the economic activities of these forest owners, however, are organised on the district society level. There are 19 such district societies in NSF, geographically covering all of Norway.

(7) The statutes of NSF, the district societies and the local squads lay down the framework for NSF's activities and the obligations and rights of its members. One of NSF's purposes, according to the statutes, is to defend the forest owners economic interests by working for the best possible prices and market conditions for forestry products to assure the best possible marketing of such goods and, if necessary, to regulate the market through organizational measures. NSF shall also work towards a forestry policy which reflects the members' interests and promotes the understanding and development of forestry. These goals shall be pursued through cooperation between the members. In addition, emphasis shall be put on coordinating owner interests in the forestry industry and promoting a development which secures the highest possible payment for round wood.

(8) Members are obliged to abide by the decisions or measures taken by NSF and its subordinate organizations (12). Failure to comply with such decisions or the provisions contained in the statutes may lead to exclusion (13). The forest owners have furthermore the right and obligation to sell all their marketable round wood through the applicable district society (14). A member may leave NSF upon three months written notice, but without any claim to the assets of the association (15). According to NSF, a member may leave and re-enter NSF without any fees.

(9) NSF, in turn, shall represent its members in case of central negotiations on prices and delivery conditions. This is done by NSF's board or a committee appointed by the board. Similarly, the board may negotiate quantities to be delivered with round wood buyers and may order the district societies to decide on the allocation of these quantities among themselves (16). Other binding measures which can be taken by NSF or the district societies include the imposition of market measures, such as regulating output and equalizing prices (17), and the securing of financial assistance to one or more district societies from the other district societies in times of sudden and large changes in the market (18).

3. The product

(10) A fundamental characteristic of round wood is the very long production time from planting the seedling to its economically optimal harvesting. In the Nordic countries this may take as long as 70 to 100 years for fully grown saw-wood log. In principle, up to a limit, the quality and thus the value of the forest will increase with age. Consequently, it is normally possible for an individual forest owner to 'store` the round wood by keeping it on root, without jeopardizing the value.

(11) The annual harvest of round wood in Norway is around 10 to 12 million m³. It is estimated that the annual forest growth is some 18 million m³. The harvested round wood mainly consists of spruce (77 %) and pine (20 %). Broad-leaved wood, mainly birch, only amounts to some 3 % of the total harvest.

(12) Round wood can be characterized as an intermediate product, used in the production of wood-based products such as pulp, paper, board, and sawn wood. The high quality part of the round wood logs of sufficient size is mainly sold as saw-wood to the sawmills and wood industries (hereinafter referred to as sawmills), whereas most of the remaining part is sold as pulpwood to the paper and pulp industry. A smaller share of the round wood harvested is used as fuelwood for heating purposes, often directly by consumers. Of the total harvest of 10 to 12 million m³, normally some 8 to 9 million m³ is sold to the forest industry in the form of pulpwood or saw-wood.

>TABLE>

(13) The amount of saw-wood that can be obtained from a given forested area varies greatly, from 30 to 80 %, according to the quality and type of forest. Apart from variation in quality, the relative difference between pulpwood and saw-wood also has an influence on the category in which the round wood is sold.

(14) In the production of sawn wood, wood chips are produced as a by-product. These chips are used in paper and pulp production together with pulpwood. It is estimated that 35 to 38 % in volume terms of the saw-wood used by the sawmills becomes wood chips. The wood chips are sold to the paper and pulp industry, directly or as part of an exchange for saw-wood. Due to the quantities involved, the trade in wood chips is considered to be vital for the profitability of the sawmills.

(15) The harvested round wood is a product which due to its form is difficult to handle and has a large volume relative to its price. Handling costs in terms of harvest and transport are relatively high and demand special machinery. It is estimated that the average transport cost constitutes some 25 % of the total cost both for saw-wood and pulpwood. The quality of the round wood is dependent primarily on the quality of the forest being harvested. However, since the quality deteriorates quickly after harvest, freshness is also an important criterion. NSF has also pointed to hygiene and specification of origin as increasingly important quality factors.

4. The market

(16) According to national statistics, the gross value of the 8,5 million m³ round wood cut for industrial sale in Norway 1993/94 was Nkr 2,5 billion. Due mainly to a decline in the rate of harvest, this value has decreased successively from Nkr 3,8 billion 1989/90. The corresponding value of exports and imports in 1994 were Nkr 121 and Nkr 657 million respectively. According to NSF, the total Norwegian harvest of round wood for industrial sale in 1989 and 1991 constituted slightly less than 5 % of the corresponding harvest in the EEA.

(17) As shown in Figure 1, on average around 50 % of the harvested round wood which is marketed is sold to the sawmills and slightly less to the paper and pulp industry. Since the price for saw-wood is higher, saw-wood represents approximately two thirds of the revenue for the forest owners. The category 'others` includes wood preserving industries, furniture manufacturers etc. as well as exports.

Figure 1 Round wood cut for sale by buyer group 1993/94 (19)

>REFERENCE TO A FILM>

4.1. Suppliers

(18) The main part of the forested area in Norway belongs to some 126 000 private forest owners. About 75 % of these are also farmers. A smaller portion is publicly held, mainly by Stasskog, which is a State-owned company, and individual municipalities, whereas the forest industry's share is relatively insignificant. The ownership structure is shown graphically below.

Figure 2 Ownership structure (percentage of total forested area) (20)

>REFERENCE TO A FILM>

4.1.1. NSF

(19) The 57 000 forest owners in the NSF system represent on average some 75 % of the total supply of round wood harvested in Norway. NSF's share of the supply varies from between 60 and 65 % in the eastern part of Norway, to between 80 and 95 % in the other regions. The average sale per forest owner with deliveries in 1994 was Nkr 77 000. However, it should be kept in mind that a majority of the members only harvests at irregular intervals - often at intervals of several years. The overall purchases of round wood from the members vary from year to year depending on price level and harvest, but lately it has amounted to around Nkr 2 billion per year.

(20) The total turnover of the undertakings in the NSF system cannot be estimated accurately. It should be noted that the individual forest owners normally have their main income from other activities, mostly from agriculture. As agricultural income is derived from a commercial activity, it has to be included in the turnover of the individual members of NSF. Consequently, it can be estimated that their total turnover is substantially higher than Nkr 2 billion. As to the total turnover of the district societies, it should be noted that apart from selling the round wood purchased from the individual members, they receive additional income from services related to forestry, such as harvesting and transport coordination, and to a lesser extent from industrial activities. Therefore, their annual turnover can also be estimated to substantially exceed Nkr 2 billion.

(21) In addition to forestry, NSF also has interests in industrial activities, notably through its district societies' ownership in Norske Skog AS, which is the single largest company in the Norwegian forestry industry with a turnover in excess of Nkr 9 billion. The forest owners associations own approximately 30 % of the shares (36 % of the votes) which make them the largest group of owners in the company. NSF has three representatives on the Board of Norske Skog and, traditionally, the chairman comes from the NSF system. There is, however, no such representation in Norsk Virke AS, which is responsible for Norske Skog's procurement of round wood and chips (see below), and transactions between forest owners associations and the Norske Skog Group are said by NSF to be made on commercial terms only.

(22) The central association of NSF is not directly involved in the sale of round wood. Apart from negotiating the general sales conditions with representatives of the industrial buyers, and setting guidelines for the decentralised price negotiations, it has activities relating to information and consultative services for the members, forestry policy shaping, and research in the forestry field.

(23) The actual trading takes place at the district level. Until recently, a district society typically acted as a commercial agent for its individual members. Today, however, it buys round wood from its members and sells it to the industry in its own name. As a consequence, the district society commits itself to deliver certain quantities to the industry, whereas earlier the sale agreements negotiated by the district society reflected an intent rather than commitment.

(24) In practice, the district society concludes an agreement with the industrial buyer starting from a base price ex roadside, which is normally similar to that of other district societies or groups of district societies, plus add-ons for conditions creating extra value for the purchaser, which may vary between the district societies. Such add-ons or bonuses may result from, inter alia, timing of deliveries throughout the year, assistance with transport, commitment to certain quantities and commissions.

(25) Subsequently, or in parallel, the district society concludes individual agreements with its members so as to be able to fulfil the contract with the industrial buyer. Although the base price is based on the industry's offer, the actual price for the individual forest owner may vary, depending mainly on quantity and times of harvest. The forest owner is free to organise the harvest himself, but the district society can give assistance in terms of the financing of machines, advances for future deliveries, guarantees to entrepreneurs, etc. Some 40 % of the harvest is organized directly by the district societies. The transport is mostly done by entrepreneurs and is paid for by the industrial buyers. The district societies, however, often organise the logistics and can present views on the industries' selection of entrepreneur.

4.1.2. Other suppliers

(26) Many of the larger forest owners are members in the other forest owners association, Norskog. Norskog has presently around 200 members. These members represent some 5 to 10 % of the supply of round wood harvest in Norway. The members have an obligation to sell 50 % of their harvested round wood through Norskog. Prices and conditions negotiated by Norskog vis-à-vis the industrial buyers, normally mirror those negotiated by NSF. The commission for pulpwood, however, is lower than that of NSF.

(27) Statsskog is a State-owned undertaking which harvests and sells from forests owned by the state and the church. It represents some 5 to 10 % of the total supply of round wood harvested in Norway. Statsskog also normally receives the same prices and conditions as those negotiated by NSF, but the commission is somewhat lower than for the two associations.

(28) Some 68 000 mostly very small forest owners are operating outside the forestry associations. Many of these, however, harvest only at irregular intervals. Together, they represent some 10 % of the total supply of round wood harvested in Norway. They sell either individually to the industrial buyers or through independent round wood traders. These traders are mostly active in Østfold.

(29) Only about 2 % of the round wood supply stems from forests owned by the forestry industry.

4.2. The purchasers of round wood in Norway

4.2.1. Saw-wood purchasers

(30) There are about 600 saw and planing mills in Norway. Some 120 are members of the Trelastindustriens Landsforening (the Norwegian sawmill industries association, hereinafter referred to as TL). They represent approximately 80 % of the total production of sawn timber. TL is mainly involved in providing information and advisory services to its members, and does not take part in its members activities on the saw-wood market. Purchases are done individually by each sawmill, or in cases of ownership links, by groups of sawmills. According to NSF, the six largest groups represent 50 % of the total purchases.

4.2.2. Pulpwood purchases

(31) In 1993 there were 17 undertakings active in the paper and pulp industry. All purchasers of pulpwood are members of Treforedlingsindustriens Bransjeforening (the branch organization of paper and pulp industry, hereinafter referred to as TFB). TFB has traditionally represented the paper and pulp industry in establishing prices and other trading conditions for pulpwood and wood chips. Within the framework of TFB, the members have agreed to a geographic market sharing arrangement, setting the geographic area in which an undertaking or group of undertakings can purchase pulpwood on the Norwegian market. The Authority has raised objections to this arrangement in a separate case (file No COM 020.0130 - TFB).

(32) Although some smaller paper and pulp mills purchase pulpwood individually in their respective geographic region, some 90 % is procured through the two pulpwood purchasing organizations in Norway. Norsk Virke AS is a joint purchasing company owned by Norske Skog AS (91 %) and Union AS (9 %), and is active mainly in the western and northern part of Norway. It purchases slightly less than 60 % of the Norwegian supply of pulpwood. Østfoldtømmer ANS is the joint purchasing company for Borregard Industries Limited, M. Peterson & Søn A/S and Norske Skog Saugbrugs AS and is active in Østfold in the east of Norway. It accounts for more than 30 % of the Norwegian pulpwood supply. Norsk Virke and Østfoldtømmer are responsible for the procurement of all their owners' needs for raw material in their respective geographic areas, including wood chips from the sawmills and imports.

4.3. The pricing of round wood

(33) The round wood is normally sold ready cut ex roadside. The buyer pays the transportation from roadside to the industrial site, where the actual measurement takes place. It is normally the forest owners association which negotiates the price with the buyer. A central principle in previous price negotiations has been to guarantee that the price paid by the industry for the equivalent quality delivered in this manner is the same throughout Norway. The rationale behind this principle is that all resources in Norway shall be utilized regardless of location. This principle implies an acceptance of equalization measures which compensate for disadvantageous locations.

(34) The round wood is sold either as saw-wood or pulpwood. In general, there seems to be more flexibility in the actual pricing of saw-wood reflecting local differences in supply and demand than is the case for pulpwood.

(35) Until the mid 1980s the price for saw-wood was set in central negotiations between NSF and TL, which represent some 80 % of the Norwegian sawmills' production. These negotiations were subsequently decentralized and today the prices are mainly set in negotiations between the individual district society or other seller and the individual buying sawmill, or, in the case of ownership links, groups of sawmills. To a limited extent, the sales are conducted in a type of auction to the highest bidder. As a consequence of the discontinuation of the central price negotiations, TL no longer has any right to negotiate prices on behalf of its members.

(36) Until 1994, the base price for pulpwood and other sales conditions, including rates of commission, were set in central negotiations between NSF and TFB for one year at a time. Within this framework, possible price adjustments, based on local requirements such as delivery time and quality as well as quantity, were negotiated between the district society and the individual industrial buyer. With the exception of the level of commission, the same prices and conditions were normally offered to sellers outside NSF.

(37) In 1994, against the background of an increase in demand for pulpwood coupled with a relatively low harvest in Norway and correspondingly record high imports, it was decided to carry out regional price negotiations for 1995. Three such regions were established. In each of these, negotiations were carried out jointly by the district societies in the respective region on the one side, and the industrial buyers in the respective region on the other side. As a basis for the district societies' negotiations, the NSF adopted guidelines stipulating, inter alia, that the price should not vary with the distance to the industry and that the negotiations should be coordinated. The resulting base prices and conditions were - in principle - identical in the three regions.

(38) The price negotiations for 1996 were further decentralized, in that they were conducted with each individual buyer. In other words, if a single buyer covered several districts, the corresponding district societies negotiated jointly. If, on the other hand, a buyer only covered one district, the concerned district society conducted the negotiations individually. As a result the prices and conditions for the pulpwood have shown variations between the districts.

4.4. International trade

(39) The cross-border trade in round wood is restricted by factors such as relatively high transport costs, availability of the demanded types and qualities, freshness, differences in measuring and other national regulations (e.g. barking). Still, international trade is growing. One reason for this is the increased use of fast growing, and thus cheaper, wood types from countries particularly in the southern hemisphere for various types of wood products which previously required wood grown in the north. Increased availability of relatively low cost coniferous wood from Russia and the Baltic states have also led to an increase in trade within Northern Europe. In addition, the use of recycled paper has contributed to limiting the constraint put on capacity by local or regional supply of round wood. In Norway, imports seem to be increasing whereas exports are relatively stable or decreasing and since 1994 there has been a substantial import surplus of round wood and wood chips.

Figure 3 Exports and imports of saw-wood (1 000 m³) (21)

>REFERENCE TO A FILM>

(40) The total annual domestic use of saw-wood can be estimated at 4,5 to 5 million m³. The level of imports varies between 5 and 10 % of the domestic supply. Normally, some 90 % or around 250 to 300 000 m³ of the imports come from Sweden, mainly from the border regions. In 1994, when there was a general shortage of round wood in Norway, the imports of saw-wood increased by 50 %. A large part of this increase came from Russia and the Baltic states. Figures supplied from NSF show that an additional 80 000 m³ or a total of 550 000 m³ was imported in 1995. According to representatives of the sawmills, the need for high quality and high transport costs makes substantial increases of imports difficult.

(41) The export of saw-wood is for similar reasons generally restricted to neighbouring markets. Total exports normally amount to some 100 to 200 000 m³ or up to 5 % of the domestic supply. With the exception of 1993, when a very large export order to Turkey was executed in connection with severe storm damages, Sweden is by far the predominant destination of these exports.

Figure 4 Exports and imports of pulpwood (1 000 m³) (22)

>REFERENCE TO A FILM>

(42) The import of pulpwood previously contributed to some 10 % of the industry's needs. However, in 1994 and 1995, some 30 % was imported. The scope for imports of pulpwood is relatively large since the Norwegian paper and pulp industry has access to ports and has the capacity to buy large quantities at a time. Hereby the per unit transport cost, which is the main obstacle to trade, can be kept down. There is a possibility to buy pulpwood on international spot markets, but most imports are governed by contracts covering a full year. Most of the imports stem from Sweden, but there are substantial imports also from Russia, the Baltic States, Germany and, as regards fast growing varieties, South America and Africa.

(43) Exports of pulpwood seem to be limited due to, inter alia, the geographic and topographic conditions prevailing in Norway which increase collection and transport costs, relatively high protection costs and an ownership structure with small and widely dispersed individual forest owners. There are, however, some exports to neighbouring countries, mainly Sweden, corresponding to about 300 to 500 000 m³.

(44) According to NSF, relative price developments of pulpwood follow the same trends internationally, at least in Scandinavia, Germany and France. On the other hand, official statistics (23) seem to indicate large differences in absolute prices of both pulpwood and, to an even greater extent, saw-wood, between Norway and other countries. Statistics provided by NSF suggests that the price differences are relatively smaller between Norway and the other Nordic countries, normally between 5 and 25 % for certain types of pulpwood and saw-wood during the last five years. There are, however, considerable difficulties involved in making comparisons of relative development or absolute level of prices between different countries due to, inter alia, differences in relative proportions of types and qualities of round wood, currency fluctuations, sales conditions (e.g. ex road side, cif, on root), national measuring systems, local price variations within the countries and availability of reliable price statistics. In view of this, it is not possible to draw any definite conclusions from the available information as regards price levels and price developments in Norway compared to those in other countries.

(45) The various wood products stemming from pulpwood and saw-wood are to a large extent exported. The trade within the EEA of such products is substantial. For example in 1994, the export of paper and paperboard from Norway to other EEA countries amounted to Nkr 5,9 billion (24). Prices for many of these finished or semi-finished wood-based products seem to be set internationally.

PART II

LEGAL ASSESSMENT

(46) Following the statement of objections, NSF has in meetings with representatives of the Authority and in written submissions indicated a number of possible amendments to the statutes of NSF, the district societies and the local squads, with a view to finding a solution which would enable the Authority to reach a positive conclusion in the case. The Authority has considered and commented on these possible amendments.

(47) While the indicated amendments would alleviate a significant part of the restrictions on competition identified in the statement of objections, the Authority has nevertheless taken the view that the remaining restrictions would be such as to exclude a positive decision on the matter. Moreover, no changes of the statutes have actually been made or notified to the Authority.

(48) Accordingly, what stands to be assessed in the present case is the request for negative clearance or exemption from Article 53 of the EEA Agreement for the statutes as notified, i.e. as referred to in paragraph 1, points 1 to 3.

1. Article 53 (1)

(49) Under Article 53 (1) of the EEA Agreement, all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between the Contracting Parties and which have as their object or effect the prevention or distortion of competition within the EEA are prohibited.

1.1. General applicability of Article 53 (1) to the notified arrangements

(50) It follows from Article 8 (3) (a) that the provisions of the EEA Agreement apply to round wood. Consequently, the competition rules contained in the EEA Agreement apply to the notified arrangements.

(51) The term 'undertaking` in Article 53 (1) refers to any legal or natural person engaged in an economic activity. The forest owners who are members of NSF, are natural or legal persons who engage in commercial activities and are thus considered to be undertakings within the meaning of Article 53 (1). NSF, the district societies and the local squads are thus associations of undertakings, as well as undertakings in their own right to the extent that they are active in commercial activities. Consequently, the notified statues of NSF, the district societies and the local squads must be considered as agreements between the members or decisions by the association.

1.2. Defining the relevant market

1.2.1. The product market

(52) The round wood traded through the NSF system is in the form of pulpwood and saw-wood. In determining the relevant product market, it is necessary to consider not only the objective characteristics and the intended use of the products in question, but also the conditions of competition applicable to these products.

(53) There is a marked quality difference between pulpwood and saw-wood, reflected both by differences in physical characteristics and in pricing. The intended use is different for the two products. Furthermore, the conditions of competition in the trade of these two products are markedly different, due to the differences in, inter alia, concentration on the buyers' side, levels of imports and coordination of pricing. Although there might be some overlap, depending on the relative prices and the quality needs of the purchaser at any given time, it can thus be held that saw-wood and pulpwood belong to two different markets. This conclusion is further supported by the fact that the principal operators in the trade of round wood, including NSF, distinguish between a saw-wood and a pulpwood market.

(54) It also has to be considered whether it is necessary to further divide the markets for pulpwood and saw-wood. Different types or qualities of pulpwood and saw-wood respectively are not normally substitutable for the end-users, partly because of price differences and partly because of technical requirements. However, some important conditions for trade, such as transporting arrangements and measurement requirements, are the same within these markets. Furthermore, the buyers and sellers who set prices and other commercial trading conditions are principally the same within the pulpwood market and the saw-wood market respectively. For the purpose of assessing the impact of competition of the agreements at hand, it is thus sufficient to refer to one pulpwood market and one saw-wood market.

(55) Finally, it has to be considered whether there are any additional products which should be included in the relevant markets. NSF has argued, in this regard, that pulpwood and wood chips belong to the same market. However, although pulpwood and wood chips are to a large extent physically substitutable for the industrial user, several factors indicate that the conditions of competition for the two products are different. Wood chips are by-products from the sawmills' processing of saw-wood, and the quantities produced are determined by the demand for the saw mills' end products rather than the industry's demand for wood chips and pulpwood. This inflexibility of supply is further aggravated by problems with long term storage due to the relatively greater bulk and quicker rate of deterioration of wood chips compared to logs. Since there seems to be few alternative economically feasible uses for the chips, this would indicate that the sawmills have a relatively weaker position vis-à-vis the purchasers that the pulpwood suppliers. These differences in conditions of competition between the two products are such that, for the purpose of assessing the arrangement at hand, wood chips should not be included in the relevant pulpwood market.

(56) This conclusion is not altered by the fact that there is a link between the pricing of wood chips and the price of pulpwood, in that the value of wood chips for the paper and pulp industry increases when the price of pulpwood goes up. The paper and pulp industry's readiness to pay a higher price for the wood chips should therefore increase. However, the final price for the chips appears rather to be dependent on the bargaining power of the respective sawmill and paper and pulp industry, and not on the price of pulpwood. Conversely, conditions as regards trade in wood chips does not significantly influence the pricing and other trading conditions for pulpwood.

1.2.2. The geographic market

(57) The starting point for defining the relevant geographic market is the geographic area in which the agreements under scrutiny are applicable. In the case at hand, this is Norway. However, this area may be extended if the objective conditions of competition applying to the products concerned are the same for all traders within a larger geographic area.

(58) NSF argues that the relevant geographic market for both pulpwood and saw-wood is Europe or at least Northern Europe including Russia and the Baltic states. It appears that the main grounds for this view are that there is a substantial trade in round wood, especially pulpwood, and that relative price developments follow the same pattern internationally.

(59) There are two general observations to be made with regard to both products. First, it is not surprising that the relative price developments of round wood are similar in most countries around the world. This is to be expected since the ability to pay for the round wood by the industrial buyers is linked to the price developments in internationally traded products such as paper, pulp, and other finished and semi-finished wood products, the prices of which to a large extent are set internationally. This is, however, not necessarily an indication of international markets for pulpwood and saw-wood. On the contrary, the absolute prices in different countries seem to show considerable variations, which would indicate national markets.

(60) Secondly, the cost for transport of round wood is relatively high, on average an estimated 25 % of the total cost for the end-user. Consequently, the round wood would tend to be transported the shortest distance possible, i.e. it would be sold to the industry located the closest. This would indicate regional or even local markets. However, the marketing regimes, such as distribution, purchasing and measurements systems, appear to a large extent to be organized along national lines.

(61) As regards saw-wood, the level of exports from and imports to Norway is relatively low (see section 4.4 above). Due to high quality requirements, it is difficult and costly to transport saw-wood over any long distances, especially if re-loading is required. In addition, the Norwegian sawmills are generally located inland, for which the costs for overseas imports would be prohibitively high. Imports are thus rarely a realistic alternative to domestic supply. The imports that do take place are mainly from Sweden by sawmills located in the border region. Similarly, for the suppliers, exports are normally not a feasible alternative. High transport costs exclude export for the majority of the forest owners, unless they are situated in the border region with Sweden or close to a port. Furthermore, the individual forest owners are in general too small to organize the marketing, the adaptation to different measurement regimes and transport themselves, and the available selling organizations, including the district societies of NSF, have limited activities in this regard.

(62) These obstacles to trade, together with the general characteristics of the saw-wood market in terms of pricing, distribution and purchasing, indicate that the conditions of competition are not sufficiently homogeneous for an area larger than Norway, with the possible inclusion of the border regions in Sweden, to be considered one market. However, the supply from these Swedish regions is relatively limited, up to around 5 % of the total domestic supply, and the exports to these regions are even smaller. Consequently, the inclusion of the Swedish border regions would not influence the assessment of the notified arrangements on the market. It thus suffices to consider Norway as the relevant reference market for saw-wood.

(63) Pulpwood is generally easier to import, despite the fact that the relative value per volume unit is even lower than for saw-wood, and imports constitute up to 30 % of the total supply. The Norwegian buyers are large enough to buy large quantities, for example a shipload, and thus keep transport costs down. Furthermore they have access to ports. Transport costs from the border region in Sweden, which is by far the largest source of imports, are not necessarily higher for industry located in that region than for domestic raw materials. Nevertheless transport costs and the availability of particular qualities at any given time set limits on these imports.

(64) The sellers, however, face the same problems as with the export of saw-wood. High transport costs relative to the value and lack of international traders make export impossible for almost all forest owners except those situated in border regions or close to international ports. Consequently, the level of exports is relatively low.

(65) The general characteristics of actual market conditions, including pricing, which is determined through negotiations between domestic sellers and buyers, as well as distribution and purchasing systems, which are determined domestically, all indicate a national market. At the same time, the relatively high level of imports indicate a certain degree of demand side substitutability between domestically procured pulpwood and pulpwood originating in primarily Sweden, Russia and the Baltic States. It is acknowledged that prices that the purchaser may obtain for imports form these countries may be an important element in the price negotiations between buyers and sellers in Norway. This could to some extent influence the relative bargaining strength of the market operators and should thus be taken into consideration when assessing the actual market power of these operators. However, the relatively high level of imports is not in itself enough to conclude that Norway and the main exporting countries belong to the same market. Instead, given the general market conditions together with the obstacles to trade indicated above, the price and other trading conditions, which are the main elements in delimiting a market, would primarily be determined by domestic factors.

(66) In view of the above, it must be concluded that the objective conditions of competition are at present not sufficiently homogenous in an area wider than Norway, and possibly certain areas in Sweden bordering Norway, for it to be considered one geographic market. Since the inclusion of Swedish border regions would not influence the assessment in this case, it is thus sufficient to refer to Norway as the relevant geographic market for pulpwood.

1.3. Restrictions of competition

(67) The statutes of NSF, its district societies and local squads, include clauses which concern the central coordination of the commercial conditions for the sale of round wood as well as the control of the members' commercial behaviour at district level. In particular there are clauses which:

- give NSF the right to negotiate prices and framework quotas for its members and allocate these quotas among the members or district societies,

- give NSF or the district society the right to impose market regulations on their members, such as reducing or stopping the members' production of round wood or equalising prices, and

- oblige the members to sell all their harvested round wood to the district society in their respective geographic area.

(68) The Authority recognizes that the sheer number of individual forest owners, the geographic and topographic conditions prevailing in large parts of Norway together with a relatively concentrated buyer side, may make some coordination on the seller's side necessary in order to safeguard the functioning of the Norwegian round wood markets. The forming of a cooperative structure and coordinating the marketing of the members' output at district level to the extent that other market outlets could not fulfil the same function would thus not necessarily restrict competition. Nor would the general services provided by the NSF system, such as forestry counselling, harvesting assistance and exchange of market statistics normally have such effects.

(69) However, the notified clauses go much further than this. The clauses relating to NSF's right to negotiate on behalf of its members allow NSF to fix prices and other trading conditions, which is expressly prohibited in Article 53 (1) (a). The market regulatory clauses afford NSF and the district societies the possibility to limit production, which is expressly prohibited in Article 53 (1) (b). Finally, the exclusive delivery clause upholds a geographic market sharing arrangement expressly prohibited in Article 53 (1) (c). The individual members of NSF as well as the district societies are potential competitors on the markets for round wood. All these clauses severely restrict the possibility of competition within the NSF system. They restrict the commercial freedom of NSF's members, not only in the event of centrally negotiated or centrally coordinated prices or if market regulatory measures are imposed, but also because the exclusive supply clause eliminates the possibility for members to use marketing channels outside the NSF system. The latter also has the effect of foreclosing the possibility for alternative marketing channels to get access to the round wood produced by NSF members, which account for some 75 % of the total domestic supply, and thus impedes their possibility to compete effectively.

(70) It could be argued that under exceptional economic circumstances even such clauses, in spite of the restrictions identified above, would have an overall pro-competitive effect and thus fall outside the scope of Article 53 (1). NSF has in this regard pointed especially to the concentrated buyer side. However, the saw-wood market, which accounts for some two thirds of the value of the round wood trade, consists of around 600 sawmills which conduct their purchases individually or through at least six major groupings. This market structure would not indicate an exceptional imbalance in favour of the purchasers of saw-wood. The pulpwood market is dominated by two purchasing organizations. However, it cannot be held that only the presence of these two purchasing organizations implies a market imbalance so severe as to necessitate the near elimination of competition between suppliers in order to ensure the functioning of the pulpwood market. Consequently, the structures of the saw-wood market and the pulpwood market do not indicate the type of exceptional economic circumstances which might lead the NSF system and thus the clauses under review to fall outside the scope of Article 53 (1).

(71) With regard to the exclusive supply clause, NSF has argued that it does not constitute a restriction of competition within the meaning of Article 53 (1), given that the cooperation itself between the forest owners is justified and that the clause is necessary in order to ensure the proper functioning of the NSF system and the bargaining power of the forest owners. In support of this view, NSF has referred to the judgements of the Court of Justice of the European Communities in Coberco (25) and DLG (26). In these judgements, the Court assessed the compatibility of certain restrictions with Article 85 (1) of the Treaty of Rome considered to be necessary to ensure the proper functioning of the cooperative structures concerned.

(72) On this point, the Authority first notes that NSF's reasoning apparently relates to the exclusive supply clause only. Therefore, and since there are also other clauses which restrict competition within the meaning of Article 53 (1), the notified arrangements would be prohibited under that provision even if NSF's line of reasoning with regard to the exclusive supply clause were to be accepted.

(73) That fact apart, the position taken by NSF on this point is in the Authority's view based on a misconception of the case law relied upon. Thus it is well settled case law, and it is clear also from the two cases referred to by NSF, that before any issue could possibly arise as to the necessity for a restrictive clause for the proper functioning of an agreement, it would have to be established that the agreement itself is not of such a nature as to fall within Article 53 (1) (27). In determining whether or not this is the case, it is not sufficient to consider in isolation the policy aims pursued by the parties to the agreement and the form or organizational structure in general of the cooperation envisaged in order to fulfil these aims. Rather, it is necessary to examine the real nature of the cooperation in the light of, inter alia, the economic context in which it is to take place and the structure of the market concerned (28).

(74) Accordingly, in order to consider that the NSF system as such falls outside the scope of Article 53 (1), it is not sufficient to find cooperation between the forest owners to be justified and a cooperative structure to be a legitimate form for such cooperation. Rather, the relevant question is whether or not, given the economic circumstances prevailing on the market, a cooperation between forest owners representing 75 % of the domestic supply of round wood, implying the character and scope of restrictions on their commercial freedom envisaged in the statutes concerned, can be considered to be of such a nature as to fall under the prohibition of Article 53 (1). Only if this question is answered in the negative would the issues raised by NSF on this point become relevant. As should follow from what has already been said, the question must in the Authority's view be answered in the positive, given in particular the strong position of the NSF system on the Norwegian round wood markets and the nature and scope of the restrictions.

(75) Although it follows from what has been said that the question of whether the exclusive supply clause is necessary for the proper functioning of the NSF system is not of relevance in the present context, it is noted that in discussing below the request for an exemption under Article 53 (3), the Authority takes the view that the clause is not necessary in order to ensure the fulfilment of the aims pursued. Accordingly, even assuming that NSF's reasoning in the present context would be valid in principle, it would in the Authority's view nevertheless have to be rejected in the case at hand.

(76) Finally, as concerns the appreciability of the restrictions, it is noted that the notified arrangements contain clauses relating to price fixing, market sharing and limitation of production which are contrary to the fundamental principles of the EEA competition rules. Furthermore, the NSF system represents some 75 % of the round wood harvested in Norway, corresponding to a value of some Nkr 2 billion a year. In terms of market shares, the NSF system has a collective share - including imports - of some 70 % of the saw-wood market and some 60 % of the pulpwood market. In view of the above, the restrictive effects on competition of the notified arrangements must be considered to be appreciable.

1.4. Effect on trade

(77) In order for Article 53 (1) to apply, it has to be established that the agreements may have an appreciable effect on trade between the Contracting Parties to the EEA Agreement.

(78) The notified arrangements may have a direct effect on export of round wood, since restricting output, influencing domestic prices or other commercial trading conditions and excluding sales of round wood to any other party than the district society may have an influence on the NSF-members' willingness or possibility to export. It is acknowledged that the export from Norway is relatively low, only some 5 % of the total harvest and is in principle restricted to the border regions with Sweden and certain coastal areas with direct access to a port, and that any such effect may thus be limited.

(79) However, according to case-law of the Court of Justice of the European Communities (29), the fixing of price for an intermediate product which is not normally exported out of the region in question is capable of affecting trade between Member States, where that product constitutes the raw material for another product marketed elsewhere in the Community. In the present case, the notified arrangements afford NSF and its district societies the possibility to influence the price and other trading conditions for pulpwood and saw-wood. Pulpwood and saw-wood are intermediate products used as the main raw material for important export products of Norway such as paper, pulp and sawn wood. Consequently, the notified arrangements may affect the trade flow of the downstream products in the EEA.

(80) The notified arrangements may also effect imports of round wood. Since NSF and the district societies can influence the prices and availability of round wood for the industrial buyers in Norway, this has a direct effect on the industries' need to import round wood for its production of downstream products. The fact that the availability of domestic pulpwood has an impact on imports can be illustrated by the situation in 1994, when harvesting and thus the availability of domestic pulpwood was reduced and imports more than doubled in one year.

(81) The Authority has indicated in its so-called de minimis notice (30) general guidelines for determining when it considers such effects or potential effects on trade appreciable. As has been described earlier (see section 1.2.2. above), the Authority is of the opinion that Norway forms a distinct geographic market for the products concerned. Since the notified arrangements cover the whole of this geographic market and a substantial part of the products concerned, the relevant market shares would clearly exceed the 5 % indicated in the notice. However, even if the widest possible definition of the relevant market suggested by NSF would be accepted, which arguably would make the NSF systems' market share fall below 5 %, the turnover threshold of ECU 300 million indicated in the notice would still be exceeded. It is stated by NSF that a major part of the individual forest owners' turnover relates to other activities than round wood trade, and that the district societies are active in a range of supporting services. Given the turnover of round wood stemming from the NSF system, it can therefore be deduced that the total turnover of the undertakings participating in the NSF system would exceed ECU 300 million.

(82) It must thus be concluded that, in light of the large influence of the notified arrangements on the relevant market and the combined size of the undertakings concerned, these arrangements may effect trade within the meaning of Article 53 (1).

2. Article 53 (3)

(83) In order to qualify for an exemption from the prohibition in Article 53 (1), the applicant must show that the agreements improve production or distribution, or promote technical or economic progress, while allowing the consumers a fair share of the resulting benefit. To be characterized as such benefits, the objective advantages gained must outweigh the detriment to competition (31). Furthermore, the restrictions contained in the arrangements must be indispensable to the attainment of these benefits and the arrangements must not afford the concerned undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. In the Authority's view, the notified agreements have not been shown to fulfil any of these conditions.

(84) It should be noted, as a starting point, that the joint fixing of prices or price components, employing a nationwide system of uniform delivered prices regardless of the location of the purchaser, limiting production as well as sharing markets by competing undertakings are normally considered to be against the very principles of competition by artificially influencing the balance between supply and demand and can only be exempted under exceptional circumstances. The notified statutes contain provisions implying or allowing for all these restrictions.

2.1. The benefits of the arrangements

(85) NSF has argued that the cooperation between the forest owners in the NSF system contributes to improving the production and distribution of round wood in Norway. In particular, it is essential for securing a steady and timely supply of round wood of adequate quality to the forest industry. Furthermore the cooperation contributes to efficient harvesting and transport and to the improvement of the quality of round wood by measures taken in the forestry, harvesting and distribution stages. The sheer number of individual forest owners, as well as the geographic and topographic conditions prevailing in Norway would make trade in round wood much less efficient and considerably more costly for the industry without the cooperation between the forest owners.

(86) NSF has also argued that the cooperation has positive effects in that it contributes to the protection of the environment and to a sustainable development of forestry resources. Moreover, by applying a one-price system within the respective district, the disadvantages for distantly located forest owners, in particular in terms of production costs, are counteracted. This, in turn, is said to facilitate the attainment of politically set goals related to a balanced use of forest resources, a development of environmental values and to increase the forestry sector's contribution to employment and economic activity throughout the country.

(87) The Authority does not have reason to question whether the NSF system taken as a whole has certain benefits. This could very well follow from the particular structure of the Norwegian forestry sector and the way the NSF system is operated. It is, however, questionable whether the effects of restraining forest owners in their role as economic operators can be held to improve economic efficiency and hence improve production or distribution or to promote technical or economic progress within the meaning of Article 53 (3). The presumption that such constraints reduce economic efficiency could also be maintained.

(88) These general remarks aside, in considering possible benefits of the NSF system as a whole it has to be kept in mind that the issue to be considered is limited to the question of whether the restrictions on competition contained in the notified statutes contribute to objective benefits which outweigh the harm to competition. It follows from this that the possible benefits of the NSF system as a whole, as opposed to benefits which are a direct consequence of the restrictive clauses themselves, would only be of relevance to the extent that the restrictive clauses are necessary for the functioning of the NSF system itself.

(89) The restrictions which have to be examined can be categorized in two groups. First, the possibility of central coordination of the members' commercial activities, including the setting of prices and other commercial trading conditions. Second, the control at the district level of the members' commercial behaviour, in particular the obligation for individual forest owners to sell all their round wood through the district society and the possibility for imposing market regulatory measures.

2.1.1. The central coordination

(90) The possibility of central coordination by NSF of the market behaviour of its members is primarily based on paragraphs 6 and 7 in the NSF statutes, which enable NSF to conduct negotiations on prices, quantities and other commercial conditions as well as to decide on nationwide market regulatory measures. Although there has not been any central price negotiations since 1994, the NSF has adopted binding guidelines for regional price negotiations in 1995. The market regulatory powers and the possibility to assist ailing district societies do not seem to have been used.

(91) The price negotiation clauses enable NSF to fix the prices and other commercial conditions for all its member's sale of round wood. It might conceivably be argued that centrally agreed prices and other commercial conditions promote a stable trade in round wood. Similarly, it could be argued that NSF's market regulatory power could possibly be instrumental for upholding a functional market in times of, inter alia, natural catastrophes. However, these clauses, if applied, could effectively eliminate all competition between the individual members of NSF and between the district societies. The possible advantages of these clauses can not be such as to outweigh the detriments to competition and can thus not be seen as improvements within the meaning of Article (53) 3.

2.1.2. The control of the members' commercial activities at the district level

(92) Apart from the stated purpose to, inter alia, impose market measures if necessary and gather the members to act jointly, there are mainly two clauses on which the district level control of the members' commercial activities are based: The obligation for the forest owner to sell all his round wood to the district society, and the right for the district society on its own, or after a decision in NSF, to oblige the members to reduce or stop the harvest or delivery of round wood and to equalize prices paid to the members.

Exclusive supply clause

(93) The alleged benefits in relation to the obligation to sell round wood to the district society can be categorized in two groups. The first group includes all the alleged advantages of the NSF system taken as a whole, which are indicated in paragraph 85 and 86 above, on the ground that the clause is necessary to safeguard the functioning of the NSF system. The second group relates to benefits which are seen by NSF as direct consequences of the clause as such.

(94) As regards the first group, it has not been shown that the exclusive supply clause, as notified, is in fact necessary for the existence of the NSF system and thus contributes to any advantages of this system. NSF has admittedly argued that a removal of this clause could lead to a reduction of the deliveries through the NSF system, which, in turn, would weaken the economic foundation of the district societies since their activities are mainly based on the amount of round wood sold to them by their members. However, it has neither been shown that any decisive weakening of the NSF system's economic basis would, or is likely to, take place if the exclusive supply clause were modified or even removed, nor that such a weakening would lead to, or be likely to lead to, the removal of the alleged benefits of the NSF system. Consequently, assuming that the NSF system as a whole could be deemed as having such benefits as required for an exemption under Article 53 (3), the Authority has no grounds to conclude that the exclusive supply clause itself would to any appreciable extent contribute to these benefits.

(95) As regards the second group of alleged benefits, NSF argues that the clause mirrors the member's right to sell all his harvested round wood to the applicable district society, and that the security implied thereby promotes the overall supply and secures deliveries also from remotely located forest owners. Furthermore, a removal of this clause is said to limit the district societies' possibility to secure contractual supply commitments as well as weaken the district societies' bargaining power vis-à-vis the industrial buyers.

(96) As regards the first argument, the right to deliver does not entail a right to any particular price for the forest owner. The obligation for the district society to buy the round wood is an obligation to buy at the price it determines itself. The obligation of the forest owner to sell the wood is an obligation to sell at a price determined by his commercial counterpart, namely the district society. These obligations are not symmetric. The supply of round wood will reasonably depend primarily on the price that the district society offers. Consequently, the right to supply in itself would thus not necessarily promote the supply, not even from remote areas.

(97) Although the ability to forecast deliveries to the district society might, at least to some extent, be improved by ensuring that there is no competition for the members' supply, this type of uncertainty resulting from competitive pressure is inherent in all normal commercial activity. Consequently, the removal of this uncertainty cannot be deemed to be an objective advantage (32).

(98) Concerning the maintenance of the district societies' bargaining power, it is doubtful, given the market structure of in particular the saw-wood market, if this could be considered an objective advantage at all within the meaning of Article 53 (3). However, even if this were to be the case, the role played by the exclusive supply clause appears relatively small in this regard.

(99) The bargaining power vis-à-vis the industrial buyers is determined partly by the quantities, qualities and timing of delivery of the round wood a district society can offer for sale, and partly by the alternative sources of supply available to the buyer. The quantities, qualities and timing of delivery from the district society's members are determined by individual contracts. Although the exclusive supply clause might have some influence on the members' readiness to enter into such contracts, the main factor for securing the contracts are the specific conditions offered. Provided that these are competitive in the areas where the district society faces competition from alternative marketing channels, the number of such contracts would not be reduced. Supplies from alternative marketing channels are not always available, and the district societies' relative size and ability to provide additional services, such as transport coordination, indicate that they would remain the main source of supply for the industry. The district society's relative bargaining position vis-à-vis the industry can thus only to a limited extent be considered as determined by the existence of the exclusive selling clause.

(100) Turning to the detriments to competition, it follows from the nature of the clause that it restricts the possibility for competition between members and it effectively forecloses a large part of the supply of round wood to market operators outside NSF. In practice, it hinders the individual NSF member from, at any given point in time, using alternative marketing channels for its round wood. There are only two ways for an individual member to react if the district society is not considered to offer competitive conditions; by declining to harvest or by leaving the organization. The first alternative might lead to a less than optimal supply of round wood to the market. The cumulative effect of such actions could be a substantial reduction in supply.

(101) As regards the second alternative, it is noted that the district societies hold a key position in services which are essential for individual forest owners, such as counselling, harvesting, financing and transport. Furthermore, a leaving member has no claim on the assets of the district society nor do the statutes guarantee any right of re-entry. These factors, together with less tangible links such as tradition and local group pressure, may make members hesitate to leave the organization in order to sell round wood through alternative marketing channels. This in turn limits the possibility for such marketing channels to provide an effective competitive pressure and could lead to the preservation of inefficient distribution structures.

(102) In view of the above, there is no ground for concluding that the exclusive supply clause contributes significantly to the promotion of the supply of round wood, to securing the supply for the industry or maintaining a proper balance between buyers and sellers on the round wood markets, or to any other alleged advantages. On the other hand, this clause has clear anti-competitive effects, both as regards NSF-members' possibility to compete and the foreclosure of supply to non-NSF market operators, and may preserve inefficient production and distribution structures. Therefore, on balance, the exclusive supply clause as notified cannot be held to have such benefits as required for an exemption under Article 53 (3).

Market regulatory clause

(103) The market regulatory clause is, according to NSF, only intended for extraordinary situations, such as large clearance work after storms, when there has been established cooperation with the national authorities concerned. The clause is thus said not to have any practical effect on competition in the round wood markets.

(104) Imposing market regulatory measures in times of natural disasters could be necessary in order to avoid a market collapse and would thus have such benefits as are required for an exemption under Article 53 (3). The maintenance of a functioning market in such situations is also likely to be in the ultimate consumers' interests.

2.2. Indispensability

(105) As shown in section 2.1.1, the central coordination by NSF of the forest owners in the NSF system in itself would not have the objective benefits required for an exemption under Article 53 (3). Furthermore, it is not clear that there is any link between the possible benefits of the NSF system as such and the clauses relating to this central coordination. It is noted in this regard that the functions of the NSF system, which NSF has described as contributing to the efficiency of the round wood markets, are performed without these clauses being applied in practice. Consequently, even if the central coordination reflected in these clauses would have fulfilled the benefit requirement, it has not been shown that they are indispensable for the attainment of these benefits.

(106) As regards the exclusive supply clause, it has not been shown to improve production or distribution or promote technical or economic progress. However, even if this had been the case, it is difficult to see how an absolute obligation for members to supply all their round wood through the applicable district society could be held to be indispensable for any of the benefits which NSF claim is the result of this clause. The two main alleged benefits are to safeguard the functioning of the NSF system (are hereby contribute to the possible advantages of the whole system) and to maintain the balance vis-à-vis the industrial buyers on the Norwegian round wood markets, presumably in order to secure the proper functioning of these markets.

(107) As has been stated earlier, it has not been shown that the exclusive supply clause is in fact necessary for the existence of the NSF system, and thus the clause cannot be held to be an indispensable restriction to achieve the alleged advantages stemming from this system. The exclusive supply clause is only one of several factors which may contribute to the bargaining power of the NSF system, and is thus of limited importance for this aim. Consequently, even if the maintenance of a market balance would be considered an objective benefit, which at least as regards the saw-wood market is very doubtful, the absolute obligation for members to supply their round wood through the NSF system could hardly be considered indispensable for achieving such an alleged benefit.

(108) It must thus be concluded that even if there had been the required objective advantages, the exclusive supply clause has not been shown to be indispensable for attaining any such benefits.

(109) Finally, as regards the district level market regulation clause, there is no mention in the clause itself of natural disasters being the only criterion for employing market regulatory measures. There is, therefore, nothing preventing a district society from using the clause and restricting output in order to influence the market prices of round wood even under normal circumstances. The scope of the clause is thus not in proportion to the limited aim of mitigating the impact of natural disasters on the round wood markets. Consequently, it cannot be considered to be indispensable for the attainment of this aim.

2.3. Elimination of competition

(110) The possibility of central coordination of prices, output and other commercial conditions at a national level, as well as the market regulatory powers and exclusive supply clause at the district level, do effectively eliminate competition within the NSF system and may have a negative impact on the possibilities for other suppliers to compete actively. The NSF system is by far the largest supplier with some 75 % of the Norwegian supply of both pulpwood and saw-wood. Its shares of the pulpwood and saw-wood markets, including imports, are some 60 and 70 % respectively. The market power vis-à-vis the buyers may be limited, in particular on the pulpwood market where it faces a very concentrated buyer side, with the capability of substituting a substantial part of the supply from the NSF system with imports. However, the present set up makes effective competition on the supply side virtually impossible. On this basis, it must be held that the arrangements as notified afford NSF and the undertakings party to the NSF system the possibility to eliminate competition in respect of a substantial part of the products in question. Consequently, even if the other conditions were fulfilled, an exemption based on Article 53 (3) could not be granted,

HAS ADOPTED THIS DECISION:

Article 1

The notified statutes of NSF, the standard statutes of forestry district societies and the standard statutes of forestry local squads constitute an infringement of Article 53 (1) of the EEA Agreement insofar as they:

- give NSF the right to negotiate prices and framework quotas for its members and allocate these quotas among the members or district societies,

- give NSF and the district societies the right to impose market regulations on their members, such as reducing or stopping the members' production of round wood or equalizing prices, and

- oblige the members to sell all their harvested round wood to the district society in their respective geographic area.

Article 2

An exemption under Article 53 (3) of the EEA Agreement for the agreements mentioned in Article 1 is hereby refused.

Article 3

The undertakings concerned shall bring to an end forthwith the infringement as mentioned in Article 1 and shall refrain from taking any measure having the same object or effect.

Article 4

This decision is addressed to:

Norges Skogeierforbund

Haldenvassdragets Skogeierforening

Nedre Glommen Skogeierforening

Glommen Skogeierforening

Tryssilvassdragets Skogeierforening

Mjøsen Skogeierforening

Drammensdistriktets Skogeierforening

Vestfold-Lågen Skogeierforening

Telemark Tømmersalgslag

Nidarå Tømmersalgslag

Agder Skogeigarlag

Rogaland Skogeigarlag

Hordaland Skogeigarlag

Sogn og Fjordane Skogeigarlag

Møre og Romsdal Skogeigarlag

Sør-Trøndelag Skogeierforening

Inn-Trøndelag Skogeierforening

Namdal Skogeierforening

Nordland Skogeierforening

Troms Skogeierforening.

Only the English and Norwegian texts of this Decision shall be authentic.

Done at Brussels, 24 April 1997.

For the EFTA Surveillance Authority

The President

Knut ALMESTAD

(1) The notification also encompasses price agreements for saw-wood between local district societies and local purchasers as exemplified by the price agreement for coniferous saw-wood in Nordenfjells dated 21 December 1993 (Prisavtale for sagtømmer av bartre Nordenfjells). These agreements are not covered by the present Decision.

(2) Vedtekter for Norges Skogeierforbund.

(3) Normalvedtekter for skogeierforeningar.

(4) Normalvedtekter for skogeierlag.

(5) Rammeavtale om prisforhandlingsordning for massevirke av bartre.

(6) Prisavtale for massevirke av bartre for perioden 1. januar 1994 - 31. desember 1994.

(7) Retningslinjer for framtidige massevirkeforhandlinger.

(8) Vedtak om massevirkeforhandlinger 1995.

(9) Avtale om prisforhandlingsordning for massevirke av bartre for 1995.

(10) Rammeavtale om omsetningsordning for massevirke av bartre.

(11) Provisjonsavtale.

(12) Paragraph 5 of NSF's statutes and Paragraph 4 of the standard statutes for district societies and local squads.

(13) Paragraph 21 of NSF's statutes and Paragraph 14 of the standard statutes for district societies.

(14) Paragraph 4 of the standard statutes for district societies and local squads.

(15) Paragraph 20 of NSF's statutes, Paragraph 15 of the standard statutes for district societies and Paragraph 11 of the standard statutes for local squads.

(16) Paragraph 6 of NSF statutes.

(17) Paragraph 7 of NSF statutes and Paragraph 5 of the standard statutes for district societies.

(18) Paragraph 8 of NSF statutes. This clause previously contained provisions for charging a fee from the members to finance market measures. This was changed by the NSF Annual General Meeting on 2 June 1995.

(19) Roundwood cut 1993/94, Official Statistics of Norway.

(20) Source: NSF.

(21) Source: NSF.

(22) Source: NSF.

(23) Forest product prices 1992-1994, Timber Bulletin 1995 No 1, FAO.

(24) Official Statistics of Norway.

(25) Coberco (1995 ECR, p. 4515).

(26) Gøttrup Klim v. DLG (1994 ECR, p. 5641).

(27) See, inter alia, Coöperative Stremsel- en Kleurselfabriek v. Commission (1981 ECR, p. 851, paragraphs 12 to 13); Dansk Pelsdyravlerforening v. Commission (1992 ECR, p. 1931, paragraph 78).

(28) Id.

(29) See, inter alia, BNIC II (1987 ECR, p. 4789).

(30) Notice of the EFTA Surveillance Authority on agreements of minor importance which do not fall within Article 53 (1) of the EEA Agreement (OJ L 153, 18. 6. 1994, p. 32, and EEA Supplement to OJ 15, 18. 6. 1994, p. 31), as amended by the notice of the EFTA Surveillance Authority updating the notice on agreements of minor importance of 12 January 1994 (OJ C 281, 26. 9. 1996, p. 20).

(31) See, inter alia, Consten and Grundig v. Commission (1966 ECR, English edition, p. 299, and in particular p. 348).

(32) See, inter alia, Consten and Grundig v. Commission (1966 ECR, p. 348)