Article 2
This Decision is addressed to: Zellulosefaser Beteiligungs-Gesellschaft mbH Schillerstraße 1 A - 4020 Linz Austria Done at Brussels, 17 October 2001. For the Commission Mario Monti Member of the Commission (1) OJ L 395, 30.12.1989, p. 1; corrected version published in OJ L 257, 21.9.1990, p. 13. (2) OJ L 180, 9.7.1997, p. 1. (3) OJ C 69, 19.3.2004. (4) OJ C 69, 19.3.2004. (5) See Commission decision of 20 December 1999 in Case COMP/M.1755, CVC/Acordis (OJ C 30, 2.2.2000, p. 7; seller: Akzo Nobel), as well as Commission decision of 30 June 1998 in Case IV/M.1182, Akzo Nobel/Courtaulds (OJ C 265, 22.8.1998, p. 28) and Commission decision of 19 December 1991 in Case IV/M.113, Courtaulds/Snia (OJ C 333, 24.12.1991, p. 16). (6) Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets and marked with an asterisk. (7) Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C 66, 2.3.1998, p. 25). (8) The main Acordis activities in the filament yarn sector are: viscose textile filament, viscose industrial filament, acetate textile filament, polyester industrial filament, and industrial polyamide filament. Acordis is also active in acrylic staple fibres and carbon industrial fibres. Since these products do not cause any competitive concern, they are not considered any further. (9) For illustration see the following quotation from an internal document of the parties: [...]*. (10) See Commission decision in Case IV/M.1182, Akzo Nobel/Courtaulds (reference given above) et al. (11) See Commission Decision 93/9/EEC of 30 September 1992 in Case IV/M.214, DuPont/ICI (OJ L 7, 13.1.1993, p. 13) et al. (12) For instance, in the textile filament yarn markets as regards viscose and acetate (Commission decision of 19 December 1991 in Case IV/M.113, Courtaulds/Snia and Commission decision of 30 June 1998 in Case IV/M.1182, Akzo Nobel/Courtaulds), polyester and polyamide (Commission decision of 3 February 1994 in Case IV/M.399, Rhône-Poulenc-Snia/Nordfaser (OJ C 42, 12.2.1994), polyester and viscose (Commission decision of 10 February 1995 in Case IV/M.533, TWD/Akzo Nobel/Kuagtextil (OJ C 46, 23.2.1995, p. 5)); in the carpet fibre markets as regards polyamide (nylon) and polypropylene fibres (Commission decision in Case IV/M.214, DuPont/ICI (reference given above). (13) OJ C 94, 30.3.1996. Commission notice on the extension of the period of validity (OJ C 24, 29.1.1999, p. 18). (14) At paragraph 2.4. The same submission is made in the parties' letter (on page 3) where the notifying party also points to alleged "duplication". The Commission maintains that its evaluation of the market investigation is not inflated by double-counting. (15) It should be noted that of the customer contact details supplied by the parties (in their reply, these are said to be more than 300), a significant number could not be used in the Commission's market investigation because these contact details, in particular the fax numbers, were not correct. Although the Commission drew the parties' attention to this fact at an early stage, the parties did not supply correct contact details. (16) At paragraphs 2.2 (third bullet point), 2.16 et seq. and 3.11. (17) Small but significant, non-transitory increase in price (SSNIP). (18) Question 8 of the Commission's phase II questionnaire to customers reads as follows: "8. (1) For the manufacture of each of your abovementioned products (groups) made of viscose staple fibres, if the price of viscose staple fibre were to rise permanently by 5 %, would you: a) use 100 % other types of fibres instead of VSF; b) reduce the VSF percentage in the blend; c) cease producing this product, or d) not change anything? (2) By how much would this reduce your overall VSF consumption? (3) By how much would the prices of your VSF products rise in case you did not use other types of fibres, nor reduced the percentage of VSF nor ceased producing?" Question 9 repeats question 8, based on a 10 % price increase. Question 10 repeats question 8, referring to products or groups of products made of lyocell. Question 11 repeats question 10, referring to a 10 % price increase. Question 15 reads as follows: "In general and in the event of a permanent price increase of 5 to 10 % would you (fully or partly) switch from VSF or lyocell to another type of fibre and by how much would these switches reduce your consumption of VSF or lyocell?". (19) Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p. 5) paragraph 17. (20) See footnote 17. It should be noted that question 15 even provided addressees with concrete possibilities of switching, such as "VSF to lyocell" or "lyocell to VSF". (21) Questions 8(2), 9(2), 10(2) and 11(2) of the phase II questionnaire to customers (see footnote 17). (22) At paragraphs 2.2 (third bullet point), 2.16 et seq. and 3.11. (23) See Commission Decision 93/9/EEC of 30 September 1992 in Case IV/M.214, DuPont/ICI (OJ L 7, 13.1.1993, p. 13) paragraph 23; see also the Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p. 5) paragraphs 15, 17. (24) This is confirmed by the following statement in an internal document submitted by CVC: [...]*. (25) This is confirmed by the following statement in an internal document submitted by CVC: [...]*. (26) [...]*. (27) At paragraphs 2.5 et seq., in particular at paragraph 2.7. (28) At paragraph 2.18 and in Appendices 6 and 7. (29) The evaluation of these questionnaires is discussed in recitals 40, 188 and elsewhere. (30) The examples stated by the parties in their reply (Appendices 6 and 7) represent less than 10 % of their total customer base. (31) The information was made available to the parties on 11 September 2001 (see recital 10). (32) The figure indicates the volume of sales lost due to customer switching on total volume of sales to customers responding to this question. The sample of customers responding is highly representative, constituting well above 50 % of the parties' total sales in the EEA. The Commission has also asked a different question on switching in phase I of the investigation which, as it explicitly includes an estimation on the reactions of downstream customers, will be discussed in the assessment of competitive constraints in recitals 187 to 190. Likewise, the issue of volume reduction due to stopping production will be discussed there. (33) Nowadays, viscose accounts for some [< 5 %]* of all world staple fibre consumption (combined with lyocell: [1500 to 1700]* kilotonnes per year, [...]*), but viscose has twice the relative importance in the EEA [< 10 %]* where cotton is used significantly less than in other geographic areas [< 40 %]* in the EEA, [< 60 %]* worldwide). The respective figures for polyester are: [< 25 %]* in the EEA, [< 25 %]* worldwide; and for polypropylene: [< 15 %]* in the EEA, [< 10 %]* worldwide. (34) This decline is largely due to a decline in textile VSF consumption (which is in turn linked to the general decline in European textile production). As regards the changing percentages of textile and non-woven consumption, see recitals 145 to 148. (35) Note, for instance, the increasing use of VSF for disposable non-wovens (wipes, surgical gowns, swabs, wound dressings) where VSF has itself replaced (predominantly non-disposable) cotton fabrics and gauzes. (36) See footnote 25. (37) See also the results of the Commission's price correlation analysis (Table 1/recitals 72 to 74). (38) At paragraph 2.27. (39) Evidence on technological development in spinning can be found on the following websites by leading OE rotor spinning technology companies: 1. http://www.suessen.com/htmls/ foemi.htm. According to the Suessen site, the OE spinning technology, which is based on developments of the 1960s and 1970s, had its commercial breakthrough in the 1980s and has been considerably improved since that time, e.g. by enhancing spinning speed by 50 % between 1983 and 1995. That these developments are not entirely neutral with respect to fibres is equally indicated on the Suessen website which states: "Polyester and other synthetic fibres are prone to thermal and mechanical fibre defects, particularly at high production speeds." (http://www.suessen.com/htmls/ foepp5.htm). 2. http://www.elitex-saurer.cz/ indexger.htm The Elitex-Saurer webpage also contains evidence on the fibre specificity at (or at least reduced fibre range suitability) for use with certain components of spinning machines, e.g. with navels and particularly opening rollers. (40) At paragraph 2.27. (41) [...]* However, one of only three customers cited in support of this hypothesis explicitly states: "Until the development work is done it is impossible to give detailed answers to your Q.16" (Commission file page 3217. Question 16 which this customer refers to asks "If switching to other types or blends is not an option for you or if switching is not possible to a sufficient degree in order to offset VSF or lyocell price increases please indicate the reasons for not switching or for not switching to a sufficient degree..."). Another customer's switch to polyester is apparently unrelated to this potential new development as he has effected such switches in the past. The third customer cited "foresees two different possibilities", one of them the increasing use of wood-pulp, the other one the increasing use of polypropylene and polyester to replace "some quantities of viscose". (Commission file, page 572). While it is not clear if this customer refers to the same development as the one mentioned above it is clear that he refers to a development that would not entirely supplant VSF. The parties' references furthermore have to be complemented by the majority of wipes manufacturers who evidently do not expect such changes to happen in the short to medium term. Statements like the following ones are characteristic of the large majority of wipes manufacturers' unawareness of any major development supplanting VSF in the wipes area in the near future: "The moisture absorbency is one of the most important product functions of housecleaning products. This function is only possible using VSF." (Commission file, page 4768); "We could not switch due to product requirements and their relationship to viscose. There is no commercially viable fiber substitute for viscose that gives the same properties...Increasing portion of synthetic fibres such as polyester or polypropylene would alter unacceptably the fabric characteristics ..." (Commission file, page 4332). (42) See also D. Morris, Comité International de la Rayonne et des Fibres Synthétiques: Myths and Realities of Interfibre Competition, paper presented at International Wool Textile Organisation, 65th International Wool Conference, Cape Town, Republic of South Africa, April 1996: "Viscose staple consumption rose during the late 1980s for reasons of fashion." (43) At paragraph 2.17. (44) At paragraph 2.17 of the reply. (45) See also D. Morris, Comité International de la Rayonne et des Fibres Synthétiques: Myths and Realities of Interfibre Competition, paper presented at: International Wool Textile Organisation, 65th International Wool Conference, Cape Town, Republic of South Africa, April 1996: "In fact it would appear that changing end-uses, product innovation and consumer preference are the main reasons for switching fibre and not price relativities. (...) However, to state that price competitiveness is non-existent is not valid per se would be too extreme, it is merely only appropriate with respect to very large price movements, and large changes in price relativities in the order of 20 per cent." (46) Lyocell filament yarn is currently not being produced commercially. Therefore, the term "lyocell" in this document exclusively refers to lyocell staple fibres, except in "lyocell production technology" (see recitals 246-247) where it refers to both lyocell staple fibre production technology and lyocell filament production technology. (47) It should, however, be noted that the same product characteristics make lyocell eligible for certain non-woven applications such as filters and wipes. In these applications, as in the textile sector, the higher wet strength and lower shrinkage of lyocell can be a distinct advantage over VSF. (48) This is true in particular for textile applications, representing [...]* % of lyocell sales (source: [...]*). (49) I.e. small longitudinal particles or fibrils partly detaching from the main body of the fibre. (50) At paragraphs 3.12 et seq.; see also Appendices 5 and 9 of the reply. (51) These findings are confirmed by the following statement in an internal document submitted by CVC: [...]*. (52) At paragraphs 3.2 et seq. (53) At paragraphs 3.3 and 3.4 of the reply. For instance, regarding the two groups "Would switch 100 % or cease production" and "Would reduce volume of lyocell purchased by > 5 %" in the parties' evaluation, the following points can be made: - The document on pp. 3860 to 3875 of the Commission's file does not indicate that this customer would switch or cease production. - At least two of the three documents (pp. 2994 to 2997; 3163; 3224 to 3225) counted in these two groups are responses by the same customer to the same questionnaire and therefore should not be double and triple-counted. - The parties misunderstand the reply on pp. 3309 to 3314: the customer refers to various product groups, not for all of which the customer would partially (by 10 %) switch. In particular, the product group in which he would not switch is the one for which lyocell is used. - The parties indiscriminately regard switches occurring at a 5 % price increase and those occurring at a 10 % price increase although several customers replies (pp. 630 to 638; 723 to 733; 758 to 768; 4788 to 4800) distinguish between these two hypothetical types of price increases. - Two replies are interpreted as representing a switch of more than 5 % although the reply does not state any extent of the switch (pp. 676 to 684; 485 to 494). - The parties' analysis includes another reply which in fact gives only a general answer and does not specifically state when this customer would switch and to what extent (pp. 668 to 675). (54) The examples stated by the parties in their reply (Appendices 6 and 7) represent clearly less than 10 % of their total customer base. (55) The information was made available to the parties on 11 September 2001 (see paragraph 10). (56) The figure indicates the volume of sales lost due to customer switching on total volume of sales to customers responding to this question. The sample of customers responding is representative, constituting some 50 % of the parties' total sales in the EEA. The Commission has also asked a similar question in phase I of the investigation which, as it explicitly includes an estimation on the reactions of downstream customers, will be discussed in the assessment of competitive constraints in recitals 239-242. (57) A hypothetical post-merger situation referring to production figures for the year 2000 can be used for illustration: Had Acordis decided to cut the production of Mobile and Grimsby by 15 % and to operate only from one plant, average manufacturing cost at this plant would have sunk considerably. This resulting average manufacturing cost reduction would then be added to any calculation offsetting Acordis' increased profits per tonne of sales, due to a 10 % price increase, by its lost profits, due to a reduction in sales volume of 15 %. As it can be assumed that Acordis' profit margins would have grown by much more than 10 % following a 10 % price increase, such a 10 % price increase could consequently have been highly profitable for Acordis under post-merger conditions in which effective competition is no longer being provided by Lenzing. (Other than not explicitly considering Lenzing, a second simplifying assumption in this consideration is that closing costs are assumed to be zero.) An observation on the disproportionate rise of profit margins following a 10 % rise in net sales price can be made. For this it has to be considered that: the Commission is not in a position to give a precise estimation of Acordis' lyocell profit margins in 2000 as the fixed manufacturing cost and variable cost of production provided by Acordis apparently do not include marketing, distribution or R & D costs. Margins between average manufacturing costs and sales price were about [...]* of sales price. A price increase of 10 % would have increased these margins on manufacturing costs by more than [...]* and profit margins in all likelihood even more than that. (Similar profit maximisation via capacity reduction through plant closure and higher capacity utilisation of the remaining plants could also be achieved by closing Heiligenkreuz.) Note that the Commission's example is not meant to provide an exact calculation nor a specific projection. Its purpose is no more than to illustrate that a hypothetical monopolist in lyocell is not necessarily dependent on sales losses smaller than 10 % for its profit maximisation. Depending on the demand curve, even much larger sales losses can still be profitable for a hypothetical monopolist. (58) Both competitors and customers assume, however, that these production costs might fall significantly once the considerable investment in research and development for this comparatively new technology will have paid off, given that the lyocell production process is in fact a process involving fewer production steps than the viscose process. (59) Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p. 5) paragraph 39. (60) This conclusion is in line with Commission practice. Correlations higher than those indicated in Table 1 have been considered insufficient in previous decisions, the Commission having regarded correlations of above 0,80 as high and correlations of below 0,65 as low. See for instance Commission decision of 19 July 2000 in Case COMP/M.1939, Rexam (PLM)/American National Can (paragraph 12). (61) The Commission was not able to calculate cross-price elasticities for lyocell due to lack of consistent data. (62) At paragraphs 2.2 (third bullet point), 2.16 et seq, and 3.11. (63) Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p. 5) paragraph 39. (64) This conclusion is in line with Commission Decision 2001/102/EC of 19 July 2000 on State aid granted by Austria to Lenzing Lyocell GmbH & Co KG, (OJ L 38, 8.2.2001, p. 33, paragraph 52). The Commission has evidence that Lenzing at that time shared and supported the Commission's view on the separation of the lyocell product market from VSF. (65) Note that cotton-type spinners need short staple lengths, whereas woollen-type spinners use longer fibres. (66) Roll-goods manufacturers produce rolls of processed fibres which are then sold to converters for transformation into a range of end products such as wipes, medical products (e.g. swabs, surgical gowns) or technical applications (e.g. filters; or coated substrates for shoes, for handbags or for the automotive industry). There are certain differences amongst roll-goods manufacturers, depending on the production technology used and on the intended end-use of their products. (67) These are Acordis, Lenzing, Säteri Oy of Finland, Svenska Rayon of Sweden and SNIACE of Spain. (68) Even if markets were defined more narrowly than that, however, the Commission's competitive analysis would not fundamentally change. (69) An amount of around EUR 1 million was stated as necessary. (70) On the basis of net sales prices given by Lenzing and Acordis for the year 2000. The Commission thus acknowledges that the value given in the statement of objections [...]* may have been slightly overstated. [...]* The Commission also acknowledges that these figures do not take additional dyestuff costs into account. (71) At paragraph 2.29. (72) The notifying party estimated that the capital cost of equipping a VSF plant for spun-dyed VSF production is approximately EUR [...]* for a capacity of 10000 tonnes per year. (73) With the possible exception of fibres for cotton wool (wadding) (see recital 104), which may also be sold directly to end manufacturers. (74) This is true even in cases in which companies produce both tampons and other viscose products such as personal care products or baby wipes. In such cases, they buy VSF for tampons directly from the VSF producer whereas the input material for their other products is supplied by roll-goods manufacturers (see recital 82 and footnote 68). (75) Similarly, one small European producer of VSF for tampons does not make a distinction between the fibres he sells for the production of cotton wool (wadding) and tampons. (76) In that company's case, switching would merely represent an increase of production capacity for VSF for tampons rather than to market entry. Nevertheless, even the possibility of such a shift of production capacity has not been confirmed by this producer. (77) Similarly, the notifying party states that production of VSF for use in tampons requires the fulfilment of certain criteria concerning quality and purity and that these controls require special equipment and clean storage facilities to avoid contamination of the fibres. They should take into account EDANA's (the European non-wovens trade organisation's) voluntary code of practice (Acordis' reply to the Commission's request for information dated 15 May 2001). (78) Wadding for non-hygienic products does not differ significantly from other non-woven products (there is some small difference in additives used but switching is easily possible). (79) Owing to plant closures of competitors, Lenzing has become the only producer of this product worldwide. (80) Tow is strictly speaking not a staple fibre as the extruded fibre bundle is not cut into staples; because of similarities in the first phases of the production process it is, however, generally seen as belonging to the same group as VSF. (81) The price correlation analysis can overstate the scope of the relevant market when spurious correlation occurs. Spurious correlation means that high correlation coefficients (for instance, 0,72 between commodity VSF and spun-dyed VSF) are driven by common influences such as common cost or common trends rather than by a competitive interaction between two products. Common trends: For this purpose, a test of co-integration has been carried out by the Commission. In general terms, a test of co-integration is based on the assumption that two series of data should not diverge in the long run if the products concerned belong to the same market, in which case such series in econometric jargon are called stationary. By contrast, if commodity VSF and spun-dyed VSF belong to two different markets, the relative price between the two time-series will have to be non-stationary, that is to say a high degree of correlation between the two time-series will be due to a common trend. Indeed, the results of the statistical tests in the present case (see explanations on the unit-root test below) have always remained below the critical values. It is therefore justified to conclude that commodity VSF and spun-dyed VSF do not belong to the same market. Unit-root test: The Commission has used an ADF test and examined the null hypothesis that the relative prices between commodity VSF and spun-dyed VSF are non-stationary. Specifically, if the test result is lower than the critical value, it fails to reject the null hypothesis, that is to say, relative prices do not revert to some long-run equilibrium and two products do not belong to the same relevant market. (82) Correlations higher than those indicated in Table 1 have been considered insufficient in previous decisions, the Commission having regarded correlations of above 0,80 as high and correlations of below 0,65 as low. See for instance Commission decision of 19 July 2000 in Case COMP/M.1939, Rexam (PLM)/American National Can (paragraph 12). (83) Co-integration tests have been carried out by the Commission for this purpose (see footnote 83). These tests reveal that a high level of correlation between the two products is due to a common trend and not to competitive interaction between commodity VSF and polyester. (84) At paragraphs 2.2 (third bullet point), 2.16 et seq., and 3.11. (85) See paragraph 2.19 of the reply. (86) See paragraph 2.16 of the reply, referring to Annex 4 ("NERA paper", in particular paragraph 3.1). (87) See paragraph 2.16 of the reply, referring to Annex 4 ("NERA paper", in particular paragraph 3.2). (88) See paragraph 2.16 of the reply, referring to Annex 4 ("NERA paper", in particular paragraph 3.4). (89) See footnote 83. (90) See paragraph 76. (91) It should also be noted that the three VSF product markets whose correlations with other fibres (and with each other) are analysed are not the only subsegments of VSF (see recitals 104 and 105) and that the prices of these other VSF products can be assumed to have had a certain impact on the aggregate VSF price series given. (92) For details, see recital 70. (93) [...]*. (94) At paragraph 4.2. (95) See Commission Decision 94/811/EC of 8 June 1994 in Case IV/M.269, Shell/Montecatini (OJ L 332, 22.12.1994, p. 48) paragraph 44; Commission decision of 13 March 1995 in Case IV/M.550, Union Carbide/Enichem (OJ C 123, 19.5.1995, p. 3, paragraph 36); Commission decision of 23 October 1997 in Case IV/M.1007, Shell/Montell (OJ C 40, 7.2.1998, p. 10, paragraph 7); see also Commission decision of 29 March 2000 in Case COMP/M.1751, Shell/BASF/JV-Project Nicole (paragraph 15). (96) At paragraph 4.2, third bullet point. (97) [references to the reply and internal documents]* (98) See the parties' reply, paragraph 4.2, second bullet point. (99) [reference to an internal document]* (100) At paragraph 4.2, second and third bullet point. (101) This has been confirmed by the parties in their reply (at paragraph 4.2). (102) The draft notification (p. 44), dated 20 March 2001, suggested the following figures for 1995 to 2000: [all < 10 %]*. (103) [reference to an internal document]* (104) At paragraphs 2.21 et seq. (105) [reference to an internal document]* (106) Case 85/76, Hoffmann-La Roche, [1979] ECR 461, paragraphs 38 and 39; see also Court of First Instance, Case T-102/96, Gencor, [1999] ECR 753, paragraph 200. (107) Case 85/76, Hoffmann-La Roche, (reference given above), paragraph 39; see also Case T-102/96, Gencor, (reference given above), paragraphs 201 and 202. (108) [reference to an internal document]* (109) See also the notifying party's own view, as expressed in the notification (p. 60): "The only companies which are likely to build new viscose staple operations are located in China and the Far East." (110) De-bottlenecking means replacing only those parts of existing production lines that prevent production from being increased. (111) [...]*. (112) [...]*. (113) [reference to an internal document]* A reason for the longer downturns is the general VSF textile downward trend during that period. (114) [reference to an internal document]* (115) VSF is much used as a substrate material for artificial leather coatings. (116) For a broad range of products comprising clinical sheets and drapes, sponges, swab dressings, wound contact pads, face masks, draw sheets, shrouds, hospital gowns, caps, apron, bibs, shoe covers and other medical/surgical garments. (117) Personal care wet wipes, e.g. baby wipes, household and industrial wipes. (118) This is confirmed by an internal strategy document prepared for CVC: [...]*. (119) See, for instance the following passage from an internal strategy document prepared for CVC: [...]*. (120) Estimations of the notifying party. One competitor estimates that imports in 2000 had been slightly below 17 kilotonnes. As mentioned above, the draft notification (p. 44), dated 20 March 2001, suggested the following import figures for 1995 to 2000: [all < 10 %]* (121) [reference to an internal document]* (122) CIRFS: Information on man-made fibres, 37th volume, 2000 (hereinafter "CIRFS Handbook 2000"), pp. 118 et seq. Note that the CIRFS Handbook 2000 gives figures for all cellulosic staple fibres and tow and therefore also includes lyocell. (123) Capacity utilisation in Asia, as indicated in the notification (p. 53), was [...]* % in 2000. Contrary to the notifying party's view, the Commission does not regard this as indicative of substantial spare capacity. (124) CIRFS Handbook 2000, pp. 118 et seq. (125) At paragraph 2.21. (126) The Commission considers that the quantity stated in the parties' reply for US imports is even understated. It does not correspond to previous information submitted by the parties on export figures to western Europe from their US plants (reply to the Commission's request for information, dated 7 June 2001). (127) As regards the observation made by the parties in their reply (paragraph 2.25) and by Bank Austria in its reply to the statement of objections concerning the increase of imports from the Indian Birla Grasim group into Turkey in the year 2000, see the Commission's remarks on Birla's and Lenzing's retaliation strategies in recital 175. (128) [reference to confidential statement and internal documents]* (129) Competitors indicated rates between 74 % and 88 %, CIRFS data submitted with the notification suggest an industry average of [ > 80 %]*. (130) Environmental concerns are, however, not limited to Europe. PT Inti Indorayon, the Indonesian mother company of the Finnish undertaking Säteri Oy, had to close down a (recently built) plant in Indonesia in May 2000 on government orders due to unresolved environmental issues. The plant is still closed. (131) Pulp prices constituted [...]* % of the total cost of Acordis' production in its European plants in 2000. (132) [...]* % according to Acordis. (133) [...]* % according to Acordis. (134) [...]* % according to Acordis. (135) The estimate is based on data on own production and own sales submitted by the parties and competitors, respectively. In order to guard mutual confidentiality, also between the parties to the concentration themselves, the exact percentage derived therefrom is not disclosed. (136) This is true even though Säteri has a higher market share than Acordis in the commodity VSF market as customers have stressed that Lenzing and Acordis are offering the highest quality standards and are equally present in all segments of the commodity VSF market (see recital 171). (137) [reference to an internal document]* (138) The same effect may be achieved in the short term through output restriction without capacity restriction. Due to persistence of fixed costs, however, such a behaviour may not be sustainable in the medium to long term. (139) This may be due to the cyclicality of textile VSF consumption which reached a peak in 2000 (see recitals 144 and 146.) (140) [reference to an internal document]* (141) This is confirmed for 2000 by an internal strategy document prepared for CVC: [...]*. (142) As regards the supply situation in the USA: capacity utilisation in both Acordis' and Lenzing's US plants was very low ([...]* % overall in 1999). [...]* The new entity would plan a capacity increase at Lowland, Tennessee, by [...]* % (from about [...]* kilotonnes). Therefore Lenzing's plant at Lowland would be able to meet US demand to the full in 2002, with just a very slight increase of imports. Consequently, despite the recent close-down of Acordis' plant at Mobile, Alabama, even US swing capacity from Lenzing's US plant could again be available from 2003 onwards, in case of a further decrease of US consumption, or of an increase of imports into the US [...]*. (143) At paragraphs 2.31 et seq. (144) See footnote 144. (145) For example, "OE spinners" (spinners using "open end" spinning technology) have indicated that they need a fibre quality with a high degree of tenacity which cannot be supplied by all producers active in the market. (146) [reference to an internal document]* (147) This is confirmed by an internal strategy document prepared for CVC: [...]*. (148) See Commission decision of 19 December 1991 in Case IV/M.113, Courtaulds/Snia (reference given above), paragraphs 14, 26. (149) D. Morris, Comité International de la Rayonne et des Fibres Synthétiques: Myths and Realities of Interfibre Competition, paper presented at: International Wool Textile Organisation, 65th International Wool Conference, Cape Town, Republic of South Africa, April 1996. As regards factors that are decisive for interfibre competition, this paper states: "In fact it would appear that changing end uses, product innovation and consumer preference are the main reasons for switching fibre and not price relativities." (150) [...]*. (151) Note that Lenzing is currently the company spending the highest amount of money on research and development (R & D) in the VSF area [...]*. (152) For the reasons stated in this recital and in recital 171, the competitive strength of the combined entity would not diminish if product markets were defined more narrowly than commodity VSF. (153) See also Decision 93/9/EEC in Case IV/M.214, DuPont/ICI, (reference given above), paragraphs 45 et seq. (154) The notifying party reports a net trade surplus in viscose pure or blended fabric of 5 % in 2000. (155) These figures are confirmed by the CIRFS handbook where the trade balance in viscose staple and tow in textiles is reported as being [< 20]* kilotonnes in 1999 whereas the same balance for all fibres shows a negative value of [600 to 700]* kilotonnes for all man-made fibres. (156) A CIRFS paper even points to the possibility of overall demand growth for textile products in the EEA offsetting the negative effect of rising net imports of textiles and clothing on EEA mill consumption of fibres. (D. Morris, Comité International de la Rayonne et des Fibres Synthétiques: Myths and Realities of Interfibre Competition, April 1996, Table 4) (157) In 1999, no less than 33,8 % of world production of non-woven goods originated in western Europe, while only less than 30 % originated outside the USA (where Lenzing is now the only producer of VSF) and western Europe (source: EDANA, http://www.vliesstoffe.org/ nonwovens/statistics.html). (158) At paragraph 2.23. (159) To some extent such an exit would also happen to areas such as eastern Europe, Turkey and other Mediterranean countries outside the EEA, to which Acordis and Lenzing are the main suppliers of commodity VSF through exports from their EEA plants. (160) At paragraph 2.13. (161) 6,6 % in the event of a 5 % price increase, 12,7 % in the event of a 10 % price increase. It should be noted that the reply rate to this questionnaire was particularly high and that customers representing more than two thirds of the parties sales volumes in the EEA responded to it. (162) Even if not asked for it explicitly, customers who felt that they would only partly stop production have not hesitated to indicate this and have been considered as customers reducing volume. (163) Customers indicating that their hypothetical behaviour "depends on the market conditions", however, cannot be considered a competitive constraint. Their reaction depends on unspecified conditions which may just as well be conducive to a volume reducing effect as to an effect of maintaining current sales volume. (164) See D. Morris, Comité International de la Rayonne et des Fibres Synthétiques: Myths and Realities of Interfibre Competition, paper presented at: International Wool Textile Organisation, 65th International Wool Conference, Cape Town, Republic of South Africa, April 1996. "Price is not as significant a factor in interfibre competition as is often believed due to the length of the textile pipeline, the conservative nature of the textile industry and the component of raw material prices in the final cost of the product. (...) (A) well known example can be given for a pair of tights. The cost of polyamide partially oriented yarn used in tights is less than 2 % of the sales price in a retail outlet. Taking another example, the cost of the fibre in a cotton shirt at the retail level is about 3 percent." (165) See D. Morris, Comité International de la Rayonne et des Fibres Synthétiques: Myths and Realities of Interfibre Competition, paper presented at: International Wool Textile Organisation, 65th International Wool Conference, Cape Town, Republic of South Africa, April 1996. "(...)However, to state that price competitiveness is non-existent is not valid per se would be too extreme, it is merely only appropriate with respect to very large price movements, and large changes in price relativities in the order of 20 per cent." (166) This is confirmed by an internal document prepared for CVC: [...]*. (167) [reference to an internal document]* (168) At paragraph 2.30. (169) The legal advisors of the Birla Grasim group have commented on this issue in a letter dated 10 September 2001 (pages 7232 to 7234 of the Commission's file), a copy of which has been made accessible to the notifying party. In that letter, an earlier submission made on behalf of the Birla Grasim group (pages 4862 and 4863 of the Commission's file) has been repeated. (170) On this distinction, see recital 42. (171) Svenska Rayon also produces viscose tow (see recital 105). (172) [reference to an internal document]* (173) At paragraphs 2.8 et seq. (174) Pages 3089 to 3098, identical to 4124 to 4134 of the Commission's file. (175) Note the comparatively small size of the tampons VSF market, stated in recital 208. Also note that the only other European producer of VSF is considered too small to be a fully viable competitor. (176) At paragraphs 3.18 et seq. (177) See Birla's submission, page 2077 of the Commission's file. (178) This lack of factual information concerning potential market entry cannot be replaced or sufficiently compensated for by the reference to mere announcements on websites which have been brought to the Commission's attention. (179) [reference to an internal strategy document]* (180) [reference to an internal strategy document]* (181) At paragraphs 3.1, 3.7 et seq., 3.16 and 3.17. (182) At paragraphs 3.7 et seq. (183) On switching alone, see recitals 67 and 68. (184) At paragraph 3.16. (185) See the parties' reply, paragraphs 3.18 et seq. (186) [references to internal documents]* (187) 3,9 % in the event of a 5 % price increase, 5,3 % in the event of a 10 % price increase. (188) At paragraphs 4.1 et seq. (189) Galaxy, the highest quality viscose staple fibre for tampons, is protected by patents in some key jurisdictions (notably the UK and the USA). (190) North American Free Trade Agreement. (191) In fact, there are only two companies who could be considered possible buyers of these licences. The Swedish company Svenska Rayon must be considered too small, even with a Galaxy licence, to provide for the same level of competitive constraint for the dominant firm as is currently exercised by both Lenzing and Svenska Rayon. The other potential buyer, the Finnish-based company Säteri Oy, would have the disadvantage of having to enter this market in which it has not been active before. (192) This is true irrespective of the extrusion technology (to which the Galaxy patents relate) used as the qualification process involves the production process as a whole, in particular in terms of hygienic conditions. (193) This slowing-down of technological development would be due to two factors: firstly, the immediate incentive of the new entity to invest in technological developments, and thus lower barriers to entry, would be reduced by the "free rider" problem it could face with regard to the licensee. Whilst this free-rider problem also exists in regard to the current competitive situation between Acordis and Lenzing, it is effectively counterbalanced by the technological rivalry between both companies, which provides an incentive to innovate. Post-merger, the incentive to innovate would therefore be reduced.