Mondelēz International under investigation: What is parallel trade?

By Augustus Bambridge-Sutton

- Last updated on GMT

Image Source: Getty Images/vasantytf
Image Source: Getty Images/vasantytf

Related tags Mondelez antitrust European union

In 2021, the European Union opened up a formal investigation into Mondelēz International for allegedly restricting parallel trade. What is parallel trade? And how can it harm competition?

In 2021, the EU raised concerns about US company Mondelēz International allegedly blocking cross-border trade, opening an anti-trust investigation. The investigation is into whether the confectionery major had been trying to restrict so-called ‘parallel trade’, whereby products can be sold for lower prices as they have been brought in from countries where they cost less.

The EU has, reported British newspaper the Financial Times​, now found against Mondelēz and is planning to sue them for a significant amount of money. The EU, it reports, will order Mondelēz to stop blocking cross-border trading, as this has the potential to harm consumers at a time when inflation is high.

What is the investigation about?

“The investigation concerned allegations that Mondelēz restricted competition in a range of national markets for chocolate, biscuits and coffee by hindering cross-border of these products between EU Member States,” Kate Newman, partner and head of competition at law firm Mills & Reeve, told FoodNavigator. Newman stressed that she is not involved in the investigation and only has access to publicly available information.

“Publicly available information indicates that the European Commission has scrutinised whether Mondelēz has ‘carved up’ the Single Market through unilateral practices, as well as through agreements.”

Restrictions on parallel trade are one of the main concerns behind the investigation. “‘Parallel trade’ is where trade in products takes place outside the official distribution system set up by a particular firm; i.e. parallel traders buy products in countries where they are sold at lower prices and sell them in high-price countries. The flow of products thereby created is called parallel trade.  Parallel trade is a lawful form of trade in goods between Member States based on the principle of the free movement of goods within the internal market,” Jessica Burt, food lawyer at Mills & Reeve, explained. Burt also stressed she is not involved in the investigation.

Restrictions on parallel trade are prohibited by the EU under Article 101 TFEU, which prevents agreements or cartels that could disrupt competition within the internal market. However, Burt stressed that each case is different. “It is important to emphasise that EU competition law requires an individual assessment and will need to take into account specific circumstances of each case.  Many goods sold by parallel traders within the EU retail at the same price as goods sold through established channels. This is because any price advantage is often taken by the parallel trader or the retailer as extra profit."

Publicly available information suggests that Mondelēz, for example, may possibly have refused to supply certain traders with a view to restrict imports into certain markets, may possibly have made agreements with certain customers not to engage with parallel trade, in exchange for payments or other forms of compensation, and may possibly have curtailed parallel trade through agreements that raise prices or limit volumes, specifically for customers that trade products across Member States.

Parallel trade is good for competition, according to Newman. “Parallel trade benefits competition, because customers may procure products in the internal EU market where prices are lower and supply them to markets where prices are higher – leading to prices reducing.  Measures which restrict parallel trade can harm competition, by isolating specific markets, and enabling the supplier of products to charge higher prices, to the detriment of consumers. Restrictions to parallel trade can also mean that consumers are not able to access a variety of products.”

Languages on packaging 

The investigation also considers whether languages on packaging would restrict the countries where products could be sold. It looked into “possible restrictions on the languages used on packaging either unilaterally or through agreements with traders, thereby creating friction on sales to certain other EU Member States,” according to the European Commission website.

The languages on packaging must appear in a language easily understood by the consumers of the Member States where the food is marketed, according to Burt.

“The provision does not restrict the information appearing in one or more languages as long as the mandatory information (i.e. name, ingredients/allergens, nutritional information, food producer name and address, date of expiry or best before, storage conditions and instructions for use, where necessary etc), is visible, legible and in the required format.  This can sometimes be quite difficult to achieve, where there is limited labelling space and a number of different languages required, for example if one SKU is to be provided across a number of different member states.”

Mondelēz International itself has responded. “We confirm that in 2021, the European Commission formally initiated an investigation against Mondelēz International into alleged infringements of European Union competition law. We are cooperating with the investigation and engaging with the European Commission in an effort to reach a resolution to this matter. We cannot comment further on an ongoing legal proceeding,” a company spokesperson told FoodNavigator.

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