These days there is a public debate on possible solutions in the area of protection of competition to further harmonize this area with the European Union’s and domestic regulations.
The currently applicable Law on Protection of Competition (“Official Gazette of the Republic of Serbia”, No. 51/09 and 95/13) (from now on: the Law) has been aligned with the Merger Regulation 1/2003 on the implementation of the rules on competition1.
The European Union has recently adopted a new piece of legislation – Directive 1/20192, which will help national bodies more effectively implement the rules contained in Regulation 1/2003.
This text will explain some basic terms and institutes of protection of competition.
The Commission for the Protection of Competition (from now on: the Commission) is an independent body established in 2005 to monitor the application of the Law and the state of competition in the market on the territory of the Republic of Serbia.
The Law applies to a wide range of legal entities, all legal and natural persons involved in the trade of goods or services, regardless of their headquarters (domestic and foreign companies and entrepreneurs). It also applies to state authorities, territorial autonomy and local self-government bodies; other natural and legal persons and forms of association of participants in the market (trade unions, associations, sports organizations, holders of intellectual property rights); public companies and other market participants performing activities of general interest.
Also, the Law stipulates that the rules apply not only to the acts and actions performed on the territory of the Republic of Serbia but also to the acts and actions performed on the territory of other states, which affect competition on the territory of the Republic of Serbia.
Such extraterritorial application of competition rules, for example, implies that an international company operating in Serbia through a subsidiary and carrying out some form of merger or acquisition outside the territory of the Republic of Serbia must report to the Commission this statutory change if it exceeds the specified concentration thresholds prescribed by the Law (so-called, notification of concentration explained later in the text).
Free market and competition infringements may occur by:
1. restrictive agreements,
2. abuse of a dominant position,
Restrictive agreements concluded between market participants have the purpose or effect of significant restriction, distortion, or prevention of competition on the territory of the Republic of Serbia. From 2016 cartel has been criminalized in Serbia (the one in a business entity that concludes a restrictive agreement that sets prices, restricts production or sale or shares market will be punished cumulatively with imprisonment from six months to five years and a monetary fine.
However, not all restrictive agreements must be established as a breach of competition rules. Under certain conditions, exemption from the prohibition is possible if such an agreement contributes to improving production and trade or promoting technical or economic progress. There is a possibility of individual exemption or by category of contract.
It is important to emphasize that parties to a restrictive agreement should apply for an individual exemption on their initiative. If the Commission initiates an ex officio investigation procedure before which the restrictive contract is not exempted from the prohibition in the procedure for an individual exemption, the fulfilment of the conditions for an individual exemption will only constitute a mitigating circumstance. Still, no exemption from a payment of a fine will be granted.
Regarding block exemptions, the Government of the Republic of Serbia has adopted a number of regulations which prescribe conditions for exemptions of certain categories of agreements from the prohibition of competition infringement3. Concerning these agreements, participants of the agreement should not apply for an exemption.
On the other hand, certain agreements are prohibited by their nature (“hardcore” agreements), given that they aim to distort competition, and as such, are legally null and void. For example, collusion on a minimum price between bidders in public procurement is a prohibited contract per se.
The Law also defines agreements of minor importance, concluded between market participants whose total market share in the relevant market for products or services on the territory of the Republic of Serbia is not higher than the prescribed percentages. Such agreements cannot threaten free competition on the market and should not be notified to the Commission.
Another way to jeopardize competition is an abuse of a dominant position. It is considered that there is a dominant position if the market share of a market participant exceeds 40% in the relevant market. If a market participant with such a market power misuses the power, a distortion of competition in the market may happen, the same as in the case of restrictive agreements.
Competition may be restricted, impaired or prevented (both in the concept of abuse of a dominant position and restrictive agreements) by the following actions:
- Set the purchasing or selling prices or other conditions of trade;
- limit and control production, markets, technical development or investments;
- Apply dissimilar business conditions to equivalent transactions concerning a variety of undertakings, by which undertakings are placed in unfavourable position against competitors;
- Conditioning the conclusion of a contract or agreement by accepting additional obligations which, given their nature and trading customs and practices, are not related to the subject of the agreement;
- Share markets or sources of supply, which occurs only in restrictive agreements.
Finally, market concentration occurs in three situations:
1. mergers and other statutory changes in which the market participants are merging;
2. acquisition of direct or indirect control by one or more market participants, over one or more market participants, in whole or in part;
3. a joint venture by two or more market participants to create a new undertaking or gain joint control over the existing market participant.
Compared to the concentration control thresholds set in the European Union, the thresholds in the Law are set low.
For example, one of the situations for which the Law provides for a mandatory notification of the concentration is when total annual revenue of all concentration participants generated on the international market in the preceding financial year exceeds 100 million EUR, provided that at least one concentration participant revenue generated on the market of the Republic of Serbia exceeds ten million EUR.
On the other hand, the EU Merger Regulation stipulates that the merger falls under the rules when the total annual revenue of all participants in the international market exceeds 5000 million EUR, provided that at least two participants generate revenue on the territory of the European Union more than 250 million EUR.
Also, in addition to the obligation to report the concentration, the parties to the concentration are obliged to suspend all activities until a decision is taken in the procedure for approval of the concentration.
The Commission may, ex officio, initiate an investigation of infringement of competition if it reasonably assumes that the combined market share of concentration participants on the territory of the Republic of Serbia is at least 40%.
The Commission has the authority to:
- Conduct an inspection;
- Conduct a dawn raid;
- Conduct a sectoral analysis (for example, sectoral analysis in the markets for oil derivatives, baby equipment, etc., while one of the most well-known sectoral analyzes of the European Commission is in the energy market in 2006, which resulted in a whole set of new legislation
If the Commission finds that an infringement of competition has occurred, it shall determine the measure for the protection of competition in the form of the obligation to pay a monetary fine in the amount of no more than 10 % of the total annual revenue generated on the territory of the Republic of Serbia. Moreover, it can enact a measure to eliminate competition infringement, for example, adopting a new pricelist for goods or services, if it is determined that a dominant market player has abused its position by setting an unreasonably high price.
Participants in the restrictive agreement may be fully or partially relieved from the obligation to pay the monetary fine through a leniency policy. A participant in a restrictive agreement that first reports to the Commission on the existence of an agreement or delivers evidence based on which the Commission initiates or ends the proceedings may obtain full immunity from the payment of a fine. Those parties to a restrictive agreement that have not addressed the Commission first, but have key evidence regarding a restrictive agreement, may receive partial relief from paying a fine. This program is initiated by the participants of the restrictive agreement. Additionally, the Commission shall impose a procedural penalty measure in the amount of EUR 500 to EUR 5,000 for each day of conduct contrary to the order of the Commission given in the proceedings or total failure to act according to that order.
An investigation of the competition infringement can be adjourned if a party proposes commitments it is voluntarily willing to undertake to eliminate possible competition infringement. The Commission is not obliged to accept the proposal. Accepting the proposal will set a deadline for the execution of proposed commitments. If a party fails to fulfil commitments in a set deadline, the investigation shall be continued.
Given the extremely high fines that can be imposed, market participants should be aware of their acts and collusions that can lead to the initiation of proceedings due to violation of competition rules. However, even when the proceedings have been initiated, certain procedural rules provide protection to parties in the proceedings, such as rules on information and the right to give a statement, delivery rules, maintenance of oral dispute, statute-barred rules, etc. Also, the Administrative Court may review the Commission’s decisions by filing an action. Finally, third parties harmed by an infringement of competition (determined by the Commission’s decision) can request compensation in the civil proceedings.
Having in mind the broad powers of the Commission and the high penalties that it can determine, the legal support of a lawyer may be of crucial importance for the resolution of disputes arising out of the breach of competition.
Attorney at law Damir Petrović
The information contained herein has been provided only for the purpose of general information and cannot be considered as a legal opinion or legal advice. Accordingly, the Law Firm Petrović Mojsić & Partners disclaims all responsibility and accept no liability in respect to actions taken or not taken based on any or all the contents contained herein.