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LEGAL ASPECTS OF THE PRIVATE SECTOR IN BULGARIA
I. LEGAL FRAMEWORK OF PROPERTY
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When considering the property legislation
framework, it is necessary to start by examining the past and
present constitutional norms regulating the carrying out of
economic activity in Bulgaria.
The first Bulgarian constitution - the
Turnovo Constitution, was adopted in 1879. It proclaimed the
country a constitutional monarchy with popular representation and
introduced a number of democratic principles for the creation and
development of parliamentary institutions in the country. Most
significant to the development of market relations was no doubt the
principle of the inviolability of private property upheld by the
Constitution (Art. 67 "Property rights shall be
inviolable").
Following the 1944 socialist revolution,
the supreme law of the country became the first socialist
Constitution of 1947. It provided the basis for turning Bulgaria
into a country with one-party government - that of the Communist
Party, and a centralized planned economy. Public property was
accorded a central place and significance, with guarantees for its
protection and development, while private property was relegated to
the background and subject to considerable restrictions. The
subsequently adopted laws limited private property to "personal
property", which term covered real estate for personal use - i.e.
housing and country houses at the most, as well as personal effects
- objects of daily personal use, small-scale farm equipment, and
private automobiles. The nationalization of industrial enterprises,
mines and quarries carried out in 1947, and the subsequent
collectivization of farm land in the 1950s, finalized the
transition to a centrally planned economy, regulated by
administrative acts.
The second socialist Constitution adopted
in 1971 - the so-called "constitution of mature socialism" -
conclusively established the leading role of the Communist Party in
society and the state, i.e. the dictatorship of the proletariat.
Bulgaria's economic system was defined as a socialist one,
excluding the exploitation of man by man. The state controlled the
national economy on the basis of unified five-year plans for social
and economic development.
The forms of property were defined as
state-owned (public), cooperative, property of public
organizations, and personal property. Art. 15 of the Constitution
defined public property as the highest form of socialist property,
enjoying special protection. It covered industrial plants and
factories, banks, mineral resources, natural energy sources,
nuclear energy, waters, forests, pastures, roads, railway, water
and air transport, posts, telegraphs, telephones, radio and
television. The state exercised its property rights by creating
economic organizations or state-cooperative enterprises which were
to run, maintain and administer the property. Art. 29 of the
Constitution included a provision whereby the state could establish
by law exclusive right to engage in certain types of business
activity, and the second paragraph stipulated that foreign trade
was an exclusive right of the state.
The provision in Art. 19 of the
Constitution defined cooperative property as owned by collectives
of workers united voluntarily for the purpose of carrying out joint
business activity. The cooperatives could only own means of
production in certain cases provided by law. There was more
detailed provision for cooperatives in the Cooperatives Act,
defining them as socioeconomic socialist organizations, and
intrinsic part of the country's socialist economic organization.
The fact that it was the Council of Ministers that exercised
general supervision over their activity confirms the conclusion
that cooperatives were not in a position to compensate for the
absence of a private sector in Bulgaria and in fact constituted a
disguised form of state-owned enterprises.
According to Art. 21 of the Constitution,
citizens were entitled to personal ownership of real estate and
personal effects to meet their own needs as well as the needs of
their families. This category of personal property was also
extended to cover the small-scale means of production and the
agricultural output of cooperative member households and others
cultivating land that had been granted for their personal use or
other supporting activities. In fact, the private sector consisted
in supply of services and retail by private persons on a
contractual basis, or craft practice - supplying services or
production of small wares for mass consumption or folk art and
handicraft articles. In those cases citizens could be granted the
use of workshops or small retail shops or outlets (public
food-and-drink establishments, stalls, kiosks, etc.). This more or
less exhausted the allowed business activities by persons other
than the state-owned enterprises and cooperatives.
The now acting Constitution was adopted in
1991 and is the fundamental law for the development of a democratic
society and market economy in the country. It provides the
necessary legal protection and safeguards for private property and
the economic rights of citizens.
Art. 17, Paragraph 3 of the Constitution
asserts the principle of the inviolability of private property. The
forcible expropriation of property can only be carried out on
account of state and municipal needs and solely on the basis of an
act of parliament provided those needs cannot be met by any other
means and subject to equivalent preliminary
compensation.
Another particularly important provision
is that of art. 19, proclaiming free economic initiative as the
fundament of the economy in Bulgaria. The principle has been
established for investments and economic activities of foreign and
Bulgarian citizens and legal persons to be granted protection by
the law. The constitutional norms further guarantee equal legal
conditions for economic activity to all citizens and legal persons,
and provides for protection of consumers. The abuse of monopoly
positions and unfair competition are prohibited by law.
The legal regulation of property rights
issues is central to every economic system. After the Liberation
those matters were provided for in Bulgaria by the Property Act.
The approach of other European countries, where a single civil code
regulates both property and contractual relations, was not adopted
in Bulgaria.
As mentioned above, the first socialist
constitution upheld the dominant role of public property. The
Property Act passed in 1951, while adhering to the fundamental
civil and legal principles regulating property relations, also
introduced a number of principles of a socialist character, which
emphasized public property and placed personal property in a
subordinate position. Public property included all trade and
industrial enterprises and the mineral resources, and its
administration was in fact carried out by the Council of Ministers
by government decrees and regulations. And since, according to the
Constitution, that type of property was not tradeable, it was not
subject to the provisions of the Property Act.
The other types of property were the
cooperative and personal property. According to the regulations
contained in the Cooperatives Act and the standard statutes of the
Collective Farms, cooperative property consisted largely of farm
land and other real estate or movable property deposited as a
contribution to share capital by the individual cooperative
members.
Personal property was reduced to the right
of each household to own one flat/house and one country house.
Individual property rights and transactions involving them were
regulated by the Property Act. The Citizen Property Act adopted in
1971 included additional measures of an administrative character
meant to introduce further restrictions on the right of citizens to
own real estate property under the proclaimed, seemingly "noble"
intention of providing possibilities to meet the housing needs of
all citizens. Thus, the Citizen Property Act represented a special
law, and the property related norms set by the supreme law were in
fact derogated.
All of these regulations substituted the
freedom of contracting among legal entities for administrative
measures, including even the possibility to determine the actual
buyer and the selling price. In practice, there existed no genuine
real estate market in the country, which meant that one of the
crucial preconditions for private sector development was actually
missing.
Since 1990 the legal regulation of
property relations in Bulgaria has undergone rapid transformation.
The hierarchy established by the socialist legislation and the
subordinate position of cooperative and personal property with
respect to public property was abolished with the adoption of the
new Constitution. As stressed above, the constitutional provisions
give equal and full protection to all types of property. The
Property Act has been amended and all rudimentary socialist norms
have been repealed. With the repeal of Chapter II of the Property
Act the restrictions on the ownership of real estate by citizens
have been lifted. This created the necessary legal framework for
the regulation of property rights and provided the essential
conditions for the development of a real estate market.
A critical factor for the transition to
market economy and private sector development in Bulgaria is the
withdrawal of state ownership over the enterprises. It is made
possible by the mechanisms of restitution on the one hand, and
through the process of privatization, on the other.
The setting up of joint ventures between
state-owned and private enterprises first became possible with the
adoption of Decree N 56 on Economic Activity and the amendments to
the 1971 Constitution which were passed in 1990. That was actually
the first step in the gradual denationalization of
property.
Presently the setting up of joint ventures
is subject to the provisions of the Law on Commerce. However, since
the state-owned enterprises are not free to dispose of their
property, and the Council of Ministers exercises the rights of sole
proprietor of state capital, the creation of joint ventures is also
subject to the Rules and Regulations on the Manner and Procedure of
Exercising State Property Rights in the Enterprises (passed in 1994
by Decree N 7 of the Council of Ministers). To a certain extent
this tends to delay the process, as it is not only the state-owned
enterprises, but likewise the respective state authorities -
ministries and institutions - which are involved in the setting up
of joint ventures with private investors.
On the other hand, with the adoption of
the Law on Local Self-Government and Local Administration, the
municipalities have been allowed the opportunity to dispose freely
of the municipal property. Municipalities are free to form
partnerships with other commercial entities and to participate in
the carrying out of economic activity through municipal
enterprises. In practice, this has actually placed municipal
property in the market, which also played a favorable role for
private sector development.
The legislation related to the restitution
of property proved to be of great importance to private sector
development.
In this respect, the foremost act in terms
of the implications for the entire economy has been the restoration
of property rights in farm land. In the time of socialism, this
land, which used to be privately owned until 1950 and in the
subsequent collectivization came to be part of the property of the
Collective Farms, had been subject to regulations which completely
destroyed private initiative and entrepreneurship. Ultimately that
also brought about the ruin of agriculture in this country. With
the adoption of the Law on the Ownership and Use of Farm Land, the
property rights of the former owners and their heirs were restored,
thus allowing them the opportunity for independent initiative
concerning the use and cultivation of their land.
The Law on the Restoration of Property
Rights in Nationalized Real Property was the second most
significant restitution law. It is the chief law on the restitution
of real property within the zoning map boundaries of built-up areas
and of the nationalized private industrial, mining, and other
enterprises.
The Law on Restoration of Property Rights
in certain Shops, Workshops and Storehouses was the first
restitution law. It encompassed relatively small-scale objects, but
returning them to their owners has played an important role in
encouraging private initiative and above all, for the development
of the retail trade. It allowed the expansion of the retail outlet
network, the setting up of the first offices of the newly created
private companies, and the initial private accumulation of real
estate capital.
The Law on Restoration in Property Rights
in Some Expropriated Real Property under the Law on Territorial and
Town Zoning, the Law on Planned Development of Built-Up Areas, the
Law on Town Development, the State Property Act and the Property
Act, was aimed at restoring the property rights of owners of
expropriated real property.
The adoption in 1992 of the Law on the
Transformation and Privatization of State-Owned and Municipal
Enterprises (State Gazette 38/05.08.92) created the
possibility for rapid denationalization and transfer of property to
a wide circle of owners. It will limit state participation in the
economy and lead to the emergence of a large number of independent
commercial entities in a position to establish competition as a
fundamental principle in the transition to market
economy.
Industrial and intellectual property
rights
In the context of socialist economy the
industrial and intellectual property rights were of limited
importance. The legal framework was outlined by the 1968 Law on
Inventions and Innovations, which only reinforced the socialist
principles and was exclusively oriented towards serving the
interests of the state. Protection was given to the inventions,
whose authors were granted the so-called "authorship certificates"
and a minimal remuneration determined on the basis of the "economic
effect" of the invention. The inadequate protection of intellectual
property rights and the perfunctory financial reward inhibited
creative initiative, all the more that there existed a number of
restrictions on how the authors could dispose of their inventions,
which were considered state property. With the adoption of the
Patent Law in 1994, patents were given adequate protection and this
type of property was subject to up-to-date legal
regulation.
Trade marks and industrial model designs
are provided for by the Law on Trade Marks and Industrial Models of
1967, which is regarded as rather important, as it also provides
for the geographic names of origin - an element of unquestionable
significance to a number of agricultural products and above all
Bulgarian wines, which make up a considerable share of the
country's exports.
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