1. General notes.
As is shown in the White Paper on the preparation of
the associated countries of Central and Eastern Europe for
integration into the internal market of the European Union,
competition protection is one of the basic elements and a
corner-stone of this market. Without "building of a system ensuring
non-distortion of the competition in the internal market, the
latter could not function" (Art. 3g of the Treaty). Therefore, the
adoption of legislation in the field of protection of competition
and its effective application is considered as a necessary
condition for EU membership.
Articles 37 and 85-94 of the Treaty refer to the
principles on which the specific competition rules are based. With
the signing of the protocol of accession of Bulgaria to the EU and
its publication together with the Treaty, these principles
automatically will become part of our national legislation - Art.
5, par. 4 of the Constitution, and together with them the whole
legal system of the European Community. The EA in fact repeats part
of the principles of the Treaty connected with the protection of
competition thereby declaring the respective actions incompatible
with the EA.
Article 64, par. 3 of the EA provides that within
three years of its entry into force, the Association Council should
adopt the necessary rules for the implementation of the said
principles for the protection of competition. Since it is foreseen
that the respective provisions of the Treaty are taken as a basis,
it is obvious that in practice our internal legislation will come
to the gradual icorporation of the criteria of the relevant EC
legislation subject to adaptations imposed by our national
specificity. Certainly, adhering to them will not render us liable
to the control of the bodies of the EU (the Commission and the
Court of Justice), but both the "appropriate measures" (Art. 64,
par. 6) as well as postponing Bulgaria’s admission will be used in
cases of possible derogation.
In fact, in the field of protection of competition
the ACCEE are facing the problem how best to modify and amend their
legislation, so that by the time of accession they not only have
norms similar to those of the EC, but also the appropriate
institutions for enforcement prior to accession.
A number of interesting questions and differences
from the requirements existing for the EU member states emerge at
this point. EC competition legislation as a whole does not obligate
the member states to have internal substantive or procedural
legislation which should be identical or even similar to EC
legislation. As discussed in further detail below, EC legislation
takes over and regulates exclusively a certain category of social
relations, connected with the protection of competition (mainly
through the so-called rule de minimis and the criterion
"influence over the trade among member states"). With respect to
this category only EC legislation applies. The issues related to it
are considered by the Commission and the Court of Justice. The
internal bodies of the states (respective commissions for the
protection of competition or other similar bodies, and the courts)
have no power with regard to this type of relations and they cannot
be the subject of regulation by the internal legislation of the
individual member states, or, even if they are, due to the
principles of direct effect and priority of the norms of Community
legislation in each member state, the internal legislation may only
have subsidiary significance. With respect to the other aspects of
protection of competition exclusively the internal legislation of
the respective member state applies and the internal bodies of that
state have exclusive power. What is the contents of this
legislation, whether is it in accordance with EC legislation and
how it is applied - these questions are not of interest to the EU
(on the other hand, EC legislation has direct effect in the member
states and therefore it is possible to refer to it in the national
courts and this is a permanent process of automatic approximation
of the norms of the individual member states). The Community is
interested that the meber states recognise the priority of
Community legislation and the exclusive powers of its bodies in a
certain category of social relations in the field of protection of
competition.
Nevertheless, some member states have approximated
their national legislation systems in the field of protection of
competition to that of the EC, because in this way they facilitate
everybody: the economic operators, the regulating bodies, the
courts and the citizens since they all abide by or enforce euqal
rules on both levels - the Community and the national. It is
obvious that even from this point of view it would be useful for
the associated states to harmonise their internal legislation with
that of the EC.
However, as it is indicated in the White Paper of
the EU this not a question which the EU left to the discretion of
the individual associated countries, since with respect to them EC
legislation will not apply before full integration. To the
contrary, the EU sets an explicit condition for these states to
develop their internal legislation in such a way that it is
harmonised both as substantive and as procedural legislation with
that of the EC. Moreover, a condition is stipulated to ensure its
application through appropriate bodies. As it is shown in the White
Paper of the EU, the EU will not insist for complete identity of
the internal legislation with EC legislation, not even for the same
degree of strictness as it exists in EC legislation taking into
consideration that for a certain period the associated states (for
Bulgaria it is five years with a possibility of continuation for
another five-year period) are considered according to the EA as
areas identical to the areas in the Community envisaged in Art. 92,
par 3, (a) of the Treaty (i.e. areas in which the rendering of
state aids can be assumed as compatible with the principles of the
protection of competition set in the Treaty, since in these states
the living standard is abnormally low and there is serious
unemployment). The text of the EA permits the Bulgarian state to
implement schemes of direct and indirect aids to the state
enterprises but at a given moment within the three year period
envisaged in Art. 64, par. 6 of the EA a decision should be taken
about transferring those actions under the control of an
appropriate independent body, about the time of the transfer as
well as about such a level and nature of the aids that it will not
provoke opposite measures on behalf of the EC Commission.
The problem of the application of the new
legislation in the field of protection of competition in an
associated state such as Bulgaria has a specific aspect. In order
to approximate the criteria envisaged in the EA, it will be
necessary to set up an appropriate national body which will be
active until the moment of integration in substitute of the EC
Commission. After that the enforcement of EC legislation will be
taken up by the EC Commission. The national body from that moment
on will have to deal only with the national legislation, covering
social relations in the field of protection of competition which
are not included in EC legislation, i.e. on the one hand it will be
necessary to set up a body with powerful authority and on the other
this authority will be trimmed at the moment of accession. In order
to avoid the obvious problems of setting up a big structure with
serious authority but with a limited period of activity, the White
Paper shows as a possible solution the strict definition of the
powers of the national body in the field of competition so that the
powers which will be handed over to the Commission at the moment of
accession are taken up by a lighter, ad hoc structure. However,
this problem seems difficult to solve in practice.
Another alternative which is proposed in the White
Paper of the EU is that the associated states voluntarily hand over
the competencies of the regulation of these relations to the
Commission now, as it would take them up later in any case. This
alternative does not seem possible from a practical point of view.
Given our insufficient level of preparation, it will be difficult
to imagine - from the economic, legislative, and psychological
point of view - how in practice the EC Commission would regulate
our internal legal relations connected with the protection of
competition. Also, as said earlier, in the field of protection of
competition the Commission deals only with actions and agreements
which cover minimum criteria, and this would leave out a great deal
of the relations in this field in Bulgaria.
Therefore, a solution should be found in the
direction of empowering the Commission for the Protection of
Competition. The question will be dealt with in the section
"Conclusions and Recommendations" below.
Certainly the incorporation of EC legislation will
have to progress in a way that corresponds to the scale of our
market. To the extent that EC legislation regulates legal relations
arising between foreign subjects or between local and foreign
subjects (for instance negotiation of prices between non-European
companies to import goods to the internal market or merger between
European and non-European companies if the result would lead to a
monopolising the internal market) and our amended legislation
before the integration could also include such regulations so that
at the time of integration Bulgaria would suffer minimum of
disturbance - a subject of regulation up to the moment of
integration can be not only purely internal legal relations and
subjects but also international or foreign.
The scope of application of the principles and norms
of EC legislation for the protection of competition is contained in
the Treaty and in other ensuing acts. Generally they can be
classified in the following manner:
a) according to the type of activity:
- cartels - Art. 85;
- monopolies - Art. 86;
- state assistance - Art. 92-94;
- state monopolies and special sectors - Art. 37 and 90.
b) according to the territorial range and the
turnover:
- for the former two - the criterion "effect on
trade between member states" and a certain world turnover and
turnover within the Community;
- for the latter two - all undertakings less the specially excluded
because of their aims and character of activities or by special
advice.
2. Cartels.
Article 85, par 1 of the Treaty declares prohibited
and correspondingly void all agreements between undertakings,
decisions of associations of undertakings and concerted practices
which have as their object or effect the prevention, restriction or
distortion competition within the common market. It is followed by
an enumeration of specific activities which are considered falling
into the above hypothesis like:
- direct or indirect fixing of purchase or sale price or other
trading conditions;
- limitation or control of production, markets, technical
development or investment;
- sharing of markets or supply sources;
- application of dissimilar conditions to similar transactions with
different persons, thus placing them in an unfavourable position
from the point of view of competition;
- concluding agreements depending on acceptance by the opposite
party of additional conditions which, by their character or by
tradition, are not related to the subject matter of the
agreement.
Paragraph 3 of the same Article, however, makes it
possible to not apply the above provisions to individual
agreements, decisions or concerted practices, or separate
categories of each of the three. This task as well as the detailed
regulation, from a substantive and procedural point of view of the
application of the norms of Art. 85, are assigned to the EC
Commission. Specific powers are also assigned to the Court of
Justice. It is important to note that the Commission and the Court
of Justice have separate powers which exclude those of the internal
bodies of the member states. The Commission has the authority to
determine the exceptions of Art. 85, par. 1 by various
criteria.
The national bodies can undertake actions on a given
agreement on the basis of the internal legislation, even if the
agreement is to be considered by the Commission. But the national
decision cannot contradict that of the Commission. If the decision
of the Commission is approved first, it becomes mandatory for the
national bodies, and if it comes after and contradicts the national
decision, the national bodies should take appropriate measures to
modify or repeal their decision and to apply that of the
Commission.
In exercise of its powers for regulating the
questions of the protection of competition, the Commission has
issued a number of documents, the more important of which will be
considered below.
Regulation 17/62 introduced the obligation to inform
the Commission about agreements, decisions and concerted practices
for which the parties wish to apply Art. 85, par.3. The
representatives of the Commission may request the right to
immediate access to the account books as well as extracts and
copies therefrom, explanations as well as access to all premises
and transport vehicles of each undertaking. Upon failure to comply
with these obligations the Commission has the right to impose fines
(up to 10 % of the turnover of the respective undertaking).
According to Regulation 17/62, the information regime embraces all
agreements, decisions and co-ordinated actions except certain cases
listed in the regulation:
- when the contracting parties are nationals of the
same state and the agreement does not provide for import or export
between member states;
- when the agreement is bilateral and is confined
only to the right of one of the parties to determine prices or
conditions for resale of the goods;
- when restrictions are imposed on exercising the
rights of the assigness or user of industrial property rights;
- when the agreement has the single purpose of
development or equal application of standards or types, joint
research and development or specialisation in the manufacture of
products, and the products of specialisation do not exceed 15 % of
the turnover in the internal market of identical items or the total
turnover of the participating undertakings does not exceed 200
million ECU.
Another basic exception is introduced by the
Commission with the so called rule de minimis. It is
accepted that a certain category of agreements or decisions are
insignificant from the point of view of the entire internal market
and it is not necessary to refer them to the Commission. The
threshold has been changed several times and, presently, any
agreement between economic agents with a total annual income below
200 million ECU and which comprises less than 5 % of the market, is
automatically excluded from the requirements for notification.
Two other Regulations: 1983/83 concerning the
exclusive distributor and 1984/83 concerning the exclusive supplier
introduce mutual exceptions for both categories.
Rule 1983/83 envisages that Art. 85, par. 1 will not
apply with respect to bilateral agreements whereby one party
undertakes to supply certain goods to the other for resale in a
certain part of the common market (or throughout the common
market). The following obligations may be imposed on the exclusive
distributor:
- not to manufacture or distribute goods which are in
competition with the goods subject to the agreement;
- to obtain goods subject to the agreement only from the
supplier;
- not to seek customers, not to set up branches and not to maintain
a distribution depot outside the territory fixed in the
agreement;
In addition, the exclusive distributor may take up
some of the following obligations:
- to purchase the whole range of goods;
- to sell the goods as marked and packaged by the supplier;
- to make promotion, etc.
Any other restrictions would make the agreement
invalid.
At the same time Regulation 1983/83 singles out a
category of agreements in which the above exception does not
apply:
- when the manufacturer of goods which are identical in their
characteristics, price and intended use are considered by the
consumer as equivalent conclude a reciprocal or non-reciprocal
distribution agreement (except if one of them has an annual
turnover under 100 million ECU).
- when the consumers are in a position to acquire the goods subject
of the agreement only from the exclusive distributor and have no
alternative source of supply outside the agreed territory;
- when one of the two parties makes it difficult for intermediaries
or consumers to obtain the goods subject of the agreement from
other traders and, particularly, if one of them exercises its right
to industrial property or other rights in such a way as not to
allow traders or consumers to obtain from the outside or to sell
inside the agreed territory the goods subject to the agreement.
Similarly, Regulation 1984/83 settles the matter of
the exclusive puschase agreements and it contains specific sections
whereby such agreements for supply of beer and petrol for further
retail are accepted as compatible in principle.
An illustration of the above regulations can be
found in Decision 85/562/EEC of the Commission concerning
agreements for exclusive distribution of gin and whisky. It
considers 21 such agreements which are referred to the Commission
by the parties with a view to the requirements of their exclusion
from the application of Art. 85, par.1. In 17 of the agreements,
exclusive distributors of a given drink are traders who are also
producers of alcoholic drinks, but different from those which are
subject to the agreement for exclusive distribution (e.g. several
brands of whisky of the British producer "White Horse" are
distributed in Ireland by "Gilbeys Ireland", who are producers of
gin but not of whisky). The Commission has accepted that in this
case Regulation 1983/83 is valid as gin and whisky are not
merchandise "which are identical or in their characteristics, price
and intended use are considered by the consumer as equivalent", and
the agreements for distribution are valid. In the remaining 4
agreements, however, the exclusive distributor is at the same time
producer of the same beverage and it cannot fall into the
hypothesis of Regulation 1983/83. The Commission has, however,
decided that it can grant individual exceptions on the grounds of
Art. 83, par. 3 of the Treaty since, after the examination of the
four cases, the Commission has ruled that they would contribute to
the distribution of the drinks in question irrespective that it is
distribution of competing drinks. According to the Commission, the
relevant producers can concentrate their efforts on one distributor
who knows the economic and legal reality in the country. Also,
producers may receive quickly and easily products produced in other
countries. The small total size of the total market shares does not
make the "elimination of competition" possible.
The above decision is just one of the many decisions
of the Commission in connection with the protection of competition.
It was only considered with the purpose of an example aimed at
pointing out the scope and the depth of regulation of these
questions by the Commission and substantiating the conclusions and
recommendations that follow.
In a Notice of the Commission concerning the
commercial agency some questions regarding the protection of
competition in commercial agency contracts are considered. The
Notice of the Commission is not a normative act and does not create
legal rights and obligations; it just interprets Art. 85 of the
Treaty, but still it expresses a position which the Commission
would likely assume in an actual dispute. In the Notice, a
commercial agent is defined as a person who either does not carry
out any other trade activity apart from the negotiation or
conclusion of transactions on behalf of the principal, or the
activity carried out is limited in scope or significance (i.e.
there exists the so called "integration" between the principal and
agent). According to the Commission, if the agent's activity in
connection with the princopal constitutes at least one third of his
overall activity, it would be accepted that there is integration,
but for agents which are themselves major companies this threshold
could be even lower.
The Notice expresses the position that the
obligation of the commercial agent not to trade with competing
goods does not violate Art. 86, par.1 of the Treaty. The
primcipal's obligation not to hire other other commercial agents in
the contract territory in the same manner does not contradict Art.
85, par.1. At the same time, it is mentioned that the agency
contract should not necessarily exclude the possibility of
negotiating or concluding agreements with third parties outside the
outside the contract territory, but this should take place without
active soliciting by him of such contacts, negotiations or
agreements. There is no integration when the agent carries out
activity with competing goods.
The following activities or sectors are excluded
from the scope of the application of Art. 85, par.1 of the Treaty
with a number of other regulations:
Regulation 26/62 declared non-application of the norms banning
cartels in agriculture.
Regulation 2349/84 excludes patent licensing.
Regulation 123/85 - distribution of motor vehicles.
Regulation 556/89 - licensing of know-how.
Regulation 4087/88 - franchising.
Regulation 1534/91 - the insurance sector.
Regulation 141/62 - transport.
Regulation 479/92 - maritime navigation.
The computer reservation systems for air transport
services are excluded by Regulation 83/91. In the area of air
transport, there are also a number of other documents.
For Bulgaria, in this area there are only the three
valid texts of Chapter Three of the Law on Protection of
Competition which, though in tune with EC legislation, are
generally limited to the proclamation of the principles of the
protection of competition:
- Art. 8 on the ban of agreements and decisions (par. 1) and of
restrictive contractual terms (par.2);
- Art. 10 on ban of agency, distribution or commision merchant's
activities by one person of goods of competitors when it leads to
restriction of competition or to a dominant position;
- Art. 9 on admission of agreements for application of general
terms after permission of the Commission for the Protection of
Competition.
It is obvious that without the development of a
considerably more detailed secondary legislation these principles
find small application in the economy and cannot produce a
noticeable economic effect.
3. Monopolies.
The questions of the emergence and the malpractices
of the monopolistic state are not regulated so extensively as the
cartels considered in Section 2. The ban on abuse of a dominant
position, to the extent it affects trade between the member states,
is contained in Art. 86 of the Treaty which, in addition, lists
four categories of actions which are declared incompatible with the
common market:
- direct or indirect imposition of unfair purchase
or selling prices or other unfair trading conditions;
- limitation of production, markets or technical development to the
prejudice of consumers;
- application of dissimilar conditions to equivalent transactions
with other parties, thereby placing them at a competitive
disadvantage;
- making the conclusion of agreements subject to acceptance of
supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such
contracts.
Regulation 4064/89 regulates in detail the questions
of "concentrations". According to this regulation, a
"concentration" exists when two independent undertakings merge, as
well as when one or more persons already in control of an
undertaking, acquire control over another undertaking. It
explicitly points out that cases of contractual co-operation which
are subject to Regulation 17/62 are not concentrations.
In order to fall within the scope of Regulation
4064/89 the "concentrations" must meet the following minimum
criteria:
- the total world turnover of all undertakings
concerned exceeds 5 billion ECU; and
- the total turnover in the Community of each of at least two
undertakings exceeds 250 billion ECU.
A concentration will not be subject to Regulation
4064/89 if over two-thirds of the turnover of the undertaking in
question in the Community is realised in one member state.
Regulation 4064/89 foresees a procedure for the
notification of the Commission on behalf of the undertakings within
seven days after concluding an agreement, declaration of a public
bid or acquisition of a controlling interest. The concentration
shall not be put into effect for the three weeks of the
notification and the period can be extended by the Commission. The
Commission can make one of the three rulings:
- to declare by a decision that the concentration
does not come into the scope of the Regulation and to close the
case;
- to open a case;
- to refer the question to the competent authorities of the member
states.
If, as a result of the consideration of the case,
the Commission establishes that the concentration does not
establish or enhance a monopoly, it declares the concentration
compatible with the common market. In this case the Commission may
give also recommendations.
If, on the other hand, the Commission establishes
that a monopoly has emerged or has been enhanced it declares the
concentration incompatible with the common market. In this case if
the concentration is already accomplished, the Commission may rule
that the undertakings or the assets be divided or the joint control
be ceased.
The questions are regulated in a specific way in the
Treaty establishing the European Coal and Steel Community.
According to Art. 66 of the treaty for any transaction which leads
to a concentration between undertakings of which at least one
engages in trade or production of coal or steel, irrespective
whether the concentration is realised through a merger, acquisition
of shares or of parts of undertakings, lending, contracting or any
means of control, a prior permission from the Commission is
required.
This provision, which applies even today with
respect to the undertakings in question, is considerably stricter
than the corresponding provision of the Treaty. The explanation is
that the treaty establishing the Coal and Steel Community,
concluded in 1951 has endeavoured to satisfy the public opinion in
Western Germany and France, as well as the allies, which have been
striving to break the powerful German concerns in the area of coal
and steel. With the passing of time the Commission has gradually
adopted a rather free interpretation of the provision and today the
policy in this sector regarding concentration is in accordance with
the policy regarding the sectors included in the Treaty though
formal differences still exist.
In this area only the four texts of Chapter Two of
the Law on the Protection of Competition are in force in
Bulgaria:
- Art. 7 concerning the prohibition on abuse of a
dominant position;
- Art. 5 banning acquisitions and art. 4 on the establishment of a
state monopoly;
- Art. 6 on mandatory notification of the Commission for the
Protection of Competition;
- Art. 3 defining a dominant position.
The conclusion in Section 2 above is applicable here
as well.
4. State Aids
State aids are considered in Art. 92-94 of the
Treaty. Art. 92 in principle bans aids granted by the state save in
cases provided for in the treaty itself. In paragraph 2 three cases
of aids granted by the state are listed which are accepted as
admissible by definition:
- having a social character, granted to individual
consumers, provided the aids are granted without discrimination
related to the origin of the products concerned;
- to make good damages caused by natural disasters
or exceptional circumstances;
- to certain areas of the FRG affected by the
division of Germany.
Paragraph 3 lists the cases of state aids which can
be considered compatible with the common market. The most important
case which directly affects Bulgaria is under (a): "aid to promote
the economic development of areas where the standard of living is
abnormally low or where there is serious underemployment." Bulgaria
is considered in the EA precisely such an area during a five-year
period following the date of its entry into force.
Art. 93 empowers the Commission to keep under
constant review all aid schemes in the member states, to require
the member states to abolish certain aids within a period of time
determined by the Commission (usually two months), and if the state
refuses to do so, to refer the matter to the Court of Justice. On
its behalf the European Council has the authority to declare
unanimously a certain aid as acceptable.
In the texts of the treaties (of Rome and for
establishing the Coal and Steel Community) or later in other
documents are listed some of the sectors with particular
regulations regarding the state aids:
- agriculture;
- fisheries;
- transport;
- ship-building;
- textile and synthetic fibres;
- auto and aviation industry;
- steel production;
- coal production.
Despite the fact that Art. 94 empowers the European
Council to adopt regulations for the application of the two
foregoing texts with qualified majority, in practice this has not
proved successful. Consequently, EC legislation in the field of
state aids, unlike that on cartels and monopolies, was developed
not on the basis of rules and block exceptions, but through the
practice of the Commission, laid down in individual decisions, as
well as on the basis of Communications or Notices. For instance, in
1983 the Commission informed the member states that it will use all
measures at its disposal in order to ensure the safeguarding of the
agreed obligations of the member states - it will reuire the
withdrawal of aids granted without prior information of the
Commission (in 1989 Renault and Rover were obliged to give back aid
granted by the state) or it will refuse the reimbursement of sums
from the relevant funds of the abuser states.
In these notices the Commission has taken stands on
the basic type of aids:
- export aid, concerning trade within the common
market - the Commission has declared that such aid will not be
allowed under any circumstances;
- general aid schemes - in principle the Commission
is against such schemes because they are not connected with the
activity of individual sectors or regions and do not appear in the
listing of Art. 92, par 3. Nevertheless the Commission has
expressed readiness to permit such aid if it is informed of the
main programmemes and the concrete projects included;
- sectoral aid - the criteria for acceptability of
sectoral aids include selectivity (aid only for the sectors, which
in the long term will prove to be recovering), progressive
reduction of the aid, transparency, least possible effect on
competition and necessity to reduce the social and economic price
of adaptation;
- regional aids - with a Notice the Commission has
formed in practice four groups of regions each of which has a
maximum size of the aid according to the total sum of investment in
the region and the newly created jobs. The criteria include
transparency, application of measures to a certain region,
indication of the influence on individual sectors (with a view of
not turning the regional aid into a sector aid).
There exist no exact definition of the term "state
aids." Art. 92, par.1 says "aid...in any form whatsoever which
distorts or threatens to distort competition". The text is
interpreted rather broadly and is accepted to include also aid
granted by a public undertaking. For instance, if the national
electric company extends more more favourable treatment to some
undertakings or sectors this could also be considered a state
aid.
The only general exception of the principle of
prohibition of the aid is for where the aid is so insignificant
that it cannot influence substantially trade among member states.
It is accepted that aid of up to 50 000 ECU for one undertaking
from all sources for a period of three years is the limit over
which the mechanism of prohibition of the state aids of the Treaty
applies. The sectors of special treatment have different
regulations.
Also of interest are the regulations developed by
the Commission regarding the admissible measures for saving and
remedying of undertakings which are contained in a Notice of the
Commission of 22 July 1994. In this Notice it is pointed out that
there exist circumstances whereby the state aid is justified to
save undertakings in difficult position and to help their
restructuring.
The aid for restructuring can take different forms -
injection of capital, writing off a debt, subsidising interest
payment, exemption from tax payment or social security payment,
credit guarantees. The saving, however, should be limited to
crediting at market interest rates or credit guarantees. The source
of the aid can be the government or a government body at any level,
even local as well as a public undertaking.
The basic criterion developed by the Commission
referring to injection of new capital is the so called "principle
of the private investor", i.e. when a rational private investor,
acting in the conditions of market economy would finance an
undertaking, the granting of funds will not be considered an
aid.
When the funds are granted directly or under a
guarantee there exist the presumption, however, that this is a
state aid and these operations must be reported to the Commissions
in accordance with Art.93, par. 3 of the Treaty.
Of particular interest is the question of state aids
from the point of view of the provision of Art.. 64, par.4 (a) of
the EA. According to this provision, in the first five years
following the date of entry into force of the EA Bulgaria will be
considered a region identical with the regions of the Community
described in Art. 92, par.3 (a) of the Treaty. The possibility to
prolong this regime of treatment for another five years is
envisaged. We should note in the first place that Art. 92, par.3
includes a listing of all types of state aids which can be
considered compatible with the common market, but are not
automatically accepted as compatible with the common market.
Therefore the inclusion of Bulgaria into this category of regions
means that aids granted by the state for saving or restructuring of
undertaking or sectors will be considered on the basis of this
provision but in no case will it mean that any aid is automatically
acceptable. The question is discussed in detail in
Section 6.
EC legislation also includes provisions for granting
of aids at an eased regime of approval to small and medium-size
undertakings which include undertakings with less than 250
employees, annual turnover under 20 million ECU, balance sheet
value not exceeding 10 million ECU and such having no more than 25%
of the capital being property of a company which do not fall under
this definition, with some exceptions.
Aid with social character is also admissible.
Agriculture and the fishing industry as well as coal
and steel production are under separate regulations.
5. State monopolies and special sectors.
Art. 37 of the Treaty envisages " adjustment" of the
existing state monopolies of a commercial character. The adjustment
includes liquidation of any discrimination in connection with the
conditions under which goods are procured and marketed between
nationals of the member states. What is meant here is the abolition
of the existing control over the import, export, and wholesale
trade. Gradually, albeit with much difficulties, some member states
have accomplished the necessary adjustment of the activities of
their state monopolies - Germany (alcoholic beverages), France
(alcoholic beverages, tobacco and petrol) and Italy (tobacco and
matches).
By decision of the Court of Justice of 1990 it has
been ruled that the continuing existence of exclusive rights for
import and marketing of petrol products is incompatible with the
legislation of the Community. At that time the Commission noted
that irrespective of the abolition of the exclusive rights the
situation in the Greek petrol sector is far from satisfactory.
Problems have been noted with Spain too in connection with the
requirement that petrol stations should sell only national products
and with Portugal which had already taken measures for the
liberalisation of its petrol market.
According to the Commission, the legislation of some
countries accord exclusive rights for import or distribution in the
energy sector and consequently it has proposed measures to remedy
the situation.
Art. 90 of the Treaty prohibits the member states
from adopting norms on the activity of the so-called public
undertakings, which contravene EC competition legislation. Such
undertakings to which the state grants exclusive rights (e.g. water
supply, central heating supply, etc.) must observe the regulations
of the protection of competition as much as the application of
these regulations does not impede the execution of their tasks. The
Commission is given the right to implement these regulations by
directives and decisions sent to the member states.
In the various sectors the situation is as
follows:
a) Telecommunications. Directive 88/301 of 16
May 1988 adopted by virtue of Art. 90 of the Treaty requires the
member states to ensure competition regarding the terminal
equipment. Directive 90/388 requires the same regarding
telecommunication services. As a whole EC legislation abolishes the
exclusive rights in the area of telecommunications save for voice
telephony where some transition periods are in force.
In the area of telecommunications the company is
required to be established as an independent legal person (we
believe that the principle refers to all or at least to most
sectors for limited liability state-owned companies). In Bulgaria
this is formally done but the assignment to the branch ministry
(the Committee of Post and Telecommunications) of the rights of a
body exercising the right of proprietor of the capital on behalf of
the state (and often interfering in the operation of the respective
company) actually retain the direct state management of these
companies. In this case there is a conflict of interests arising
from the fact that the state regulatory body in the sector is also
proprietor of the capital of the main trade society (or the major
companies) in the sector which leads to an additional limitation or
distortion of competition in the given sector.
b) Transport. Some countries like Belgium and
Germany have abolished the requirement that their state employees
should only use their national airlines. There is the problem of
the exclusive rights accorded to "Iberia" air company to service
the national airports of Spain.
c) Post and Courier services. Since the
courier offices offer services which the national post services
cannot offer the Commission has taken measures to abolish
restrictions over them. Some states have amended their legislation
in such a manner so that these services are not included in the
monopoly of the posts.
d) Gaming. The Commission is making a general
review of gaming with a view of elaboratiing directives for the
application of Art. 90 in this area.
e) In 1988 the Commission refused to approve
provisions in a Greek law regarding insurance of state property by
state banks and credits extended by state banks.
The WhitePaper of the EU identifies the following
measures to be adopted by Bulgaria in order to approximate its
legislation to that of the EC in connection with Art. 90 of the
Treaty:
a) during the first stage:
- the rules on protection of competition should be
applied to all public undertakings save for some justified
exceptions;
- determination of the tasks of common interest
assigned to certain undertakings, of mandatory measures for setting
up of networks and of justified restrictions;
- abolition of special and exclusive rights which
violate EA and implementation of the rights for the protection of
competition regarding the same undertakings;
- in the sectors having networks a delimitation
should be done among the various types of activities (services,
production, etc.)
b) during the second stage:
- introduction of competition into the monopolistic
sectors either by admission of new agents or by separation of the
existing agents;
- with regard to infrastructure - to ensure right of
access for all agents;
- clear definition of the exclusive rights of the
monopolistic agents which are compatible with the Treaty;
- formation of a regulating system which ensures
conditions for fair competition between the existing and new
agents.
6. Conclusions and recommendations.
In the transitional period concerning the Republic
of Bulgaria the provisions of the EA will apply. They are shown as
follows:
- cartels - Art. 64, par. 1 "i";
- monopolies - Art. 64, par. 1 "ii"
- aids granted by the state - Art. 64, par. 1 "iii"
- state monopolies and special sectors - Art. 66.
The provisions of the EA are of a principle nature
and their purpose is to fix in the form of agreement the
determination of Bulgaria to accept from the present moment the
principles of protection of competition of EC legislation, and the
obligation in the next five years to introduce in its internal
legislation detailed regulation corresponding to these principles
and to make them operative and applicable. In paragraph 2 of the
same article there is a reference to the "criteria ensuing from the
application of the provisions of Art. 85, 86 and 92 of the Treaty
establishing the EEC" and paragraph 3 provides for a period of
three years from the date of entry into force of the agreement
during which the Association Council will adopt the necessary
measures for the application of the first two paragraphs.
Obviously these texts create an obligation for
Bulgaria to start the development and implementation of the
appropriate legislation so that in the course of some reasonable
period of time a system for the protection of competition
compatible with EC legislation will start to operate. We believe,
that this will be one of the major criteria for the assessment of
the readiness of the individual associated states for full
membership.
The rate at which Bulgaria will be adopting the
respective legislation will depend not only on the factor "as early
as possible ready for full membership" but on its economic needs.
In any case, the EA has envisaged a limited period of three years
for the Association Council to develop the necessary measures. The
development of such measures, we think, will mean that Bulgaria and
the EU agree on the legislative framework, the mechanism of its
implementation and the periods of development of the system for the
protection of competition in Bulgaria. After specifying the main
provisions of such a system at the Association Council its concrete
development and implementation could begin.
The reference, above, to Art. 85, 86 and 92 of the
Treaty establishing the EEC identifies the priority areas in the
field of the protection of competition in which the Bulgarian
legislation should be approximated to that of the EC. The omission
of Art. 90 indicates that for public undertakings, having
monopolistic activity of common interest, a more gradual approach
has been adopted. Such gradual approach can be foreseen also for
the adjustment of the state monopolies but still at the end of the
transitional period the conditions under which they will operate
should be co-ordinated with the rules on the protection of
competition.
Deviations from EC legislation will be allowed in
other areas also. For instance, in the White Paper of the EU it is
shown that at the very first stage the associated states should
accept the basic elements of EC legislation in the area of control
over mergers and acquisitions with one exception - with respect to
the common interest concentrations could be admitted in the
associated states in some cases during the transitional period even
if this could create or increase a monpoly.
As was mentioned, according to Art. 64, par. 4 "a"
of the EA at least during the initial stage Bulgaria will be
considered a region identical with the regions of the Community
described in art. 92, par.3 "a" of the Treaty. This opens certain
possibilities for conducting a policy of state aids g during the
transitional period, but it does not mean that paragraph 4 "a"
automatically excludes the application of paragraph 1 (iii). To the
contrary, with regard to granting of aids to undertakings in the
so-called "underdeveloped regions" the Commission demands the same
informing procedure by the member states as with all remaining
regions. The difference is that the provisions of Art. 92, par.3
"a" allow a single reason for determination of the aid as
"compatible" with the Treaty and for it to be allowed by the
Commission.
In the case of Bulgaria as an associated state the
sanctions provided by Art. 93 of the Treaty will not be applied
during the transitional period. The EC Commission will not have the
right to stop aids or to demand the return of granted funds as it
has with respect to member states. Here two factors will have an
effect - Art. 64, par.6, i.e. the possibility to undertake
"appropriate steps", e.g. measures against our exports products
produced in a sector or by an enterprise which have received aid as
well as delaying our admission to the EU.
According to the White Paper of the EU, with respect
of the areas regulated by Art. 37, 90, 92 of the Treaty the
provisions in these texts can be incorporated into the internal
legislation of the associated states gradually. Even with regard to
the matter of Art. 92 it is explicitly noted that during the first
stage it is possible for the associated states to deviate from the
basic elements of the regulation of the EC. More specifically, it
is foreseen that the national commissions for the protection of
competition, or other similar bodies, are given more limited powers
than those of the EC Commission - that is, to receive all
information about state aids and to release reasoned opinions on
the admissibility of a given state aid, but no to have regulatory
powers with respect to such aids.
If we look now at our existing legislation - the Law
on Protection of Competition - we can immediately note that in
practice there is no protection of competition in Bulgaria both
with regard to state aids and to state monopolies, and with regard
to cartels and monopolies. Apart from the law, there is no other
regulation in this field. The law itself does not envisage the
adoption of secondary legislation for its enforcement and is
limited only to proclaiming the basic principles of the protection
of competition - compared to EC legislation it is the same as if EC
legislation were based only on the provisions of the Treaty. This
can lead to one of two things: practical unenforcability because of
the general character of the provisions or the assumption of a de
facto of legislative role by the Commission for the Protection of
Competition itself in order to fil the gaps. The latter is inherent
with the danger of instability of the regulation, lack of clarity
and potentially arbitrary enforcement with respect to individual
agents. These are all undesirable consequences and obviously prompt
and large-scale measures are required.
Under the existing conditions the Commission for the
Protection of Competition through its practice potentially might
gradually introduce some regulation of the complex social relations
in this area, but except for the practice of the Commission for the
Protection of Competition (itself valuable and no doubt necessary
in its systematic presence) no other body creates regulations in
this area. This approach has some evident disadvantages:
- initially, the Commission for the Protection of
Competition was set up to enforce and not to adopt legislation and
its structure and organisation are not appropriate for the
latter;
- its resources and personnel would not allow it in
the foreseeable future to set up in Bulgaria a well-organised
system for regulation of the protection of competition;
- in this type of legislation there is an inherent
instability which can give rise to contradictory practices and lack
of clarity as well as arbitrary enforcement;
- the practice of the Commission for the Protection
of Competition is not publicised and is not well known.
It is important to have in mind that despite the
speed or the stages of harmonisation of the Bulgarian legislation
in the area of protection of competition with that of the EC and of
introduction of its basic elements into the internal legislation,
regulations will have to be developed. The fact that in the first
stage a number of deviations are envisaged in a number of areas
does not mean that it will not be necessary to introduce regulation
in the first stage. This is necessary, and inasmuch as exceptions
are envisaged, they also should be regulated as such. Gradually,
this regulation will be approximated to the legislation of the
EU.
On the basis of the above the following specific
recommendations can be made:
a) As a priority, a new law for the protection of
competition has to be adopted containing better provisions in this
matter and stipulating the adoption of accompanying secondary
legislation.
b) The Commission for the Protection of Competition
should be strenghtened in terms of resources, personnel and its
powers should be extended by assigning it legislative power. It is
the independent body which can elaborate rules in this area. In
this way, the Commission for the Protection of Competition would
combine the two basic powers of the EC Commission in the field of
protection of competition - development of secondary regulation and
application of the rules for the protection of competition. After
accession of Bulgaria to full membership of the EU The Commission
for the Protection of Competition could remain as a national body.
Having in mind the scale of our economy, we should not reckon that
the national control in this field would be taken entirely by the
EC Commission.
c) The supervisory powers of the Commission for the
Protection of Competition should be increased in such a way that
they should become similar to those of the EC Commission in some
aspects of the protection of competition. In the area of state
aids, for instance, or in other fields where it is considered
useful and this is agreed upon at the Association Council, they
could remain more limited.
Only provided that we can set up, on a national
level, and in a short time, a powerful and independent body which
could, without political control, effectively and with competence
regulate, follow and interfere in the legal relations in the field
of the protection of competition, will we be successful in avoiding
the perturbations when these functions related to a type of
undertakings or transactions is taken by the EC Commission and EC
legislation is directly applied in this country.
It is very important to assess to what extent, under
the present structure (eleven members who take decisions at
periodical meetings), could the Commission for the Protection of
Competition be much more active in regulating problems arising in
this sphere. Perhaps its structure should undergo such changes that
would allow its specific legal powers to be devolved to its
structural units. In this case, it would be advisable to change its
name to, for instance, an Agency for the Protection of Competition.
The members of the commission could work as a Supervisory Board as
it is with the Privatisation Agency.
d) Having in mind the transition of our economy,
part of the legal powers in this field, particularly part of the
legislative activities, could be assigned to the Council of
Ministers. This would have a positive effect - harmonisation with
the existing constitutional and legal set up and traditions, a
greater authority of the acts of the Council of Ministers. At the
same time, the transfer of functions in this field to the Council
of Ministers would make the process slower and lead to potential
collision of priorities since one body would concentrate the
responsibility to fulfil two contradictory objectives. On the one
hand, the Council of Ministers will be inclined to consider
economic expediency at the expense of the principles of the
protection of competition, and, from the other, it will have to
develop legal norms for the development of these principles.
e) Development of the judiciary system in this
field, for instance by establishing specialised court panels for
dealing with protection of competition. The judiciary is not facing
issues of being assigned new legal powers or serious organisational
changes as is the Commission for the Protection of Competition.
f) The White Paper of the EU rather generously
expresses readiness for providing massive technical assistance and
aid for the training of experts of the Commission for the
Protection of Competition and of judges in this field. It is of
primary importance to identify the need of assistance in this
field.
g) The psychological adjustment of the economic
operators facing new protection of competition legislation will be
very important. From this point of view a of particular importance
will be the self-discipline of the government agencies excersing
both the right of ownership of state-owned enterprises and the
right of regulators. Enhancing the knowledge of at least the basics
of EC legislation in this area is also very important.
h) It is very important for all further actions the
protection of competition to take into consideration the
following:
- Bulgaria has agreed, under the EA, to develop
gradually, but in comparatively short period of time from the
economic point of view, and start enforcing legislation in the
field of protection of competition which should be similar to that
of the EC;
- non-performance of this obligation would lead to
delaying the admission of Bulgaria to the EU, notwithstanding the
specific measures which could be taken by the EU by virtue of Art.
64, par.6 of the EA;
- it is obvious that many of the measures which will
have to be taken will have a high price and will be unpopular
politically, which should not be a reason for delay of their
application;
- in practice now there is no system in the country
for the protection of competition (both legislative and
institutional) which should be at the same time adequate to the
requirements of EA and EC legislation and be applicable from a
practical point of view;
- among the fundamental problems which the
regulatory and judiciary bodies and society as a whole will be
facing by implementation of the legislation for the protection of
competition (and practically in all fields of the economy) are the
problems of the freedom of information and transparency. From the
point of view of the competition protection the necessity of
freedom of information and transparency will appear say with the
state aids, but this problem in Bulgaria is not solved generally
and not just with regard to the protection of competition. Its
consideration is nor subject of the present paper.
With regard to the protection of competition, the
issues of freedom of information, and transparency should be
regulated in such a manner that the interests of both society and
the undertakings themselves could be satisfied safeguarding at the
same time the trade secrets.
i) On the basis of the above conclusions it is clear
that it is necessary to start the preparation for a discussion of
the questions of implementation of Art. 64, par.3. at the
Association Council. The sooner an agreement on this issue is
reached and parameters of action are adopted in the first stage,
the sooner their implementation will start and, consequently,
Bulgaria will become better prepared to start negotiations for
integration with the European Union as a full member.
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