Competition Policy in South East Europe

On 26 and 27 May 2003, representatives of the national competition authorities of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, former Yugoslavia Republic ("FYR") of Macedonia, Romania, and former Republic ("FR") Yugoslavia Serbia and Montenegro (in the following together "SEE countries") met, together with experts representing competition authorities of the European Union, Italy, Slovenia and Turkey and with experts from the Organisation for Economic Cooperation and Development ("OECD") in Istanbul, Turkey. Together they discussed the recent progress and developments in competition law and policy in the South East Europe ("SEE") region.

None of the SEE countries belongs to the EU or will be part of the next wave of accessing countries. Only Bulgaria and Romania are in the process for accession to the European Union and have concluded Europe agreements in 1993.¹ In 2001, FYR of Macedonia² and Croatia³ concluded separation and association agreements with the EU, similar to the Europe agreements, while Albania envisages to start negotiations of a stipulation and association agreement in 2003.

Where do the SEE countries and organisations stand with regard to competition regimes and what are they aiming for? This article introduces the programmes and progress in building up competition policy in South East Europe and the parties involved. 

Under the Stability Pact for South East Europe ("Stability Pact"), the SEE countries have increased their co-operation for faster economic growth. The Stability Pact is a political declaration and a framework agreement launched at the European Union’s initiative and adopted in June 1999 to encourage and strengthen the co-operation among the counttries of South East Europe and to facilitate, coordinate and streamline efforts to ensure stability and economic growth in the region.⁴

With regard to competition law, competition officials from the SEE countries have increasingly participated in seminars on the field of competition policy organised by the OECD and the joint Vienna Institute. The first comprehensive programme was launched in 2001. This so-called "Regional Flagship Initiative for building capacities of SEE competition authorities" is designed as a contribution to stability, systematic growth and welfare in the region. It is planned to run in three sequential phases, the first of which was completed with the "Report on competition law and policy in South East Europe" ("Report") in April 2003. While the first phase of the initiative aimed at strengthening the participants’ capacities to analyse themselves, in the second phase a systematic expert analysis is planned, concentrating on fact-finding, analysis and documentation to prepare the final steps. The OECD competition division set up a small project team responsible for organizing and carrying out the different activities under the initiative. The initiative is coordinated with the European Commission ("Commission") in order to ensure that duplication of activities is avoided.⁵ The OECD initiative is supporting and complementary to EC activities in the region.

In the Report, the content of which is outlined below, the activities performed and experiences gathered in the period June 2001 to March 2002 are described. They are supplemented by further policy recommendations. The Report is not aiming to summarise the existing law but to show the existing problems, based on individual points and countries.

Already before the Report, the typical problems for economies in transition when implementing competition regimes were recognised by the OECD as the following:

• In some cases, former state monopolies have been replaced with private operators given exclusive rights for a material period of time. After that period, it may be difficult to establish a fully competitive market.
• One important role of competition authorities is to advocate pro-competitive solutions in the design of government policy. In the SEE region, that role is not everywhere sufficiently recognized and supported.
• Traditional antitrust enforcement must be strengthened in the SEE region. Several of the countries need more effective procedural tools for disclosing and deterring hard-core cartels and other harmful practices.⁶

In the second half of the 1990s, six of the seven SEE countries adopted or significantly updated their competition laws, whilst Bosnia and Herzegovina started to prepare its competition legislation. To a varying extent that legislation follows EC law.⁷

The EC model is most recognisable in the competition laws of Bulgaria and Romania, the two countries with the longest experience in law approximation under their Europe agreements concluded with the EU. On 28 July 2003, Albania adopted a new competition law, mainly based on EC competition rules, entering into force on 1 December 2003. But owing to German technical assistance and the traditional influence of German legal thinking in some SEE countries, German competition law has also served as a model. For instance, the competition rules of FYR of Macedonia and, to a certain extent, the Croatian competition law follow the German model.⁸

Most SEE competition laws cover anti-competitive agreements, abuses of dominance and mergers. But differences remain: the current Albanian competition law prohibited dominant positions even without an abuse of the dominant position,⁹  and the competition law of FR Yugoslavia Serbia and Montenegro does not cover mergers. In FYR of Macedonia, it is unclear to what extent the competition rules cover all three fields, in particular anti-competitive agreements.¹⁰

In several SEE countries such as Bulgaria and Romania, the prohibition of anti-competitive agreements results in such agreements being null and void. As currently exists under EU law, Bulgarian, Croatian and Romanian legislation provides for the individual and the block exemption of certain types of agreements with an obligation to notify agreements if individual exemption is desired. But unusually, under Romanian law, even the notification for a block exemption is mandatory.¹¹

The relation between the State and the competition authorities in the formerly planned economies is still question-able. But within certain limits, the competition authorities of Bulgaria, FYR of Macedonia and Romania have the power to address State behaviour that is detrimental to competition. Again, based on the requirements of the Europe agreements, the Bulgarian and the Romanian com-petition authorities have the competence to address State aids that distort or restrict competition.¹² This has not been implemented in the other SEE countries yet. But it is laid down in the stipulation and association agreements of FYR of Macedonia and Croatia to bring their competition rules concerning State aids closer to the EC law.

The enforcement of competition legislation lies within specialized bodies in each of the SEE countries (with the exception of Bosnia-Herzegovina) with various levels of independence from the government.

Especially those competition authorities with legislation most approximated to EC law have wide-ranging investigation powers (again Bulgaria and Romania). In these countries, the authorities may request companies to provide them with detailed information. In line with EC law, the competition authorities have the power to conduct dawn raids. Compared to the Bulgarian and the Romanian competition authorities the other competition authorities have only limited powers.¹³

A striking point showing the problem of installing an effective competition culture is the general ineffective sanctions for violating competition law or for hampering investigations. While in many SEE countries fines for violations exist, these are not very high and to date rarely applied. Penal sanctions for violations of competition law, on the increase worldwide, are an exception in this region. Only Romania and FR Yugoslavia mention the sanction of imprisonment for violating the prohibition of anti-competitive agreements and abuses of dominance. It is perhaps not surprising that the lack of leniency programs in all SEE countries is coupled, to date, with a low discovery of hard-core cartels. It is believed that even if leniency programs existed the SEE legal systems might not provide sufficient protection for whistle-blowers.¹⁴

As a main hindrance to competition law enforcement the Report identifies the lack of sufficient resources—human but most importantly financial. For example, Bulgaria reports not having used its effective investigative powers to conduct dawn raids due to the absence of sufficient financial resources. Lack of human resources is a serious problem both in terms of quantity and quality for many competition authorities. Many competition authorities only have a few employees, which is clearly insufficient. Furthermore, given the inadequate salaries the SEE competition authorities can offer it is difficult to lure sufficiently skilled competition law enforcers and to keep them for a reasonable period of time.¹⁵

These limited resources are often aggravated by wasting resources on enforcing competition law that is not appropriate. For example, as mentioned above, while Romania adopted group exemptions, the workload of the competition authority is not reduced since a notification is not only mandatory for individual but also for block exemptions. This is in contrast to the latest European development: Regulation 17/62,¹⁶ dealing with European Competition law procedure, will be superseded by Regulation 1/2003¹⁷ from 1 May 2004, the main aim of which is to abandon all notifications to the European Commission in order to reduce its workload and to provide the opportunity to concentrate on serious violations of competition law.¹⁸ On the other hand, it should not be forgotten that the original decision to introduce a competition law system in which prior notifications seeking exemption are mandatory was necessary to learn about the agreements on the different markets in question and possible valuable experience to the competition authority. The SEE countries will need some time to learn about their agreements and markets before they can abandon the duty to notify—but they will need a higher work force to cover the task.

Another problem is that economic efficiency considerations are marginal in case handling. Instead, competition law enforcement is often dominated by fairness considerations or by the wish to protect individual market players.¹⁹

According to the Report, the lack of a competition culture is the most pervasive competition problem throughout South East Europe.²⁰ It is necessary to convince the public as well as policy makers and the business community in the SEE countries about the advantages of competition and competition law enforcement, even if it involves short-term sacrifices. The participants to the Regional Flagship Initiative claim that it was already an important achievement that the SEE participants have finally recognised the utmost importance of creating a competition culture. The Report concludes that one of the ways to enhance a competition culture is to involve international experts.

Furthermore, the independence of competition authorities and sectoral regulators needs to be enhanced. Several SEE competition authorities show significant shortcomings vis-à- vis politicians and the business community.²¹ The participants to the Regional Flagship Initiative believe in the necessity to ensure that competition and regulatory authorities are able to carry out their duties without questionable influence.

Finally, the SEE competition authorities acknowledge the benefit of participating in the experiences of developed market economies when adopting their economies and laws to the best models and practices.²² They also recognise the importance of learning from their peers who are facing very similar problems. One of the ways to learn from each other was, and still is, the Regional Flagship Initiative.

At the latest meeting of SEE competition leaders in Istanbul on 26 and 27 May 2003, the leaders again called for stronger co-operation between the SEE countries. In order to effectively fight anti-competitive practices, the leaders supported the current approximation to EU substantive rules on competition by necessary procedures for deterrence and enforcement. All SEE competition leaders demanded a strengthening of investigation and sanctioning powers. They also called for the establishment of independent competition authorities, to allow the authorities to enforce competition law without any undue interference from either the political level or private interests.

The most practical step to increase the effectiveness of competition law was the decision to launch a network for co-operation. In the planned network of SEE competition authorities, in which Turkey and Slovenia wish to take part as well, annual meetings will be held to review progress in the implementation of competition law and policy through-out the region. The network shall organize thematic work-shops on competition issues and competition law, including training activities, and serve as a platform among participating countries for exchange of information and experiences as well as for co-operation on competition law enforcement. The chair of the network shall rotate among the participating countries.²³

The participants in the most recent meeting submitted the conclusions to their governments for endorsement. It can only be hoped that they will find such approval. All the participating countries have a long way to go in order to reach an effective competition law system comparable to the system in the EU and its member states, but the importance of a functioning competition law system has been recognized in the SEE countries and will lead to further improvements. It will thereby take an important supporting role in the transition from the originally planned economies to a free-market system.

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a combination of two limited liability partnerships: one named Mayer Brown LLP, established in Illinois, USA; and one named Mayer Brown International LLP, incorporated in England.