Serbian competition law took a big step forward in 2005 when the Serbian Parliament adopted the Act on the Protection of Competition (the Competition Act). Under this Act, for the first time, anticompetitive agreements and the abuse of a market dominant position were prohibited. It also introduced a comprehensive merger control regime.
The Serbian Commission for the Protection of Competition (the Commission) was set up as an independent administrative body in 2005 and became operational in 2006. In its first year, 53 merger control cases and two restrictive agreements were reported to the Commission. The Commission also initiated 10 investigations into suspected abuses of market dominant positions.
Even though the vast majority of merger control proceedings are standard proceedings cleared in a fast-track system and there is very little case law on antitrust agreements and abuses of market dominance, the practical experience of the Commission so far indicates that it is leaning towards EU competition rules and the case law of the European Commission and the Community Courts. However, the Commission is far from being as experienced as some of its south-eastern European counterparts, such as the Croatian Competition Authority.
Anticompetitive agreements
Article 7 of the Competition Act prohibits agreements that have as their object or effect the prevention, distortion or restriction of competition.
Similar to Article 81 of the EC Treaty, the Competition Act exempts anticompetitive agreements form the cartel prohibition that: (i) contribute to improving the production or distribution of goods or to promoting technical or economic progress; (ii) allow consumers a fair share of the resulting benefits; (iii) are not indispensable to the attainment of these objectives; and (iv) deny companies the possibility of eliminating competition in a substantial part of the market. The Serbian government is yet to adopt regulations that set out the details for block and individual exemptions of agreements that meet these four requirements. The government is yet to adopt a notice on those anticompetitive agreements that are permissible due to their marginal impact on competition in Serbia (de minimis agreements).
In view of this, the Commission takes the position that, until these bylaws have been adopted, all anticompetitive agreements have to be notified for individual exemption within 15 days of the signing of the agreement. An agreement can also be submitted to the Commission for a preliminary assessment before its execution. Companies are advised to apply for individual exemptions for agreements containing restrictive elements by the deadline in order to avoid fines.
The Commission may exempt agreements for up to seven years if the agreement is entered into between undertakings that are active on the same level of supply. Vertical agreements may only be exempted from the cartel prohibition for a maximum of five years. Individual exemptions can be extended after this period, but so far the Commission has mostly granted exemptions for a period of less than five years.
Failure to notify the Commission within 15 days of an anticompetitive agreement may have the following consequences:
- fines of up to 10% of the total annual turnover realised by the companies concerned in the previous financial year;
- fines of up to 10% of the total annual personal income of the responsible person(s) within the company concerned;
- a declaration of nullity; and/or
- behavioural remedies, including a confiscation of the object, if this is necessary to restore effective competition.
The confiscation sanction has never been clarified and it is not clear which assets or shares may be exposed to confiscation. It has also not been clarified by law or the Commission whether the maximum fine is calculated on the basis of the worldwide turnover or income, though one may expect that the Commission leans towards EC competition rules and calculates maximum fines on the basis of worldwide revenues. The maximum fine is reduced to 3% if the agreement is finally found to meet the criteria for an exemption from the cartel prohibition. The Commission is prohibited from imposing structural remedies on companies.
Abuse of market dominance
Article 16 of the Competition Act prohibits the abuse of a market dominant position. Generally, an undertaking is considered to be dominant if it can adopt its market conduct largely independently of other market participants. In addition, Article 16 provides for a refutable presumption of market dominance if the respective undertaking has a market share of above 40%. Article 17 presumes undertakings to be jointly market dominant if they have a combined market share of above 50%.
The Competition Act also provides a non-exhaustive list of prohibited exploitative and exclusionary practices by market dominant companies:
- the direct or indirect imposition of unreasonable prices or conditions;
- limiting the production, the market or technical development to the detriment of consumers;
- discriminating against particular customers; and
- concluding an agreement subject to the acceptance of another set of obligations that, by their nature or according to commercial practice, have no connection to the respective agreement.
Possible sanctions for an abuse of market dominance are far-reaching and manifold, as follows.
- The Commission may fine the infringing undertaking up to 10% of its total annual turnover realised in the preceding financial year, and individuals responsible for the infringement may be fined up to 10% of their total annual income. Again, it is unclear whether worldwide or national revenues are taken into account, but it is expected to be the former.
- The Commission may declare provisions in an agreement unenforceable and may enact protective measures in the form of confiscation of the object and/or the prohibition of certain business activities. Again, the latter has not been clarified, particularly in relation to the assets/shares that may be exposed to confiscation, and the Commission is not empowered to impose structural remedies.
- The Commission may impose all measures it deems necessary to restore effective competition in Serbia.
The Competition Act provides for the notification of practices and agreements to the Commission for individual assessment concerning whether they amount to abusive behaviour. Therefore, a company can obtain legal certainty on the permissibility of a given practice or agreement while avoiding penalties if the Commission finds the behaviour in question to be abusive.
The Commission has very little experience in the abuse of market dominance. To date, only two final decisions have been taken.
The cable TV provider SBS was found to have abused its market dominant position by offering favourable subscriptions to the customers of their competitors if they committed to switching to SBS for a minimum period of three years. The Commission required SBS to allow those customers to terminate their agreements at any time.
The Belgrade Bus Station operator was charging different prices for passengers buying travel tickets at the Belgrade Bus Station from those buying travel tickets at other places.
Merger control
The vast majority of the Commission's cases relate to merger control. In the financial industry, notified transactions involved the acquisitions of Serbian banks and insurance companies following their privatisation, as well as status changes and restructurings within the financial institutions. In 2006 and 2007, the Commission cleared a number of foreign-to-foreign mergers that had limited effects on the Serbian market.
A concentration (the merger of undertakings, the acquisition of control or the establishment of a full-function joint venture) must be notified to the Commission if it meets specific thresholds:
- the combined turnover in Serbia of all undertakings concerned in the last business year preceding a transaction exceeding €10 million ($14.3 million) in Serbian dinars (the counter-value follows the exchange rate applicable on the date of completion of the annual accounts); or
- the combined worldwide turnover of the undertakings concerned in the last business year preceding a transaction exceeding €50 million in Serbian dinars (with the same counter-value clause).
Special rules for the calculation of turnover apply to banks, credit institutions, financial entities and insurance companies. The relevant turnover will consist of the income from interest charged, net profits from financial transactions, commissions charged, income from securities held by these organisations and income from other business activities. For insurance companies, the turnover thresholds are calculated by taking the value of written gross premiums into account.
Financial industry
In principle, the direct or indirect acquisitions of qualified shareholdings in the financial industry require the approval of the competent regulatory authorities such as the National Bank of Serbia (NBS) or the Securities and Exchange Commission (SEC), irrespective of whether the undertakings concerned meet the turnover thresholds set out in the Competition Act.
Direct or indirect acquisitions of a qualified shareholding (5%, 20%, 33% and above 50%) in Serbian banks can only be finalised upon approval by the NBS. The acquisition of control of a company involved in the financial industry or the establishment of such a company by a Serbian bank also requires prior approval by the NBS. Acquisitions of a qualified shareholding (10%, 20%, 33%, 50% and above 66%) in insurance companies are subject to the prior approval of the NBS. It is necessary to gain consent from the SEC for the direct or indirect acquisition of a qualified shareholding (10% or more) in an investment fund and from the NBS for the acquisition of 10% or more of a pension fund.
Timeframes and early closing
The Competition Act provides for a filing deadline of seven calendar days upon the signing of the purchase agreement, the submission of a public bid or the actual acquisition of control, whichever happens first. However, the Competition Act does not foresee any fines for not meeting this notification deadline.
Upon receiving a completed notification, the Commission has four months to assess whether a transaction is compatible with competition rules. The Competition Act provides for the possibility of fast-track proceedings where it is expected that the transaction will not result in a significant threat to competition. Under such fast-track proceedings, a transaction is cleared within one month of the submission of a complete notification.
Companies must not implement a concentration before obtaining formal clearance from the Commission. The Commission can impose sanctions if this suspension clause is infringed:
- fines of up to 10% of the total annual turnover of the companies in the last financial year;
- fines for the person(s) responsible within the company of up to 10% of total annual personal income;
- the transaction agreement relating to the acquisition of interest in the target company (and all measures bringing about the transaction) may be declared null and void; and
- protective measures may be put in place in the form of the confiscation of the object and/or the prohibition of certain activities.
Given that the Commission is so young and the practice is still in its infancy, it is not yet clear how the authority will make use of these provisions. In particular, it is not clear which assets or shares may be at risk of being confiscated. It is expected that the Commission could effectively negotiate the unwinding of mergers that have not been cleared beforehand, given the broad powers at its disposal. However, there is still no precedent for any of the above fines.
Foreign-to-foreign mergers
The turnover thresholds in the Competition Act are very low and can be met by the acquiring company alone. This raises the question of whether foreign-to-foreign mergers with a clear lack of impact on the Serbian market are subject to Serbian merger control rules. The Commission has not yet adopted guidelines that would exempt those foreign-to-foreign mergers that lack domestic effect, although there is provision for these circumstances in Article 3 of the Competition Act. A domestic effects doctrine is far from being established in Serbia. Until it is, any transaction that meets the turnover thresholds can probably be considered to be notifiable. Thus, the current practice of the Commission formally requires foreign-to-foreign transactions to be notified. The proposed amendment to the Competition Act will address the issue of the domestic effects of transactions by introducing new turnover thresholds that will require at least two of the undertakings concerned to have a turnover in Serbia.
Hold-separate mechanism
In view of the low thresholds and the long merger control proceedings, parties to a transaction may want to close a transaction before obtaining formal clearance from the Commission. A temporary acquisition of the target by a financial institution may prove an appropriate hold-separate mechanism, as the Competition Act expressly exempts acquisitions by a banking or other financial institution from notification requirements if these institutions temporarily acquire shares for further resale to be realised within a period of 12 months. During this period, the shareholders' rights may not be used to influence decisions that concern its conduct in the market. However, acquisitions of companies by local banks are still subject to NBS control.
Close cooperation
The National Bank of Serbia (the supervisory body for financial institutions) and the Commission signed a protocol on cooperation in February 2008. This protocol aims to enhance the development, stability and supervision of the Serbian financial market. The protocol addresses the exchange of all available and relevant information between the two authorities and imposes an obligation on the NBS and the Commission to inform each other of any infringement of competition or banking law. The prevention or limitation of competition or irregularities in financial business may lead to penalties imposed by both the NBS and the Commission.
In cases of suspected irregularities, the NBS and the Commission will each appoint a person from within itself to be responsible for processing and providing the relevant information, including confidential information.
New draft amendment
In February 2008, a draft amendment to the Competition Act was submitted to parliament. However, the Ministry of Trade withdrew the draft proposal (the reasons for the withdrawal are not known) and now a new draft is being prepared.
The first draft would have introduced a de minimis rule and would have provided for block exemptions for the agreements on specialisation, research and development and the transfer of technology and distribution, provided that they clearly support economic development.
Most importantly, the merger control thresholds would have been amended so that filing is required if:
- each of at least two undertakings concerned achieved an annual Serbian turnover of €20 million (or more) in the last business year; or
- the aggregate market share of all participants in the concentration in a relevant market exceeds 25%.
The notification deadline would have been extended from seven to 15 days following the signing of the transaction agreement, the acquisition of control or the submission of a public bid, whichever occurred first. The proposed amendment would also have stated that undertakings infringing the suspension clause would have been exposed to a de-merger.
It is expected that the new draft will differ only marginally from the first draft. The Commission expects that the amended Competition Act will enter into force by the end of 2008 or the beginning of 2009.
| Author biographies |
Srdjana Petronijevic
Moravcevic Vojnovic Zdravkovic oad in cooperation with Schoenherr
Srdjana Petronijevic is an attorney at law and specialises in M&A and corporate and competition law. She advises international clients on their market entry into Serbia, Montenegro, Bosnia and Herzegovina, as well as on the merger control aspects of these transactions. Among Srdjana's clients are companies from the telecommunications, insurance, banking, construction, real estate, road development and IT industries. She graduated from the University of Novi Sad, gained an LLM in international business law from the Central European University in Budapest and a further degree in international business and trade law from the Asser College in the Hague. She is a licensed stock dealer and broker in Serbia. Srdjana successfully completed the World Law Institute programme in 2005. She is also a licensed and sworn court interpreter for the English language.
Franz Urlesberger
Schoenherr
Franz Urlesberger became a partner at Schoenherr in 2007, where he works in the firm's EU and Competition Unit in Vienna. He also heads the respective competition practices in the firm's CEE offices. He obtained his law degrees from the University of Salzburg (JD, 2000) and the London School of Economics (LLM, 1999). Franz has been a member of the Austrian Bar since 2003. His practice focuses on European and Austrian competition law. He represents and advises clients from a wide range of industries, including paper and packaging, energy, oil and media. He is engaged in all types of public and private litigation, as well as giving out of court advice and, of course, merger control work. In addition, he has gained broad experience in supporting firms to implement comprehensive antitrust compliance programmes. |