Serbia: Striking the balance

Author: | Published: 1 Oct 2009
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All beginnings are difficult. Enforcing a modern competition policy in both a balanced and authoritative way is an onerous task in even the most developed European countries. With decades behind those countries in terms of practice, in a less than sophisticated business environment achieving this task is even more difficult. In Serbia the beginnings of competition policy seem to be swinging between the extremes. Striking the balance should be the way to go.

Much has happened in Serbia's antitrust practice since September 2005, when the Competition Law was first enacted. The case practice has grown exponentially over the years and the national authority, the Competition Commission, has come to play an important role in boardroom meetings throughout the business community. While the great number of merger filings (about 140 in 2008) can be attributed to low jurisdictional thresholds, the Commission should largely be credited for the large increase since 2006. And even though its practice has not deserved the highest marks, these numbers speak volumes of the overall perception of its influence, especially considering that fines are yet to be imposed.

In the first years after the establishment of the Commission, the practice was overwhelmed by merger control practice, which has consistently occupied more than 90% of its resources. More recently, in 2008 and 2009, the Commission has taken up more behavioural work, targeting industries across the board.

There are three distinctive features of justice: the blindfold, sword and measuring balances. If we compare the Commission to the famous Iustitia, the blindfold should stand for an unbiased approach; the sword has an obvious purpose and measuring balances should ensure a balanced approach.

First, the blindfold

We have to pay tribute to the Commission's courage in battling major private companies. The Commission appeared immune to influences accumulated around blue-chip companies in its campaign on the financial industries. On the other hand, some of the most significant industries in Serbia (energy, telecom, civil aviation and so on) are still controlled by state-run monopolies, none of which have ever come into the Commission's focus.

Traditionally, the focal point for rating competition authorities worldwide has been its policy focus. As academics contemplate why the first defendants before the European Commission were non-EU companies, and as contemporary practitioners give their views on protectionism displayed in the Chinese Coca-Cola/Huiyuan case, we too see similar doubts rising over some of the more recent merger control cases before the Commission. With remedies that were uncalled for, and reasoning that was ambiguous at best, there are serious indications and concerns that the Commission is taking up a more policy orientated approach to protecting state owned and domestic companies from their private foreign competitors. The most troubling part was the Commission's refusal to apply traditional competition tests. Instead of using the econometric approach, the Commission often focused on a more intuitive review.

Second, the sword

The Commission cannot impose sanctions directly. The sword has been in a way misplaced, as the current regime envisages that only magistrate courts may impose sanctions for infringing Competition Law. Since magistrate justices mostly deal with traffic violations and public disturbance misdemeanours, one can hardly expect them to impose large fines inbetween their regular daily cases.

But all this is about to change. In July the Parliament voted to enact the new Competition Law, which will take effect on November 1 2009. All new cases as of that date will face a significantly higher risk of sanctions, as the Commission will be able to impose sanctions directly.

Total number of competition cases 2006 - 2008
Number of merger cases 2006 - 2008

Third, the balances

By focusing on the overall policy approach and objective criteria instead of going into case-by-case analysis, we see how difficult it is for the policymakers and the Commission alike to find the right balance in ensuring steady and feasible development of the area.

First, there are very low jurisdictional merger control thresholds. In short, any major global corporation that has any form of corporate presence in Serbia needs to notify its every move on the global scene to the Serbian Commission. On top of that, even medium-sized companies in Serbia are required to notify their intent of buying even the smallest of entities. For example, a medium-sized farming company that wants to buy a silo may be required to notify the transaction (also because share deals are a preferred alternative in real estate transactions due to tax reasons).

Obviously, this has led to a very high number of merger notifications in Serbia.

These numbers have not helped the capacity building efforts of the Commission immediately after its establishment. Instead of focusing on training of personnel, associating with experts and making preliminary probes into anticompetitive practices nationwide, it has dealt with mergers absent of any relevant local nexus. On the bright side though, it has become very experienced in mergers, getting into the position where its case handlers can, fairly easily decipher very subtle facts and threads critical to conducting a diligent merger review.

Experience in merger review helped the Commission speed the procedures up, thus making more time available for dealing with behavioural type of work. In 2008, the Commission has tackled many industries, challenging them of distorting the level playing field. Compared to Bosnia and Herzegovina, Montenegro, Macedonia and even Croatia (which has much lengthier tradition in the competition law practice), the Commission in Serbia has had much more high-profile cases in its recent practice.

But then again, the court review of the Commission's decisions suggested that the Commission's procedural skills and overall reasoning and approach have not met the public expectations. Whenever a defending party decided to challenge the Commission's decision, the Supreme Court of Serbia accepted the party's reasoning and annulled the decision. This infamous track record casts a great shadow over the Commission's efforts and openly puts into question its authority and general legal skills. To be very blunt, while practitioners in the EU might compare the track record of Neelie Kroes against that of Mario Monti before the Court of Justice, when it comes to Serbia there are essentially no upheld decisions, and practitioners will have no starting point to compare the future Commissioners' record with.

Due process

It is very difficult to find the words to describe the procedural approach in major cases before the Commission. We ought to give credit to the Commission for its constant attempts to grant procedural privileges to parties that resemble those offered to parties in the EU. On the other hand, Serbia's Supreme Court has dismissed its decisions for material breaches of procedural rules to the detriment of the defendants. In spite of all efforts to credit the Commission in its overall approach, this swinging between the extremes can hardly be justified.

Policy of paper

Looking at the overall context, everyone must wonder by now how effective any of the Commission's rulings were and whether any of them made the difference in the industries probed in the past few years. This reflects profoundly negatively to the credo of competition policy and practice in Serbia. The Commission scores points with the public (since in many cases the consumers are on the same page that there is an injury to competition), but it loses the fight with the judiciary. Consistency in court practice has resulted in a somewhat negative perception of courts: the public, largely in favour of the Commission's tackling of major corporations, reacts negatively when its decisions are overturned.

All in all, one cannot escape the impression that the Commission, with all its brave heart and fair attitude, must perform better when it comes to results. A balanced, result-orientated approach will do more good for both the consumers and overall competitiveness of the economy. For example, the Commission might and should consider opting for settlements (allowed under both the current and the new law), instead of the pursuit of justice at all costs since, simply put, the costs have become overwhelming and the stakes are as high as ever.

The Commission's fervour in endorsing the strict solutions in the new law have been largely driven by its frustration with failure over the past years. That being said, one must now fear the possibility of the Commission compensating for all the lost time. Breaking the wheels on the first culprit come November will not be homage to balance.

IN FOCUS: Serbia's new competition law takes effect on November 1 2009
Restrictive agreements Opposite to the definition in the previous law, the new law more closely transposes Article 81. The previous version was more restrictive than the EU law.
de minimis agreements The new Law introduces the de minimis rule, declaring certain agreements compatible with Competition Law for lacking significant effect to competition.
Prolonged duration of individual exemptions The potential duration of the individual exemption of restrictive agreements has been prolonged from five years (pursuant to the old law) to eight years.
Higher merger control thresholds Thresholds remain alternative relative of:
• The combined worldwide turnover of all undertakings exceeds ?100 million, and at least one undertaking having a local turnover in excess of ?10 million; or
• The combined local turnover of at least two undertakings exceeds ?20 million, and each of at least two parties has a local turnover in excess of ?1 million.
As an exception to the rule, all public takeovers are notifiable.
Takeover of joint stock companies Public takeovers can proceed with implementation (partial derogation of the standstill clause) if:
• Merger notification has been duly filed within 15 days of closing of the bid or purchase of the shares on the stock exchange, and
• The acquirer of control does not execute any control on the basis of the acquired rights or does so only to preserve the value of its investment and subject to a special approval of the Commission.
New definitions of dominance and joint dominance The new law introduces a revised definition of dominant position (taken from the German law) that is expected to raise the bar for the Commission to establish a dominant position.
Procedural changes
Deadline for filing the merger notifications The new Law changes the deadline for filing merger notifications with the Commission from seven to 15 days from entering into an agreement or closing of the public offer, depending on what happens earlier. Furthermore, for each day in delaying the filing the Commission may sanction the parties to the concentration with procedural penalties.
Fixed duration of merger control The law introduces a strict distinction between Phase I and Phase II review, and also introduces the presumption of positive decision when statutory deadlines elapse.
Phase I review takes one month, and Phase II an additional three months
New competences of the Commission
Fines The Commission is entitled to fine market participants that infringed competition (abuse of dominance, execution of restrictive agreements, implementation of a concentration without prior clearance, nonconformity with a measure issued by the Commission by up to 10% of its overall annual turnover (tax not deducted) earned in the year proceeding the year of commencement of proceedings before the Commission.
The term for payment of the fine is from three months to maximum one year from receipt of the Commission's decision on imposing the fine.
The statute of limitation for imposing and collecting the fine is three years from the distortion of competition.
Leniency Leniency procedures have been introduced, however, secondary regulations is expected to regulate the issue thoroughly.
Behavioural measures Pursuant to the new Law, the Commission may order an undertaking to perform a certain action or to restrict itself of a certain action with the aim of amending previous competition infringements or prohibiting future ones.
Structural measures If there is a significant risk of recurrence of the same or similar infringement as a direct result of the same structure of the market participant, the Commission is entitled to issue a measure to change the said structure as to remove such risk, or to institute a structure that had existed prior to the said infringement.
The Commission is explicitly authorised to order the dissolution of a market participant's structure by means of selling some of its integral parts (a split-off) or its equity.
Procedural penalties If a party to proceedings before the Commission does not conform in certain prescribed situations in accordance with the Commission's order, or if it does not file the notification with the Commission in a prescribed deadline, the Commission may issue procedural penalties ranging in the amount of ?500 to ?5000 for each day of nonconformity with the Commission's order.
De-concentration Under the new Law, the Commission can cancel an already implemented concentration (de-concentration).
De-concentration can be operated as a split-off, sale of shares, cancellation of the agreement or performing any other action that would lead to restitution of the status prior to implementation of the concentration.
Inquiry rights The new Law granted the Commission broad inquiry rights, common in other European competition legislation.
The Commission is now authorised to perform not only regular raids of a company's premises with police assistance, but raids of apartments (subject to a court order) and dawn raids as well.
The introduction of dawn raids is significant since the Commission may, at its own discretion and without any prior notice of the market participant in question, perform a raid of its premises, offices and documents.
Privileged communication The new Law adopts a entirely new provision on privileged communication (based on EU law) under which all and any forms of communication between the party against which proceedings before the Commission have been commenced and its attorney(s) that are directly referring to the said proceedings shall be deemed privileged and confidential and, thus, restricted to any third party.
Fiscal enforcement Regarding the collecting of fines, a new procedure has also been introduced. Namely, all pecuniary fines determined by the Commission shall be collected pursuant to the expedited tax collection enforcement procedure.
Private enforcement The new Law envisages the right of any market participant that suffered damages due to competition infringement to commence litigation against the market participant found by the Commission to violate competition.

About the author

Rastko Petakovic has been the head of the competition department of Karanovic & Nikolic since 2007. He is also a member of the KN telecom, media and technology practice group. He specialises in competition and corporate law and also in the telecom sector, advising clients in Serbia, Montenegro, Bosnia-Herzegovina and Macedonia. He is ranked by independent directories as the best competition lawyer in the country. He has led the teams in many transactions in Serbia, Montenegro and Bosnia-Herzegovina and has represented and defended clients in the most prominent cases in those jurisdictions.

Mr Petakovic also advises Foreign Investors Council and the American Chamber of Commerce in Serbia on all competition and antitrust matters. He authored the first independent review of the regulatory framework and practice of the Serbian Competition. Since the enactment of the Competition Law in Serbia, Mr Petakovic has been a regular contributor to the White Book, a publication of Foreign Investors Council, Doing Business in Serbia, a publication of GMB Publishing UK and many international publications.
Contact information

Rastko Petakovic
Karanovic & Nikolic

Lepenicka 7,
11 000 Belgrade,
Tel: +381 11 3094 200
Fax: +381 11 3094 223