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Serbian competition protection

On September 24 2005, the new Competition Protection Law (CPL) took effect in Serbia. While protecting market competition is an important goal, and anti-monopoly legislation has been long-awaited in Serbia, the law might unfortunately lead to investor uncertainty resulting in a backlog of deals that cannot be closed for lack of anti-monopoly clearance.

A competition protection commission is to be set up under the terms of the new legislation. The independent body will be responsible for receiving merger applications and issuing approvals. Although the commission is scheduled to be set up by mid-November 2005, delay is likely. In the meantime, the Ministry of Economy and Trade will handle all anti-monopoly clearance applications. It is unclear, however, how the ministry will be able to handle its caseload, given that the law is already in operation and little preparatory work has been done to implement the law and allow the ministry to quickly issue decisions.

The competition law regulates instances where:

  • control over all or a part of one or more enterprises is acquired by another enterprise (a concentration);
  • there is an agreement between parties that would materially prevent, restrict or distort competition on the Serbian market; and
  • there is abuse of a dominant position on the market.

The provisions of the CPL apply to corporations and individuals as well as foreign associations, where their actions could affect the Serbian market.

The enterprises involved in a concentration must file a request with the commission within seven days of either the signing of the relevant agreement, the announcement of a public takeover bid or the date on which control is acquired. An approval request may also be submitted on the parties' signing a letter of intent to make a public offer for shares, or the announcement of that intent.

The thresholds that trigger a filing requirement are set relatively low. This will result in most large enterprises contemplating a Serbian acquisition being subject to obtaining approval before closing.

Prior approval of a proposed concentration must be obtained from the commission if: (a) the combined total annual turnover of all enterprises involved in a concentration on the market of the Republic of Serbia exceeds the CSD equivalent of €10 million, or (b) the combined total annual worldwide turnover of the enterprises involved in a concentration in the previous financial year exceeds the CSD equivalent of €50 million, and at least one of the enterprises involved in the merger is registered on the territory of Serbia.

Under the CPL, a dominant market position exists if the combined market share of an enterprise and its affiliates amounts to 40% or more. An enterprise will be deemed to have a dominant market position if it has the power to behave independently of other enterprises. In practice this means being in a position to make business decisions without taking into account the position of competitors, purchasers, suppliers and consumers.

Concluding a concentration without first obtaining approval from the commission, or otherwise failing to comply with the CPL, could result in a court imposed fine of up to 10% of the total annual turnover of the enterprises involved. The CPL also provides that the authorities may confiscate the subject matter of an acquisition from the parties and prohibit business activities in Serbia. It is unclear, however, whether this means the authorities will confiscate the acquired interest, or unwind the agreement and declare the unauthorized transaction void.

Parties to an agreement must not complete the proposed transaction before the earlier of receiving the commission's approval or the expiration a period of four months from the date of the approval request. The commission has the power to issue a summary proceedings decision, without conducting an investigation, within one month of the submission of an approval request. A summary decision will only be made if, on the evidence of the submission, it is reasonably likely that the transaction will not prevent, restrict or distort competition. The burden of proof will be on the applicant to show that the proposed transaction will not impede competition.

The commission's decisions are stated to be final and not subject to appeal. However, under Serbian administrative law, such decisions are subject to judicial review by an administrative court.

The Serbian government needs to act quickly to set up the commission and ensure it has a fully-trained and efficient staff that will process applications quickly. Otherwise the new law could lead to unintended consequences including slowing much-needed direct foreign investment in Serbia.

Bojana Bregovic and Beba Miletic

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