Introduction |
Romania
is taking its final steps on the road to European Union membership. It
has obtained the status of a functioning market economy and the approval
of EU Member States who signed the EU Accession Treaty with Romania on
April 25, 2005. However, Romania’s entry could be postponed by one year
if the EU’s executive commission recommends to the member state leaders
that, due to persistent shortcomings in the reforms Romania has pledged
to make before the accession date of January 1, 2007, it is not ready to
join. This delay in accession is stipulated in the safeguard clause
contained in Romania’s provisional approval, and it can be invoked if
the EU determines that Romania has deficiencies in two of the thirty-one
negotiation chapters closed on December 8, 2004: Chapter 6 on
Competition and Chapter 24 on Justice and Internal Affairs. The threat
of postponement was made even more concrete on May 12, when EU
Competition Commissioner Neelie Kroes warned the Romanian government, in
a speech at the European Institute of Romania in Bucharest, that it has
still not done enough to meet EU Competition criteria.
Chapter 6 on Competition was one of the last two remaining chapters
necessary for the finalization of the negotiations on Romania’s
application to the EU. To this end, Romania promised to meet certain
criteria in the areas of, among other matters, state aid, anti-trust,
and the administrative capacity of the authorities in charge of
enforcing competition legislation. Romania has already begun
implementing and will continue to apply EU standards regarding
competition: it has adopted laws that reflect EU legislation in this
area, and it has shown an increase in sanctions against non-complying
companies. However, according to Commissioner Kroes, a Chapter
6-triggered safeguard could still be invoked if Romania does not do more
to make the required improvements, most notably in the domains of state
aid and an improved record of implementation of competition laws. |
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State Aid |
EU law generally does not allow state aid that may favor certain
companies to the detriment of others because this practice may distort
the fair competition environment. When state aid is given, it must be
limited in time and extent, and must be given only in certain situations
and for the advancement of certain goals, such as for regional
development, for the protection of the environment, for research and
development, and for small and medium size business promotion, and it is
granted only with the permission of the competent competition
authorities (in the EU, this authority is the European Commission, and
in Romania, it is the Competition Council). There exist even more
restrictive and at times prohibitive regulations of state aid in certain
industries, such as steel, mining, automobile and naval construction.
In
Romania, state aid is regulated by Law no. 143/1999, amended by Law no.
603/2003. These amendments have as their scope the further harmonization
with EU laws, including an improvement in the supervision and control of
state aid, the evaluation of the impact that state aid has on the
market, and the identification of illegal state aid (i.e., state aid
granted without the authorization of the Competition Council).
Consequently, the Romanian provisions that deal with state aid often
greatly resemble EU law on this subject. Under Romanian law, state aid
is defined as any support, regardless of its form, from state funds,
granted by public authorities or by other institutions that administer
public funds. The Competition Council must expressly authorize any state
aid, regardless of the beneficiary, with certain exceptions stipulated
by law. State aid may be granted in the form of a transfer of public
funds to a private company, or in the form of the state’s giving up of
future income from a company thereby conferring on the company a benefit
that it would otherwise not have received. The means by which the
government can grant state aid include, but are not limited to, state
subsidies, debt cancellation, the undertaking of a company’s losses by
the state, exemptions, discounts or extensions on taxes, and
preferential interest loans. State aid can be awarded in a number of
areas such as research and development, small and medium businesses,
environment protection, labor, regional development, promotion of
exports, promotion of culture, conservation of national patrimony, and
promotion of health and education.
According to the latest update on the “State Aid Scoreboard” Report,
Romanian state aid comprised 2.82% of the GDP in 2002, greatly exceeding
the 0.4% EU average and the 1.42% average of the new EU member states.
Nevertheless, in the last three years, the percentage of state aid out
of the GDP has continuously decreased in Romania, reflecting Romania’s
desire to achieve EU standards in this domain as well as its own goal of
eliminating the distortion that state aid can produce on competition and
in the market.
European Commissioner Kroes has stated that Romania must implement more
extensive measures for controlling state aid before it can be admitted
into the EU. To this effect, Commissioner Kroes has clarified what shall
be understood as existing aid, defined as state aid awarded prior to the
accession of Romania to the European Union. She has emphasized that not
all pre-accession aid will be automatically considered “existing” and
therefore irrevocable, but will have to not only be authorized by
Romania’s Competition Council, but also submitted to the European
Commission for further approval. Moreover, no state aid will be given
“existing aid” status until Romania’s enforcement record improves to the
EU’s satisfaction. If this enforcement record is not satisfactory, all
aid will be considered “new aid” and will have to be reviewed by the
European Commission upon accession. Should the state aid be considered
inappropriate by the European Commission, it may be revoked and even
recovered after accession. |
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The Competition Council and its Enforcement
Record |
As
noted above, Chapter 6 safeguards could be invoked if Romania shows
shortcomings in the required improvements of not only state aid
regulations, but also of the capacity and effective control of the
Competition Council. Romania has promised to apply the acquis
communautaire, to train the experts of the Competition Council, to
develop the administrative competence of this agency, to monitor state
aid, and to carry out investigations. Thus the Competition Council has
the responsibility of showing an enforcement record demonstrating the
effective implementation of competition legislation in conformance with
EU law. However, until now, the Competition Council’s enforcement record
has been unsatisfactory to the EU, and this is due in part to the fact
that Romania has not yet met the standards for strengthening the
administrative capacity of the Council in terms of its financial and
human resources as promised at the December 8, 2004 closing of its
accession negotiations.
Commissioner Kroes stated in her May 12th speech that it is not enough
for Romania to simply adopt the legislative framework that the EU
requires for accession, but must also show that the Romanian Competition
Council is properly administering the necessary regulations by producing
a credible track record of enforcement. Commissioner Kroes has further
stated that this unsatisfactory record has been detrimental to Romania’s
efforts to attract foreign investors.
Romania’s law on competition is Law no. 21/1996, and it was modeled on
Articles 81 and 82 of the Treaty Establishing the European Community.
Competition Law no. 21/1996 was amended to further harmonize it with EU
law by Emergency Ordinance no. 121/2003. Romania’s competition law
stipulates that the Competition Council, headquartered in Bucharest, is
a legal entity having autonomous administrative authority in the
competition domain. The Council’s members are appointed by the President
of Romania at the recommendation of the Government. From a functional
point of view, this autonomy implies that the Competition Council can
establish its own administrative regulations, its own staff, and its own
methods of implementation and supervision.
There are several potential problems that might affect the independence
and control for which the Competition Council is striving. One possible
way in which its autonomy could be undermined appears in the procedure
by which the government appoints Council members; for example, the
selection of members could be based on questionable criteria unrelated
to the candidates’ professional and moral reputation. Another possible
source of difficulties for the Council’s effectiveness is in the
professional qualification of the Council’s staff, such as its
inspectors; Romania has promised to provide for the training of its
inspectors in order to create a more competent institution in line with
EU standards. Finally, another potentially weakening factor in the
effort to strengthen the Competition Council may be financing. According
to the law, the financing of the Council’s activities comes from the
state budget. Taking into account Romania’s promise to improve the
autonomy of its Competition Council in order to meet the criteria for
accession, the state should allocate a larger percentage of funds, at
least until 2007, in order to facilitate the achievement of EU
objectives in this domain. |
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Conclusion |
Romania’s political commitments to the EU in order to ensure timely
accession must be met not only by the superficial adoption of
legislation that conforms with the acquis communautaire, but by
the actual implementation and enforcement of these laws. Failure to do
so could lead not only to a postponement in joining the EU, but could
also act as a deterrent to potential investors looking for a stable and
safe market. This coming November, the European Commission will issue a
report on Romania’s progress in, among other areas, competition. Based
on the findings of this report, the Commission will either recommend
accession in 2007 or will recommend a one-year delay. Romania is already
showing signs of improving its enforcement record and heeding the advice
of EU authorities. On May 26, the Competition Council issued a 28.5
million-euro fine, its most drastic measure to date, to the country’s
three cement producers for price fixing. European Competition
Commissioner Kroes’s warning will hopefully motivate the Romanian
government to continue making the improvements it has already begun to
make on the road to joining the EU and creating a stronger economic and
business environment. |
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are made.
Copyright 2005 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
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