Introduction |
Lawful competition is the key to a functional and efficient economy.
However, achieving fair commercial competition is not simply a matter of
adopting adequate legislation; it requires the proper implementation of
the law to ensure the necessary framework for a solid economic
environment which leaves little room for unlawful behavior. But, should
those rules be tightened or lessened during difficult economic times?
The Romanian Government’s answer has been to increase the role of the
Competition Council, which is the national authority in the competition
field, to enable it to intervene more promptly and efficiently in cases
of potential anti-competitive practices. To do so, it adopted Government
Emergency Ordinance no. 75/2010 (“GEO 75”) for the amendment and
completion of the Competition Law, i.e. Law 21/1996.
Although the reasons cited by the Romanian Government for adopting GEO
75 -- the necessity to improve the current procedural framework in the
competition field -- are most welcome, there are certain aspects which
appear to worry the business community. Indeed, there are provisions of
GEO 75 which may restrict the ability of undertakings to challenge the
decisions of the Competition Council and to defend themselves when there
is a suspicion with regard to their possible anti-competitive practices.
This article explores these issues, as well as examines other aspects of
GEO 75.
In the past, we have addressed various competition issues such as in our
October 2009 Digest article, “Romanian State Aid in a Time of Crisis”,
or in our June 2010 Digest article, “New Developments in European
Antitrust Law Affecting Romania”. See the Digest archive at
www.hr.ro/digest/200910/ or
www.hr.ro/digest/201006/.
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Main Amendments Introduced by GEO 75 |
The purpose of this article is not to provide an exhaustive presentation
of the multitude of amendments introduced by GEO 75, but rather to point
out the ones that presumably have the most impact on the role of the
Competition Council, on the life of undertakings, and, eventually, on
the national economic environment. There are various amendments and
supplementations which reflect the increased powers of the Competition
Council. Others involve simplifying the procedures before the Council,
but it is hard to say how they will be implemented in practice or how
they will actually affect the life of undertakings involved in
competitive business.
Suspension of a decision of the Competition
Council
One
of the new provisions of GEO 75 which has already raised much
controversy in the business community is the one which provides that a
decision adopted by the Competition Council may now be suspended by the
court only after the payment of a bond equal to 30% of the amount of the
fee established by the respective decision of the Council which is
object of the claim in court.
In comparison to the former provisions, which did not set any such
obligation to pay a bond, the new provisions are justified by the claim
that they will reduce the number of cases where the payment of a fine is
suspended. In reality, the new provisions may be perceived as nothing
more than a legal means to provide revenue to the state budget. But
undertakings are worried that these new provisions will seriously affect
companies facing financial difficulties, which have grown more numerous
in these troubled times, because such firms will be unable to afford to
pay a bond – and this might even trigger the initiation of bankruptcy
procedures against some of them.
Authorization fee for mergers
Another very significant amendment introduced by GEO 75 is a new
percentage for the fee applicable in case of authorizations of mergers,
as well as the new method for calculating that fee. The percentage
represented by the fee for the authorization of a merger was decreased
by GEO 75 from 0.1%, as previously provided in the competition law, to
0.04%. In addition, the method for calculating the fee for the
authorization of mergers was simplified so that it now represents 0.04%
of the total turnover of the respective company in Romania, up to the
maximum of €100,000 in its lei equivalent.
Pursuant to the prior provisions of the competition law, the
authorization fee represented 0.1% of the turnover of the specific
segment of the market where the merger was to be performed. This new
method for calculating the fee is seen as simplifying the entire
procedure, since it will most certainly be much easier for companies to
calculate their total turnover on the Romanian market for the financial
year prior to the year when the merger was completed, instead of
calculating the turnover only on specific segments of the market. The
implementation of the new provisions should actually speed up the entire
merger procedure, and this is perceived as a positive amendment
introduced by GEO 75, providing more flexibility in the market.
Notifying the intent to perform a merger
Another amendment introduced by GEO 75 regards the ability of
undertakings to officially notify the Competition Council of their
intention to perform a merger, either as a take-over or as a merger
itself. Up until now, the Competition Council could only be formally
notified after the signing of the merger agreement. As a matter of
practice, parties informally reported mergers before the execution of
the merger contract to speed up the whole process. This possibility is
now formally provided by the law. It will enable parties to future
mergers to save a great deal of time by being able to report the merger
before the signing of the final agreements.
The “Compatibility Test”
GEO 75 has also introduced amendments with regard to the compatibility
test of mergers with a normal competitive environment, the “dominant
position test” which is now replaced by the SIEC test, i.e. the “substantial
impediment of effective competition test”. While under the former
test, the Competition Council first had to determine whether the
potential merger resulted in the creation or strengthening of a dominant
position on the market and only afterwards analyze the effects related
to the significant prevention of actual competition, the new amendments
focus on the effects of the merger on the competitive environment, while
the creation or strengthening of a dominant position is no longer
mandatorily perceived as forms of restraint of competition.
Increased role of the Competition Council
There are various new amendments put in place by GEO 75 which reflect
the increased powers granted to the Competition Council. By the new law
establishing a minimum level of fines on which the Council must decide,
and providing that inspectors of the Council may perform unannounced
investigations, under certain conditions, as mentioned below, GEO 75 has
emphasized the role of the Competition Council as the national authority
which must more closely control anti-competitive practices and decide
upon the corresponding sanctions more efficiently.
Minimum level of fines
In comparison to the former provisions of the competition law, which did
not establish any minimum limits for fines, GEO 75 has set such limits,
so that companies will now be more aware of the potential consequences
of any unlawful behavior. According to GEO 75, should a company
participate in a prohibited arrangement, or should a merger be
implemented prior to clearance by the Competition Council, the minimum
fine imposed will be of 0.5% of the turnover of that company in the year
preceding the decision of the Competition Council, and it could go as
high as 10% of the turnover of that company.
Sanctioning public authorities
An amendment introduced by GEO 75 that is widely supported by the
business community provides that public authorities, both central and
local, may now be sanctioned with fees between 5,000 – 40,000 lei if
they fail to provide the Competition Council with the requested
information and/or documents, or if they provide inaccurate or
incomplete information and/or documents.
Until the enactment of GEO 75, the only entities that could be
sanctioned by the Competition Council were undertakings. But the market
is not restricted to just private businesses -- public authorities are
also involved in various matters that may involve them in competitive
relations. The fact that public authorities may now also be sanctioned
attests to the fact that even Romanian governmental entities must comply
with competition laws and regulations, or face the consequences. Indeed,
the new amendments reflect once again the increased powers granted to
the Competition Council, which is now called upon to assess the behavior
of public authorities in terms of compliance with legislation in the
competition field.
Other fines
Pursuant to GEO 75, companies providing incomplete, misleading or
inaccurate information or documents or refusing to submit to an
inspection carried out by the Competition Council shall be subject to a
fine of between 0.1% and 1% of the total turnover of the financial year
prior to the date when the fine is imposed. This should make companies
more attentive when responding to requests of the Competition Council
which, at least in theory, should increase the transparency and
efficiency of the Council’s procedures. However, since the new law is
actually more focused on increased transparency, those undertakings that
acknowledge their anti-competitive behavior are entitled, according to
the provisions of GEO 75, to have the amounts of the fines applicable to
them diminished.
Recognition of the anti-competitive behavior
As mentioned above, an innovation provided for by GEO 75 is that the
acknowledgment by an undertaking of an anti-competitive act can actually
diminish the amount of the fine imposed upon it by between 10-25% from
the basic level of the fine.
New sanctions for individuals participating
in cartels
According to GEO 75, those individuals who fraudulently and
intentionally participate in the organization of a cartel may receive
greater sanctions than those imposed by the former law. The prior
provisions, which established that individuals fraudulently and
intentionally participating in the organization of a cartel may receive
either imprisonment from 6 months to 4 years, or a fine, have now been
enhanced with provisions that allow them to also be sanctioned with the
interdiction of the right to occupy a position or to perform a
profession or to accomplish an activity similar to the ones they used in
violating the law. The harsher sanctions are meant to discourage such
unlawful behavior. Note that members of a cartel can obtain leniency if
they denounce the cartel. This is not a new provision as the legislation
in the field of leniency has been amended so as to be in accordance with
European Regulations in 2009.
Sudden inspections performed by the
inspectors of the Competition Council
As previously noted, the increased powers granted to the Competition
Council by the new amendments to the Competition Law permit it to
perform, through its inspectors, unannounced inspections to companies
located in Romania. This may be done, however, only at the request of
the European Commission or at the request of national authorities in the
competition field of other member states of the European Union.
These provisions reflect the fact that the Council is part of a network
created at the European Union level, which includes all the national
competent authorities in all the Member States, and that this network
cooperates under the supervision and with the support of the European
Commission. Needless-to-say, anti-competitive behavior often exceeds the
national boundaries of one state, and often needs the support of the
competent authorities in other countries in order to be able to
efficiently put an end to such behavior.
Agreements and concerted practices between
undertakings
Mention should be made that all regulations under Romanian law regarding
agreements between undertakings and concerted practices which have
previously been adopted in Romania in line with the specific legislation
adopted at the European Union level, have been abolished. Currently the
European regulations apply directly in Romania with no need for further
approval of this legislation by the Romanian authorities. Furthermore,
there is no longer a possibility for agreements and concerted practices
to be reported to the Competition Council. The parties have to analyze
them themselves and determine if they are in compliance with competition
laws and regulations. The Competition Council will only sanction parties
to agreements and concerted practices that breach competition law. |
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Conclusions |
The new amendments introduced by GEO 75 have raised some controversy.
Even if the increased role of the Competition Council has a positive
impact on the business environment leading to increased control over
potential anti-competitive behavior, it is important that such increased
control does not develop into rigid and inflexible procedures. On the
contrary, processes before the Competition Council should be
characterized by more flexibility and less bureaucracy.
It is unfortunate that the new amendments did not focus also on
simplifying the notice requirements or on permitting less formalistic
contacts with the staff of the Competition Council.
Due to the changes in the policy regarding agreements and concerted
practices, there will probably be a sudden and dramatic increase in the
work of specialized competition attorneys who will be asked by
undertakings to evaluate their agreements. For the same reason, all
actors in the competitive business environment will become much more
careful regarding how they behave, as serious consequences can follow
from unlawful competitive actions. |
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News Alert on the Property Fund |
On September 6, 2010, the shareholders of Fondul
Proprietatea finally got the chance to appoint Franklin Templeton
Investment Management Limited as investment manager and administrator of
the fund. The shareholders also approved the listing of the fund on the
Bucharest Stock Exchange, as well as with on international stock
exchanges. According to Mark Mobius, the executive chairman of Franklin
Templeton Investment Management Ltd., the Property Fund will be listed
on the Bucharest Stock Exchange early next year and on the London Stock
Exchange by the end of next year. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2010 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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