The Confederation of Employers and Industrialists in Bulgaria, after discussing with its member companies and the Association for Modern Trade, a collective member of KRIB, the submitted ZID of the Law on Protection of Competition expresses the following position:
First of all, we would like to emphasize that there are no real data on the presence of unfair trade practices /UTP/ in the fast-moving consumer goods supply chain. It should be noted that in the reasons for the draft law, only a blanket reference is made to the seven generalizing forms of unfair commercial practices that the European Commission defined in its Green Paper of March 2013, without analyzing the specific relations of the national market. It is false to claim that the listed types of unfair trade practices operate in full force in our market as well, having an extremely negative impact both between the supplier and the buyer, as well as on the end user. On the contrary, market research in recent years has shown ever-increasing competition among all actors along the FMCG production and supply chain. This competition leads to lower prices and an increase in quality, which benefits the end users.
In view of this, we believe that the current regulation is completely sufficient and in accordance with European legislation, and should not be amended. Indeed, in practice, there are many cases of delayed payments between the participants in the commercial turnover, regardless of whether the latter are large or small enterprises, which of course creates significantly more serious problems for smaller enterprises. However, this circumstance cannot be considered in isolation and as abuse, characteristic and inherent only to retail chains, but as a problem of essential importance for the economy in general, which necessitated the adoption of Directive 2011/7/EU of the European Parliament and of Advice on combating late payment in commercial transactions. Therefore, this problem cannot be regulated and sanctioned discriminatoryly only in relation to commercial chains, but must be regulated equally in relation to all economic entities, which was already done with the implementation of the provisions of the mentioned directive in the new art. 303a and 309a of the Commercial Law, promulgated in No. 15 of the State Gazette of 2013. In this sense, the problems raised have already been settled in the legislation and any disputes should be considered by the competent Bulgarian courts.
We note that the basis of the Bill is the proposal to introduce a regulation against the abuse of "significant market power" (SMP), the stated purpose of which is to eliminate the "inequality" between the market positions of suppliers and traders. This proposal is not only unfounded, but also incorrectly formulated and may not only lead to significant violations in the stability of economic turnover in Bulgaria, but also to contradictory application of basic EU regulations.
According to the proposed definition, "significant market power" should be a new category of market position, regulated in Chapter 4 of the CPA, in addition to a monopoly and dominant position, which could possibly lead to the manifestation of anti-competitive behavior. The main and most obvious drawback of this legislative approach is that it completely obliterates the distinction between a dominant position and significant market power. Indicative in this sense is the fact that in the reasons for the Bill, the proponents explained the concept of "significant market power" as equivalent to a dominant position and indicated that the concept of "significant market power" was introduced for an enterprise which, according to them, "uses from a position equivalent to a dominant one [...] because its suppliers or buyers are dependent on it." Although the two concepts are defined in the Bill as different degrees of market power, the types and scope of obligations imposed on enterprises in both cases are identical. Thus, the test for the existence of a dominant position would most likely lose all practical meaning, as it would be sufficient for the Commission for the Protection of Competition (CPC) to demonstrate that an undertaking falls into the lower category of significant market power in order to establish the presence of violation.
The definition of significant market power itself is not clear enough. There is an obvious attempt to define FTA as something like "dominant position" but without "dominance". In a more detailed comparison between the two concepts, it becomes clear that "dominant position" is inherent in enterprises that are independent of their suppliers, competitors and buyers, while SPP is present in enterprises that keep suppliers and buyers in a state of dependence. So it remains unclear where is the boundary line between the ZPS and the dominant position. An expansive interpretation would lead to the conclusion that it is sufficient for an undertaking to be in a better negotiating position than one or more of its counterparties for it to be deemed to have an SPC.
In its statement of September 2012 The CPC stated that the introduction of the institution of significant market power could be seen as a stricter national version of the rules against abuse of a dominant position, which was fully permissible under Article 3 (2) of Regulation 1/2003. This position cannot be shared because a complete overlap between the scope of enforcement in the two cases would undermine the stability of the rules governing the unilateral behavior of dominant undertakings and could even lead to a divergent application of EU law. Moreover, the coincidence in the regulatory scope will weaken and render meaningless the regime of the so-called "group exemption", which has been operating for several decades and was introduced at the initiative of the European Commission and widely applied by the CPC itself. The purpose of the "block exemption" is to introduce criteria for cases that will not be considered an infringement, using threshold levels of market share. The behavior of enterprises with a market share below the threshold is not examined because economic theory and law enforcement practice have proven that it cannot have a significant negative impact on competition. With the amendments proposed in the draft law, it could actually lead to the imposition of penalties on enterprises with an insignificant market share. Thus, conduct that should be exempted under the applicable rules of national and Community law may be classified as an infringement if the "market power" in the particular case exceeds the vague threshold of significant market power. The result would be a devaluation of legal certainty, which neutralizes the objectives and effect of the block exemption regime.
In this regard, it can be pointed out that the comparative legal analysis on which the Bill is based also lacks the necessary representativeness. The issue of imbalance in bargaining power has been brought up for international discussion within the framework of the International Competition Network (ICN) and was the subject of the 2008 Kyoto Congress. As stated in the final report, most of the national competition authorities that provided a response for the purposes of the ICN benchmarking considered that antitrust law should not deal with individual arrangements reached in the course of commercial negotiations between individual businesses entities, unless they restrict competitive relations and thus harm the welfare of consumers. It is emphasized that agreements between enterprises located at different levels of the chain of production and distribution of fast-moving goods generally reflect the most efficient distribution of risks and obligations between the parties. Antitrust law should not review and question the effectiveness of a deal reached between contracting traders unless there is evidence of harm to the prosperity of society as a whole – as opposed to evidence of harm to the interests of individual businesses alone. In fact, it is quite possible that conduct which at first glance appears to be an unfair commercial practice may be favorable to consumers. For example, downward pressure on delivery prices actually lowers final retail prices, which benefits consumers. Therefore, the existence of better market positions in itself should not be classified as an infringement, as long as it does not damage or endanger the interests of consumers.
The stated purpose of the Bill is to combat unfair trade practices in the FMCG supply chain. However, its provisions are broad enough to cover every sector of the Bulgarian economy. What's more, with this broad definition, almost any enterprise can be convinced that it owns a PPE, as long as it has suppliers or customers "dependent" on it. That's how, in practice, the discussed changes in the CPC will turn out to be not just new rules for specific cases, but comprehensive bans that will affect every single market in its entirety.
Last but not least, it should be pointed out that the Draft Law provides for the CPC to assume primary responsibility for the control of NTPs from enterprises with PPE. Unfortunately, the proposed text leaves many questions open, which requires them to be further developed in by-laws adopted by the law-enforcing administrative body. Because of the many imperfections in the legal definitions, the CPC would gain full discretion to determine which situations fall within the scope of the new ban, when there is abuse and when it is not. Leaving aside doubts about the availability of adequate resources to carry out this task, we believe that such a broad delegation of powers would not be consistent with the basic constitutional principle of separation of powers. Certainly, such an approach will not contribute to improving the transparency of the regulatory requirements for economic activity and the predictability of administrative interventions in the market.
The current legislation on unfair trade practices in Bulgaria is comprehensive and in accordance with European legislation. However, in practice, numerous cases of deviations from good commercial practices are observed, such as delayed payments between participants in the commercial turnover, refusal or avoidance of recording the terms of contracts or basic parameters agreed between the parties, unjustified transfer of entrepreneurial risk.
This creates problems for small and medium-sized enterprises when contracting. However, these problems are not only characteristic of the relationship between producers and retailers, but represent a problem of trade turnover in the country. In our opinion, the recovery of the business environment and the creation of a permanent basis for the sustainable development of commercial relations requires amendments not to the PPE, but to the Commercial Law.
The proposed draft of the ZID TZ aims at the creation of legal mechanisms that, on the one hand, will not unnecessarily complicate commercial turnover, and, on the other hand, will regulate the problems of legal relations specifically related to contracts for the sale of goods intended for subsequent trade. The project is based on the practices of other EU member states (Italy, the Czech Republic) and has the ambition to heal those deviations from good commercial practices, which are also identified as problematic in the Green Paper of the European Commission.
We envisage the creation of a new Section IIa in Chapter 22 "Commercial Sale" of the Technical Regulations. It is our intention that the new section regulates certain sensitive aspects of contracts for the sale of goods intended for subsequent sale. The rules follow well-established principles of contract and commercial law regarding good faith and good commercial practices in regulating relationships between suppliers and buyers. At the same time, an attempt has been made to introduce the envisaged restrictions in compliance with the principle of proportionality for the minimum necessary interference with the freedom of contract. When preparing the amendments, the decisions of the European project regarding the general principles of European contract law - "Draft Common Frame of Reference" were taken into account.
As a summary, the ZID TZ introduces:
1. Requirement for a mandatory written form for the validity of contracts for the sale of goods intended for subsequent sale. In this way, the parties will have permanent proof of the conditions under which the price amount was agreed upon;
2. Minimum requirements for the content of contracts for the sale of goods intended for subsequent sale in order to avoid the problems generated by unclear or ambiguous contractual terms that enable the unilateral imposition of additional obligations;
3. Limitations on the possibility of unilateral price changes under the contracts;
4. Restrictions on the transfer of the entrepreneurial risk, as well as on the possibilities for unilateral amendments and additions to the contracts, which will come into force retroactively;
5. Restrictions on unilateral termination of contracts for the sale of goods intended for subsequent sale, as the unlawful unilateral termination is a reason for the party in good standing to seek compensation for the damages caused by the termination.
Disputes between traders, in connection with the interpretation and application of amendments to the Terms and Conditions, should be resolved by the Bulgarian court or by arbitration, if the parties have agreed on such.
We welcome the idea of creating an out-of-court body to assist traders in resolving disputes between themselves and to act as a mediator in these disputes.
We believe that the control of relations in the food production and supply chain could be regulated in the relevant special law (in the specific case the Food Act). In this option, not only buyer-seller (or merchant-supplier) relations will fall within the scope of control under the Food Law, but also between all other participants in the food supply chain in the sense of item 49 and item 60 of the Additional provisions of the Food Law (including persons who carry out extraction, processing, preparation, packaging, repackaging, labeling, storage, import, export, transport, sale, etc.)
As for the scope of control that should be exercised by the Minister of Agriculture and Food, we believe that the version proposed by the bill suffers from a number of shortcomings. The main one of them is that the control bodies under the Act are charged with functions that are not inherent to them, namely checking contracts/general terms and conditions between food buyers and sellers with a view to their compliance with those approved by the CPC. This automatically places a requirement on the control authorities under the 3X to possess the necessary legal and, in particular, competition law knowledge and expertise in order to adequately perform their assigned functions. Such an approach entails a number of risks not only of incorrect assessment and negative consequences for business, but also of creating an unnecessary administrative burden for the control authorities, incl. danger of weakening control in the actual specialized areas for which they are currently responsible.
For this reason, we find it a better option in which to create it National Advisory Council on Better Food Supply Chain Performance the chairmanship of the Minister of Agriculture and Food to serve as a platform for dialogue, analysis of problems, proposals for their resolution, etc. To the National Council, we would propose the creation of Conciliation Commission, which has the competence to assist in out-of-court dispute resolution. In our view, it would be far better for this commission to be used as a facilitating body to reach settlements in disputes between actors throughout the chain (ie not only buyers and sellers, but also persons engaged in mining, processing, preparation, packaging, import, export, transport, etc. of food).
Such a body would also be in the spirit of the EU Supply Chain initiative.
It could be organized along the lines of the conciliation commissions under the Consumer Protection Act and the Payment Services and Payment Systems Act and be made up of specialists who have the necessary expertise to resolve disputes between traders, suppliers, manufacturers, etc. . Below we will mark in general the main features of the tool we offer:
1. To establish a National Advisory Council for better functioning of the food supply chain under the chairmanship of the Minister of Agriculture and Food;
2. To the National Advisory Council for better functioning of the food supply chain, we propose to establish a Conciliation Commission to assist in resolving disputes between traders and producers, incl. in connection with the application of unfair commercial practices;
3. The Minister of Agriculture and Food to approve the rules for the work of the Conciliation Commission.
4. Conciliation proceedings to be conducted in a 3-member panel - a chairman to be appointed by the Minister of Agriculture and Food, and two arbitrators/mediators to be appointed by each of the parties to the dispute from lists drawn up by producer associations and traders' associations, and approved by the Minister of Agriculture and Food;
5. The conciliation commission should prepare a conciliation proposal for concluding an agreement between the parties to the dispute, and if no agreement is reached within a 3-month period, they have the right to refer the dispute to a court or another specialized state body.
In this regard, we propose that §12 and §13 of the draft law on the amendment of the Civil Code be dropped.
IN APPENDIX, ALTERNATIVE CHANGES IN:
1. Proposal for changes to the Commercial Law /Appendix 1/
2. Proposal for changes to the Food Act /Appendix 2/
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