Since the Romanian competition legislation closely mirrors the EU competition legislation, direct State interventions on the market are relatively few and far between. Having said that, within the last few months there have been two such interventions, each potentially having significant anticompetitive effects on the respective market.
Amendments to the Law regarding the sale of food products
Law 321/2009 regarding the sale of food products ("Law 321") has recently suffered a number of controversial amendments which concern both the relationship between the retailer and its suppliers on one hand and the types of products which have to be sold by the retailer on the other hand.
The two most controversial amendments to the Law 321 concern the origin of the products sold by the retailers and the commercial relationship between the retailer and the supplier.
Regarding the origin of the products sold, all retailers which have an annual net turnover / owning assets exceeding EUR 2,000,000 are under an obligation to purchase 51% (according to volume) of the products belonging to the meat, eggs, vegetables, fruits (except for exotic, imported fruits), honey, dairy and bakery products categories from producers active on the short supply chain. A short supply chain involves a limited number of economic operators engaged in cooperation and local economic development activities, as well as closed geographical and social relationships between producers, processors and consumers. Furthermore, the retailers are required to organize events to promote Romanian food products, according to a schedule to be established by the local authorities;
Regarding the relationship between the retailed and the supplier, the retailer is under an interdiction to perform and request payment for any other services, including, presumably, fees for shelf space, fees for appearing in the store magazine, which will severely impact both the commercial relationships between the suppliers and the retailers which regularly entailed the granting of both on-invoice and off-invoice discounts for various services performed by the latter, and the fiscal treatment of the discounts granted by the suppliers. Last but not least, the retailers have to comply with a statutory payment term of 7 days for fresh food products.
Failure to comply with the new provisions of the Law 321, which are to enter into force on 15 January 2017, may result in fines of up to approximately EUR 32,000, with the public authorities being entitled to suspend, for up to 6 months, the activity of a repeat offender.
The relationship between retailers and suppliers, in particular Romanian suppliers, has always been a tense one, with the domestic producers complaining about the difficulties encountered in gaining access to the large retail chains and about the various taxes charged by the retailers for providing premium shelf space. The tensions reached a peak in 2007-2008 and, as a result, the Competition Council carried out an in-depth investigation concerning the retail of food products, the findings of which were included in an extensive investigation report issued in 2009 (the "Report"). The Competition Council analysis attempted to identify potential competition concerns in relation to both the access of the suppliers to the retail chain and the contractual relationship between the retailer and the supplier, including the granting of a most favored client clause by the retailer to a certain supplier, the retailer charging for premium shelf space or the supplier performing category management services for the retailer. While the Report states that, depending of the manner in which they are implemented, all of the above may lead to anticompetitive effects, none were identified as being anticompetitive per se.
The amendments bought to Law 321 have been justified by the express desire to assist domestic producers with gaining access to the large retail chains, but little to no attention has been paid to either the practical implications of the measures – what happens if the short chain producers cannot supply the required quantities? what the anticompetitive effects that the measures outlined above might have on the market, not to mention the likelihood of such a measure amounts to a quantitative restriction or a measure with equivalent effect (1) on imports, directly breaching the freedom of movement of goods provisions in the TFEU. Indeed, the anticompetitive effects of the amendments concern both the market for the production of the goods as well as the retail sale of the food products.
Insofar as the production market is concerned, most of the producers qualifying as belonging to the short chain will be domestic producers, with the sole exceptions occurring in border regions where foreign producers may qualify, as they could be considered 'local'. Insofar as the retail market is concerned, there is an argument to be made that, by levying this requirement solely against medium and large retailers, Law 321 effectively distinguishes between foreign retail chains and domestic chains, since the vast majority of the large retailers belong to foreign chains.
Amendments to the compulsory motor third party liability insurance for damages resulting from road accidents
The government has recently issued Emergency Government Ordinance 54/2016 ("EGO 54”) which freezes the premium to be paid for the compulsory motor third party liability insurance ("MTPL") tariffs for six months. This move followed a number of public protests of road transporters which were dissatisfied with what they argued were unreasonable increases in the amount of the MTPL; the protests took place in 20 cities and involved tens of thousands of vehicles.
The MTPL premium is normally set by the relevant sector authority, the Authority for Financial Supervision ("AFS") which is in charge with, amongst others, regulating the insurance market. A number of recent insolvencies between insurance providers have, however, given rise to a series of questions regarding the manner in which AFS is carrying out its duties, with road transporters in particular accusing it of taking into account solely the interests of the insurers when setting the MTPL premiums.
As a matter of practice, according to the provisions of the Competition Law, the prices for products and services will be determined freely through competition, based on demand and supply. Having said that, the Competition Law expressly provides that [regarding] specific economic sectors and under exceptional circumstances, such as: crisis situations, major imbalance between demand and supply, and obvious market failure, the Government may enforce temporary measures to prevent or even block excessive price increases.
Now, EGO 54 pays lip service to the provisions of the Competition Law by stating, in its preamble that the Ordinance was enacted "taking into account that the exceptional circumstances manifested through the dysfunctionality of the market amount to an extraordinary situation which requires legislative intervention, with the observance of the competition law provisions." According to EGO 54, AFS has up to 30 days to establish maximum premiums to be paid for the MTPL, which will then be adopted by the Government.
There is no denying that the possibility of establishing either a fix or a maximum tariff for a certain category of products and/or services is provided for by the Competition Law. Having said that, we argue that the concept of exceptional situation is to be interpreted in a narrow, strict manner, and that the existence of a dysfunctional market must be proved, not merely stated.
This is not a discussion regarding whether or not the MTPL premiums were excessive or not, even though it should be noted that EGO 54 was adopted following protests of road transporters, not natural persons – in other words, protests of companies engaged in a commercial activity, which could pass on, at least partially, the costs of the MTPL – and that a low MTPL premium is not necessarily a positive, since the insurance companies with the lowest premiums have proved to be, by far, the most difficult ones to obtain compensation from, but rather if Government intervention was the best course of action. The imposing of maximum premiums not only removes competition on price, making it highly likely that all insurers will charge the maximum allowed by law, but also removes any incentive to compete on quality, due to the extra costs it involves. For what it is worth, the Competition Council representatives were also not in favour of the intervention, with Mr. Bogdan Chirițoiu, the Chairman, likening it to the opening of the Pandora's box.
Conclusion
The Romanian economy is, in principle, free of State intervention and functioning as a free market. Having said that, the two recent examples identified above serve as both a reminder that this is not always a certainty and as a warning against uncensored, direct State intervention. Indeed, it is arguable that the intervention of the State will have limited positive effects in both situations outlined above while, at the same time, have indirect anticompetitive effects which have not or, perhaps, could not be foreseen. Finally, an argument can be made that the position of the Competition Council in such matters should be given significantly more weight.
End Notes
- The Competition Council raised this concern in its negative endorsement of the amendments.
