The state against the cartels

Petar Kulesnski
Petar Kulesnski

Mission (im) possible?

The legislator in Bulgaria introduced for the first time a legal definition of the term “cartel” with the adopted in 2008 Law on Protection of Competition (LPC) as “an agreement and/or concerted practice between two or more undertakings – competitors in the respective market, aimed at restricting competition by fixing prices or price conditions for purchase or sale, allocating of production or sales, or allocating of markets, including manipulation of public tenders or competitions, or procedures for assigning of public contracts.”

In practice, however, the cartel agreements have been investigated by the security authorities in the European Union long ago. In art. 101 of the Treaty on the Functioning of the European Union (TFEU) all agreements between undertakings, decisions by associations of undertakings and concerted practices, which may affect the trade between the Member States and which have as their object or result the prevention or distortion of competition within the common market, are declared incompatible with the common market. This general prohibition is detailed in several hypotheses, which in turn constitute the most common manifestations of anti-competitive behavior in the market, namely – direct or indirect fixing of prices, limiting or control of production and allocation of markets or sources of supply.

CPC monitors cartel agreements

In its practice, the Commission for Protection of Competition (CPC) assumes that an “agreement” within the meaning of the prohibition exists when the undertakings have demonstrated a general intention to have a certain behavior on the market. To fall within the scope of the competition law, the agreement does not need to be expressed in any form. It may be oral or written, signed or unsigned, and even in the form of informal gentleman arrangements, which do not have any binding effect. To constitute a violation, it is not necessary for the parties to have reached an adoption of a final plan or model of behavior. A prohibited agreement is primarily the matching of intentions to achieve a certain anti-competitive object or effect.

One of the manifestations of the cartel agreements is the coordination of individual participants in the application procedures in public procurement with regard to the coordination of the mechanisms of preparing the pricing proposals. The assignment of the public procurement is based on the economic principle of supply and demand. The assigners rely on the competitive competition in the procedures carried out to achieve the most efficient use of their budgets. In the conditions of a market economy, the effective competitive process is that one, which can lead to lower prices, higher quality and more innovation in offering goods or services in the procedure of procurement.

The guaranteeing of an efficient, fair and free competition between the undertakings, participating in the procedures for assigning of public contracts, is governed by a guiding principle. The European Union law on the procedures for procurement is objectified by Directive 17/2004 and Directive 18/2004, according to which the basic principles are: equal treatment, non-discrimination, effective competition and transparency. Therefore, the coordination of general pricing mechanisms between the participants is a serious violation, contrary to these principles. One of the main indicators, adopted in the practice of disclosure of auction manipulations, is the existence of identical or similar pricing proposals of the participants in the auctions. However, according to the European Court of Justice, this factor raises a doubt that the respective undertakings could participate in an anti-competitive arrangement for manipulating procurement, but in itself it is not a conclusive proof of the existence of such concerted behavior.

The prohibited agreements, which have as their object direct or indirect fixing of prices, represent the most serious violation of the competition law and lead to serious damages to the market. For this reason, it is accepted in the practice that agreements or concerted practices with such subject, are illegal by their nature, even if they have not triggered a real effect on the market yet.

The proceedings of the CPC in connection with the sharp rise in prices of the oilseed sunflower and the sunflower oil in the period August – October 2010 are of partucular interest.

The CPC initiated a sector analysis of the competitive environment of the two interrelated markets – these of the production and marketing of oilseed sunflower and sunflower oil. By its decision as of 2012 the Commission has affected a number of suppliers of refined sunflower oil and their distributors, admitting them guilty and imposed fines for applying vertical cartel agreements that restrict or distort the competition in the market. According to the CPC, the same agreements aim to determine directly or indirectly the resale prices of refined sunflower oil and the allocation of markets in the form of restriction of the distributor’s territory. The proceedings of appealing the decision of the control authority are not completed at the moment.

The CPC, however, is not always as thorough and consistent in its analysis on the cartel agreements. In 2011, the Commission started a procedure in connection with the existing clause between four of the largest gas station chains for resale in the wholesale contracts for fuels, as well as for allegations in parallelism in the change of the wholesale prices of fuels. Instead of imposing sanctions to the companies, the CPC approved the proposed by the offenders’ measures, including removal of the clauses between the supplier and the buyers of minimum resale price of the fuels and restricting the access to the wholesale prices of the companies. All this was accepted by the public as a hint of retreat by the CPC to the serious economic interests in the sector. Another example from 2011 ended with the conclusion of the commission that there was no violation of the anti-cartels legislation regarding the suspicions that the main fuel supplier has provided illegal discounts on wholesale prices of several major gas station chains.

It should be mentioned that the Commission’s decisions are not final and are subject to appeal before the Supreme Administrative Court (SAC).

There are often cases in which the CPC imposes sanctions in relation to established cartel agreements, but SAC repeals them. Thus, in 2012 the Commission sanctioned three tour companies nearly 3 million BGN in total, concluding that they have made a cartel agreement, which led to manipulation of the procedure for conclusion of a framework agreement for assigning of centralized public procurement with subject – the provision of airline tickets for business trips at the country and abroad. With its decision, however, the SAC repealed the penalties imposed by the CPC in their bigger part, considering that similar price offers of the different participants are a result of using the same system for booking of airline tickets. The court decision is currently being appealed before a five-member panel of the SAC.

Does the country have the potential to deal with the cartel agreements and does it make the necessary efforts in this direction? This is an issue that concerns a significant part of the sociality, and the answer has never been unambiguous. In its decision the CPC concludes that “the current regulations create sufficient guarantees to limit the operation of the cartels against third parties.” However, we are often remained with the feeling for concerted practices behind-the-scene, especially as regards the trade in sensitive markets, such as those of fuel, food essentials and transport services.

The article has been published in Bulgarian, in Capital Daily.