(In relation to the dispute between Sunoko and the Commission for Protection of Competition)
1 Introduction
In January this year, the Serbian Commission for Protection of Competition (“Commission”) prohibited Sunoko, the largest Serbian producer and exporter of sugar, from acquiring Hellenic Sugar, a Greek company which, inter alia, owns two sugar refineries in Serbia. After the Administrative Court, by its judgment of 8 June 2012, quashed the Commission’s resolution and remanded the case to the Commission for reconsideration, this matter once again entered the spotlight.
From a competition law perspective, the case is interesting for at least two reasons: first, due to the specificities of competition in the sugar industry, and second, since it points to certain gaps in Serbian law concerning conditional approval of concentrations. Before addressing these two topics in more detail, it is useful to outline the course of proceedings before the Commission and the Administrative Court. Information on the course of proceedings is presented based on the contents of the judgment of the Administrative Court.
2 Course of proceedings
The proceedings before the Commission were initiated in August last year, when Sunoko submitted a request for the approval of the concentration which would arise as a result of Sunoko’s acquisition of Greek Hellenic Sugar. Two months later, in October 2011, the Commission adopted a conclusion on the initiation of investigation in order to assess the permissibility of this concentration. Based on the conducted investigation, the Commission on 21 December 2011 delivered its Statement of Objections (“Statement”).
In connection with the Statement, a meeting between representatives of the Commission and Sunoko was held on 28 December 2011. On that occasion, a possible proposal of commitments underlying a conditional approval of the concentration was generally discussed, and Sunoko’s representatives expressed readiness to deliver to the Commission a draft proposal. The Commission did not keep minutes of this meeting, but only made an official note about its course, which will in the proceedings before the Administrative Court turn out to be a reason for the annulment of the Commission’s resolution on the prohibition of the concentration.
Two days later, another meeting was held, at which Sunoko presented the Commission with a draft proposal of the commitments for a conditional approval of the concentration. Sunoko delivered the official proposal of the commitments to the Commission on January 4 this year.
In the proposal of 4 January 2012, as amended on 17 January 2012, Sunoko expressed readiness to commit to an appropriate structural measure as well as to certain behavioral measures in exchange for a conditional approval. As the structural measure, Sunoko proposed to sell one of its Serbian sugar refineries within a certain period of time upon the completion of the concentration, while the proposed behavioral measures concerned, in a nutshell, Sunoko’s undertaking not to sell sugar on the Serbian market at a price which would be more than 10 percent higher than the price at which Sunoko sells its sugar on the EU market.
However, not being satisfied with the commitments proposed by Sunoko, the Commission rendered a decision prohibiting the concentration on 19 January 2012. Sunoko then challenged the Commission’s decision before the Administrative Court and, as mentioned, the Administrative Court granted the claim and annulled the Commission’s resolution.
3 Foreign-trade limitations and fight against monopolies
Many countries consider the sugar industry strategic and therefore protect it from foreign competition in different ways. This protection is primarily manifested in import restrictions consisting of customs duties and similar charges and/or import quotas. In countries which impose such import restrictions and at the same time have legislation aimed at protecting free competition, a conflict may arise between the purpose of the competition legislation and the effects of foreign-trade limitations.
Let us, for example, consider Serbia. If the assertions of the Commission quoted in the judgment of the Administrative Court are correct, Sunoko has on the market of sugar production a market share of around 50%. Pursuant to Serbian law, such a high market share is sufficient to trigger a rebuttable presumption of dominance, which, in accordance with article 15, paragraph 2 of the Law on Protection of Competition (“LPC”), arises in the presence of a market share of 40% or more. Taking into account that Article 19, paragraph 1 of the LPC prohibits concentrations which create or strengthen a dominant position, it could be said that the Commission’s decision to prohibit the concentration which would lead to the incremental 30% increase of Sunoko’s already high market share (Hellenic Sugar covers 30% of the Serbian market of sugar production) finds a prima faciae support in the LPC.
However, having in mind foreign-trade restrictions applicable to sugar imports, the position of the state seems contradictory. While, through the control of concentrations, the state (via the Commission) fights against monopolies and protects the interests of consumers, the same state, by virtue of the sugar imports regime, contributes to the weakening of the competition in the market. Namely, apart from sugar originating from CEFTA members, Russia and Kazakhstan, the customs duty applicable to sugar imports currently stands at 20% (Decree amending the Decree on the harmonization of the customs tariff nomenclature for 2012, tariff code 1701). Additional 12 to 18 dinars are levied on each kilogram of imported sugar (Decision on the determination of agricultural and food products that are subject to special charges imposed on imports and on the amount of the special charges, tariff code 1701). These state measures hinder sugar imports, impacting the maintenance of high prices of this product in Serbia.
As one of its arguments against the approval of the concentration between Sunoko and Hellenic Sugar, the Commission asserted that the price at which Sunoko sells sugar in Serbia is higher than the price at which it sells its sugar to buyers in the EU. Regardless of whether this concrete assertion is true, it is reasonable to expect that, in the absence of import barriers, competition in the Serbian market would be greater, which would lower the prices of sugar.
The above does not mean that import barriers for sugar have no economic sense whatsoever. If its aim is to support domestic producers of sugar, the state will impose tariff protection even if this means higher prices for consumers. However, as it is not possible to favor domestic producers and maintain low prices at the same time, the state must choose between the policies favoring the creation of “national champions” that generate profit on the domestic market in order to boost competitiveness in the international market, and the policies protecting consumer interest through the liberalization of the sugar market.
4 Procedure of conditional approval of concentration
Coming back to the legal aspect of the Sunoko case, it should be noted that the Administrative Court quashed the Commission’s resolution not because it was of the view that the intended concentration should be allowed, but because of certain deficiencies in the proceedings before the Commission. In order to understand the context of the Administrative Court’s ruling, it is necessary to look at the procedure of conditional approval of concentration under Serbian law.
Conditional approval of concentration is directly addressed in only one article of the LPC, which reads:
Conditional approval of concentration
Article 66
(1) If the Commission establishes that the conditions for the approval of a concentration are not met, it shall inform the applicant about the relevant facts, evidence and other elements on which it will base its resolution and invite the applicant to respond within a specified deadline.
(2) In its response, the applicant may propose special conditions which it is ready to accept in order for the concentration to meet the conditions for approval.
(3) The Commission shall, taking into account the proposed conditions, if it finds that they are suitable to satisfy the conditions from article 19 of this law, render a resolution by which it shall approve the concentration and determine special conditions and time limits for their implementation, as well as the manner of control of the implementation of the conditions (conditional approval).
One should also refer to article 41, paragraph 1 LCP, which provides that necessary evidence will be taken in investigative proceedings, with the purpose of properly determining the factual situation, such evidence to include, inter alia, statements of the parties and witnesses, expertise etc.
Pursuant to article 34 of the LPC, the Commission shall apply the rules of general administrative procedure contained in the Law on General Administrative Procedure (“LGAP”) to the issues not regulated in the LPC.
According to the view of the Administrative Court, there were two main deficiencies concerning the Commission’s handling of Sunoko’s request for the approval of the concentration.
First, the court found that the meeting of 28 December 2011, in which minutes were not kept but only an official note was made, cannot be considered as a proper opportunity to Sunoko to be heard. In this context, beside the mentioned provision of article 41, paragraph 1 of the LPC, the Administrative Court focused on articles 64-69 of the LGAP, which regulate the issue of keeping minutes of meetings, and found that the Commission was obliged to keep minutes of the 28 December 2011 meeting.
Second, according to the view of the Administrative Court, the Commission did not provide adequate reasoning for its decision to refuse the proposed measures for a conditional approval of the concentration. In that respect, the court invoked article 192 paragraph 1 of the LGAP, according to which the competent body decides based on key facts established in the proceedings, and article 199, paragraph 2 of the LGAP, which states that a decision must, inter alia, contain the reasons which, taking into account the established factual situation, support the holding of the decision. In its ruling, the court noted that the reasoning of the Commission’s decision prohibiting the concentration is not in accordance with the cited provisions of the LGAP, since the Commission in its reasoning only noted that the measures proposed by Sunoko were not suitable, without giving reasons for such a finding or stating which measures it would be ready to accept.
In this post, I do not deal with the issue of whether, in this particular case, the Commission conducted the proceedings in accordance with the LGAP, above all, because the matter is pending and the reasoning of the quashed resolution is not publicly available. What can be noticed, however, is that the Sunoko case illustrates the fact that Serbian law contains gaps in its regulation of conditional concentration approvals. This is particularly evident when the Serbian regulations are compared with the relevant sources of EU law. For example, Annex IV of Commission Regulation (EC) No.802/2004 implementing Council Regulation (EC) No. 139/2004 contains a form for the submission of commitments, while the Best Practice Guidelines: The Commission’s Model Texts for Divestiture Commitments and the Trustee Mandate under the EC Merger Regulation contains guidelines of the European Commission and standard model texts concerning commitments. Also missing are appropriate guidelines containing criteria for the assessment of particular commitments, i.e. types of measures and conditions under which the Commission is ready to accept them (see Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004).
Having in mind that the absence of guidelines for the application of the provisions of the LPC is a general deficiency of Serbian competition law, it would be useful if the Serbian Commission used its powers under article 21, paragraph 1, point 5 of the LPC to adopt relevant instructions and guidelines modeled after the relevant sources developed in the EU. A possible alternative solution would be to amend the LPC by introducing a provision which would allow the Serbian authorities to apply, in the absence of adequate domestic sources, the criteria arising out of the application of European competition law rules (see, for example, article 74 of the Croatian Law on Protection of Competition.
