This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

Although the Croatian Competition Agency (CCA) is a sophisticated authority, public enforcement in Croatia lacks any deterrent effect as the CCA has not been equipped with the necessary enforcement tools. Cartel proceedings before the competent courts are very lengthy and the imposed fines are anything but a deterrent. This problem is being tackled with a new competition act (the New Act).

The New Act was adopted on 24 June 2009 and will enter into force on 1 October 2010. The act addresses all aspects of competition rules and serves two main purposes. First, it will further align Croatian competition rules with EU competition rules. Second, and more importantly, it will improve the effectiveness of the existing competition regime in Croatia. The major amendments are discussed below.

Cartel prohibition

The cartel prohibition covers all restrictive agreements. They are permissible, though, if they create efficiencies that outweigh the negative effects on consumers. Currently, undertakings can (but do not have to) apply to the CCA for an individual exemption of the respective agreement to increase legal certainty. Under the New Act such opportunity will no longer be attainable. As from 1 October 2010, it will be solely up to undertakings to assess whether the requirements for an exemption from the cartel prohibition are met. To increase legal certainty, several regulations are in place that exempt certain types of agreements (e.g. vertical agreements in general, vertical agreements in the motor vehicle sector, technology transfer agreements) if specific requirements are met. These regulations correspond with respective block exemption regulations at EU level. The New Act also provides that agreements in the transport sector shall be covered by a separate block exemption regulation to be adopted in due course.

Abuse of dominance

The New Act will take over from the old act the (refutable) presumption of market dominance above a market share of 40%. In addition, the New Act will contain parameters on the basis of which an entity can be found to be dominant even below a market share of 40%.

The New Act also provides that the CCA can impose structural and behavioural measures to restore competition after it has established an abuse of market dominance.

Merger control

In the field of merger control, the substantive test for the assessment of concentrations pursuant to the European Merger Control Regulation 139/2004 (ECMR) will be transposed into nation law: Concentrations will be assessed against whether they will significantly impede effective competition (the SIEC Test). The SIEC Test does not deviate considerably from the previous market dominance test. First and foremost, a concentration will significantly impede competition if it contributes to the creation or strengthening of a market dominant position. However, the SIEC Test affords an authority the possibility of deploying a more economic approach in the assessment of concentrations, for example in transactions that do not involve horizontal overlaps in the implicated undertakings' activities.

Also, special rules for the calculation of turnover of banks and financial institutions will be included in the New Act. Like under Article 5 ECMR, for credit institutions and other financial institutions, the sum of the following income items (after deduction of value added tax and other taxes directly related to those items, where appropriate) will be used instead of revenues:

(i) interest income and similar income;

(ii) income from securities:

  • income from shares, other variable yield securities;
  • income from participating interests;
  • income from shares in affiliated undertakings;

(iii) commissions receivable;

(iv) net profit on financial operations; and

(v) other operating income.

The turnover of a credit or financial institution in Croatia shall comprise the income items, as defined above, which are received by the branch or division of that institution established in Croatia in question, as the case may be.

Finally, a short form notification will be introduced to lower the amount of information to be submitted in cases that, from experience, do not give rise to competition concerns. The requirements for a short form filing correspond with the ones under the European Implementation Regulation (Commission Regulation (EC) No.802/2004). Accordingly, a short form filing may be submitted if:

  • in the case of the establishment of a joint venture, the joint venture will have no, or negligible, actual or foreseen activities in Croatia;
  • none of the parties to the concentration is engaged in business activities in the same relevant product and geographic market (i.e. no horizontal overlap), or in a market which is upstream or downstream of a market in which another party to the concentration is engaged (i.e. no vertical relationship);
  • two or more of the parties to the concentration are engaged in business activities in the same relevant product and geographic market (i.e. horizontal relationships), provided that their combined market share is less than 15%; and/or one or more of the parties to the concentration is engaged in business activities in a product market which is upstream or downstream of a product market in which any other party to the concentration is engaged (i.e. vertical relationships), and provided that none of their individual or combined market shares at either level is 25% or more; or
  • a party is to acquire sole control of an undertaking over which it already has joint control.

Procedural rules

Major changes to procedural rules will be implemented to foster public enforcement by the CCA, as follows.

  • For the first time, the CCA will be empowered to conduct unannounced inspections of undertakings that are accused of an infringement of competition rules.
  • The CCA will be empowered to levy fines directly. Under the current act the CCA has to apply to misdemeanour courts for fines to be imposed, which is one of the main deficiencies of public enforcement in Croatia (these courts have a reputation of working slowly and imposing fines that lack any deterrent effect). Such fines (as well as other decisions of the CCA) can be challenged before the High Administrative Court.
  • Under the New Act, there will be no more fines on individuals for competition law infringements. Undertakings may be fined up to 10% of their group turnover for severe breaches of competition rules, whereas the maximum fine is 1% for minor infringements. In addition, any undertaking that is not party to proceedings may be fined up to HRK 100,000 [about EUR 13,700] (e.g. for not answering a request for information in proceedings directed against another undertaking).
  • It will be made explicit that commercial courts are competent to assess damage claims stemming from competition law infringements.
  • The CCA will be empowered to grant immunity from fines and reduction from fines in case of cartel (leniency programme).

The New Competition Act will equip the competition authority with all the tools necessary for an effective enforcement of competition rules. The fact that the authority will then be able to impose fines directly is expected to lead to a significant rise in the number and amount of fines for competition law infringements.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.