Bulgaria
0 ha
<2 ha
2–4.9 ha
5–9.9 ha
10–19.9 ha
20–29.9 ha
30–49.9 ha
50–99.9 ha
≥100 ha
Total
EU-27
258,100
5,608,460
2,407,420
1,303,040
900,530
377,580
395,210
391,350
324,840
11,966,440
% of EU-27
2
47
20
11
8
3
3
3
3
100
Bulgaria
13,150
294,960
30,390
10,730
6,820
2,950
3,060
2,930
5,490
370,490
% of Bulgaria
3.5
79.6
8.2
2.9
1.8
0.8
0.8
0.8
1.5
100
Low degree of concentration is present in all food product markets. Taking dairy production as an example, it can be stated that in comparison with other EU Member States (probably with the exception of Romania), Bulgaria has the most fragmented market for row cow milk—more than 95 % of local farms produce less than 100,000 kg of milk per year.3
At the same time, the statistical data indicate comparatively diversified production, with a slight focus on animal breeding (see Table 6.2).
Table 6.2
Number of holdings by farm type, 2010 (1,000 holdings)
Field crops | Horticulture | Permanent crops | Mixed cropping | Grazing livestock | Granivores | Mixed livestock | Mixed crop-livestock | Non-classifiable holdings | Total | |
|---|---|---|---|---|---|---|---|---|---|---|
EU-27 | 2,935.1 | 234.3 | 2,392.7 | 503.9 | 1,762.0 | 1,388.8 | 777.6 | 1,502.7 | 238.0 | 11,734.7 |
% of EU-27 | 25 | 2 | 20 | 4 | 15 | 12 | 7 | 13 | 2 | 100 |
Bulgaria | 63.4 | 18.2 | 32.1 | 14.6 | 88.6 | 28.6 | 50.2 | 73.8 | 1.0 | 370.5 |
% of Bulgaria | 17.1 | 4.9 | 8.7 | 3.9 | 23.9 | 7.7 | 13.5 | 19.9 | 0.3 | 100 |
Lack of concentration on the principal production markets stimulates the existence of many go-between traders, which serve as intermediaries with the next level of the supply chain—food processing. The market is not very matured, and financial derivatives (such as futures contracts) are rarely used, resulting in low-risk management and high-price instability in long-term sales of agricultural products.4 Lack of commodity exchanges, directly accessible to farmers, also leads to distortion of price information between the different levels of the supply chain.
6.1.1.2 Food Processing
Since the majority of farmers do not have adequate storage capacity, they are forced on selling their production as soon as possible—either directly to large consumers or (more often) to wholesalers. The Bulgarian national competition authority—the Commission on Protection of Competition (the “CPC”)—has conducted several sector inquiries analysing the supply chain for various foods (bread, dairy, cooking oil), and the recurring results indicate that the food processing stage is less fragmented and better organised. Indeed, the majority of market players are SMEs, but there are also certain large companies—mostly local subsidiaries of international groups (such as Danone, Nestle, Coca-Cola) and also independent Bulgarian producers.
Since in general the number of food processing companies is much lower than the number of farmers, the former can negotiate with a large number of suppliers, which increases their bargaining power. Negotiating inequalities are reflected in dynamics of price changes along the supply chain leading to certain asymmetries.5 Observations indicate that in the majority of cases, individual agreements with pricing and delivery terms are not signed in advance and supplies are negotiated on the spot (e.g., during the harvesting campaign for crops and horticulture). In fact, many transactions are based on oral agreements, which subsequently are confirmed by invoices.
Food processing companies are better organised, and there are many industry (branch) associations. Although there are no indications of trends for increased sector consolidation, in recent years discussions within industry associations may have led to partial and/or temporary coordination of behaviour in certain sectors.6
6.1.1.3 Retail Market
According to a recently published study,7 the Bulgarian retail market [all fast-moving consumer goods (the “FMCG”), food included] has shrunk by EUR 1 billion for the last 3 years due to declining consumption. While in 2008 the market was estimated at BGN 12 billion (EUR 6.6 billion), in 2010 it was estimated at BGN 10.7 billion (EUR 5.5 billion) and, respectively, BGN 10.5 billion (EUR 5.4 billion) in 2011. Grocery goods account for the majority of purchases, indicating constant increase in value in contrast to the general retail trend—BGN 6.2 billion in 2008, BGN 6.4 billion in 2009, and BGN 6.5 billion in 2010. However, there is also a significant portion of grey market transactions, which according to an AT KEARNEY estimation account for about a third of all deliveries (see Fig. 6.1).
Fig. 6.1
Evolution of shadow economy in Bulgaria as percentage of GDP. Source: AT Kearney, Bulgarian National Bank [see The Shadow Economy in Europe and Bulgaria, Study Results Presentation – a complete version available at http://www.bblf.bg/uploads/files/file_372.pdf (last visited June 2014).]
With respect to the market structure, there is a visible trend in the increase of the share of commercial chains and the so-called modern trade, for the expense of traditional retail, represented by small grocery shops and minimarkets. Despite that, the Bulgarian retail market is still characterised by very low level of consolidation, and in 2010 about 60–70 % of all grocery sales in Bulgaria were channelled through traditional retail establishments (see Table 6.3).8
Table 6.3
Grocery retail market
Sales in grocery retailing by category, value 2005–2010, million BGN | ||||||
|---|---|---|---|---|---|---|
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |
Total grocery retailing | 5,109 | 5,506 | 5,777 | 6,227 | 6,443 | 6,526 |
Discounters | – | – | – | – | 67.2 | 103.4 |
Food drink/tobacco specialists | 919 | 935 | 953 | 1,085 | 1,120 | 1,147 |
Hypermarkets | 206 | 352 | 459 | 644 | 756 | 839 |
Small grocery retailers | 3,040 | 3,120 | 3,075 | 2,980 | 2,912 | 2,841 |
– Convenience stores | 150 | 312 | 348 | 386 | 395 | 405 |
– Forecourt retailers | 81 | 92 | 98 | 117 | 121 | 124 |
– Independent groceries | 2,810 | 2,716 | 2,630 | 2,478 | 2,395 | 2,312 |
Supermarkets | 689 | 847 | 1,039 | 1,265 | 1,330 | 1,335 |
Other grocery outlets | 255 | 252 | 248 | 252 | 258 | 261 |
“Modern trade” outlets (hypermarkets and supermarkets above 300 m2) have a low degree of penetration (customer access) in comparison with small supermarkets and “on-the-corner” type convenience shops. According to recently published GfK surveys,9 while “modern trade” channels have become well developed in the capital and regional centres, they remain less prominent in smaller towns and villages across the country.
Proximity to home or workplace still determines the type of store where customers make the largest proportion of their purchases. The majority of Bulgarian consumers prefer to go to a nearby neighbourhood shop to buy their essentials on “as-the-need-arrive” basis, instead of going to a large hypermarket once or twice a month.10 For many “daily necessities” (such as bread or meat), Bulgarian customers prefer to go to traditional specialised establishments. Finally, fruits and vegetables are also usually purchased from local specialised grocers.
As a result of this in recent years, most retail chains began to open new format of stores—smaller convenience-type outlets, closer to consumers, in downtown or in highly populated residential areas.11 Until a few years ago, these locations belonged to independent groceries, while modern retailers grew in the outskirts. However, it turned out that the consumer shopping habits do not change quickly, and Bulgarians still prefer to shop more frequently in smaller volume. These stores have longer work hours adjusted to the usual work hours of costumers, and assortment is limited to staple products. Unlike in other foreign markets, in Bulgaria prices between such convenience stores and hypermarkets are not substantial because the market is highly fragmented. Convenience stores also bring benefits to traditional retailers. Most are not able to withstand the double pressure from the “modern” chains and from the economic crisis. Instead of going out of business, these players prefer to rebrand by franchising. Smaller outlets, especially in small towns, have the advantage to have loyal customers; often, shop owners and assistants know many consumers by name and try to cater to individual consumer needs. Finally, rebranding helps foreign retailers that sometimes face the resistance of local communities that feel that foreign investors may put local independent groceries out of business.
6.1.2 Legal Background
Bulgaria introduced competition legislation in 1991 with the adoption of the first Protection of Competition Act12 (the “PCA”). It was revised several times in line with developments in EU competition law doctrine and finally replaced by a new law in 1998.13 Ten years later at the end of 2008, following Bulgaria’s accession to the EU on 1 January 2007, a new PCA14 came into force, which further harmonised Bulgaria’s competition regime with EU law in line with the changes that were introduced by Regulation 1/2003 and Regulation 139/2004. The third version of the act was drafted with the assistance of the Italian competition authority15 and EU financial support under the PHARE programme.
The PCA is the primary legislative act governing competition law in Bulgaria. It comprises the substantive rules on restrictive horizontal and vertical agreements, abuse of dominance and monopoly, merger control, sector inquiries, compliance review of legislation and administrative acts, and unfair trading practices. The PCA also constitutes the national competition authority—the Commission on Protection of Competition—and sets out the procedural rules for investigations, sector inquiries, enforcement, and imposition of penalties for breaches of competition regulations.
Pursuant to its Art. 2, the PCA applies to any relationship resulting from operations on the territory of the Republic of Bulgaria, or beyond it, as long as it does or may prevent, restrict or distort competition in Bulgaria. The act does not contain rules dedicated specifically to grocery retail or another business sector. There are also no sector-specific rules in other laws and regulations pertaining to grocery retail.
6.1.2.1 Unfair Trading Practices
Rules against unfair competition have existed in Bulgaria since the first enactment of a PCA in 1991, and they are regarded as a traditional element of the competition protection regime, together with antitrust enforcement and merger control. The original regulation of unfair trading practices was quite basic, and in 1998 the second PCA introduced a major upgrade by implementing in itsChapter VII detailed rules based on accumulated case practice. They were preserved in the third and currently effective statutory version with minor additions, the most notable being the introduction of specific prohibitions against misleading and comparative advertising.16
Pursuant to the statutory definition, “unfair competition” is any act or omission to act in the course of business activity that is inconsistent with fair business practices and harms or may harm the interests of competitors.17The PCA further defines and prohibits in its Chapter VII the following specific forms of unfair competition: (1) prejudicing of the trade reputation and good will of competitors; (2) misrepresentation with respect to goods or services; (3) misleading and prohibited comparative advertising; (4) imitations related to product appearance, trade names, trademarks or distinctive symbols, domain names or webpage design; (5) unfair solicitation of clients (e.g., promotional games with high rewards); and (6) use or disclosure of trade secrets in a way that is inconsistent with fair business practices.
Unfair competition is a form of tort, which is subject to the presence of the following prerequisites, applicable to all forms of unfair competition, envisaged in Chapter VII of the PCA:
there is an act or omission to act within the course of business;
the act or omission to act is inconsistent with fair business practices18;
the parties involved are competitors on the relevant market; and
the act or omission to act has harmed or may harm the legitimate interests of competitors.
The general prohibition is regarded as subsidiary to the specific rules, but according to court interpretations, a violation of the latter must exhibit the general features of the former.19 Thus, even if a particular case does not qualify under one of the specific forms of unfair competition (Arts. 30–37 PCA), it may still fall within the scope of the general unfair competition tort (Art. 29 PCA).
At first glance, unfair trading practices (the “UTPs”) between undertakings operating on different levels of the supply chain seem to be left outside the scope of Chapter VII PCA. However, examples from case practice indicate that some types of unfair conduct between non-competitors (e.g., abuse of reputation and goodwill,20 abuse of confidential information,21 etc.) may also qualify as administrative violation under Art. 29 PCA. Moreover, the CPC has held explicitly that where proceedings are initiated without a petitioner (sua sponte), there is no need to analyse competitive relations in order to establish the existence of unfair competition.22
Finally, it should be noted that the existing regulatory framework in Bulgaria is geared towards prevention of “unfair competition”, which as a concept is somewhat different from UTPs as defined in the Green Paper on unfair trading practices in the business-to-business food and non-food supply chain in Europe.23 Practices that indicate misuse of bargaining position to the detriment of the other contracting party seem to fall outside the PCA, as far as such unilateral conduct is not linked to a position of dominance.
6.1.2.2 Antitrust Enforcement
In its Chapter III devoted to illegal restrictions of competition, the PCA contains an open prohibition against all types of agreements between undertakings, decisions of associations of undertakings or concerted practices, which by object or result prevent, restrict or distort competition.24 The general provision is supplemented by a non-exhaustive indicative list of anticompetitive practices.
Certain “hard-core” restrictions are regarded as per se anticompetitive due to their inherent ability to distort competition on the relevant market. Examples include price fixing, market and customer allocation, and output limitations. A mere plan or negotiation of hard-core restraints constitutes an infringement, even if no actual negative effect can be observed on the relevant market.25
6.1.2.3 Exemptions from Competition Law Prohibitions
The grocery sector is not exempted, and all restrictions of national and EU competition laws apply in full. Furthermore, no exemption exists for small farmers and suppliers, and SMEs in general are subject to the same competition law restrictions as large undertakings.
6.1.2.4 Contemplated Amendments to Competition Law
On September 2012, a draft bill for PCA amendment was submitted to the Parliament, with the stated purpose of countering unfair B2B practices in the retail supply chain. This draft was a product of long public discussions, spanning more than 2 years. Following the announcement of the European Commission’s report on competition in the food supply chain, the Bulgarian Ministry of Finance asked the CPC whether in the light of the report specific national regulation was required. On May 2010, the CPC issued an official opinion stating that the existing rules for protection of competition are sufficient and any problems in the retail supply chain should be best handled by self-regulation within branch organisations.26 Later the same year, however, in response to complaints from local suppliers alleging abusive practices in the distribution chain of consumer goods, the Ministry of Economy and the Ministry of Finance created a Joint Task Group (the “JTG”) to investigate further whether legislative intervention was necessary.
The JTG concluded that competition in the retail supply chain is distorted due to the existence of retailers with “significant market power” (the “SMP”) that apply too much pressure on weak suppliers. The JTG dismissed without much discussion soft approaches (as industry self-regulation and special dispute settlement procedures) and started deliberating legislative intervention through an amendment to the PCA. Several proposals for PCA overhaul were circulated for public discussion, within which two principal approaches could be distinguished: (1) introduction of prohibitions against specific clauses within supply agreements (such as listing fees, deferred payment, labelling requirements, buy-back agreements, long-term resale below supply cost, etc.) and (2) adoption of a general prohibition against unfair business practices by SMP operators, following the approach for combating abuse of dominance. Within the second camp there was a debate on how to define SMP—whether to use strict criteria (such as annual turnover or number and size of outlets) or to implement an open definition, mirroring the respective rules on dominance.
Proponents of the second approach prevailed, and in the middle of June 2012 a draft bill was published on the Ministry of Economy’s website, proposing a set of fresh rules on prohibited use of SMP to be integrated into the PCA chapter on abusive unilateral behaviour. By the end of the month, the CPC published its official opinion on the text, which though critical of the drafting quality was generally in support of the core ideas.27 In September, a slightly revised version of this bill was submitted to Parliament, and it was sponsored by politicians from the four principal political parties—both majority and opposition.
The idea of the legislator was to introduce the concept of “significant market power” as a new category of market position (distinct from monopoly and dominance) that may support anticompetitive behaviour. According to the originally proposed definition, SMP is attributable to an undertaking having no dominant position, which nevertheless may distort competition on the relevant market due to the fact that its suppliers or customers depend on it. But despite the fact that SMP was differentiated from dominance, the draft did not envisage specific rules for it. The intention was to expand the scope of Art. 21 PCA, which contains an open prohibition and an exemplary list of abusive practices for dominant undertakings (similar to Art. 102 TFEU), to cover both abuse of dominance and abuse of SMP. In addition, it was proposed to add to the current list of potential abuses (price fixing, output limitation, tying, refusal to deal, etc.) “behaviour in violation of good faith commercial practices, which harms or may harm the interests of competitors”. In short, the idea of the legislator was to impose on both dominant and SMP undertakings the obligation to refrain from UTPs.
The bill entered the agenda of the parliamentary committees, but the discussion progress was very slow. According to the publicly available information, until 15 March 2013 (when the 41st National Assembly was officially dissolved) the internal review process was not completed in neither of the relevant committees. Following elections in May 2013, under its new composition the legislative body was striving to cover a lot of diverse hot topics and the PCA amendment was shelved until March 2014, when a new revised draft was presented, thus resuming discussions.
The new draft from 2014 contemplated introduction of three-tier control over grocery retail: first, it reinstated regulation on SMP; second, it provided for ex ante control of supply contracts and general terms of all large retailers, to be exercised by the CPC; and third, specific types of clauses were to be expressly prohibited. While SMP regulation was seen as universal, the two other sets of rules would be sector specific and would affect only food retailers with annual turnover of over BGN 50 million (approx. EUR 25 million). Such retailers would be obliged to send their contract templates to the CPC for review and approval, following which they were to be published on a website and made publicly available. Deviations from the authorised templates would not be permitted unless expressly authorised by the CPC. Last, but not least, the new draft also introduced the possibility for protection of the identity of complainants, if so requested.
As can be expected, the legislative proposal triggered strong opposition from modern trade, but retailers were supported by many other industries. It should be noted that the bill was marked by numerous drafting faults28—most of the texts were very ambiguous and allowed the implementing authorities considerable freedom to interpret the rules and expand their scope as seen fit. Therefore, many perceived the new regulation as another tool for exercising pressure on specific businesses.
The public campaign mounted by various business organisations was not sufficient to discourage the majority coalition from proceeding with the plan, though between first and second reading significant changes were introduced in the draft text. The final version, as adopted by the Parliament on 18 June 2014, contains the following three new types of rules: (1) prohibition against abuse of superior bargaining position, defined as a form of unfair competition; (2) administrative oversight over general terms of large retailers; and (3) specific requirements and limitations for contracts concluded by large retailers.
On 30 June 2014, the President imposed a partial veto, motivated by concerns that the contemplated regulation neglects consumer welfare for the benefit of selected businesses, while at the same time lack of precise legislative definitions providing broad authority for the CPC to issue implementing regulations was regarded as violation of the principle of separation of powers. The bill was discussed again in the Parliament on 11 July 2014, but sufficient majority was not present to overcome the presidential veto.29 Thus, the legislative procedure was reinitiated once again, and a third reading is expected in the near future, but this time discussions will be limited to the texts covered by the presidential objections. Considering the political situation in the country and the fact that the government is expected to resign before the end of July, following which the 42nd National Assembly should be dissolved and new parliamentary elections should be held, it is quite likely that the discussion process over the bill will not be completed before the end of 2014.30
The principal features of the bill in its latest version can be summarised as follows:
New Regulation on Superior Bargaining Position
The original idea to regulate abuses of SMP as a form of antitrust violation was replaced by new rules on unfair competition, introducing the regulatory category of “superior bargaining position” (or “SBP”). According to the proposed definition for a new Art. 27a PCA, an undertaking would be deemed to have SBP where its commercial partners are dependent on it due to the characteristics of the relevant market, the specific relations between the undertakings concerned, the type of their activities, and the difference in their scale of business. The new regulation would prohibit any act or omission of a company with SBP that contradicts good faith commercial practices and harms or may harm the interests of the weaker contractual party. The criteria for SBP analysis and precision of the forms of abusive behaviour should be devised by the CPC in a special methodology. In case of violation, the CPC may impose on the undertaking concerned fines of at least BGN 10,000 (approx. EUR 5,000), up to 10 % of their aggregate annual sales in the affected product group for the preceding year (or up to BGN 50,000 in the absence of turnover).
It is clear that unfair trading practices are not a problem resulting from “market power” per se since in many cases abusive terms can be forced upon weaker contractual parties by companies commanding small market shares. Therefore, a regulation focusing on the specific contractual relationship indicating harmful effects seems more appropriate than antitrust rules, which only look at market structure. Still the statutory definition has many problems that open the room for discriminatory implementation. These flaws were among the principal reasons that prompted the President to refuse to promulgate the bill and return it for further deliberation.
First, elimination of bargaining power cannot be a goal by itself. It is completely possible that a behaviour that at first glance seems to exhibit the traits of an unfair practice is actually beneficial to consumers. For example, pressure for lowering procurement prices that is accompanied with a parallel decrease in retail prices is a gain for consumers. For this reason, SBP in itself and pressure on the weaker party should not be deemed to represent a violation of competition law, as far as there is no harm or threat for consumers.
The core objective of competition law is protection of consumer welfare, while promotion of economic efficiency is only the tool to reach that aim. The new statutory rules against abuse of SBP discuss only the interests of businesses and their inability to obtain better deals. Thus, the actual effects of bargaining power on consumer welfare are completely neglected. As a result, the contemplated regulation is not in compliance with the principle of consumer protection.31
Second, it was noted that delegation of competence to the CPC to devise all criteria for implementation of the new rules on SBP is not in line with the constitutional requirement that all material socio-economic relations are regulated by statutes. The contemplated legislative delegation would grant the CPC complete freedom to assess, in its discretion, which situations fall within the purview of the prohibition for abuse of SBP and which do not. Moreover, the possibility for frequent modification of the criteria would lead to lack of foreseeability with respect to the applicable requirements for exercise of economic activity and thus devaluate legal certainty and destabilise the very foundation of economic relations.
Administrative Oversight over General Terms of Large Retailers
The second regulatory line32 introduced a general obligation for all food retailers with annual turnover exceeding BGN 50 million (approx. EUR 25 million) to submit their contracts and general terms used in food procurement transactions before the CPC for review. The templates must be published on the company websites and used in all relations with suppliers. The same notification procedure must be followed for all modifications. Clearly, the original idea for ex ante control was abandoned in favour of simple notification. However, the bill also states that the CPC must open proceedings on suspect abuse of SBP if it finds that some of the clauses in a template are not in compliance with the law. Moreover, deviations from the official templates are prohibited under the threat of severe sanctions that may reach 1 % of the average daily turnover calculated with respect to the preceding fiscal year.
The first problem identified in the presidential veto is the discriminatory scope of the new regulation: the rules impose obligations only on food retailers, disregarding the abusive potential of the behaviour of food manufacturers and traders. This is in sharp contrast with all market analyses, which indicate that unfair practices are possible on all levels of the food supply, as indicated by the European Commission in its Green Book.33
In addition, the President supported the objections raised by businesses that the law would effectively limit the freedom of economic initiative in the food retail sector. The result would be super-regulation, which would affect only selected companies. The discriminatory approach finds no justification since the addressees are the largest companies, which are also the most transparent in their dealings, while the less law-abiding market players would not be affected. Thus, the contemplated regulation would in effect stimulate the grey economy.
In addition, it should be noted that the prohibition for deviation from the published templates is so broadly formulated that if interpreted literally could mean that the contract parties cannot negotiate any conditions that could take precedence over the general terms. Such a broad limitation of freedom of contract seems out of proportion with the declared legislative goals. The very requirement for uniform terms of dealing, with the additional obligation that such terms be announced publicly on a website, negates all freedom to rationalise economic behaviour in line with the market specifics. Moreover, this could lead to harmonisation of procurement terms of retailers, with an outcome that could hardly be expected to be pro-competitive.
Sector-Specific Contract Law Rules
The bill also introduced a new Art. 19a in the Foods Act, which regulates procurement agreements of large retailers by mandating written form and prohibiting the following type of clauses:
1.
exclusivity arrangements, which ban or restrict the ability of a supplier to offer or purchase goods or services to or from third parties;
2.
MFC clauses, which prohibit or restrict the ability of a supplier to provide the same or better commercial conditions to third parties;
3.
sanctions for providing the same or better commercial conditions to third parties;
4.
clauses for unilateral amendment of the contract;
5.
fees or discounts related to services that are not actually rendered or with a value that does not correspond to the service actually rendered:
6.
transfer of unreasonable or disproportionate commercial risk towards one of the parties;
7.
payment terms, longer than 30 days as of the date of issuance of a supply invoice;
8.
prohibition or restriction on a contracting party to transfer receivables to third parties;
9.
clauses permitting the retailer to return to supplier goods with expired shelf life and/or to impose penalties on supplier for in-store shelf life expiry.
The bill further requires that all grounds and procedures for unilateral termination shall be expressly set in the agreement. In case of unilateral termination without prior notification or in case of breach of the notification period, the aggrieved party shall be entitled to compensation for the damages caused by the termination.
All these rules have mandatory character, and any agreement in deviation shall be null and void. In addition, the food safety authorities are empowered to supervise compliance with the new contractual requirements and to impose fines in the range of BGN 2,000–3,000 (approx. EUR 1,000–1,500) for each case of established violation.
While some of the sector-specific rules seem straightforward, others are quite ambiguous, which was the reason for the presidential veto in this respect. It was noted that the prohibitions are too broadly formulated and may restrict perfectly legitimate practices. For example, the prohibition on unilateral modification of the agreement could prevent use of price update clauses in case of achieved turnover targets or pursuant to changes in official benchmarks. Similarly, the prohibition on return of goods with expired shelf life in effect prevents the use of consignment trading models. The rule concerning shifting of commercial risk is also ambiguous as there is no definition of what is “reasonable” and what is “proportionate”.
More importantly, the authorities would be allowed to evaluate and balance counter-obligations of the parties and may declare that a specific fee is illegal (in whole or in part) because it is deemed disproportionate to the value obtained by the supplier. And while such an analysis could be theoretically possible with respect to services and the respective fees, it is not clear how anyone can measure the countervalue of a discount, which by its very essence means reduction of the price. It is also unclear what degree of discrepancy in the two values could lead to nullity of the specific arrangement—whether it should be significant or any (even formal) difference would suffice.
The President also asked the MPs to reconsider whether it is prudent to empower the food safety authorities to exercise control over the contents of commercial agreements. Considering that their primary competence is to supervise production and trade with foods with respect to hygienic and quality standards, it seems rather naïve to expect that the same officials could possess adequate knowledge to analyse the legal and economic effects of clauses in procurement contracts. At the very least, that would require building new administrative capacity, which in turn would have budgetary consequences that were discussed neither in the bill itself nor in the motives thereto.
New Approaches to Self-Regulation
In its final sections, the statutory amendment envisages the creation of a new National Consultative Council (the “NCC”) on the better functioning of the food supply chain, comprising associations and professional organisation from the sectors of food production, processing, and retail. It should be supplemented by a conciliatory committee that would receive the task to resolve disputes between companies in the food supply sector through mediation.
The creation of a consultative body that would analyse the food retail sector and assist in the determination of best practices was supported by all principal stakeholders. This was clearly the preferred option for businesses, which vigorously opposed state intervention on the market. Still it must be noted that this last part of the bill is the least developed. Many essential issues with respect to the composition and functioning of the new bodies remain unsettled. Thus, the provisions are only declaratory in nature, and there are no clear solutions that could be effectively implemented.
Moreover, parallel introduction of the new administrative oversight with ambiguous self-regulatory mechanisms would undermine any possibility for development of the latter. The two types of regulation contradict with each other to a large extent, creating a risk from overlapping competences leading to over-regulation.
Short Comments
“Levelling the playing field” was among the principal reasons for the establishment of the JTG, which led to the conception of the first PCA amendment. The text of all drafts (including the latest regulation on abuse of SBP) also refers explicitly to “violation of good faith commercial practices”. However, until the bill becomes an actual law, these phrases would not be scrutinised by the administrative or judicial authorities and their meanings will remain unclear.
There are significant fears that the latest legislative approach, introducing three separate new forms of state regulation, would result in duplication and even triplication of statutory restrictions, expanded to an unclear range of situations, falling within the scope of the ambiguous concept of “superior bargaining position”. This would create double jeopardy risk of multiplied sanctions in clear violation with the principle of proportionality.34Over-regulation could limit competition instead of protecting it. The proposed amendments may result in deterioration of the business environment by increasing administrative burden and investment risks owing to the gross interference of the state into the freedom of contracting.
The stated purpose of the legislator is to combat unfair practices in the retail sector. However, the first group of rules, regulating abuse of SBP, is sufficiently broad to encompass any industry and every business in Bulgaria. If the PCA amendment is adopted by the Parliament (in this or in its next composition) and becomes the effective law of the land, the CPC would assume principal responsibility for the enforcement of the new rules against abuse of SBP. The latest bill leaves many issues open, which would need to be answered in implementing regulations adopted by the CPC. Due to the numerous imperfections of the draft statutory definitions, the NCA would have significant discretion to assess which situations fall within the purview of the prohibition for abuse of SBP and which do not. One may only wonder whether such broad delegation of competence is in line with the fundamental principles of separation of powers. Certainly, it would not enhance transparency of statutory requirements or foreseeability of administrative intervention.