© Springer-Verlag Berlin Heidelberg 2015Pierre Kobel, Pranvera Këllezi and Bruce Kilpatrick (eds.)Antitrust in the Groceries Sector & Liability Issues in Relation to Corporate Social ResponsibilityLIDC Contributions on Antitrust Law, Intellectual Property and Unfair Competition10.1007/978-3-662-45753-5_7
Faculty of Law, University of Macau, Taipa, Macao SAR (China)
According to the classic categorization, the Estonian legal system belongs to the Continental (Civil Law) European legal tradition, Romano-Germanic family with strong historical links with the German legal system, especially in the field of civil/private law.1 The Estonian legal system is formally norm based, i.e., statutory law is the primary source of law. It should be noted, however, that the influence of EU law on the development of the Estonian legal system strengthened the role of the precedents, particularly those of the Supreme Court, which is empowered to interpret legal rules, especially in cases of legal lacunae, and to carry out constitutional review of the legislation. These general features and historical background of the Estonian legal system has predetermined the emphasis on the public antitrust enforcement, while private enforcement of competition rules remains virtually nonexistent.2
As far as the substantive antitrust rules are concerned, Estonian competition law has been shaped under the influence of the EU rules and standards. According to the early comments on the harmonization of the Estonian competition rules with those of the EU, it was noted that “there is hardly anything in EU competition law that has not found its way into the Estonian Competition Act, often even word for word.”3 This early harmonization of the substantive competition rules has signaled the intention of the Estonian state to follow the EU model in the domestic competition enforcement.4 At the same time, Estonian legislator has made a policy choice in favor of multilevel public enforcement, which led to the current situation when competition rules can be enforced under administrative, misdemeanour and criminal procedural rules. This diversity in procedural frameworks combined with the technical constrains of the national competition authority (limited human and financial resources), and a combination of the antitrust and regulatory functions under the responsibility of the same authority has shaped the Estonian antitrust enforcement.
As the following sections of the present report shall demonstrate, the Estonian legislator has not adopted any competition rules or exemptions that would be specific to the grocery retail sector. This reflects the general approach to adopt sector-specific legislation for the regulated sectors, while unregulated industries remain subject to the general competition rules. Another important aspect is the enforcement of the general competition rules in the grocery retail sector, and in this sense Estonia exhibits a relatively low record of antitrust enforcement. This outcome has resulted, inter alia, from the emphasis on public enforcement, multiple procedural frameworks for enforcement and the limits in technical capacity of the national competition authority. Another important factor is the current competitive conditions in the grocery retail and its links with the agricultural and processing industries. The following sections highlight the economic, legal and institutional factors that explain the current situation with antitrust enforcement in the Estonian grocery retail market.
7.2 Economic Background
According to the Estonian Ministry of Agriculture,5 in 2013 there were 965,907 ha of usable agricultural land in Estonia, the biggest share of which remains under dairy farming.6 The plant fields are primarily used for growing cereals, oil cultures, potatoes and vegetables. As many other EU Member States, Estonia experienced significant consolidation of agricultural holdings with their number steadily decreasing, while the average used land per holding almost doubled during 2003–2007.7 A large number of agricultural producers and processors of agricultural products are represented by the Estonian Chamber of Agriculture and Commerce.8
The food processing accounts for 17 % of the total output of the Estonian processing industry.9 This sector has also experienced substantial consolidation during 1998–2002. Since 1993, the interests of the Estonian food producers have been represented by the Association of the Estonian Food Industry.10 In the specific food sectors, the following industry associations exist: Estonian Association of Bakeries,11 Estonian Breweries Association,12 Estonian Association of Alcohol Producers, Estonian Association of Cheese Producers, etc.13
The grocery retail market is moderately concentrated with the three leading retailers (ETK, Rimi, Selver) accounting for about 60 % of the market.14 Their interests are represented by the Estonian Traders Association.15 According to the 2013 industry research, none of the retailers enjoys single dominance: ETK (19 %), Rimi (18 %), Selver (17 %), Maxima (15 %), etc.16 Approximately 45 % of food retail is realized through department stores with retail space less than 100 m2 (22 %) and supermarkets with retail space between 100 and 400 m2, followed by large supermarkets with retail space of 1,000–2,500 m2 (10 %).17
7.3 Legal Background
7.3.1 Competition Law
The Estonian Competition Act18 applies to extraction of natural resources, manufacture of goods, provision of services and sale and purchase of products and services, as well as other economic activities, and therefore is equally applicable to the grocery sector.19 Competition rules are applied to undertakings that are determined according to the functional approach related to the exercise of economic activity: “a company, sole proprietor, any other person engaged in economic or professional activities, an association which is not a legal person, or a person acting in the interests of an undertaking.”20 Following this approach, the state, local governments, legal persons in public law and other persons performing administrative duties can be treated as undertakings if they participate in a goods market.21 The agricultural sector is subject to competition rules only to the extent determined on the basis provided for in Article 42 TFEU.22 The Competition Act includes a ban on unfair competition23 as well as prohibition of anticompetitive practices, which might lead to preclusion, elimination, prevention, limitation or restriction of competition.24
The national equivalents of Articles 101 and 102 TFEU have been incorporated in the Competition Act, which has been in force since 2001, with the most recent amendments taking place on July 2013.25 Besides adding anticompetitive exchanges of information to the list of prohibited anticompetitive practices, the relevant provision of the Competition Act mirrors Article 101 TFEU.26 The prohibition of abuse of dominant position in the Competition Act follows the structure of Article 102 TFEU, adding the following to the list of anticompetitive unilateral practices: (1) forcing an undertaking to concentrate, enter into an agreement that restricts competition, engage in concerted practices or adopt a decision together with the undertaking or another undertaking, and (2) unjustified refusal to sell or buy goods.27
The Competition Act does not contain any provisions that have been specifically aimed at the grocery retail market. However, certain forms of anticompetitive agreements and practices as well as abuses of dominant position might be especially relevant for the retail markets. For example, the Competition Act explicitly provides that a ban on fixing of prices or other trading conditions covers prices of goods, markups, discounts, rebates, basic fees and premiums, which is mostly aimed at the distribution (wholesale and retail) activities.28 The provisions on the abuse of dominance explicitly mention unfair pricing, anticompetitive discrimination and refusal to deal.29
Estonia has pursued the criminalization of competition infringements,30 and certain violations of competition rules are considered criminal offences under the Penal Code that should be prosecuted in criminal proceedings initiated by the Prosecutor’s Office31 upon request of the Estonian Competition Authority (the “ECA”)32: repeated abuse of dominant position33; agreements, decisions and concerted practices restricting free competition34; repeated failure to perform obligations of undertakings in control of essential facilities.35 Other infringements of competition rules are regarded as misdemeanors that should be prosecuted under the Code of Misdemeanour Procedure36: abuse of dominant position, implementation of concentration without permission, and the nonperformance of obligations by the undertakings in control of essential facility.37
The behavior of grocery retailers besides competition law is mostly regulated by the consumer protection legislation. For instance, Consumer Protection Act imposes on retailers certain information and transparency requirements and prohibits a range of unfair commercial practices.38 The general conduct of the retail trade is governed by the provisions of the Trading Act,39 which lays down the registration and qualification requirements for traders and their personnel, conditions for labeling the products and displaying prices, etc. All of the above regulations are based on the principles of fairness and protection of weaker party. There are no specific rules on protecting a party with weaker bargaining power vis-à-vis large retailers in business-to-business transactions. These would be evaluated under the general principles of fairness and reasonableness embedded in the Law of Obligations Act.40
7.3.2 Exemptions from Competition Law Prohibitions
The Competition Act provides for various categories of exemptions from the application of the national equivalent of Article 101 TFEU: de minimis exemptions,41 individual exemptions42 in line with Article 101(3) TFEU and a set of block exemptions specified in the government’s regulations on the proposal of the Minister of Economic Affairs and Communications.43 At the same time, there are no regulations or bylaws that would provide further guidance on various aspects of antitrust enforcement carried out by the ECA. There are no specific exemptions from the application of Competition Act that would be applicable to the retail grocery sector. There is no automatic exemption for small-scale farmers or suppliers of food products from application of competition rules. Their agreements on joint selling and other forms of cooperation vis-à-vis large-scale distributors would have to be analyzed under the national equivalent of Article 101 TFEU44 and can be exempted under the general de minimis rules,45 under the equivalent of Article 101(3) TFEU46 or under the block exemption regulations.47
7.3.3 Other Laws and Regulations Applying to the Retail and Grocery Sector
The conduct of the grocery retailers is subject to a number of general and sector-specific regulations. Consumer protection legislation48 regulates general marketing activities, determines the rights of consumers as purchasers of the products and provides for organization and supervision of consumer protection and liability of retailers. The Trading Act lays down mandatory conditions for the conduct of trading activities, including registration, qualification and information requirements. The Advertising Act49 regulates advertising activities that may be employed by the grocery retailers. In particular, it prohibits misleading advertising50 and restricts advertising directed at children51 and advertising of alcoholic beverages.52 In relation to the sale of alcohol products, sector-specific regulations impose numerous requirements and conditions on the way alcoholic beverages should be marketed by the retailers (retail locations, customers, labeling, displaying price, security measures, etc.), which significantly affects competition in relation to these products.53
The conduct of trading activities is generally regulated by the Trading Act, which is equally applicable to the traditional brick-and-mortar stores as well as to Internet retail stores, which have to comply with specific provisions relevant to e-trade—the offer for sale or sale of goods or services on the Internet without the parties being simultaneously physically present.54 It provides, inter alia, that Internet retail stores have to comply with registration, information and transparency requirements of consumer protection legislation, as well as general contract rules and Information Society regulations.55 Generally, Internet stores are not active in grocery retail sector in Estonia. One of the major retailers attempted to introduce Internet-based ordering system where the consumers were able to pick up the preordered goods at the store, but due to the lack of popularity this service was discontinued.
The ECA does not have specific competences in the adoption or enforcement of specific regulations in the food retail sector. The Competition Act provides that the ECA “may make recommendations to state agencies, local governments and natural and legal persons as to the improvement of the competitive situation.”56 The ECA regularly reports on its enforcement activities and expresses its position vis-à-vis competition on various markets through annual reports57 and official press releases.58 There were no separate market inquiries conducted by the ECA in the retail grocery sector. Any market study activities were carried out in the course of regular antitrust investigations or merger control procedures.
The Competition Act prohibits only two types of unfair competition: (1) publication of misleading information, presentation or ordering of misleading information for publication or disparagement of competitor or goods of competitor,59 and (2) misuse of confidential information or of employee or representative of another undertaking.60 The existence of unfair competition prohibited by the Competition Act has to be established by the parties in a dispute held pursuant to the rules of civil procedure.61 The unfair trading practices can be invalidated under the general contract rules concerning unfair standard terms and conditions.62 However, the respective provisions are primarily aimed at protecting the consumers and do not contain any specific unfair trading practices that should be prohibited per se in business-to-business transactions.
7.4 Competition Law Enforcement
The 2010 amendments of the Penal Code have increased the sanctions imposed on a legal person for taking part in anticompetitive agreements up to 5 % of the annual turnover. In case of hard-core cartels, the fine could reach up to 10 % and cannot be less than 5 % of the annual turnover. Responsible natural persons for the involvement in a hard-core cartel will risk a pecuniary sanction or at least 1 year of imprisonment, which could be raised up to 3 years in case of hard-core cartels.63
In case of anticompetitive agreements, abuses of dominant position, violations of merger control rules or any procedural infringements under the Competition Act (such as failure to supply the ECA with requested information, interference with dawn raids or failure to appear when summoned), the ECA can issue a precept requiring the natural or legal person concerned to refrain from a prohibited act, terminate or suspend activities that restrict competition, restore the situation prior to the offence.64 If a person fails to comply with the precept, the ECA may impose penalty payments of up to EUR 6,400 on natural persons and up to EUR 9,600 on legal persons pursuant to the procedure regulated in the Substitutive Enforcement and Penalty Payment Act.65
In relation to violations of competition rules that are treated as misdemeanours, the ECA conducts the proceedings and imposes pecuniary penalties: refusals to submit information or submission of false information (up to 300 fine units66 for natural person and up to EUR 3,200 for legal person), abuse of dominant position (up to 300 fine units for natural person and up to EUR 32,000 fine for legal persons), enforcement of concentration without permission to concentrate (up to 300 fine units for natural person and up to EUR 32,000 fine for legal persons), nonperformance of obligations by undertakings in control of essential facilities (up to 300 fine units for natural person and up to EUR 32,000 fine for legal persons), failure to comply with special requirement concerning accounting (up to 300 fine units for natural person and up to EUR 32,000 fine for legal persons).67
The ECA is unlikely to investigate cases of geographically isolated infringements. However, due to criminal prohibition of horizontal hard-core cartels, the ECA would be expected to investigate such cases if it becomes aware of such practices. In cases where harm to the general public interest could be subjectively assessed as insignificant, the relevant provisions of the Penal Code can be relied upon to impose symbolic fines on the convicted persons (both natural and legal) and leave them without criminal record. The decision to apply those provisions is with the prosecutors, and they have been applying those in cases of minor importance on many occasions.
In relation to leniency matters, the ECA has a very limited authority due to the fact that antitrust violations are criminalized and sanctioned in the criminal procedure before the court. Under the relevant provisions of the Competition Act, the ECA must confirm the receipt of leniency applications and forward them to the Prosecutor’s Office that is heading the criminal prosecution.68
7.4.1 Competition Law Enforcement Against Anticompetitive Horizontal and Vertical Agreements
In 2010, the ECA commenced a cartel investigation concerning the retail of dairy products, involving both suppliers and retailers, where both horizontal and vertical concerns have been identified. Allegedly, one of the retailers complained to the ECA about the vertical agreements between a supplier of dairy products and another major retailer.69 At the time of writing the case was still in the pretrial stage.
In 2012, a producer of alcoholic beverages and several retailers have been suspected of coordinating vodka prices. The producer was suspected of facilitating the coordination among the retailers.70 As a result, the ECA’s investigation could lead to establishing the existence of a vertical resale price maintenance arrangement or horizontal price coordination facilitated by the supplier. At the time of writing the case was still in the pretrial stage.
ETK is a cooperative of small and medium retailers that has operated continuously since 1919.71 In 2002, the ECA received a complaint from a private person alleging, inter alia, that (1) ETK maintained uniform transportation prices, which allowed the remote cooperatives (on the islands or countryside) to minimize their costs at the expense of the more centrally located members; (2) ETK applied a recommended pricing policy, which is contrary to Competition Act; (3) ETK mandated its members to purchase the main assortment of goods from the centralized stock and excluded those members that did not comply with this purchase obligation. The ECA considered that such cooperation was not illegal because it allowed members of the cooperative to compete with the major retail chains and therefore fostered competition on the grocery retail market.72 The competition authority considered ETK as a single undertaking for the purposes of applying competition law. The ECA was of the opinion that even if the members of ETK would be considered as separate undertakings, their cooperation practices would be exempted under the national equivalent of Article 101(3) TFEU.73 According to the ECA, ETK