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09 April 2020
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serbia

Serbia: Antitrust in the time of COVID-19 – Is close cooperation between competitors permitted?

The COVID-19 pandemic is having a profoundly negative impact on the operation of all undertakings in Serbia and beyond, regardless of the business activities concerned. In this extraordinary situation, undertakings are looking for arrangements that will (i) allow them to mitigate the staggering impact on their businesses and at the same time (ii) ensure the supply and distribution of their products to end users. Such activities often require close cooperation with competitors, which always presents the risk of antitrust violations. In order to alleviate this risk, companies should firstly assess the effects of such cooperation and opt for those models of cooperation that will have the least impact on market competition, while at the same time contributing to a more function market and to consumer welfare.

  • Beware - antitrust rules have not been suspended

Although each segment of the economy is currently at risk and the consequences of the state of emergency may significantly jeopardise companies’ survival in the market, competition law has not been suspended.

Cartels - agreements between competitors aimed at price fixing, market sharing, allocating customers and output restriction, are absolutely prohibited; this approach should not be expected to change due to the crisis. The same applies to other severe breaches of competition rules, including abuse of dominance. The statement of John Fingleton, former CEO of the Office of Fair Trading, concerning reactions to the 2008 financial crisis, is a good illustration of the rationale of this position: "two wrongs do not make a right: creating a second market failure by restricting competition is not a sound policy response to a market problem"[1].

  • The crisis does not release a company from liability in case of competition law infringements

Companies remain liable for any competition law infringements even in situations where cooperation with a competitor seemed like the only way to survive on the market.

Companies should hence seek out less restrictive cooperation models, rather than rely on the Commission’s willingness to accept the argument that a difficult economic situation made the participants to an agreement look for a solution in a cartel. Although the competition authorities, following the 2008 financial crisis, to a certain extent applied a more lenient fining policy in the so-called crisis cartels, such collusions still remained subject to fines.

  • What matters may not be agreed on between competitors?

In the circumstances at hand, companies should avoid the following:

  1. agreements with competitors involving price fixing, market sharing, consumer allocation and output restriction;
  2. exchange of competitively sensitive information, particularly information regarding future prices, business plans, output volumes and commercial terms.

The undertakings should continue to act in accordance with their competition compliance programmes. Caution is needed when meeting with competitors where exchange of information could take place, including meetings organised and run by government officials.

  • What matters may be agreed on between competitors?

There are forms of cooperation between competitors that do not constitute cartel collusion and may hence be permitted. They distort the competitive process to a lesser extent (or do not distort it at all), but at the same time can ensure positive effects on the market, such as continuity of supply, efficient production and distribution of scarce products during the crises. These cooperation mechanisms may include:

  1. joint production (specialisation) agreements;
  2. joint purchasing or sales agreements;
  3. research and development agreements;
  4. logistics/distribution cooperation;
  5. exchange of (non-sensitive) information.

Each of these forms of cooperation is not always permitted and must be analysed from the standpoint of competition law. For example, in order to assess joint production or R&D agreements, separate regulations have been put in place regulating block exemptions for such agreements and providing guidelines with respect to their content and duration. If the conditions are not met to apply the block exemption regulations, companies must approach the Commission for the Protection of Competition ("Commission") for individual exemption of an agreement.

In addition, if the joint market share of the parties to an agreement is up to 10 % and the agreement does not contain hard-core restrictions, such agreements between competitors are exempt under the law by application of the De Minimis rule.

  • How does the Commission view cooperation agreements between competitors in the time of crisis?

The European Commission issued a Temporary Framework for assessing antitrust issues related to business cooperation during COVID-19 [2] and a joint statement with the European Competition Network ("ECN") [3] in which they stated that the competition authorities will not actively intervene against cooperation put in place in order to ensure the supply and fair distribution of essential scarce products and services to all consumers. The European Commission is aware that a certain level of cooperation should exist in order to overcome the shortage of supply, particularly in the health, and allows coordination of the stock management, which would not be permitted ordinarily. However, the European Commission does not allow for carte blanche cooperation between competitors; rather, such cooperation must be necessary, temporary and put in place only with the aim to address the negative impact of the current crises. Besides, the European Commission and ECN enable informal consultation for undertakings during the COVID-19 crisis.

The Serbian Commission has not thus far issued any similar statements; so it remains to be seen whether it will itself modify its approach to the application of antitrust rules during the COVID-19 crisis. There are two key questions in this regard:

  1. whether the Commission will insist that any agreement between competitors, which does not fall under the existing block exemption regulations or de minimis rules, should be assessed by the Commission in individual exemption procedures before it is applied; and
  2. whether it will decide on such applications in summary proceedings (given that the regular procedure can take several months).

The Decision on exemption of the manufacturing agreement between Imlek and Meggle [4], competitors on the dairy products market, may provide some guidelines on how the Commission will react in exceptional circumstances. Due to a fire in the Imlek production plant in 2018, this company entered into a manufacturing agreement with Meggle in order to ensure market supply with specific Imlek products in the aftermath of the fire. The Commission exempted the agreement from prohibition in an investigation proceeding that only took seven days. This shows that the Commission is able to react swiftly in extraordinary circumstances in order to allow the parties to put an agreement in place as quickly as possible.

This exceptional crisis, which is having a major impact on the economy of every country, requires close cooperation of many stakeholders, including market participants. Particularly in the health sector, but also in the FMCG sector; transport, insurance sectors etc. The undertakings should be aware that antitrust rules are still applicable and cartels remain illegal. Other forms of cooperation could be permitted, but have to be carefully assessed with antitrust counsels before being implemented on the market.

 

[1] https://publications.parliament.uk/pa/cm200809/cmselect/cmdereg/329/329we12.htm#n67

[2] https://ec.europa.eu/commission/presscorner/detail/en/ip_20_618

[3] https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf

[4] http://www.kzk.gov.rs/kzk/wp-content/uploads/2018/11/Imlek-Meggle.pdf

 

This Legal Insight is authored by Zoran Šoljaga and Srđana Petronijević.

 

This article is part of our coronavirus-focused legal updates – visit our coronavirus infocorner to get more info!