The European, Middle Eastern and African Antitrust Review 2018

Croatia: Competition Agency

14 August 2017

President

The Croatian Competition Agency (CCA) is the competent body in Croatia for the implementation of competition legislation, established as an independent legal entity with public authority that autonomously performs activities within its powers regulated by the Competition Act. The CCA is also responsible for the direct application of articles 101 and 102 of the Treaty on Functioning of the EU. This year, the CCA marks 20 years as the creator and promoter of competition law and policy in Croatia.

Achievements in 2016 and 2017

In 2016, the activities of the CCA regarding enforcement were focused on investigations of potential prohibited agreements and the establishment of potential abuses of a dominant position, the latter being completed by way of commitments. The CCA's active role in the area of merger control continued with several allowed concentrations and analysis of the notifications of concentrations with an EU dimension received by the EC in accordance with EU Regulation 139/2004 on the control of concentrations between undertakings. In the area of competition advocacy, sectoral studies were conducted and a great deal of opinions on laws, legislative proposals and the assessment of regulatory effects were issued. It should also be mentioned that the CCA had an active management and partici­pation role in drafting two legislative proposals: the Draft Proposal of the Damages Act for the infringement of competition law; and the Draft Law on Unfair Trade Practices in the food supply chain.

Work in 2016 was marked by the specific goal of the CCA to work on the proactive promotion of competition law and policy, and to advocate the benefits competition brings to consumers and entrepreneurs. To that end, the CCA prepared some significant opinions and statements upon requests of state institutions, local self-government units and undertakings, which also had a positive perception in public. The CCA closed 2016 with a project that is an important part of its competition advocacy activities: the Guide for contracting authorities in detecting and tipping off bid-rigging cartels in public procurement. The CCA has also been very active in international and European cooperation, and it assumed new responsibility as the participant in the OECD competition committee.

Prohibited agreements

Gorenje

The CCA opened an ex officio proceeding against the undertaking Gorenje Zagreb based on the complaint and following a preliminary market investigation with indices of the possible restriction of passive sales regarding the rebate and pricing policy and criteria used with undertakings engaged in online sales compared with the traditional brick and mortar shops. However, the data collected in the course of the proceeding led the CCA to the conclusion that besides the likely restriction of passive sales there has been a reasonable doubt of fixed or minimum sale price maintenance. The price fixing and the price discounters offered to certain undertakings who sell Gorenje products have been a result of pressure and incentives from Gorenje Zagreb. The CCA asked for the order of the High Administrative Court of the Republic of Croatia on the basis of which it carried out surprise inspection of the business premises of Gorenje Zagreb. During the dawn raid evidence was found that Gorenje Zagreb used this pressure and explicitly asked for assent to its unilateral business policy by other undertakings.

On the one hand, Gorenje Zagreb used its rebate policy to induce the buyers to comply with its imposed sales prices. On the other hand, it suspended further delivery of its products to undertakings that have not complied with the restrictive agreement thus preventing the deviations from the standard price level by other undertakings. Gorenje Zagreb has for a long time been engaged in resale price maintenance (RPM) - imposing a fixed or minimum sale price that was to be observed by its buyers. Furthermore, Gorenje Zagreb has implemented a monitoring system that enabled it to control whether a certain buyer has deviated from the imposed price level by reducing the price below the price level and to compare these prices with the recommended prices. It acted on its own initiative but implementing measures to identify price-cutting distributors and based on reports of other members of the distribution network that deviate from the standard price level. The fact that they have been constantly monitored by Gorenje Zagreb, or another competitor, created pressure on the will of other buyers to comply with the imposed obligations. Therefore, the CCA has not opened the proceedings against other undertakings that as weaker parties complied with what was imposed on them by Gorenje Zagreb. During the proceeding, Gorenje Zagreb expressed its will to undertake commitments to restore competition in the market concerned. However, the CCA did not accept the offer taking into account the relatively long duration and the gravity of the infringement and it imposed he fine imposed in the amount of 1.56 million kuna.

Abuse of a dominant position

In the area of abuse of a dominant position, all proceedings in 2016 were completed by accepting the commitments by undertakings concerned, on the following markets: printing market, market of machinery and equipment for gardening, market for the servicing and sale of spare parts for Yanmar marine engines, and the funeral services market. All undertakings concerned provided the CCA with evidence that all the commitments undertaken were fulfilled within the prescribed deadlines.

Drezga

In the market of machinery and equipment for gardening, the CCA opened the ex officio infringement proceeding against the undertaking Drezga d.o.o., an authorised distributor for Husqvarna Group products, based on the fact that the contracts this undertaking concluded with its business partners contained provisions imposing obligations on the buyer to sell all the final products and the accompanying spare parts from the export programme of the seller in the territory of Croatia, preventing the passive selling of the contract products - re-export to other countries. In the course of the proceedings Drezga committed itself to change the provisions on authorised sales and repair of Husqvarna Group products and other products in the authorised sales contracts and offered to allow its business partners the passive sales outside the territory of Croatia, yet imposing the obligation on them to refrain from active selling. In addition, with the view to preventing any possible future infringements of competition rules, Drezga committed itself to draw up a compliance programme and train its management and commercial staff on competition rules and the importance of the compliance of the behaviour of any undertaking with these rules.

Navela

In the market for the servicing and sale of spare parts for Yanmar marine engines, the CCA accepted the commitments offered by the undertaking Navela from Pula in the proceeding against this undertaking in the distribution of the said spare parts. The proceeding against the undertaking Navela was initiated by the CCA. This was due, first, to the indices that Navela refused to deliver and to sell the spare parts for one vessel, unless the whole business was transferred to another, specified service provider. Second, there have also been indices that the standard contracts for maintenance and repair of marine engines, purchase of engines and spare parts of Yanmar brand that Naval concluded with the members of its network contained provisions that may raise competition concerns. In the course of the preliminary market investigation it has been established that the spare part at issue was the Engine Control Unit (ECU) that is not a typical spare part that has been regularly delivered to unauthorised repairers but a unit that falls under a special replacement protocol provided by Yanmar, applicable within and outside the warranty period, a fact that has been confirmed by an independent expert witness in the field of engineering and shipbuilding.

At an early stage of the proceeding Navela offered remedies committing itself to deliver the spare parts for Yanmar marine engines to any interested operators, including the unauthorised repairers. In the case of specific inquiries, including the ECU and other electronics that requires specific training and tools, Navela shall first of all refer every customer to the authorised repairers' network. Should the customer refuse such a proposal, it would have to sign a statement confirming that it does not agree to be referred to an authorised repairer and takes the responsibility for all consequences that may arise as a result of the incorrect replacement of a spare part, including the consequences that such behaviour may have on third persons and their property. With respect to the service agreement Navela offered to review the challenged provisions thereof. The revised service agreement will contain provisions regulating that the invoice price and the final cost due to rebates are to be considered a maximum price of the product for the final consumer. Should the service sell the products to final consumers above the maximum price, Navela holds the power to terminate such an agreement. At the same time, the provision that empowered Navela to terminate the agreement should the repairer purchase the spare parts from the any other source than Navela was deleted.

Flora VTC

In the case of funeral services market, the CCA accepted the commitments offered by Flora VTC in the course of the ex officio proceeding that it opened against this undertaking in April 2016. The CCA established within the proceeding that on the basis of the Prices for Funeral Services adopted on 23 October 2015 Flora VTC has tied the price of the burial service (that is discharged as a public service) to the sales of its own funeral supplies and mortuary equipment (that it carries out as a commercial service) thereby limiting the access to the market concerned for the competing undertakings. Soon after the initiation of the proceeding Flora VTC offered the disapplication of the part of the Prices for Funeral Services giving 10% discount on the burial service if a client also bought funeral supplies from the undertaking concerned. Flora VTC also offered to make this decision public on its website, thus restoring the situation before the challenged 10% discount entered into force. The CCA assessed that it is appropriate to accept commitments offered by the party under investigation. It found that the nature of the commitments and their ability to quickly and effectively solve the competition concerns are sufficient to address the identified competition concerns and eliminate possible anticompetitive effects in the relevant market in the sales of funeral supplies and mortuary equipment in the territory of the town of Virovitica.

Merger control

The merger control, especially in the second half of 2016, was marked by the dynamism of activities, which is a direct consequence of increased activity of mergers of businesses in particular markets, particularly in telecommunications, retail consumer goods and the media. All the proceedings conducted in 2016, except one, were completed at level-one assessment, as it has been established that there would be no negative effects on competition.

In the course of 2016 the CCA received notifications of concentrations in the telecom market. At the end of January 2017 the concentration VIPnet/Metronet Telekomunikacije was approved in the first-phase proceeding.

Furthermore, in the retail market for consumer goods, the notified concentrations between Spar AG, Austria/Billa, Billa nekretnine and Minaco and Muller from Zagreb acquiring the part of Konzum dd (Kozmo) from Zagreb were approved in the first phase. The year was marked by further consolidation on other markets such as the hotel market, where Valamar Riviera from Poreč acquired the Imperial hotel chain from Rab; the meat and meat products market, where the meat industry of the Pivac Brothers from Vrgorac acquired Vajda from Čakovec; and the print media market on which JOJ Media House a.s. from Slovakia acquired Novi list from Rijeka, Glas Istre Novine from Pula and RTD from Zadar.

In addition, merger control work was also marked by the continued monitoring of the implementation of the measures and conditions envisaged to eliminate the adverse effects of concentrations on competition, accepted by the CCA in earlier decisions on conditional approvals. These are: Agrokor/Poslovni sistemi Mercator, Republic of Slovenia and Hrvatski Telekom/OT-Optima Telekom, where the CCA in 2016 followed the implementation of complex, multi-annual measures related to large group operations in both cases. In 2016 the process of divestiture was fully completed in order to reduce Agrokor's market power in the relevant market, while behavioural measures should last until mid-2017. From comprehensive reports received from the trustee, it follows that Agrokor adheres to all the measures and conditions from the decision of the CCA. The oversight of HT/Optima's behavioral measures, which encompassed a total of five reports by the trustee, shows that compliance with the measures and terms from the decision is observed by the parties to the concentration. As in previous years, in 2016 the CCA dealt with control of concentrations in the media and electronic media market.Much of the work included analysis of the notifications of concentrations with the EU dimension received by the EC.

Competition advocacy

The CCA strongly engages its efforts to promote competition law and policy and to emphasise benefits of competition on the markets among different stakeholders. The analysis of legislation by the CCA has a preventive effect to avoid adoption of laws and regulations with anticompetitive provisions. In that respect, in 2016 the CCA issued over 100 legal opinions and statements on the compliance with competition rules. In all these cases, a very demanding and detailed legal analysis of regulations in various markets was conducted: the waste management market, electricity supply, public procurement of electronic communication services in the fixed network, tax consultancy services, student transport, public procurement in the activities of travel agencies etc.

The greatest impact in 2016 resulted from the earlier opinions delivered by the CCA, based on analysis of the existing regulations and recommendations for their alignment with the competition rules. Thus, as a result of the long-standing advocacy efforts of the CCA, legislative activities were announced in 2016, relating to the driving schools market and taxi services. In recent years the CCA has repeatedly pointed out the need for consideration of certain amendments to secondary legislation regulating the activity of driving schools in the part open to competition, since it considers that effective competition in the market would have a positive impact on end users through the quality and price of the service in such a way that all interested parties who meet the qualitative criteria should be able to enter and operate in that relevant market without being imposed additional conditions which restrict the number of undertakings. Similarly, in taxi services sector, in its opinions the CCA suggests that the provisions of special regulations should allow equal access and participation to all market participants in order for them to compete in terms of price and quality of service, that the provisions of special regulations should not specifically protect a particular category of business (taxi carriers) and that the administrative determination of the cost of transport reduces the possibility of competition between undertakings, while the provision of limiting the number of competitors in the market may pose a legal barrier to market access. In 2016, the CCA continued its proactive approach to accessing this market and gave its opinion on the city of Split's decision on the transportation of the city of Split.

The Guide for contracting for contracting authorities in detecting and tipping-off bid-rigging cartels in public procurement

The Guide was prepared and published by CCA experts on the CCA website and as a booklet that will be distributed to the contracting authorities involved in public procurement on various occasions with the view to helping them detect bid-rigging cartels. In the context of competition rules it is essential for the participants in the public procurement procedure, particularly the contracting authorities, to be able to detect the signs that point at possible bid-rigging or collusive tendering. In order to detect and report about the bid-rigging cartels it is necessary to train all the participants in the public procurement procedure about the suspicious forms, behaviours and patters of bid-rigging agreements. Only the trained participants will be able to detect unsound behaviour and the signs that the undertakings who infringe competition rules leave behind in the tendering procedure. Here the public administration officers as well as the undertakings involved play a very important role in detecting and sanctioning the risks linked to bid-rigging cartels in public procurement because they help the competent authorities to eliminate cartels. The CCA Guide is a clear set of questions and answers for contracting authorities about the possible suspicious signs that may point at a bid-rigging cartel or collusive tendering. Some of the infringements are illustrated by a number of examples whereas the contracting authorities are given certain guidelines in reducing the risks of bid-rigging in public procurement.

Market investigations

The CCA considers market investigations as valuable sources of information about functioning of markets which can serve as an instrument of correcting behaviour of undertakings on the market. In 2016, the CCA completed three in-depth sectoral market researches: on compulsory car insurance in Croatia, on oil derivatives market and its regular annual groceries retail market research in Croatia.

The objective of the market study of compulsory car insurance was to identify the changes this market has undergone compared with the findings of the CCA market investigation covering 2013 and 2014. The CCA focused in this market inquiry first, on establishing facts with respect to risk zones, ie, determining the amount of compulsory insurance contribution (functional premium), and second, on analysing the pricing of insurance premiums depending on the registration areas. A comparative analysis of prices was carried out based on a sample of vehicles. The analysis showed that risk zones are still to a certain extent used for the calculation of the functional premium and the overheads. The recent CCA inquiry shows that three years later the road transport operators have a wider choice springing from the product differentiation in respect of the third party motor insurance policies. Concretely, the application of the uniform risk zone criterion on the whole territory of Croatia brought about lower prices and more favourable terms in third-party motor insurance for all road transport operators. Therefore, the changes spotted in the market may have positive effects on competitiveness of certain transport operators, both in the Croatian and the EU market.

In case of oil derivatives market, the CCA conducted sector inquiry into the oil derivatives market, in particular, into the Croatian motor fuels retail and wholesale market. The object of the market inquiry was to establish the relevant facts about the way and mechanisms used in setting the prices of fuels in the period after the liberalisation of this market in Croatia from February 2014 to February 2015. The sector analysis carried out by the CCA showed that in the analysed period there were no indicators in Croatia that would in the post-liberalisation period point toward any significant changes in the traders' margins that amount to some 5% to 10% of the retail price.

Finally, the CCA carried out the groceries retail market investigation, covering food, beverages and sanitary products for households. The 2016 market investigation covered the year 2015 and involved a sample of 50 undertakings that in accordance with their turnover and the number of groceries outlets, (ie, food chains) represent significant participants in the market. The groceries market investigation proved that the competitive structure of the market was retained and the interests of the consumers protected, with both seen as competition efficiencies.

Legislative work on the Draft Laws

Draft Proposal of the Damages Act for the infringement of competition law

For the purpose of transposing the EU Directive 2014/104 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the member states and of the European Union, the new Damages Act for the breach of competition rules has been prepared. Based on the authorisation of the Ministry of Economy, Entrepreneurship and Crafts, the CCA was chairing the national working group entrusted with the preparation of the new legislation. The proposed Draft Act follows the Damages Directive but at the same time has to be adjusted to the Croatian Civil Obligations Act and the Civil Procedure Act. The compensation for damages will be decided in first instance by the Croatian commercial courts that generally rule in the compensation for damages procedures in other related areas. In practice this will mean that the actions for damages may be filed by any natural or legal person that has suffered harm caused by the infringement of competition rules but also by any citizen - consumer or competitor in the market in which competition has been distorted, or a legal person that believes it has been paying a higher price of goods or services or works due to the infringement of competition rules. In order to wrap up the public consultation process and inform expert audience about the specificities of the new act, the Agency hosted an international conference titled ‘Transposition of the Damages Directive - What are the expectations?', held in Zagreb on 5 December 2016.

Draft Law on Unfair Trade Practices in the food supply chain

In preparation of this Draft Law, the representative of the CCA was a member of the working group as an institution representative who understands the issue of the relationship between large and small undertakings/producers with traders, or the problem of negotiating power of undertakings. Namely, before the food product reaches the final consumer, it passes through a supply chain that makes a number of different market actors (manufacturers, processors, traders, etc) who add their contribution in terms of product quality and value. However, due to recent phenomena such as increased market concentration, undertakings in the chain have very different levels of negotiating power. Although differences in negotiating power are a common and legitimate occurrence in trade relations, imbalances sometimes may be so much that they lead to so-called unfair trading practices. The European Commission has identified four main forms of unfair trading practices applied by traders: retroactive abuse of vague or incomplete terms of contract, excessive and unforeseeable transfer of costs or risk to the other party, use of confidential information and unfair termination of business relationship. Since this is a problem that is close to the current competences of the CCA which also has enforcement powers, the CCA has been proposed as the implementing authority in the draft law which was sent to the parliamentary procedure.

Future priorities in 2018/2019

The CCA will in the coming period continue to focus its activities at eliminating any restriction of competition in the market. In that respect, the actions will remain concentrated on the hard- core restrictions of competition such as cartels and abuses of dominant position followed by active role of the CCA in co-operation with European Commission. One of the important future priorities will be establishing the new competence of the CCA in the implementation of the Law on unfair trade practices in the food supply chain. Considering that market studies and sectors inquiries offer valuable information on the markets and potential competition concerns, some additional market studies will be conducted. Taking into account constant need for further efforts in promoting competition advocacy, the significant part of the work will be directed to competition advocacy and raising awareness among business society, state institutions and general public. The other regular activities will remain merger control and wider international cooperation.

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