In late December 2014, the Hungarian Parliament adopted an unconventional amendment to the Trade Act (Act 164 of 2005). The new amendment introduces a non-rebuttable presumption of market dominance applicable to large food retailers in Hungary. Under the amendment, a business that generates annual consolidated net turnover of more than HUF 100 billion (approximately EUR 320 million) from the retail sale of foodstuffs will automatically be considered to have a dominant position on the retail market for FMCG products. The activities carried out by large FMCG retailers will thus be monitored under the abuse of dominance rules as from 2016.
This latest amendment to the Trade Act is one of the most recent and hotly debated measures targeting the primarily large (and typically multinational) FMCG retail chains. Other recent measures include restrictions on Sunday and night opening hours for certain types of retail units; a ban on opening discount stores and large supermarkets within the vicinity of a world heritage site; and a practical freeze on the opening of new retail units in city centres (where a new opening is conditional on building car parking facility at the site). From 1 January 2015, the amendment also forces retailers (with exceptions) to cease their retail activity if in any two consecutive years they generate annual turnover of at least HUF 15 billion (approximately EUR 48 million), with at least 50% from FMCG retail sales, but nevertheless report a net loss for each of those two years.
It can be expected that these measures will be tested for their compliance with EU law, similar to Hungary’s special sectorial tax against retailers, banks, telecoms and energy companies applied in 2011 and 2012, for which the ECJ has already adopted a preliminary ruling (see the judgment in the case C-385/12 Hervis).
Regulations for food retailers
The new statutory and non-rebuttable presumption of a dominant market position for large food retailers adds a third set of rules to the pre-existing regulatory provisions applicable to retailers operating in Hungary, which are summarised below.
The Competition Act - The prohibition of the abuse of dominance in general is set out in the Hungarian Competition Act (Act 57 of 1996). Those provisions are in part similar to Article 102 TFEU. They prohibit the abuse of a dominant position in general and provide a non-exhaustive, ten-item list of typical abuses. Under the Competition Act, the concept of a dominant position is linked to an undertaking’s ability to behave independently of other market players. However, past experience has shown that the Hungarian Competition Authority (“HCA”) has not been able to prosecute retailers under the Competition Act, because no retailer could be held dominant under any given geographical market definition. This has now been addressed by the recent amendment to the Trade Act, through which the conduct of large FMCG retailers will be automatically subject to scrutiny under the abuse of dominance rules pursuant to the Competition Act.
The Trade Act - In 2005, as the first sectorial regulation applicable to the retail sector, the Hungarian Parliament adopted the Trade Act in order to enable the more effective prosecution of abuses by retailers. The Competition Act remained applicable, but was rarely applied to abuses in the retailer sector. The Trade Act introduced the concept of significant market power (“SMP”), under which a retailer generating annual consolidated net turnover of over HUF 100 billion is deemed to be an unavoidable trading partner. The Trade Act prohibits the abuse of SMP by the retailer vis-a-vis its suppliers and also lists certain specific examples of abuse, some of which are similar to the typical abuse scenarios set out in the Competition Act. Another amendment followed in 2009, when the HCA was given the authority over abuse cases also based on the Trade Act. However, despite the new regulatory background, to date there have been few investigations against retailers under the Trade Act – possibly due to suppliers’ reluctance to make complaints to the authority.
The Unfair Retailer Conduct Act - The next piece of sectorial regulation was enacted in 2009 to protect suppliers of foodstuffs and agricultural produce. The Unfair Retailer Conduct Act (Act 95 of 2009 on the prohibition of unfair retailer conduct versus agricultural produce and foodstuff suppliers) contains an extensive blacklist of specific prohibited conduct that had been commonly applied by retailers (typically large hypermarket or supermarket chains) in their dealings with food suppliers, which also includes the abusive conduct list set out in the Trade Act. In order to prevent the parallel application of the Trade Act and the Unfair Retailer Conduct Act to the same conduct, the SMP provisions of the Trade Act apply to abusive conduct relating to foodstuff suppliers only to the extent that such conduct is not prohibited by the Unfair Retailer Conduct Act. Furthermore, the Unfair Retailer Conduct Act is enforced by the National Food Chain Safety Office, not by the HCA.
Further to the recent amendment to the Trade Act, the provisions of the Competition Act prohibiting the abuse of dominant market position will become applicable to large food retailers automatically. This means that the HCA will not need to conduct a dominance investigation as a precondition for the assessment of whether the conduct is abusive.
Against the background set out above, the amendment, which increases the number of FMCG retailers that may be deemed to be in a dominant position, does not at first sight seem to be ground-breaking in terms of offering protection to suppliers, who already enjoy protection by sectorial regulations. However, the amendment may open new public and private enforcement opportunities for competitors, who will be able to report to the HCA any exclusionary conduct of large retail chains undertaken after 1 January 2016. Furthermore, the Competition Act already contains specific provisions enabling the enforcement of private antitrust claims.
To date, case law relating to the assessment of FMCG retailers’ abuses prohibited by the Competition Act is scarce: the provisions of the Competition Act prohibiting an abuse of a dominant position have rarely been applied to retailers. At the same time, the Competition Act foresees high fines for a breach: up to 10% of the undertaking’s (or the undertaking’s group of companies) annual net turnover in the business year preceding the infringement decision.
Therefore, as a result of the latest amendment to the Trade Act, large FMCG retailers will find themselves exposed to yet another set of regulations to comply with in order to mitigate the regulatory risks applicable to their businesses in Hungary.