Competition law changes aimed at improving relations between retail chains and suppliers have been passed by Parliament on a first hearing.

Although the amendments, which will become binding law if adopted at second hearing, are designed to increase protection for producers and consumers, they could achieve the opposite by adversely affecting international retail chains.

Significant market power

The key change is the introduction (as Art. 20a, Protection of Competition Act (PCA) of the new concept of abuse of ‘significant market power’, also called ‘significant bargaining power’. This applies to any undertaking which does not possess dominant position but, given its market share, financial resources, opportunities to access the market, level of technology and economic relations with other undertakings, has the ability to distort competition in the relevant market because its suppliers and consumers depend on it. 

Specific criteria for assessing the occupation of ‘significant market power’ position by an undertaking,  will be produced by the Commission for Protection of Competition (CPC).  Forms of abuse of ‘significant market power’ and the penalties therefor will mirror those for abuse of a dominant market position.

New powers for the CPC to monitor the general terms of retail chains

The CPC will also monitor retail chains for anti-competitive clauses in their general terms of business (or in any proposed changes). This will apply to all undertakings with an aggregate annual turnover for the past year exceeding BGN 50 million (c. €25 million), most of which are international retail chains.

The CPC will have power to require any clause that infringes competition law to be amended. The businesses affected would have to submit their standard terms to the CPC for assessment and, once approved, not only use them in their business but publish them on their websites. 

Foods Act changes

The same category of undertakings will also (under a new Art. 19, Foods Act) be required to use written contracts for the periodic delivery of food to stores that not only follow their CPC-approved general terms but also comply with the rules of good faith commercial practice. Under the Foods Act, there are a number of restrictions on content of these contracts:

  • a separate contract is required to deal with any services provided by the purchaser to the supplier, whether related to the subject of the main contract or not;
  • the supplier must not be restricted or prevented from offering the same goods to other purchasers;
  • the purchaser cannot refuse or restrict the sale of any branded products in the same category as the purchaser’s own brand;
  • there must be no fees or services contravening good faith commercial practice;
  • there must be no restrictions (or sanctions imposed) on the supplier offering the same or better commercial terms to third parties.

Background

It is widely known that foreign-owned retail chains are the main target of these changes to the PCA. Draft legislation to curb abuse of significant market power was first produced in 2011-2012. These did not reach Parliament until 2014 when they were approved but vetoed by the President. It is uncertain whether this third attempt to change the PCA will be approved by Parliament at a second hearing and, if so, whether the President will refrain from exercising his veto this time.

Bulgaria is following the example of other EU member-states in adopting specific curbs on the abuse of economic dependence or superior bargaining power (other countries include France, Germany, Italy, Portugal, Spain, Ireland and Slovakia).

However, the amendments could potentially both disrupt the market and have an adverse impact on retailers’ operations. Opponents say that the definition of ‘significant market power’ is unclear (as the CPC has yet to develop its specific assessment criteria), the requirement for general terms to be approved by the CPC does not comply with EU law and is discriminatory (because it affects only undertakings with turnover above the threshold); and that the sanctions are excessive (as for abuse of a dominant market position, they impose a fine of up to 10% of the infringer’s aggregate annual turnover in Bulgaria in the previous financial year).

Law: Bill for Amendment and Supplementation of the Protection of Competition Act (ref. № 454-01-36, dated 16 November 2014); Protection of Competition Act, published in State Gazette, issue No. 102, dated 28 November 2008, as amended; Foods Act, published in State Gazette, issue No. 90, dated 15 October 1999, as amended