EU & Competition

Croatia: To Fine or Not to Fine?

The Croatian Competition Agency is still reluctant to impose fines. Is one undertaking’s joy another undertaking’s sorrow?

Developments in the fining policy

The introduction of the new Competition Act in 2010 (Act) provided the Croatian Competition Agency (Agency) with long-expected tools to enforce competition rules more efficiently. The Agency was empowered to impose fines for anti-trust infringements directly without initiating misdemeanour proceedings as before. The current enforcement powers are fully harmonised with EU enforcement rules. It was therefore expected that the Agency would enthusiastically use its new powers. However, in prosecuting cartel agreements, Croatia is far from matching the track record of competition authorities of other EU member states.

History of fines

Between 2003 and 2009 total fines of ca EUR 185,000 were imposed. The Agency imposed a fine directly for the first time only in 2012, in the case of a bread producer cartel where a group of 17 small bakeries agreed on the bread price. However, in that case fines were not calculated on the basis of a standard calculation method but were merely symbolic, ranging from about EUR 70 to EUR 7,000 in order not to harm the small businesses too much. The highest final fine imposed to date was EUR 135,000 in a cartel case.

Coming to terms with the past

In its landmark decision the Agency recently imposed its first gun-jumping fine ever on an undertaking that failed to submit its notification in time, amounting to ca EUR 12,500. Only four days later the Agency rendered a further decision in another case imposing a fine of ca. EUR 2,800 in a case where the notification was due in 2006 as declared by the Agency in its final decision in 2007.

Deterrent effect

It is questionable whether such a fining track-record will sufficiently deter undertakings from engaging in anti-competitive behaviour. Thus, a series of interesting questions arises. Should insignificant violations simply be disregarded? Considering the investigations expenses, should the principle of administrative efficiency prevail over the protection of consumers? Is the reported approach of the Agency maybe a testing field for more rigorous fining practices with the consequent aim to raise awareness of undertakings in the market?

It is no surprise that until now the Agency did not report on a single leniency application submitted. Considerable cartels are maintained under utmost secrecy and cases of other member states and the EU Commission show that an undertaking applying for leniency is the best source for revealing a cartel. Although Croatian undertakings have made a great step forward in introducing and conducting compliance programmes, and thereby show sensitivity to the importance of competition law and adherence thereto, it is questionable whether fines imposed so far are strong enough to trigger a leniency application. It might be frustrating to invest significant efforts to comply with competition rules while a competitor might generate remarkable turnover by entering into prohibited agreements. Croatia is still developing its legal standards. Fighting a bread producer cartel with just a local dimension may be seen as a way to raise awareness for the relevance of competition law provisions in everyday life. It is probably a first step in helping local undertakings understand that it is good business to inform the Agency of alleged misbehaviour.

Further, one should not simply compare the amount of fines imposed by the Agency to fines imposed by the EU or other member state authorities without considering the particularities of the Croatian economy, the size of the relevant market, and the annual turnover of an average Croatian undertaking.

Outlook

It remains to be seen when the Agency will use its power to conduct a dawn raid for the first time. However, there is always a first time and the Agency is eager to meet European standards. Undertakings should be prepared and expect that previous practice does not prevent the Agency from eventually showing its teeth.

The Agency declared strengthening of its activities in the enforcement of competition law to be one of its major strategic goals to foster competition and prevent Croatian undertakings from infringing competition law.

Although the deterrent fact of fines imposed so far is questionable, it can be expected that this is only a first step in a more rigorous enforcement of competition law.