Competition Law: Impact of COVID-19 and how do competition norms continue to apply

Raluca Vasilache
Raluca Vasilache
Andreea Oprișan
Andreea Oprișan

Competition norms are not suspended during the fight with COVID-19. No crisis may allow cartels or the violation of other antitrust regulations. As such, even during a state of emergency, the Romanian Competition Council is expected to be highly vigilant and impose sanctions in case of breach of the competition law.

While the authority agrees that companies may adopt measures to survive the COVID-19 crisis (e.g. work from home, limitation of open hours, limitation of volume of deliveries, on- line market-places that may apply certain limitations in case suppliers increase prices to unjustified levels), their actions should not restrict competition1.

Commercial decisions must be taken independently by each company.

1. What are the potential red flags?

It is important for the companies to avoid:

i. Discussions or agreements with competitors (either directly or through associations):
– On pricing/elements of the commercial policy (e.g. set fix or minimum prices or agree to increase prices), business strategies, internal decisions as a response to COVID-19 threats;
– Sharing markets (activity sectors or geographic areas), customers, restrict parallel trade activity;
– Sharing commercially sensitive information within forums aiming at lobbying the Government to adopt certain support measures (e.g. sharing individual data, presenting a common model of expenses/losses based on individual figures)
– Limit competition on the market (e.g. companies may not induce other companies to exit the market, agree to limit production or capacity);
– Boycott activities, selection procedures;
– Engage into bid-rigging.

ii. Coordinating on prices through price algorithms.

iii. On-line market-places might suspend suspicious transactions, but should not impose resale prices/resale behaviour.

iv. In a supplier-reseller relation there should be no restriction on resale prices and/or on resale markets or parallel trade.

v. If a company is dominant (i.e. has a market share above 40%) on a certain market, it should not (non-exhaustive list):
– Apply excessive prices. Price increases should be justified by objective grounds (e.g. increase in production costs);
– Sell below cost in order to exclude competitors from the market;
– Impose package deals;
– Refuse to supply (in case of essential facilities);
– Impose exclusivities;
– Implement measures (e.g. rebates, contractual obligations) aimed at inducing loyalty to certain business partners in order to exclude competitors from the market.

vi. Engaging into unlawful competition practices (e.g. by denigrating a competitor).

2. May the State authorities limit commercial freedom?

Although the golden rule is that prices and tariffs should be determined as a result of the market demand and offer, Competition Law allows the State to intervene by:

– Limiting/controlling prices if competition is excluded or substantially limited by law or due to a monopoly position. The measure may be applied for maximum 3 years and may be extended for new periods of 1 year if the circumstances still apply.

– For certain economic sectors and under exceptional circumstances (such as crisis, heavy imbalance between demand and offer, market dysfunctionality), the Government may limit or freeze prices in the fight against an excessive increase. Measures may be applied for a period of 6 months, which may be extended by new periods of maximum 3 months as long as the circumstances triggering the measure still apply.

In the past, the Government applied measures restricting exports of certain medicines (list of medicines for which an export ban applied) that were not available/sufficiently available at national level. Such measures appear to have been taken pursuant to discussions with the Competition Council and validated by the European Commission under the Treaty on the Functioning of the European Union. The key factor in such type of measures is proportionality.

In the current fight against COVID-19, the Presidential Decree instituting the national state of emergency provides that, at any point during the national emergency period and if such measures appear to be necessary, the State might intervene and limit or freeze the prices for medicines, medical equipment, essential food supplies, utility services (energy water, sanitation, fuel etc.) at the level of the average market price within the last 3 months before the national emergency was established.

Therefore, as long as it is proportional, such exceptional measure would be compatible with Competition law and the provisions on free movement of goods in the Treaty on the Functioning of the European Union.

Other measures with potential economic impact that may be justified in the current fight against COVID-19 are
– The State may requisition production facilities and equipment
– Direct acquisition may be allowed in circumstances where such would otherwise only be performed through tenders
– Certain economic activities might be closed.

3. How could the State compensate for the exceptional, but also economically detrimental measures in the fight against COVID-19?

Two words: State aid.

This may take various forms from direct payments/grants to tax delays or relief, suspension of penalties, state guarantees, rescue and restructuring aid for one or more companies or business sector etc.

A State aid measure granted by a Member State should be authorised by the European Commission or fall within a framework that was previously communicated by the Commission (block-exemption). This may raise some procedural issues, but the Commission, as well as the Romanian Competition Council (the authority liaising with the Commission in state aid topics) proved in the past to act rapidly in case of crisis.

As an exception, general measures (e.g. a tax reduction, delay or relief) applicable across- the-board for all economic sectors, would not require the prior approval of the Commission (by express authorisation or based on a block exemption). Also, a de minimis support of up to EUR 200,000 during the last 3 financial years would not require prior authorisation.

Financial support from EU or national funds granted to health services or other public services to tackle the COVID-19 situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens.

State aid to remedy the damage caused by natural disasters or exceptional occurrences may be authorised by the Commission under Article 107(2)(b) of the Treaty on the Functioning of the European Union. COVID-19 qualifies under this circumstance.

The European body recently approved, within 24 hours, a EUR 12 million State aid scheme notified by the Danish Government and aimed to compensate organisers for the damage suffered due to the cancellation of large events with more than 1,000 participants due to the COVID-19 outbreak.

The Romanian state already initiated State aid-related support measures. Thus, during the national emergency period the beneficiaries of EU funds affected by the emergency measures may decide jointly with the management authorities to suspend the financing agreements concluded.

Other measures may be expected in the near future. Communications from the Government, in particular the Ministry of Finance, on this topic are essential in the next period.

Raluca Vasilache, Partner ȚUCA ZBÂRCEA & ASOCIAȚII
Andreea Oprișan, Managing Associate ȚUCA ZBÂRCEA & ASOCIAȚII

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