With the support of the European Commission

1

Competition and State Aid in Bosnia and Herzegovina

by Davor Vuletić, MA

With the support of the European Commission

With the support of the European Commission 2

Competition Policy in Bosnia and Herzegovina

• Of marginal priority until 2001 (Road Map for CoE)• Law on Competition, December 2001• Law on Competition, June 2005• All priorities, conclusions, strategies, time tables

and analysis made out of BiH• The goals are not those that we expect but what is

writen in Country Strategy Paper 2002-2006

With the support of the European Commission 3

Copenhagen 1993. General Criteria

• “The accesion will take place as soon as the candidate country is capable to take over all of the membership commitments by satisfying the economical and political conditions that were specified in the "General Criteria”... the capability to take over the membership commitments including the commitment to the goals of political, economical and monetary union."

• And to "be capable to deal with competition pressures within the EU market"

With the support of the European Commission 4

Madrid 1995, European Council

• “Each candidate state must adjust its administrative structures, so that the EU regulations are not just adequately transferred to the national level, but that they are also effectively implemented through the corresponding administrative and legislative structures, as a precondition of a mutual trust that EU membership demands"

With the support of the European Commission 5

European Council

• Luksemburg 1998: "European Union that Bosnia and Herzegovina is on its way towards wider integrations with Europe and European structures" and that "the European Union confirms that Bosnia and Herzegovina belongs to Europe"

• Helsinki 1999:candidate countries "must share the values and the goal of the European Union as they were listed in the Trities."

• Fiera 2000: “The integration of Western Balkan is the goal”

With the support of the European Commission 6

Findings of the European Commission 2003

• "Even though BiH has already expressed its preparedness to adapt, implement and apply the EU regulations, its capability to do so is made complicated by the division of jurisdictions between the state, entities and the cantons. In order for the Stabilization and Association Agreement to be implemented, BiH will have to provide the adequatee mechanism of cooperation and coordination between the entities in the areas that are under their jurisdictions that were not given to the state. In any case, there will be a need for a unique position towards the EU. As far as the implementation and the application are concerned, they need to be effective and consistent in all parts of BiH."

With the support of the European Commission 7

Requests od the European Commission 2003

• "Under the SAA, BiH will refrain itself from all measures that have negative influence on fair competition. What will be strictly forbidden are: (i) all agreements between companies and the agreement practice that disturb, limit and obstruct the competition; (ii) abuse of dominant position by one or more companies, (iii) each state aid that prevent or threatens to prevent the competition by favoring certain companies or certain products. BiH will make a commitment to provide transparency in the area of state (public) aid by, amongst other things, creating a useful inventory of aid schemes and by making annual reports of the entire amount and distribution of the given aid. It will also provide, upon demand, the information on specific cases."

With the support of the European Commission 8

Country Strategy Paper 2002-2006

• Competition and State Aid are “key areas” that represent “the hart” of a single market.

• "Technical support, trainings and investments will be given for the implementation of this Strategy that will include the national plan for the acceptance of Acquis, adaptation of Law, strengthening the state institutions and regulatory agencies for the application of these laws (like State Institute for Standards, BiH Competition Council, BiH Council for Consumer Protection) and raising the public awareness. The supervision and the implementation of these processes will be supported through the Ministry for European Integrations, the CTF Work Group, Supervising Groups for the internal market and public/private interceding groups. The aid will be directed towards the priority areas identified in the White Book as well as for the support to the improvements in the business environment."

With the support of the European Commission 9

Criteria for Membership and Competition Policy (Report 2004)

• "Creating single economic space is one of the most significant economical preconditions for Bosnia and Herzegovina to get closer to EU, as identified in the Feasibility Study, the Report on the Process of Stabilization and Association for 2004 and in the European Partnership. Obstacles to accessing the market are also the obstacles to the economical development of Bosnia and Herzegovina and, therefore, the legislature to enable free developments on the market is needed. Functioning of the Competition Council, of entity Offices for Competition and Consumer Protection and the Consumer Protection Council, the Agency for Public Procurements and the Body for Revision of Procurements will further contribute to the integration of the market. Further on, specific areas such as the Single Register of Businesses and Procedures of Issuing Permits and Authorizations are in close connection with this. Considerable success has been achieved in this area so far in terms of creating a legal framework, as well as of the institutional development."

With the support of the European Commission 10

Legal Framework and Sources of Law

• The framework is introduced by accepting the proces that should put BiH legislative in accordance with EU standards in Competition and State Aid SAA process and future membership

• Law on Competition BiH 2005• Law on Administrative Procedures in BiH• Law on Civile Service in BiH Institutions• Law on Conflict of Interests in the Institutions of Government

of BiH• Previously: entity laws on trade

With the support of the European Commission 11

Law on Competition BiH and EU Standards

The level of accordance • The Competition Law is fully in accordance with the Agreement on European Communities,

refined text 2002, Chapter 8, Competition Policy Articles 81 and 82 which we have already quoted as they were transferred to the Competition Law in Articles 1-15, but having in mind the fact that the Articles 7-11, that are not fully coordinated, will be coordinated with the passing of the bylaw acts. Concerning the accordance with the secondary sources of the EU rights, the foundations for the accordance were: Council Regulation (EC) number 1/2003 from December 16th, 2002 on implementation of competition regulations from the Articles 81 and 82 of the Agreement; Council Regulation (EC) number 139/2004 from January 20th, 2004, to competition control between enterprises; Commission Regulation (EC) number 802/2004 from April 7th, 2004, that implements the Council Regulation (EC) number 139/2004; Commission Regulation (EC) number 773/2004 from April 7th, 2004 that relates to the supervision over the prosess of the Commission for the implementation of the Articles 81 and 82 of the Agreement; EC Regulations number 19/65/, EC 3976/ 87 EC, 2821/71 EC, 1534/91 EC and 479/92 EC determine the group exceptions; Commission Announcements (OJ C 372 9/12/1997) define the idea of relevant market; and Commission Announcement 2001/C 368/07 that sets the content and criteria for the low value agreements.

• The parts of law that are not in accordance due to the objective reasons will become fully acorded with the passing sublaws and with the membership status of BiH in future , but taking all into the acount the level of accordance is such that we can say that it is in accordance with EU standards. (Excluding state aid)

With the support of the European Commission 12

BiH Law on Competition 2005

• “Because of that the Competition Council of Bosnia and Herzegovina that was established on May 1st, 2004 is not fully operational. The goal of passing of the new Law is functioning of the competition as a spine cord of the market economy and as the ultimate result – the improvement of the Consumer Protection."

• “Compatible with rules and regulations from the area of market competition of the European Union and that it has a unique structure which enables transparency in its implementation. The Law is easily applied in practice and it provides the Competition Council with enough space to provide protection in the area of market competition and to secure the identical approach to all legal and physical persons/subjects."

With the support of the European Commission 13

State Aid – first steps

• Strengthen the capacity of the BiH Competition Council towards the implementation of State Aid system;

• Design and set up the State Aid monitoring system;• Develop and strengthen the authority for overseeing the

State Aid;• Initiate a process of developing a comprehensive

inventory of State Aid schemes;• Train targeted groups;• Raise awareness about State Aid and Competition.

With the support of the European Commission 14

Current structure of CC BiH

BiH Competition Council(six appointed members

with the status of administrative Judges)

Office for Competition in the RS (three employees with university education

reqirements)

Expert Service of the BiH CC (six employees with university and two

with high school education reqirements)

Office for Competition in the Federation BiH

(three employees with university education

requirements)

With the support of the European Commission 15

Budget

Inst./ year 2004 2005 2006EU 60.000. eur New EC Project

BiH 201.700 eur(453.400 asked)

394.330 eur ?

Amount specified

60.000. eur for equipment

201.700 eur forregular expendidtures

369.330 eur for regulare expendidtures10.000 eur for equipment15.000 eur for Competition advocacy

Support to Competition Council in Law and Sublaws creation and State Aid Control

With the support of the European Commission 16

Competencies of Competition Council

pass bylaw acts based on regulations of this law and other bylaw acts necessary for its implementation;

prescribes definitions and budget methods for certain areas such as banks, insurance etc...;

prescribes and offers explanations of general and special definitions of competition terms, as well as budget methods for key competition terms;

decides upon demands for conducting the procedure and leading the procedure; sets administrative acts that end the procedure before the Competition Council; gives opinions and recommendations on all aspects of competition by an official

duty or upon a demand of the state organ, business subject or community; passes internal acts on internal organization of the Competition Council apart

from the Rule Book of Regulations concerning the internal organization and systemizing that is passed along with the approval of the BiH Council of Ministers;

gives initiative for changes and supplements of the Competition Law; suggests the BiH Council of Ministers the decision concerning the amount of the

administrative taxes which is related to the process actions before the Competition Council

With the support of the European Commission 17

Experiences and suggestions

• There are subjective and objective obstacles in implementation of BiH Competition Law.

• In analysis of best solutions we followed the experiences from competition regulator organization frim Slovenia, Croatia, Serbia and Montenegro, United Kingdom, Belgium and Switzerland

• Proposed models suggest such organization that is able to alowe more functionality and efectivnes in protection of competition and regulation of state aid.

With the support of the European Commission 18

Proposal of a Single Regulator Without Territorial Branches

BiH Competition

Council(six to nine appointed

members with staus of

administra-tive judges)

Sector for Merges

(three employees:

one manager and two

assistants)

Sector for International

Relations

(three employees:

one manager and two

assistants)

Sector for Abuse of Dominant Position(three

employees one manager

and two assistants)

Sector for Agreements

(three employees

one manager and two

assistants)

Sector for Support(seven

employees: one manager, three assist.,

and three technical staff

members

Sector for Strategic

Planning and Human

Resources(one

manager and one assitant)

Department for Public Relations,

Informationa System and Promotion of Competition

Policy

Department of Finances

and Logistics

Department for

Coordination with Other Institutions.

Department for Bilateral

and Multilateral cooperation and the EU

Law

Department for Programs

and Technical Support

Sector for State Aid

(one menager and six

employees)

Department for Review of State Aids(Head of

Department and two

assistants)

Department for the System of

State Aid(Head of

Department and two

assistants)

With the support of the European Commission 19

Proposal of a Single Regulator With Territorial Branches

BiH Competition Council (5-6 appointed members

with the staus of administrative judges)

CC member in charge of the Sector for Merges,

Agreements and Abuse of Dominant Position

CC member in charge of the Sector for Strategic Planning,

International Cooperation and Programs of Technical

Support

Chairman of the Competition Council (or Vice Chairmen in option

with six members)

CC member in charge of the

Sector for Support

CC member in charge of the coordination of the the five regional

Offices

Common Service Sector for Merges, Agreements and

Abuse of Dominant Position(three employees, case

managers)

Common ServiceSector for Strategic Planning,

International Cooperation and Programs of Technical

Support (3 employees)

Common ServiceSector for Support

(three employees and two technical straff

members)

Regional Office for Competition for the

North-West Economy Region

( three employees)

Regional Office for Competition for the

North-East Economy Region

( three employees)

Regional Office for Competition for the

Central Economy Region( three employees)

Regional Office for Competition for the Sarajevo Economy

Region( three employees)

Regional Office for Competition for the

Herzegovina Economy Region

( three employees)

Common ServiceSector for State Aid

(Head of Sector, in case that there is no vice-

president or sixth member)

Department for Review of State Aids

(Head of department and two assistants)

Department for the System of State Aid(Head of department and two assistants)

With the support of the European Commission 20

Five Economic Regions

With the support of the European Commission 21

Conclusion

• The structure and organization of BiH Competition Council fits currently projected goals set in Country Strategy Paper 2002-2006 but not the needs of BiH economy

• BiH needs a vision on Competition and State Aid Policy in future and a strategy how to fulfil that vision. BiH needs to know what we want to acheive in creation of Single Economic Space for period 2006-2010 and what kond of a regulator do we need.

• EU has a vision and a strategy set in Lisbon Agenda that wants to implement by proactive aproach while BiH have conditions set in EU Standards, which we know we have to implement so future could bring some economic progress by defoult. The consequence is reactive model of implementing transition reforms, without understanding what have to be done in order to survive in a globalized world.