Adaption of Polish Competition Law to the Acquis Communautaire of the EU

Introduction

The changes in Poland in 1989 opened a new chapter of the history of Poland and the European Community (res. Union). The eastern enlargement of the Union became a major task for both parties. The political and economic progress that is necessary to prepare Poland for full membership is interconnected with changes in the legal system. The legal and the economic framework are interconnected, since political institutions and actors change the legal framework and the law influences the political institutions and procedures. Also a functioning free market economy needs a smooth working legal basis.

In this paper the alteration of the legal framework towards the standard of the European Union in the field of competition law is discussed. To give basic understanding for the importance of this area a brief introduction to the role of competition for a functioning market economy is given. In the second and third part the Polish anti-monopoly law and the anti-monopoly institutions are introduced. In the following part the competition legislation of the European Union is explained. The part five gives a picture of the present state of how far this is adapted in Polish legislation and adjudicative life. To keep the scope of this paper narrow, state-aid control (subsidies, special economic zones) and consumer protection, which are part of the Polish anti-monopoly law and tasks of the anti-monopoly institutions will not be discussed.

The role of competition

In a functioning free market economy competition plays a crucial role. Competition is the process, in which the actors on the market, on the supply as well as on the demand side, pursue their own interests. The sellers try to surpass their competitors in terms of price, product quality and other dimensions with impact upon the purchasing decisions of the customers. Competition is the motor for improving the quality of products at lowest feasible prices and it also allows a sufficient supply of products for customers. In research it is also widely agreed with, that companies which face strong domestic competition are also more competitive in global context. Beside its economic dimension competition plays a political role as well. Competition creates devolution of power and allows equal entrance for all people to engage in business. The role of the state should be to allow free access to the market and to counteract against the creation of monopolies and to establish, protect and encouraging the mechanism of efficient competition. This is done by creating a legal framework of anti-trust laws and the installation of institutions enacting these legal regulations.¹

Polish Antimonopoly Law

The changes in Poland following the events in spring and summer 1989 were of political as well as economic nature. The change from "socialist democracy" to democracy and rule of law were followed by the transformation from a central planned economy to a free market economy. The economic structure inherited from the previous system was not build on the rules of competition it was characterised by over-concentration of production, monopolies in different segments of market, the predominant ownership of state and an high autarchy of the market. This situation had to be overcome to create a functioning market economy.² This goal was manifested in the Constitution of the Republic of Poland in the "Freedom of entrepreneurship" and "guarantee of ownership".³

In 1990 the Act on Counteracting Monopolistic Practices (the "Act") was issued. In Article 1 is expressed that this law's goals are "to promote competition, to protect economic entities exposed to monopolistic practices and to protect consumers' interests". The Act is directed against three main anti-competitive strategies of market entities (Article 2 (1)) and their associations (Article 2 (2)):

- agreements among entities or their associations to restrict competition (Article 4)
- the abuse of monopolistic or dominant position (Articles 5 and 7)
- creation of monopolistic or dominant position by excessive concentration (Articles 11-11e).

The regulations of the Act are based on the principle of prohibition (Article 6) in the case of strong market position or the principle of control (Article 11-11e) in the case of mergers.⁴

Office for Protection of Competition and Consumers (UOKK) and Antimonopoly Court

The act institutes the Antimonopoly Office (Article 19 (1)) (the "Office"), determines its responsibilities and powers in respect of counteracting monopolistic practices and to protect competition. The Office can investigate in cases of abuse of monopolistic positions and if these practice has been found the chairman can issue a decision to abandon these practices and may apply sanctions against these entities. Also mergers have to be indicated to the chairman.⁵ The chairman can allow these mergers, can set conditions under which this can happen or even forbid these undertakings. Decisions of the Office can be appealed against the Antimonopoly Court (the "Court"). In 1996 the Office was renamed and given a wider scope of competence as Office for Protection of Competition and Consumers (UOKK) (Urz ¹ d Ochrony Konkurencji i Konsumentów) ⁶

A separate part of the law is dedicated to the specific Polish (better post-communist) problem of privatisation and state-ownership. As in the case of mergers the Chairman of the UOKK is required to be notified of an intention to transform companies or State owned enterprises into a sole ownership of State Treasury. The same rules apply to the transformation of municipal enterprises into companies with sole ownership of the municipality (gmina). The intention is to prevent the state's dominant position economy is maintained and abused for making profit.⁷ Taking into consideration the legal aspect of competition protection does not only consist of the antimonopoly act draws attention to the legal out-put of the UOKK and the Court. The UOKK is very active and conducted numerous proceedings in cases concerning monopolistic practices. The enforcement of the law covered mostly areas were companies abused their position given by a natural monopoly. The most significant cases are in the areas of energy suppliers, the telecommunication sector (Telekomunikacja Polska SA), cable TV networks and the Public Road Transport Enterprises (PKS). These companies used their position to make unfair contracts with sub-contractor (e.g. installation companies) or set higher prises The most numerous group were municipal enterprises and companies in the area of water and sewage management. Further cases of abuse were found in the areas of agriculture and the steelworks.⁸

These cases illustrate the difficult (and different to EU countries) position of the UOKK. The institution major task is to support the de-monopolisation policy of the government (Article 12). This means that the Office as a state agency had to act mostly against state owned market entities. The many of these cases belong also to the so-called strategic (like telecommunication or energy supply) branches or to those which undergo severe economic crisis (agriculture and steelwork) This led to a highly politicised position of the chairman of the Office and endanger its independent position.

In the area of merger control the activities of the Office were limited to observe the market. In 1998 no intended was merger forbidden. In the area of banking and insurance the abstention of sanctions is seen a very critical.⁹ Concerning merger control problems arose with the interpretation of the current law. In several cases the Office decided companies did not follow the obligation to notify mergers, whereas the Court judged it was not necessary in these cases due to the small volume of mergers. This leads to uncertainty of investors especially foreign and can be seen as an additional obstacle for investments in Poland.¹⁰

Europe Agreement and Acquis Communautaire

Poland singed in 1991 an association agreement with the European Community and its member states, the so-called "Europe Agreement". In Article 68 and 69 of this agreement is stated that Poland is required to harmonise its existing and future legislation concerning the common market with European Community law within a period of ten years after the treaty coming to force (1994).¹¹ In the Copenhagen Summit 1993 the European Council stated that for an EU membership the adoption of the entire EU legislation is necessary. The whole legal output of the EU and its institutions is known as the "acquis communitaire" which can be translated as "common patrimony" into English.

"The `acquis communautaire' comprises the entire body of legislation of the European Community which has accumulated, and been revised, over the last 40 years. It includes the founding Treaty of Rome as revised by the Maastricht and Amsterdam Treaties, the Regulations and Directives passed by the Council of Ministers and the judgements of the European Court of Justice." Further more the candidate countries must ensure that the law is properly implemented and enforced. This may need changes in the administrative and judiciary structures.¹²

Two general concepts of adaptation of law are known: approximation and harmonisation, which do not exclude each other. Approximation refers to adaptation of another law in wording one by one. Harmonisation takes the national legal tradition and circumstances into account and allows a more flexible adaptation of the "acquis". In this case a interpretation of the legal text in the meaning of the "aquis" is necessary. In no case this should endanger the convergence of Polish legislation with the Union's legislation.¹³

In April 1994 the Republic of Poland applied for EU membership and expressed its will to undertake these legal changes. As a guideline for the adaptation of EU regulations in the field of the First Pillar (internal market) the Commission issued the White Paper.¹⁴ In Article 85 (counteracting collective monopolistic practices) and 86 (counteracting individual monopolistic practices) of the Treaty of Rome (with later amendments) and the regulation 4064/89 (concentration of companies) the principles of the Union's competition policy are laid down.¹⁵

In 1996 the Polish Sejm has approved the National Strategy for Integration, a programme on which the efforts are laid down to be undertaken for an EU membership. The strategy covers preparing the central administration, changing the legal, economic and institutional sphere as well as the preparation the whole society. In this paper the necessity of a fair competition is respected and agreed to bring the Polish regulation in line with the EU regulations.¹⁶

Present situation of adaptation of the "acquis" To evaluate of the present status of adaptation of the "acquis" in the field of competition policy two papers are essential. These are the report about status of negotiations of the Polish government's Committee for European Integration (UKIE) and the annual report of the European Commission on Poland's progress towards accession from 1999. Further more it is necessary to understand the specific Polish problems in the case of implementation of the "acquis" in the administration and the judicial procedures.

In Poland's accession negotiations with the European Union and its member countries began in March1998 in Brussels. Poland submitted to start negotiations over the Chapter 6 (competition policy) in January 1999 and the negotiations were opened in May 1999 and had not finished yet. This chapter contains two separate topics. For this paper only topic 1 "Competition rules applicable to undertakings (anti-trust)" is relevant.¹⁷ The Polish law is in almost full compliance with the Union's legislation in this area.

Poland has achieved a reasonable level of alignment in the field of antitrust and mergers. Amendments to the Law on Counteracting Monopolistic Practices have entered into force in January 1999 and have improved the situation. Further alignment in particular regarding block exemptions of merger control remains to be completed. Further progress would be required in the alignment of rules regarding state monopolies in the energy sector and the exclusive rights for international telecommunications services. Also the regulations concerning franchise contracts have to be revised, because the Polish Act is in this case stricter than the EU regulations.¹⁸

The harmonisation of law does not only mean to change the legal instruments by exchanging old text by new text. It also needs an adaptation of the legal practice (or "legal life") to the Union's standards. In many papers in this area it is stated that the major obstacle for the Polish adjudicative system are the adaptation of the "soft" factors of the legal system in general and also in the case of the anti-monopoly law. It is important to improve the realisation of legal norms in the individual case or in other words a more "European" interpretation of law. This depends very much on the skills and knowledge of the persons in charge about the EU case law. This problem is strongly connected with the administrative ability to implement the new legal norms..¹⁹

Administrative capability to apply the "aquis"

In the Madrid European Council in 1995 the necessity was emphasised that the candidate countries are able adapt their administrative and judicial structure in such a way that the harmonious implementation of the Union's policies is guaranteed. In the Commission's report it is stated that the institutional side has to be strengthened and compared to Union's competition authorities the UOKK and the Court lack of competence and power to enforce their decisions. Further it is suggested to separate the investigation function from the decision function as it is already practised in several applicant and member countries.²⁰ During 1998 the Office had to handle 320 cases of which it was able to complete by way of administrative decision 219, the others were going to be completed in the following year. Because the number of merger control proceedings has grown rapidly more than 60 % of all case handlers are now engaged in merger control. Therefore more qualified staff is needed in the anti-trust area (including mergers). The number of cases as well as the activities undertaken and foreseen for the Office indicate that without reinforcing the administrative capacity and increasing the OCCP budget, the implementation of very important legislation will continue to face serious problems. To ensure that competition policy and competition rules are being fully enforced, it would be opportune to raise awareness and expertise at different levels in politics and administration in Poland. Without these increased resources the capability of the OCCP to fulfil its increased functions will be compromised..²¹ In Article 70 of the accession treaty of Poland with the European Community financial support to overcome the main problems in administration is guaranteed. The Phare programme is the main instrument providing financial assistance to support Poland's pre- accession strategy. 30% of 230 million Euro help is used for institution building and improvement of the administrations functioning. A main Phare financed programme for the Office and the Court is to make European case law in the field of anti-monopoly law available in Polish. Additional to the financial aid the Union's member countries support Poland with expertise in the twinning programme a the long-term secondment of civil servants of EU member countries.²²

Conclusion

Finally it can be said that the adaptation of Polish competition law (in the narrow sense as described above) is not a problematic area in the undertaking to meet the legal requirements of EU membership. On the other side it can be seen that this area suffers from the same symptoms as the more delicate chapters. It is not enough just to substitute Polish legislative texts by EU regulations. Much more it is necessary to implement a new legal thinking into Polish adjudicative life. This is only possible if further investments into competence and knowledge of civil servants and judges will be undertaken.

It is also necessary to increase the awareness among the legislators and the government, that strict enacting of competition law is necessary for the Polish economy especially in the area of state owned companies. These measures may have negative short-term effects on the already limited state budget and employment, but on the long term this will be advantageous for the Polish economy. Therefore it can be stated that the success of this undertaking depends much more political will than the adjudicative system.

Bibliography

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[...]

¹ See Marek Stefaniuk; Polish antimonopoly law. Recent developments and future perspectives; EU adjustment to eastern enlargement Polish and European Perspective; 1998; Gdansk, p. 119 - 120

² See ibid., p. 120

³ See article 1, 6, 7 of The Constitution of the Republic of Poland ; 29.December 1989; Warszawa

⁴ See M. Stefaniuk; p. 121-122 and Tadeusz Skoczny; Harmonising polish antimonopoly law with EC competition rules; Yearbook of Polish European studies; 1/1997; Warszawa, p. 92

⁵ Mergers in the meaning of acquisition of an organised part of assets of an economic entitiy do not have to be indicated under a sum of 5 million Euro and other types of merger under 25 million Euro. See Agnieszka Stefanowicz-Baranska; Amendment of merger control provisions in Polish antimonoply law; Online publication of Salans Hertzfeld & Heilbronn (http://www.wonet.com.pl/outlook/amendment.html); 12/14/1999, p. 1

⁶ see M. Stefaniuk, p. 122 - 123 and T. Skonczny p. 92-93

⁷ see Stefianuk, p. 123

⁸ see Urzad Ochrony Konkurencij i Konsumentów; Annual Report on th eactivities of The Office for Competition and Consumer Protection in Poland in 1999; 2000; Warszawa, p. 1-4

⁹ Ewa Miklaszewska, lecture: "Global Trends and Development of Polish Banking and

Capital Market" at the Centre for European Studies, Unwersytet Jagiellonski, Kraów in spring semester 2000

¹⁰ see Agnieszka Stefanowicz-Baranska, p. 4

¹¹ see Francesca Veneziano; The feasibility of harmonisation: Poland in an enlarged Europe; EU adjustment to eastern enlargement Polish and European Perspective; 1998; Gdansk, p. 100

¹² from European Comission; The 'Acquis Communautaire' ;

http://www.europa.eu.int/comm/enlargement/pas/phare/wip/acquis.htm and see also Tamara Capeta; Judical acquis communautaire; EU adjustment to eastern enlargement Polish and European Perspective; 1998; Gdansk, p. 82

¹³ see Zbigniew Czubinski; Prawne implikacje ukladu o stowarzyszeniu polski z unia

europejska w zakresie wymiaru sprawiedliwosci i spraw wewnetrznych; Wspólpraca

europejska w zakresie wybranych aspektów wymiaru sprawiedliwosci ...; p. 4 and Stefianuk,

p. 125

¹⁴ see T. Capeta

¹⁵ Article 81 (ex Article 85) and Article 82 (ex Article 86) of the consilitdated version of the treaty establishing the European Community (http://www.europa.eu.int/eur-lex/en/treaties )

¹⁶ see Danuta Hübner; On "National Strategy for Integration"; Yearbook of Polish European studies; 1/1997; Warszawa, p. 177- 179 and UKIE (Comitee for European Integration) ; National strategy for integration; Yearbook of Polish European studies; 1/1997; Warszawa, p. 203 - 204

¹⁷ UKIE (2) (Comitee for European Integration) ; Area: Competition policy, A summary of the negotiation position; http://www.ukie.gov.pl; ; Warszawa, p 1 - 3

¹⁸ European Commission; 1999 regular report from the Commission on Poland's progress towards accession; 1999, Brussels, p. 28

¹⁹ Ewa Letowska; The barriers of Polish legal thinking in the perspective of European integration ; Yearbook of Polish European studies; 1/1997; Warszawa, p. 55 - 59

²⁰ see UKIE (2) p. 1 and Skoczny p. 101 and European Commission, p.4

²¹ see the European Comission, p. 58

²² see ibid, p. 12 - 13