Economic Competition Authority to be given unprecedented powers under a new draft law

In mid-March, almost unnoticed, the Ministry of Justice submitted for public consultation a draft salad bill that would bring sweeping changes to the regulation of economic competition. According to the draft, the Act on the Prohibition of Unfair Market Behaviour and Restriction of Competition (Act LVII of 1996) would undergo significant amendments: it would define the concept of restrictive agreements, extend the powers of competition supervisors and provide new tools to deal with market disturbances.

One of the most important changes is that any agreement or concerted practice that restricts, restricts or distorts competition, including the fixing of purchase or selling prices and the direct or indirect manipulation of other trading conditions, is now prohibited. The amendment emphasises that only agreements between independent enterprises would be covered by the Act. For jointly controlled companies, it would only apply to the markets in which they operate.

Particular attention will be given to companies of essential importance, where the GVH will be given more extensive powers to control and impose sanctions.

Under the draft, the Competition Authority may determine in a competition procedure that an undertaking is of cross-market significance for competition and consumers ("company of essential importance").

In order to determine whether a company is of essential importance, it is necessary to examine in particular

• the firm's market share,
• the firm's financial strength or access to other resources,
• the firm's vertical integration or its activities in otherwise related markets,
• the firm's access to competitively relevant information,
• the essential importance for consumers or the economy of the services it provides or the goods it produces or distributes, and
• any activities of the firm that are relevant for third parties or consumers to gain access to supply and sales markets, whereby it can influence the business activities of third parties.

The results of the sector inquiry and the expedited sector inquiry will be reported by the GVH. In the case of an expedited sector inquiry, the report must be drawn up within a reasonable time, according to the text of the standard. Normally, the GVH must publish its report within eighteen months of the opening of the procedure, but the deadline may be extended once by six months. The GVH would publish on its website a non-classified version of the documents containing the substantive comments of undertakings in the sector on the content of the report.

In addition, the new law gives the GVH the power to take action in cases where the competition enforcement procedures are not sufficient to deal with market disturbances. In such cases, the Authority will inform the competent committee of the Parliament or the minister or authority responsible.

It may also issue a non-binding public recommendation to market participants on best practices, including recommended market conduct, to maintain and promote fair and effective competition, to provide adequate information to business customers, or, if necessary, to initiate the creation or amendment of legislation with the body entitled to do so.

Importantly, it may only do so if a significant and continuous distortion or restriction of competition has been identified, with the proviso that this situation must have existed continuously for at least three years prior to the opening of the sector inquiry or must have occurred repeatedly during that period.

The draft also provides powers to take interim measures, to open competition proceedings based on the results of sector inquiries, and to take special measures for undertakings of vital importance, and

this is where the competition authority is given very significant competences.

If a company of essential importance is unable to carry out its activities, or if security of supply is threatened, the GVH could oblige:

• the owners of the company concerned to sell all or part of their shareholding in the company;
• the company to transfer its assets for operation at a cost-based fee;
• the company to replace or appoint members of the management body;
• the company to suspend or transfer voting rights to other owners;
• the company to convene a board meeting and take certain decisions.

According to the text, the measures are aimed at reducing market dominance and promoting competition between economic operators. However, this could also mean that

the state could take control, even if only temporarily, of important companies, even deciding to sell them in whole or in part.

The deadline for public consultation expired on 22 March, the version that will be presented to Parliament is not yet fully known, and can be amended by committees and MPs during the debates.

Cover photo: The sign of the Economic Competition Authority on the building in the 5th district of the capital, in Alkotmány street. The Economic Competition Authority (GVH) is the autonomous public administration body in Hungary that guards the fairness of market competition. Source: MTI Photo/László Róka