Joint Ventures and Protection of Competition in Bulgaria

One of the most important global trends in industrial organization over the past three decades has been the unprecedented growth in the number of strategic alliances. By popularity of the different types of strategic alliances joint ventures are among the leading places – for example in the SDC Platinum Joint Ventures/Alliances Database of Thomson Reuters Financial Securities Data they constitute 43.5% of the covered 60,446 strategic alliances involving large enterprises in 179 countries for the 1990-2000 period (Moskalev & Swensen, 2006: 11). The main reason for the popularity of the joint ventures is related to the following basic advantages, which the partners achieve from their participation in this type of strategic alliance: combinations of product and market expansions – similar products/similar markets, similar products/new markets, new products/similar markets, new products/new markets (Koh & Venkatraman, 1991: 873-874); access to complementary resources, which the individual firm does not possess and which allow to avoid their duplication (e.g. Muñoz Martín & Montoro Sánchez, 2007: 157); cost sharing (e.g. Ohmae, 1989: 146-147); economies of scale (e.g. Gugler, 1992: 91); risk reduction (e.g. Porter & Fuller, [1986] 1988: 107); vertical quasi-integration (e.g. Contractor, 1986: 78); obtaining the right to an intellectual property or territory (Contractor, 2005: 123); use of subsidies (especially for R & D) (Barba Navaretti et al., 2002: 1564; Hagedoorn et al., 2000: 580-582); use of idle, or under-utilized equipment (Auster, 1987: 4); in the case of the international joint ventures – faster entry to foreign markets profiting thus by “first-mover” advantages (e.g. Glaister et al., 2005: 45-46); overcoming of trade and foreign investment restrictions on certain foreign markets (e.g. Klein & Zif, 1992: 62); passive internationalization for the partners from the country in which the activities of the international joint venture take place (García Canal et al., 1997: 3); initial international expansion for small and medium-sized enterprises (e.g. Kirby & Kaiser, 2003: 230). Besides advantages, however, joint ventures have disadvantages, some of the most important of which are behavioral and structural infringements of competition that could arise from the establishment and the activity of this type of strategic alliance. (Behavioral infringements of competition – agreements, decisions or concerted practices of two or more undertakings which have as their object or effect the creation of obstacles to the free implementation of an economic activity of their competitors; structural infringements of competition – concentrations between undertakings.) It is precisely the purpose of the present study to provide an answer to the unresolved question since the turning 1989 whether joint ventures commit behavioral and structural infringements of competition in Bulgaria. For the achievement of the purpose of the study the following main tasks are set to solve: (1) overview of the joint ventures’ regulatory norms of the supranational competition law of the European Union (EU) as a source of Bulgarian competition law in relation to joint ventures; (2) conformity assessment of the legal framework of joint ventures in the three laws on protection of competition successively passed in Bulgaria in 1991, 1998 and 2008 with the legal regulation of the joint ventures in the EU competition law; (3) identification of the decisions of the Bulgarian Commission for Protection of Competition (CPC) associated with joint ventures, which in turn determines the implementation of a documentary analysis of all publicly available CPC’s decisions relating to the presence or the lack of behavioral and structural infringements of competition in its yearbooks, annual reports and website for a sufficiently long period that has been fixed here at 20 years, or this is the period from the creation of the CPC in 1991 to 2010 inclusive. The methodology of the empirical study that follows after the fulfillment of these tasks, which is based in its main part on the study of Carree et al. (2009), includes distributions of the CPC’s decisions relating to the presence or the lack of behavioral and structural infringements of competition on the part of joint ventures by the following variables: year in which the CPC’s decision is promulgated; grounds for initiating proceedings before the CPC; domestic or international variety of the joint ventures in the CPC’s decisions; industries of the joint ventures; pecuniary sanctions imposed by the CPC to the joint ventures. It should be noted that the present study is the first of its kind in Bulgaria. The starting point in the summary of the results of the legal part of the study is the ascertainment that currently the EU competition law distinguishes between full-function and non-full-function joint ventures, the first covered by Regulation 139/2004 (the EC Merger Regulation), and the latter regulated by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). While Regulation 139/2004 concerns structural infringements of competition stemming from the change in the market structure through concentration of economic activity, Articles 101 and 102 TFEU refer to behavioral infringements of competition resulting from the coordination of the competitive behavior of undertakings and the abuse of a dominant position. On the other hand, competition law in post-communist history of Bulgaria evolves through successively adopting three laws on protection of competition in 1991, 1998 and 2008. The Law on Protection of Competition (LPC) of 1991 is almost entirely devoid of harmonization with the relevant EU competition law. The most important discrepancy of the LPC of 1998 with the norms of EU competition law is associated with the authorization by CPC of a concentration, including a concentration in the form of a joint venture, even when it is creating or strengthening a dominant position if the concentration leads to investment attraction, competitiveness improvement on the foreign markets (revoked – State Gazette 9 from 2003) or job creation, which largely makes senseless the control of concentrations. The LPC of 2008 in its section on behavioral and structural infringements of competition by undertakings, particularly by joint ventures, includes the basic structural norms, which contains the EU competition law and in almost all cases the texts in Bulgarian legislation are identical to those of EU. In turn, the starting point in the summary of the results of the empirical part of the study is the type of the CPC’s decisions associated with joint ventures, which have been identified by the author in CPC’s yearbooks, annual reports and website, as follows: (1) CPC’s decisions relating to the presence or the lack of behavioral and structural infringements of competition by joint ventures which have been established in Bulgaria and fall within the scope of the LPC; (2) CPC’s decisions relating to joint ventures which have not been established in Bulgaria, but could affect competition in a relevant market in the territory of Bulgaria and fall within the scope of the LPC; (3) CPC’s decisions relating to the presence or the lack of behavioral and structural infringements of competition by joint ventures wherewith found that joint ventures which are the subject of the decisions: (1) do not fall within the scope of the LPC; (2) do not constitute joint ventures within the meaning of the LPC; and (3) do not constitute joint ventures as an organizational form. The CPC’s decisions from point (1) have been denoted conditionally by the author as CPC’s decisions of Type A, and the CPC’s decisions from points (2) and (3), as CPC’s decisions of Type B and CPC’s decisions of Type C. Taking into consideration the above, the empirical study is limited to the CPC’s decisions of Type A. After these clarifications it should be taken into account that the total number of the CPC’s decisions relating to the presence or the lack of behavioral and structural infringements of competition identified by the author in CPC’s yearbooks, annual reports and website is 1090, and the number of CPC’s decisions of Type A, B and C – 18, 2 and 10 respectively. Data on the distribution of the CPC’s decisions relating to the presence or the lack of behavioral and structural infringements of competition – total and the associated with joint ventures, by years for the period 1991-2010, show two very different trends – while the total number of the decisions increases cyclically through most of the studied period, the number of the decisions associated with joint ventures remains approximately at the same extremely low level. However, what attracts the most attention is the lack of CPC’s decisions of Type A, B and C in six years of the studied period, and in the case of the decisions of Type A – in 10 years. The empirically found grounds for initiating proceedings in the CPC’s decisions associated with joint ventures are only three types of: 1) notification of undertakings; 2) complaint by parties, whose interests have been affected or threatened by an infringement; and 3) CPC’s own initiative. In the CPC’s decisions of Type A prevail the grounds for initiating proceedings which are not related to obligatory or optional notification of the CPC, and their share is 61.1% (complaints – 22.2%, and CPC’s own initiatives – 38.9%). Nevertheless, in 36.4% of these cases infringements of the LPC committed by joint ventures which have been established in Bulgaria and fall within the scope of the LPC are lacking. Data on the distribution of the CPC’s decisions of Type A by domestic or international variety of joint ventures indicate that 77.8% of the decisions refer to international joint ventures. However, the results associated with the infringements of LPC cause surprise, as they are all made precisely by international joint ventures. Passing to the industry investments of the joint ventures, it should be considered that 50% of the CPC’s decisions of Type A concern manufacturing, which gives a leading position of the industry among the twenty industries of the national classification NACE.BG-2008, whereas in this industry 50% of the infringements of the LPC committed by joint ventures are concentrated. It may be noted here that the reclassification of the subindustries of the leading manufacturing industry through two alternative classifications of NACE.BG-2008, which have already been applied in the study of production joint ventures, enabled to introduce complementary lines in the thematic development. The first of these classifications is that used by Schroath et al. (1993: 283), which is an improved version of a classification introduced by Dunning (1979: 278) and later applied by Lee (1983: 745-746). In this classification the subindustries of the manufacturing industry are grouped into the following four industry groups: (1) labor-intensive and low-technology manufacturing industries; (2) labor-intensive and high-technology manufacturing industries; (3) capital-intensive and low-technology manufacturing industries; and (4) capital-intensive and high-technology manufacturing industries. The results of the distribution of the CPC’s decisions of Type A relating to joint ventures that belong to manufacturing by the industry groups of the adopted classification indicate that 44.4% of these decisions fall within the industry group of the labor-intensive and low-technology manufacturing industries, which assigns a leading position of the industry group, whereas another unfavorable fact is disclosed consisting in the concentration in this industry group of 75% of the infringements of the LPC committed by manufacturing joint ventures. The second alternative classification of NACE.BG-2008 is that known in economics as the classification of manufactured goods according to their main end use, which consists of three categories of goods: capital, intermediate and consumer. This classification has been applied to the study of manufacturing joint ventures by Artisien & Buckley (1985: 123). Data on the distribution of the CPC’s decisions of Type A associated with joint ventures that belong to manufacturing by types of manufactured goods according to their main end use indicate that 55.6% of these decisions relate to the production of intermediate goods, which gives a leading position of this group of manufactured goods, whereas in this group 50% of the infringements of the LPC committed by manufacturing joint ventures are concentrated. The pecuniary sanction is the culminating phase of the legal consequences in case of infringement of competition law. It should be considered in this regard that only 5 of the 18 CPC’s decisions of Type A are related to pecuniary sanctioning consequences. Data for these 5 CPC’s decisions show that although the amount of pecuniary sanctions imposed by the CPC to the joint ventures, including their partners, increases during the studied period, the total amount of the imposed pecuniary sanctions of 500,000 Bulgarian Lev (BGN) (approximately 255,646 Euro) is too small. The joint ventures in the CPC’s decisions of Type A are sanctioned for committing the full range of infringements of competition, but behavioral infringements prevail – 4 or 80%, whereas there is only one structural infringement or 20%. Within behavioral infringements abuse of a dominant position outweighs prohibited agreements between undertakings, decisions by associations of undertakings and concerted practices of two or more undertakings – 3 or 75% compared to 1 or 25%. A leading position in the industry investments of the sanctioned joint ventures with the same shares of 40% occupy the manufacturing and the manufacture and supply of steam. Another important fact that has been established is that all sanctioned joint ventures are international.