RESTRICTED
WORLD TRADE WT/WGTCP/W/27
15September 1997
ORGANIZATION(97-3652)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM HUNGARY
Thefollowing communication, dated 10September 1997, hasbeenreceived fromthePermanent
Mission oftheRepublic ofHungary withtherequest thatitbecirculated toMembers.
_______________
I. BASIC PRINCIPLES OFTHE REGULATION OFCOMPETITION
1. Since early times ofHungary 'stransition tomarket economy, trade liberalization andthe
establishment andstrengthening ofaneffective competition policy havebeenparallel processes. It
hasbeenrecognized thattheremoval ofbarriers tomarket access andtothedomestic competitive process
havetogohand inhand ifthefullbenefits from efficient allocation ofresources intheform ofa
competitive economy andtheresulting enhanced social welfare aretoberealized.
2. ActNo.LXXXVI of1990 ontheProhibition ofUnfair Market Practices wasinforce from
1January 1991 to31December 1996; from 1January 1997 ithasbeenreplaced, except forcases
inprogress atthattime, byActNo.LVIIof1996ontheProhibition ofUnfair andRestrictive Market
Practices (hereinafter: theActoftheCompetition Act).
3. Already ActNo.LXXXVI of1990 wasatooltoachieve theobjectives mentioned above by
protecting, which wasdeclared initspreamble, thepublic interests incompetition, theinterests of
competitors and,inconnection withfairmarket conducts, theinterests ofconsumers.
"Thepublic interest attached tothemaintenance ofcompetition inthemarket ensuring
economic efficiency andsocial progress, theinterests ofundertakings complying with
therequirements ofbusiness fairness andtheinterests ofconsumers require thestate
toprotect bylawfairness andfreedom ofeconomic competition. Tothisend,itis
necessary toadopt rulesgoverning competition prohibiting market practices which are
contrarytotherequirementsoffaircompetition,prohibitinganti-competitiverestrictions
andpreventingconcentrationsofundertakingswhicharedisadvantageoustocompetition,
atthesame timeproviding forthenecessary institutional andprocedural background.
Inorder toattain these objectives -alsotaking intoconsideration therequirements of
theapproximation tothelawoftheEuropean Communities andtheconventions of
domestic competition law-."
Parliament passed theCompetition Actinforce asithasbeendeclared inthepreamble ofit.
4. Empowered bytheAct,theGovernment hasadopted three regulations, following patterns of
theEuropean Communities competition law,ontheblock exemption fromtheprohibition onrestriction
ofcompetition ofcertain groups ofexclusive distribution agreements, exclusive purchasing agreements
andinsurance agreements; some further block exemption regulations areinpreparation.WT/WGTCP/W/27
Page2
5. There arefivechapters intheActwhich describe thepractices which aresubject tocontrol.
OfthemChapters IIandIIIprohibit unfair competition (such asinjury ofthereputation ofcompetitors,
unfair acquisition oruseofbusiness secrets, organization inanunfair manner ofboycotts ormisleading
presentation ofgoods) andtheunfair manipulation ofconsumer choice (through supplying deceptive
information totheconsumers), respectively.
6. Chapter IVprohibits agreements between undertakings theobject orpotential oractual effect
ofwhichistheprevention,restrictionordistortionofcompetition.Restrictiveagreementscan,however,
beindividually exempted from theprohibition "provided:
(a) theycontribute toamore reasonable organization ofproduction ordistribution, the
promotion oftechnical oreconomic progress, ortheimprovement ofcompetitiveness
oroftheprotection oftheenvironment;
(b) theyallow consumers afairshare oftheresulting benefit;
(c) theconcomitant restriction orexclusion ofcompetition doesnotexceed theextent
necessary toattain economically-justified common goals;
(d) theydonotcreate thepossibility ofexcluding competition inrespect ofasubstantial
partoftheproducts concerned."
7. Thecompetition authority mayalsoestablish thatanagreement:
(a) doesnotqualify asonerestricting competition;
(b) doesnotfallunder theprohibition asbeing ofminor significance orconcluded between
undertakings which arenotindependent ofeachother; or
(c) fallsunder ablock exemption regulation oftheGovernment andisthereby exempted.
8. Thedominancy concept oftheActisbased ontheability ofcertain undertakings toact
independently toagreatextent fromothermarket participants. Itisonlytheabuse ofadominant position
which isprohibited inChapter VoftheAct.
9. Chapter VIregulates thecontrol ofconcentration. Theobligation oftheparticipants ofa
concentration toapply foranauthorization ofthecompetition authority islinked withaFt10billion
(i.e.US$50 million) aggregate netturnover threshold fortheparticipating undertakings. The
authorization oftheconcentration maynotberefused ifitdoesnotcreate orstrengthen adominant
position, doesnotimpede theformation, development orcontinuation ofeffective competition onthe
relevantmarketoronaconsiderablepartofit,oriftheconcomitantadvantagesoutweightheconcomitant
disadvantages.
10. ActLXXXVIof1990appliedtoeconomicactivitiesofentrepreneursontheterritoryofHungary,
defining theterm"economic activity" asbusiness activity (whether production- orservice-related)
performed forconsideration withthepurpose ofearning profits oracquiring property. Foreign
undertakings notperforming "economic activity" inHungary (except concerning restrictive agreements)
andcertain activities (forinstance investorial activities) wereexcluded inthiswayfrom thescope of
theprevious Competition Act.
11. Theeffective Actapplies to(allkinds of)market practices ofundertakings carried outonthe
territory ofHungary or,withtheexception ofChapters IIandIII,"carried outabroad iftheymayWT/WGTCP/W/27
Page3
haveeffects ontheterritory" ofHungary. Inthismanner, theActpractically provides fortheapplication
oftheeffects doctrine. TheActcovers business lifeasawhole. Itdoesnotdifferentiate between
public andprivate undertakings andapplies toallsectors oftheeconomy.
12. Some major changes contained bytheantitrust chapters (Chapters IV,VandVI)oftheAct
incomparison withtheregulation ofitspredecessor arethefollowing:
- theextension oftheprohibition ofrestrictive agreements (from onlytoresale price
maintenance) toallkinds ofvertical arrangements, andthetakeoutoftheprohibition
ofagreements concluded between undertakings which arenotindependent ofeachother;
- thenewconcept ofdominancy, theomission ofmarket share thresholds concerning
dominant positions (andmerger authorization) andtheputting inofsome newstate
ofaffairs, suchastying, withholding ofgoods, discrimination andpredatory pricing,
intotheillustrative listofthestates ofaffairs ofabuse;
- thedefinition ofconcentrations containing elements as,forexample, theacquisition
ofpartsofundertakings, ofmajority voting rights, oftherighttoappoint themajority
ofexecutive officials andthecreation ofconcentrative-type JVs,thepossibility ofthe
competition authority todecide about theseparation ordivestiture ofmerged
undertakings iftheyfailed toapply forauthorization andtheauthorization maynot
havebeengranted fortheirtransaction.
13. Hungary 'scompetition authority istheOffice ofEconomic Competition (OEC), apublic
budgetary institution alltheduties ofwhich must beprescribed bylaw.
14. There isnodifference intherights offoreign undertakings vis-à-vis those ofdomestic ones
concerning petitioning under theantitrust rules oftheAct. They may:
(a) apply fortheexemption ofrestrictive agreements orfortheauthorization of
concentrations;
(b) submit complaints andother communications about thealleged infringements ofthe
Act.
15. Opening aninvestigation ismandatory at(a)typecases andbelongs tothediscretion ofthe
OEC at(b)typeones. TheActdoesnotspecify thecircumstances tobeassessed bytheOEC when
itdecides ontheopening ofaninvestigation at(b)typecases. Thecompetition authority isobliged
toinform thecomplainant about theopening oftheinvestigation ortherefusal ofdoing so(inthelatter
casewithareasoning oftherefusal).
16. Arevision ofthedecisions oftheOffice onthemerits ofcases mayberequested from the
court. Arefusal oftheOEC toopenaninvestigation maybechallenged attheOffice itself andin
thesecond instance, atthecourt.
II. ENFORCEMENT OFTHE COMPETITION RULES INTHE HUNGARIAN ECONOMY
17. Since 1991, thecompetition lawhasensured thecompetition aspects toberepresented and
taken intoconsideration inthederegulation, liberalization, privatization process andinregulatory
activities.WT/WGTCP/W/27
Page4
18. TheOEC hastobeconsulted concerning alldraftsubmission ordraftlegislation where the
planned measures orlegislation haveabearing oneconomic competition. Thismeans forinstance
thatministers areobliged tosolicit theopinion oftheOEC ondraftregulations which would havea
restrictive effect oncompetition, grant exclusive rights, orregulate prices ormarkets. Tothisend,
theOECgaveitsopinion (inrecent years) onsome twohundred drafts annually (ofwhich onlyasmaller
partactually concerned theconditions ofcompetition) andsought toadvance theadoption ofimportant
competition-relatedregulations.Asfarastherevisionoflegalregulation,inordertoreducebureaucracy,
isconcerned, theGovernment hasagreed, following anOECproposal thatanexamination ofthebarriers
tomarket entry beanecessary element ofanyderegulation analysis.
19. TheOEC mayseekthecourt review ofpublic administrative decisions violating thefreedom
ofcompetition except incases where thelawexcluded thepossibility ofcourt review ofsuch
administrative decisions.
20. Thepresident oftheOEC presents annual reports toParliament and,upon request, tothe
competent parliamentary committee ontheactivities oftheOffice andonhowfairness andfreedom
ofcompetition areobserved.
21. During theenforcement oftheprevious Competition Act1intheperiod from1January 1991
to30June1997 thedecisions reached bytheOEC developed inthefollowing way.
Subject-matter Number of
decisionsOfthem: Number
ofnegative2
decisions
Restrictive agreements 43 16
Abuse ofdominant position 229 56
Control ofconcentrations 74 1
Cases withother subject-matters 410 197
intotal 756 270
22. There were nocases sofardealt withbythecompetition authority where anti-competitive
practices ofundertakings hindered thedevelopment ofbeneficial effects arising from theliberalized
foreign trade.
23. Theclose interrelationship between trade andcompetition andespecially therolewhich the
prohibition ofanti-competitive practices canplayinensuring thatthebeneficial effects oftrade
liberalization arenotnullified orimpaired isreflected inthecompetition-related provisions oftheEurope
Agreement andthefreetrade agreements concluded byHungary.
24. TheEurope Agreement establishing anassociation between Hungary, oftheonepart,andthe
European Communities andtheirmember States, oftheother partdeclares thatthefollowing are
1Given theCompetition Actinforce becoming effective from 1January 1997 onlyforcases commenced
after thatdate, thenumber oftherespective decisions wasverylowinthereported period.
2Decisions ascertaining aninfringement ofthelawand/or prohibiting certain conduct.WT/WGTCP/W/27
Page5
incompatible withtheproper functioning oftheAgreement, insofar astheymayaffect trade between
Hungary andtheCommunity:
- agreements between undertakings which haveastheirobject oreffect theprevention,
restriction ordistortion ofcompetition; and
- theabuse ofdominant positions intheterritories oftheCommunity orofHungary
asawhole orinasubstantial partthereof.
25. Anypracticescontrarytothisprovision"shallbeassessedonthebasisoftherulesofArticles85,
86...oftheTreaty establishing theEuropean Economic Community" andofArticles 65and66of
theTreaty establishing theEuropean CoalandSteel Community.
26. TheImplementing Rules fortheapplication ofthese competition provisions setouttherules
forthecooperation indealing withindividual cases ofthetwocompetition authorities, theOEC and
theCommission oftheEuropean Communities (DGIV)andmake theAssociation Council aforum
ofdispute settlement.
27. Hungary hasfreetrade agreements withthemember States oftheEuropean FreeTrade
Agreement (EFTA) andintheframe oftheCentral European FreeTrade Agreement (CEFTA), the
Czech Republic, theRepublic ofPoland, theSlovak Republic, theRepublic ofSlovenia andRomania
(some further agreements areinpreparation); eachofthese freetrade agreements hasthesame
competition provisions astheEurope Agreement which are,however, notbacked bysimilar competition
rules asthose oftheECandECSC Treaties.
28. TheHungarian competition authority, theOEC, participates actively inthepreparations (law
approximation) fortheEUaccession ofthecountry. Ithasclose connections withthecompetition
authority oftheEuropean Communities, theDirectorate-General IVoftheCommission. Inrespect
tothecooperation indealing withindividual cases theseconnections areregulated bytheImplementing
Rules mentioned above.
29. Well-established connections oftheOEC totheUnited States, German, Swedish, British and
French competition authorities resulted ingaining knowledge bytheOffice ofexperience andviews
ofthose authorities. Inrecent times theOEChasconcluded cooperation agreements withtheBulgarian,
Ukrainian andRussian competition authorities. Afurther agreement withtheEstonian authority is
inpreparation.
30. Sofarthere wasnoindividual caseinthepractice oftheOEC intheassessment ofwhich the
Office cooperated withmutually interested foreign competition authorities.