Parallel importation, block exemption rules rewritten

By David Lindsay

The changes heralded by the amendments to the Competition Act have been widespread, according to the Director General of the Consumer and Competition Division, Marcel Pizzuto. Major changes have presented themselves in the spheres of parallel importation, block exemptions and in placing public undertakings on a level playing field with the private sector.

Speaking during an interview with The Malta Financial and Business Times, Mr Pizzuto levelled criticism at parties that had recently stated they would do everything in their power to block parallel importation. "Of course that is not on," he explains, "Parallel importation is something that is to be allowed and cannot be blocked - of course unless something illegal is being done, such as someone importing a product that does not conform to local regulations.”

Parallel importation occurs when there are two importers of the same product, which sometimes creates conflicts when one of the importers holds a sole agency agreement with an exporter for that particular product.

"But if the supplier impedes the parallel importation of a product, then that supplier is also infringing on the law. According to the competition rules of the EU, parallel importation cannot be impeded.

Mr Pizzuto explains, "An exclusive agent is in no way entitled to complete territorial protection. Along with price fixing, that is one of the cardinal sins of fair trading."

The Division has also just issued block exemption regulations - changes that concern franchising agreements, exclusive purchasing agreements and exclusive distribution agreements – such as the exclusive distribution of beer and beverages through the tying agreements that take place between a wholesaler and a retailer.

According to Mr Pizzuto, "In principle, these tying agreements are anti-competitive. However, in certain cases there are benefits that outweigh the disadvantages. For example, sometimes these tying agreements are exempted provided that they conform to the regulations that have just been published.

"Previously, irrespective of the market share one would have, one could always benefit from block exemptions. However, with the new regulations if one has a market share exceeding 30 per cent, then an individual exemption would need to be sought from the Office for Fair Trading, which would look at each particular agreement and decide whether to exempt it or not.

Another important amendment to the Act is that all public undertakings, which previously were exempted from the provisions of the Act, have now been subjected to the legislation. However the Economic Services Minister still maintains the right to exempt from the legislation those public undertakings or those undertakings that have been granted special or exclusive rights by the government.

By mid 2002, only those undertakings carrying out a universal service or specific operations thereof which are considered to be a service in the general economic interest will continue to be exempted from the provisions of the legislation.

For the time being the following public undertakings from the provisions of the legislation: Air Malta - excluding all its subsidiaries except for Air Supplies and Catering Company Limited; Freeport Terminal; Malta Freeport Terminals Limited; Maltacom - excluding all its subsidiaries; Tug Malta Ltd; Maltapost; Water Services Corporation; Medigrain Limited; Malta International Airport; and the Enemalta Corporation

This means that over 60 public undertakings have become subject to the provisions of the Competition Act. Nearly the same number of government departments that are carrying out an economic activity will have that part of their operations subjected to the legislation. The move is in line with the government’s commitment to liberalise the market but at the same time ensure that fair competition prevails. Public undertakings will now accordingly have to compete in the market under the same conditions in which the private sector operates, thereby ensuring a level playing field.

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