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Twisted Compliance in Bosnia and Herzegovina

Twisted Compliance in Bosnia and Herzegovina

Bosnia and Herzegovina
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In the era of modern business, where strengthening of existing businesses and encouraging startups is a GDP must, improving the investment environment is common sense, and compliance should serve the benefit of it all, one should stop and wonder at the sight of what we call “twisted compliance.”

This newly found tool of local authorities designed to increase the budget may also be defined as compliance without logic, created when authorities start to twist the implementation of laws and regulations on business entities for the purpose of collecting monetary fines. So what essentially should be aimed at protecting business entities in a certain market becomes the opposite. Thus, as if the complex administrative environment and legislative parallelism was not enough, businesses in Bosnia and Herzegovina are now facing yet another challenge – whether to comply with this twisted compliance or not.

We have all been witnesses to local authorities being unable to understand the specifics of some business or some transaction; however, solutions have been reached with good argument and the sheer persistence of business representatives in the market. What we are seeing now, however, is not a lack of understanding but the obvious and planned imposition of inapplicable duties to business entities, which are thus offered two options: to comply with provisions not designed for them or pay the fine for noncompliance. This threat to legal certainty in the market, and the inevitable growth of the problem, must be dealt with by the entire business and legal community by forcing the judicial system (i.e., misdemeanor courts) to take on a much more serious role beyond its current pale, confirmative, and merits-free behavior, and stop administrative authorities from implementing this twisted compliance.   

The most recent example of how twisted compliance works is the vivid activity of the Federal Market Inspection in controlling implementation/compliance with Bosnia & Herzegovina’s Art. 11.6. of the Law on Internal Trade and Art. 2.3. of the Law on Price Control. These two provisions introduced a requirement that business entities involved in retail prepare and maintain two rulebooks: one on sale conditions and one on price forming. 

According to Art. 11.6. of the Law on Internal Trade, “the trader is obliged to determine written rules about sales conditions (price, way of payment and handover, beneficiations, etc.) and make them available to the buyer in an appropriate way, as well as abide by the same.” Obviously, the trader has to make the conditions of sale accessible not exclusively “to buyers”, but “to a/any buyer”, in which way the meaning and purpose of this provision is made clear – that a trader is obliged to conduct its business in a transparent way with any buyer. However, it is not obliged to have more buyers and therefore it is not required to have general rules of sale accessible to a wider range of buyers if it does not engage in retail. Wholesaling companies should be therefore exempted from having to adopt a rulebook on sale conditions if adequate provisions are made part of their (for instance) Distribution Agreements. 

The second provision, Art. 2.3. of the Law on Price Control, requires that “companies and natural persons … determine rules about the price forming, abide by the determined way of price forming, and display a price list or an individual price at a place visible for the consumers, as well as comply with such displayed price.” The clear mention of consumers in this article should be sufficient to conclude that it refers to retail prices, and is therefore not relevant to wholesalers. 

However, even though both of these provisions serve as the legal basis for imposing a duty on retail business entities to maintain a rulebook on sale conditions and a rulebook on price forming, we have seen a number of wholesale business entities being fined for non-compliance with them. And those who have challenged the matter in court have experienced pale, indifferent, and merits-free decisions by the judges, who have taken as stronger evidence any submissions made by the representatives of administrative authorities. Appeals were drafted and second instance courts asked to correct the flaws of their colleagues from lower instances as well – mostly with no success. 

In the meantime, the Federal Market Inspection is continuing with its controls of business entities, and some are starting to implement the non-applicable provisions and adopt said rulebooks anyway – i.e., adopting a rulebook on price forming even if there are no consumers to which it would be applicable since the entity is not a retailer. Such formal compliance, or imposition of twisted compliance, cannot be seen as an acceptable solution. New issues and new problems are going to arise out of this, as the formal introduction of essentially unnecessary acts such as these rulebooks have, among other things, generated competition issues.

Indeed, the price forming for wholesale entities is now colliding with the simplified and inapplicable rulebook on sale conditions and rulebook on price forming created for retail business. However, that would be yet another topic and our word count has just elapsed.  

By Emina Saracevic, Partner, and Harun Novic, Associate, Saracevic Gazibegovic Lawyers
This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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