New restrictions affecting international food brands in Slovakia

Ads promoting food products must now include at least 50% of Slovak domestic products.

Background

In Slovakia, a new amendment to Act no. 152/1995 Coll. on Foodstuffs has been adopted (the Amendment), which introduces new rules on how supermarkets are required to promote grocery products. According to the newly adopted legislation, supermarkets and other sellers who promote grocery products have to ensure that at least half of such products are represented by Slovak products.

The newly introduced changes have raised concerns about their consequences once the new legislation is applied in practice. It will also have an indirect impact on both parties in the buyer/seller relationship. In particular, it is likely negatively to affect the quality of information provided to consumers as the legislation requires mandatory promotion of Slovak products solely on the basis that the products are from Slovakia.

Therefore, the decisive factor will be the product's origin. The price or the quality of the promoted products will have only secondary importance when deciding what products should be promoted.

Accordingly, grocery stores in Slovakia will need firstly to ensure that they promote in each advertisement or a TV commercial at least 50% of domestic Slovak brands, and only in the remaining space they will have no further restrictions what sort of brands or products to promote. It is highly unlikely that these new rules will have positive impact towards consumers.

It is clear that the Amendment aims positively to promote Slovak brands and products in the market, to the detriment of international brands. Such legislation is viewed to be contrary to the Constitution of the Slovak Republic and also contrary to European Union law.

Possible breach of constitutional and EU law – violation of the right to free enterprise and non-discriminatory treatment

The mandatory obligation imposed on grocery stores to advertise at least 50% of Slovak brands is considered to be in violation of the right to free enterprise and the right to non-discriminatory treatment. According to the Slovak Commercial Code, any business may act independently, in its own name and on its own responsibility with the aim of gaining profit.

Any interference in such right must be proportionate and in line with the Constitution of the Slovak Republic. This has been supported by case-law where the Constitutional Court of the Slovak Republic has interpreted an interference with the fundamental right to do business as an intervention which in its essence prevents or makes it disproportionally difficult for an entrepreneur to make profit, and ultimately forces the entrepreneur to close down the business.

The Constitutional Court further contended that when limiting and laying down conditions for doing business, the legislator must respect the constitutional limits and principles of proportionality .

The Court has stated in multiple rulings that any interference must be neither arbitrary nor discriminatory. Since the new legislation secures for the Slovak food brands a spot in every piece of marketing material, it is arguably discriminatory against international companies and their products that are not granted such benefit.

Further, the new legislation does not fulfil the criterion for objective and reasonable justification of such measures. The sole reasoning provided by the proponents of these new mandatory rules is to support the sale of food products produced in Slovakia and dissuade costumers from buying other international foodstuff brands.

The context of EU law

Article 34 of the Treaty on the Functioning of the European Union (TFEU) prohibits any quantitative restrictions and all other measures having equivalent effect. Measures having an effect equivalent to a quantitative restriction on imports are those restrictions which promote or favour the purchase of domestic products. The CJEU has interpreted the meaning and the scope of measures having equivalent effect as:

"All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions."

The Amendment has introduced unequal treatment of Slovak domestic and foreign products.

Therefore, the new legislation is contrary to EU law, particularly as it breaches the free movement of goods.

New mandatory rules explicitly and obligatory support the sale of Slovak domestic products at the expense of products and brands from other EU Member States. As foreign products do not benefit from guaranteed advertising placement in marketing materials, it may ultimately jeopardise the trade between Member States.

Such an approach has been criticised by the CJEU. Promoting and favouring domestic products over foreign products is not allowed and affects trade between Member States and is a breach of EU law.

Application of the new legislation

Nevertheless, all companies selling groceries in Slovakia are obliged to promote from now on at least 50% of products made or produced in Slovakia.

Accordingly, to ensure that supermarkets and other sellers of foodstuff are compliant with these new requirements, they need to promote Slovak products in all marketing materials such as leaflets, flyers and magazines regardless of whether the materials are in paper or electronic form; the number of Slovak products in such marketing materials need to amount to at least half of all promoted items.

Supermarkets and other sellers of grocery products need to update their catalogues of discounted products for consumers, posters, billboards and other forms of advertising, including adverts placed directly in stores (trolleys, check out dividers, etc).

The same rules apply to online marketing (eg newsletters, electronic leaflets and catalogues, banners, social networking merchant contributions) and TV marketing.

The categories of what is considered to be a Slovak product for the purposes of new statutory rules are:

• Slovak agricultural products and food: products that were either cultivated or harvested in the Slovak Republic, or produced from wild or domestic animals in the Slovak Republic.
• Food produced in the Slovak Republic: products where all stages of the production process have taken place in the Slovak Republic.

Sellers of grocery products in Slovakia are advised to comply with the new rules, as the sanctions for non-compliance are extremely severe. In case of repeated breaches, sellers would face fines from EUR 1,000,000 to EUR 5,000,000.

Although the new rules mandatorily requiring promotion of Slovak products are, in our opinion, clearly neither in line with EU law nor with the Constitution of Slovak Republic, until repealed, the new legislation is applicable to all sellers of grocery products.