Why shouldn't and can't we buy "only Bulgarian"?

Already at the end of 2016, the "patriotic" idea of imposing Bulgarian food in stores became fashionable again, as the state had to introduce relevant repressive requirements on businesses along the lines of "buy only Bulgarian".

According to the draft law submitted by the Bulgarian Socialist Party, " for part of the quantities of products offered, the production of which is traditional for Bulgaria...must necessarily be produced in the country." The following requirements were written for large retail outlets (with over 2 million in turnover) - to offer for sale at least 51% Bulgarian fruits and vegetables, 70% Bulgarian milk, 25% Bulgarian meat, 75% Bulgarian beverages. If traders do not comply with the requirements, a property sanction of 10% of the annual turnover was envisaged.

За щастие, Икономическата комисия в Народното събрание отхвърли законопроекта, а и 43-я Парламент беше разпуснат скоро след това. Но с оглед предстоящите избори и нелепите икономически платформи на партиите, е нужно да разбием митовете, че насилственото налагане на български стоки „ще помогне на родното производство“, “че наш‘то е по-качествено“  и „че ще е по-евтино“.

There are legal and economic arguments why such protectionist laws cannot be implemented in practice. Even in this political blunder, we are not the first, because before us Romanians, Irish, Hungarians, etc. have tried to artificially promote their own products. We will also consider their cases.

Why can't it?

The obligations that Bulgaria has assumed as part of the European Union, the case law of the Court of Justice of the EU (CJEU), as well as the policy of the European Commission are more than eloquent that such measures will be stopped, at the cost of hefty fines, if necessary.

What does EU legislation tell us?

• Quantitative restrictions (duties, quotas) on the import and export of goods, as well as measures having equivalent effect (!) are prohibited between Member States (MS). [1]
• Restrictions on the freedom (!) of establishment of citizens and companies between Member States shall be prohibited. [2]

What the case law of the Court of Justice of the EU in Luxembourg tells us

The European legislation on which free trade is based has been further strengthened by the case law of the Court of Justice of the EU. From a series of cases over the past 43 years such as Geddo [3] , Dassonville [4] , Cassis de Dijon [5] , Keck and Mithouard [6] and Towing Trailers [7] it is clear that:

• The measure has an effect equivalent to a quantitative restriction (QR) (i.e. with the effect of a duty, quota, etc.) when:
  1. have as their object or effect to treat less favourably products originating in other MS
  2. applies to goods originating in other Member States where they are legally produced and marketed, concerning the conditions with which such goods must comply, even if these rules are also applicable to domestic products
  3. prevents access of products originating in other MS to the market of one Member State

In order to balance the system and allow for some control by the states, the CJEU has left the following option when it comes to measures restricting or prohibiting certain sales conditions that apply to foreign and domestic traders and products.

Which group does the measure for at least 51% Bulgarian tomatoes in large supermarkets fall into?

The measure itself does not restrict the import of tomatoes, but it would actually have the same economic effect, because traders would face a fine if they offer more than 49% foreign tomatoes. In view of the political goal of stimulating domestic producers at the expense of foreign ones, as well as the real market effect, the measure falls under point 1. Since such a law would be equally applicable to domestic and foreign producers, the only chance for justification is if:

• Bulgaria invoked the ground of protection of human health and life[8]
  • For this to be accepted by the EC or the CJEU, we will have to convince them that our law isproportional, i.e. :
    • the measure is appropriate to achieve the objective and
    • is necessary because there are no other less restrictive alternatives that would protect our health

The economic arguments below will make it clear why such protections by the state are not appropriate for the given purpose, and are not proportional to the problem (if we can even talk about one).

Why shouldn't you?

On the one hand, it places restrictions on traders' free choice of what to sell, and on the other hand, it limits the chance of goods produced in other countries to be traded on an equal footing with “Bulgarian” ones. We put “Bulgarian” in quotes because it is very subjective whether a cheese or wine is Bulgarian if it is produced from foreign raw materials or imported seeds. But for such petty political populism, these details are apparently irrelevant. And here is what the numbers tell us:

• The export of domestic vegetables increased by 72% in the first 9 months of 2016 compared to 2015, and the growth in fruit was nearly 13%.
• The main quantities of cucumbers, cabbage and onions go to Romania, commented the chairman of the Gardeners' Union– Slavi Trifonov. " The market there is very large, and their production is not enough to satisfy it," he explained.
• It is clear that even if all of our exports were redirected to our stores, we would still need many times larger imports, otherwise the shelves in the supermarkets would remain empty, just like under good old socialism.
• That is, even the most concerned consumers will be left either hungry or fed up with the fact that they have fulfilled their "debt" with their idea and domestic products have become too expensive or have been bought up in an instant.
• Not to mention that we will have to sell imported food products anyway. Then, due to the normal functioning of the market economy, producers from other countries will simply sell to us at much higher prices, because we will be faced with a fait accompli – food or nothing.
• With this law, small producers would be in the privileged situation of being able to sell whatever goods they want, which, with empty shelves at large chains, would automatically raise the prices of foreign tomatoes in neighborhood stores. So, consumers will ultimately pay the bill.

" In other countries like Romania, this worked "

Perhaps the biggest myth that is pushed on us in morning blocks, press conferences, etc. is that Romania applies the same law to protect domestic production without any problems, and that other EU countries have already taken similar measures. But the truth is completely different.

• On the 15th of this month, the EC decided to send a letter of formal notice to the Romanian government over the same “patriotic” law. This is the second step in the administrative part of the criminal procedure, where the state must convince the Commission of its rightness. If this is not done and despite the EC’s recommendations, Romania does not comply, a lawsuit will follow, which will most likely end with a hefty fine that runs daily until the violation is eliminated.
• On the same date, again with a notification letter, another patriotic stronghold of the Bulgarians - Orban's Hungary - was warned that imposing the same profit margin on imported and Hungarian goods was in violation of generally established rules.
• In the mid-1980s, the Irish tried to promote their products through a state-run marketing strategy, but the European Court of Justice rightly stopped these actions. [9]

Conclusion

It is clear that (some types of) protectionist measures are not tolerated in the single European market. It is also clear that such populism will lead to massive price increases, product shortages, or both, accompanied by the expense of lengthy administrative and judicial procedures in the Court of Justice of the EU, which will end with a large fine (covered by taxpayers).

Let's hope that the comrades who " think that most EU countries" do it rethink their policies. Because stimulating contractual relationships between producers and traders is a serious interference in one of the principles of the market economy and our society, namely - the voluntary exchange of goods, services, ideas, etc.

[1] Articles 34 and 35 of the Treaty on the Functioning of the European Union (TFEU ).

[2] Article 49 of the DFES.

[3] Case 2/73 Geddo

[4] Case 8-74 Dassonville

[5] Case 120/78 Rewe-Zentral AG v Federal Monopoly Administration for Spirits

[6] Дела C-267/91 и C-268/91 Criminal proceedings against Bernard Keck and Daniel Mithouard

[7] Case C-110/05 Towing Trailers

[8] Article 36 of the DFES.

[9] Case 249/81 Buy Irish.

Did you like it? Take a minute to support the EKIP on Patreon!