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Increasingly, despite all the reforms in the public sector, business in Ukraine has started suffering due to a number of decisions and acts issued by state authorities with the intent to develop regulation. Even in a market-friendly environment, regulations or acts issued by state authorities can be a matter of concern.
Likewise, anticompetitive decisions create obstacles for market members and therefore lead to contradictory economic and social consequences. Additionally, such state behavior gives rise to monopolization, improper advantages, unfair approaches for companies (e.g. implementation of licensing, prohibition of trade, inappropriate financial support) and thus, prompts them to leave the market.
In this regard, there is a logical question of how to prevent business from negative consequences of anticompetitive decisions issued by state authorities, however well-intentioned those might have been.
In accordance with the current Ukrainian legislation, there are a few possible options to protect market players from the improper behavior of government authorities.
The first way is to appeal to the authority which issued an act that is believed to have violated competition legislation with the request to terminate or revise its enforcement (usually, considering the general practice, few state authorities revise or terminate their decisions after appeals).
Another option is to take court action against the state authority’s decisions or regulations. A company which believes that its rights have been violated may seek justice by submitting a claim to court. Still, this action is usually equally unsuccessful due to unstable law enforcement and delays in the court system.
Finally, the third, and in our view, most effective way for a business to protect its rights. This option is based on protection through the legal instruments of the Antimonopoly Committee of Ukraine (AMCU).
According to the Law of Ukraine “On the Antimonopoly Committee of Ukraine” the AMCU is a state authority with a special status, aimed to provide state protection of competition in entrepreneurial activity and within the field of public procurement.
Simultaneously, Article 15 of the Law of Ukraine “On Protection of Economic Competition” stipulates that issuing of any acts (decisions, orders, directions, enactments, etc.), making written or verbal instructions, conclusions of agreement or any actions or inactivity of bodies of power, bodies of local self-government which resulted in or can result in the prevention, elimination, restriction or distortion of competition shall be considered as anticompetitive actions.
Despite the fact that such a provision does not provide fines and/or restrictions, it is still thought to be the most effective instrument to protect business from the improper behavior of state authorities.
The reasons for that point is if a state authority does not react properly to the AMCU’s recommendations (intended to terminate infringement of competition laws), then the AMCU is entitled to open an investigation and as a result of such investigation pursue the state authority through court to implement given recommendations.
While considering the AMCU’s activity, its annual report for 2016 is worth taking into consideration. According to the report, the AMCU launched 782 investigations (which is 15% less than in the previous year) related to anticompetitive actions of state and local authorities.
Unfortunately, the lion’s share of those investigations was connected to violations conducted by local state authorities which usually do not bring such level of negative impact on business as central state authorities do.
However, despite the small number of recommendations and decisions issued by the AMCU to the main Ukrainian government authorities, some of them ought to be taken into account.
To name a few, the AMCU has recently issued recommendations to the Ministry of Justice of Ukraine, the Ministry of Transportation and Communication and National Commission for State Regulation of Energy and Public Utilities (NCEP).
As an example, the AMCU in its recommendation to the NCEP No. 2-pk as of 24.01.2017 established that such state authority issued a protocol which contained a provision stating that only the big 4 consulting firms were entitled to carry out an independent asset’s valuation of licensees in the transmission of electric energy. In the AMCU’s point of view, such actions have violated the legal rights of other consulting companies and thus led to restriction of competition in Ukrainian market.
Subsequently, the NCEP has admitted that its protocol violated antitrust legislations and restricted competition and as a result of it, the recommendations of the AMCU were successfully implemented.
At the same time, many other acts remain free from the attention of the AMCU, in particular, provisions of the NCEP’s resolution which stipulates that if a market member wants to conclude an agreement regarding the natural gas transportation, a bank guarantee provided by such member shall comply with requirements provided by the NCEP. Yet, provisions as to the bank guarantee established by the NCEP contain unreasonably high requirements which may be considered to restrict competition, in particular, within the field of banking services and therefore violate legislation.
In this case, business plays an important role, in that the business can address this issue with the AMCU with the request to investigate state actions that are believed to infringe rights or antitrust regulations.
Regarding international experience, similarly to the AMCU practice, many other competition authorities around the globe, provide active measures directed to prevent and terminate violations of antitrust legislation caused by inappropriate behavior of state authorities.
As provided by Summery of answer to questionnaire (as of 2015) conducted by United Nations Conference On Trade and Development, competition control over inappropriate state’s behavior remains one of the main aspects of antitrust regulation.
Additionally, many competition laws in different jurisdictions contain a provision related to anticompetitive acts issued by government authorities.
For example, Article 85 of the (currently effective) Hungarian Competition Act targets any resolution made by an authority by saying that: first, the Competition Authority (CA) may request public administrative bodies (i.e. government bodies, local governments, mayors of communities, etc.) to amend or revoke their resolutions if the CA finds that the decision violates the freedom of competition and; secondly, if the public administrative body fails to comply with the request within 30 days, the CA may seek court review at the administrative court.
Article 12.3 of Spanish competition act empowers the National Competition Commission legal authority to bring actions before the competent jurisdiction against administrative acts and regulations from which obstacles to the maintenance of effective competition in the markets are derived. The sanction established by the CNC in respect of a price fixing agreement in the sherry grape and grape must market creates a precedent for the CNC Council to apply articles 1, 2 and 3 of the competition law as far as the responsibility of a public body for a breach of the competition rules and regulations are concerned.
The AMCU in order to prevent further violations or competition restriction entitled to approve drafts which related to regulation of competition.
According to the Article 20 of the Law of Ukraine “On the Antimonopoly Committee of Ukraine” state and local authorities shall agree with the AMCU draft regulations and other decisions, which may have effect on competition in relevant markets.
There is a similar requirement provided in the Article 2.36 of the Procedure of legal acts presentation for state registration in the Ministry of Justice of Ukraine and carrying out their state registration, approved by the resolution of the Ministry of justice in Ukraine No.883/5 dated 15.05.2013.
In light of the above, it can be concluded that all authorities obligated to receive the AMCU’s approval for a draft that may possibly impact competition legislation. The main idea of this approval is to prevent violation and restrictions of the business in Ukrainian market.
Despite the fact that the current legislation requires coordination with the AMCU, the implementation of anticompetitive acts by local and state authorities is a huge problem.
It is preferably for authorities to consult with the AMCU before drafting or implementing legislative acts even if they do not directly affect competition legislation.
In our point of view, it is advisable to provide personal liability for a head of state authority if the anticompetitive acts were approved for the future implementation and has caused damage to a company.
Other types of control
Special attention within the field of the AMCU control should be given to the recently implemented regulation by which the AMCU is responsible for conducting the monitoring of state aid provided to market players.
According to the Article 1 of the Law of Ukraine “On State Aid for Companies” state aid is a support for a company in any form at the expense of the state or local authority which distort or may distort economic competition, creates advantages for manufacturing of certain types of products or conducting certain types of business activity.
At the same time, as stated by the mentioned law, the AMCU is entitled to conduct, in particular, the following: receive and consider notification for government support; define affiliation and take decisions regarding temporary termination or full termination of government support.
It would be great to provide certain examples of the AMCU’s activity, however taking into consideration the recent entry into force of the above-mentioned law, there is a lack of practice examples to be provided. Hopefully, this matter will be considered in the near future.
Protection of the business from the anticompetitive decisions or acts was and still is a relevant matter. The mechanisms of protection through the effective instruments of competition law are not used by business to the full extent possible.
In reality, the AMCU acts rather as a partner than a controlling body for business which rights were violated by inappropriate behavior of state authorities.
The AMCU is interested in cooperation with companies, because in certain cases damage from anticompetitive state or local actions is far bigger than from cartels created by market members.
Business, while dealing with anticompetitive decisions or acts of state and local authorities, would be best served if they protected their rights through the AMCU’s instruments more often.
Authors – Serhiy Shershun, counsel INTEGRITES, Bohdan Ilchenko, assosiate at INTEGRITES