The Antimonopoly Committee of Ukraine (the "AMC") is currently one of the most transparent and open-minded state agencies of Ukraine, available for a dialogue with business community. Just over the last several years, a significant step forward has been made by the Committee in terms of its more intensive participation in economic processes of the state, position of the Committee's representatives on problematic issues of the applicable legislation and practice, as well as reasoning and transparency of the Committee's decisions.
The main objectives of the AMC are the following:
- control over economic concentration and concerted actions;
- control over the prevention and termination of anticompetitive concerted actions and termination of the abuse of monopoly (domain) position;
- control over the prevention and termination of unfair competition; and
- ensuring control and protection of the competition in public procurements.
1. AMC'S CURRENT PRACTICES
When starting the business in Ukraine, a foreign investor should first and foremost consider certain peculiarities of local merger control.
Notwithstanding the business community's initiative to amend the legislation and it`s support by the AMC, once again it must be stressed that the effective financial thresholds for merger control clearance (attaining which acquisition of 25 percent of shares / participation interests / votes, acquisition of companies' assets, establishment of an entity by two or more parties require merger control approval) are still low compared to other jurisdictions. No changes into applicable legislation have been made yet in this respect.
Practically, this means that a number of transactions which either do not have or have a little effect on competition in Ukraine, including foreign-to-foreign transactions, technically fall under the merger control legislation and, thus, require prior merger clearance.
Recent trends show that the Committee is increasingly focused on revealing historical breaches, such as verification of compliance with the merger control legislation when forming a corporate group structure as well as insertion of certain business divisions or business units. This practice is supported by the cases recently investigated by the Committee, in particular, the case against major financial and industrial group in connection with the acquisition of a telecommunication business without obtaining prior approval by the AMC, as well as imposition of fines on a leading household appliances and electronics company in Ukraine.
AMC case related practices
The cases related to the anticompetitive concerted actions have seen a significant increase in numbers. As a result, the penalties imposed by the AMC based on the results of respective investigations have increased as well. However it would, be fair to state that, amounts of penalties imposed by the AMC, involving the abuse of the monopoly (dominant) position are in the absolute lead. The top 3 fines imposed by AMC were on companies that deal on the market of oil products
Furthermore, most of the discovered anticompetitive concerted actions and abuses of monopoly position were associated with the pricing abuses (establishment of prices on such level which would not exist in case of significant market competition).
The distinguished cases investigated by the AMC primarily dealt with a fuel and energy market, telecommunications, medicines, cable television, grain storage and transportation.
Concerted actions in fuel and energy as well as pharmaceutical sectors
The mentioned markets are among the most socially sensitive areas. Thus, the AMC pays considerable attention to the competition compliance issues in these areas. Consequently, business entities operating in the aforementioned markets appear to be most frequently involved in the cases related to competition legislation violations.
The key issue in these sectors is price-regulation approach taken by the market players in relation to their products. Considering the dynamic nature and information transparency of the oil and pharmacy markets, the market players are often fixing their prices at similar level, which potentially may give a rise to competition compliance concerns.
Such cases are often treated by the Antimonopoly Committee as anticompetitive concerted actions by the market players. In 2005 Article 6 of the Economic Competition Act was amended by clause 3, which since then had become the most applicable provision in the enforcement practice of the AMC. The AMC apply clause 3 of the Article 6 of the Economic Competition Act, mostly to prove the occurrence of price fixing on a market.
Under clause 3 of Article 6 of the Economic Competition Act "anticompetitive concerted actions are those similar actions (omissions) performed by the entrepreneurs on the product market, which have resulted or may result in prevention, elimination or restriction of competition where analysis of the respective market conditions evidences the lack of objective reasons for such actions (omissions)." Thus, to qualify the behavior of market players as violations of clause 3 of Article 6 of the Economic Competition Act both criteria shall be satisfied, namely: (i) lack of objective reasons for such actions and, (ii) negative effect (potential effect) on Ukrainian competition.
However, as opposed to the enforcement practice adopted by the EU competition authorities, the AMC bases its approach on a presumption that similar behavior of market players by itself represents a concerted practice, (without necessity to establish the second condition – existence or lack of objective reasons for taking respective actions). Therefore, the burden to overrule the existence of concerted actions is on market players.
Therefore, proving evidences of the existence of respective objective conditions both at the stage of case investigation by the AMC and at the stage of the appeal in court is a rather painstaking process, which requires extensive expertise and practical experience of dealing with similar cases both in the AMC and in court.
Telecommunications and Unfair Competition
The main problem in this area was market players` approach to the advertising of their own products and services. In particular, the advertisement of the so-called zero rates and provision by market players of the information on compulsory withholdings and payments in a shortened or hidden format, were treated by the Committee as a misleading advertisement.
By applying Article 15¹ of the Law of Ukraine "On Protection against Unfair Competition," which contains a provision that "dissemination of misleading information shall mean the provision by entrepreneurs, directly or through any other person, to one or several persons or an indefinite number of persons, including in advertising of incomplete, inaccurate, unreliable information, in particular, as a result of a selected method of statement, concealment of certain facts or inaccurate wording that affected or may affect the intention of those persons to purchase (order) or dispose of (sell, supply, perform, provide) products, works, and services of such business entity" the AMC recommended market players to bring their activities in line with the applicable legislation.
Further to the Committee's recommendations, major market players developed and adopted the Code of conduct for telecommunications service operators and providers of advertising of mobile communications services, which was also approved by the AMC. The Code sets out requirements for indoor and outdoor printing, radio, TV and Internet advertisements for mobile services.
Therefore, some matters that potentially give rise to competition concerns are jointly resolved by market players and the AMC at the stage of the Committee's recommendations rather than case investigation and potential penalties imposition.
Applicable practices evidence that some 90% of unfair competition cases currently investigated by the Committee involve violations under Article 15¹ of the Law of Ukraine "On Protection Against Unfair Competition" associated with the dissemination of misleading information.
Financial sector a concerted actions or an abuse of dominant position?
Problems in this sector are currently associated with loan agreements signed between banks and their borrowers establishing for the requirement that insurance agreements under respective loan agreements should only be signed by the bank's clients with insurance companies designated or accredited by the bank.
In the AMC's opinion, this may lead to a selective character of the insurers accreditation procedures applied by the banks. Following this practice a large majority of insurance companies may be unfairly restricted in their access to a certain category of their consumers.
The Committee initiated an investigation into the practices of banks forcing certain insurance companies to their clients. During this investigation, the AMC provided five major banks in lending sector with its recommendations to review the banks' accreditation procedures, in particular in view of the negative impact of such procedures on competition on the insurance services market.
Such practices can be qualified by the AMC as violation of the Economic Competition Act in the form of anti-competitive concerted actions and/or an abuse of monopoly position. Respective practices may accordingly be subject to penalties of up to 10 % of the turnover from such entity's (i.e. group of companies) worldwide sales as of the last financial year.
Following recommendations issued by the AMC the banks reported on their compliance with such recommendations.
Meanwhile, the AMC continues to monitor the situation with the bank's applicable procedures on accreditation of insurance companies. Thus, the AMC addressed a letter to the National Bank of Ukraine to inform all banks of possible consequences for non-transparent accreditation of insurers and unreasonable refuse in access to the respective services market.
The Antimonopoly Committee is now investigating the banks' practices on forcing certain insurance companies to their clients both in the context of possible monopoly abuse of a certain group of banks and in the context of possible concerted actions of insurance companies and banks.
2. RECENT LEGISLATIVE CHANGES
One of the landmark achievements in competition law was the adoption on June 1, 2010 of the new Law "On Public Procurements". This law creates a solid foundation for building a transparent, non-discriminatory and effective public procurement system in Ukraine.
The adoption of the Law "On Public Procurements" proves that Ukraine continues its progress towards harmonization of domestic public procurement laws with EU laws and WTO requirements.
The Law provides that public procurement procedures can be appealed to the Antimonopoly Committee of Ukraine. As of today, certain procedures are already in place for challenging the public procurement process.
Nearly half of the appeals challenge documents that need to be submitted for participation in a tender (in particular, in the context of discriminatory requirements established by tender customers such as availability of previous experience in public procurement contracts execution by potential bidders, special technical requirements, etc.). Other part of appeals covers procedural violations, in particular those involving the time frames and procedures for making procurement announcements as well as public communication of the procurement results, etc.
The following competition law changes can be expected as soon as next year:
- Assigning jurisdiction over cases involving the Antimonopoly Committee of Ukraine. The current practice shows that such cases are resolved both by commercial and administrative courts. The proposed changes will assign the exclusive jurisdiction over these cases to commercial courts.
- Approving amendments to the Economic Competition Act, which are now being prepared for a second reading in the Parliament and which provide for an increase of the current financial threshold for merger control clearance (in case of acquisition of 25% of shares / participation interests / votes or joint establishment of a business entity by two or more persons).
- Amending the Economic Competition Act to increase fourfold the fines that may be imposed by the AMC's territorial branches.
- Amending the Administrative Offences Code of Ukraine to authorize AMC bodies to hear administrative cases and impose fines for (i) obstructing officers of the AMC or its territorial branches in act of their duty, or (ii) failing to comply with a decision of the AMC's body, or (iii) failing to comply with the procedure established for provision of reply on the AMC information requests.
- Approving the amendments to the Criminal Code of Ukraine, which have been prepared for a second reading in the Parliament and which establish criminal liability for bid rigging during auctions or tenders as well as for forcing into anti-competitive concerted actions prohibited by the competition legislation.
Some changes in economic competition laws are also expected in connection with the undertakings assumed by Ukraine for the purposes of signing a free trade zone agreement with the EU. However, signing of the respective agreement is most-likely to be a long-term prospect for Ukraine.
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