Chapter XX
belarus Tatiana Ignatovskaya and Yana Chirko*
I
Introduction
i
Prioritisation and resource allocation of enforcement authorities
Belarusian antitrust law, being quite a new and poorly developed branch of law, has started to gain in importance, moving further from the times when antitrust matters were treated merely as an issue of price regulation. The ever-increasing enforcement and lawmaking activity of Belarusian antitrust authorities mandates that business must, now more than ever, take antitrust law into account in the conduct of their affairs and while considering investing in Belarus. The main legal act that regulates relationships concerning competition law in Belarus is Law No. 2034-XII, 10 December 1992 on Counteracting Monopolistic Activity and Development of Competition (‘the Law’). Also, Presidential Edict No. 499 on Certain Measures in Respect of Antitrust Regulation Improvement and Development of Competition (‘the Edict’), which changed the Law’s provisions in respect of corporate transactions and was adopted at the end of 2009. These two legal acts are considered as the mainframe regulation of antitrust relations in Belarus. Except for these two main legal documents in the sphere of antitrust law a range of subordinate regulatory acts were adopted, that determine certain procedures and methods in respect of the antitrust matters. The Department of Price and Antimonopoly Policy at the Ministry of Belarus (‘the DPAP’) is the state antitrust authority in Belarus, authorised to enforce state antitrust policy, as well as to control the activity of legal entities operating in the territory of Belarus, if this activity is connected with or in regard to antitrust matters. The DPAP is also vested with the power to investigate administrative offences in the sphere of antitrust law. The decisions of DPAP may be appealed against in the court.
*
Tatiana Ignatovskaya is a partner and head of commercial practice and Yana Chirko is associate attorney at Stepanovski, Papakul & partners.
Belarus The headquarters of DPAP, a national state authority, are located in Minsk. The DPAP is headed by the director, who has a right to assign deputy directors and other staff in the department. To decide the most important questions the DPAP’s director convokes a board, consisting of seven officials: the director, his deputies and other officials of the DPAP and the Ministry of Economy. The board’s decisions are voted for by a simple majority and are formalised in protocols. If the board’s decisions require official formalisation, these decisions are legalised by the acts of the Ministry of Economy. However, the acts of the Ministry of Economy are mostly concerned with the procedural issues of antitrust matters. Presently the DPAP has no subordinated local branches. Their functions are under the control of the local executive authorities. ii
Enforcement agenda
According to the official information of the DPAP during the first decade of 2010 the DPAP handled 140 claims connected with antitrust regulation, 25 of them address antitrust violations. The DPAP’s board made nine decisions in respect of unfair competition. The local antitrust departments examined 118 antitrust claims and elicited seven cases of antitrust law violation. ii
ANTITRUST REGULATION OF FOREIGN ENTITIES’ BUSINESS ACTIVITY
Antitrust regulation of foreign entities’ business activities on the Belarusian markets or abroad has some peculiarities in comparison with antitrust regulation of the national business. According to the Law, the activities of foreign legal entities will be regulated by Belarusian law only if: a a foreign legal entity carries out monopolistic activity; b this activity is carried out on the Belarusian market; c the monopolistic activity of such legal entity influence legal rights of Belarusian legal entities or customers; and d the activity of foreign legal entity is carried out in foreign country and could lead to limitation of competition in Belarus or to any other unfavourable consequences. Nonetheless, it should be observed that application of the antitrust law in respect of a foreign entity (especially imposing sanctions) is possible only if there is an appropriate international agreement between Belarus and the country where the foreign entity is incorporated. As of the beginning of 2011 there are only two international agreements (mutual cooperation treaties) to which Belarus is party to and which regulate antitrust politics: a the CIS agreement on Harmonisation of Antitrust Policy of 12 March 1993; and b the intergovernmental CIS agreement on the Conduct of Harmonised Antitrust Policy of 25 January 2000.
Belarus iii
CARTELS
The Law forbids and considers as an offence establishing or participating in any integration or conclusion of explicit or implied agreements, if these actions or agreements may result in the restriction of competition. A formal or written agreement among competitors is not necessary to constitute an offence – an informal agreement, even with minimal communication between competitors, may suffice. The Law provides a list of actions and agreements, both vertical and horizontal, that may constitute an antitrust offence. These actions and agreements relate to allocation of markets or supply sources on principle of territory, the assortment of products, volume of their sale or purchase or a circle of customers; excessive prices or price-related advantages, bid rigging, artificial limitation of goods’ production, establishing of control over the goods selling in the trade market and other consequences that may lead to competition limitation. Non-compete clauses that are frequently used in distribution agreements are also considered as a breach of antitrust law. The DPAP and the local antitrust authorities consider that the evidence of a negative effect on competition is not necessary if the object of an agreement is aimed to restrict the competition. This principle could be inferred from the Law. The above-mentioned parties’ arrangements require prior consideration and approval of the DPAP in order to avoid an application of measures of liability for the violation of antitrust law. The main penalties for breach of the prohibition contained in the Administrative Offence Code of Belarus are fines of up to 50 base rates. Criminal liability for antitrust infringement is also provided, however there is no court practice of bringing a criminal case for a breach of antitrust law in Belarus. iv
MERGERS AND ACQUISITIONS
One of the most visible areas where Belarusian antitrust law seeks to ensure competitive markets is through the merger review process. Anti-competitive mergers and acquisitions are usually paid more attention both by legal entities and the state authorities as a whole, than any other kind of antitrust law infringement. The transaction value of most M&A transactions in Belarus is up to US$33 million, with the majority in the US$6.5 to US$25 million range. The Law provides the necessary control over mergers and acquisitions, if their effect may be to gain or to maintain a dominant position in the market. On the assumption of this provision the Law obliges the merger’s participants to obtain the DPAP’s preliminary permission to make a corporate deal. In 2009 the DPAP agreed four merger deals and six deals establishing associations. This permission is to some extent the guarantee of the M&A validity and legality, and the absence of the DPAP’s permission may lead to the recognition of the M&A as ineffective under the DPAP’s claim. The Law determines three kinds of mergers: a a merger between direct competitors (horizontal mergers); b a merger of firms that operate at different levels in the supply chain; and c a merger of firms that operate in different industries entirely.
Belarus The Law relates not only to domestic M&A, but also to cross-border corporate deals. Because horizontal mergers may influence competitive matters more than other mergers, it is with these types of mergers that Belarusian antitrust law is most concerned. However, not every transaction is considered as horizontal. There are some points that serve as criteria to determine if the deal needs to be approved, related to: a the acquisition of more than 25 per cent of other legal entity’s stocks or shares, as well as executing other transactions, which, consequently, gives the purchaser an opportunity to influence the decision-making process of the other entity, which achieves dominance in the market; b the acquisition of the legal entity’s stocks or shares by a competitor who has more than 30 per cent of the market share; and c acquisition of any rights that give one legal entity an opportunity to influence conditions of business activity of other legal entity. Regarding vertical or conglomerate M&As, the newly adopted Edict substantially altered the provisions of the Law concerning such deals. According to the Edict, the DPAP has a right to approve by issuing preliminary permissions for vertical or conglomerate deals, connected only with acquiring by any person, entity or even state of 20 per cent of shares of the Belarusian legal entity, that meets the following requirements: a the balance-sheet asset value should exceed approximately US$1.25 million; or b value of receipts should exceed US$2.5 million. Nevertheless, the effort of making legal provisions concerning vertical and conglomerate deals clearer was not very successful. The Edict does not clearly set out the required content of merger notifications. In practice, the gaps in the law are forcing the DPAP and local antitrust authorities to interpret the Edict’s provisions in a very subjective way. v
HOLDINGS
Before the end of the 2009, the legal institute of holdings did not have any relevant legal regulation and the companies, formally regarded as holdings, operated as a number of affiliated entities. In December, 2009 the Edict of the President No. 660 on Matters of Establishing and Operating Holdings (‘Edict No. 660’) was adopted, and adjusted the corporate procedures concerning the holding formations. According to Edict No. 660, a holding is the corporate formation that includes a legal entity that has 25 per cent or more stocks or shares of other legal entities constituting a formation or owns the property of the unitary enterprise, and is able to influence the decisions of these legal entities. Under the provisions of Edict No. 660, only Belarusian or foreign limited liability companies, joint-stock companies, unitary enterprises and additional liability companies can be the members of the holding, although foreign companies, incorporated in countries that do not have bilateral agreements with Belarus concerning the exchange of tax information are deprived of the right to join the holding. As a legal approval of the holding’s establishment, the holding’s registration at the Ministry of Economy including entry into the state register of holdings is required.
Belarus Nevertheless, the Ministry of Economy does not demand the DPAP’s permission for M&As as an essential part of the data applied. Without the DPAP’s permission the establishment of the holding may be considered as invalid under the common rules concerning M&A deals and the holding’s members could be subject to administrative penalties for the breach of the antitrust law. The important point is that holdings are not automatically considered as the dominant market players. This notwithstanding, holdings are large formations, and to be recognised as having dominant position they need to meet the criteria determined in the Law. However, the application of antitrust law to holdings’ activities may be reconsidered in the future as the institute of holdings in the Belarusian legal system is the newest such change and there is no established practice or guidelines on how to deal with the holdings’ business. vi UNFAIR COMPETITION Unfair competition is probably one of the most applicable branches of the antitrust law, as it relates to the most essential for goods and services producers spheres, such as the intellectual property rights (including means of individualisation) infringement or unfair advertisement. As the claims concerning other branches of antitrust law are usually submitted by the state authorities, therefore they are not very frequent, litigations in the field of unfair competition are initiated by a wide range of companies dealing in the Belarus trade markets. According to Article 14-2 of the Law, the forms of unfair competition are related to reverse passing off, false advertising, making thresholds for the business communication of competitors, disorganisation of competitors business and some similar offences. However, the claimants seldom choose the antitrust administrative procedure to protect their right for fair competition, as this procedure is burdensome and requires a lot of time, thus the claimant is not able to get an urgent resolution of the problem. According to Article 1 of the Law ‘unfair competition’ is any actions of legal entities that aim at obtaining business advantages and are forbidden by the Law or contradicts the principles of honesty and reasonableness or may cause damages to competitors or defame their business. Following this term the DPAP regards the action as the case of unfair competition only if there is the whole set of four criteria: a actions are aimed at obtaining business advantages; b actions contradict the Law or the principles of honesty and reasonableness; c actions could cause damages to competitors or defame their business; and d the claimant and the respondent are competitors, dealing on the same trade market. All these circumstances, mentioned above, should be confirmed by written proof, if not, the DPAP will probably refuse to handle the case. It is remarkable, that neither the Law, nor other legal acts determine particular proof, that are considered as proper and sufficient for the DPAP to start the procedure, therefore there are a lot of cases when the DPAP rejected the claim as the proof seemed improper. The official statistics
Belarus confirms this suggestion. In 2009 the DPAP registered 36 claims concerning unfair competition; however, only five of them were handled and investigated and only two claims were considered as proved and the DPAP imposed administrative measures upon the offenders. Therefore, entities whose rights are infringed by unfair competition prefer to requalify the case by narrowing it to an intellectual property rights violation or a violation of the advertising legislation to force the case by applying to other state authorities. For example, the Ministry of Trade is empowered to handle cases concerning unfair advertising, if the case does not refer to unfair competition. Also, the Ministry of Trade, unlike the DPAP, has great experience in the legal investigation of such cases and adjudicates the cases in a short time. vii
ABUSE OF DOMINANCE
According to the Law, dominance in the market should be regarded as an exclusive position of the company in the market of goods, when such goods have no substitutes or interchangeable goods. This exclusive position gives a possibility to influence strongly the common circulation of commodities in the market or to complicate market entry for other suppliers of such goods. A company will be considered as achieving dominance if this company meets any of the following requirements: a the share of company’s goods on the market exceeds that determined by the legislation, in that particular market of goods; b the share of company’s goods in the market is stable in comparison with shares of its business rivals on this market; c the company complicates market access for its business rivals, when this complexity is caused by the marking policy of the company; or d the company has been included in the state register of commercial legal entities that have achieved market dominance. The market of goods according to the antitrust law of Belarus is defined under the following criteria: territory and kind of goods. According to the territorial criterion goods markets are divided into two groups – national market and local market. Goods are determined in accordance with a standard list, adopted by the government of Belarus, therefore the kinds of goods are considered as a class and are not narrowed down to specific kinds of goods of the same class. Although the antitrust law of Belarus still contains definite provisions related to the market share, the DPAP’s recent decisions show that the criterion of market share is no longer considered as substantially important for recognising dominance in the market. To make a certain decision in respect of the company’s market power the DPAP takes all circumstances and facts into consideration. Some goods markets in Belarus involve a lot of legal entities that separately may not have more than 1 or 2 per cent of the market share, therefore 10 or 12 per cent of such a market is considered by the DPAP as a market share that grants the possibility of influencing the common circulation of commodities in the particular market. The other change of the DPAP’s policy concerning dominance in the market applies to the market players. Until 2009 only producers of goods or
Belarus services could be treated as dominant; however, the DPAP changed its point of view and now importers can also be regarded as having a dominant position in the market. In addition, the Law contains a distinguishing provision concerning the control over the dominant market players. A legal entity, achieving dominance in the market, may be excluded from the state register of commercial legal entities, which achieve dominance in the markets and lose its dominant status under the agreement with the DPAP, that determine certain obligatory conditions of the legal entity’s business activity, that prevent the latter from pursuing monopolistic policy. According to the Law and the Edict the DPAP controls legal entities that achieve dominance in the market and applies special price regulation and special requirements to the mergers or acquisitions of such entities (as mentioned supra). Under the Edict the DPAP concludes antitrust agreements with legal entities that achieve dominance in the market, which deny the legal entities the opportunity to run monopolistic activity and determine price ranges. viii NATURAL MONOPOLIES The Belarusian concept of ‘natural monopoly’ is similar to that of most other post-Soviet countries and concerns state approval of production of some exclusive goods and services by certain legal entities, when the proper provision of such goods and services seems to be more effective if there is no competition in a particular market. Historically, this concept of natural monopolies has been accompanied by a Soviet idea of viewing large firms as national main market players to be protected from unbridled market forces and competition policy. Law No. 162-Z on the Natural Monopolies, dated 16 December 2002, defines the following economic sectors as the spheres of natural monopoly activity: gas and oil transportation through trunk oil pipelines; electricity distribution; centralised water supply and waste disposal; electrical and postal services for common use; railway shipping services; shipping terminals and airport services; and maintaining lines of flight and the management of air traffic. As far as the natural monopoly sectors are major contributors to the state budget, the majority ownership of the companies in the natural monopoly sector generally belongs to the state ministries and authorities. RUE Beltelecom is controlled by the Ministry of Communications, RUE Belarusian Railway is mainly owned by the Ministry of Transport and Communications. However, in 2009 after the Belarusian government focused on the state’s economic problems, and the natural monopoly sector, the common state policy changed its direction towards the development of the privatisation of state-owned enterprises and increasing competition. Telecoms case Pursuant to a letter dated 25 January, 2006 from the Ministry of Communications and Information Technology, RUE Beltelecom was recognised as being the nation’s only natural monopolist in the telecoms sector. Beltelecom is the nation’s sole provider of local and long-distance telephone service. Under Belarusian telecoms law, Beltelecom has a monopoly on connecting other networks, that is, wireless carriers and ISPs can only interconnect via Beltelecom (however, the latter sphere of communications networks
Belarus is not determined in the Law on the natural monopolies as a natural monopoly). In practice, Beltelecom has exclusive rights in the fixed line sector and the state also has significant levels of ownership in the mobile sector, limiting the possibilities for nondiscriminatory access to network elements. The developments since the start of the liberalisation of the telecoms markets have shown the efficiency gains of introducing competition. Furthermore, technology changes have undermined the natural monopoly argument. Where formerly, at the high point of the monopoly period, there would be an implicit understanding among most economists that telecommunications was a case of natural monopoly, technology developments have contributed to changing this, as different networks can carry similar services and as vertical disintegration becomes easier, allowing operators to offer services on other operators’ networks. Two years ago Belarusian economists were sure that the new Telecommunications Act would abolish Beltelecom’s monopoly on long-distance service and interconnection of telecoms networks and wireless carriers and would be reorganised as a public company. However, it did not happen. At the end of 2010 the revolutionary Presidential Edict on Measures of Belarusian Data Communication Network Development was adopted, which initially applied the term ‘competition’ to the telecoms services. The Edict provides for the establishment of integrated systems for data transfer that will include all data transfer paths both of national and local authorities, and of commercial entities. Technical control over the integrated system of data transfer paths will be under the jurisdiction of the RUE National Centre of Traffic Exchange. Therefore, the Edict eliminates Beltelecom’s emergency powers concerning control over the data transfer paths in Belarus. Although the Edict does not provide full liberalisation of the telecoms sector, it is the first important step towards competition development in this sphere. ix
CONCLUSION
Today, all the necessary prerequisites for a new phase in the development of antimonopoly legislation and application have been created in Belarus. Moreover, Belarus is on the threshold of state antimonopoly authority reformation aimed at ensuring the functioning of a free, independent, vertically subordinate authority, which guarantees the development of competition and opposition to monopolistic activity. Such prerequisites are secured in Directive No. 4 on the Development of Entrepreneurship Initiative and Stimulating Business Activity in Belarus, enforced by the President of Belarus. Directive No. 4 was adopted in order to pursue the development of open competition and antimonopoly policy, aimed at prevention of monopolistic activity and unfair competition, and the achievement of effective functioning of goods markets in Belarus. Furthermore, in the framework of the Agreement on Unified Principles and Rules of Competition in the Customs Union of Belarus, Russia and Kazakhstan, Belarus undertook to create an independent antitrust authority. This fact gives hope that Belarusian antitrust law will successfully develop in the coming years.
Belarus Tatiana Ignatovskaya, partner, head of commercial practice, board-member of noncommercial partnership “CIS Competition Support Association”, Yana Chirko, associate in commercial practice Stepanovski, Papakul & partners 16, Kuibyshev Street, 4th Floor, 220029, Minsk, Belarus Tel: + 375 17 209 44 83 Fax: + 375 17 204 86 72 info@spplaw.by www.spplaw.by Ignatovskaya Tatiana Stepanovski, Papakul & partners Tatiana is a Partner and Head of Commercial practice at Stepanovski, Papakul& partners. She specializes in intellectual property, consumer goods (FMCG), advertising law, competition and antitrust law, energy and natural resources. She is mentioned in reference guides of leading lawyers of the world Chambers Global; Chambers Europe; PLC Which Lawyer, International Lawyers, Legal 500. Tatiana supports governmental authorities in development of local legal acts or official presentations in respect of competition and antitrust law development in Belarus. Currently she is a member of CIS Competition Support Association. Yana Chirko Stepanovski, Papakul & partners Yana is an associate attorney at Stepanovski, Papakul& partners and specializes in intellectual property law, telecommunications, competition and antitrust law. Yana has broad experience of consulting on the matters concerning distribution of goods, services, rights, including preparation of the software’s resell agreements, consulting on the antitrust issues, which could appear during the distribution process. She actively participate in local IP legal conferences and events, also advises official authorities on the matters related to introducing of IP international law regulations’ into local legislation.
Belarus
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