GEO

The Parliament of Georgia adopts anti-monopoly reform bill

07 April, 2014

On 21 March 2014 the Parliament of Georgia adopted at the third hearing the draft Law of Georgia “on the Amendments to the Law of Georgia on Free Trade and Competition”. This draft Law was developed as part of the anti-monopoly reform and aims to improve institutional framework of competition for promoting a free competition and development of a competitive market. Transparency International Georgia was actively involved in the drafting of this bill and welcomes its adoption by the Parliament.

The following key novelties are to be implemented under the new law ,,on Competition’’:

  • An independent structure – Competition Agency – is established: this type of agency is established to exercise effective state supervision over a free, fair and competitive environment on the market. Powers of the Agency will include: implementation of effective measures to prevent the abuse of dominant position by an economic agent, support of the small and medium business and timely and due reaction in case of identifying the violation of legislation regulating free competition.

The law existing prior to the adoption of this bill granted the Government vast powers in respect of the Competition and State Procurements Agency. Namely, the Government was approving the priority sectors of the Agency’s activities; the Agency was investigating complaints only in line with the Government-approved priority sectors. While, complaints concerning non-priority sectors can be ignored by the Agency. The head of the Agency didn’t have the power to issue an independent normative act (order) relevant to regulating competition, which was further reducing the Agency’s independence; the Agency was not empowered to initiate an investigation unless a compliant has been lodged by a private party. Described gaps of Georgian institutional framework have resulted in the Agency’s failure to exercise effective state supervision over competitive environment on the market – to date (since the launch of Competition and State Procurement Agency’s operations in January 2012) no cases of unlawful restriction of competition on the market or of violation of Georgian competition law have as yet been investigated or initiated by the Competition and State Procurement Agency;

  • Guarantees of independence of the Competition Agency were established: the new law has amended the provisions of institutional framework of competition, following which the independence of the Competition Agency will grow. In particular, the Agency will be entitled to independently launch an investigation, provided that signs of restriction of competition in the market exist and the structure and characteristics of the market requires intervention by the competition authority. As prompt investigation of complaint by the Agency is crucial for ensuring effective activities of the Agency and a fair competition on the market, provisions regulating prompt investigation by the Agency have also been amended. In addition, the new law has annulled the Agency’s service fee to be charged to complainants upon submission of an application or a complaint in the Agency;
  • The scope of application of the Law of Georgia "on Competition" and exceptions of the competition regulatory legislation are amended (including de minimis thresholds). The Law in effect prior to this bill was placing a number of significant agreements between economic agents outside of the competition regulation and, thus, created the possibility of eliminating competition in respect of a substantial part of the products in question. Therefore, the competition policy was implemented only in a fragmented way. The new law secures the compliance of defined exceptions of the competition regulatory framework with the EU legislation. Namely, exceptions from prohibition of an agreement restricting competition are set in respect of those agreements, decisions and concerted practices (hereinafter - 'agreement'), which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not impose on the economic agent concerned restrictions which are not indispensable to the attainment of these objectives and which does not afford such economic agents the possibility of eliminating competition in respect of a substantial part of the products in question;
  • Fines for the violation of competition legislation are amended to deal with lack of deterrence: a fine imposed on economic agent infringing the competition legislation is calculated on the turnover of the economic agent. This rule for determining the fine is consistent with best international practices, because an economic agent's annual turnover reflects the impact of this economic agent on the market and the damage that may be caused by the violation. In particular, a fine imposed on an economic agent is defined up to 5 percent of its annual turnover during the last financial year, while if an economic agent fails to remedy the legal basis of the violation of competition legislation or repeats the violation, the Agency is authorized to impose a fine up to 10 percent of annual turnover of economic agent. Pursuant to the bill, for determining the size of the fine must be taken into account: damages inflicted by the infringement, duration of the infringement and its scope;
  • Economic agent and other interested person is entitled to directly apply to the court, relevant authority or official in relation with the infringement of the competition legislation and request prevention of this infringement and claim compensation for damages  incurred, as well as to appeal the Agency's decision in court. Accordingly, an economic agent does not pay a fine until the court renders a final decision;
  • The Leniency Program - one of the key tools to detect an economic agent's anti-competitive action on the market in the US and Europe - is being implemented. This Program provides for an economic agent's full or partial release from the sanctions established by competition law if it cooperates with the Agency in the course of investigation of an anti-competitive action. The Leniency Program provides the Agency with the possibility to obtain important information on an economic agent's anti-competitive action;
  • Functions of the Competition Agency and the independent regulatory authorities are effectively segregated – regulatory authorities will be responsible for ex-ante regulation of the sector, while the Competition Agency will be authorized to ex-post  enforcement of the competition legislation;
  • State aid in any form, which distorts competition or creates a threat for its significant distortion is prohibited; The effectiveness of the competition policy and the Agency's efficiency is increased also in part of control of state aid related to facts of unlawful restriction of competition, so that the market's openness and transparency is secured, the principle of equality is observed in the activities of economic agents, and the state body does not impose administrative, legal and discriminatory barriers for entering the market and unlawfully restrict competition;
  • The definition and assessment of the concept of a dominant position in the market is amended: the market share on the relevant market is one of several criteria for determining such a position and other criteria are also taken into consideration: financial position of competitor economic agents, legal barriers for entering the market or expanding the production, buyer's market power and other factors determining market power. The law defines potential cases of abuse of a dominant position and sets criteria for assessment of joint dominance in case of several economic agents on the market;
  • The merger regulation was implementedthe law defines the cases of concentration of economic agents, which imply a merger of economic agents, or gaining of a direct or indirect control over an economic agent or part of its business by purchasing the shares or part of its assets etc. Participation of the same person in the managing bodies of different economic agents is also considered a concentration. Further, the law regulates cases when an economic agent is obligated to notify the Competition Agency about the concentration, as well as cases of its release from this obligation;
  • The concept of unfair competition is implemented for the purposes of the Law of Georgia "on Competition". As a result, economic agent shall in advance possess information on actions that can be considered as unfair competition in order to avoid such actions on the market in the future;
  • The Statute and structure of Competition Agency have to be approved and the Prime Minister of Georgia has to appoint the Chairman of the Agency until April 15, 2014. In addition, the law foresees the development and adoption of secondary legislation (Rules and Procedures for investigation by the Agency, Methodology of investigation, etc.) until October 1, 2014.

Our organization was pointing out the need to reform the competition policy in the country in various reports and recommendations, including:

A competition policy is also important for preventing corruption in the country. The so-called Elite-corruption, which is often discussed in Georgia, in several cases is demonstrated by setting up privileged conditions for individual (having political connections) companies on the market. An independent and strong competition agency equipped with relevant resources and powers is a necessary condition for preventing this type of corruption.

Transparency International Georgia will continue monitoring the process aimed at exercising efficient state supervision over the institutional framework of competition in Georgia.

Author: Natia Kutivadze