Russian and European International Competition Law | Free Essay Example

Russian and European International Competition Law

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Introduction

Competition law is a regulation that is enacted to promote market rivalry. It achieves this by regulating anti-competitive practices in the business arena. The legislation is enforced through a partnership between the private and the public sectors. In the United States and the European Union, the edict is referred to as the antitrust law. On their part, China and Russia call it the Antimonopoly law. Competition law originated from the Roman Empire. Dabbah notes that business practices of different entities, such as the government and private corporations, have always been subject to inquiry and strict sanctions.1 Competition laws were adopted all across the globe in the 20th century.

Several competition decrees are adopted in the world. However, two are most common. The first is the European Union Competition Law. The second is the U.S Antitrust Law. To ensure the acts are followed by market traders as required, national and regional authorities from different parts of the world develop a wide range of support and enforcements systems. However, competition laws only apply to businesses operating within given territorial boundaries of member states. However, the decrees cover unjust cases practised beyond specific territorial borders in scenarios where the trade has a major impact at the nation-state level.2 Also, nations can permit extraterritorial application of the laws in rivalry business scenarios based on the effects policy.

Competition decree is made up of three primary principles. The first element entails proscribing business practices that hinder free trade in the country. The second aspect includes managing unification and acquisitions of large companies. Gerber thinks that the law prohibits any operation that threatens a competitive process between joint ventures3 The final principle involves the interdiction of abusive conduct by corporations dominating the market. Several practices are prohibited. They include, among others, overpricing of goods and services.

In this paper, the author will critically compare and contrast competition law on restrictive business practices in Russia with provisions of Article 101 of the Treaty on the Functioning of the European Union. To achieve this objective, the author will refer to various legislative instruments, case laws, and relevant legal policies.

Russia’s Competitive Law on Restrictive Business Practices

The adoption of the Law on Competition and Limitation of Monopolistic Activity in Goods Market is a recent phenomenon in Russia. The legislation was introduced on March 22, 1991. The decree was later amended on July 15, 1992. The adoption of the rule led to the establishment of the State Committee on Anti-Monopoly Policy and Promotion of New Economic Structures (SCAP). The body was formed to manage, control, and enforce the new law on restrictive business practices. Since 1992, Russia is considered by other nations in the world to have the largest competition bureaus in the globe. The reason for this is because the nation has eighty-two regional and local committees tasked with the responsibility of implementing the law4

The initial law was amended in 2006. The amendment gave rise to a new decree called the Russia Law on the Protection of Competition or The Competition Law. The new legislation replaced the one adopted in 1991. The primary purpose of the amendment was to streamline the previous act and introduce new approaches and concepts. The new law is supplemented by various implementing guidelines adopted by a Russian body referred to as a Federal Antimonopoly Service (FAS).

Practices Prohibited by the Russian Competition Law

The Russian Competitive Law on Restrictive Business Practices looks into several economic cases related to rivalry. The first matter addressed by the decree is the abusive of a dominant market position or monopolisation as stated under Article 5. Orlov believes that the provisions of the Russian competitive law prohibit such practices as discriminatory contractual terms and monopoly pricing5 Besides, the article proscribes against the impending entry and infringement of pricing guidelines.

The second aspect addressed by the Russian law is Restrictive Business Practice (RBP) under Articles 7 and 8. The provisions ban such practices as discriminatory sales and conditions and price and non-price predation. Other factors monitored by the decree are geographic market restrictions and exclusive dealings.

The third issue addressed by the Russian competitive law on restrictive business practices is price-fixing and other collusive conduct. As stated under Article 6 of the decree, the provision looks into matters to do with the concurrence and rigorous actions by competitors. The actions prohibited are those that are aimed at dividing markets and customers, fixing prices and establishment of mark-ups6 Other behaviours banned by the provision include the refusal to sell goods and services, rebating, and impending market access.

The fourth issue addressed by the Russian competitive law on restrictive business practices is mergers, acquisitions, liquidations, and corporate reorganisation (M&A). The provision is covered in Articles 17 and 18. They aim at deterring business corporations from gaining market dominance through such means as acquisitions, associations, mergers, and affiliations. To ensure that business entities do not violate the law, extensive registration requirements and authorisation formulas have been put in place.

Other provisions in the Russian competitive law on restrictive business practices that govern trade include those found in Articles 13 and 14. The two acts address the right of access to information. On their parts, Articles 19 and 21 focus on divestitures.

Orlov observes that the state and regional anti-monopoly committees can penalise and issue different forms of orders to address competition-related cases7 Infringement of the laws is backed by legal sanctions and prison sentences.

Since the adoption of the law, numerous complaints have been presented to the State and Regional Anti-Monopoly Committee. Most of the cases are related to Articles 5 and 7 of the competition law. Whelan thinks that the number of cases reported is an indication of the fact that the level of enforcement in Russia surpasses that found in many OECD nations8 Russia has a high level of industrial concentration and privatisation.

The situation is associated with a big number of complaints linked to restrictive business practices and abuse of dominant market position. On their part, such cases as price-fixing and collusive practices are linked to changes in the market environment and high levels of inflation. According to Elhauge and Damien, cases of inter-firm anti-competitive arrangements on price-fixing during inflation are, at times, difficult to control and monitor.9 Also, high levels of privatisation are associated with increased complaints related to mergers and acquisitions.

A Review of Article 101 of the Treaty on the Functioning of the European Union

Article 101 of the Treaty on the Functioning of the European Union aims at regulating cartels that may disrupt free trade between member states. The cartel in business refers to the agreements between competing corporations to control the prices of goods and services or prohibit a new company from entering the market. Jones notes that cartels come from oligopolistic industries10 In the commercial sector, there are few sellers. The products of trade are often commodities. Cartels affect free-market competition through such practices as a reduction of total industry output, bid-rigging, price-fixing, and the creation of common sales agencies. Other actions include modifying conditions of sale and fixing market shares. The primary goal of cartels is to gain huge profits and limit competition in the market.

Practices prohibited by Article 101

Article 101 of the Treaty on the Functioning of the European Union prohibits several practices. One of the issues addressed by the law is any action that is not in line with internal market concurrences on undertakings. The deeds include those that prevent, distort, and restrict free competition. Some of the practices barred include controlling technical developments, markets, and production. Other practices involve those to do with fixing of purchase. The other prohibited actions include the application of biased business terms to the same trading parties and finalisation of contracts without the consent of the involved entities. Jones and Sufrin observe that dissimilar terms of transactions reduce the competitive power of corporations.11

The stipulations in Article 101 of the Treaty on the Functioning of the European Union may fail to apply in several scenarios. The cases include instances where an agreement or cluster of concurrences between undertakings, any decision or category of verdicts by the association of undertaking, and any rigorous or cluster of concerted practices that help to enhance production and distribution of goods and promoting of economic progress while enabling customers to gain a fair portion of the benefits.

Any parties from nations under the European Union that violate the decrees of Article 101 risk having hefty fines imposed on them by the European Commission.12 However, the body does not have the power to enforce prison sentences.

Similarities between Russian Competitive Law and Article 101

Russian competitive law and Article 101 of the Treaty on the Functioning of the European Union cover different jurisdictions. However, the decrees share several similarities.

The Aim to Prevent Restrictive Business

The primary aim of both the Russian competitive law and Article 101 of the Treaty on the Functioning of the European Union involves preventing private restrictive business practices that impact negatively on competition and consumer welfare. The practices prohibited by the two laws are similar. Levy, Sven, and Waksman note that in both cases, such acts as price-fixing are illegal and against the set guidelines13 The practice can be prosecuted as a criminal offence. Under both Russian and European Union provisions, price-fixing is termed as the concurrence between corporations in a similar market to buy and sell commodities in a manner that may lead to the generation of profits that are more than normal.

Control Abuse of Dominance

Both the Russian Competitive Law and Article 101 of the Treaty on the Functioning of the European Union prohibit undertakings associated with dominant market power. Companies all across the globe strive to be the leaders in the business world. They also desire to maintain a huge competitive advantage over their rivals. However, most leading corporations are involved in the abuse of dominant position cases. Hüschelrath and Nina are of the view that the abuse of dominance is a common practice in Russia and other nations under the European Union.14

The exploitation of domination takes place when a leading company engages in practices that prevent competitors from joining the market. The primary reason for this conduct is to reduce rivalry. Another objective is to make sure that the company remains the dominant player in the industry. Both the Russian and EU governments employ similar castigations for the crime. The penalty entails a fine and forfeiture of revenue generated from such practices. Under Article 23 of the Russian Competition Law, the country’s Federal Antimonopoly Service (FAS) has the right to demand payment of all revenues collected through abuse of dominance practices. Failure to comply with the rule and payback leads to stiff fines imposed on the individuals or corporations involved.

Leniency

Both the Russian Competition Law and Article 101 have provisions of leniency for decree violators. According to the two legislations, immunity and reduction of fines are awarded if the businesses contact the relevant commissions charged with the responsibility of overseeing the laws early. Depending on the information provided, a whistleblower may be granted full exemption from the fines15

Regulations on Block Exemptions

The Russian Competitive Law and Article 101 of the Treaty on the Functioning of the European Union have similar regulations on block exemptions. In part 2 of Article 13 of FAS, the provision states that the Russian government can impose exceptions for a limited duration for specific practices or concurrences that are in line with the criteria established in part 1 of Article 13. In Article 101, the block exemption principle applies to most vertical agreements. Accords under this ruling are considered legal. However, they should not surpass a market share threshold of 30% or cause hardcore restraints in the business.16 Various restrictions of the exemption guideline in Russia are compatible with the provisions in Article 101. The constraints include:

  • Restriction of sales to end-users by a trader.
  • Restriction of the buyers from vending manufacturing components to customers who use commodities that compete with the purveyor’s products.
  • Restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the dealer to another client. The restriction is made where such a constraint does not limit sales by the consumer or the buyer.

Cartel Management

The Russian competitive law and Article 101 of the Treaty on the Functioning of the European Union share similar principles on the aspect of cartels. The similarity is brought about by the fact that FAS decided to make cartel laws that were in line with the EU competition law, OECD recommendations, and International practices. Over the past number of years, Russia has strived to intensify cartel enforcement. The number of investigated cases increases each year. In 2013, for example, FAS probed and estimated 179 complaints. It is noted that 80% of the cases were linked to bid-rigging.17

One of the main factors associated with extensive bid-rigging is the widespread practice of tender provision. Both Russian Competition Law and Article 101 of the Treaty on the Functioning of the European Union consider cartels as arrangements between competing undertakings. According to the Russian decree, cartel agreements are considered illegal if they lead to market sharing, boycotts, price-fixing, and reduction of product output. The restrictions are similar to those documented under Article 101.

The issue of cartels has been a major problem in both Russia and European Union Member states. Both Russia and the EU have handed hefty fines for hardcore cartels over the years. In 2008, for example, the EU Commission, which is charged with the responsibility of overseeing competition laws of member nations, fined three corporations a total of €1.3 billion.18 The companies were found guilty of violating Article 101 by engaging in illegal market sharing and exchange of sensitive information concerning the Car Glass Case. Other hefty fines imposed on cartel participants include Elevators and Escalators fined a total of € 1.106 billion including a €553 million fine on each of E.ON and GDF Suez in 2007 and Vitamins fined a total of €885 million including a €462 million fine on Hoffman-La Roche. One of Individual cartels fines was imposed on Saint-Gobain. The sum totalled to €896 million.19

Aid Restrictions

Both Russia Competitive Law and Article 101 of the Treaty on the Functioning of the European Union place restriction on aids. The two decrees prohibit assistance from any entity that would encourage anti-competition. In cases where undertakings or products receive assistance from the public funds or the State, concerns about favoured treatment are witnessed20 The practise acts as a form of protection to the firms being helped. The aid may be aimed at disadvantaging other companies operations. Due to this, normal competition is disrupted. Market objectives are also impacted.

Similar Merger Laws

Both Russian Competitive Law and Article 101 of the Treaty on the Functioning of the European Union have similar principles on Mergers and Acquisitions and Joint ventures. The two decrees require competitors to obtain authorisation from relevant bodies. In Russia, both foreign and native corporations need approval from the Federal Antimonopoly Service. According to Article 101, firms from EU member nations planning to merge should seek authority from relevant government authority. For mergers to be valid, both laws consider each company’s turnover thresholds. According to Article 101, the EU offers different alternatives for merger turnover.

The first option requires that all firms planning to merge have a combined turnover of over €5000 million and EU-wide revenue for each of at least two of the corporations be over € 250 million. The second alternative requires all merging entities to have worldwide earnings of over € 2500 million. Combined turnover for at least three of the companies should exceed € 100 million. Revenues of two of the firms among the three should surpass €25 million.21 On its part, Russia requires parties or groups planning to amalgamate have a joint asset value exceeding 7billion Rub. Besides, the corporations should have combined earnings from sales of goods in Russia of over 10 billion Rub during the previous calendar year.22

Horizontal and Vertical Agreements

It is another similarity between the two legislations. Horizontal concurrences are concords between competitors. Rivals are legal entities in doing business in the same market. On its part, vertical agreements are accords between suppliers and consumers. Under article 11 of Russian Competitive Law, horizontal concurrences are prohibited if they lead to capacity or production restrictions, refusal to finalise contracts with customers or sellers, and price-fixing. Also, the agreements are prohibited if they result in any restriction of competition. There are several cases in the EU touching on the violation of horizontal agreements.

One of them is No. 40/73 Suiker Unie and others v Commission (1975) ECR 166323 It was a sugar cartel legal battle. In this case, it was ruled business was affected and consumers denied their privileges. A trail related to vertical agreements is C-6 and 58/64 Consten and Grundig v Commission (1966) ECR 229.24 In the case, it was ruled that it is not compulsory to wait and see whether the trade will be impacted in the way planned by the accord. According to the Judges, there is no need to take into account the real impact of a concurrence once it is evident there is intent to restrict, distort, and prevent competition.

Differences between Russian Competitive Law and Article 101

Russian Competitive Law and Article 101 have numerous similarities. However, the decrees also have several differences. The variations include

Different Jurisdictions

Some of the principles of Russian Competitive Law apply to countries that comply with the laws of the Eurasian Economic Community (EEC). The nations include Belarus, Armenia, Kazakhstan, and Kyrgyzstan. However, according to EEC Agreement, Russian Competition Law does not apply if geographical borders of markets cover the territory of two or more member-nations off EEC. Also, the decree does not apply where at least two corporations involved in the trade are incorporated into two different member-states covered by EEC Accord.

Article 101 applies to member states of the European Union. Levy et al. notes there are 28 member nations and each is a party to the initial treaties of the union.25 Due to this, the nations are eligible to concessions and obligations of membership. All member states are expected to adhere to the laws set by the EU. The case is different from other organisations. Parties of the EU agree collectively on the laws to be passed. Due to this Article 101 establishes principles of competition laws for the member states.

Penalties

Infringement of Russian Competition and Article 101 is penalised by unlimited fines. Article 101 is implemented by the European Union. On is part, Russian Law is administered by Federal Antimonopoly Service. Despite the two laws stipulating chastisements for violations, FAS principles on punishment are more severe compared to those of Article 101. The reason for this is because, under Russian Competitive Law, violators can be subject to prison sentences of up to 7years. However, Article 101 has no provision for prison terms.

Establishment of New Entities

Russian competitive Law and Article 101 of the Treaty on the Functioning of the European Union differ in terms of establishment of new entities. According to article 27 of Russia’s Decree, creation of a new company through the contribution of shares and property another business corporation requires preliminary authorisation. Besides, several specific thresholds must be met. The requirements are the asset value of founder(s) whose shares are being contributed by over RUR 3billion. In terms of revenues, the company(s) contributing shares towards the creation of a new firm should exceed RUR 6 billion during the previous financial year.26 Also, the founder firms should be included in the 35% register.

Exemptions

Compared to Article 101, Russian Competition Laws do not have any general exclusion for specific spheres of the economy or types of ventures. However, the decree does not apply to other federal regulations or acts of the council of the Federation. Also, the law exempts actions of several entities, such as state bodies, local government, and federal bodies of executive power. On its part, Article 101 provisions apply to several parties, such as individuals, nationalised firms, non-profit organisations, partnerships, and state-owned commercial entities. Other entities include public agencies with regards to specific activities and limited partnerships.

Appreciable Effect

Article 101 differs from Russian Competitive laws on appreciable effect. According to Dabbah, the former requires a substantial impact on trade between member states for the Commission to get involved.27 There are instances where a contract that disrupts competition lacks a significant impact on business between two or more countries that belong to the bloc. In such cases, Article 101 is inapplicable. Besides, Article 101 can apply to companies not located in member states. However, for the law to be effective in such instances, there has to be evidence indicating that the corporation’s practices affected trade between EU nations.

Market Share and Dominance

Both Russia Competitive Law and Article 101evaluation of market power and dominance entails considering market share. However, the two decrees defer in terms of what percentage of shares ensures dominance. Under Article 101 of the EU, market share, which exceeds 80%, is enough to prove dominance. Share of 50% is considered to be presumptive of control. 40% is not considered enough to ensure power. The final provision states a party with a market share of less than 20 – 25% cannot be termed as dominant.28

Under the Russia Competitive Law, a corporation with more than 50% of market share is presumed dominant. In cases where a firm has more than 35%, dominance must be established by the Federal Antimonopoly Service. A company with less than 35% cannot be considered dominant. However, it can be certified dominant if FAS institutes a case for dominance based on such aspects as evaluation of competition and stability of market share. Collective control is achieved if the market share for each company surpasses 8% and the cumulative exceeds 50% for not more than 3 firms and 75% for not more than 5 corporations29

Conclusion

Competition is a common feature in the business world. The rivalry encourages firms to produce and offer customers with goods and services at most favourable terms. The competition also leads to innovation, efficiency, and reduction in products prices. To be successful, positive business rivalry requires corporations to act independently of each other. However, the firms should use the competitive pressure exerted by others to their advantage. The desire to be a leader in the market is associated with practices aimed at disadvantaging competitors. The need to curb such actions saw the advent of competition law. According to Whelan, competition Law is a decree that aims to prevent restrictive business processes and ensure free and fair trade.30

Comparison between Russian Law and Article 101 of the Treaty on the Functioning of the European Union has been used to show different principles of business. The provisions guide and ensure no undertakings undermine competition by engaging in anti-competitive practices.

Reference List

Dabbah, MM, International and comparative competition law, Cambridge University Press, Cambridge, 2010.

Elhauge, E & G Damien, Global competition law and economics, Hart, Portland, 2011.

Gerber, DJ, Global competition: law, markets, and globalisation, Oxford University Press, Oxford, 2012.

Graham, C, EU and UK competition law, Pearson Longman, Harlow, England, 2010.

Huschelrath, K & L Nina, ‘A methodology for the evaluation of competition policy’, European Competition Journal, vol. 6, no. 2, 2010, pp. 397-425.

Jones, A & BE Sufrin, EU competition law: text, cases, and materials, 5th edn, Oxford University Press, Oxford, 2014.

Levy, N, F Sven & A Waksman, ‘A comparative assessment of the EU’s reforms to merger control and antitrust enforcement’, European Competition Journal, vol. 11, no. 2-3, 2015, pp. 426-464.

Lorenz, M, An introduction to EU competition law, Cambridge University Press, Cambridge, 2013.

Organisation for Economic Co-operation and Development, Country Reviews of Competition Policy Frameworks2016. Web.

Orlov, V, Introduction to business law in Russia, Ashgate, Farnham, 2011.

Whelan, P, ‘Sanctions in EU competition law: principles and practice’, European Competition Journal, vol. 11, no. 2-3, 2015, pp. 637-640.

Footnotes

  1. MM Dabbah, International and comparative competition law, Cambridge University Press, Cambridge, 2010, p. 65.
  2. C Graham, EU and UK competition law, Pearson Longman, Harlow, England, 2010, p. 78.
  3. DJ Gerber, Global competition: law, markets, and globalisation, Oxford University Press, Oxford, 2012, p. 95.
  4. V Orlov, Introduction to business law in Russia, Ashgate, Farnham, 2011, p. 86.
  5. Organisation for Economic Co-operation and Development, Country Reviews of Competition Policy Frameworks, 2016. Web.
  6. E Elhauge & G Damien, Global competition law and economics, Hart, Portland, 2011, p. 81.
  7. Organisation for Economic Co-operation and Development, Country reviews, par. 8.
  8. P Whelan, ‘Sanctions in EU competition law: principles and practice’, European Competition Journal, vol. 11, no. 2-3, 2015, p. 638.
  9. Elhauge & Damien, Global competition law, p. 98.
  10. A Jones & BE Sufrin, EU competition law: text, cases, and materials, 5th edn, Oxford University Press, Oxford, 2014, p. 105.
  11. Jones & Sufrin, EU competition law, p. 66.
  12. Organisation for Economic Co-operation and Development, Country reviews, par. 9.
  13. N Levy, F Sven & A Waksman, ‘A comparative assessment of the EU’s reforms to merger control and antitrust enforcement’, European Competition Journal, vol. 11, no. 2-3, 2015, p. 430.
  14. K Huschelrath & L Nina, ‘A methodology for the evaluation of competition policy’, European Competition Journal, vol. 6, no. 2, 2010, p. 400.
  15. M Lorenz, An introduction to EU competition law, Cambridge University Press, Cambridge, 2013, p. 112.
  16. Orlov, Introduction to business law in Russia, p. 103.
  17. Elhauge & Damien, Global competition, p. 92.
  18. Graham, EU and UK competition law, p. 118.
  19. Organisation for Economic Co-operation and Development, Country reviews, par. 21.
  20. Huschelrath & Nina, ‘A methodology’, p. 99.
  21. Jones & Sufrin, EU competition law, p. 109.
  22. Orlov, Introduction to business law in Russia, p. 96.
  23. Ibid.
  24. Jones & Sufrin, EU competition law, p. 117.
  25. Levy et al., ‘A comparative assessment’, p. 455.
  26. Gerber, Global competition, p. 121.
  27. Dabbah, International and comparative competition law, p. 86.
  28. Organisation for Economic Co-operation and Development, Country review, par. 8.
  29. Orlov, Introduction to business law in Russia, p. 110.
  30. Whelan, ‘Sanctions in EU competition law’, p. 642.