The European Antitrust Review 2014 • Section 3: Country chapters
Latvia: Competition Council
It has been said that the competition policy seeks to promote efficiency and that the best way to achieve this is to be as efficient a policy enforcer as possible. This self-directed observation resonates with plans and actions the Latvian competition authority has chosen to undertake to face current challenges.
It has been 22 years since fair competition in Latvia has been protected by law. In this time, the national economy has undergone enormous development, transforming completely from a planned to a market economy, building up competitiveness and successfully joining the EU. And the competition protection has also grown – today’s Competition Council can rely on sound legislative framework and professional experience gained over their 22 years.
However, not striving for further development would lead to a weaker institution, as obstacles to competition protection are ever-changing.
Taking into account still-scarce funding available to the Competition Council (after austerity measures taken in response to economic crisis between 2008 and 2009), the growing complexity of the infringement cases and imperfections in overall competition culture, we have been looking for ways to ensure the most efficient competition enforcement. Thus, the Competition Council (the authority) has defined its key priorities as follows:
- focusing on fighting the most severe infringements that harm competition and cause serious damage to the welfare of society;
- increasing preventive work by providing systematic competition advocacy activities towards market players as well as public and municipal institutions; and
- strengthening the capacity of the authority to successfully carry out the first two priorities.
Starting point – the authority’s rising capacity
The main asset and also the key factor for the success of the authority is its employees. Though relatively few in number (40 altogether, 21 case handlers), they are professional, experiences and enthusiastic. Having this advantage, it is the authority’s responsibility to find the most effective way of organising its work. Thus, having set the fight against the most severe infringements as its priority, the Competition Council has changed its organisational structure and has added to its two-sector specific analytical departments a provisional cartel unit and developed an IT and economic data analysis unit.
The cartel unit, created in February 2013, aims to intensify processes of cartel detection and prevention, including, inter alia, promoting the leniency programme and organising such competition promotion activities as seminars for market players and public officials, publications in mass media, interviews and discussions with undertakings and lawyers. The changes have already started to pay off: not only has the number of initiated infringement cases increased, but the public discussions and awareness have also risen. The new IT and economic data analysis unit’s expertise in obtaining and analysing electronic and economic data evidences provides great support in overcoming the negative side effect of market participants being more knowledgeable in competition matters, namely, being more skilled in hiding their infringements.
Other improvements that strengthen the Competition Council include efforts to lessen bureaucracy, motivate personnel, improve the information flow both within the institution and with our clients by implementing more transparency in decision-making, and discussing and explaining our activities to our stakeholders.
Nothing less than heavy cases
The infringement cases are getting more complicated and burdensome; however, in-depth economic analysis – for example, cases on predatory pricing or, conversely, on overly high prices or applying new legal concepts – cannot keep the Competition Council from taking up the case. Moreover, given our limited resources, we cannot be the firefighter in every competition dispute – budget resources should be spent on high-impact enforcement. However, the caseload of past years show that up to 30 per cent of decisions following the initial analysis of the situation are taken on non-initiations of case. Non-significant issues that do not have an appreciable impact on the market and have virtually harmed only the relations between two competitors have also been evaluated within many infringement cases.
Therefore, to avoid the ineffective spending of the Competition Council’s and the courts’ resources, we are working on amendments to the Competition Law to allow our authority to prioritise its investigative activities and drop inadequate cases more easily. Alongside these amendments we are also working on guidelines that would clearly set the main principles of such case prioritisation.
The Competition Council has recently taken decisions in many challenging cases in respect of economic and legal analysis, which has affirmed the authority’s capacity and strengthened my belief in the need of prioritisation. Among such cases is the decision to fine Latvia’s only collective copyright management association for abuse of dominant position by applying overly high royalty tariffs for music airplay in retail spaces and customer service areas to small and medium-sized business. Their tariffs were substantially higher than equivalent tariffs not only in the neighbouring Lithuania and Estonia, but also in the majority of other EU member states. Another significant and weighty case, requiring electronic data analysis, concerns long-term bid rigging that was carried out by almost 30 construction companies.
Competition protection also involves the effective control of concentration operations. In comparison to the years before the economic crisis, there are now at least five times fewer merger cases; however, the tendency shows that mergers are often very complicated and require complex binding obligations. Take, for example, the merger of owners of the two leading private TV channels with Latvian language content. The merger was cleared with binding conditions that, in respect to our authority, require almost constant monitoring of the market situation for the next five years. This sector experiences rapid development of technologies, which for the competition authority are clearly impossible to predict, thus our obligations in some respect have not been effective. To solve such considerations in future, we are looking for special solutions for sectors working with such rapidly changing technologies.
Creating the environment for competition
Alongside competition law enforcement, competition advocacy in all its forms is undoubtedly a useful tool for creating a level playing field for all undertakings.
A public opinion survey carried out by our authority in late 2012 showed that market participants agree that fighting particular infringements is equally as important as the Competition Council’s opinions on draft legislation, regular information to mass media, and educational activities for entrepreneurs. These advocacy activities correspond to the priorities we have set in this field.
As the Latvian Competition Council devotes serious efforts to sector inquiries, we are interested to get as much as possible out of them. Therefore, our sector inquiries are not only a method for detecting violations of competition law, they are also a powerful competition advocacy tool, as the information gathered within such inquiries can reveal competition distortions and be used in discussion with sector-specific law makers. Sector inquiries can also provide useful information for market participants and consumers on their risks and opportunities concerning the relevant market.
Our authority has agreed on principles of how to define priority markets. According to these principles, we have recently been repeatedly looking at markets that have long been dominated by monopolies (eg, postal services, gas, electricity and heating supplies), markets with significant impact on household expenses (eg, food and non-food sales, including pharmaceutical products, fuel, financial services and electronic communications), state and local government procurement in construction services, markets in course of regulation changes (eg, terrestrial broadcasting, health care) as well as ex post monitoring of markets where infringements have been found (eg, energy resources, transport services, port services).
A long-term competition issue addressed by our advocacy activities is the involvement of municipal authorities in commercial activities and their impact on competition. Recently finished research about this issue revealed that municipalities are very eager not only to keep traditional sectors (eg, infrastructure, public utilities), but are also establishing their enterprises in sectors where free competition successfully operates. Such in-house service providers can work for their owners without participating in public procurement, thus distorting the competition even more. In close cooperation with the Latvian Chamber of Commerce, we have strongly recommended to review and limit the application of such in-house principle.
Other substantial sectors where we have extensively provided our expertise to lawmakers are regulation in the digital pay-TV market, pharmacy regulation and the waste management sector, among others.
To the educational efforts aimed at business, we have also chosen to address organisers of public procurements, as their knowledge is essential in revealing bid rigging and in promoting competition by creating open and fair procurements.
Next Chapter: Lithuania: Competition Council