Russia: Enforcement Practice of the FAS
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This article describes the enforcement practice of the Federal Anti-monopoly Service (FAS) in fields such as suppressing anticompetitive agreements, combating cartels and considering M&A transactions. It covers recent amendments to the anti-monopoly legislation and explains how the FAS is addressing challenges that arise from the constantly changing realities of the modern world, the activities of the FAS during the covid-19 pandemic. Particular attention is paid to international cooperation as the FAS fruitfully interacts with foreign competition authorities on a bilateral and multilateral basis, sharing experiences in enforcement, advocacy and legislative initiatives.
- Measures of the FAS in connection with the covid-19 pandemic
- Amendments to anti-monopoly legislation
- Anti-monopoly compliance
- Combating violations of large transnational corporations
- Role of the FAS in facilitating international cooperation
Referenced in this article
- Fifth Anti-Monopoly Package
- Recommendations on detection, prevention of cartels and other anticompetitive agreements in the digital economy
- Federal Law No. 33-FZ of 1 March 2020
- Big Digital Cat
- Memorandum of understanding between BRICS competition authorities
- Guiding Policies and Procedures under Section F of the UN Set on Competition
To adapt anti-monopoly regulation to the realities of the covid-19 pandemic, we at the Federal Anti-monopoly Service (FAS) identified priority areas of our work: we efficiently managed to focus on analysing markets for socially significant goods, essential goods and medicines, among other goods, the demand for which has increased owing to the current circumstances.
We have opened a special hotline for citizens and businesses, as well as created operational headquarters, which monitors prices on the markets for socially significant goods.
On a day-to-day basis, specialists of the central office and 84 regional offices from the beginning of March 2020 have been monitoring prices for socially significant goods, the latest data on cartels, unreasonable price rises and the deficit in those commodity markets, as well as alleged concerted actions.
We monitor the prices of the same goods from different suppliers or regions and publish those price comparisons, after which the prices of the goods are adjusted accordingly.
When we identify or receive information about violations of anti-monopoly legislation, we immediately take response measures. One effective measure is the issuance of warnings, which makes it possible to suppress the uncontrolled rise in prices for several goods and food. We believe that the issuance of warnings, which we can serve not only to businesses but also to public authorities, is one of the most effective tools in this regard.
It should be emphasised that maintaining competition over the long-term is essential for the functioning of markets, consumer welfare, innovation, employment and economic growth. We are convinced that implementation of the state policy for the development of competition is not a one-time event but one of the key areas of state policy and one of the factors contributing to the country’s economic growth.
During the pandemic, we strived, on the one hand, to comply with a soft regulatory regime for respectable market players and, on the other hand, to strictly prevent violations, particularly in socially significant markets. At the same time, one of the most important tasks facing the FAS is the development of competition advocacy to make the business community aware of the importance of maintaining a competitive economic environment.
Comprehensive information about the activities of the FAS during the pandemic is published on our official website (a special section ‘Measures of the FAS in connection with the covid-19 pandemic’ has been created) and on social networks, while employees of the agency hold numerous briefings, press conferences and meetings with business representatives, drawing public attention to the importance of competition and the unacceptability of violations of anti-monopoly legislation.
The FAS efficiently responded to the challenges of the pandemic and undertook a number of actions to ease the administrative burden on businesses and form a set of supporting institutional measures in addition to those announced by the president and the government, such as granting deferrals and instalments on the payment of imposed fines to temporarily ease the financial burden on entrepreneurs, as well as suspending certain inspections.
To achieve uniformity of anti-monopoly response measures, the FAS is liberalising the procurement system. All Russian regions have adopted the FAS’s clarifications for the heads of regional offices, for which the covid-19 pandemic is recognised as an unforeseen event. The recommendations should be taken into account when considering complaints, cases of administrative offences and appeals for inclusion in the register of unfair suppliers, as well as when conducting inspections. For example, participants of public procurement who have not fulfilled their obligations owing to the pandemic may refer to it as force majeure.
Amendments to anti-monopoly legislation
The work of the FAS to improve legislation and other regulatory legal acts to ensure freedom of competition and effective protection of entrepreneurship is becoming increasingly prevailing and essential in the period of economic recovery. For instance, we have prepared a draft law amending Federal Law No. 135-FZ of 26 July 2006 on protection of competition (Federal Law No. 135-FZ) in respect of the possibility for business entities to establish purchasing unions to jointly purchase or sell goods. This is primarily aimed at supporting small and medium-sized businesses and expanding their opportunities.
In 2020, on the initiative of the FAS, amendments were prepared for Government Resolution No. 637 of 24 October 2005 on state regulation of tariffs for public telecommunications and public postal services. The amendments exclude from the list of public telecommunications and postal services the ‘provision of long-distance telephone connections’ and clarify the procedure of state regulation of tariffs for those services; the amendments introduce a legal norm in respect of a long-term period of regulation of not less than five years.
Throughout the past year, the FAS has been working on the staged phasing out of analogue broadcasting in 84 regions of Russia. The monitoring of prices for user equipment and the initiation of cases against chain stores has made it possible to stabilise prices and increase the share of digital set-top boxes in the ‘low-price segment’. Our activities have ensured the sustainability and transparency of the entire switch to digital broadcasting, and the tariffs set for public telecommunications services for digital broadcasting have led to a 4.7 times reduction in the average consumer payment.
We have worked to identify and suppress the practice of double standards in the sale of goods by international manufacturers, which has made it possible to equalise the market opportunities between Russian manufacturers and manufacturers of leading international brands in our country’s commodity markets.
As part of the mandatory re-registration of all registered medicine prices in 2020, the FAS conducted an economic analysis and revised over 14,000 medicine prices. Following the revision, prices for over 7,000 medicines were reduced. According to the conducted calculations, savings for the Russia as a result of price reductions will amount to at least 30 billion roubles annually, not only in public procurement but also in the retail sector.
In connection with the covid-19 pandemic and the risk of a shortage of a number of medicines owing to pricing, on the initiative and with the active participation of the FAS, the considerations of state regulation for prices in respect of economic and social criteria were developed and approved by the Decree of the Government of the Russian Federation No. 1771 of 31 October 2020. The Decree established an objective mechanism for price re-registration in the event of medicines shortages of owing to unreasonably low registered prices, as well as subsequent revision based on transparent indicative parameters, including taking into account the levels of prices in reference countries.
In the tariff policy, we focus on the introduction of standards, long-term tariffs and the digitalisation of the industry, as well as regulating the rate of tariff changes within the limits of inflation. We have effectively implemented the new pro-competitive principles of tariff regulation, including the regulation of tariffs using the ‘inflation minus’ principle, which allows for the prevention of the indexation of citizens’ payments for utilities by more than the amount of inflation.
At the same time, Federal Law No. 33-FZ of 1 March 2020 on amendments to Federal Law No. 135-FZ was adopted. It defines anti-monopoly compliance as a system of internal compliance with the requirements of anti-monopoly legislation, the principle of voluntary implementation of compliance and the main (minimum) requirements for the content of internal acts of economic entities.
In accordance with the adopted law, an economic entity has the right to submit to the FAS an internal act or a draft act that forms a system of compliance with the requirements of anti-monopoly legislation. It is aimed at improving the effectiveness of anti-monopoly regulation, creates additional significant mechanisms that encourage economic entities to take measures to prevent violations of anti-monopoly legislation, as well as reduces the risks of bringing economic entities to administrative liability.
We continue to work on adapting our anti-monopoly legislation to the realities of the digital economy that change the configuration of traditional markets, create new markets and form entire ecosystems based on platform solutions and big data, which is also associated with the growing number of violations of anti-monopoly legislation in digital markets and corresponding enforcement practices.
We have prepared and submitted to the government the Fifth Anti-Monopoly Package of amendments to Federal Law No. 135-FZ, aimed at improving anti-monopoly regulation in the digital economy. The draft law introduces new approaches to controlling economic concentration, as well as defines new concepts, including ‘network effects’ in accordance with which an economic entity can be recognised as dominant if it holds a market share of more than 35 per cent and its revenue for the past calendar year exceeded 400 million roubles.
The amendments will not prevent digital platforms from operating; however, subject to their dominance, they will establish a prohibition on discrimination against customers, as well as on monopolistically high prices for the services provided. The mechanisms will apply only to companies that have a substantial turnover and that can have an impact on the market.
In addition, the FAS has developed, implemented and is successfully using a multi-parameter system for identifying and proving cartels: Big Digital Cat. The system enables big data to be automatically received and analysed via open and closed communication channels to systematically identify anticompetitive agreements and build an evidence base.
On a regular basis, the FAS issues methodological recommendations aimed at raising awareness among business, consumers and experts about the peculiarities of detecting and preventing violations of anti-monopoly legislation in the digital era.
For instance, in 2020, we prepared the Recommendations on detection, prevention of cartels and other anticompetitive agreements in the digital economy. The Recommendations expand the applicable terminology by introducing a new term ‘digital evidence’, which is defined as a ‘meaningful piece of information stored or transmitted in binary form’; provide statistical data; and describe practices for identifying digital cartels in which offenders use various software products to implement agreements.
Over the past few years, we have been actively considering cases on abuse of dominance in digital markets against major Russian and foreign companies, ensuring competition in both Russian and global IT markets.
In December 2020, the FAS completed its consideration of the case against Booking.com, initiated at the request of a public organisation of small and medium-sized enterprises called OPORA RUSSIA. We discovered that the company had abused its dominant position by setting price parity clauses for Russian hotels, which means that prices of hotels on Booking.com had to be the same or more favourable than those in other channels of sale (online and offline), and the hotel services available on Booking.com had to be not worse (qualitatively and quantitatively) than in other channels of sales.
The share of Booking.com in the Russian market for providing information on hotels, hostels and other accommodation facilities is 80 per cent, which indicates a significant influence of the company on the market.
To conduct more detailed and comprehensive consideration of the case, we held consultations with the European Commission, as well as with the competition authorities of Austria, Belgium, Germany, Israel and Italy.
The FAS issued two warnings to Booking.com to stop actions that contained signs of violating anti-monopoly legislation; however, Booking.com did not comply with the warnings. The company was, therefore, ordered to exclude wide and narrow parity clauses from contracts with hotels, both in relation to the prices for hotel services and to the terms on which those services are provided.
In August 2020, we established that Apple Inc had abused its dominant position in relation to developers of parental control software and restricted competition in the market for distribution of iOS mobile applications. We also held consultations with foreign partners (the European Commission, the US Federal Trade Commission and the Dutch and Israeli competition authorities) during consideration of the case.
The case resulted in a ruling with remedies requiring Apple Inc not to give preference to its own apps over third-party apps, as well as to ensure that parental control software can be distributed in the App Store without losing important functionality.
The FAS pays great attention to the investigation of cartels as they damage the whole economy and, therefore, harm all market participants, both consumers and businesses.
In August 2020, the FAS recognised six companies that had engaged in the wholesale of orthopaedic products by having violated article 11, part 1, paragraph 1 of Federal Law No. 135-FZ by establishing and maintaining recommended retail prices (RRP), as well as establishing rules for counterparties and applying restrictive measures in relation to ‘violating clients’.
The FAS discovered that to monitor compliance with the established recommended prices by the counterparties, the companies used the Z-Price automatic price monitoring system (price algorithm), which provides users with the ability to control price changes for certain goods, as well as, in real-time, to track dumping by counterparties reselling previously purchased products.
This pricing algorithm has the functionality of unloading detailed reports containing information on changes in prices set by users’ clients, including dumping, and provides the user with an additional function to notify stores about violations of the pricing policy set by the user of the pricing algorithm.
One of the precedent cases was the collusion of the two largest oil traders. The actions of the companies in 2018 influenced the growth of prices for oil products on the exchange and could lead to increase in prices for oil products throughout the country since prices on the exchange are indicative of the market.
We analysed the trade policies of large oil companies (vertically integrated oil companies) to understand how representative indicators formed on the exchange are applicable in practice. It turned out that large companies in one way or another use on-exchange indicators when selling gasoline and diesel engines on the domestic market; thus, the implementation of the anticompetitive agreement by the respondents directly influenced the formation of indices, which were subsequently used by other participants in the commodity market.
After analysing the registers of contracts concluded by the defendants both on the exchange and in the over-the-counter segment, we established that the implementation of the cartel allowed them to resell the same product several times both on the exchange and in the over-the-counter segment to increase the price for the end consumer. At the same time, the goods moved only once – from the vertically integrated oil company to the final buyer – but the price varied significantly.
In this case, the FAS established anti-monopoly control over the exchange trading and gave the market a signal that competitors should not agree on price increases on both the retail markets and the stock exchange.
The decision has been made, and in the near future we will complete the calculation of fines and the preparation of all the necessary procedural documents.
When considering global transactions of economic concentration, the FAS takes into account economic development trends, the specifics of markets and the impact of the transaction on competition in adjacent markets.
The Philip Morris/KT&G agreement on the joint sale in Russia of innovative nicotine-containing products (heated tobacco products and devices for their consumption) under the KT&G brands was approved by the FAS with a behavioural remedy aimed at ensuring competition in the market. The remedy included, among other things:
- the need for prior notification of the FAS about the extension of the agreement;
- the development and approval of a commercial policy for the implementation of innovative nicotine-containing products in Russia;
- the establishment of a list of transparent non-discriminatory criteria;
- the provision of information on the volumes of production and import and sale of those products in the country, as well as during the initial period of the contracts (three years); and
- in the event of an increase or decrease in wholesale prices by over 30 per cent, the submission of an economic analysis of the reasons for the change.
As part of the consideration of the Philip Morris/KT&G transaction, we collaborated with the European Commission and the competition authorities of Australia, Brazil, India, Japan, Korea, South Africa and the United States.
In general, as part of the consideration of global transactions of economic concentration this year, we held consultations, including on the basis of waivers of confidentiality, which is one of the key mechanisms for ensuring fruitful cooperation when considering transactions in several jurisdictions simultaneously, with foreign agencies such as the European Commission, the US Federal Trade Commission, the US Department of Justice and the competition authorities of Australia, Austria, Brazil, Bulgaria, Canada, China, France, India, Israel, Italy, Japan, Korea, Mexico, Netherlands, Romania, Serbia, South Africa, Spain, Sweden, Turkey and Vietnam.
For instance, as part of the consideration of the Alstom/Bombardier case, to carry out comprehensive analysis and make the most optimal decision, considering the risks to competition both in the Russian and global rolling stock assembly markets, we took into account the information received from foreign colleagues on the approval of this transaction, including on the basis of waivers (the European Commission and the competition authorities of Brazil, Israel, Canada, Mexico, the United States and South Africa), as well as the results of a survey of consumers and competitors of the company and parties to the transaction. We eventually approved this transaction without remedies.
The FAS takes an active part in the development of regional (the Commonwealth of Independent States (CIS) and the Eurasian Economic Union (EAEU)) and bilateral economic cooperation in respect of protection of competition.
Together with the anti-monopoly authorities of the CIS member-states, we have implemented a set of measures aimed at preventing an explosive rise in prices for essential products and socially significant non-food products, as well as preventing the emergence of a shortage, including carrying out inspections and using anti-monopoly response measures. In some countries, in agreement with the business, a mechanism was applied to regulate prices for certain goods, apply measures to promote competition for manufacturers and sellers of those goods and work with the media to objectively cover events and activities of anti-monopoly authorities.
An important area of international cooperation of the FAS is cooperation within the framework of the EAEU. We interacted with the Eurasian Economic Commission on more than 20 statements on signs of violation of general rules of competition, discussed the introduction and extension of state price regulation, as well as assessed the consequences of the proposed protective measures on the state of competition in the EAEU markets.
In 2020, at the EAEU site, special attention was paid to the formation of common energy markets, in particular a single gas market. This initiative is aimed at improving the energy security of states, increasing the reliability, availability and quality of gas supply to gas consumers, as well as increasing the economic efficiency of using gas transmission systems.
Strengthening cooperation between the BRICS countries in the field of anti-monopoly policy was ensured, among other things, through the signing of a declaration on the extension for an open-end period of the memorandum of understanding between BRICS competition authorities on cooperation in the field of competition law and policy, as well as the elaboration of an initiative to establish the BRICS International Centre for Competition Law and Policy.
At the same time, the FAS proposed to develop model recommendations on the application of a waiver of confidentiality when considering global transactions of economic concentration in the BRICS countries.
To confirm the intentions to strengthen cooperation to protect the interests of consumers and support business, the Joint Statement of the Heads of the BRICS Competition Authorities on consolidating efforts to combat the negative economic consequences of the covid-19 pandemic was adopted.
The FAS also continued to interact with international organisations such as the Organization for Economic Co-operation and Development, the International Competition Network and the United Nations Conference on Trade and Development (UNCTAD).
The FAS is trying to participate actively in shaping the global competition agenda.
One of the most important activities of the FAS at the UNCTAD site in recent years has been the promotion of the initiative to create a mechanism for international cooperation in combating restrictive business practices, in particular in the investigation of cases of violation of anti-monopoly legislation with a cross-border effect, as well as global transactions of economic concentration.
The Guiding Policies and Procedures under Section F (International Measures) of the UN Set on Competition, which consolidates a set of tools for international cooperation in combating restrictive business practices, at the initiative of the FAS have been developing at the UNCTAD over the past three years and were adopted within the framework of the Eighth UN Review Conference of the Set on Competition in 2020.
Moreover, on our initiative, the issue of combating cross-border cartels was included as a priority area of the UNCTAD’s work for the next five years. A working group on cross-border cartels was created, which will help to develop new mechanisms for combating cross-border cartels.
In its work, the FAS strives to improve enforcement practice and legislation, as well as to create pro-competitive rules of the game in the markets that are common to economic entities of all forms of ownership, while observing the principles of competitive neutrality.
Summing up the results of the year, under the present economic conditions, we have faced difficult tasks and have proposed solutions that will not only contribute to the continuation of economic growth and the investment attractiveness of the country, but also improve the welfare of the population.