Latvia: Competition Council

Protecting competition in Latvia for 25 years

For everyone who competes and creates the competitive environment of the market, 2017 was special. In 1992, 25 years ago, grounds for competition supervision were founded in Latvia when our country had made the choice to move towards free market economy and undertakings not only received an opportunity for unlimited development, but also got obligations to compete fairly.

All these 25 years the Competition Council of Latvia (the CC) has been working with a strong confidence, that values of free market, including fair competition, shall be protected. To highlight the importance of competition and thus its protection, in a festive atmosphere the 25th year of free competition in Latvia was celebrated by the anniversary conference ‘Towards fair competition: past, present, tomorrow’.

Significant decisions concerning complex competition infringements

In 2017, the CC saw another achievement, which at the same time was a cautionary tale for undertakings. Namely, the CC adopted two complicated decisions, in ‘hybrid’ cases, as prohibited vertical and horizontal agreements. Both cases confirmed the CC team’s ability to effectively deal with complex concepts and analysis of large amount of complicated data.

At the beginning of the year, the CC established prohibited agreement between SIA Rīgas satiksme, a provider of public transport services in the capital of Latvia, Riga, and PS Rīgas mikroautobusu satiksme, a provider of minibus transport in Riga. The CC stated that a competition restriction was created between the two only competitors in Riga public transportation market and passenger fares being set at the fixed minimum level violated principles of fair competition, thus preventing users of public transport from choosing the most favourable provider of public transport services in terms of price. The CC imposed fines on both undertakings in amount of almost €2.3 million.

Case prioritisation or alternative methods to avert alleged competition restrictions

Since 2013, the CC actively plans its actions in accordance with the authority’s case prioritisation strategy. It provides the CC to primarily deal with competition infringements that affect the largest part of markets and society, while possible signs of distortions of a smaller scale are not left unattended as well.

This way, the CC issued five warnings to 15 undertakings concerning possible engagement in cartels and carried out six negotiation procedures, of which five cases averted abuse of dominance. In most cases, the CC implements negotiation procedures with undertaking that are owned by the state or local governments, and additionally to alleged abuse of market power, violation of competition neutrality is involved.

Using alternative methods without initiating a formal case investigation and thus imposing fines have been proven effective. Since 2013, none of the warned undertakings have gotten in the sight of the authority repeatedly. It is worth mentioning that last year the CC signed a cooperation memorandum on the implementation of the ‘Consult first’ principle launched by the state, encouraging the customer-oriented activity of public administrations authorities which is the general direction of public administration of Latvia in future. The idea of the ‘Consult first’ principle goes hand-in-hand with both warnings and negotiation procedures.

2017: big for mergers

In 2017, the CC adopted 13 decisions in total on planned mergers. In 11 cases, the CC detected no possible harm to the competition, thus, the mergers were cleared. One merger in the television programmes wholesale market and advertising market on TV was cleared with remedies.

For the first time in eight years, the CC blocked a notified merger. The CC prohibited SIA Rimi Latvia (one of two largest daily consumption goods retailers in Latvia) to use retail sale premises in the Domina Shopping trade centre in Riga. The CC concluded, that this merger would cause severe damage to competition by strengthening the retailer’s positions in the market and decrease possibilities of other competitors to compete effectively.

While reviewing the merger, the CC implemented an isochronal method for the first time, allowing it to perform the establishment of geographic market more precisely.

Additionally, in 2017 the CC held 50 pre-merger consultations to make it easier for undertakings to prepare merger notification, and so the CC can review these notifications within the shortest period possible. This is a record number of pre-merger consultations in one year for the CC.

Developments in markets attract the attention of the competition authority

In 2017, the CC provided supervision of over 13 markets, where problematic issues of competition were established, and searched for solutions.

Among them was the supervision over the liberalisation of the gas delivery market that took place on 3 April 2017. The CC carried out an assessment of the risks of an unhindered market opening by the previous monopolist. The CC stated that AS Latvijas Gāze, as the former monopolist, shall have special responsibility for its activities, including cooperation terms with customers, to avoid limitations for consumers to be able to choose their gas supplier with the most beneficial offer.

The CC also pointed out that the successful opening of the natural gas market is mostly depending not only on activities of AS Latvijas Gāze, but also on activities of new traders and consumers.

Furthermore, the CC looked closely into pharmaceutical network concentration, establishing that within the last five years, the biggest pharmaceutical chains had increased the number of their drugstores putting out of business individual or smaller pharmacies. So, without changes in total quantity of pharmacies in Latvia, market concentration increased and options for consumers became more limited.

Considering the market concentration of pharmaceutical retail, the CC pointed to the necessity to evaluate whether amendments to regulatory framework shall be initiated, including the implementation of procedure, which would allow the state to evaluate events of changes of licence-holders and avoid the concentration of pharmaceutical networks.

Continuing to balance market power of retailers and suppliers

The Unfair Retail Practices Prohibition Law (URPPL) in Latvia was adopted on 1 January 2016, and its aim is to level market power of suppliers and retailers. The CC is a responsible authority for supervision of the law.

To review the first year of implementation of the URPPL, in the end of April 2017, the CC, supported by the Latvian Chamber of Commerce and Industry, held a conference ‘Cooperation Between Traders and Suppliers: Does the Law Ensure Balance?’. Participants – representatives of state administration, retailers and suppliers – shared their experience about the application of the URPPL, pointing out the most serious problems and benefits since the law was adopted.

After a summarisation of records and information obtained during the conference, the CC concluded, that after the first year, the market has mostly adapted to the new provisions and regulation has helped to solve several problems of cooperation between the retailers and suppliers.

In the latter half of the year, the CC finished the URPPL implementation sector inquiry and concluded, that regulation in general has helped to solve several cooperation problems between the retailers and suppliers. The most positive changes concern the return of goods as retailers now more carefully consider offers, avoiding the necessity to return reserves of goods that are not traded.

More and stronger advocacy

As fighting competition distortions created by public administrative bodies have been among the CC’s priorities for several years already, in 2017 the authority continued to put strong advocacy efforts in this area.

In Latvia, the state and municipalities are allowed to participate in business only in some cases, for example, in case the private sector is not able to provide such services. Public administrative bodies before establishing capital undertakings or re-evaluation of participation in an existing one, shall consult with the CC. Thus, in 2017, the CC provided its opinion in seven cases. In addition, it issued 19 opinions on the activity of public persons regarding breaches of competition neutrality principles and unjustified involvement in commerce.

Furthermore, to assure the timely prevention of damage to competition due to adoption of various regulatory enactments, the CC indicated 28 cases of risks potentially caused by the regulatory environment in 2017. In a total of nine cases, the CC achieved an outcome which is favourable for competition, inter alia, in financing of healthcare, public transportation and informative newsletters of local municipalities. The CC also expressed an opinion about such fields like implementation of professional education and training, postal services, waste management, real estate market, state support, burial and parking services.

Changes in the legal framework

Among the most significant issues of regulation of competition law in 2017 were the amendments to the Competition Law and Civil Procedure Law regarding the compensation of damages. Amendments provide that consumers, companies and other involved parties will have a simplified and more efficient possibility to claim damages from infringers of competition law.

In 2017, the CC actively continued discussions with municipal organisations regarding the amendments to the Competition Law in order to be more effective in taking actions against market distortions by public administrative bodies. In the current situation, the CC is able only to issue opinions that are not binding to addressees. Unfortunately, no useful progression for these propositions of the amendments was achieved within a year.

Important judgment of court

At the end of the year the Constitutional Court passed a significant judgment that confirmed that only the CC is entitled to decide the amounts of fines in competition law violation cases. This means that in the future, when reviewing a decision by the CC, the court will not be able to change the amount of the fine by setting the fine itself.

The case was initiated by the Constitutional Court based on two applications by the Administrative Regional Court contesting the legal provision stating that in cases provided only by law a court may amend an administrative act and determine specific content thereof. The applicant held that neither competition law or any other legal provision of competition law directly provides for the rights of administrative court to amend the decision adopted by the CC. Therefore, the contested provision, in the Administrative Regional Court’s opinion, restricts the jurisdiction of the administrative court and prohibits from ensuring a person’s right to fair trial.

Education: key to fair competition environment

Wide educational activities to promote competition culture and to educate target audiences – entrepreneurs, procurement organisers, students, associations and judges – has allowed the authority to be more recognisable. Inter-institutional cooperation among several state institutions in 2017 concerning educational activities should be mentioned.

In 2017, the CC, in cooperation with the Corruption Prevention and Combating Bureau and the Procurement Monitoring Bureau, initiated a two-year long cycle of workshops on ‘fair entrepreneurship’ in the largest cities of Latvia. Two target groups – organisers and tenderers of procurements – are educated on topics concerning public and municipal procurements. The aim of such activities is to raise their knowledge on the procurement area and promote their operational efficiency.

At the end of the year, representatives of the CC participated in a cycle of workshops, held by the Central Finance and Contracting Agency for recipients of the European Union funds and other interested persons regarding good practices in use of European Union support funds. Events were held in five Latvian cities and experts of the CC spoke about risks of competition violations within public procurements.

Raising awareness of the competition within different parts of society

The CC in 2017 had approximately 40 meetings with field associations and private sector entrepreneurs, obtaining information about the state of play in various market sectors. Communication and cooperation with the non-governmental sector shall be especially outlined. Besides the conference on the URPPL supported by the Latvian Chamber of Commerce and Industry, the CC actively took part in entrepreneurs’ days organised by the chamber.

For the fifth year in a row, the CC held a Lawyer’s Forum – an annual discussion between representatives of the authority and law offices. During the forum, experts and lawyers who otherwise meet at more formal context, discussed topical issues in application of the competition law.

To popularise competition law and the meaning thereof in everyday life, the CC held an essay contest ‘Progress begins with competition’ for pupils and students. Altogether, the Competition Council received more than 20 essays, in which contestants expressed their vision of the necessity and advantages of fair competition. Participants were awarded on the International Competition Day on 5 December 2017.

Enforcement, advocacy and educational efforts have resulted in almost 340 received applications, which is approximately 15 per cent more than the year before.

Actively strengthening the capacity and operation of the CC

One of the cornerstones of a strong competition enforcement is a strong authority. Thus, to optimise the performance of the CC, a restructuring of the authority was concluded in early 2017. Two separate legal structural units were merged, as well as two analytics units. A new position was also created – the head of strategical planning and development.

The working strategy of the CC for 2017–2019 was approved in 2017. Alongside general tasks in the implementation of competition politics and the application of the Competition Law, the CC will have new directions of development and corresponding financial indicators, eg, strengthening capacity, grounding professional and responsible personnel, and improving the role and recognition of the authority in international environment.

At the end of the year, the Latvian parliament adopted amendments providing to change the CC’s remuneration system. Amendments provide no increase the budget of the authority, but provide rights to take more elastic decisions regarding appropriation of financial resources. Amendments entered into force on 1 January 2018, and at the end of 2017, work on the creation of new wage system was started, including indication of job content evaluation criteria.