Russia: Federal Antimonopoly Service
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The Decree of the President and National Competition Development Plan1
A significant event of 2017 was the signing by the President of the Decree of 21 December 2017 No. 618 on the Main Directions of the State Policy on the Development of Competition (the Decree). The Decree refers to the provisions of articles 8 and 34 of the Constitution of the Russian Federation, which state that in Russia, the following are guaranteed: the unity of the economic area; the free movement of goods, services and financial resources; and the support of competition and freedom of economic activity. Private, state, municipal and other forms of ownership are recognised and protected in the same way; every person has the right to freely use his or her abilities and property for entrepreneurial and other economic activities not prohibited by law. Economic activity aimed at monopolisation and unfair competition is not allowed.2
The Decree establishes active promotion of the development of competition in Russia as a priority for the President, the government, all federal executive bodies, legislative (representative) and executive public bodies of the constituent entities of Russia, and also all bodies of local self-government.
The Decree establishes a provision on the inadmissibility of introducing or preserving restrictions that create discriminatory conditions for certain types of economic activity, such as the production and turnover of certain types of goods and the provision of certain types of services, except for cases provided for by federal laws, legal acts of the President and legal acts of the government.
The Decree also gives recommendations to the Supreme Court and the General Prosecutor’s Office, senior officials (heads of the highest executive bodies of state power) of the constituent entities of Russia, local self-governing bodies, the Public Chamber and public organisations, on measures to promote the development of competition.
The document contains approaches to setting priorities and principals of the competition policy. It also contains specific objectives for competitive markets, as well as expected outcomes.
The aims of improving the state policy on the development of competition are:
- to increase customer satisfaction by expanding the range of goods, works and services, improving their quality and reducing prices;
- to increase economic efficiency and competitiveness of economic entities, including by ensuring equal access to goods and services of natural monopolies and public services necessary for conducting business activities; stimulating innovation activity of economic entities; increasing the share of high-tech goods and services in the production structure; and the development of markets for high-tech products; and
- the stable growth and development of a multisectoral economy; the development of technologies; the reduction of costs in the scale of the national economy; and the reduction of social tension in society to ensure national security.
The Decree provides for reducing the number of violations of competition law by public authorities in 2020 by no less than half in comparison to 2017, and increasing procurement by public and municipal customers and state-owned companies from small and medium-sized enterprises (SMEs).
To achieve those goals and objectives, the Decree approves the 2018–2020 National Competition Development Plan (the National Plan) and an annex to the National Plan – the ‘list of industries (spheres) of the economy (types of activity) and expected results of the development of competition’ – which contains instructions for the implementation of a set of organisational and legal measures, and contributes significantly to the decrease of the public sector’s share in the economy and further support of SMEs.
In particular, it is designed to reduce the share of state participation in the competitive sectors of economic activities, including: limited formation of unitary enterprises, the reform of tariff regulation, and effective prevention and suppression of antimonopoly violations that lead to restricting and eliminating competition on the markets and supporting entrepreneurial initiatives, including the development of SMEs.
The government has been empowered to coordinate the implementation of actions provided for by the National Plan.
In accordance with the National Plan, the government is charged with implementing a set of organisational and legal measures.
A number of instructions contained in the National Plan refer to the actions of federal executive bodies, executive authorities of the regions of Russia and local self-government bodies.
Public authorities are obliged to: analyse the compliance of strategic planning documents and state programmes with the principles of state policy on the development of competition; report on factors that limit competition in established areas of activity and industries; and elaborate on measures taken to address these problems. They should create and publish open access plans for the development of competition (‘road maps’) in the relevant sectors, as well as information on the results of the implementation of actions provided by these plans. When organising procurement actions, public authorities should consider providing non-discriminatory access to suppliers in the procurement of goods, works and services as a priority, and to introduce indicators characterising their effectiveness.
In accordance with the National Plan, particular attention (with the creation of road maps of developing competition) will be paid to the following industries: transport (including railroad, air and waterways); chemical; communication and information technologies; road construction; defence; housing; oil and gas; electricity; the agro-industrial complex; fishing; healthcare; education; and foreign trade activity.
The Decree and the National Plan are the first such documents in Russia’s history. The documents determine the principles of interaction between the state and society, declaring intolerance to any incidents of unfair competition, cartels and abusing monopolistic position. Authorities at all levels are obliged to evaluate administrative decisions, taking into account the consequences of such decisions for competition.
The Federal Antimonopoly Service (FAS) expects that the document will be amended in line with current policy every three years.
Digital amendments to the Law on the Protection of Competition
As one of the fundamental principles of the state policy for the development of competition, Decree No. 618 defines the improvement of antimonopoly regulation in the digital economy and its globalisation.
In this regard, the FAS drafted the Federal Law on Amendments to the Federal Law on Protection of Competition and other legislative acts (the ‘fifth antimonopoly package’) and other legislative acts of the Russian Federation.
In modern conditions, certain standard categories of antimonopoly regulation can not be effectively applied in digital markets. In the FAS enforcement practice, there are more and more examples of how the structure of modern markets is changing.
In the antimonopoly legislation there should be rules defining regulation in view of modern challenges.
There should be additional criteria allowing the classification of owners of large infrastructure platforms and internet platforms that have the appropriate market power as dominant business entities.
Another topical aspect for new amendments to the legislation is price algorithms that analyse markets and adjust the price. In cases where companies use such algorithms to optimise their relations with competitors, it is also relevant to talk about the formation of cartels.
In addition, there is a plan to consolidate more stringent requirements to control transactions of economic concentration associated with the acquisition of technology or other intangible assets.
Given the current state of markets, ‘immunities’ to the objects of intellectual property should be excluded from the application of competition legislation.
The FAS plans to submit the draft to the government in the first half of 2018.
Legislative amendments that came into force in 2017 and other relevant measures
On 28 April 2017, Federal Law No. 74-FZ on Amendments to the Code of Administrative Offences (Law No. 74-FZ) entered into force,3 amending article 14.32 of the Code. It establishes the difference in administrative responsibility for entering into and participating in various types of anticompetitive agreements; coordinating the economic activities of economic entities and the implementation by the business entity of concerted actions that are inadmissible in accordance with the antimonopoly legislation, on the basis of the degree of public danger of the corresponding actions.
The amendments to the Code include empowering the FAS to give reduce fines for the second and third members of the cartel who applied for leniency programmes.
Therefore, two resolutions of the government, aimed at increasing the efficiency of tariff regulation of the fuel and energy complex, were adopted, providing for the establishment of sale premiums guaranteed for suppliers using the method of comparison of analogues,4 and for the territories of the Far Eastern Federal District to achieve basic levels of price (tariffs) for electricity (capacity).5
On the initiative of the FAS, changes have been made to legislation in the field of heat supply: Law No. 279-FZ6 introduced article 4.2 – ‘Antimonopoly Regulation and Control in the Sphere of Heat Supply’ – to Federal Law No. 190-FZ of 27 July 2010 on Heat Supply. This article defines the features of antimonopoly regulation and control in the sphere of heat supply. Therefore, the price, distribution of the heat load in the heat supply system and the observance of the rules (order) for concluding contracts in the sphere of heat supply now fall under antimonopoly control.
Moreover, in 2017, both Russian laws on procurement were amended.
The amendments to Federal Law No. 44-FZ of 5 April 2013 on the Contract System in the Procurement of Goods, Works and Services for Provision of State and Municipal Needs concern the procedure for determining suppliers (contractors, executors) in electronic form.7 They will ensure openness and transparency of competitive tenders’ holding, reduce subjectivity at the stage of awarding points to participants in procurement and corruption risks, increase the number of participants in procurement that will have a favourable effect on the development of competition, and allow the achievement of effective expenditure of budgetary funds.
In addition, amendments to Federal Law No. 223-FZ of 18 July 2011 on Procurement of Goods, Works and Services by Certain Types of Legal Entities came into force,8 providing for the establishment of a unified procedure for the selection of suppliers (contractors, executors) in conducting ‘specialised trades’ regarding the establishment of a closed list of methods of procurement, the regulation of the procedure for such procurement and the determination of a closed list of electronic sites for procurement, with the establishment of appropriate requirements for the hardware and software of electronic platforms.
With regard to legislation in the field of healthcare, at the initiative of the FAS, the Features of Describing Medicinal Products for Medical Use, Being the Subject of Procurement for Provision of State and Municipal Needs were developed and approved by the government as the resolution of 15 November 2017 No. 1380.9
The resolution prohibits excessive insignificant features of pharmaceuticals that are not important for therapeutic effect, but rather narrow the number of market participants.
The resolution was adopted in order to regulate the requirements set to customers, increase the number of participants in procurement and create favourable conditions for competition among medicine manufacturers.10
The compliance of customers with the provisions of the resolution should increase the: availability of medicine for Russian citizens and the effectiveness of budget spending on medicine through a reduction in the price of medicinal products at tenders (in competitive conditions, a drop in prices at auctions reaches up to 70 per cent of the initial (maximum) price of the lot); suppression of acts of unfair customers and cartelisation among participants in procurement and organisers of tenders and considerable savings of budgetary funds, which can be additionally directed at the medicinal provision of citizens.
Therefore, in 2017, the Presidium of the FAS issued five guidelines of the antimonopoly legislation: clarification of issues related to the concept of abuse of dominant position;11 the procedure for publication by international liner shipping companies of freight charges;12 the application of antimonopoly legislation in order to identify and address violations related the price-setting;13 the determination of the amount of losses caused as a result of violation of the antimonopoly legislation;14 and the application of antimonopoly legislation in respect of owners of electric power facilities.15
The guidelines of the FAS play an important role in ensuring compliance with antimonopoly legislation and the formation of judicial practice. They are developed by the FAS jointly with leading lawyers, including the Competition Experts Association and the Russian Corporate Counsel Association, and hold public discussions.
The year 2017 was fruitful for the FAS in terms of law enforcement. While the number of cases in question continues to decline due to the agency’s methods for combating unfair practices of transnational corporations, which have a significant impact on Russian economy, and the successful implementation of the institution of warnings, the effectiveness in courts remains high – the FAS wins more than 80 per cent of cases.
The FAS considered the case against Microsoft Corporation on abuse of dominant position.16 The basis for the antitrust investigation was Microsoft’s actions to significantly reduce the time frame (from several months to several days) of providing RTM versions (final versions of the operating system) to third-party software developers. Third-party developers did not have time to adapt their programs, and users remained without a choice of provider, automatically receiving the Microsoft antivirus program – Windows Defender.
The FAS issued two warnings to Microsoft to terminate its actions, which contain signs of violation of the antimonopoly legislation.
As a result of fulfilling the requirements of the FAS, equal conditions were created for developers of antivirus products not only in Russia, but also in all areas of Microsoft’s presence, thereby ensuring effective competition in the global IT market.
Moreover, in 2017, the FAS issued its first decision with respect to the company LG, which used a special algorithm to violate the antimonopoly legislation. In the period from 2016 to 2017, the FAS requested information on the use of price-optimising programs for a number of resellers and vendors of electronics and household appliances and several developers of such products, as well as conducted inspections with regard to certain vendors that use such software products in their business activities.
The FAS found that LG coordinated the economic activities of resellers by setting recommended retail prices, which were published on the Russian site of LG and brought to the attention of resellers. LG controlled the prices of resellers; and influenced them in order to comply with recommended retail prices and applied sanctions for non-observance of recommended prices (termination of release). To monitor and control the prices of resellers, LG used a special algorithm program.17
Additionally, the decision regarding Apple was made in 2017.18 As part of the case, the illegal practice of coordinating the economic activities of Russian smartphone resellers, carried out by a Russian subsidiary of the Apple group, was considered and stopped. During the consideration of the case, prices for Apple’s smartphones significantly decreased, and Apple developed and implemented a new compliance policy in the company, as well as paid a fine.
The FAS also revealed a collusion in the electricity market. Two companies entered into an illegal agreement that led to the restriction of competition by overstating planned volumes of electric energy consumption in the market. This, in turn, led to an increase in prices in the wholesale electricity market. The strategy of these companies was discovered by the FAS based on the results of two dawn raids and based on the complex mathematical modelling and analysis of the behaviour of violators, as well as the assessment of the economic consequences for consumers, conducted with the participation of the association, NP Market Council. The companies were fined 870 million roubles (11.5 million).
Within the framework of control over economic concentration, the FAS considered two important for the national economy transactions – Bayer/Monsanto and Yandex.Taxi/Uber.19
During the consideration of the Bayer/Monsanto deal,20 the FAS conducted a series of consultations with interested federal executive bodies, the scientific and business community and foreign competition authorities on the basis of waivers received from the companies. In addition, the FAS conducted a series of meetings with participants in the transaction to discuss possible negative effects for competition from the merger, as well as measures to eliminate them.
As part of the consideration of the application, the FAS conducted an analysis of the production-related markets for the agro-industrial complex affected by this transaction, including the integrated market for agro-technological solutions, which was formed as a result of a series of technological and socioeconomic transformations in recent years that occurred in the agricultural production sector.
The FAS identified threats to competition as a result of the transaction, such as new entry barriers to the market, incentives for cartel creation and the likelihood of abuse from the dominant position. Thus, it came to the conclusion that this transaction created significant risks of suppression of competition, which must be halted at the merger consideration stage.
Consideration of the transaction lasted for about a year, and on 20 April 2018, the FAS approved the transaction, issuing a prescription to the merging company.21
The FAS managed to achieve non-discriminatory access to the ‘big data’ of the merged company for Russian developers specialising in the field of agro-technology and selection, as well as for consumers (the organisations of the agriculture complex of Russia).
The merged company will transfer to Russian members of the agro-industrial sector a certain amount of molecular selection tools and germ plasm of selected crops, which are important to Russia.
During the whole period of validity of the FAS’s prescription (five years), the volume of the supply of seeds and plant-protection products from the merged company to the territory of the Russia will not be reduced. At the same time, the supply will be executed on a non-discriminatory basis.
Bayer will support the training of Russian specialists in each culture and will create the training center in Russia.
Assistance in executing the obligations assumed by the merged company will be carried out by the specially created Centre for Technology Transfer on the basis of one of the leading Russian universities – the Higher School of Economics under the government.
Within the framework of consideration of the Yandex.Taxi/Uber merger, the FAS conducted an analysis of the market of services for rendering information interaction between passengers and taxi drivers (the market of taxi aggregators), as well as held a number of meetings with participants of the Russian markets of taxi and taxi aggregators.
A survey of market participants showed that administrative barriers to entry are characterised as easily overcome.
Given the fact that the market of taxi aggregators is sufficiently young, and significant changes and modernisation take place in this market all the time, the FAS concluded that currently there are no dominating organisations but Yandex and Uber have signs of dominance that may arise in the future.
In order to improve the conditions for the development of competition in the market for taxi aggregators and related markets, the FAS issued a prescription to Yandex,22 Uber and their joint venture to implement actions aimed at optimising the relationship between aggregators, taxi drivers and passengers. In particular, companies are required to provide complete and accessible information to users about a legal entity that carries out transportation, with the preservation trip history, and must not impose a ban on partners, drivers and passengers to work with other taxis aggregators.
As part of the merger, the FAS consulted with the competition authorities of Kazakhstan and Belarus based on the waivers received from the companies.
In 2017, the Public Council under the FAS 23 was established.24 The creation of the Public Council was conducted according to new rules developed by the Civil Chamber of the Russian Federation and the Open Government. It is formed of representatives of non-governmental non-profit organisations – the Civil Chamber and the Expert Council under the government. The Public Council included representatives of the following leading business associations: the Association of Lawyers of Russia, the Competition Experts Association and the Interregional Organisation for the Protection of Minority Shareholders.
The Public Council is a permanent advisory and consultative body of public control. It is called upon to ensure that the needs, interests, rights and freedom of Russian citizens are taken into account, and the rights of public associations in the implementation of state policy in the area relevant to the sphere of the FAS’s activities are protected.
The purpose of the Public Council is to exercise public control over the activities of the FAS, including: considering drafts of socially significant normative legal acts being developed, participation in monitoring the quality of provision of public services, implementing supervisory functions, monitoring progress in anti-corruption and personnel work, evaluating the effectiveness of public procurement, reviewing the annual plans of activities of the FAS and the report on their implementation, and other issues provided for by the current legislation.
In 2017, the action plan entitled ‘Increasing the access of energetic infrastructure’ was developed and approved,25 aiming at simplification, acceleration and reduction of the cost of connecting industrial facilities and capital construction projects to electric and heat networks, thus creating favourable conditions for some types of consumers, including SMEs.26 As part of the implementation of the plan, more than 20 regulatory acts aimed at improving the rules for non-discriminatory access to electrical grids and the rules for technological connection to electric grids were adopted.
The FAS developed an order for calculating the maximum permissible annual change in the tariffs for public telecommunications services and public postal communication using the maximum pricing method and rules for its application (the Order), which provides the opportunity to profit from the effectiveness of cost management.
The aim of this method (inflation minus the X factor) is to subordinate the subject of natural monopolies to the rules that reproduce the discipline of the competitive market. This approach determines the reasonability of comparing the dynamics of productivity of an economic entity with the productivity of the country’s economy as a whole and will reflect market incentives more precisely.
Operators of communication carried out approbation of the Order. This method can be applied not only in the sphere of communication, but also in other regulated spheres.
The draft of this normative legal act passed the procedure of public discussion and anti-corruption expertise at http://regulation.gov.ru and was approved by the FAS Methodological Council on tariff regulation. Approval of the Order is scheduled for 2018.
In 2017, tariffs for gas transportation services through gas-main pipelines that were not owned by PJSC Gazprom were reviewed. The revision of these tariffs was aimed at excluding economically unjustified income of regulated organisations and reducing cross-subsidisation.
Thus, for example, on the territory of some constituent entities of the Russian Federation, the tariff for transportation of gas through gas-main pipelines was reduced by more than 22 times.
In 2017, the FAS reduced the fees for supply and marketing services provided to final consumers for a number of gas suppliers (gas supply organisations). These positive dynamics were achieved due to the equalisation of the conditions of management of regulated organisations using benchmarks. This resulted in the reduction of the size of cross-subsidies between the population and other consumers. The average decrease in the cost of supply and marketing services was 15 per cent.
Moreover, within the framework of the Exchange Committee under the FAS,27 sales of mineral fertilisers were launched. The Exchange Committee also focused on the development of exchange trade timber. Export sales of timber started on the exchange at the end of 2017. As a result, 46 per cent more timber than in 2016 was sold on the exchange trades and the number of registered participants in the timber trade in 2017 was 360 (44 per cent more than in 2016). The predictable volume of timber sales in 2018 will be approximately 3 million cubic metres of timber (three times more than in 2017).
In order to increase the effectiveness of reporting about the activities of the authority and to implement the principles of transparency, a new version of the official website of the FAS was launched in 2017.28 The new website has become more convenient, logical and informative.
Moreover, since 2017, on the basis of the FAS Centre for Education and Methodics in Moscow, the information and analytical journal Competition Today29 is being published. Its editorial board includes representatives of the FAS.30 The journal is electronically published monthly and can be publicly accessed, and is aimed at disseminating the practice of solving problems of developing competition, combating cartels and abuse of dominant position.
The year 2017 was characterised by the active promotion of Russian initiatives in the field of competition policy on the United Nations Conference on Trade and Development (UNCTAD) site. The FAS developed a draft toolkit to counter unfair practices of transnational corporations and initiated its inclusion in the UN Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices.31 The project is currently being discussed within the framework of the discussion group established on the basis of UNCTAD.
Moreover, the heads of the governments of the Commonwealth of Independent States (CIS) countries signed the statement on the consolidation of the efforts of the world community to effectively counter international cartels,32 which was circulated as an official document of the 72nd session of the UN General Assembly. We believe that the steps taken in 2017 should further promote the initiative to adopt an international instrument to combat cartels at the global level.
In 2017, memoranda of understanding were signed with the antimonopoly bodies of Uzbekistan, Serbia and China (National Development and Reform Commission).33 Within the framework of the development of the already signed bilateral cooperation agreements, cooperation programmes were agreed on for two-year periods with competition authorities of Brazil, Finland and China.
Therefore, the representatives of the FAS were among the key speakers on the issues of competition policy and enforcement during the ICN Annual Conference in New Delhi, the 5th BRICS International Competition Conference in Brazil, as well as the 7th St Petersburg International Legal Forum. Within the framework of the latter, the FAS formed a large-scale thematic track under the general title ‘Antimonopoly Regulation of the Global Economy: Challenges for Regional Associations’ to discuss issues related to the interaction of competition authorities in such regional associations as BRICS, the CIS, the Eurasian Economic Union, etc. The antimonopoly track also included discussions on ensuring competition in the pharmaceutical and food markets in the digital sector.
The FAS traditionally organises two large international events: the Russian Competition Week34 and the Annual International Conference, ‘Antimonopoly Policy: Science, Practice, Education’.35 More than 300 experts from different countries took part in both events. Representatives of academia, higher teaching staff of leading universities, experts of international level, representatives of innovative companies, heads of foreign competition agencies and international organisations, as well as representatives of the Central Office and Regional Offices of the FAS became the speakers and participants of the conference.
4 Resolution of the government of the Russian Federation of 21 July 2017 No. 863 http://static.government.ru/media/files/D8i35u3Gth9m4gygccWgZTQbaVmVFp6G.pdf.
5 Resolution of the government of the Russian Federation of 28 July 2017 No. 895 http://government.ru/docs/all/112807/.
7 Federal law of 31 December 2017 No. 504-FZ concerning amendments to the federal law, on the Contract System in the Procurement of Goods, Works, Services for Provision of State and Municipal Needs http://static.kremlin.ru/media/acts/files/0001201712310035.pdf.
8 Federal Law of 31.12.2017 No. 505-FZ on Amendments to the Federal Law on Procurement of Goods, Works and Services by Certain Types of Legal Entities http://static.kremlin.ru/media/acts/files/0001201712310039.pdf.
10 The FAS won the contest for competition advocacy, conducted by the World Bank jointly with the ICN, in the category ‘Creating markets for private sector development’, presenting experience on this issue.
16 All documents concerning the case are available at: http://en.fas.gov.ru/documents/documentdetails.html?id=15343.
17 The FAS decision of 2 March 2018 No. 1-11-18/00-22-17: http://solutions.fas.gov.ru/ca/upravlenie-po-borbe-s-kartelyami/ats-14552-18.
18 All documents concerning the case are available at: http://en.fas.gov.ru/documents/documentdetails.html?id=15244.
19 The FAS decision of 24 November 2017 No. АГ/82029/17: http://solutions.fas.gov.ru/ca/upravlenie-regulirovaniya-svyazi-i-informatsionnyh-tehnologiy/ag-82029-17.
20 The FAS press release: http://en.fas.gov.ru/press-center/news/detail.html?id=52417.
21 The FAS press release: https://en.fas.gov.ru/press-center/news/detail.html?id=52952.
22 The FAS prescription of 24 November 2017 No. АГ/82030/17: https://solutions.fas.gov.ru/ca/upravlenie-regulirovaniya-svyazi-i-informatsionnyh-tehnologiy/ag-82030-17.
25 Established by order of the government of the Russian Federation of 30 June 2012 No. 1144-р http://gov.garant.ru/SESSION/PILOT/main.htm.
26 Thanks to the implementation of the provisions of this plan, in 2017 Russia ranked 10th in the ‘Doing Business’ rating in connection to electricity (in 2016 – 29th place).
27 The FAS has held meetings of the Exchange Committee every week since 2015, in order to take measures for developing and improving the exchange trade and give recommendations to market participants aimed at preventing possible violations of the antimonopoly legislation, etc. Meetings of the Exchange Committee are held with the direct participation of representatives of interested federal executive bodies, market participants (including large companies), infrastructure organisations (exchange sites) and expert organisations.
30 Representatives of the FAS are also members of the editorial board at another two journals focused on competition policy and enforcement – Russian Competition Law and Economics and Competition and Law
32 The FAS press release: http://en.fas.gov.ru/press-center/news/detail.html?id=52437.
33 The FAS treaties and agreements: http://en.fas.gov.ru/international-cooperation/cooperation-agreements.