Israel: Antitrust Authority
The Israeli Antitrust Authority (IAA) is an independent government enforcement agency established in 1994. The IAA is striving to assume a pivotal role in making Israel’s markets more competitive, to the benefit of consumers.
Its mandate includes:
- preventing market power through merger control and prohibition of restrictive agreements;
- preventing abuses of a dominant position;
- the regulation of collectively dominant firms;
- advising the government and the legislator in Israel regarding the competitive implications of their actions; and
- enhancing competition in the various markets in Israel.
The IAA includes a legal department with 42 lawyers; an economics department with 36 economists (three of whom have a PhD in economics); a criminal investigations department with 28 investigators; and 19 administrative and other staff.
The IAA’s enforcement priorities are based on two aspects: the effect the sector has on the consumer and the market; and the impact of the IAA’s involvement through enforcement or advocacy on the sector. Accordingly, recently the IAA’s main priorities were the financial markets, telecommunications and the food industry.
In the coming years, the IAA will continue its mission and focus, inter alia, on the energy sector, parallel imports, financial markets and transportation.
In recent years, there has been a shift in IAA’s mission and purpose. From focusing almost solely on the enforcement of the Antitrust Act, to prevent and eliminate anticompetitive practices by businesses, the IAA has increasingly focused on taking proactive measures to improve competition in the markets and on promoting pro-competitive policies and regulation.
Advocacy and market studies
During 2014, the Antitrust Act was amended to enable the IAA to conduct market studies. The new provision provides the Director General with the authority to conduct market studies in sectors of the economy, including examination of the existence of competition failures and barriers to competition. The Director General may submit his reasoned conclusions and recommendations to the minister responsible for the sector examined and to the Minister of Treasury, and in a sector that is regulated by another agency, also to the head of that agency. There is a division in the IAA’s economic department in charge of conducting market studies, headed by a deputy of the chief economist. In 2015, the IAA conducted three market studies. In the first study, the IAA conducted research and published a report on implementation of IAA’s recommendations on distribution of fresh meat tariff-free import quotas; the second was a market study on the mining of aggregates for the building industry and road construction. The study focused on identifying areas where cement plants were facing high concentration among suppliers of aggregates, occasionally exacerbated by ownership of firms over multiple aggregate mines. The third study focused on retail gasoline stations – looking into market concentration and geographic competition parameters.
In 2015 there was also a progress as a result of an earlier study from 2014 regarding financial services. During 2015 substantial new legislation was being discussed in parliament, aimed at improving competition in common financial services, with a focus on the consumer credit market (households and small businesses) and electronic payment services. In 2015, following that work, improving competition in the financial sector was a high priority on the IAA’s agenda. The IAA was an active member in a number of government committees and inter-ministerial teams aimed at increasing competition in common financial services, with a focus on the consumer credit market (households and small businesses) and electronic payment services. The IAA initiated and advocated, together with other government agencies, new legislation concerning these issues.
In June 2015, the IAA has been honoured by the World Bank at a ceremony held in Washington, DC in recognition of the IAA’s activity to increase competition in the credit card sector and to encourage the use of debit cards in Israel. The World Bank cited 15 antitrust authorities worldwide that were recognised for their special efforts to increase competition.
According to the Concentration Law enacted in December 2014, the allocation of economic rights (eg, licences, permits, government franchises and privatisations) which are liable to competitive problems is subject to competitive assessment. When the Director General decides that the allocation of rights may have a significant effect on competition, the regulators must consult with the Director General regarding the competitive assessment of the allocation. Furthermore, the Director General was appointed chairman of the Concentration Reduction Committee, which was formed to advise the government on the ramifications of the allocation of essential facilities regarding overall concentration in the economy (ie, the threat of excessive bargaining power of large business groups in relation to government agencies and the legislator). The relevant part of that law that deals with the transfer of government assets to private hands came into force in December 2014.
During 2015, the Concentration Reduction Committee published four opinions in various cases, inter alia, telecommunication and the privatisation of the Israel Postal Company.
Treatment of dominant firms
In recent years, the IAA has intensified its treatment of market distortions concerning dominant firms. Below are the main examples from 2015:
- In December 2015 the Director General declared Ashdod Port a monopoly under section 26(a) of the Antitrust Act in each of the three shipping lines used to import motor vehicles to Israel from Europe and the United States. The Director General further determined that Ashdod Port had illegally abused its dominant position by extending illegal retroactive discounts. The Director General imposed a fine of 9 million shekels on Ashdod Port (the highest financial sanction imposed to date) and additional financial sanctions on the port’s chief executive officer and vice president of customer service.
- Subject to a hearing, the Director General announced his intention to determine that the Israel Electric Corporation, a declared monopoly in all segments of the electricity market, abused its dominant position in the transmission and distribution of electricity markets by cancelling services provided to large business customers who started buying electricity from private electricity producers, rather than from the Israel Electric Corporation. The Director General also announced his intention to impose financial sanctions on the corporation and its officers, with regard to the alleged abuse of dominant position.
- In June 2015, the Antitrust Tribunal upheld the Director General’s decision of September 2012 to declare El Al Israel Airlines Ltd (El Al) a monopoly in the provision of airline security services abroad.
Israel’s General Security Service (GSS) requires all Israeli airlines operating international flights to acquire security services provided exclusively by El Al. In 2010, El Al announced it would no longer provide these services to its competitors, namely Arkia Israeli Airlines and Israir Airlines. Concerns El Al might abuse its power to harm competition led the Director General to declare it a monopoly, albeit El Al’s decision to continue providing security services to Arkia and Israir following an agreement reached between El Al and the state.
El Al’s main argument in its appeal to the Antitrust Tribunal was that the services are de facto provided by the state, and that it has essentially no control over the security department, which operates according to GSS guidelines. However, in its decision to uphold the Director General’s decision, the Tribunal held that:
the evidence shows that El Al has the ability to make use of its monopoly power in the provision of security services abroad in order to harm its competitors. An outstanding example is El Al’s ability to refrain from the provision of services’. The Tribunal pointed out that ‘the state’s involvement in the provision of the services does not preclude all concerns regarding the abuse of monopolistic power. This is an essential service for Israeli airlines’ commercial activity, an infrastructure without which they would be able to operate flights only within Israel.
As mentioned, during 2015 the IAA, together with other government agencies, invested intensive advocacy efforts in promoting the enactment of several bills concerning financial services. In March 2016, the Israeli parliament passed the Credit Information Act (2015), which intended to expand and improve the access of consumers’ credit history by potential credit and loan providers. The proposed Act provides that the assimilation of the information will be performed by a Credit Registry operated by the Bank of Israel, and the dissemination of relevant information will be done through independent credit bureaus. The IAA views the current lack of access to such information as a serious barrier on competition in consumer credit and loans. In addition, the IAA took active part in government committees that drafted the proposed bill on ‘Reduction of the use of Cash Money (2015)’, the goal of which is, inter alia, to increase the use of electronic payment means as alternatives to cash and cheques, in particular debit cards, and enhance competition in payment cards, and the bill on ‘Supervision on Financial Services (Non-Institutional Financial Services) (2015), whose goal is to increase competition in financial services, in particular consumer credit, from non-banks, inter alia, through granting new powers to regulate such services. Both bills are currently under deliberation in parliament.
Ex ante prevention of anticompetitive transactions
Merger review constitutes an important part of the IAA’s mission to prevent the formation of market power that is detrimental to competition. In 2015, the IAA had reached a decision about 159 mergers: one merger was subject to conditions and the others were approved. In addition, five mergers were withdrawn by the parties.
In January 2015, a merger between two plastic pipes manufacturers – Metzerplas and Palgal – was approved, subject to conditions. The two companies produce various types of plastic pipes, including pipes which are used for hot and cold water within buildings. It was found that besides the two companies there is only one other close competitor that produces pipes which are used for the same purpose as the merging parties. Therefore in order to allow Metzerplas to purchase Palgal a divestiture condition was imposed – selling all of Palgal’s activity in the ‘hot and cold water pipes’ market to a third party. Because of this condition the two companies decided not to proceed with the merger.
The IAA has an investigations department comprised mainly of investigators and intelligence personnel with experience from the police or the army. It can engage in criminal investigations, including the use of intelligence and wiretapping. Results of investigations are transferred to the legal department of the IAA, which is authorised to indict suspects and prosecute them in court.
In the coming years, the IAA intends to continue investigating suspects and prosecuting them in appropriate cases, both with regard to enforcement of the Antitrust Act. One of the aims is to convince the courts to increase prison sentences for hard-core violations.
In 2015 the Supreme Court issued a significant precedential ruling in the criminal case of Shufersal, a large retail chain. The Supreme Court upheld the conviction and most of the sentences determined by the Jerusalem District Court of Shufersal and two of its executives, concerning breach of merger conditions and attempting to engage in a restrictive arrangement. The decision went beyond what was necessary for adjudicating the case at hand, to outline a new legal approach towards vertical arrangements. According to the decision, generally speaking, vertical arrangements will no longer be automatically condemned as restrictive arrangements; rather, they will be reviewed based on their probable effects on competition in accordance with section 2(a) of the Antitrust Act. The court further noted that its ruling brings the Israeli antitrust regime closer to that of the United States, which generally applies a rule of reason test to vertical restraints. Notably, the Shufersal case is also the first time in which a defendant has been convicted of breach of merger conditions, as well as the first time in which such a defendant has been sentenced to prison time.
During 2015, the IAA indicted for antitrust violations in three different cases: first, the IAA indicted six schoolbooks distribution companies and their managers – the indictment involves a number of instances of alleged bid rigging; second, an indictment against the Veterinarians Association, involving distributing recommended prices in violation of the law (in February 2016 the District Court convicted the Association of a restrictive arrangement); and third, the indictment involves an alleged bid rigging between a few businessmen regarding the purchase of government land in Jerusalem.
In recent years, the IAA has substantially increased the number of guidelines meant to declare its policy in important areas.
In December 2015, the IAA published 1/15 Guidelines on the Parallel Application of the Antitrust Act and the Promotion of Competition in the Food Industry Act. These guidelines detail the type of conduct that is regulated under the newly enacted Promotion of Competition in the Food Industry Act (2014) that would not be considered as violation of the Antitrust Act.
Furthermore, the IAA published a draft in order to update guidelines on trade associations and other roundtable practice and the influence of competition policy on their work.