How to direct antitrust policy to support

competition

Moscow2014

2

A large number of antitrust cases does not improve

competition

source : www.fas.gov.ru, calculations NP «NAIZ»

Casesinitiated by FAS 135-FZ

The share of eterprises of all respondents who believe that the competitive environment has improved in last year

R= -0.52

Total number of cases of FAS Russia more than in the rest

of the world combined

2006 2007 2008 2009 2010 2011 2012

135-FZ: 4187 5068 6443 9664 11431 11276 10009

abuse of dominant position 1166 1331 1639 2411 2742 3199 2582

agreements and concerted practices 124 232 359 488 607 482 292

anticompetitive actions of authorities 2002 2250 3523 5003 6102 5763 5065

unfair competition 372 448 517 687 927 1065 1132

94-FZ (public procurement)   8626 14186 12817 17138 17626 18511

Federal Law "On Advertising"   2806 3508 4480 5395 5451 5238

Federal Law "On Trade"         152 213 163

Administrative Code     9025 12908 19688 20672 22000

Total   16500 33162 39869 53804 55238 55921

10 thousand antitrust cases per year - more than in all countries in the world together (a little more than 100 countries have antitrust authorities). This means:1) The number of cases is redundant and should be radically reduced

or2) The cases do not affect the behavior of monopolists

In any case, Russia should take a political decision on the level of the Government about the Russian anti-monopoly policy

Source: www.fas.gov.ru, calculations NP "NAIZ"

4

  US Russia

Cases 70% Less 10%

Fines levied 90% Less 1%

Bay Fire, strangers stilldo not fear: the proportion of cases

against foreign companies

Source : calculations NP «NAIZ»

5

SME share in the cases of FAS and in the

Register of monopolists

Register of Companies,

having a market share >

35%

Cases, contested in court

Total cases*Cartels(p. 1 art. 11 135-

FZ)

Total agreements (art. 11 135-

FZ)

Abuse of dominant

position(art. 10 135-FZ)

Agreements and abuse of

dominant position(art. 10 & 11 135-

FZ)

Total of the cases in

court (march 2012)

2/3 64% 49% 36% 38% 56% 80-90%*

*assessment of NAIZ

6

Examples of FAS cases against SME

• «Cartel» (concerted actions ) of individual entrepreneurs E.V. Avtonomova and I.S. Koshechkina as establishing the same price of 50 RUR for the rental of inflatable trampolines on the Lenin Scuare in Gorno-Altaisk

• Individual entrepreneur from Khabarovsk fined for improper advertising of beer (hung on the wall of the shop poster of shrimp)

• Maslyansky grain-collector (Tyumen region). Fined for failure to provide information in time for 300 thousand RUR, which is comparable with the expenditure on salaries and utilities for 2 months

• HOA «Tikhaya ploshad» from Novosibirsk recognized monopoly on supplying hot water to his tenant within a single house and fined (geographical market borders – 1 house)

• «Center of Eye Microsurgery «Visus -1» from Tyumen fined for lack of advertising in the personal number of the doctor

• Taxi from Primorye (LLC «Evrobus») fined for what went in one time with bus

• Cinema theatre in Novosibirsk recognized monopoly on popcorn (geographical market borders - city mall) and fined

• Individual entrepreneur of Resp. Komi fined for implementing counter cream hair to another individual entrepreneurs , due to the fact that the agreement leads or may lead to the establishment of the resale price of service (hair-dressing).

• Sellers of food products from Kazan recognized «cartel» and fined for having established the same margin of buckwheat as a percentage of the purchase price

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• Individual entrepreneur from Magadan (car-washing), accused as monopolist and fined, with monopoly profits for 5 months was only 70 thousand RUR (300 EUR per month)

• Shop economy «Svezhachok» from Belgorod, who created «cartel» with his wholesaler - (both - individual entrepreneurs)

• «Cartel» food supplier LLC «Yudana» from Ryazan with its customers individual entrepreneurs Fedorovskiy A.E. Chaly V.E.

• Newspaper «Yarmarka» (Ryazan) declared a monopoly on the printing of publications

• Civilian Registrar Polevskoi (Sverdlovsk region) concluded “anticompetitive agreement” with the photographer (IP Nikolaev)

• «Cartel» Novocheboxarsk of individual entrepreneurs in the sugar market (prices were similar, because all focused on the stock exchange)

• The driver of Kostroma fined for insulting bread (posted advertising «if the word bread to make 5 mistakes, we get the word «taxi»)

• Law firm from Moscow recognized monopoly on electricity transmission and fined (geographical market borders – 1 house)

Examples of FAS cases against SME-2

8

Good deeds have FAS, but their number and percentage

decreasesдела

In 2013, 11% of the cases under Art. 10 and 11 135-FZ, contested in court (which is about 3% of all antitrust cases) - against the top-100 Russian companies (turnover). Among them there are cases with positive impact on the economy. But the proportion of large and "good" cases, unfortunately, decreases. Year 2010 was a watershed

2009 2013End of 2009 - 20101. «2nd antimonopoly package» allowed to call

any contract cartel, a company with 1% market share - and the dominant intruder

2. Amended to «antitrust» 178th article of the Criminal Code. Bottom line: all criminal cases pending against SMEs

3. Formed a «cane» motivation system in FAS territorial control became «do stick» for SMEs

4. Adopted FAS Order № 220, FAS freed from the obligation to conduct a market analysis on 95% of categories of cases

All important cases were against big business, contained market analysis and are posted on the FAS website

Half of the cases of recognized head of FAS as the best - against SMEs, half - not available on the website, none provides an market analysis

9

Register monopolists:Irony of Fate or Ltd. «Enjoy Your

Bath»

There in the Register No in the Register

More then 5 thousands (65% Registry) SMEs

Many large companies occupying 35-100% of the

market

10

10 times cut checks SMEs Rostehnadzor and MOE,

but not FAS

1.Rostehnadzor in March and July 2013 adopted changes in FZ «On industrial safety» SMEs assigned to the 4th (least dangerous ) object class, it will not be checked at all, excessive requirements for inspections are excluded. The number of scanned objects reduced almost 10 times

2.Ministry of Accidents (MCHS) : SME’s whose work is not provided in time of war, no longer have to store food and personal protective equipment. Ministry intends to reduce the number inspections in 10 times, the Minister said (06.09.2013)

3.FAS: «If a small business would violate our competition law, I will continue to punish him» (from a speech I. Artemiev the Government of the Russian Federation 04.10.2013).

11

The presence of market analysis decisions FAS contested

in the courts of all decisions

Carried out expert

evaluation

Used the data of State Statistics

A survey of consumers /

survey

Hypothetical monopolist test

conducted

Total solutions to meet the minimum requirements for market analysis

3,0% 1,6% 1,4% 0,3% 1,9%

Source: research V.V. Novikov

12

Size FAS decisions and the European Commission

Competition

  FASEuropean

Commission

Decisions on M&A case, permitted1

paragraph10-70pages

Decisions M&A case, permitted with remedy1-3

paragraphs30-100 pages

Refusal to M&A case1-3

paragraphs30-100 pages

Decisions on antitrust casesSeveral pages

50-100 pages

The average values , with rare exceptionsSource:www.fas.gov.ru,http://ec.europa.eu/competition/elojade/isef/index.cfm?fuseaction=dsp_merger_by_date

13

FAS transparency

Share decisions FAS Russia, on official website, up to 2014 5%

Share decisions FAS Russia, on official website, 2014 1/3

Share decisions antimonopoly authorities of the G7 countries, on official websites

100%

Share decisions of arbitration courts of the Russian Federation, on official website

100%

Source: www.fas.gov.ru, http://ras.arbitr.ru , http://ec.europa.eu/competition/elojade/isef/index.cfm?fuseaction=dsp_merger_by_date

14

Agreements with small companies market share does not restrict

competition. This is the opinion everywhere –

except Russia

 Horizontal

agreements Vertical

agreements Other agreements (conglomerate)

Coordination of economic activity

Coordinated actions

Russia, 2014 г. 0% 20% 0% 0% 20%

ЕС 5%

Allowed agreement SMEs with a turnover

<€ 40 million

10%Allowed agreements with SMEs

turnover <EUR 40 millionnot a violation

20-25% only for the

insurance market

USA 20%20%

but de facto does not constitute an infringement

China Allowed all agreements between the companies to small and medium businesses

Russia, our suggestion

20%Recognize valid all agreements between SMEs*

50%

*except for a closed list of the most dangerous types of agreements to competition (eg, maintenance of prices at auction), which should be recognized violations per se.

Market share or size of the company, below which restrictive agreements are recognized valid

15

Merger Control:

  2007 2008 2009 2010 2011 2012

Consider the application, all 6097 5821 4160 2964 3282 2494

Of them refused to satisfy 90 141 106 57 60 50

- due to the possible restriction of competition **

<10 <10 <10 <10 6 6

Source: Report on the state of competition in the Russian Federation for 2012, http://www.fas.gov.ru/about/list-of-reports/list-of-reports_30065.html

6 prohibited mergers - mergers are medium-sized businesses, all large mergers (Uralkali-Silvinit, Rosneft, TNK) FAS allowed

16

Fifth antimonopoly package

At the end of December 2013, FAS sent federal executive authorities, public organizations, the draft law "On Amending the Federal Law" On Protection of Competition "and some legislative acts of the Russian Federation" (the "fifth antimonopoly package ", then – 5-AMP)

17

Positive shifts 5-AMP compared with 4-AMP

1. Rejecting the idea of rules to regulate trade practices - all commercial policies of private companies

2. The proposal «Delovaya Rossiya» to cancel the Registry of Companies, having a market share of certain goods in the amount of more than 35% (2/3 up the registry defendants SMEs)

18

Conclusions of 5-AMP

1.Contrary to the idea of the Roadmap for competition

2.Not aimed at implementing instructions of the Government and the OECD Recommendments

3.Introduces redundant amendments that do not meet international experience

4.Except for 2 positions (Registry and trade practice regulation) duplicates the 4-AMP, which was criticized by business associations, experts of the Presidential Council on Codification, Ministry of Economic Development and was rejected by the Government

Ministry of Economic Development proposed to reform the FAS

Key provisions of the reform:1. To stop the practice of cases against SMEs2. Reduce the number of employees of the FAS by increasing their salaries, leave only

territorial control in the federal districts3. Divide lawmaking and control functions4. Review the system of motivation, repealing "cane" system5. Inspect only with court approval

Source : http://www.vedomosti.ru/finance/news/21715371/konkurenty-fas?from=newsletter-editor-choice&utm_source=newsletter&utm_medium=content&utm_campaign=editor-choice

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Key provisions of the Alternative draft law

• Introduces immunities for SME under Art. 10 and 11 135 -FZ for SMEs ( not a natural

monopoly and is not included in the group of persons with big business )

• Introduces mandatory market analysis for all cases, FAS

• Excludes from the 135 -FZ provision allowing the institute proceedings in the interests of a 1

enterprise

• Introduces “de minimus” for agreements of companies with a market share of less than 20 %

(except for the price cartel and bid-rigging )

• Transmits some powers (rulemaking explanations KPIs for FAS control most major

transactions , etc.) from FAS to Ministry of Economic Development of Russia

• Introduces the concept of “cartel” and “horizontal agreements” clearly distinguish between

these concepts

• Cancels agreement with FAS transactions do not affect the competition