• Sergii Shkliar

    Founder, Partner of Competition and Antitrust practice, LL.D., Attorney-at-law, Arzinger

Arzinger

Address: Senator Business Center, 32/2 Moskovska Street, 10th Floor, Kyiv, 01010, Ukraine

Tel.: +380 44 390 5533

Fax. +380 44 390 5540

E-mailmail@arzinger.ua

Web-sitewww.arzinger.ua

Arzinger is an independent law firm headquartered in Kyiv which has regional offices in Western and Southern Ukraine, in Lviv and Odesa, respectively. Arzinger has for over 16 years now been among legal business leaders providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s clients.

Arzinger follows high standards of legal services and is a reliable partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, white collar crime, dispute resolutions, litigation and arbitration, tax, banking & finance. We serve clients operating in energy and natural resources, life sciences, agriculture, food & beverages, telecoms & IT and other industries.

Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, with deep knowledge and understanding of the local market, international education and background. The firm has a team of over 70 seasoned legal professionals led by 8 partners. All of them are acknowledged as being among leading experts on the Ukrainian legal market and are recognized by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet client expectations.

Arzinger cooperates closely with legal advisors from numerous jurisdictions and is a member of various international  professional organizations, enabling  it to engage colleagues from various jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

Anticompetitive State and Local Government Conduct. Tendencies of Enforcement in Ukraine

Positive and investment attrac­ting business environment is an obligatory condition for the sustainable economic growth of Uk­raine. Despite all the reforms implemented in our country aimed at enhancing the investment climate, business still may suffer due to acts or regulations issued by the authorities or because of its inaction in the spheres that have to be regulated.

Anticompetitive decisions of the authorities create obstacles for entrepreneurs and legal entities and, therefore, lead to negative economic consequences. For instance, such actions as granting certain undertakings advantages, putting them in a privilege position with respect to other real or potential competitors, obviously have a negative effect on competition on the markets, increase risks of monopolization, preclude the markets’ participants from achieving results in conditions of fair rivalry and may have a negative impact on consumer welfare.

The actions of the Antimonopoly Committee of Ukraine (hereinafter — “the AMCU”) carried out over recent years have convinced us that seeking protection through the legal instruments of the Ukrainian “antitrust watchdog” has become an effective tool in matters of protection competition in the market from the authorities’ actions, that may impede fair contest among rivals and, therefore, harm consumers welfare.

Law of Ukraine No. 2210-III On Protection of Economic Competition (hereinafter-Competition Law) envisages the responsibility of the state and local authorities for anticompetitive conduct. Article 15 of Competition Law stipulates that the is­suing of any acts, making of written or verbal instructions, conclusions of agreement or any actions or negligence on the part of bodies of power, bodies of local self-government (hereinafter — the authorities) which resulted in, or can result in the prevention, elimination, restriction or distortion of competition shall be considered to be anticompetitive ­actions.

Article 15 of Competition Law sets out a non-exhaustive list of the authorities’ anticompetitive actions, including such actions as:

— setting a prohibition for sale of certain commodities from one region in other;

— granting single undertakings ­or groups of undertakings benefits or other advantages;

— an action, due to which for single undertakings unfavourable or discriminating activity conditions as compared to the competitors are created;

— an action, which sets bans and restrictions of and enterprise’s independence.

Despite the fact that provisions of Competition Law do not provide any fines for anticompetitive conduct of the authorities, it is still effective in business protection from improper behaviour by the authorities. In some cases the AMCU issues decisions which prohibit or oblige the autho­rities to carry out certain actions. Meanwhile, such decisions cannot bind or order the authorities to pay a fine; it makes such category of cases different from all others held by the AMCU. Thus, in case the autho­rities do not react properly and in a timely way to the AMCU’s recommendations aimed at cessation of the violation of competition legislation, the AMCU is empowered to make the state authorities implement given recommendations through court.

On 17 October 2018 the AMCU issued The Overview of AMCU practice with regard to Anticompetitive Actions of Bodies of Power, Bodies of Local Self-Government, Bodies of Administrative Management and Control (hereinafter — “the Overview”). In its Overview the AMCU highlighted the main characteristics inherent in the authorities’ anticompetitive actions:

— According to the Competition Law the definition “bodies of power” embraces ministries and other central bodies of exe­cutive power, some other state bodies, local bodies of executive power. It means that the AMCU can have influence on “bodies of power” only, and do not have powers to affect the Ukrainian Parliament, the President of Ukraine,  the Cabinet of Ministers of Ukraine,  the National Bank of Ukraine, courts and the Prosecutor’s Offices.

— Anticompetitive actions may be expressed in the following ways: adoption of regulatory and other acts, providing guidance, conclusion of deals, any other actions that may harm competition. It is crucial that such actions do not necessari­ly have to be compulsory; they can come in the form of recommendations. Nevertheless, the AMCU in every case has to check whether the actions carried out by the authorities were within the respective areas of their ­competence.

— The authorities’ actions must have negative consequences: real or potential. The AMCU highlighted that its decisions always imply the analysis of impact of the authorities’ actions on competition and conclusion with regard to the real or potential negative impact of such actions on competition.  There are several possible negative effects of anticompetitive behaviour of the authorities: prevention of competition; elimination of competition; restriction of competition, distortion of competition.

— When considering cases the AMCU has to establish a causal link between the authorities’ actions and their potential or real negative impact on competition.

In the majority of cases the AMCU reacts by issuing recommendations addressed to the body that has breached competition rules. For instance, on 24 January 2017 the AMCU adopted the Recommendations to the National Commission for the State Regulation of Energy and Public Utilities that took a protocol decision defining four audi­tor companies (Deloitte, EY, PwC, KPMG) vested with powers to conduct assessment of the assets of electricity companies.

On 19 June 2016 by means of the Recommendations of the Ministry of Health of Ukraine was obliged to remedy some violations. The AMCU highlighted that the rules of issuing drug prescriptions adopted by the Ministry that allow to prescribe medication by the criterion of trade name but not by international non-proprietary name may lead to distortion of competition, granting single undertakings or groups of undertakings benefits or other advantages, putting them in a privileged position in respect to competitors.

On 22 September 2015 the AMCU recommended the State Company “State expert center of the Ministry of Health of Ukraine” to seize distortion of competition by means of applying different approa­ches to consideration of applications on re­gistration of medications which resulted in adverse conditions for entering the market for certain undertakings.

On 20 September 2016 the Ministry of Justice of Ukraine was recommended to stop actions that resulted in distortion  of competition with regard to adoption of the Procedure of selling of seized property through an electronic tender which vested the CETAM company only with powers to hold tender procedures.

On 15 November 2016 the Recommendations were issued to the State Fiscal Service that hadn’t taken all possible and ne­cessary actions aimed at elabora­ting and adoption of the Procedure of determination of spaces for deployment of customs authorities and hadn’t guaranteed control over charging fees for the services pro­vided on the territories where customs authorities are located.

The AMCU is vested with the powers to affect any actions of the state and local authorities that resulted in negative influence on competition on the markets for goods, services or works. Thus, the main criteria for attribution actions to anticompetitive actions is the negative real or potential effect of such actions on enterprises but not on natural persons — consumers of certain goods, services or works. Besides, such consumers may be applicants to the AMCU and their information may be used while  the antitrust authority decides whet­her to open a proceeding.

In its Overview the AMCU emphasizes that the practice of applications’ consi­deration formed over actions in the last few years shows that not every action that infringes the rights or interests of undertakings (group of undertakings) constitute an infringement of competition. On the results of its enforcement practice, the AMCU made a conclusion that in some instances, actions by the state or local authorities that violate the rights of undertakings could not be considered as violations of legislation on the protection of economic competition. For example, such actions as execution of the Ministry of Justice’s competence related to accreditation of entities of state registration, monitoring of compliance with the accreditation requirements in cases when the execution of such powers do not influence competition on the certain market for goods, services or works. In the aforementioned case the procedure of accreditation and monitoring is settled at legislative level and there is a possibility to appeal against the actions of the Ministry of Justice to court. Evaluation of actions of the state or local authorities for consistency with the procedures and regulations in place in the event there is no effect of such actions to competition is within the competence of a court but not of the AMCU.

Analysis of enforcement practice shows that the AMCU is rather effective and in most cases can be an efficient means of restoring justice. But, currently, in our opinion this instrument is still undeserved, underestimated and underused by the market’s participants.