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Interview by the Minister for Competition and Antitrust Regulation Nurlan Aldabergenov to Kazakhstan Today News Agency

Interview by the Minister for Competition and Antitrust Regulation Nurlan Aldabergenov to Kazakhstan Today News Agency

1/25/2013

The Member of the Board and Minister for Competition and Antitrust Regulation of the Eurasian Economic Commission (EEC) Nurlan Aldabergenov answered the questions of a reporter from Kazakhstan Today News Agency.

- The Eurasian Economic Commission is a supranational body that shall address the issues of simplifying internal trade relations in the Customs Union. What are the problematic areas today?

- The Common Economic Space (CES) was launched this year on the first of January. Now, there are no customs borders between Belarus, Kazakhstan and Russia, and goods move freely. However, all competition laws existing in the three states remained unchanged, just as before the CES was launched. So, the Eurasian Economic Commission and the CES member-states have a top-priority task of approximating their competition laws to ensure effective operation of the CES goods markets and a convenient environment for entrepreneurs.

The first stage of harmonization provides for approximation of competition laws. The Commission is currently working on this with the three parliaments and the three governments.

The government of Belarus submitted draft amendments to the law On Combating Monopolistic Activity and Promoting Competition to their national parliament.

In Russia, a draft law related to the application of the law On Protection of Competition is being considered at the federal level.

In Kazakhstan, amendments to the law On Competition were approved by the Majilis and are being considered by the Senate. 

The Commission submitted its comments and proposals regarding legislative amendments to the lawmakers. We participated in a round-table discussion dedicated to this draft law, which was organized by the deputies of the Parliament of Kazakhstan. Currently, the deputies’ work on the draft law is at the final stage.

Since competition laws are under consideration now, deputies and governments are entitled to propose amendments. There shall be no contradictions between national legislation and the provisions of the ratified Agreement on the Common Principles and Rules of Competition.

Adoption of a Model Law on Competition is the second stage of harmonization. The Model Law on Competition is a law aimed at approximating the legal regulation of economic relations in the field of competition policy of the three states. The Model Law on Competition will be signed by the heads of the three states. It shall be adopted by July 2013.

Taking into consideration the interests of entrepreneurs from the three states when developing and adopting the Model Law on Competition is a primary challenge that the Commission, the CES member-states and entrepreneurs are facing. For this purpose, wide consultations are expected to be held on the Model Law in the three states. Currently, preparatory work is under way with the public authorities, scientific and business communities in the states.

Following adoption of the Model Law, Belarus, Kazakhstan and Russia in the near future, within two or three years, will amend their competition laws for the purpose of further approximation based on the Model Law on Competition.

- Can you say that lack of common legislation is still a problem?

- Differences in laws are not a problem, but rather an inconvenience for doing business. Doing business in Kazakhstan is one thing, but it’s another thing when one comes to Russia or Belarus and has legislation that may differ considerably. So, approximating our legislations is among the primary tasks.

In accordance with the international agreements the Common Economic Space of Belarus, Kazakhstan and Russia has been established and the borders opened, but the national legislation of the three states has not changed and barriers remain. Cases when goods come freely to one country, but are prohibited from entering another country may occur.

In this context, eliminating administrative barriers hindering access to the markets of Belarus, Kazakhstan and Russia is the next task for us.

The EEC Board works to eliminate barriers, and this work is being done mainly in cooperation with the Council of the Commission.

The EEC Board comprises 9 ministers, each responsible for a particular area. The Board equally protects all the three markets, since the Agreement on the Eurasian Economic Commission requires that the members of the Board (ministers) be independent from the national authorities and public officials of the three states.

In its turn, the Council of the Commission, comprised of three Vice Prime Ministers, protects the interests of every particular state, i.e. Vice Prime Minister of Kazakhstan protects the interests of Kazakhstan, Russian Vice Prime Minister protects the interests of Russia, and Belarusian Vice Prime Minister protects the interests of Belarus. These are the differences between the Board and the Council of the Commission.

So, the Council of the Commission may submit its proposals and voice all existing administrative barriers, issue directions to the governments of the three states and to the Board of the Commission to eliminate such barriers. Currently, the competent public authorities of the three states shall prepare a list of existing barriers (in the following fields: finance, banking, technical regulation, antitrust regulation, trade, taxation, natural monopolies, etc.) and submit such list to the EEC for it to issue appropriate instructions to the Board and the governments of the three states. The most effective way to eliminate unreasonable administrative barriers and ensure equal playing field in the CES goods markets is to approximate the legislation of the three states.

- You are involved in the process of negotiations and drafting of laws. You have visited the Parliament very often and were criticized by deputies for not taking into consideration the interests of Kazakhstan in the negotiation process. To what extent are our interests taken into consideration?

- In Kazakhstan, all laws are adopted by the Parliament. All amendments are also considered by the Parliament. We, therefore, do a huge joint work with the deputies. The EEC submits its proposals regarding draft laws developed for the purpose of harmonization of legislation of the three states in the field of competition policy.

Of course, the draft law amending Kazakhstan’s law On Competition, which was approved by the Majilis of the Parliament, does take into consideration the interests of Kazakhstan.

However, the draft Model Law on Competition that is expected to be discussed early in 2013 with entrepreneurs from our three states and with scientific community shall reflect the interests of every state. I think that the Commission will need an active support of our businessmen during the consultations, since the businessmen are the first to face the existing administrative barriers and are aware of all topical problematic issues in the areas of their interest and can tell the Commission to what extent this or that legislative measure is really needed.

Consultations on the Model Law on Competition include a number of meetings, round-table discussions and international scientific conferences in the CES member-states. Currently, active work is being done with the deputies from the Parliament, and field meetings are expected to take place in border areas, because all controversies arise at the border territories. So, the Model Law should be carefully devised to avoid any controversies in the area of competition policy.

 Since this law will be signed by the heads of states – Belarus, Kazakhstan and Russia – it will become a reference point for further improvement and approximation of national competition laws of the three states.

- In what way are you going to harmonize the antitrust legislation of the Customs Union member-states? Will it be more liberal or tougher?

- You know, it’s a good question for debate. Of course, there are tough measures, which include penalties for anticompetitive agreements, unfair competition or abuse of a dominant position. The legislations of Belarus, Kazakhstan and Russia stipulate a penalty for violation of antitrust laws, which amounts to 10-15% of revenues received by the company at fault. However, there are also statutory provisions that are widely applied in the world practice, such as preventive or warning measures. We do include such preventive measures in our draft Model Law and recommend that our national authorities include such measures as prevention or warning in their laws, and shift the focus in their work from punishment for violations of antitrust laws to prevention of such violations.

Very often business circles express concerns about the amount of penalties for violation of antitrust laws, and for a failure to disclose information requested by the antitrust agency in particular, and point out to the need for wide awareness raising work in the field of antirust laws and for preventive steps as well. We are going to include measures, which would enable all this to be done, in the Model Law.

However, tougher measures, such as disqualification, shall also be stipulated. Such measure is currently available in Russia when a monopoly violates antitrust regulations to the prejudice of consumer interests. Moreover, when a company does this on a regular basis, such measure – disqualification of an officer for up to three years – can be applied.

It is a tougher measure so that everyone understands how important creating and maintaining competition is. Promoting competition is our primary task. Of course, we should continuously promote and support competition, because advancements are possible and prospects open only in the conditions of developed competition.

We also provide for some novelties in the field of price regulation by the government. Since in Kazakhstan prices are regulated by the Agency for Regulation of Natural Monopolies, in Russia – by the Federal Tariff Service, and in Belarus – by the Ministry of Economy, we believe that pricing control should remain vested with the antitrust agencies. For examples, if tariffs are set by the Federal Tariff Service, then tariff control functions shall be vested with the Federal Tariff Service. Prices for and access to the services of natural monopolies are the fundamental conditions of competition almost in all goods markets. It is here that we need an agency that will monitor whether rates are justified and correctly set, and to what extent rates promote competition, and such role shall be played by an antitrust agency. These novelties are also expected to be reflected in the Model Law.

- How will government procurements be handled in the context of free movement of goods?​

- In accordance with the Agreement on Government (Municipal) Procurements, the Commission and the CES member-states are tasked with ensuring that every entrepreneur in Kazakhstan, Belarus and Russia has an opportunity to participate in state procurements in the other states. For example, an entrepreneur in Astana shall be able to submit their bid for a tender held in Moscow or Saint-Petersburg. It is the main objective we are striving to achieve.

It is only since January 1, 2013, that Belarus and Russia have been using this scheme, i.e. introduced national treatment with respect to electronic procurements, while the Agreement on Government (Municipal) Procurements provides that national treatment between Russia and Belarus shall be introduced starting from January 1, 2012.

During the year, negotiations have been held, the EEC provided methodological assistance to our peers from Belarus and Russia, and a joint action plan was developed. Since this area was new, the two competent authorities of Russia and Belarus deviated from the deadlines stipulated in the international agreement, but, assisted by the Commission, they managed to complete that work.

The Agreement on Government (Municipal) Procurements provides that, with effect from January 1, 2014, national treatment shall apply in all CES member-states, including Kazakhstan. Currently, Kazakhstan has the observer status in connection with this matter. This means that, starting from January 1, 2014, any entrepreneur who is located, let’s say, even in the Far East, will be entitled to bid in government procurement tenders held in Minsk, Brest, or Astana. Increased number of potential suppliers for government procurements would promote competition in the markets and enhance the efficiency of procurements.

- Please, tell us about the realities and prospects in the cross border markets. What benefits will the development of competition and open borders bring to businesses and consumers?

- If we look at the history of any state, we’ll see that expanding the market has been and still is among the priorities. A market opens up opportunities, drives turnover of goods and strengthens economic cooperation.

From this perspective, developing competition and opening borders are rather advantageous. For example, while Kazakhstan has a population of about 17 million people, opening the markets of Russia (140 million people) and Belarus (9 million people) for Kazakhstan will provide a market of approximately 150 million people on a huge territory.

In this context, we should help businesses understand what the heads of Kazakhstan, Russia and Belarus have done for us by launching the CES and opening this market. This, however, does not mean that the market is open only for Kazakh businesses and they need to do nothing. They need to compete, be competitive and understand that ahead is accession to the WTO, where competitors from more than 150 countries are waiting for us.

 

Currently, the markets of two states are open for Kazakh business. It’s really good that the markets are open, but one should understand: we shall come to these markets and we need to win these new goods markets. And how can one win a market? Only by pursuing a policy of innovations and industrialization, implementing best practices and production technology. These are market laws.

So, businesses need to be competitive and come to the CES with ambitious plans. If they just sit and wait, then businesses from the other states will win the common market. Businesses need to understand that economic struggle is economic competition; it’s market.

It’s the first stage only, with the second one being the WTO, where businesses and the state will face even greater challenges.

- What are the main types of violations of antitrust laws? What will be the situation with cartels in the Customs Union?

- Although the borders are open now, we may say that, within the CES, antitrust laws applicable on the territory of a state apply only within its territory. So, the EEC should monitor the processes in the cross border markets.

In accordance with the Agreement on the Common Principles and Rules of Competition, any agreements between economic agents, which limit competition (anti-competitive agreements), abuse of a dominant position, or unfair competition are currently prohibited within the CES territory. Violations of the competition rules may eliminate or limit competition, provide unfair advantages, etc. A decrease in the number of marker players, unreasonable growth or decrease of prices, refusal by some players to compete, shortage of goods or other circumstances may signal that the rules of competition have been violated.

Violation of competition laws, and major cartel agreements, when market players raise or reduce prices, or create a shortage of certain goods, can have a very significant impact on economy in general. That is why control over such violations at the cross border markets was entrusted to the EEC. To vest the EEC with appropriate powers to prevent such violations, a number of regulations were adopted, including the criteria for classifying a market as a cross border market; methodology for identifying monopolistically high (low) prices; methodology for calculation and the procedure for imposition of penalties; procedure governing consideration of applications (materials) related to violation of the competition rules; procedure governing investigations into violation of the competition rules; procedure governing cooperation, including information sharing, between the EEC and the competent authorities of the parties. A methodology for assessing the state of competition is expected to be approved at a meeting of the Council of the Commission in January 2013.

- How will prices be regulated, for example, in the market of fuel and lubricants?

- Fuel and lubricants are a painful problem, just as food. Of course, prices for fuel and lubricants are determined by competition, except for those fuels and lubricants, such as A80 and A92 gasoline, and diesel fuel, which are subject to price regulation.

Clearly, it was made to avoid strong abuse in terms of pricing for this socially important product with low demand elasticity. So, I think that this statutory provision will persist until competition develops in the market of fuel and lubricants.

Government price regulation, introduced in the context of an unstable market to set a reasonable and just price, is a hidden form of sanctions, a mechanism to fix and stop prices. It is a temporary measure, and in the future, as competition develops, state regulation, of course, should be abandoned.

Our primary goal, the goal of our antitrust and other public authorities, is to promote competition in all markets, where possible. Today, after the CES has been launched, government price regulation applies as a temporary measure to stabilize prices for oil products of social categories. However, as soon as we see that government price regulation becomes a factor constraining competition development and price decrease, we will have to raise a question of abandoning price regulation.

 - Thank you very much. 

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