Competition Policies of the EAEU

Introduction

Open market economy and fair competition is the basis of functioning in Eurasian Economic Union (EAEU). All the member states, Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, agreed on establishing general rules of competition to protect the market of the Union and suppress any violation of competition rules which have an impact on territories of two or more member states. These policies ensure that there is fair competition across the Union. It eventually increases enterprise efficiency and directly affects the economy of member states. The Supreme Council of Eurasian Economic Union made a decision on the transfer of authority to Eurasian Economic Commission to take the decisions on the suppression of violation of competition rules if such violations have adverse effects on the market of the Union and monitor compliance with the general rules of competition (The Commission of EAEU).

The press of the Commission reported that in the period from January 1, 2015, till June 30, 2016, PJSC Novolipetsk Metallurgical Combine (NLMK) and VIZ-Stal LLC took and abused a dominant position in the sector of electrical anisotropic steel that creating unequal conditions to customers of the Union (Eurasia daily 2017). They dominated the market for anisotropic electrical steel grades 3407, 3408, 3409 with a market share of over 99.9% within the territory of Kazakhstan, Belarus and Russian Federation (Eurasia daily 2017). When the consumers from Kazakhstan and Belarus bought their products, the producers put an additional condition for making the final price. It set a monthly macroeconomic risk coefficient which increased the selling price to 23%.

For the first time in a history of the Union, the Commission imposed a fine to protect rights of consumers in the EAEU. This statement about violation was sent by JSC "Kentau Transformer Plant". The Commission declared that PJSC NLMK and VIZ-Steel LLC violated subparagraph 6 of paragraph 1 of Article 76 of the Astana Treaty (The Commission of the EAEU 2017).

Contending perspective

According to the Commission of the EAEU, the NLMK PJSC restricted competition across the Union and took the dominant position by discriminating consumers of the Republic of Belarus and the Republic of Kazakhstan (2017). Therefore, it is in the Commission's competence to make decisions since the applicant had affected negatively on the competition of the market in the borders of two or more states within EAEU. The position of the Collegium of the Commission is that it saw NLMK as a threat for competition by crowding out producers from Kazakhstan and Belarus. It is also stated that discriminatory conditions were established by the NLMK for Kazakhstan and Belarus compared with third countries, like Russia with similar equipment.

However, the Intergovernmental Council, based on paragraph 7 of Article 16 of the EAEU Treaty, considers appeal and suggestions from member states for amendment or cancellation of decisions by the Commission. The decision of the EEC Board was suspended by the Eurasian Intergovernmental Council for the adoption of an appropriate decision on the results of such consideration on October 28, 2017 (Case law on the protection of competition 2017).

Literature review

According to the past studies of European integration, competition policy is the best representative of the supranational governance with many disputable areas which has a positive impact on the consumers. Nowadays, states are highly dependent on integrating their markets internationally (Keohane and Nye 1989; Garrett 2000). The immense example of this economic integration can be the Eurasian Economic Union and the European Union and. The economic integration made a way for the competition which also created issues such as anti-competitive activities, increased number of cartels and other concerns regarding the competition policy (Aynin and Thomas 2012). As a result, the burden for the Commission of the EU and also EAEU had increased to respond in a more efficient way and contribute to the fair competition in the Union. The Commission has four main objectives of competition policy. According to the European Commission in 2004, cartels are prohibited which restricts fair competition by increasing or fixing prices in the market. As the dispute in the EAEU was between the Commission and the cartel, this literature will be mainly focusing on the cartel policy.

The number of cartels is increasing worldwide which shows the significance of the problem. The international economy lost $2 billion due to the cartels in the 2000s (Connor and Helmers 2007, 1, 21). Cartels cause a huge risk in the market, specifically in the sector of the market which has a few actors (Maher 2011). The reason is they establish their price by taking a dominant position in the market, thus eliminating other producers from the competition. Cartels usually gain higher profits since they get money from its consumers at a higher price (McGowan 2009, p285). So, it is usually hard for the Commission to tackle with cartels which made this issue important in the EU policy-making process.

The cartel policy has been actively discussed and enforced across the Union. The Commission had made serious of changes to overcome the cartel through implementing numerous reforms, such as new administrative rules under Regulation 1/2003, enforcement proceedings in case of noncompliance and other innovative ways of dealing with cartels (McGowan 2009, p285). The Commission has the power to investigate potential cartels under Article 19, 20, 21 of the Lisbon Treaty. Moreover, other business entities and third parties can report to the Commission in case of any cartel is suspected.

However, the limitation of detecting the cartels is that it takes a lot of time to make decisions since the Commission has a huge workload except the cartel, including merger, antitrust, state-aid control. The Commission recognizes these constraints and implemented stricter punishments to cartels (McGowan 2009, p297). Nevertheless, it is stated that positive changes in the market can cause the collapse of cartels in a natural way (De 2010, p.62).

Analysis

The competition policy in the Eurasian Economic Union works in a similar way with the European integration and the analysis about the competition policy of EAEU can be drawn from the previous research on the European Union. The competition law supports domestic producers, allows fair competition in the markets of the EAEU member states, strengthens the powers of antitrust authorities and reduces prices for consumers. The Commission takes decisions if actions have a negative impact on competition in the territories of two or more member states (Treaty of the Eurasian Economic Union). There are prohibitions that are stated in competition law. One of them is taking a dominating position in the market across the EAEU in case it restricts and eliminates competition. It is also prohibited to make anti-competitive agreements between market actors.

According to Article 76 of the Treaty of EAEU, Commission maintains structural division in policy formulation for conducting investigations of the common competition violations. The Commission considers the submission of requests of business entities, authorized bodies and other interest groups. In case of violation of competition rules, interest groups, Business entities (market participants), nonprofit organizations, authorized bodies, local executive bodies, other bodies or organizations (their officials) of the member States performing their functions, individuals can participate in agenda-setting.

The Commission takes the decisions on the suppression of violation of competition rule. If the member state does not agree with the decision of the Commission, the Supreme Council can take into consideration. The decision of the Commission has appealed the Court of the EAEU which is defined in Annex 2 of the Treaty (Treaty of the Eurasian Economic Union). The Court of the EAEU accepts the acts and actions of the Commission without preliminary addressing to solve the issue area in prejudicial order. Moreover, the acts of authorized bodies of the member states should be also appealed in the national courts with their procedural legislation.

The authorized state bodies of the member states take part in enforcement activities through requests for information, sending notifications, orders and requests for conducting separate proceedings, exchange of information and coordination of enforcement mechanisms of the member states. The Commission of the EAEU interacts with state authorized bodies during the submission of applications on violation of competition rules. In case of mutual interest from both sides, they conduct meetings with heads of the member states and the Collegium of the Commission. According to Article 76 of the Treaty, the Commission can impose penalties for the violation of the competition rules in accordance with the Methodology of Calculation and the Order of Imposing Fines.

Unfair competition

This company, NLMK, carries out the sale in the territory of three states and violated the general rules of competition. The reason is it set different prices for three states, specifically the Russian Federation, Kazakhstan and Belarus. Even they set the standard price for all states, it eventually increased the prices for Kazakhstan and Belarus from 5.3% to 23%. It created unfair conditions for the customers in the sector of electrical anisotropic steel. They explained that there is instability of the steel market in the Kazakhstan and Belarus and their company could face macroeconomic risks. They also blamed Kazakhstan and Belarus for their currency instability and their consumption. However, their arguments can be rejected since they made payments in rubles, so currency instability and macroeconomic shocks cannot influence them. As a result, the Eurasian Economic Union has concluded that PJSC Novolipetsk Metallurgical Combine (NLMK) and VIZ-Stal LLC discriminated consumers from Kazakhstan and Belarus by eliminating conditions for steel production in these countries.

However, NLMK PJSC believes that the Eurasian Economic Commission did not prove the existence of violations in its actions. It says that the order by the Commission is against the provisions of the Treaty of Eurasian Economic Union. They claim that the rights and legal interests of the applicant were violated and it damages their entrepreneurial activity. They state that the Commission violated the procedure of determining the dominant position of the applicant across the Union. It is said that the Commission does not have competence for the consideration of the case № 22-АС-01 according to the Treaty of the EAEU. From their side, the Commission also violated provisions, specifically about the Decision that can be committed by the NLMK PJSC. They also believe that violation according to Article 76 subparagraph 6 of paragraph 1 is unreasonably stated towards their company.

Competence of the Commission and investigation of the case

The past research on the European integration states that it is usually hard for the Commission to tackle with cartels which made this issue important in the EU policy-making process. It is also the same for the Eurasian Economic Union. The Commission of the EAEU can take the decisions on the competition policy if authorized bodies violate the rule of competition law in the territories of two or more member states. Considering the application for establishing the signs of violating the competition law, the Commission made an investigation in 19th of September in 2016 (The Eurasian Economic Commission 2017). The Commission extended its investigation on violation of general competition rules in cross-border markets for 60 working days for analysis and collection of the data due to the lack of information about the violation. The test "hypothetical monopoly" was conducted as a method for identifying the condition of competition. As a result, geographic borders were identified with territories of Republic of Kazakhstan, Republic of Belarus and Russian Federation. It is concluded that NLMK and VIZ-Stal LLC violated the rules of competition law and it led to the infringement of the interests of consumers in Kazakhstan and Belarus. The employees of the Assessment Department reported that NLMK and VIZ-Stal LLC took a dominant position in the market by discriminating consumers of Kazakhstan and Belarus.

Punishment and fines

The Commission can investigate and initiate a case of violation and also it can impose fines for noncompliance and violation of rules. The amount of fine for individuals is 20000-150000 rubles and 0.01-0.15% of the sales of goods for legal entities. The total amount of fine assigned for NLMK and VIZ-Stal LLC is 217.5 million rubles. The fines were imposed to four violators, to the deputy of vice president, to vice president, to legal entities of NLMK and VIZ-Stal LLC (Makhambetova 2017).

The decision of the Court, the Supreme Council and the Intergovernmental Council

Majority of legal disputes are decided and investigated in the Commission due to effective fighting of cartels by the Commission. However, legal entities can appeal the case in front of the Court against the Commission if they have disputes regarding the prices or other decisions of the Commission (Hellwig et.al, 2016). According to the Annex 8, paragraph 41 of the Statute of the Court, the disputes regarding the competition policy is resolved by the Court of Eurasian Economic Union (The Court of Eurasian Economic Union 2017). Paragraph 52 of the Statute of the Court gives authority for the Court to initiate a procedure for resolving disputes before the Court. There was information on October 31, 2017, about the suspension of the entry into force of the decision by the Commission starting from September 26, 2017. However, it can be seen from the chronology of the decisions, the decision to suspend the actions of the Commission did not enter into force. It should be also noted that the Supreme Council approved the decision of the suspension of the Commission's actions. Moreover, the Intergovernmental Council, based on paragraph 7 of Article 16 of the EAEU Treaty, considers appeal and suggestions from member states for amendment or cancellation of decisions by the Commission.

Overall, the regulation of the Commission’s decision analyzed in two ways. One is by the Court in which the applicant appealed the decision of the Commission. The second is done the extrajudicial procedure, specifically by the Supreme Council and the Intergovernmental Council for cancelling or amending the decision (The Court of Eurasian Economic Union 2017). It is important to state that the decisions of the Commission can be annulled by the Intergovernmental Council.

The Court decided to refuse the application of NLMK and VIZ-Stal LLC on the recognition of the decision by Eurasian Economic Commission on November 16, 2017.

Implications and conclusion

The action of the company PJSC Novolipetsk Metallurgical Combine (NLMK) and VIZ-Stal LLC was recognized that it took and abused a dominant position in the sector of electrical anisotropic steel that creating unequal conditions to customers of the Union. The Commission imposed a fine to protect rights of consumers in the EAEU which is recorded as the first experience of the Commission to fine legal entities for violating competition laws of the Eurasian Economic Union. The total amount of fine, more than 217 millions of rubles, was imposed on the enterprises of these companies. Moreover, these enterprises have been ordered not to apply discriminatory conditions for the consumers of the Union and to maintain the fair competition in the market. Fines imposed by the Commission transferred to the budget of the member states of the Eurasian Economic Union, in the borders of registered enterprises. The decision entered into force in 30 days after publication.

Overall, it can be concluded from the conflict above that the decisions of the Commission of the EAEU on the competition are not supranational as it is in the European Union. The reason is Intergovernmental Council can amend or even cancel the decision of the Commission. However, the decision of the Commission regarding this dispute was approved by Intergovernmental Council and Supreme Council and NLMK and VIZ-Stal LLC were punished for violated the competition rule according to the Treaty of the EAEU. The Commission’s first attempt to fight with the monopolies by imposing fines was successful and it shows that the Commission of the EAEU is developing to pursue aggressive policies and fines to tackle with violators.

References

Aydin, Umut, and Kenneth P. Thomas. "The challenges and trajectories of EU competition policy in the twenty-first century." Journal of European Integration 34.6 (2012): 531-547.

Case law on the protection of competition. 2017. “Dispute between a Company and Board of Competition and Antitrust regulation ”.

Commission of the European Communities. 2004. EU competition policy and the consumer. Luxembourg: Office for Official Publications of the European Communities.

Connor, J.M., and G.C. Helmers. 2007. Statistics on modern private international cartels, 1990–2005. AAI Working Paper, 07-01. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=944039.

Garrett, G. 2000. The causes of globalization. Comparative Political Studies 33, no. 6/7: 941–91.

Hellwig, Michael, Kai Hüschelrath, and Ulrich Laitenberger. "Settlements and Appeals in the European Commission’s Cartel Cases: An Empirical Assessment." Review of Industrial Organization 52.1 (2018): 55-84.

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Maher, Imelda. "Competition law and transnational private regulatory regimes: Marking the cartel boundary." Journal of Law and Society 38.1 (2011): 119-137.

McGowan, Lee. "Any nearer to victory in the 50-year war? Assessing the European Commission's leadership, weapons and strategies towards combating cartels." Perspectives on European Politics and Society 10.3 (2009): 283-307.

The Court of the Eurasian Economic Union. Summary of case No. CE-3/3-17-КС (Public Joint-Stock Company “NLMK”) and No. CE-3/2-17-КС (Limited Liability Company “VIZ Steel”)

The Eurasian Economic Commission. 2017. “Results of the EEC Board: the definition of an authorized economic operator will get new content, decisions are made in the field of customs regulation and competition protection in the EAEU”. Retrieved from http://www.eurasiancommission.org/en/nae/news/Pages/27-09-2017-1.aspx

The Eurasian Economic Commission. 2017. Decision No.130. Retrieved from https://docs.eaeunion.org/docs/ru-ru/01414955/clcd_02102017_130

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ЕЭК впервые применила штрафы за нарушение антимонопольного законодательства. 2017, September 28. EurAsia Daily. Retrieved from https://eadaily.com/ru/news/2017/09/28/eek-vpervye-primenila-shtrafy-za-narushenie-antimonopolnogo-zakonodatelstva

Махамбетова Дина. За честную конкуренцию. 2017, 29 Сентября. Казахстанская правда. Retrieved from https://www.kazpravda.kz/fresh/view/za-chestnuu-konkurentsiu