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10 December 2010

Competition policy in Ukraine: at the crossroads again

Author: Igor Svechkar
Source: World Commerce Review. - 2010. - December. - p.38

Celebrating the 10th anniversary of the Competition Act, in 2011 Ukraine will again stand on the verge of major legislative breakthroughs. Having restated the Unfair Competition Act in 2009, the Ukrainian Parliament has accumulated quite a number of other legislative initiatives which include: setting of higher financial thresholds triggering merger clearance requirement, introduction of criminal liability for cartels, redesigning the framework for collection of evidence in antitrust investigations, reconfirming jurisdiction of commercial courts over competition cases, and granting broader investigation and fining powers to the regional subdivision of the competition authority.

The majority of the proposed legislative changes have been prepared by or with the involvement of the Antimonopoly Committee. The Committee developed such proposals mainly basing on the results of the peer review of Ukrainian competition law and policy made by the OECD in 2008. In its report the OECD identified a number of issues in Ukrainian competition law framework and made various remedial proposals. In particular, the report focused on the imperfections of the merger control regime, legislation on state aid, Committee's investigative tools as well as on the necessity to resolve conflicts between the Competition Act and the Commercial Code.

Recently, the Antimonopoly Committee has also extensively contributed at the sub-legislative level by, among others, adopting new and amending the existing block exemptions regulations.

Following almost two years of operating without the Chairman, in April 2010 the Committee at last got the "new old" Chairman Mr Kostusev, who also occupied this position from 2001 till 2008 and has effectively built up the competition authority to the standards it now operates at. Kostusev has made a number of stuff and policy changes and facilitated the enforcement efforts of the authority - the Committee has become increasingly active in investigating cartels and abuses of dominance focusing on retail and other "socially important" areas, capitalizing on consumer protection mottos. The Committee was also noted to operate in an unbiased and responsible manner, quickly responding to the issues arising on various markets such as aviation fuel, oil products, sugar, and pharmaceuticals. Competition offences by governmental and municipal authorities and unfair competition cases of varying magnitudes have also been among the authority' top priorities.

In late October 2010 Kostusev won Mayor elections in one of Ukraine's largest cities, thus 'beheading' the Committee again. On December 7, 2010 the President proposed the parliament to approve a new Chairman who currently serves as the Minister of Economy. It is almost certain that the Parliament dominated by the President's party will approve the nominee. So, Ukraine is again in anticipation of major changes in competition legislation and, possibly, the Committee's enforcement practices.

Some of the relevant draft laws have already progressed through the first reading in the Parliament. However, the prospects of their adoption are largely unclear; for example, the draft law increasing the notifiability thresholds has been awaiting final consideration by the Parliament since it passed first reading back in 2008. Certainly, this is the most anticipated change given that, apart from establishing very low thresholds triggering merger clearance requirement (assets value/turnover of €1 million for each party and €12 million combined), the existing law (as currently interpreted and enforced by the Committee) views local assets or turnover of either of the merging parties as a sufficient local nexus. Such ignorance of the ICN Recommended Practices, which state that jurisdiction over a merger should be asserted proceeding from the availability of the appropriate local nexus of the transaction, has been heavily criticized by the market and the legal community.

Fortunately, the Committee has brought this issue to the attention of the lawmakers. Though, at the sub-legislative level it still has not introduced a simplified (slim-form or fast-track) clearance procedure for mergers which lack reasonably sufficient local nexus test and apparently do not raise any competition concerns. Rather it keeps applying the standard review procedure to transactions where just one of the parties has Ukrainian asset or turnover.

It is also worth mentioning in this context that unlike in the EU, for the purposes of calculating the notification thresholds the assets and turnover of the entire group of undertakings the target belongs to prior to concentration are attributable to target's assets and turnover even where the seller loses any links with such target as a result of the concentration.

Further, the Committee has not yet developed a uniform approach to the joint/sole control issue. In the absence of clear 'joint control' and 'sole control' definition in the competition laws, the Committee believes that 'control' is vested, eg., with each of shareholders owning a company 50/50. For the purposes of assessment of notifiability of acquisition by one partner of other's equity, this implies that such transaction is purely intra-group. However, this seems to contradict the provisions of the Competition Act which, if fairly interpreted, view 'reaching' of 50% of votes and 'exceeding' of 50% of votes as two separate notifiable transactions.

Thus, it appears that being focused on the introduction of changes to the Competition Act and other related laws, the Antimonopoly Committee does not use to the full extent the instruments available to it at the sub-legislative level, i.e., through adoption of regulations and guidelines which may either partially solve the relevant issues or at least mitigate their negative impact. Hopefully, under the new Chairmanship the Committee will take advantage of these instruments and start enforcing the competition policy and law more effectively.

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