Unilateral Conduct Working Group Questionnaire. Answers Prepared by Federal Antimonopoly Service of Russia

Transcription

1 Unilateral Conduct Working Group Questionnaire Answers Prepared by Federal Antimonopoly Service of Russia In case you have any questions on the questionnaire, please contact Elizabeth Kraus at the US FTC or Arno Rasek at the Bundeskartellamt. Please send the completed questionnaire by 31 October 2006 to and and provide a contact person who can answer possible questions on your response. A. Objectives of unilateral conduct laws 1. With regard to your jurisdiction s unilateral conduct rules e.g., rules concerning the prohibition of abuse of dominance or monopolization - please state the objectives of these rules (e.g., consumer welfare, efficiency, protecting the competitive process), and identify the source from the following, as applicable: a. Constitution The Russian competition legislation pertaining unilateral conduct of economic undertakings (regardless of their legal forms and modes of incorporation) stems from Article 34 (2) of the Constitution of the Russian Federation stipulating that the economic activity aimed at monopolization and unfair competition shall not be allowed, i.e. protecting the competitive process is considered to be the primary goal of the competition legislation. This approach is based on the assumption that protection of competition is a pivotal precondition for maximizing consumer welfare and efficiency of allocation and use of national resources. Protection of competition is understood as opposing intentional actions of economic undertakings aimed at monopolization as such and further unjustified reallocation of wealth to a monopolist. Merit based market leadership and dominance based on superior performance is not a violation of law per se. Intentional unlawful action economic activity aimed at monopolization and not the undertaking as such is subject to the prohibition. Thus, economic activity that is not aimed at monopolization but that can imply certain limitation of competition can be recognized lawful if it has same results as the competitive process, specifically, increased consumer welfare and development of production provided that it does not eliminate competition completely and limits it only in the extent necessary for achieving these goals. IPR use, scale economies or natural monopolies can be considered as examples of practical application of these principles. 1

2 b. Statutes The emphasis of protection of competitive process is further elaborated on the basic Russian antitrust law the Law On Protection of Competition (effective since October 26, 2006). The new Law substitutes the Law On Competition and Limitation of Monopolistic Activity in Commodities Markets (as amended) that was effective from March The goal of the legislation is stipulated in Article 1 of the Law On Protection of Competition as determining organizational and legal basis for protection of competition including prevention and restriction of: 1) monopolistic activity and unfair competition; 2) prevention, restriction, elimination of competition by federal bodies of executive authority, public authorities of the subjects of the Russian Federation, bodies of local self-government, other bodies or organizations exercising the functions of the above-mentioned bodies, as well as public off-budget funds, the Central Bank of the Russian Federation. 1 The focus of the Law on protecting competitive process is further elaborated on by including creation and maintenance of conditions for fair competition in its goals. Specifically, Section 2 of Article 1 stipulates that objectives of the present Federal Law are to ensure common economic area, free movement of goods, protection of competition, freedom of economic activity in the Russian Federation and to create conditions for effective functioning of the commodity markets. Thus, developing market relationships and facilitating economic integrity of the country on the one hand and competition protection on another are viewed as mutually related objectives of the legislation. Legal responsibly for violation of antimonopoly legislation is stipulated in the Civil Code and Criminal Code of the Russian Federation. c. Regulations The unilateral conduct rules are universal for all sectors of the Russian economy. In cases when sector specifics should be specially considered for implementing unilateral conduct rules the latter are taken into account by sector regulators while issuing their orders and other documents. The regulators follow FAS recommendations when competition issues are concerned. For example, cooperation between FAS and sector regulators is highly developed in the financial sector (Bank of Russia (the Russian Central Bank) in credit and banking, Federal Securities Commission in the securities market). 1 Here and below the citations from the Law On Protection of Competition are made from non-official English translation of this Law. The official translation is currently being prepared. 2

3 d. Agency enforcement policy (e.g., guidelines, speeches) FAS seeks common understanding of the competition law enforcement principals by government officials and business community, including but not limited to unilateral conduct rules. Therefore, the agency guidelines used by FAS officials are published on the agency web-site and accessible for all the stakeholders of the enforcement process. The drafts of these guidelines are initially developed by the Agency and than submitted to a broad public discussion actively attended by business community. The scope of topics covered by guidelines includes but is not limited to market definition, dominance assessment (currently being drafted), merger review (currently being amended) etc. e. Case law The Russian antimonopoly legislation is modeled in the continental way. Thus, courts do not have to relay on already existent precedents. f. Other (please identify) 2. Are non-competition influences (such as promotion of industrial policy or distributive welfare) incorporated in these objectives? Please describe any such influences. The objectives of the Russian competition legislation are solely competition related since competition is assumed as a basic prerequisite for efficient wealth allocation. Social issues like social security, pensions, aid to socially disadvantageous categories of population etc. are being solved by wealth reallocation through the taxation system that is equally applied to all categories of businesses. According to Articles of the Law On Protection of Competition state and municipal aid is allowed for a limited number of purposes at the consent of the FAS. These purposes include: 1) ensuring vital functions of population in the regions of remote North and territories equated with it; 2) carrying out fundamental research works; 3) protection of environment; 4) development of culture and conservation of cultural heritage; 5) production of agricultural products; 6) support of the subjects of small business exercising priority types of activity; 7) social service of the population; 8) social support of unemployed citizens and employment assistance. 3

4 FAS would issue its official consent to the authority applying for permission for providing state or municipal aid only if this aid corresponds to these purposes and can not lead to elimination or prevention of competition. 3. If there are multiple objectives, how are these balanced or reconciled? The Russian competition legislation, specifically, its unilateral conduct rules have the single objective of protecting competition, though it pursues this objective in different situations: unilateral conduct as such, receiving state and municipal aid by an economic undertaking (see above), bidding for government contracts (Articles 10, 19-21, of the Law On Protection of Competition, respectively). Unilateral (as well as concerted) actions intended to lessen competition are prohibited in all these situations. 4. How has your jurisdiction balanced the risks associated with over-deterrence (deterring efficient, pro-competitive conduct as a result of excessive intervention) with the risks associated with under-deterrence (permitting anti-competitive conduct as a result of too little enforcement) in choosing its objectives for unilateral conduct rules? Is this choice affected by the nature of your economy? Article 10 of the Law On Protection of Competition prohibits unilateral abusive practices eventually intended for receiving monopoly profits (except these resulting from exercising intellectual property rights, other exclusive rights and product individualization). These practices are assumed to be anti-competitive per se and cannot be justified basing on the effect based defense (pro-competitive effects overweigh these anticompetitive). They include: establishment and maintaining of monopolistically high or monopolistically low price for a commodity; withdrawal of a commodity from circulation, if the result of such withdrawal is increase of price of the commodity; imposing on a counterparty of contractual terms which are unprofitable for the latter or not connected with the subject of agreement (economically or technologically unjustified and (or) not provided for directly by the federal laws, statutory legal acts of the President of the Russian Federation, statutory legal acts of the Government of the Russian Federation, statutory legal acts of the authorized federal bodies of executive authority or judicial acts, requirements on transfer of financial assets, other property, including property rights, as well as consent to conclude a contract on conditions of including in it of provisions, concerning the commodity in which the counterparty is not interested and other requirements); economically or technologically unjustified refusal or evasion form concluding a contract with individual purchasers (customers) in the case when there are possibilities for production or delivery of the relevant commodity as well as in the case if such refusal or evasion is not provided for directly by the federal laws, statutory legal acts of the 4

5 President of the Russian Federation, the Government of the Russian Federation, authorized federal bodies of executive authority or judicial acts (exclusive dealing); economically, technologically or in any other way unjustified establishment of different prices (tariffs) for one and the same commodity if another is not established by the law (price discrimination); establishment of unjustifiably high or unjustifiably low price of a financial service by a financial organization; violation of the procedure of pricing established by statutory legal acts. Article 10 also prohibits such practices as: economically or technologically unjustified reduction or cutting off the production of a commodity if there is demand for the commodity or the orders for its delivery are placed and there is possibility of its profitable production, as well as if such reduction or cutting off the production of the commodity is not provided for directly by the federal laws, statutory legal acts of the President of the Russian Federation, statutory legal acts of the Government of the Russian Federation, statutory legal acts of the authorized federal bodies of executive authority or judicial acts; creation of discriminatory conditions; creation of barriers to entry into the commodity market or leaving from the commodity market for the other economic entities. However, the latter types of unilateral conduct can be justified by means of effect based defense, provided that they meet the conditions stipulated for in Article 13 of the Law, specifically: these practices do not create for particular persons opportunity to eliminate competition in the relevant commodity market and also if they result or can result in: 1) perfection of production, sale of goods or stimulation of technical, economic progress or raising of competitiveness of the Russian goods in the world market; 2) obtaining by consumers of benefits (advantages) which are proportionate to the benefits (advantages) obtained by the economic entities The burden of proof lies on the defendant. Thus, the new Russian antitrust law implicitly introduces per se and rule of reason doctrine in addressing unilateral conduct issues 2. Of the above listed practices the first ones are addressed on the per se basis while the latter ones (subject to Article 13 provisions) on a rule of reason (effect based) approach. Article 13 actually provides instructions (conditions) for the application of the effect based approach to deterrence of unilateral abuse of dominance. In case of per se violations the major concern of the Law is to avoid under-deterrence, while for the practices assessed on the effect based approach the legislation seeks to avoid both under and over deterrence by balancing their anticompetitive effects against benefits to consumers. The choice of this approach was mainly determined by growing complexity of the Russian economy and the necessity of more efficient deterrence of anticompetitive 2 Same principle is used in the Law for assessing concerted practices, actions of government bodies and merger control. 5

6 conduct on one hand and safeguarding socially beneficial entrepreneurial activity on another one. It is based on the assumption that the Russian economy is no longer transitional in its nature since most of the markets are liberalized and control over most of the companies that are not natural monopolies belongs to private owners. At the same time the history of the antitrust enforcement in Russia is not so long and the application of private enforcement though legally feasible but still underdeveloped. Under these conditions the major actors of the enforcement process, i.e. both business and government need universally acceptable and practically instructive rules of unilateral conduct allowing for strictness and flexibility at the same time. 5. With regard to exemptions or exceptions to your laws specific to unilateral conduct (for example, for regulated sectors, government entities, purchasers, or exercise of intellectual property rights), please identify the exemption or exception and explain whether and how its goals differ from the objectives of your general unilateral conduct law and how the jurisdiction balances or reconciles these factors. The regulated sectors in the Russian economy are mainly natural monopolies like electricity transfer networks, natural gas supply and public utilities. They operate on persistent economies of scale basis, i.e. the market can accommodate only one firm operating at minimum optimal scale. Prices in these sectors are government controlled with an aim to introduce and maintain similar incentives for companies as these in the competitive markets. Price caps and competitive market based benchmarks for cost of capital and production inputs are used for these purposes. Natural monopolies are subject to the same legal rules for unilateral conduct as dominant companies in competitive markets, i.e. they are legally precluded from intentionally anticompetitive conduct. Article 10 of the Law On Protection of Competition stipulates for exclusion of exclusive rights for the results of intellectual activity and equalized to them means of individualization of a legal person, means of individualization of production, executed works or rendered services from the sphere of its application. The provisions of the Russian antitrust legislation can be superceded by these of an international agreement signed by the Russian Federation. It may lead to a possibility of exempting entities and/or activities indicated in the agreement form antimonopoly legislation. 6. If the objectives of, or exemptions or exceptions to, your unilateral conduct rules are influenced by the nature of your economy (e.g., small, transition, or recently-liberalized), please explain. The objectives of the Russian unilateral conduct rules and exemptions from them are typical for developed market economies. These rules are rather tailored to the needs of the developed market economy than a transitional and/or recently liberalized one, since most of the economy is in private hands and not government controlled. In line with general world trends Russia undergoes liberalization of formerly regulated sectors like 6

7 electric power production. However, the liberalized parts of these sectors (e.g. electric power generation in the electricity sector) are not subjected to exemptions from the antitrust legislation. The price for electricity is more and more established on the market basis, though a price cap for electricity is still operational. 7. If the objectives of, or exemptions or exceptions to, your unilateral conduct rules have been substantially reviewed or revised, please describe any change and the reason. Starting from October 26, 2006 the new Russian major antitrust law the Law On Protection of Competition is effective. Compared with the previous Law On Competition and Limitation of Monopolistic Activities in Commodity Markets the objectives pertaining unilateral conduct essentially have not been changed. Protection of the competitive process remains its sole objective, though this objective is understood in a broad context as prevention of monopolistic practices by private companies, government bodies facilitating economic activity and integrity of the national market. Though practical implementation of these principles applicably to unilateral conduct was specified compared to the past law that prohibited all abusive unilateral practices but left a possibility of proving their legality in exclusive conditions not specified. The new law seeks to overcome this drawback by adhering to the approach described in detail in the answer for question Are there institutional features (e.g., the possibility for a ministry to overrule competition agency decisions or the requirement the competition agency consult with other governmental agencies) that affect your agency s ability to achieve the objectives of the unilateral conduct rules? If so, please explain. FAS decisions on matters related to protection of competition cannot be overruled by the decision of any other government ministry or agency. Moreover, pursuant Article 34 of the Constitution of the Russian Federation and according to Article 23 of the Law On protection of Competition FAS is vested with powers to control the activities of other federal ministries and agencies as well as of regional and municipal governments from the positions of protecting competitive process. Specifically, in non-financial sectors FAS has the following authorities with regards to other government bodies: issues binding injunctions to the federal bodies of executive authority, public authorities of the subjects of the Russian Federation, bodies of local self-government, other bodies or organizations exercising the functions of the above-mentioned bodies, public off-budget funds, as well as their officials : а) on cancellation or amendment of acts violating the antimonopoly legislation; b) on cancellation or amendment of contracts violating the antimonopoly legislation; c) on termination of other violations of the antimonopoly legislation; d) on fulfillment of actions aimed at ensuring competition. 7

8 In the financial sector FAS cannot make binding orders to federal government agencies regulating the sector (Federal Securities Commission and Central Bank) and its influence on their decisions is limited to recommendations. However, it does not limit FAS powers with regard of private companies operating in the financial sector and FAS can issue mandatory orders to them even if their actions do not contradict to the rules issued by the financial sector regulators. It motivates sector regulators to avoid issuing regulations contradicting competition protection principles and consider FAS recommendations carefully. 9. Please describe any difficulties that your jurisdiction has experienced with its objectives for unilateral conduct rules. Based on your experience, what, if any, suggestions (including selection of other objectives) would you have for your or other jurisdictions, and why? The majority of the Russian professional community and other stakeholders involved in competition protection matters believe that applicably to unilateral conduct choosing protection of competition process as a core objective is a best possible option. The reasons for that include but are not limited to the following: 1. in a market economy protection of competition is actually on the top of hierarchy of basic economic development objectives such as reaching allocative efficiency of resources and consumer welfare. Reaching competition protection objective leads to reaching the latter two ones. Meanwhile, the inverse positioning of the objectives may not lead to the same result, e.g. maximizing consumer welfare by government actions may lead to the detriment of production and resource allocation and eventually jeopardize the goal of maximizing consumer welfare itself in a long run. 2. protection of competitive process is understood as opposing intentional monopolization aimed at receiving monopoly profits and not merit-based market leadership. Thus, antitrust enforcement should be balanced to avoid both under- and overdeterrence. 3. facilitating competitive unilateral conduct should be considered as a basic prerequisite for liberalization/privatization of regulated and/or government control sectors, i.e. structural separation of the liberalized companies into potentially competing entities should precede privatization/liberalization process. B. Assessment of Dominance/Substantial Market Power 1. Please provide a brief description of single-firm dominance/substantial market power as defined in the provisions of your jurisdiction s general competition law, relevant agency policy statements (e.g. guidelines, speeches) and/or case law that pertain to unilateral conduct. As appropriate, please also explain whether and how your agency categorizes different levels of dominance/substantial market power (e.g., super dominance ). 8

9 Single-firm dominance/substantial market power is defined in Article 5 of the Law On Protection of Competition (see FAS web-site for a reference). Dominance is defined as a market position of a company enabling it to have decisive impact on the general conditions of commodity circulation in the relevant commodity market and (or) to remove other economic entities from this commodity market and (or) to impede access to this commodity market for the other economic entities. For nonfinancial companies in order to be considered as a dominant a company should meet one of the following criteria: To have market share exceeding 50% (unless the analysis of the relevant market shows that the company cannot be recognized as dominant though it has this market share) Or To have market share of 35 50% provided that the analysis of the relevant market proves that the company with the above mentioned share is dominant basing on the stability of its market share, possibilities of new entries in the market and other characteristics of the relevant market. Or Belongs to two or three companies whose combines share in the relevant market exceeds 50%. Or Belongs to 1-5 companies whose combined market share is more than 70% (this provision is not applied if the share of at least one of the aforementioned economic entities is less than eight per cent). To be considered as dominant the companies meeting one of two latter criteria should also have the following characteristics: stability of market share (no or insignificant changes in the market share for a period of not less than one year or term of existence of the market) access of new competitors to the relevant commodity market is impeded the commodity sold or purchased by economic entities cannot be substituted with another commodity in the process of consumption (including consumption for production purposes), growth of the commodity price does not condition corresponding to such growth reduction in demand for this commodity, information about the price, conditions of selling or purchasing of this commodity in the relevant commodity market is available to indefinite group of persons. The position of an economic entity - subject of a natural monopoly in a commodity market, which is in a state of natural monopoly, is recognized dominant. The federal laws can establish cases of recognizing as dominant the position of an economic entity whose share in the market of a certain commodity is less than thirty five per cent. The fact of dominance should be established by the Government of the Russian Federation basing on the criteria mentioned above. 9

10 The conditions for recognizing as dominant the position of a credit organization are established by the Government of the Russian Federation in agreement with the Central Bank of the Russian Federation taking into consideration the restrictions provided for by the present Federal Law. The conditions for recognizing as dominant the position of a financial organization (excluding a credit organization) are established by the antimonopoly body in accordance with the procedure approved by the Government of the Russian Federation. The procedure of establishing the dominant position of a credit organization is approved by the Government of the Russian Federation in agreement with the Central Bank of the Russian Federation. The position of an economic entity, whose share in the commodity market of the Russian Federation does not exceed ten per cent in the single in the Russian Federation commodity market or does not exceed twenty per cent in the commodity market when the commodity circulating this market circulates as well in the other commodity markets of the Russian Federation, cannot be recognized as dominant. 2. Under your general competition law governing unilateral conduct, at which stage(s) can your competition agency intervene against potentially abusive unilateral conduct? - If dominance/substantial market power is present yes - Acquisition or creation of dominance/substantial market power yes - Attempt to acquire or create dominance/substantial market power yes - Other (please identify) Why did your jurisdiction choose these stages? In accordance with Article 22 of the Law On Protection of Competition FAS prevents monopolistic activity, unfair competition, other violations of the antimonopoly legislation The realization of the preventive function may require the agency intervention at any of the first three stages mentioned above. Moreover, some unilateral actions aimed at obtaining dominance like monopolistically low pricing are classified as illegal per se in Article 10 and, therefore, cannot be considered basing on the effect approach actually stipulated for in Article 13. This position is based on the universally recognized assumption that establishing monopolistically low price makes sense for an undertaking only in case it results in forcing competitors out of the market and recouping losses incurred by further monopolistically high pricing. 3. Does your law contain or do you use a market share threshold at which you presume single-firm dominance/substantial market power and/ or as a safe harbour? yes If so, please respond as applicable: 10

11 - What is the market share level of the dominance presumption? Please se answer to Question 1 of Section B of the Questionnaire. - Is the dominance presumption rebuttable? Yes - What is the market share level of the safe harbour? 10% for single commodity market; 20% for the commodity circulating in more than one market - Is the safe harbour absolute (i.e., dominance/substantial market power cannot be found below the specified percentage level)? Yes - What is the legal basis of the presumption Article 5 of the Law On Protection of Competition - What is the legal basis for the safe harbor? Article 5 of the Law On Protection of Competition 4. Does your competition law enable the competition agency to intervene against unilateral conduct at a level below the dominance/substantial market power threshold? yes If so, please explain why and in which circumstances. Please see answer to Question 2 of Section B of the Questionnaire. 5. Does your jurisdiction s analysis of dominance/substantial market power first require that a relevant product and geographic market be defined? yes 6. Which of the following criteria do you use for the assessment of single-firm dominance/substantial market power? 3 - Market share of the firm and its competitors yes - Market position and market behavior of competitors yes - Durability of market power yes - Barriers to entry or expansion yes - Economies of scale and scope/network effects yes - Buyer power yes - Access to upstream markets/vertical integration yes - Access to essential facilities yes - Market maturity/vitality yes - Financial resources of the firm and its competitors yes - Profits of the firm yes - High prices (at absolute or comparative level) yes Please specify any other criteria that you use to assess single-firm dominance/substantial market power. Exclusive access to limited natural resources. 3 The answer yes should be provided if you use this criterion (amongst other criteria) at least in some of your cases. Conversely, the answer no should be provided if in practice you have not ever used that criterion. 11

12 7. Of the criteria that you use to assess single-firm dominance/substantial market power, which are the most important criteria? - Market share of the firm and its competitors - Durability of market power - Barriers to entry or expansion - Access to upstream markets/vertical integration - Access to essential facilities - Market maturity/vitality 8. Please explain how your authority evaluates each of the criteria that you use, and also how it weighs the different factors. Please see the answer for Question 1 of Section B of the Questionnaire and Article 5 of the Law On Protection of Competition (see FAS web-site for a reference). 9. How do you evaluate the competitive significance, if any, of intellectual property rights (patents, trademarks, copyrights, etc.) in assessing dominance/substantial market power? The competitive significance of intellectual property rights (IPRs) is implicitly recognized in Article 10 of the Law On protection of Competition by exempting the monopolistic activities based on exploitation of IPRs from the sphere of application of the Article: Requirements of the present article are not extended over the actions on implementation of exclusive rights for the results of intellectual activity and equalized to them means of individualization of a legal person, means of individualization of production, executed works or rendered services. This approach is based on two major considerations: (1) IPRs protect new product or technology, i.e. benefits from using IPRs are shared between the producer and consumer; (2) the term of validity of most IPRs is limited by national legislation and/or international agreements, thus, upon its expiration the relevant market becomes subject to Article 10 provisions. Is intellectual property presumed to create dominance/substantial market power in your jurisdiction? no 10. Does the assessment of dominance/substantial market power differ in a small or isolated economy from the assessment in a large or integrated economy? For example, might dominance in small markets be presumed at lower (or higher) levels of market share than in other jurisdictions? Do free trade agreements alter the assessment of 12

13 dominance/substantial market power? If so, please explain why. [NB: Jurisdictions that do not consider themselves small economies are welcome to skip this question.] 11. Please explain briefly the link between the definition and assessment of dominance/substantial market power in your jurisdiction and the objectives of your unilateral conduct laws. Dominance/substantial market power assessment in Russia is based on recognizing protection of competition process as the main goal of the competition legislation and its enforcement based on the balanced approach intended to avoid both over- and underdeterrence, prevent intentional monopolization while securing merit based competition (including that of market dominant firms) and related unilateral behavior. It induced the Russian officials, antitrust professionals and stakeholders to adopt more sophisticated approach to the dominance assessment in the newly enacted Law On protection of Competition than that provided for in the previous Law On Competition (see above). C. State-created Monopolies Throughout this section of the questionnaire, the term state-created monopolies refers to firms that are dominant or that have substantial market power due to state-imposed restraints of competition. In most cases, these firms were (or are still) owned by the state and the state did not (or still does not) allow for any private competitor. In an effort to avoid duplication with the ICN s previous work, this project does not address the interface with network access or price-cap regulation implemented by a sector-specific regulator. Accordingly, we request that you do not focus on sectors that are/were regarded as natural monopolies and that are now subject to such regulation. Therefore, please answer the questions excluding references to the telecoms, energy, water, and railways sectors. I. State-created Monopolies 1. What are the main sectors of your country in which state-created monopolies exist? Please describe important sector examples, including whether these monopolies are state- 13

14 owned 4, state-controlled 5, state-enabled or facilitated 6, recently privatized and/or liberalized, regional monopolies, 7 etc. The sectors of the Russian economy where state created monopoly exists were determined in the course of privatization of the Russian economy by the Law On Privatization of State and Municipal Enterprises in the Russian Federation of July 3, 1991 No The state monopoly in these sectors was retained within framework of privatization programmes. The first programme was approved by the Decree of the Supreme Soviet of the Russian Federation of July 11, 1991, No In accordance with this programme the government continued to control (posses 100% or controlling stake) the enterprises/assets having crucial economic, defense and social significance for which a change in control could lead to loss of the national wealth and other negative irreversible outcomes. These enterprises/assets included: Natural deposits, woods, water resources, airspace, resource of continental rock shelf, territorial waters and sea economic zone of the Russian Federation as well as a right for using satellites in a certain points of geo-stationary orbit; Protected by Law or specifically used natural territories; Objects of historic and cultural heritage of the peoples of Russia (unique cultural and natural monuments and installations) and objects of nature, history, culture, science, technology, including valuables in state museums, archives, libraries, including premises where they are located; Assets of Federal Budget of the Russian Federation, Republican Hard Currency Reserve of the Russian Federation, Pension Fund of the Russian Federation and state non budgetary funds, Central Bank of the Russian Federation, gold reserve and diamond fund. Central Bank of the Russian Federation, enterprises, organizations and institutions supplying and keeping national currency units, state treasury bills, notes and other government securities. Enterprises on sorting precious stones, refining factories; Currently used and reserve property managed by the Armed Forces of the Russian Federation and Department of Interior of the Russian Federation; Institutions financed by the state budgets of all levels; Enterprises and institutions of mapping and geodesic and meteorological service, environment control and protection services, institutions of geological service; Enterprises and institutions of sanitary, epidemiologic, veterinary, forest protection and plants protection services; Institutions of patent service, standardization, metrology and machine-testing stations; 4 Those undertakings that are 100% owned by the State. 5 The control belongs to the State, without taking into consideration the amount of the % of the State share. 6 E.g. where a monopoly exists due to exclusive rights granted by the state or due to state-imposed restraints of competition. 7 Includes public/private undertakings that are granted exclusive rights within a certain region. 14

15 Assets, enterprises, organizations and institutions of pipe transportation; Objects of water and melioration systems and enterprises servicing them; Television and radio centers; Automobile roads of general use and enterprises servicing them; Enterprises making state signs; Enterprises producing narcotic and poison substances and harvesting crops containing them; Port instillations and objects, atomic, training, hydrographic, rescue fleet and fleet for liquidation of oil spills in sea, repair technological enterprise Atomflot, property of water routes and channel services and other water routs services; Enterprises and equipment for storing and burring hard waste, hard and liquid radioactive waste and cattle; Assets and enterprises of medical - production and jail organizations; Objects of engineering infrastructure of cities and districts (including electricity supply, heating, natural gas supply, water supply and canalization) as well as enterprises maintaining them; Objects and enterprises of natural gas handling that have national or inter-regional significance; Crematoriums and cemeteries; Enterprises producing nuclear and radioactive materials, nuclear weapons, space crafts; enterprises and assets servicing launching and guidance of space crafts as well as enterprises conducting research and development work in these areas; Organizations and institutions of social protection of population, children and child houses, houses for elderly, hospitals and sanatoriums for invalids, organizations involved in prophylactics and treatment of mental, psychics, infectious, oncology, narcotic and skin disease and AIDS patients; Assets and objects controlled by federal bodies of representative power. One of the most important sectors of the Russian economy operating under the conditions of state-created monopoly are railroad transportation, river, sea and air ports, telecommunications. Most of these sectors such as railroads and telecoms have been previously addressed in ICN work as well as other natural monopolies. Sea and river ports were privatized, however, the embankments remained in state property and a being rented out to stevedore companies by specially created state companies ( Rosmorport for sea ports and Rosimushestvo for river ports and some other types of state property). 2. Please discuss the objectives behind the creation and/or perpetuation of state-created monopolies by providing specific examples from your jurisdiction. If the rationale for retaining the state-created monopoly was challenged (for example as a condition of 15

16 membership in an international organization or to join an economic alliance or regional trade agreement) or has changed over time, please explain. 8 The rationale for retaining state monopoly over the sectors mentioned above is their crucial economic, defense and social significance for which a change in control could lead to loss of the national wealth and other negative irreversible outcomes. So far it has not been challenged as a condition of membership in an international organization or to joining an economic alliance or regional trade agreement. However, in some sectors mentioned above the government control based on possessing 100% of stocks is being gradually substituted by the government control based on possessing the controlling stake of the monopolies operating there. Though, the change in the way of control, organization structure and management does not mean challenging the monopoly position of the company. Restructuring oil transportation sector and Transneft company or nuclear power production and nuclear reactors building ( Atommash company) can serve as present day examples. 3. Are there any legal or practical restrictions or difficulties faced by your competition agency in antitrust enforcement against state-created monopolies? If yes, please provide details and/or sample cases, for example: - Legal restrictions/scope of application: Is there a "state action defense" (i.e. competition law does not apply to state entities or state acts) or any special exemptions/exceptions for the state-created monopolies from the general antitrust law in your jurisdiction? No, state action defense does not apply. State controlled enterprises are subject to the same unilateral conduct rules as private ones. I.e. government monopolies are subject to the same behavioral regulations as private ones. - Practical restrictions/difficulties: Please describe any practical restrictions that you have faced or may face in antitrust enforcement against statecreated monopolies, such as instructions that your agency may receive from the government, political pressure, or overcoming vested interests. There are no legal or practical restrictions with regards to monopolies created by the state. In legal terms the state companies are equally subjected to the provisions of the antimonopoly legislation as private ones without exclusions (as mentioned before). In practical terms antitrust control over behavioral aspects of the activities of government created monopolies does not face more or less considerable obstacles. In most cases the antitrust control applicably to these enterprises is reduced to price/cost control and insuring non-discriminatory access of private customers to their goods and services as well as to essential facilities. I.e. refusal to deal is illegal for such enterprises unless it is 8 The relevant information for answering questions 2, 5 and 6 may not readily be available within your agency. In this case, it is not necessary for you to conduct a research effort. 16

17 justified by safeguarding the government secrets, observing international agreements (e.g. regime of non-proliferation of nuclear weapons and related technologies) etc. or shortage of their production capacity for servicing an order. 4. How does the assessment of dominance/substantial market power of state-created monopolies differ from other dominance/substantial market power cases? There are no differences in the assessment of dominance/substantial market power between state created monopolies and other economic entities. The government controlled companies operating in the sectors mentioned above are presumed to be monopolies, thus the unilateral conduct rules (currently provided for by the Law On protection of Competition and the Law On Natural Monopolies ) effective in the case of the 100% or almost 100% monopoly apply. II. Privatization and Liberalization Process and the Advocacy Role of Competition Agencies 5. Please briefly describe the ongoing or past privatization and liberalization process in your country. Is there a specific legal framework for the privatization in your country (e.g. a specific privatization law)? At present the legal framework of privatization in Russia is constituted by the Federal Law On Privatization of State and Municipal Property of December 21, 2001 and State Programme of Privatization of State and Municipal Enterprises in the Russian Federation endorsed by the Decree of the President of the RF of December 24, 1993 (as amended August 16, 2004). It superceded the similar Law on privatization of 1992 amended several times in succeeding years and was tailored to the present day specifics of the Russian economy that is mainly privatized (compared to the situation of the beginning of 1990-es when most of the economy was state owned). The former Law was also complemented to by sector specific regulations. From competition perception the Russian privatization legislation (both current and former) stipulates for equal possibilities of potential buyers to acquire state property in the course of competitive bidding as well as for accounting for market structure implications of privzatization. In General the massive privatization of the Russian economy has been completed in By that time the overwhelming majority of production assets passed to private owners. The privatization pursued the following goals: Creation of the class of private owners who would contribute to the development of socially oriented market economy; Increasing efficiency of enterprises; Social protection of population and maintenance of the institutions of social infrastructure financed by proceeds from privatization; Facilitating stabilization of the financial situation in the Russian Federation; Creation of competitive environment and demonopolization of of national economy. 17

18 Privatization is still ongoing in some parts of the Russian economy, though it is much less in scope than massive privatization of 1990-es. Privatization processes develop for instance, the transportation sector (natural monopolies like railways are not considered here). The major policy direction in this field is to privatize potentially competitive facilities while retaining government control over infrastructural, unique and essential ones. The rationale for keeping these facilities under the state control is to insure stability of functioning of the sector from technical point of view as well as to provide private companies with equal access to essential facilities, that is not always feasible in case these facilities are privatized. The privatization in river and sea transportation can serve as an example. Ports and port property have been also privatized with the exception of facilities indicated in the State Programme of Privatization of State and Municipal Enterprises. Item of the Programme forbids privatization of port hydro technical facilities, including these servicing Northern Sea Route, as well as other facilities such as nuclear, training hydrographic and ice breaking fleet, property intended for rescue works and liquidation of oil spills in sea, facilities and installations included in the systems of steering of vessels, facilities used by port supervision inspections, Atomflot repair and technological company, property of water routes and channel services, property of Podvodrechstroy (under water river construction) and steering inspections. The privatization of the air companies is being continued. It is conducted in accordance with the Transportation Strategy of the Russian Federation till In the course of privatization airports are separated from the air companies as separate legal persons. Item of State Programme of Privatization of State and Municipal Enterprises precludes privatization of: facilities, enterprises, systems of management of airports and air companies involved in the joint system of management of air traffic in lower and upper air space; federal airports; meteorology stations, fly-testing stations, training centres of civil aviation. Additionally to that some dual-use and other elements of transportation infrastructure are precluded from privatization by the orders of the State Committee on Sate Property of the Russian Federation. 6. What are the objectives of your government in the privatization and liberalization of state-created monopolies (for example, raising competition/consumer welfare, maximizing revenue from the sale, etc.)? In the course of privatization and liberalization of the state monopolies the Russian Government pursues both the goals on maximization of the proceeds to the federal and local budgets from selling enterprises and facilitating competition. The latter goal is pursued, for example, while separating air carriers and airports formerly combined in the same companies and insuring non-discriminatory access to airport essential facilities for all air carriers. Presumably, it will facilitate the increase in efficiency of privatized companies. 7. Is competition law applicable to privatization transactions (e.g. approval of interested bidders or the successful bidder under its merger control powers)? 18

19 Yes, the Russian competition law is applicable to privatization transactions. FAS approves the lists of privatized companies and controls privatization tenders in accordance with the Federal Law On Placement of Orders for Supply of Goods, Works and Services for State and Municipal Needs and Decree of the Government of the RF of February 20, 2006 On Federal Body of Executive Power Authorized to Effectuate Control in the Sphere of Placement of Orders for Supply of Goods, Works and Services for Federal State Needs. 8. Please summarize the advocacy role of your agency in the privatization and liberalization of state-created monopolies, including as applicable: - What are the legal instruments used by your agency for that purpose? To what extent are other government entities obliged or encouraged to seek the competition agency s opinion on or approval of privatization and/or liberalization proposals? The legal instruments used for competition advocacy in the course of privatization/liberalization by FAS-Russia are: With regards current privatization processes the major legal foundations of FAS advocacy role are stipulated for by the Federal Law On Privatization of State Property of December 21, 2001 that provides for control over privatization process by antimonopoly bodies. The purchasers of state and municipal property among other documents should submit a certificate of notification of federal antimonopoly body (FAS) or its territorial brunch on intention to acquire the government property subject to privatization. Therefore, FAS controls the privatization processes within the framework of control over economic concentration and, thus, the legal rules of merger control apply to privatization cases. As mentioned before, FAS also approves the lists of privatized companies and controls privatization tenders in accordance with the Federal Law On Placement of Orders for Supply of Goods, Works and Services for State and Municipal Needs and Decree of the Government of the RF of February 20, 2006 On Federal Body of Executive Power Authorized to Effectuate Control in the Sphere of Placement of Orders for Supply of Goods, Works and Services for Federal State Needs. Thus, FAS controls the separation of the privatized entities into potentially competitive companies and will not approve the privatization of a potential unregulated monopolist. In the course of massive privatization of beginning-middle 1990-es FAS powers to intervene in privatization process for the purposes of safeguarding competition were stipulated for in the following legal documents: The Decree of the Supreme Soviet of the Russian Federation of June 11, 1992 State Programme of Privatization of State and Municipal Property of Enterprises for 1992 provided that ministries and agencies of the Russian Federation should receive the approval of the federal antimonopoly body of their recommendations on accounting for sector specifics in the course of privatization and exercising the rights of owner. 19

20 The Decree of the Government of the Russian Federation of November 18, 1992 On the Order of Making Decisions on Privatization of Enterprises by the Government of the Russian Federation and State Committee of the Russian Federation on Management of State Property provided for submitting the privatization applications to the antimonopoly body in order to make a conclusion on possibility or inexpediency of privatization of enterprise. The officials of the antimonopoly body participated in privatization commissions for the purposes of protecting or creating competitive environment in the market under consideration. The Decree of the Government of the Russian Federation of March 9, 1994 On Government Programme of Demonopolization and Development of Competition in Markets of the Russian Federation (Main Directions and Current Measures) provided that measures intended to facilitate competition could include these directly related to privatization: o Creation of system of state control and regulation of natural and government monopolies, o Taking market structure into account in the course of privatization of enterprises in order to facilitate their competitiveness and efficiency. - To what extent does the advocacy role of your agency have impact on privatization and liberalization? Please provide examples of successes or failures if available. On the policy level FAS has powers to include the competition advocacy issues and provisions in the government documents, decrees, orders and programmes of the Russian Federation both at federal, regional and local levels. For example, FAS requested the inclusion of Item 3 of the Transportation Strategy of the Russian Federation Till 2020 providing that: for the purposes of insuring non-discriminatory access of air companies to airport services and creating equal conditions for their business activities the privatized air companies should be divided into the air carrier and airport operator before privatization. On law enforcement level FAS cancelled privatization of Pulkovo air company and Second Archangelsk Joint Air Company until the relevant airports and air carriers were not divided into separate legal entities. (Just as an example of the Agency practical interference on the privatization process.) D. General 1. From among the following, how would you characterize your jurisdiction: developed / developing / transitioning? 20