Antitrust and Competition Reform in Ukraine: Recent Milestones in Development

Over the last years the Ukrainian legal community has been actively discussing the developments in the antitrust reform and making practical efforts to implement it. MPs, the Antimonopoly Committee (the AMC) and other state bodies, international organizations, domestic and foreign antitrust experts have been involved in this process. This article provides an overview of certain changes that will further contribute to the development of the Ukrainian antitrust and competition legislation, and which have already been reflected in draft laws. Most of them were published in the form of recommendations provided to Ukraine by the OECD (Organisation for Economic Co-operation and Development) several years ago. 

So what can be done to give a boost to the reform of the antitrust and competition area in Ukraine?

To broaden the scope of the leniency program in order to provide fine reductions to subsequent applicants

Leniency program is a fundamental tool to detect cartels, as it ensures an opportunity for undertakings to provide competition authorities with valuable information about cartels in which they participated in exchange for full or partial immunity from fines.

The possibility of being exempt from liability for the anticompetitive concerted actions (participation in cartels) is provided in the Law of Ukraine “On Protection of Economic Competition”, the procedural features of which were determined by the Procedure for Exemption from Liability, which was presented and has been in force since 2012. However, the current leniency rules allow for the possibility to grant an exemption only to the first applicant.

This recommendation was also provided to Ukraine in the OECD Reviews of Competition Law and Policy (the OECD Reviews). The recommendation suggests granting fine reductions not only to the first applicant notifying the AMC of the anticompetitive concerted actions, but also to the subsequent applicants contacting the AMC and providing relevant information and evidence to facilitate investigation.

Several draft laws propose to introduce possible fine reductions for other applicants who may not claim full exemption from liability, as the exemption was granted to an earlier applicant that participated in the relevant anticompetitive concerted practices. Such applicants are required to voluntarily provide evidence of the anticompetitive concerted actions not available with the AMC, which are of the essential importance to adopt the decision in the case. The AMC cuts the pre-calculated amount of the fine depending on the order of application: the first applicant shall be eligible for up to 50% reduction, the second – for up to 30%, and all other applicants – for up to 20%. 

To bestow the AMC with the power to reach settlements with infringers

The settlement option would enable the AMC to speed up the consideration of cases and focus on the priority cases of violations. In addition, infringers would be able to receive fines lower than those which they could have faced without the possibility of settlement.

Several draft laws provide for bestowing the appropriate powers to the competition authority. An undertaking that has committed an infringement in the form of the anticompetitive concerted practices or abuse of dominance may be subject to a settlement procedure. The settlement procedure in the case may be initiated after the submission of preliminary conclusions in the case of violation and before the AMC brings a final decision in the case. Upon receipt of preliminary conclusions in the case the defendant may request the relevant body of the AMC to settle the case. A case will be considered settled when a settlement agreement between the AMC and the defendant is signed and then validated by a commercial court.

The essential conditions of a settlement agreement include:

• the defendant acknowledges participation in the violation specified in the preliminary conclusions;
• the defendant accepts the amount of the imposed fine;
• the amount of fine is 15% lower than it could be should the AMC refuse the settlement procedure.

The settlement agreement as approved by a commercial court would be the basis for a final decision in the case against the defendant, in accordance with the terms of the agreement. The draft provisions state that the procedure for approving the settlement agreement on the case will be determined by the Commercial Procedural Code of Ukraine.

To enable the AMC to prioritize enforcement

This recommendation was also provided to Ukraine in the OECD Reviews.

The AMC begins considering cases regarding violations of the competition law upon applications from the business entities, individuals, associations, institutions, and organizations on violation of their rights due to the actions or omissions defined by the Law “On Protection of Economic Competition”; or upon submissions from the state authorities, local governments, administrative and economic management and control bodies about the same. According to the law, if the alleged actions or omissions do not affect competition in the market, the applicant may be denied consideration of the case. In practice, the AMC does not apply this provision of the law.

Several draft laws provide for enabling the AMC not to initiate proceedings upon applications of business entities, citizens, associations, institutions, organizations, or submissions of state authorities, local governments, administrative bodies of economic management and control, if the signs of violation of the legislation on protection of economic competition specified in the application do not correspond to the AMC’s operational priorities. In such cases, the AMC would be required to issue a reasoned order to refuse to consider a case that doesn’t meet AMC’s established priorities.

To enable the AMC to directly enforce penalties for breaching the Antitrust law, without having to resort to the courts in the absence of voluntary payment

This recommendation was also provided to Ukraine in the OECD Reviews. To-date, the AMC has not been enabled to that effect.

The draft law stipulates that if the decision of the AMC body is not executed voluntarily, the AMC body that imposed a fine may issue an enforcement order. It will be an executive document, which enters into force on the day of its adoption and is passed by the AMC or the Head of the AMC’s territorial branch to the state executive service for enforcement.

To strengthen due process and procedural rights of the parties involved in competition procedures

This recommendation was also provided to Ukraine in the OECD Reviews. Several draft laws envisage significant strengthening and detailing of the procedural rights of the parties in the antitrust cases and inspections of the AMC. The respective changes are long-awaited by the AMC and business community because they are expected to provide for improving procedural fairness and effectiveness of the antitrust proceedings.

To establish parental liability for the anticompetitive conduct of their subsidiaries

This recommendation was also provided to Ukraine in the OECD Reviews . Currently, this liability is non-existent.

Several draft laws stipulate imposing a fine on the business entity that exercises control over a group of legal entities and/or individual entrepreneurs, in the event that several of these legal entities and/or individual entrepreneurs have committed acts (actions, omissions) that were recognized as violation of the antitrust legislation. The obligation to pay the fine imposed on these legal entities and/or individual entrepreneurs will be joint and several.

To revise the Code of Administrative Offenses in order to enable the AMC to impose effective and deterrent fines on individuals

This recommendation was also provided to Ukraine in the OECD Reviews . Several draft laws stipulate amendments to legislative framework to enable imposing effective and deterrent fines on individuals. When officials of public authorities, local governments, administrative and economic management and control bodies, other individuals fail to show up to give explanations concerning the consideration of the case of violation, they will face a fine of 50 to 500 non-taxable minimum incomes of citizens.

To upgrade the merger control regime

Several draft laws envisage the exclusion of the seller’s value indicators (merger control thresholds) when calculating respective indicators of the parties to mergers.  Such exclusion is stipulated in the EU-Ukraine Association Agreement as a step towards harmonization of the national legislation on the protection of economic competition with the relevant EU standards. In the future the conclusion of the asset management agreements by the asset management companies may be exempt from obtaining the AMC’s merger clearance, provided that such actions are purely financial transactions.

To establish clear and independent process for appointing state commissioners of the AMC

This recommendation was also provided to Ukraine by the OECD Reviews .

The AMC state commissioners are nominated by the Prime Minister of Ukraine, based on proposals of the AMC Chairman, and can be dismissed by the President of Ukraine. The term of office of an AMC state commissioner is seven years. Appointment of a state commissioner as the first deputy or deputy Chairman of the AMC is not a ground for renewing the seven-year term. Upon expiration of the term of office, the state commissioner shall continue to perform his/her duties until a new state commissioner is appointed to this position. A citizen of Ukraine who has reached the age of thirty, has a higher legal or economic education, and at least five years of relevant work experience in the last ten years may be appointed a state commissioner. Currently, the AMC is composed of the Chairman and eight state commissioners. 

Several draft laws propose that the AMC must have at least five state commissioners with a law degree and at least two state commissioners with a degree in economics. Furthermore, the draft laws provide that the positions of the Chairman and state commissioners are filled through competitive selection by the Selection Commission. This Commission shall consist of three persons appointed by the President of Ukraine, three persons appointed by the Verkhovna Rada (Parliament) of Ukraine, and three persons appointed by the Cabinet of Ministers of Ukraine. The Selection Commission shall be considered as established if at least seven members in its composition have been approved. One draft law suggests that the number of state commissioners should be increased to 12.

Latest AMC achievements and innovations

• In 2017, the AMC approved the Standard Requirements for Vertical Agreements of Business Entities Concerning the Supply and Use of Goods.
• In 2018, the AMC approved the Standard Requirements for Concerted Actions of Business Entities in the Field of Technology Transfer, compliance with which allows to carry out concerted practices without the prior approval of the AMC.
• In 2018, the AMC prepared a Review of the practices of the Supreme Commercial Court of Ukraine and the Supreme Court of Ukraine on the application of antitrust law.
• In 2019, the AMC presented a draft order “On approving Guidelines on market definition”.
• In 2019, the AMC presented a draft order “On approval of the Methodology for determining the monopoly (dominant) position of economic entities in the market”.
• In 2020, the AMC approved Guidelines on application of the small but significant and non-transitory increase in price (SSNIP test).
• In 2020, the AMC summarized and approved the enforcement practice in connection with the abuse of dominance.
• In 2020, the AMC approved a draft Guidelines for calculating the Competitive Environment Monitoring Index.
• In 2022, the AMC prepared a Review of the practice of the Supreme Court of Ukraine on the application of antitrust law for 2018 – 2021.
• As of 2022, Guidelines on conducting market studies are being drafted by the AMC.

In conclusion

The abovementioned list displays the progress in the preparation for the antitrust reform in Ukraine in general, as well as the already developed legislative framework for its implementation. The proper legislative consolidation of the analyzed issues will have a positive impact on the development and improvement of the domestic antitrust legislation, the functioning of the economy and the corporate sector.

Author:
Yaroslav Medvediev, Counsel

Published by CEE Legal Matters