OVERVIEW OF KAZAKHSTAN LAW ON AMENDMENTS TO CERTAIN KAZAKHSTAN LEGISLATIVE ACTS CONCERNING THE DEVELOPMENT OF COMPETITION #101-VII OF 3 JANUARY 2022

Dear Readers,

Hereby we would like to inform you about a number of amendments concerning the protection of competition to the Kazakhstan Entrepreneurial Code (the “EC”) introduced by Kazakhstan Law On Amendments to Certain Kazakhstan Legislative Acts Concerning the Development of Competition #101-VII of 3 January 2022 (the “Law”).

Some provisions of the Law shall enter into force upon expiration of 60 calendar days from the date of its first official publication (in the Kazakhstanskaya Pravda national newspaper of 05 January 2022), some provisions shall enter into force on 1 May 2022 and some on 1 July 2022.

Subjects of a Special Right

The Law provides for a new notion of “special right”, i.e. an exclusive or prerogative right of a market undertaking – enshrined in the law – to produce, sell and/or purchase certain goods in a competitive market.
In fact, the Law imposes the following prohibitions on the subjects of such special right, which in the past applied only to public monopolies:

1) prohibition on the production of goods that are outside the purview of a natural monopoly or special right, save for the activities technologically associated with the production of goods;

2) prohibition on the ownership of shares/interests or other forms of participation in the affairs of other legal entities;

3) prohibition on the assignment of rights associated with a natural monopoly or special right; and

4) prohibition on the determination of prices for produced or sold goods differing from the prices determined by the government authority regulating the respective domain of public management in the manner prescribed by the antitrust authority.

A person may become a subject of the aforementioned special right through a procedure determined by the Kazakhstan Government.

The introduction of the special right is subject to the following conditions:
1) all market undertakings must be notified of the coming introduction of the special right at least 6 months prior to its introduction;

2) the market undertakings engaged in the production, sale or use of the goods within 6 months after the implementation of a public monopoly or special right may dispose of such goods, except for the transactions that are implemented beyond the specified term; and

3) market undertakings must be compensated for damages caused by the introduction of a natural monopoly or special right in accordance with the applicable Kazakhstan laws out of the national budget resources.

Amendments Concerning the Investigation Procedure

The new amendments provide for the option to request the antitrust authority for extension of the statutory term for the provision of requested information (including any requests outside investigations).  The antitrust authority must decide whether to extend or to deny the extension of the term within two business days after the receipt of the relevant well-founded application.

From now on, antitrust authorities may initiate an investigation based just on relevant materials from other government authorities suggesting possible violation of Kazakhstan antitrust law, while in the past the EC required the materials showing an actual violation.

Furthermore, the Law differentiates the terms for the reopening of an investigation depending on certain circumstances and explicitly provides for the antitrust authority’s obligation to deliver a copy of their order to either (i) commission expert examination or (ii) suspend or (iii) reopen an investigation into an alleged violation of Kazakhstan antitrust law to the subject of such investigation.

Moreover, the Law regulates the terms for conciliation commission proceedings (which were not regulated in the past), in particular, (i) the term for the presentation of a draft report on the findings of an investigation into an alleged violation of Kazakhstan antitrust law for consideration of a conciliation commission, (ii) the term for the submission of comments and recommendations by a conciliation commission to the relevant officer, (iii) the term for the formulation of a well-founded objection of the officer to the comments and recommendations of the conciliation commission, and (iv) the term for the processing of such objection by the conciliation commission.

It is notable that the legislator has excluded from the EC the provision for the suspension of an investigation upon receipt of an application from the subject of the investigation or a well-founded opinion of the relevant officer(s) prior to the issuance of comments and recommendations by the conciliation commission.  It would be interesting to see whether the antitrust authority maintains the practice of suspending investigations due to conciliation commissions.  Please also note that the abolition of such practice would deprive the relevant officer(s) of the antitrust authority of the possibility (in time terms) to complete an investigation after the receipt of comments and recommendations from the conciliation commission.

It is also worth noting that, from now on, an investigated entity loses its right to appoint an independent expert as a member of a conciliation commission.  Such fact gives rise to the risk that conciliation commission proceedings will become a mere formality, while the members of such conciliation commission will agree with any arguments of inspectors.

Amendments Concerning Various Antitrust Offences

From now on, all anticompetitive agreements or concerted practices between potential competitors are also deemed as horizontal.  The main reason for such novelty is the antitrust authority’s desire to facilitate the procedure for proving the existence of cartels (i.e. the horizontal agreements described in Article 169.1 of the EC).  For instance, in the past, it was difficult to prove the existence of a cartel when such cartel involved the parties who did not compete with the winners of a tender.

The legislator has revised the definition of “unfair competition” which, in the past, was limited to just 14 forms of unfair competition. The new list of the forms of unfair competition is non-exhaustive.  From now on, “unfair competition” means “any actions of a market undertaking (group) or a number of market undertakings (groups) aimed at the gaining of competitive advantages in business in violation of Kazakhstan laws, good business practices, and principles of reasonableness, good faith and equity, and that have caused or may cause damage to other competitive market undertakings or their business reputation”.

Please note that the new definition of “unfair competition” excludes consumers/customers (in particular, deception and misdirection of consumers/customers, etc.).  We believe that such novelty, coupled with the need of the affected parties to prove the actual or potential damage to their undertakings or business reputation, will lead to a substantial decrease in the antitrust authority’s activity aimed at the detection of unfair competition practices.

It is worth noting that the current definition of “unfair competition” still does not fit the definitions provided for by the Kazakhstan Civil Code and the Paris Convention for the Protection of Industrial Property.

Furthermore, the Law has added such new form of unfair competition as the creation of barriers to the replacement of a commodity seller/supplier, i.e. setting certain requirements to a customer upon termination of a contract which were not provided for by such contract or which surpass the requirements agreed upon execution of the contract, as well as the failure to publish the information required for the discretionary replacement of a commodity seller/supplier.

Essential Facility

The Law has introduced the notion of “essential facility” meaning a commodity or infrastructure facility of a market undertaking holding a dominant or monopolistic position in the market (the “owner of an essential facility”) without access to which other undertakings cannot produce and/or sell the commodity in the relevant or adjacent markets.  For a commodity or infrastructure facility to qualify as an essential facility it must meet all of the following conditions:

1)   duplication of the commodity/infrastructure facility is impossible or economically non-feasible due to its technological characteristics;

2)      the owner of the essential facility is fully entitled to own, use and dispose of the commodity/infrastructure facility;

3)      the owner of the essential facility is fully capable of providing access to the commodity/infrastructure facility;

4)      an unreasonable refusal of the owner of the essential facility to provide access to the commodity/infrastructure facility can have a negative impact on competition; and

5)    the access to the commodity/infrastructure facility of the owner of the essential facility may not be provided through exchange auctioning.

Therefore, the owners of essential facilities must grant other undertakings equal access to their essential facilities in compliance with the principles of equal access to essential facilities adopted by the antitrust authority, unless Kazakhstan law provides for another procedure to grant access to certain essential facilities.

When an essential facility is:

• a primary (raw) commodity – the owner of the essential facility must grant equal access to such essential facility only to the manufactures using such primary (raw) commodity in their processes; or
• a software commodity – the owner of the essential facility must grant access thereto in compliance with the applicable Kazakhstan intellectual property laws.

A failure to grant equal access to an essential facility is on the list of abuses of a dominant or monopolistic position set out in Article 174 of the EC.

Authorised Agent

The Law has introduced the definition of “authorised agent” meaning an agent who possesses special scientific or practical knowledge of the subject matters of an economic concentration.

An authorised agent may be nominated by a market undertaking under a standard contract for expert evaluation of their compliance with the requirements and obligations set out in the antitrust authority’s decision on granting consent to an economic concentration.

Hence, such authorised agent is called to express their expert opinion on the undertaking’s compliance with all economic, behavioural, organisational, structural and other requirements and obligations set out in the antitrust authority’s decision on granting consent to an economic concentration to be delivered to the antitrust authority.

An authorised agent shall be liable for a deliberately false expert opinion in compliance with the applicable Kazakhstan laws.

The antitrust authority shall be in charge of maintaining a register of authorised agents.

Amendments Concerning Antitrust Compliance

The Law also states that any internal antitrust compliance instrument shall be developed in accordance with the applicable methodological guidance adopted by the antitrust authority.

In particular, the Law provides that the availability of a properly operating internal antitrust compliance instrument shall be taken into account when considering cases of violation of Kazakhstan competition laws.  For instance, it was expected that the administrative offences legislation would provide for reliefs in such cases (in the form of reduction of, or exemption from, administrative liability).  However, to date, Kazakhstan Code On Administrative Offences No. 235-V of 5 July 2014 (the “CAO”) has not been amended accordingly.

Nonetheless, we believe that the availability of a properly operating internal antitrust compliance instrument would enable a market undertaking to apply for reduction of an administrative penalty by up to 30% of the total penalty amount (Articles 819(2) and 829-11(2) of the CAO).