Proposed amendments to the Kazakhstan Antitrust Law

Slide 1. The key issues of the current Kazakhstan Antitrust Law

Last year, at the request of the Economic Research Institute of the Kazakhstan Ministry of Economic Development and Trade, I prepared an antitrust (competition) regulatory and legal framework analysis report which also covered the practice of antitrust law application. This work was performed in the run-up to the new amendments to the antitrust law which are being considered by the Kazakhstan Parliament right now. In this report I classify the current law issues into 5 groups:

• erroneous recognition of the consumer protection objective as a conceptual guideline of antitrust authorities;
• legislative provisions which unreasonably and unfairly restrict business practices;
• enhancement of the efficiency of measures intended to prevent the competition restrictive practices on the part of government authorities;
• legislative provisions which impair the effectiveness of control over monopolistic activities in the market; and
• needed fundamental changes in the provisions regarding unfair competition.

Many of the proposed amendments were included into the draft law. However, unfortunately, the majority of urgent issues are not being solved. Of course, I will not be able to cover all the developments in this area, that is why I will focus only on some of them.

Slide 2. Antitrust law: erroneous objective

The main issue of antitrust regulation in our country is the erroneous recognition of the consumer protection and price control objective as a conceptual guideline of antitrust authorities. The draft law does not solve this issue. I mentioned this problem in the previous forums of corporate lawyers and other events, and I wrote a fair number of articles regarding the same. Let me summarize. The idea that the antitrust authorities’ mission is to control prices and to protect consumers is deeply seated in our conscience. I will not expatiate upon the reasons of such phenomenon. The most important is that such approach contradicts the internationally accepted understanding of the antitrust regulator’s role.

In the international practice, antitrust authorities are called to protect competition in commodity markets rather than consumer rights. Such approach is underlaid by a simple idea – the most important is to protect competition, then all consumer rights and interests will be automatically satisfied, the economy will become successful and the investment environment will be favourable. Hence, antitrust authorities in the states with classic antitrust regulation deal with reasons rather than consequences and strictly preclude any unfair monopolization of the market. However, they do not control each individual relationship between business and its customers, and they may not punish any business for infringement of customers’ rights. Instead, they focus their limited financial, time and human resources on the protection of competition in general, thus enhancing the economic efficiency, creating a favourable business environment and promoting the welfare of all consumers. Eventually, they achieve these objectives. Apparently, if the US antitrust regulation applied our approaches, this country would never become a world power.

The second key issue is that the law contains too many provisions which unreasonably and unfairly restrict business practices.

The good news is that our deputies initiate a number of amendments beneficial for our business. Certainly, it does not mean that the final version of the law will necessarily incorporate their initiatives.

Slide 3. Deputies suggest that Article 196 of the Kazakhstan Criminal Code should be decriminalized

First of all, deputies suggest that Article 196 of the Kazakhstan Criminal Code should be decriminalized. It is, obviously, the right decision because, compared to the best global practices, in Kazakhstan the criminal liability for monopolistic activities applies not only to cartel agreements but also to non-cartel anti-competitive agreements, including vertical, and abusive behaviour. Determination of criminal liability for any restriction of competition does not make allowance for specifics of such offence and is unreasonably severe. The reason is that vertical restrictions of competition and abusive behaviour can cause more good than harm and, in many cases, they can be justified as far as the economy and consumers are concerned. Similarly, many horizontal restrictions of competition can also be beneficial to society, that is why in many countries legislation provides for numerous exceptions.

However, the complete elimination of criminal liability would not comply with global practices. Internationally, the criminal liability for monopolistic activities applies, usually, to the persons entering into horizontal anti-competitive (cartel) agreements which substantially restrict competition and infringe the interests of consumers. For example, such practice is adopted in the USA, France, Germany, Ireland, UK, Estonia and Norway.

Slide 4. The Register of Dominants and Monopolists is a Soviet relic

Secondly, deputies finally initiate the abolishment of the Register of Dominants and Monopolists. It is well known that the economy and underlying competition, as life at large, are not static and continuously change. A market participant exercising a substantial market power today can lose his exceptional position tomorrow because of competitors’ activities or for any other reasons. Therefore, in international practice antitrust authorities do not maintain static registers of dominants. The Kazakhstan Competition Law still provides for the Register of Dominants and Monopolists. Therefore, our antitrust authorities will continue to waste their efforts and resources for endless market analysis in order to register the relevant market participants and, subsequently, for weary lawsuits seeking their exclusion from such register. Naturally, antitrust authorities will not have any efforts or resources left for real work needed by the people and government, i.e. the detection and preclusion of cartel and non-cartel agreements, abusive behaviour, unfair competition or anti-competitive measures of government agencies.

Slide 5. Possible extension of the time limits for court hearing of administrative cases

Thirdly, it is proposed to extend the time limits for court hearing of administrative cases (similar to tax cases) by the period required for consideration of the application for challenging investigation findings in accordance with the procedure established by the Kazakhstan civil procedure legislation. In the law enforcement practice such amendment could prevent deliberately illegitimate decisions on administrative antitrust offences.

Slide 6. Abolishment of the turnover-based fine

Fourthly, deputies suggest that the turnover-based fine should be abolished. Most probably, this is good news for businessmen. However, it will negatively affect the efficiency of antitrust authorities and make them emasculate. That is why I do not think that this measure would be positive.

They suggest that the turnover-based fine should be replaced with a fine imposed on the income gained from monopolistic activities (rather than on the total turnover/revenue of an offender).

Undoubtedly, the most fair would be to link fines to illegal profits, but in real life it is hardly possible to measure illegal profits. Besides, many offences do not generate profits; however this fact does not make them less injurious to the public.

Therefore, in advanced antitrust regulation jurisdictions the liability for monopolistic activities is not linked to profits gained from such activities.

It is evident that if the amendments to the Code of Administrative Offences proposed by deputies are adopted, our antitrust authorities will lose their leverage over monopolies. As a result, the protection of competition will be inefficient because most of the offenders will get off cheaply.

Now I would like to speak about undoubtedly bad news.

Slide 7. Proposed sanction in the form of price fixation

Deputies propose to introduce a sanction in the form of price fixation applicable to any market participants abusing their dominant (monopoly) position through the establishment of monopolistically high/low prices, or application of different prices to similar contracts, or violation of the pricing policy established by the Government, or execution of anti-competitive agreements (concerted practices) establishing/maintaining agreed prices, or application of discriminative prices to similar contracts. It is proposed to fix prices for a 1-year period when abusive behaviour recurs within a year. Apparently, such practice is unreasonable and does not comply with global practices. Most likely, it will entail unfair restriction of pricing.

Slide 8. A new type of unfair competition instead of a comprehensive solution for regulation of unfair competition

Deputies propose to introduce a new type of unfair competition, i.e. getting business advantage through deterioration of the quality, application properties and other essential features of sold (supplied) goods. This proposed amendment does not stand up to criticism. Various quality products should be present in the market. The most important is that the quality should not drop below the minimum threshold established by law. Transition of premium products to average quality products is the legitimate right of business. There’s nothing to do with unfairness. Obviously, deputies are “digging in the wrong place”.

The main issue of unfair competition is that the Competition Law provides a shortlist of statutory forms of unfair competition.

In global practice antitrust law usually provides a tentative (open) list of unfair competition forms due to the fact that “objectively it is not possible to specify all forms of unfair competition in a legal act because many new forms of unfair business practices emerge as a reaction to statutory bars”. “For example, according to the US Federal Trade Commission, there are about 400 unfair competition techniques, such as swindle and fraud, in the trade and marketing sector.” Therefore, it would be better to get rid of the shortlist specifying 12 forms of unfair competition.

Besides, we should not forget that the shortlist of unfair competition forms provided by the Competition Law was compiled without any logical justification. This shortlist does not include the key generally accepted forms of unfair competition. Instead, it randomly mixes the elements of various forms of unfair competition, combines general with special, duplicates certain corpus delicti, and requires administrative offence reports and investigations beyond the competence of antitrust authorities. Moreover, the contents of the majority of the specified unfair competition forms are much broader than their titles, and this is unacceptable. In real life, some of the unfair competition forms set forth in the Competition Law are deemed fair practices and, accordingly, should be excluded from the shortlist.

Slide 9. Summary

Summarizing my presentation I would like to note that the Kazakhstan antitrust legislation is being developed in opposite directions. In certain respects it is being improved, while in other respects it is being worsened, and problems are not being solved. Undoubtedly, our antitrust legislation differs too much from the global antitrust regulation practices and, per se, does not fulfill the role traditionally assigned to antitrust authorities. However, I believe that in future everything will fall into place.