Monopolistic Activity and Illicit Competition in the Republic of Belarus

03.02.2014

1. Monopolistic Activity: General Information

In 2014 monopolistic activity is regulated by two laws:

Till July 1, 2014 — by the Law of the Republic of Belarus as of December 10, 1992 “On counteraction to monopolistic activity and development of competition” (hereinafter referred to as “the Law, 1992”);

From July 1, 2014 the Law of the Republic of Belarus as of December12, 2013 “On counteraction to monopolistic activity and development of competition” (hereinafter referred to as “the Law, 2013”)  will come into force.

Monopolistic activity is defined as actions (inaction) of business entities, state bodies, aimed at non-admission, limitation or elimination of competition (the Law, 2013).

Till July 1, 2014 there are 3 types of monopolies allowed in Belarus: state monopoly, natural monopoly and special monopoly.

State monopoly is a system of social relations according to which state bodies or organizations have the exceptional right to carry out certain types of activities (including business activities).

The following types of activities are natural monopolies in Belarus:

• transportation of petrol and oil products through main pipelines;
• transportation of gas through main and distribution pipelines;
• transfer and distribution of electric and thermal energy;
• centralized water supply and water disposal;
• electrical communication and postal services;
• railroad services;
• services of transport terminals and airports;
• exploitation and services of airlines, management of air traffic.

Special monopoly is a system of social relations in the goods market with no or limited competition.

From July 1, 2014 special monopoly cannot be established in the Republic of Belarus.

Realization of antimonopoly policy in the Republic of Belarus is conducted by the antimonopoly body — the Department of price policy of the Ministry of Economy.

Antimonopoly control in Belarus includes the following types of activities:

• approval for registration of holding companies, unions, associations and other alliances of business entities;
• control over transactions with stocks, shares in authorized funds of business entities,
• reorganization and liquidation of business entities;
• control over the activities of economic entities with dominant position.

2. Antimonopoly control for creation and reorganization of holding companies

As a general rule, creation, reorganization of holding companies, associations, unions and other alliances of business entities are to be effected upon approval of the antimonopoly body.

Creation and reorganization of holding companies are regulated by the Edict of the President of the Republic of Belarus No 660 “On some issues related to creation and activity of holding companies”. In accordance with the Edict in order to register a holding company a management company of such holding (owner or authorized representative) must obtain the approval of the antimonopoly body before creation of holding. Thus, it is impossible to create a holding in the Republic of Belarus without the approval issued by the antimonopoly body.

However, from July 1, 2014 the approval of the antimonopoly body to create a holding company is required only if balance sheet value of the assets of one of the founders of created associations of economic entities defined on the basis of the financial statements for the last reporting date, is more than 100 000 base units or the volume revenue generated by one of the founders of associations of economic entities from the sale of goods in the reporting year preceding the year of creation, is more than 200 000 base units or if one of these entities is included in the State Register of economic entities with a dominant position in the goods markets or the State Register of Natural monopolies.

After having considered the application of a management company the antimonopoly body has the right to:

• either approve creation (reorganization) of a holding company, or
• make a reasonable decision declining the approval, if creation (reorganization) of a holding company may lead to appearance or strengthening of a dominating position in a goods market and/or limitation of competition, as well as if during the application process the antimonopoly body discovers the fact that the information submitted is inaccurate and/or incomplete.

From July 01, 2014 the antimonopoly body may approve creation of the holding company if a dominant position of economic entities is established or strengthened in the commodity market and (or) if competition is excluded, limited or eliminated. To do this, the economic entities have to prove that their actions have or may have the effect of:

• improvement of production (sale) of goods or stimulation of a technical (economic) progress or increasing the competitiveness of goods manufactured in the Republic of Belarus in the global commodity market;
• consumers receiving commensurate advantages (benefits), acquired by the persons due to such activities.

The approval or reasonable refusal is to be made within 30-days period from the application receipt and is deemed to be valid during 1 year after issuing.

3. Antimonopoly control for transactions with stock (shares)

Till July 01, 2014 the following transactions with stocks (shares) require the approval of the antimonopoly body:

• a business entity covering more than 30 % of certain goods market purchases the shares in the authorized fund of another business entity dealing with the same goods;
• a business entity covering more than 30 % of certain goods market enters into transactions with stocks of another business entity dealing with the same goods;
• any legal entity or individual, foreign state, international organization purchases more than 25 % of stocks (shares) in an authorized fund of a business entity, as well as makes a transaction giving to such persons the decision-making power with regard to any business entity having a dominant position in a goods market;
• a legal entity or an individual, the groups of thereof, as well as a foreign state, international organization or the bodies thereof acquire control over the business activity of a business entity or carry out functions of its management body (so-called “acquisition of control”).

In this case the approval of the antimonopoly body is required only in a situation where two criteria are observed in the aggregate:

1)  acquisition of more than 20% of stocks or shares in the authorized fund of a legal entity (under a share purchase agreement, trust agreement, joint venture agreement, agency),

2) if balance sheet value of assets of such legal entity exceeds 100 000 base units as of the last reporting date or a range of revenues generated from marketing products (works, services) exceeds 200 000 base units following the results of a fiscal year.

From July 1, 2014 the following financial criterion remains: the consent of the antimonopoly body is required, if balance sheet value of assets of such legal entity exceeds 100 000 base units as of the last reporting date or a range of revenues generated from marketing products (works, services) exceeds 200 000 base units following the results of a fiscal year.

Apart from the financial criterion, the consent of the antimonopoly body is determined by making a transaction, the result of which becomes:

1) acquisition of the rights to dispose of a package:

• 25% and more of shares (stakes) if the purchaser was not a participant of an economic entity before or had a package of 25% or less;
• more than 50% of shares (shares), if previously the purchaser had a package of 25-50% of shares (stakes) in the share capital of the subject of transaction.

2) acquisition of shares (stakes in the authorized capital) of other entity in a particular product market by an economic entity with a dominant position in the same product market.

3) acquisition by an economic entity of 25% or more of shares (stakes in the authorized fund) of an economic entity with a dominant position in the market, as well as other transactions giving to such economic entity the decision-making power in regard to an economic entity having the dominant position on a goods market.

Normally, it takes 30 days to obtain the decision. As in the case with a holding company the decision may be either positive or negative. Negative one is issued if a transaction may result in appearance or strengthening of a dominant position of a business entity on a goods market and/or limitation of competition.

From July 01, 2014 the antimonopoly body may approve the transactions with stocks (shares) when they entail strengthening of a dominant position
if such transactions have or may have the effect of:

• improvement of production (sale) of goods or stimulation of a technical (economic) progress or increasing the competitiveness of goods manufactured in the Republic of Belarus in the global commodity market;
• consumers receiving commensurate advantages (benefits), acquired by the persons due to such activities.

4. Non-compliance with the obligation to obtain the approval

Civil law consequences

In accordance with Clause 12 (6) of the Law a transaction made in breach of the Law which has resulted in appearance or strengthening of a dominant position of a business entity in a goods market and/or limitation of competition may be invalidated by an action of the antimonopoly body or any interested party in judicial proceedings.

Non-compliance with this obligation itself will not cause invalidation. The essential condition is the fact that a transaction has resulted in appearance or strengthening of a dominant position of a business entity on a goods market and/or limitation of competition. However this must be proved in court.

Administrative liability

Administrative liability is prescribed for an officer of a legal entity. According to Clause 1.3. of the Edict of the President of the Republic of Belarus as of February 27, 2012 No 114 «On some measures on enforcement of state antimonopoly regulation» (hereinafter referred to as “Edict No 144 ”) the liability is a fine in the amount from 20 (173 Euros) to 100 base units (865 Euros).

Criminal liability

Non-compliance with the requirement of the Law falls within the scope of criminal liability in the case if within 1 year after an administrative punishment an officer of a legal entity has committed the same offense. Under Clause 244 of the Criminal Code of the Republic of Belarus the punishment for such a crime is up to 2 years of imprisonment.

5. Anti-monopoly control over the activities of economic entities with dominant position

If the position of a business entity in the market or several business entities recognized as a dominant position, the volume of production and product quality, price levels and other indicators of activity of such business entity (entities) fall under special state control aimed to identify whether there is abuse of such dominant position.

Control of production volume and quality of goods is carried out by competition authorities on the basis of statistical reports provided by corresponding business entities.

The activities of companies holding a dominant position in the market of the Republic of Belarus are controlled through audits conducted by antitrust authorities.

Monitoring of the level of prices and rates of economic entities with a dominant position in the markets of the Republic of Belarus is carried out by setting threshold levels of profitability and declaration of prices.

Clause 1.2. of Edict No 114 provides administrative liability for the cases where business entities with a dominant position commit the acts of abuse of their dominant position. Liability for the officials is established in the amount up to 100 basic units (1 000 Euros), for individual entrepreneurs (hereinafter - IE)- up to 200 basic units (2 Euros), for the legal entity — up to 10% of the sum of revenues from sales of goods (works, services) for the calendar year previous that year in which the administrative offense has been identified, or for a part of a calendar year previous to the date of identification of an administrative offense in which the administrative offense has been identified if the offender did not carry out activities for realization of these goods (works, services) in a previous calendar year, but not less than 500 basic units (5 000 Euros).

6. Illicit Competition

According to the Belarusian legislation illicit competition is any action aimed at limitation or elimination of competition by violation of a right to free competition of other business entities, as well as violation of consumer rights and interests.

The forms of illicit competition can be such actions as illegal using of a company name, trade mark and service trademark, illegal copying of goods exterior of other business entity, distribution of inaccurate or distorted information about activities and goods of a competitor in mass media and others.

Illicit competition in Belarus is prohibited. The legislation of the Republic of Belarus provides for a judicial and administrative procedure of defense from illicit competition as well as civil, administrative and criminal sanctions for illicit competition.

Particularly, according to Clause 1.4. of Edict No 114 illicit competition is punished by a fine in the amount of 100 basic units (1 000 Euros) for the officials, 200 basic units (2 000 Euros) for IE, for the legal entity — up to 10% of the sum of revenues from sales of goods (works, services) for the calendar year previous to that year in which the administrative offense has been identified, or for a part of a calendar year previous to the date of identification of an administrative offense in which the administrative offense has been identified, if the offender did not carry out activities for realization of these goods (works, services) in a previous calendar year, but not less than 400 basic units (3457 Euros).

7. Common principles and rules of competition in the Eurasian Economic Community

In the frameworks of the CES the Russian Federation, the Republic of Belarus and the Republic of Kazakhstan have entered into the Agreement on common principles and rules on competition as of December 12, 2010. To find more information about the provisions of this Agreement please refer to subsection 11.2.3 of Section 11 “Common economic Space”.