New Face of the AMCU in the Light of European Integration

Oleksandr Fefelov, Attorney at Law, Head of Antitrust and Competition Practice

Source: Yurydychna Gazeta

Long before the EU-Ukraine Association Agreement was concluded, it was quite clear that there was a number of issues in the field of protection of economic competition pertaining to the regulatory support for the activities of governmental bodies operating in this field. Since Ukraine was moving towards deepening of EU-Ukraine relations, it was planned to improve the regulation in accordance with basic European standards. The pressing issues were constantly discussed both at the State level and at the professional events, including those organized by the Antimonopoly Committee of Ukraine (hereinafter – the AMCU). The issues requiring urgent solutions were as follows:

• improving the procedures for identifying and investigating cartel agreements and exempting the business entities that informed about cartel from the liability;
• bringing procedures for control over mergers and concerted actions in line with the EU standards;
• improving the procedures for conducting investigations and verification of compliance of business entities with the requirements of legislation on protection of competition, as well as strengthening the rights and powers of the AMCU in the process of carrying out such inspections and verifications (including giving the AMCU certain powers to carry out investigative actions);
• conducting research of commodity markets, especially in socially important fields;
• determining sanctions for violation of competition law.

Also, an immediate solution was required for issues related to the establishment of a system for exercising control functions by the AMCU within a framework of provision of State aid to business entities and its activities as a body of appeal in the field of public procurements.

Meeting the requirements of the Association Agreement

Pursuant to the EU-Ukraine Association Agreement Ukraine obliged to approximate its legislation to the EU standards within the framework of implementation of the European legislation. The solving of current problems required not only adopting new or introducing amendments to the existing legal acts and secondary regulations, but also a corresponding improvement of the AMCU’s institutional capacity, since the implementation of European legislation would be impossible without significant strengthening thereof. Since the Association Agreement provided for certain rather tight deadlines for satisfying certain requirements, the involved State authorities acted rather quickly.

Some problems did not require a lot of rule-making efforts (for example, certain issues related to the improvement of control over mergers). At the time the thresholds for merger clearance were increased (since even with the adoption of the Law on Protection of Economic Competition they seemed to be extremely low as compared to those in other jurisdictions of similar economic growth). Certain problems, unfortunately, remained unresolved. The Law still provides no clear definition of the range of merger participants, which is actually subjectively estimated by both business entities and the AMCU specialists.

The regulation of coordinated actions of business entities, the so-called “vertical agreements”, required special significant review. In autumn 2017, the AMCU provided quite clear explanations bringing the regulation of vertical agreements to the basic rules of the EU in the field.

The system of financial penalties for violation of the requirements of the law (which did not withstand any criticism at all, since no one understood the factors applied by the AMCU officials in determining the amounts of fines) has also changed. Due to the fact that the AMCU has been quite pragmatic in fulfilling the terms and conditions of the Association Agreement by providing advisory explanations on this issue and by involving well-qualified economists, who can not only calculate the amount of the fine, but also explain how its amount is formed in fact, this issue is now more clear.

If the implementation of certain issues of the European competition law did not require a particularly large-scale strengthening of the institutional capacity of the AMCU, the approximation to European legislation in the field of public procurement and State aid to business entities (exerting a direct and significant impact on the State of the State economy) could not have been implemented without significant institutional changes within the AMCU.

Improvements in public procurements

First of all, the changes in the AMCU’s activities as a body of appeal in the field of government, and since 2016 – in public procurements, should be mentioned.

Pursuant to Article 150(2) of the Association Agreement, Ukraine undertook to designate an impartial and independent body tasked with the review of decisions taken by contracting authorities or entities during the award of contracts. In this context, “independent” means that that body shall be a public authority which is separate from all contracting entities and economic operators. In accordance with the Law on the Antimonopoly Committee of Ukraine, this designated body is the AMCU, which has been set forth in the Law on Government Procurements. Article 153 of the Association Agreement required the approximation of effective and future public procurement legislation to the EU acquis in the field of public procurements. This provision was implemented within the framework of the adoption of the Law on Public Procurement, according to which, along with the introduction of the electronic public procurement system Prozorro, the procedures for conducting such procurements, as well as the procedure and deadlines for handling complaints in this field, were changed.

The permanent Administrative Board of the AMCU for consideration of complaints on violations in the field of public procurement resorted to open, prompt and effective consideration of complaints, which allowed saving billions of hryvnias in the budgets of various levels over the past two years. It is important that the current procedures of appeal significantly differ from those used earlier. The Administrative Board does not consider complaints filed in paper. Furthermore, now anyone can get acquainted with the content of complaints, the documents attached and decisions taken by the Administrative Board, as well as be present during consideration of complaints, including in the teleconference mode. Thus, this procedure of appeal made the process of complaint consideration clear, quick and transparent. It became quite problematic to blame the Administrative Board for taking corrupt decisions.

However, the problem of the enormous number of complaints, which are processed and reviewed daily, still remains. Given the fairly frequent abuse of rights by the unconscientious complainants, this greatly complicates the work of the Administrative Board. In 2017 the Administrative Board often finished its work at night trying to adhere to the deadlines for handling complaints.

According to the information provided by the AMCU in its annual report for 2017, the number of employees of the AMCU’s office in 2017 was increased by 60 people to ensure the exercise of the Committee’s powers as the body of appeal. However, despite the increase in the number of specialists in the Department of Appeals Against Decisions in the Field of Public Procurements, the Department and the Administrative Board experience considerable intellectual stress due to the large volume of complaints and, therefore, the fear is that such large amount of work may adversely affect the quality and validity of decisions taken by the Administrative Board. It seems to be quite problematic to maintain high standards of control over public procurement, as planned by the Association Agreement and the Law, without further increase in the number of Department experts and an increase in financial incentives.

Consequently, the problem requires immediate adoption of regulations which would limit the number of complaints, and prevent their lodging by unconscientious complainants (for example, by imposing a higher fee for their consideration). At the same time, certain conscientious complainants may be deprived of the opportunity to appeal because of the lack of funds required to appeal, which doesn’t look like the attempt to follow European standards. The further increase in the personnel of the Department by attracting qualified staff, as well as the introduction of financial incentives, would probably temporarily reduce the tension. However, it would be more relevant to increase the number of employees in the central office not by reducing the posts in the territorial branches, which would not give the latter the possibilities to solve local but rather important problems.

AMCU’s control in the field of State aid

The State aid to business entities has become another important area of ​​the AMCU’s activities. According to Article 267 of the Association Agreement, Ukraine undertook to create a national system of the State aid control, which implies not only the adoption of the national legislation on State aid (which has been successfully done), but also the establishment of an independent authority, entrusted with the powers necessary to apply Article 262 of the Association Agreement in full (which defines the principles of compatibility of the State aid with the use of public funds). The principles of State aid control shall be in accordance with the EU guidelines.

This independent authority shall have, inter alia, the powers to authorize State aid schemes and individual aid grants in conformity with the criteria defined in the Association Agreement, as well as to order the recovery of State aid that has been unlawfully granted. Moreover, a comprehensive inventory of State aid schemes instituted before the establishment of the authority is required, as well as the alignment of such schemes with the criteria defined in the Association Agreement.

The Law on State Aid to Business Entities designates the AMCU as the body authorized to control the admissibility of State aid for competition. Its main functions are:

• receiving and reviewing reports about new State aid from the aid providers;
• determination of whether the measures aimed to support business entities by virtue of state or local resources are considered to be the State aid;
• assessment of the admissibility of State aid for competition;
• collection and analysis of information on measures aimed to support business entities by virtue of state or local resources;
• requiring information (including information with restricted access) from the providers and recipients of State aid, or their officials, necessary to make decisions provided for by the Law;
• provision of mandatory recommendations to the aid providers pertaining to the amendments to the procedure of the State aid provision to eliminate or minimize the negative impact of the State aid on competition, as well as clarifications on the application of legislation in the field of State aid;
• making decisions on the temporary suspension of the provision of unlawful State aid;
• termination and return of unlawful State aid deemed inadmissible for competition;
• monitoring of the State aid and maintaining an inventory of State aid.

In order to satisfy the requirements of the Association Agreement and national legislation in the field of the State aid regulation, the AMCU established the relevant department, the operation of which was launched in early 2018. The experts have already had an opportunity to analyze several important decisions prepared by the department this year. This means that the AMCU has already undertaken the necessary institutional changes in this direction, as evidenced by some of the last year results: according to its annual report, in 2017 the Committee has already received 100 reports on the new State aid, 15 – on the current State aid, 16 – on the support programs for business entities from the state or local funds, 2 – on introducing changes to the conditions of existing State aid.

Issues pertaining to the practical exercise of powers of the Committee’s personnel during consideration of cases

One of the important issues of the implementation of the AMCU’s authority is the ability of its personnel to exercise control over compliance with the law on the protection of economic competition when considering applications and cases of law violation, as well as conducting investigations into these applications and cases. Despite the authority to conduct inspections of business entities, obtain information with limited access, commission the expert examinations, conduct inspections of offices and vehicles of business entities, seize or impose arrest on items, documents or media that may be evidence or source of evidence in a case, regardless of their location, etc. (for example, conducting “surprise inspections”), as defined in the Law on the Antimonopoly Committee of Ukraine, the performance of such functions requires further regulation. From the standpoint of their practical implementation it seems that the AMCU needs to involve special personnel properly trained for such “investigative” actions.

It’s high time to start the leniency program

The issue of the AMCU’s practical ability to implement the immunity program in the process of investigation of cartels is also worth considering. It is known that in order to find effective options to prove such collusion, Ukraine undertook the way well-tested in different countries (including the EU and the US), in particular by introducing a program of immunity from or reduction of responsibility for participation in cartels for those who are the first to self-report and provide the information necessary for the case (the so-called ‘leniency program’). Pursuant to Article 6 of the Law on Protection of Economic Competition, the relevant Immunity (Release) Procedure was approved back in 2012.

However, the practical realization and effectiveness of leniency program in Ukraine causes serious doubts, which can be explained by a number of reasons, including the institutional inability of the AMCU to ensure complete confidentiality of the individual who has “confessed”, provide real protection guarantees (including after the Committee has taken its decision, when it becomes clear who gave up other participants, which is especially important in our realities). As far as we know, throughout the period of existence of leniency program there were about 10 such reports to the Antimonopoly Committee of Ukraine. That is, this direction requires mechanisms, including institutional ones, to improve the fight against cartels with a help of program designed to effectively apply the leniency program (perhaps by creating models of the filer’s protection and guaranteeing its anonymity).

Among the positive institutional changes we cannot but mention the introduction of amendments to Articles 30, 31 and 48, according to which the information on the adoption of order to commence the consideration of case on concerted practices, merger, decisions taken as a result of consideration of applications or cases on concerted practices or merger, and cases on violation of legislation on the protection of economic competition, shall be published on the official website of the Antimonopoly Committee of Ukraine within 10 working days from the date of adoption. Such transparency in the work of the AMCU embodies the principles of European approaches to the issue of transparency in the activities of the body responsible for the formation and implementation of competition policy in the country. For a long time, the AMCU was against publishing all the decisions, in particular, claiming that it lacks personnel to edit these decisions, which seemed to be a lame excuse. After the formation of a new team in the Committee, it became obvious that it was able to find the personnel and intellectual capacity to implement the system of timely publication of its decisions.

The experts yet note that without further improving of the institutional capacity of the AMCU, all the ‘excellent’ intentions and obligations to implement the European legislation will encounter significant problems with their practical realization. In this aspect, it is important to emphasize the need for adequate AMCU funding.

It is both possible and necessary to talk about increasing the prestige of work at the AMCU, the possibility of raising your professional level, participating in high-quality trainings and internships abroad. Yet only when the white collar worker has an opportunity to provide his/her, at least basic, needs. It will be problematic to retain truly skilled workers without an increase in wages and introduction of a system of financial incentives at the AMCU, no matter how motivated the workers are. For instance, the salary of the chairman of the regional territorial office (without bonuses) is about UAH 10 thousand per month. And what about the low-level specialists?

At the same time, almost every leading law firm listed among the top thirty will willingly offer five times higher salary to the said chairman of the regional territorial office. In addition to a good salary, the decent personnel shall be sent overseas for internships and trainings, provided with an opportunity to learn foreign languages for free, and obtain second or third higher education free of charge.

The AMCU does a lot of work to promote and advocate the competition, and the expert community is always willing to lend its hand to help in rule-making and improving its institutional capacity.