In May 2010 K&P partners initiated to make amendments to the RA Law on the Protection of Economic Competition. The initiative is derived from the need to regulate and raise the effectiveness of the economic competition in Armenia.
K&P lawyers faced the inadequacy of the regulation in the Law while protecting the interests of a client on an anti-trust case. Specifically, the issue related to the imposition of a fine on economic entity that entered into an anticompetitive agreement. Such fines are defined under Clause 2 of Article 36 of the RA Law “On Protection of Economic Competition”, the imposition of which under the current wording, in the view of K&P lawyers, results in disproportion. The draft law suggesting the amendments has been submitted to the attention of RA Government and once the draft will proceed to the National Assembly of Republic of Armenia K&P will be eager to present its reasoning and clarification on the need to amend the relevant law.
To the attention of: Mr. T. Sargsyan,
Prime Minister of the RA
Government of the RA
Copy to: Commission of the Economic Competition
Address: Government house 1, Republic Square, Yerevan 0010
Dated 21.05.2010
Honorable Mr. Prime Minister,
Based on the right of legal entities established by Part 5 of Article 27 of the RA Law “On Legal Acts” to draft laws and present them to persons or authorities having the right of legislative initiative, “Karakhanyan and Partners Law Office” limited liability company hereby presents to the Government of the RA the draft law on making amendments to the RA Law “On Protection of Economic Competition”.
We believe that necessity of making amendments to the RA Law “On Protection of Economic Competition” is derived from the need to regulate and raise the effectiveness of the system of protection of economic competition in the Republic of Armenia with regard to which we hereby ask the RA Government to come up with a legislative initiative and submit to the RA National Assembly the draft law attached hereto.
We also notify that “Karakhanyan and Partners Law Office” limited liability company is eager to participate in the discussion of the draft law and present additional clarifications and reasonings if necessary.
Attaches are the following documents:
1. Draft law of the Republic of Armenia on making amendments to the RA Law “On Protection of Economic Competition”,
2. Substantiation on adoption of the RA Law on making amendments to the RA Law “On Protection of Economic Competition”.
Regards,
Aram Karakhanyan,
Director
Tatul Khudatyan, Vardan Stepanyan,
Authors of the draft
SUBSTANTIATION
On necessity of passing an RA law “On making amendments to the RA Law “On Protection of Economic Competition”
In accordance with Article 8 of the RA Law “On principles of administrative procedure and administrative proceedings”:
“Administrative procedure shall be directed to the aim pursued by the Constitution and the laws of the RA, and the means of its achievement shall be suitable, necessary and temperate.”
In present, Clause 2 of Article 36 of the RA Law “On Protection of Economic Competition” (hereinafter: the “Law”) does not comply with the fundamental principle of administration established by Article 8 of the RA Law “On principles of administrative procedure and administrative proceedings”. This principle limits interference of administrative body in activity of the economic entity subjecting the activities of the administrative body to suitability, necessity and temperance. Therefore, as a result of interference of the administrative body, responsibility of the economic entity may not exceed those negative consequences which might arise as a result of illegal activities of the economic entity (in this case, through entering into an anticompetitive agreement, in the meaning of the RA Law “On Protection of Economic Competition”).
Clause 2 of Article 36 in its current wording enables to impose disproportionate fine on the economic entity without taking into consideration its negative consequences and effects on product market.
Thus, if the economic entity conducts its economic activity simultaneously on different product markets than, by entering into an anticompetitive agreement on one product market, it can not have such a negative influence on the relevant product market that, while determining the amount of the fine, apart from the revenue gained on the market where the anticompetitive agreement is entered, the rest of the proceeds of the economic entity received from other product markets are also considered.
For example, if one economic entity conducts activity simultaneously on more that 20 markets (import and sale of butter, construction, production of groceries, provision of transportation services, etc.) than, on the basis of concluding anticompetitive agreement on only one market (for example, import and sale of butter), in pursuance of Clause 2 of Article 36 with current edition, the given subject is fined at the rate of 2% of proceeds of the previous year. Such proceeds were received as a result of business activity on all 20 product markets. If the economic entity has imported and sold butter with proceeds amounting to 20 million AMD but also received additional proceeds of 2 billion AMD from other activities (for example, construction and sale of real property) than the penalty shall be calculated from 2,020,000,000 (two billion twenty million) AMD and shall amount to 40,400,000 (forty million four hundred thousand) AMD twice as much as the total proceeds received from import and sale of butter.
That is, an anticompetitive agreement on one product market by one economic entity leads to imposition of a fine the amount of which is calculated from proceeds received by the economic entity from 20 different product markets. If Clause 2 of Article 36 of the Law is amended due to the submitted draft and the fine is calculated only based on the proceeds of the economic entity received from the specific market where the anticompetitive agreement was concluded, than the amount of the fine will be proportionate to the illegal activity of the economic entity.
For example, company “A” which holds a chain of supermarkets and sells more than 2000 types of products, i.e., participates in more than 200 product markets, has sold stationery of 30 million AMD within the previous year. The turnover of the company “A” for the previous year was 2 billion AMD.
Company “B” is engaged in production and sale of stationery and has produced and sold stationery of 500 million AMD within the previous year. If the company “A” and company “B” enter into an anticompetitive agreement, than company “A” shall be fined in the amount of 40 million AMD and company “B” shall be fined in the amount of 10 million AMD. So, company “B” the turnover of which on the product market was 15 times more than that of company “A”, may be subject to a fine 4 times less than that imposed on company “A”.
Anyway, liability must pursue an aim to restore social justice. Establishment of such fines results in that the economic entity bears responsibility in the amount which is unreasonable and disproportionate and at the same time different economic entities receive unequal treatment. Theses circumstances not only prevent from contributing to restoration of social justice but also cannot be derived from the logic of healthy competition.
DRAFT
THE LAW OF THE REPUBLIC OF ARMENIA
On making amendments to the RA Law “On Protection of Economic Competition”
Article 1. Clause 2 of Article 36 of the RA Law N HO-112 as of November 6, 2000 “On Protection of Economic Competition” to be read as follows:
“2. Entering into (establishing, participating in) an anticompetitive agreement shall lead to imposition of a fine upon the economic entity participating in the anticompetitive agreement at the rate of 2% proceeds received from sale of products on the product market being the subject of anticompetitive agreement during the year preceding the entry into (establishment, participation in) the agreement, but not exceeding three hundred million AMD. In case the conducted activity lasted less than 12 months during the previous year, the infringements stipulated in this part shall lead to imposition of a fine at the rate of 2% of proceeds, however not exceeding three hundred million AMD, received from sale of products on the product market being the subject of the anticompetitive agreement for the period of the activity conducted prior to the entry into (establishment, participation in) that agreement but not exceeding 12 months’ period.
Article 2. This law shall enter into force from the tenth day following the day of its official promulgation.