Tackling competition breaches by public persons and government agencies

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03.08.2018

Proposals for amending the Competition Act to fight a long-standing distortion of competition have been approved by the Cabinet of Ministers and presented to Parliament for review. This problem results from activities and decisions made by certain direct- and indirect-government agencies or by entities controlled by public persons, which unjustifiably give exclusive rights to such entities and create unequal market conditions. This article explores some common breaches of competition law and the proposed solutions.

 

The current rules vs proposals
 
The current Competition Act (CA) gives the Competition Council (CC) powers to take action only against businesses or market players under the CA, i.e. against any person (including a foreign person) that carries on or is about to carry on a trade or business in Latvia or whose activities are affecting or could affect competition in Latvia (CA section 1(9)). The concept of “market player” in the CA is closely linked to the definition of “entity” in EU competition law and should be understood in its functional sense: the market player is any entity that carries on a trade or business regardless of its legal form or means of financing.1
 
So the CA rules apply to such agencies only if an agency is acting as a market player subject to private law. As a result, any action the agency takes when it is not acting as a market player escapes the operation of the CA and the competence of the CC. Thus, all the CC can do where any agency decision or regulation restricts free competition is issue a non-binding opinion on how to eliminate competition breaches, which the agency can ignore.
 
Before the proposals, the CC has repeatedly issued a non-binding opinion on recent competition breaches (e.g. on municipal binding regulations on water management2 and on car parking3 services, as well as Riga Council’s rules on taxi services4 and the Agriculture Ministry’s legislative proposals dealing with veterinary medicine5).
 
Once the amendments receive parliamentary approval, the way such agencies adopt their decisions and regulations will be tightly monitored and any resulting effects on competition handled in good time.
 
Once adopted, the amendments will give the CC the power to take measures against such agencies and against any company in which a public person has a decisive influence if their activities discriminate against certain market players and create unequal conditions for competition or hinder competition.
 
Please note that in terms of content and time limits, the legal obligation should be one that does not directly or indirectly make it impossible for the municipality to perform its autonomous functions under section 15 of the Municipalities Act. Examples of autonomous municipal functions include organising supplies of utilities and public transport services, improving the administrative area and sanitary cleanliness.
 
If a legal obligation is neglected, the CC may enforce it by imposing an enforcement fee under CA section 8.1(1). The CC decision may be appealed as an administrative instrument to the Administrative District Court. A ruling made by this court may then be appealed by cassation.
 
The proposals follow practices adopted elsewhere in the EU for fighting competition breaches committed by public persons. Competition controls on public persons’ activities already operate in Sweden, Italy, Finland, Romania, Slovakia, the Czech Republic and Lithuania to promote compliance with the principle of competitive neutrality and provide equal conditions of competition to all market players.
 
Such agencies and companies should be assessing whether the essential elements of their activities meet the principle of competitive neutrality because private companies are likely to jump at the opportunity to take advantage of the powers granted to the CC as a tool for fighting public companies.
 
 
 
Contacts
Maris Butans
maris.butans@pwc.com
Tel: +371 67094400
Elina Andrijevska
elina.andrijevska@pwc.com
Tel: +371 67094400
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