OREANDA-NEWS. August 16, 2010.   The First Deputy Prime Minister briefed Dmitry Medvedev on the competitive environment in the country.

In particular, Igor Shuvalov told President Medvedev that in the coming months the Government will consider amendments to the legislation on competition drafted by the Ministry of Economic Development and the Federal Anti-Monopoly Service (FAS).

The First Deputy Prime Minister also informed the President of the competitive environment monitoring results, noting its heterogeneity in Russia on the whole.

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PRESIDENT OF RUSSIA DMITRY MEDVEDEV: Mr Shuvalov, there are many aspects to economic development in our country, such as the investment climate and a number of factors which, in our view, determine a state’s economic strength. One aspect we have always had problems with is competition, and there are objective and subjective reasons for that.

We are making every effort to widen the competitive field, and the state agency directly responsible for this is the Federal Anti-Monopoly Service, which was created specifically for this purpose and which must be the major actor.

We have amended anti-monopoly legislation, and have even introduced criminal liability for violation of anti-monopoly regulations.

I would like you to tell me about further measures that are planned and the effectiveness of the regulations that have currently entered into force.

FIRST DEPUTY PRIME MINISTER IGOR SHUVALOV: Mr President,

In line with Russian legislation, the Federal Anti-Monopoly Service submits an annual report to the Government on the state of the competitive environment in the country. The Government reviews the report and makes certain recommendations or adopts specific resolutions on monopoly sectors. Next, the Government begins to work with regional markets and regional governments.

This year, the report has been submitted to the Government, and we can conclude that with the onset of the financial and economic crisis the competitive environment in Russia has deteriorated. Prior to 2008, before the crisis, competition in Russia was improving: we consistently modified the legislation and introduced administrative procedures in order to prevent the establishment of monopolies and cartels.

However, the development of competition has halted due to the active support businesses received, including from public funds, and the difficulties experienced by the economy since the autumn of 2008. Experts believe that we can return to the pre-crisis parameters of competition in twelve to eighteen months.

At present we have a number of rapidly growing sectors, where the level of competition is even higher than it was in 2008 or 2009. One of such competitive sectors is retail. However, we are also experiencing monopolistic trends that must be tackled urgently.

The Federal Anti-Monopoly Service currently has a full arsenal of tools to carry out this work. I must also report, Mr President, that the international rating awarded to the Russian Federal Anti-Monopoly Service has been between 19th and 29th positions for several years now.

This is within a group of good anti-monopoly agencies (there is a group rated as excellent and a group rated as good), and that is our international rating. It is considered to be a highly efficient service that fulfils its mandate very successfully. Most recently, just two months ago, we received a confirmation of our ratings, and the Russian Anti-Monopoly Service has been awarded a slightly higher rating within this group.

The Service, together with the Ministry of Economic Development, has drafted a package of legislative amendments. We reported to you on these amendments, as well as to the Government, and we discussed them in depth. They were adopted by Parliament last year, and signed by you into law.

We have greatly increased the liability of persons responsible for establishing cartels or collusion in the market and, as you said, we have amended Article 178 of the Criminal Code by considerably expanding the definition of conspiracy to establish a cartel.

DMITRY MEDVEDEV: Has anyone been brought to justice under the relevant articles of the Criminal Code in the period since the amended law entered into force?

IGOR SHUVALOV: The provisions stipulate that the offenders first face administrative liability.

DMITRY MEDVEDEV: That is the so-called administrative prejudgement.

IGOR SHUVALOV: One of our doubts was whether to introduce administrative prejudgement. It was finally decided that offenders will first face administrative responsibility, and only after that criminal law will be applied. Currently, the administrative procedure is being applied, and as you know, FAS investigates more and more administrative cases every year.

DMITRY MEDVEDEV: That is, they initiate a criminal case if the offense is persistent.

IGOR SHUVALOV: That’s right, then they initiate a criminal case. We have itemised in greater detail the definitions of various concepts in the legislation, which has become more transparent. OECD  [Organisation for Economic Co-Operation and Development] experts believe that Russian legislation is up-to-date.

However, just recently a new review of developed countries’ anti-monopoly legislation has been released, and certain recommendations were issued regarding Russian legislation. In addition, after consultations with the Russian business community, the Chamber of Commerce and Industry and the Russian Union of Industrialists and Entrepreneurs, you issued instructions to the Economic Development Ministry and FAS to draft new amendments to the anti-monopoly legislation.

These amendments will address a number of issues; for example, they will define with better precision the offenses under Article 178 to avoid its overuse and unfounded prosecution of businesspeople.

For example, a very serious offense under current legislation is the establishment of high monopoly prices, and business representatives ask us that we clarify these concepts, since current definitions are not exhaustive, not clear, which gives grounds for excessive prosecution. Now such amendments are being drafted.

I think that in September or October, when the Government examines our report on the competitive environment in the Russian Federation, we will be able to look at and approve, or perhaps change our approach to existing anti-monopoly legislation.

The overall situation in the Russian Federation is variable. We have been holding meetings on competition in different regions, including Samara, and reviewed competitive environment in Togliatti, Vladivostok and the Siberian Federal District. We look at the situation with different goods and services: how are the prices formed in the market and how competitive the market is.

I can tell you that there are some highly competitive markets. Despite the criticisms voiced earlier of the Primorye Territory, for example, and you can read reports in the media of it having a highly non-competitive market, when experts analysed this market using international classification, it became clear that it is much more competitive than markets of some central European regions.

DMITRY MEDVEDEV: What do you mean? Which regions? Where is the market less competitive?

IGOR SHUVALOV: Some sectors in the central regions are facing a very tough situation.

DMITRY MEDVEDEV: Which regions are those?

IGOR SHUVALOV: For example, certain markets are not competitive in Moscow.

DMITRY MEDVEDEV: I think Moscow has a highly monopolised market, and the Moscow city government has a great deal to think about in this regard. Monopolies are easily created in big cities simply because a lot of money is concentrated there, considerable capital, and, naturally, the monopolistic trends are more pronounced there.

Mr Shuvalov, you have told me about improvements in legislation. That is excellent, and I am very pleased to hear that we have very progressive legislation. But the issue is not just to have modern legislation; it also has to be properly applied in all sectors, applied without regard for authority or those who stand behind economic processes, so here the precision of law enforcement practices is crucial.

In general, we have always had a good situation with legislation, and we have always said that we have good modern laws, but the way they are applied leaves a lot to be desired. Therefore, I would like you as the member of the Government responsible for this area and as head of the Anti-Monopoly Service to focus on the practical application of anti-monopoly legislation.