Peer Review on Competition Law of Mongolia Japan Fair Trade Commission (JFTC) June 29 th, 2009 in Ulaanbaatar The 5 th East Asia Conference on Competition Law and Policy 1
Table of Contents 1. Background 2. Substantive Provisions of Mongolian Competition Law 3. Procedural Provisions of Mongolian Competition Law 4. Enforcement of Mongolian Competition Law 5. Issues to be Concerned 2
1. Background 3
Background - Enactment of Competition i Law and destablishment of Competition i Authority - Transition from Planned Economy to Market Economy in 1992 with adopting a new constitution. Competition Law was enacted in 1993. At first, despite that Competition Law was enacted, competition policies were monitored by a multiple number of government agencies. So enforcement was weak, and it was difficult to enforce the Law consistently. In response to these problems, the Mongolian Competition Law has undergone amendments 4 times since its enactment in 1993. Following the 4th amendment in 2005, the Unfair Competition Regulatory Authority (UCRA) was formally established. In the end of 2008, UCRA changed its name into Authority for Fair Competition and Consumer Protection (AFCCP). 4
Basic information of AFCCP Organization Chart of AFCCP Name Location Laws in charge Number of staffs Annual budget Structure of organization Others Authority for Fair Competition and Consumer Protection Ulaanbaatar City (Mongolia) There is no regional offices. 1. Competition Law 2. Consumer Protection Law 33 (as of January 2009) First Deputy Prime Minister of Mongolia Chairman Vice Chairman Board Department of Public Administration US$187,700 700 (as of FY2008) See the organization chart in right side. >> AFCCP is under the direct jurisdiction of the First Deputy Prime Minister of Mongolia. >> The Board consists of the Chairman, and 4 members who are representatives of various government agencies and serve on a part-time basis. First Department of Investigation and Regulation Second Department t of Investigation and Regulation International Cooperation Department Department of Legal Affairs and Monitoring Department of Policy Planning 5
2. Substantive Provisions of Mongolian Competition Law 6
Mongolian Competition Law < Purpose > The purpose of this law is to regulate relations regarding creation of conditions for fair competition in the market for entities conducting business activities, iti identification and implementation of legal and organizational basis for prohibition, restriction and prevention of any activities impeding competition. (Article 1.1) Consisting of 18 articles, Mongolian Competition Law is relatively simple in structure. Therefore, it has been supplemented by resolutions and other laws. Resolutions of Unfair Competition Regulation Board Resolutions of Government of Mongolia Mongolian Competition Law Law on State Supervision 7
Category of Conduct Prohibited by Mongolian Competition Law Prohibited Conducts anti-competitive conducts by dominant entity anti-competitive conducts by business entity anti-competitive conducts by government or local administrative organization anti-competitive conducts by a single dominant entity anti-competitive conducts by entities that collectively hold dominant position business combinations by a single dominant entity >> restricting supply, >> discriminatory pricing, >> selling at unjustly low prices, >> refusal of business, >> tie-in i sales, >> attachment of resale conditions, >> exclusionary transactions, >> abuse of dominant position, >> etc. >> price cartels, >> Interlocking >> disseminating >> quantitative directorates, t information harmful to restrictions, >>acquisition of competitors, >> division of market, shares >> disseminating >> refusal of business, >> merger with false information >> bid rigging, competitors, about own products, >> preventing >> etc. >> demanding competitors from sponsored entity to joining organizations, carry out activities >> restricting selling harmful to competition, and purchasing, >> concealing quality >> etc. deficiencies, >> etc. >> unauthorized licensing i of business activities, >> unauthorized decisions restricting competition, >> unauthorized negotiations with other government organizations and business entities aimed at restricting competition, >> etc. 8
Dominant Entity - consisted of a single entity or two or more entities - < Dominant Entity > Under the Mongolian Competition Law, following entity (entities) is considered as Dominant Entity. (1) a single entity that has a market share exceeding 1/3 alone (2) two or more entities i that have market share exceeding 1/3 collectively l ex. (1) A Market Dominant Entity market share 34% > 1/3 (A Single Dominant Entity) Market Share 34% in case that B, C and D ex.(2) B C 10 are acting together. 20% % 20%+10%+4% = 34% 4 combined market share % D 34% > 1/3 Dominant Entity (Two or More Entities that Collectively hold Dominant Position) 9
Regulation on Anti-Competitive Conducts by Dominant Entity Anti-competitive conducts by Dominant Entity are divided into the following 3 categories: (1) anti-competitive conducts by a single Dominant Entity (2) anti-competitive conducts by two or more entities that collectively hold dominant position (3) business combinations by a single Dominant Entity Regulation on anti-competitive conducts by Dominant Entity covers not only the abuse of dominant position but also collusive behavior, including cartels, bid-rigging and mergers. To make a determination of violation by Dominant Entity, it is first necessary to determine if the entity is Dominant Entity or not. 10
Anti-Competitive Conduct by A Single Dominant Entity Mongolian Competition Law (Article 6) prohibits any single Dominant Entity from following conducts. restricting supply, discriminatory pricing, selling at unjustly low prices, refusal of business, tie-in sales, attachment of resale conditions, exclusionary transactions, abuse of dominant position, etc. A Market Share 34% Single-entity conduct of Violation Violation of Article 6 11
Anti-Competitive Conducts by Two or More Entities that Collectively Hold Dominant Position Mongolian Competition Law (Article 7) prohibits any entities collectively l holding a dominant position from following conducts. forming price cartels, restricting supply, dividing markets, refusing collectively to engage in business, engaging in bid rigging, preventing competitors from joining organizations, restricting sales and purchases, etc. B 20% C 10 % % Collective Violation of Article 7 4 % D Conduct of Violation 12
Business Combinations by a Single Dominant Entity (1) Prohibited business combinations by a single Dominant Entity are divided into following 3 categories: (1) interlocking directorates for competing business entities (2) acquisition iti of shares of competitors (3) merger Interlocking directorates and acquisition of shares These provisions apply only to a single Dominant Entity. In other words, the provisions do not apply to business entities that do not have a dominant position. No notification system has been established for informing the Mongolian Competition Authority of interlocking directorates and acquisition of shares. 13
Business Combinations by a Single Dominant Entity(2) merger A single Dominant Entity is uniformly prohibited mergers with their competitors. (Moreover, the restrictions may also be applicable to a business entity that originally does not have a dominant position but will gain dominant position as a result of merger, thereby restricting competition.) The registration of a business entity following merger is based upon the conclusion issued by the Mongolian Competition Authority. Although h the Mongolian Competition Law does not provide for a notification system, the registration system provides mechanism for the Competition Authority s prior examination of the impact of a merger on the competitive environment. 14
Anti-Competitive Conduct by business entity Mongolian Competition Law (Article 10) prohibits any business entities from following conducts. disseminating information harmful to competitors, disseminating false information about own products, demanding sponsored entity to carry out activities harmful to competition, concealing quality deficiencies, etc. As above, Article 10 covers so-called unfair competitive conducts. These restrictions apply to business entities in general regardless of whether or not they hold dominant position. Besides, these restrictions also apply to business entities that are too small to have a negative impact on the market. 15
Anti-Competitive Conducts by Government or Local Administrative i i Organizations i Mongolian Competition Law (Article 11) prohibits Government or Local Administrative Organizations from following conducts. unauthorized licensing of business activities, unauthorized decisions restricting competition, unauthorized negotiations with other government organizations and business entities aimed at restricting competition, etc. In case of violation of these restrictions ti by the government or local l administrative organizations, the Mongolian Competition Authority is empowered to impose administrative fines against the officials of the organization found in breach. 16
Exemption Exemptions under the Mongolian Competition Law Mongolian Competition Law provides for the following exemptions. exemptions related to international treaties entered into by Mongolia, exemptions to prohibition of acquisition of the shares of competitors by a single Dominant Entity, for reason of benefits to the national economy or to goods that are essential and required by the population, exemptions to prohibition of anti-competitive conducts by government or local administrative organizations, related to government assistance in case of natural disasters and other emergencies Exemptions Stipulated under Other Laws Currently, there are no exemptions to the Mongolian Competition Law that are stipulated separately under other laws. 17
3. Procedural Provisions of Mongolian Competition Law 18
Powers of Mongolian Competition Authority Mongolian Competition Law stipulates general powers of the Mongolian Competition Authority in Article 14. Main powers are as follows. oo conducting investigation and issuing conclusions regarding implementation of Mongolian Competition Legislation determining, registering g or studying a business entity's dominant or legitimate monopolistic position or loss of such position and supervising their activities curbing, prohibiting or restricting illegal activities of violators and imposing administrative sanctions on them, etc. Each violation is investigated by State Inspectors of the Mongolian Competition Authority. 19
Powers of State Inspectors - imposition of administrative sanction - Mongolian Competition Authority has State Inspectors, whose powers of investigation are stipulated under the Law on State Supervision. Main powers of State Inspectors are as follow. entering freely to any places and premises where the investigation is conducted, receiving free of charge necessary information etc. from any business entity, government or local administrative organization, imposing administrative sanction according to the law, etc. << imposition of administrative sanction >> Imposition of administrative sanction can be executed by decision of State Inspectors themselves. Prior approval by the Board is not required. State Inspectors can impose administrative sanction against violator retroactively up to 3 months after the termination of the violation. When undertaking an on-the-spot investigation, decision on whether administrative sanction is going to be imposed or not must be reached within two weeks of the on-the-spot investigation (allowed to extend for two more weeks, if necessary). 20
Category of Administrative Sanction against violators Categories of Violations Administrative Sanction Compensation anti-competitive conduct by a single Dominant Entity >>Administrative fine of 100,000-250,000 tugrik anti-competitive conduct by >>Confiscation of illegal entities that collectively hold income dominant position >>Halting of business anti-competitive conduct by business entity activities >>Proposal to relevant organs (in case of material acquisition of shares of for annulment of entity s damage to others) competitors by a single Dominant permission Liability of Payment of Entity tty compensation by interlocking directorates for violators competitor by a single Dominant >>Administrative fine of Entity 30,000-60,000 tugrik >>Restoration of the situation merger with competitors by a existed before violation single Dominant Entity Criminal Liability N/A anti-competitive conduct by government or local administrative organization >>Administrative fine of 30,000-60,000 tugrik Choice and range of sanctions, including actual amount of the administrative fine, are left to the discretion of the State Inspector. No computation methods or computation rates have been established for calculating the amount of administrative fines. Violator is obligated to pay administrative fines to the National Treasury within 15 days of receiving the payment order. 1 tugrik= 0.0007 UD$ ( as of 1st June, 2009 ) 21
Complaint Process A person considering the decision of the Mongolian Competition Authority to be unlawful can file a complaint with the courts. (1) complainant, who is considering the decision of the State Inspector to be unlawful, files complaint with the Board of the Mongolian Competition Authority. (2) upon receiving the complaint, the Board re-examines the decision of the State Inspector regarding administrative sanctions. (3) upon the re-examination, if deemed d necessary, the Board can revise the decision of the State Inspector regarding administrative sanctions. (4) finally, if the complainant is not satisfied with the results of the Board s reexamination, the complainant can file a complaint with the courts. 22
4. Enforcement of Mongolian Competition Law 23
Number of Legal Actions Taken by Mongolian Competition Authority The following table summarizes the number of legal actions taken by the Mongolian Competition Authority since its establishment. 2005 2006 2007 2008 Total anti-competitive conduct by a single Dominant Entity 1 1 1 3 6 anti-competitive conduct by entities that collectively hold dominant position 0 2 0 1 3 anti-competitive conduct by business entity 2 4 3 1 10 acquisition of shares of competitors by a single Dominant Entity interlocking directorates for competitor by a single Dominant Entity merger with competitors by a 0 0 0 0 0 0 0 0 0 0 single Dominant Entity 0 1 0 0 1 anti-competitive conduct by government and local administrative organizations 0 14 2 2 18 24
5. Issues to be Concerned 25
Issues to be Concerned (1) Systemic Issues < staff and budget > Mongolian Competition Law covers a wide range of matters. Furthermore, since the end of 2008, Mongolian Competition Authority has been assigned jurisdiction over the Consumer Protection Law. To perform the functions expected of it in the future, the Mongolian Competition Authority should further expand its staff and increase its budget. < member of the Board > Regarding the Board of the Mongolian Competition Authority, all members other than the Chairman are representatives of other government agencies and organizations. It is desirable for all the members of the Board to be appointed as full-time members and should not be concurrently serving in other government agencies. This revision is desirable from the perspective of ensuring the neutrality, impartiality and independence d of the Mongolian Competition Authority. 26
Issues to be Concerned (2) Issues Related to Substantive Provisions < illegality based on market share - single-entity entity act, collective act, business combination - > Although determination of illegality uniformly based on market share has the advantage of providing a very specific and clear criterion for judgment, this system has the following drawbacks. >> This system may lead to errors in judgment, such as determining conducts that do not impede competition to be in violation of the law and determining conducts that impede competition o not to be in violation o of the law. Level e of the entity s market share does not necessarily correspond to anti-competitive effect of its conducts. >> It is necessary for the Mongolian Competition Authority to accurately compute market shares in the determination of illegality. >> This system can undermine business entities incentives for working to achieve larger market shares through legitimate business activities. These issues should be addressed considering the feasibility of enforcement by the Mongolian Competition Authority and consistency with international ti norms. 27
Issues to be Concerned (3) < scope of business entities > Mongolian Competition Law is equally applicable to incorporated entities participating in market competition and government and local administrative organizations but the law does not apply to unregistered business entities. The scope of the Mongolian Competition Law should be amended to exclude any consideration of the registration or non-registration of business entities. 28
Issues to be Concerned (4) Issues Related to Procedural Provisions < administrative fine > The maximum amount of administrative fine is extremely low in comparison to those in other economies, as well as in comparison to current economic conditions in Mongolia. It is necessary to consider raising the maximum amount of administrative fines. If the maximum amount be raised, it will be more important for Mongolian Competition Authority to make clear criterion related to calculation of administrative fine and publish it. < leniency program > Considering that violations such as cartel, bid-rigging etc. are committed behind closed doors and it is difficult to detect and investigate them and that many economies with developed competition law have introduced Leniency Program and achieved steady result, it is believed that Leniency Program will be of help to Mongolian Competition Authority that has organizational issues such as limited human resource, limited budget etc.. 29
Issues to be Concerned (5) < investigation period etc. > (1) in cases involving on-the-spot investigation, the Mongolian Competition Authority is given a period of only 28 days (including a 14-day extension) from the date of on-the-spot investigation to reach a decision if administrative sanction is going to be imposed or not. (2) the maximum reviewing period for a merger application is only 28 days (including a 14-day extension) from the time of submission of relevant materials by the business entities involved. (3) the statute of limitation (maximum period of time allowed between cessation of violation and issue of order) is only 3 months. It is important for Mongolian Competition Authority to address these time restriction which may seriously affect the enforcement of the Law. 30
Thank you very much for your kind attention. 31