Extending merger control to JVs in Russia may worsen investment climate - consumer representative


PaRR Confirmed

The initiative of Russian antitrust regulator the Federal Antimonopoly Service of Russia (FAS) to introduce
merger review for joint ventures may undermine the foreign investment climate in Russia, said a consumer

Aleksey Ulianov, co-chairman of the National Union for the protection of consumer rights (National Union) and a member of a competition working group of the expert council under Russia’s government, was speaking at a press conference in Moscow organised by Business Russia, an association representing businesses in the country. The National Union and Business Russia have partnered to lobby against FAS’s proposed amendments to competition law known as the fourth antimonopoly package.

Proposed changes are primarily aimed at optimising the activities of the competition authority by reducing the burden on commercial courts, as previously reported by PaRR. On 4 October, the proposal was largely approved by the First Deputy Prime Minister Igor Shuvalov, who oversees competition policy in the government, as reported.

FAS has proposed to amend Article 27 of the competition law on merger control. The regulator suggests adding “agreements between legal entities to form joint ventures” to situations requiring prior FAS approval. The previous version of this article required merger review only in cases of “creation and reorganisation of commercial organisations”.

Another proposed amendment to Article 27 requires FAS clearance in cases when combined assets of joint ventures exceed RUB 7bn or when combined revenues of both assets exceed RUB 10bn for the previous year or if one of the entities is included in the dominant company register. Dominant company register is a FAS list of companies which proved to be dominant in certain markets. FAS plans to reduce it, whilst Business Russia advocates its removal.

Sergey Maksimov, the deputy head of the FAS legal department, has told PaRR earlier that potentially "uncompetitive" agreements should be controlled in a similar way as economic concentrations. But he predicted that FAS would rarely veto joint ventures in practice.

Joint ventures lead to technological advancement and new production, as a consequence they benefit consumers, Ulianov said. The initiative to review joint ventures as part of merger control will undermine foreign investment climate in Russia, which is already bad, he claimed.

Improving conditions for foreign investments reportedly is one of FAS’s strategic aims. In April FAS published draft amendments to foreign investment law designed to stimulate foreign investment in a number of economic sectors.

Proposed amendments will not undermine investment climate in itself because an administrative barrier that they create is fairly easy to overcome, said Nikolay Voznesenskiy, head of the competition and antitrust practice at Moscow-based law firm Goltsblat BLP, the Russian practice of London-based law firm Berwin Leighton Paisner LLP.

The problem is that many foreign companies will be hesitant to share confidential information with FAS, he added. This is a serious concern that needs to be addressed, said Voznesenskiy.

The problem that the fourth antimonopoly package presents with regard to joint ventures is that it annuls part 1.1 of Article 13 of Competition law, which refers to criteria determining whether an agreement is competitive or not. This part had fairly detailed clarifications, which proved to be useful for analysing agreements, said

Ulianov also criticised current merger review procedure. According to the lobbyist, FAS approves annually three to four times more transactions than the US competition watchdog, although the M&A market in Russia is 15 times less.

Russia’s competition watchdog tends to prohibit small mergers, whilst it had approved all major mergers of the past few years, Ulianov argued.

In March 2013 the Russian Parliament approved changes to merger control rules designed to lower the administrative burden on FAS.

Russia’s business community and FAS are reportedly set to agree this week on a number of antitrust reforms contained in the country's fourth antitrust package. PaRR has previously reported on disagreements between FAS and Business Russia with regard to the fourth antimonopoly package.

by Natalia Lapotko in London


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