The Law on Competition (the “Law”) came into force on 30 September 2014. It is based on the 8 May 2012 law, which was amended on 21 March 2014. In late September 2014, bylaws were adopted by the Head of the Competition Agency of Georgia, which was established on 14 April 2014 by the Government of Georgia. The Competition Agency will be in charge of the implementation of competition policies in Georgia and will monitor anti-competitive behavior.
The Law, as recently amended, is strongly influenced by EU legislation and reflects concepts from contemporary EU rules and practices. The EU-oriented aspiration of the Law is not surprising. Under the Association Agreement between the EU and Georgia there is an explicit obligation for Georgia to maintain comprehensive competition laws and to establish a body with the authority to enforce competition rules.
The Law prohibits anticompetitive agreements and abuse of dominant position in Georgia. It further sets out a clear and detailed framework for merger regulations in Georgia.
Scope of the Law
Economic agents are the main target of the Law. Under the Law, economic agents are defined as any commercial or non-commercial entity or other bodies which perform economic activities irrespective of their legal form and residency status. Therefore, entities owned by the State also fall within the scope of the Law.
In fact, Georgia and its public (administrative) entities are also targeted by the Law to the extent that their actions impair or may cause the impairment of free competition in the market. The Law applies to all economic sectors, including so-called non-liberalized spheres such as the energy and communications fields, which, according to Georgian legislation, are regulated by independent regulatory bodies.
The Law is notably based on existing EU antitrust legislation. It focuses on three key areas:
The Law prohibits agreements, decisions or concerted practices of economic agents which aim to limit or distort competition in the market. Agreements forbidden by the Law, inter alia, include price fixing, output restriction and market sharing agreements, as well as collusive tendering, such as illegally sharing information within the framework of state procurement proceedings.
It should be noted that the Law provides certain exemptions in this regard. First, entities with a small market share, having minimal effect on the market, fall within the de minimis category, exempting them from the scope of the Law. In addition, the Government of Georgia may allow anti-competitive agreements on a temporary basis if such agreements support technical-economic progress or increase the efficiency of supply while simultaneously increasing consumer welfare in Georgia.
Abuse of Dominant Position
The Law prohibits any entity which holds a dominant position in the market, or a substantial part of it, from abusing that position. It is fundamental to understand that holding a “dominant position” is not prohibitedper se but abusing such a position is. Predatory pricing, tying arrangements and discriminatory trading conditions are examples of abusing a dominant position in the market.
It is worth noting that there is no defined threshold of market share to define the dominant position concept though having a large share of a given market may be, in and of itself, indicative of dominance. Each case will be treated based on its own facts.
The Competition Agency will assess the potential competitive effect of mergers to determine whether they are likely to create or strengthen the dominant position of an entity, so that the degree of dominance substantially fetters the competition. Merger is defined very broadly under the Law, which, with the exception of merger operations, includes other deals involving the acquisition of direct or indirect control of one entity by another, such as the acquisition of equity, shares and assets between entities.
Approval of the Competition Agency will be required for mergers when:
- the total turnover of the merging entities exceeds GEL 20 million, whereby the annual turnover of at least two participating entities each exceeds GEL 5 million; or
- the value of the Georgian assets of the merging entities exceeds GEL 10 million, whereby value of the Georgian assets of at least two participating entities each exceeds GEL 4 million.
It should be noted that a merger will not be registered by the Georgian Public Registry unless it has been cleared beforehand by the Competition Agency.
Investigation and Sanctions
The Law provides wide investigative authority to the Competition Agency to probe and investigate alleged violation of competition rules. In particular, the Competition Agency may conduct on-the-spot investigations at the office of an entity (so-called “dawn raids”); examine the books and other records related to the business (including electronically stored data); or send requests for additional information and demand the obligatory provision of evidence. The Competition Agency may impose penalties if information is not provided.
In addition, the Law incorporates mechanisms for imposing fines and penalties if violations of the competition rules occur. Anti-competitive agreements and abuse of the dominant position may result in fines of up to 5% of the annual turnover of the entity. The specific amount of the fine will depend on the nature and magnitude of the breach. Fines imposed by the Competition Agency may be appealed to the Georgian courts.
In light of possible exposure and in order to avoid violating the Law, it is recommended that Georgian entities which may fall within the Law carry out and adopt compliance strategies in order to align their practices with the Law. These strategies include the revision, recast or termination of existing legal arrangements or practices that could be viewed as anti-competitive behaviour under the Law. They will, however, have the chance to be guided by the EU experience and court decisions.
Georgia’s experience in dealing with anticompetitive practices is quite limited. Although antitrust legislation has been in place since the independence of Georgia in 1991, there has been almost no decision concerning the antitrust rules applicable over the past twenty years. From 2005, until the adoption of the Law, Georgia pursued a very liberal approach to competition. It is clear that the Competition Agency will now face a number of difficulties and challenges when enforcing the Law.
The introduction of competition rules is another step by Georgia towards improving the business climate of the country. Amongst other things, the Law will prevent abusive practices and unfair competition, thus facilitating entry into the market and increasing the welfare of society.