Peer Review on Competition Law of Mongolia

Japan Fair Trade Commission (JFTC)

June 29th, 2009 in UlaanbaatarThe 5th East Asia Conference on Competition Law and Policy

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Table of Contents

1. Background

2. Substantive Provisions of Mongolian Competition Law

3 P d l P i i f M li C i i L3. Procedural Provisions of Mongolian Competition Law

4 Enforcement of Mongolian Competition Law4. Enforcement of Mongolian Competition Law

5. Issues to be Concerned

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1. Background

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BackgroundE f C i i L d E bli h f C i i A h i

•• Transition from Planned Economy to Market Economy in 1992 with adopting Transition from Planned Economy to Market Economy in 1992 with adopting tit titit ti

- Enactment of Competition Law and Establishment of Competition Authority -

a new constitution. a new constitution.

•• Competition Law was enacted in 1993.Competition Law was enacted in 1993.

•• At first, despite that Competition Law was enacted, competition policies were At first, despite that Competition Law was enacted, competition policies were monitored by a multiple number of government agencies.monitored by a multiple number of government agencies. So enforcement So enforcement was weak and it was difficult to enforce the Law consistentlywas weak and it was difficult to enforce the Law consistentlywas weak, and it was difficult to enforce the Law consistently.was weak, and it was difficult to enforce the Law consistently.

•• In response to these problems, the Mongolian Competition Law has In response to these problems, the Mongolian Competition Law has undergone amendments 4 times since its enactment in 1993.undergone amendments 4 times since its enactment in 1993.undergone amendments 4 times since its enactment in 1993.undergone amendments 4 times since its enactment in 1993.

•• Following the 4th amendment in 2005, the Unfair Competition Regulatory Following the 4th amendment in 2005, the Unfair Competition Regulatory Authority (UCRA) was formally established. Authority (UCRA) was formally established. y ( ) yy ( ) y

•• In the end of 2008, UCRA changed its name into “Authority for Fair In the end of 2008, UCRA changed its name into “Authority for Fair Competition and Consumer Protection (AFCCP)”.Competition and Consumer Protection (AFCCP)”.

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( )( )

Basic information of AFCCP Organization Chart of AFCCPBasic information of AFCCP

Name Authority for Fair Competition and Consumer Protection

Organization Chart of AFCCP

First Deputy Prime Minister of

Mongolia

Location Ulaanbaatar City (Mongolia)There is no regional offices.

Laws in charge

1. Competition Law2 Consumer Protection Law

Chairman Board

charge 2. Consumer Protection Law

Number of staffs 33 (as of January 2009)

Annual US$187 700 ( f FY2008) Department of Public Administration

Vice Chairman

Annual budget US$187,700 (as of FY2008)

Structure of organization

See the organization chart in right side.

Department of Public Administration

First Department of Investigation and Regulation

S d D t t f I ti ti d

Others

>> AFCCP is under the direct jurisdiction of the First Deputy Prime Minister of Mongolia.>> The Board consists of the

Second Department of Investigation and Regulation

International Cooperation Department

Others Chairman, and 4 members who are representatives of various government agencies and serve on a part-time basis.

Department of Legal Affairs and Monitoring

Department of Policy Planning

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2. Substantive Provisions of Mongolian Competition Law

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Mongolian Competition Lawg< Purpose >“The purpose of this law is to regulate relations regarding creation of conditions for f i titi i th k t f titi d ti b i ti iti

C f C

fair competition in the market for entities conducting business activities, 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 RegulationCompetition Regulation

Board

Mongolian Competition LawResolutions of Government of Mongolia

Law on State Supervision

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Category of Conduct Prohibited by Mongolian Competition Law

Prohibited Conducts

anti-competitive

anti-competitive conducts by dominant entity

anti-competitive conducts by

business entity

anti-competitive conducts by

government or local administrative organizationorganization

anti-competitive conducts by a

single dominant

anti-competitive conducts by entities that

businesscombinations by

a single dominant entity

>> restricting supply,

collectively hold dominant position

>> price cartels,

entity

>> Interlocking di t t

>> disseminating i f ti h f l t

>> unauthorized li i f b i>> discriminatory

pricing, >> selling at unjustly low prices, >> refusal of business,

ti i l

>> quantitative restrictions, >> division of market, >> refusal of business, >> bid rigging,

ti

directorates, >>acquisition of shares>> merger with competitors,

t

information harmful to competitors, >> disseminating false information about own products, >> demanding

licensing of business activities, >> unauthorized decisions restricting competition, >> unauthorized>> tie-in sales,

>> attachment of resale conditions, >> exclusionary transactions, >> abuse of dominant

>> preventing competitors from joining organizations, >> restricting selling and purchasing, >> etc

>> etc. >> demanding sponsored entity to carry out activities harmful to competition, >> concealing quality deficiencies

>> unauthorized negotiations with other government organizations and business entities aimed at restricting competition>> abuse of dominant

position, >> etc.

>> etc. deficiencies, >> etc.

at restricting competition,>> etc.

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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) i i h h k h di 1/3 ll i l

ex. (1) A Market “Dominant Entity”

(2) two or more entities that have market share exceeding 1/3 collectively

( )

market share 34% > 1/3Market Share

34%Dominant Entity

(A Single Dominant Entity)

ex.(2) B C 10 “Dominant Entity”in case that B, C and Dare acting together…. 20%+10%+4% = 34%combined market share

D 34% > 1/3

20%4%

10%

y(Two or More Entities that Collectively hold Dominant Position)

g g

D 34% > 1/3

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%

Regulation on Anti-Competitive Conducts b D i E iby Dominant Entity

Anti competitive conducts by Dominant Entity are divided into theAnti-competitive conducts by Dominant Entity are divided into the following 3 categories:

(1) anti-competitive conducts by a single Dominant Entity ( ) p y g y(2) anti-competitive conducts by two or more entities that collectively hold

dominant position(3) business combinations by a single Dominant Entity(3) business combinations by a single Dominant Entity

Regulation on anti-competitive conducts by Dominant Entity covers t l th b f d i t iti b t l ll i b h inot 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.

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Anti-Competitive Conduct by A Single Dominant E iEntity

Mongolian Competition Law (Article 6) prohibits any single Dominant Entity from following conductsEntity from following conducts.

restricting supply, discriminatory pricing,

lli t j tl l iselling at unjustly low prices, refusal of business,tie-in sales,attachment of resale conditions, exclusionary transactions, abuse of dominant position, etc.

AMarket Share

Single-entity Violation ofShare

34%g y

conduct of Violation

Violation of Article 6

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Anti-Competitive Conducts by Two or More Entities that Collectively Hold Dominant Position

Mongolian Competition Law (Article 7) prohibits any entities ll ti l h ldi d i t iti f f ll i d tcollectively 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 C

20%10% Collective Violation of

D

20% %

4%

Conduct of Violation

Violation of Article 7

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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) i iti f h f tit(2) acquisition of shares of competitors (3) merger

These provisions apply only to a single Dominant Entity. In other words the provisions do not apply to business entities

“Interlocking directorates” and “acquisition of shares”

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 theNo notification system has been established for informing the Mongolian Competition Authority of interlocking directorates and acquisition of shares.

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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.

Alth h th M li C titi L d t id fAlthough 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.

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Anti-Competitive Conduct by business entity

Mongolian Competition Law (Article 10) prohibits any businessMongolian Competition Law (Article 10) prohibits any business entities from following conducts.

disseminating information harmful to competitors, disseminating false information about own productsdisseminating false information about own products, demanding sponsored entity to carry out activities harmful to competition, concealing quality deficiencies, etcetc.

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.

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Anti-Competitive Conducts by Government or Local Ad i i i O i iAdministrative Organizations

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 g g gentities aimed at restricting competition,etc.

I f i l ti f th t i ti b th t l lIn case of violation of these restrictions by the government or local administrative organizations, the Mongolian Competition Authority is empowered to impose administrative fines against the officials of the organization found in breach.

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Exemption

M li C titi L id f th f ll i ti

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 i l D i E i ” f f b fi h i lsingle 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 ofadministrative 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.

Exemptions Stipulated under Other Laws

p p y

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3. Procedural Provisions of Mongolian Competition Law

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Powers of Mongolian Competition Authority

Mongolian Competition Law stipulates general powers of the Mongolian Competition Authority in Article 14. Main powers are as follows.o o s

conducting investigation and issuing conclusions regarding implementation of Mongolian Competition Legislationdetermining, registering or studying a business entity's dominant or legitimate g, g g y g y gmonopolistic position or loss of such position and supervising their activitiescurbing, prohibiting or restricting illegal activities of violators and imposing administrative sanctions on them,etc.

Each violation is investigated by State Inspectors of the Mongolian C titi A th itCompetition Authority.

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Powers of State Inspectors - imposition of administrative sanction -

Mongolian Competition Authority has State Inspectors, whose powers of investigation are stipulated under the “Law on Statepowers 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 conductedconducted,receiving free of charge necessary information etc. from any business entity, government or local administrative organization,imposing administrative sanction according to the law etcimposing 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 whetherWhen 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).

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Category of Administrative Sanction against violators

Categories of Violations Administrative Sanction Compensation Criminal Liability

anti-competitive conduct by a single Dominant Entity >>Administrative fine ofsingle Dominant Entity >>Administrative fine of

100,000-250,000 tugrik>>Confiscation of illegal

income>>Halting of business

activities

anti-competitive conduct by entities that collectively hold dominant position

anti competitive conduct by activities>>Proposal to relevant organs

for annulment of entity’spermission

(in case of material damage to others)Liability of Payment of compensation by N/A

anti-competitive conduct by business entityacquisition of shares of competitors by a single Dominant Entity p y

violatorst ty

interlocking directorates for competitor by a single Dominant Entity

>>Administrative fine of 30,000-60,000 tugrik

>>Restoration of the situation existed before violationmerger with competitors by a existed before violationsingle Dominant Entity

anti-competitive conduct by government or local administrative organization

>>Administrative fine of30,000-60,000 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

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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 )

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) th i ti if d d th B d i th

State Inspector regarding administrative sanctions.

(3) upon the re-examination, if deemed 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 re-examination, the complainant can file a complaint with the courts.

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4. Enforcement of Mongolian Competition Law

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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 6anti-competitive conduct by entities that collectively hold dominant position

0 2 0 1 3

anti-competitive conduct by 2 4 3 1 10business entity 2 4 3 1 10acquisition of shares of competitors by a single Dominant Entity

0 0 0 0 0interlocking directorates for competitor by a single Dominant Entity

0 0 0 0 0

merger with competitors by a 0 1 0 0 1merger with competitors by a single Dominant Entity 0 1 0 0 1anti-competitive conduct by government and local administrative organizations

0 14 2 2 18

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administrative organizations

5. Issues to be Concerned

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Issues to be Concerned (1)

< staff and budget >

Systemic Issues

gMongolian 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 >< 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, i ti lit d i d d f th M li C titi A th itimpartiality and independence of the Mongolian Competition Authority.

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Issues to be Concerned (2)

< illegality based on market share - single-entity act, collective act, business combination - >

Issues Related to Substantive Provisions illegality based on market share single 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 drawbacksthe 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 not to be in violation of the law. Level of the entity’s market share pede co pe o o o be o a o o e a e e o e e y s a e s a edoes 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 b th M li C titi A th it d i t ith i t ti lby the Mongolian Competition Authority and consistency with international norms.

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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 administrativeparticipating 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.

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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 M liMongolia.

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 administrativeCompetition 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 toachieved 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..

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Issues to be Concerned (5)

< investigation period etc. >(1) in cases involving on-the-spot investigation, the Mongolian Competition

A th it i i i d f l 28 d (i l di 14 d t i ) f thAuthority 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 y y ( g y )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.

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Thank you very much for your kind attentionfor your kind attention.

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