Issue 1, 2012. February-March



The government has introduced a new law to tackle anti-trust and monopoly concerns, but local analysts and pro-business advocates believe the legislation was passed too fast and with too little input to be effective.

Nino Patsuria

Giorgi Pertaia

After years of allegations of lax regulations over monopolies, the Georgian parliament is set to adopt a new law, strategy and action plan. The new legislation is part of Tbilisi's efforts to sign a free trade agreement with the European Union.

But the new anti-trust plans are overshadowed by persistent concerns that the law puts too much control with the government, and lacks strong oversight mechanisms.

A core concern focuses on the independence of the government body empowered with regulating monopolies, the Agency for Trade and Free Competition. Under the proposed legislation, the agency will oversee procurement and enforce anti-trust regulations, a potential conflict according to Transparency International.

Shota Murgulia, an economic analyst with the Center for Strategic Research and Development, believes the law does not provide enough independence for the new agency.

"The prime minister assigns and dismisses the head of the agency; the government defines priority sectors to be regulated by the law, which stipulates that complaints from the non-prioritized sectors can be ignored. That is discriminatory," he said.

Giorgi Pertaia, the tax-payers' ombudsman agree. He said by not forcing the agency to investigate all complaints, the legislation creates an opportunity for businesses engaged in monopolies to merely negotiate a settlement with the company lodging the complaint.

Murgulia also says that the fines for not providing information to the agency are too small to be effective.

"The penalty rates [are] one to three thousand lari, which is a trivial sum for those big businesses with a turnover of several million that may prefer to pay penalties and continue violating market rules. Penalties should be adequate in order to be effective."

Murgulia added that the agency cannot be effective since it can only initiate an investigation if a complaint is lodged. It does not have the power to start monitoring a business on its own initiative.

It also lacks the authority to make decisions as final judgment is left to the courts.

But the government argues that the law gives the agency enough independence to judge each case "uniquely."

"Of course, the agency's activity will be outlined in law enactments which will be drawn up by the government at a later date, but the agency will not be an administrative body that fines based on, let's say, quantity criteria; each case will be unique," noted Vakhtang Lezhava, the head of the Advisors' Group of the Prime Minister of Georgia for Management and Economic Affairs.

"No law is consummate immediately. The legislation system is perfected only after it has had sufficient practice [on the market]."

Pertaia also worries that the law was passed too quickly, especially since important secondary legislation is still not ready. The government was required to pass a law dealing with anti-trust and monopolies in order to start talks with Brussels on the Deep and Comprehensive Free Trade Agreement (DCFTA).

Boris Iarochevitch, the deputy head of the Delegation of the European Union to Georgia, told that work on the law "is not over" yet. Negotiations, which start this year, will focus on "specific concerns that will be raised and discussed among experts and will allow for subsequent changes if the parties agree that such changes are deemed necessary."

Pertaia agreed that more discussion is needed, especially with the business community.

"The draft project is not ready for approval because the business sector was not involved in the discussions," he said, noting that the draft was sent to business associations right before the holiday - a time when few foreigners are in town.

In addition, the secondary legislation- the laws that determine how the legislation is implemented- are not ready so no one has a clear idea yet of how the law will impact businesses operating on the market today. For example, under the current legislation, the agency determines a monopoly based on a company's share of the market: if it believes a company owns over 40 percent of the market, the company is liable for fines and further regulations.

Pertaia noted, however, that the law is unclear about how the agency determines a company's market share.

"If the agency says ‘You have more than 40%' for example but I say ‘no, I have only 25%', how can I argue through the court? ...Abroad they have much better statistics and market research company data. At the end of year, all companies report their financial data ... Here businesses are scared by past experience with the tax service and with the investigation service; they perceive this agency as a new controlling body. It is not good to approve a law in this context," he said.

"Businesses need to see the entire picture beforehand to feel safe...Now [the business community] does not know what to expect."