CODE TO BE HONOURED

In recent years, Azerbaijan has implemented large-scale reforms to strengthen the fight against the shadow economy and has taken numerous measures to overcome the inertia in the development of private sector. These include legal reforms and administrative mechanisms to regulate taxes and customs operations. The registration of employment contracts has been digitised, transparency in public procurement has been ensured, and measures have been taken to improve public-private partnerships.

The next step to improve the business climate in the country is the fight against unfair competition and monopolism. For this purpose, the parliament of Azerbaijan (Milli Majlis) adopted the Competition Code (CC).

Difficult background

The original version of the Competition Code was developed by the Ministry of Economy back in 2006-2007. However, the document did not fully implement modern international experience, while some articles of the first draft raised many questions among the MPs. As a result, it has been returned for revision and left untouched since for 16 years. For quite objective reasons. Since then, the administrative practices and legal framework on anti-monopoly activities have lost much relevance and often has not corresponded to the realities of modern Azerbaijani economy, which has multiplied and seriously changed.

Therefore, it was decided to make a completely new document based to a greater extent on the best international practices. The new Competition Code developed by the State Service for Anti-Monopoly Policy and Consumer Market Supervision is a completely new bill. It codifies the legal acts on anti-monopoly activities, unfair competition and natural monopolies into a single document. With the adoption of the CC, the above-mentioned laws are not valid any more.

Drafting new anti-monopoly legislation noticeably accelerated after the adoption of the National Priorities for Socio-Economic Development: Azerbaijan 2030 two years ago. This ten-year strategy outlines the key priorities for the transformation of national economy and offers effective measures to combat unfair competition and market monopolisation. The latter is particularly relevant for Azerbaijan, which has long been dominated by monopolies in a number of sectors of the economy, primarily in foreign trade.

By the end of last year, the bill has been agreed by relevant state bodies, passed the expertise of the Cabinet of Ministers and has been reviewed by the administration of the President of Azerbaijan. It was developed using the best international practices, taking into account the specificities of the local market.

After all the revisions and additions and according to the legal initiative of the President of Azerbaijan, the final draft on the approval of the Competition Code was submitted to the parliament in September 2023 and adopted at the plenary parliamentary session on December 8, 2023. So the long-awaited Competition Code will enter into force on July 1, 2024.

According to Tahir Mirkishili, chairman of the parliamentary committee on economic policy, industry and entrepreneurship, the CC will prevent abuse of dominant position in the market, ensure neutrality of competition, as well as create favourable conditions to stimulate the activities of economic entities.

Ensuring fair prices

What kind of innovations will be presented to Azerbaijani entrepreneurs and consumers in this completely new legal document, which will define the fundamental provisions to ensure the fight against market monopolisation and ensure fair competition?

The CC consists of 12 chapters and 84 articles defining the general framework for ensuring, protecting and developing free and healthy competition in the market of goods and services in Azerbaijan, state control over compliance with the relevant legislation, as well as administration and regulation of this area. The Code defines the tasks of the anti-monopoly authority, its status, rights and obligations of competing market participants, agreements and actions restricting competition, as well as criteria for geographical distribution of market shares.

The CC prescribes the organisational and legal basis for state regulation of natural monopolies, defines the rights and obligations of market players, and establishes liability for violations of competition law. According to the law, a business entity committing violations due to its relatively high market power will be subject to a financial sanction of up to 5% of its total turnover preceding the year of the decision. The document also defines exemption from financial sanctions, benefits, as well as factors mitigating and aggravating the sanctions stipulated by the law. Among other things, to ensure full transparency during inspections, Article 54 of the new CC provides for the organisation of continuous video recording of inspection and seizure, which must be included in the final protocol of inspection.

One of the important provisions of the Code is the definition of the dominant position of business entities with a market share of 35 to 50 per cent. This provision will extend the regulatory authorities' control to organisations that can potentially influence the market, even if they do not hold a controlling stake. In addition, the Code formulates the criteria defining high levels of monopoly prices. The goal is to provide greater clarity in assessing market dynamics.

In particular, Article 3 of the CC defines the principles of competition policy. The basic principle is to ensure that market prices are based on the market supply and demand. Paragraphs of this article require free pricing taking into account the interests of consumers and ensuring the right of free choice, inadmissibility of agreements restricting competition, equal access to resources and equal regulatory conditions for all market players, etc.

Article 19 of the CC defines the forms of unfair competition. The following is categorically prohibited: discrediting the competing economic entity; imitating competitor's economic activities; misleading and deceiving customers; illegal acquisition, use or dissemination of information constituting a commercial secret, etc.

The Code also defines the basis of organisational and legal state regulation related to natural monopolies. Among other things, it provides for the harmonisation of the interests of customers and natural monopolies.

Another important goal of the Code is the protection of consumer rights, as well as measures to further improve the quality of products and services. In practice, the implementation of these requirements will make it possible to artificial pricing (not formed by the market) by monopolists or limited groups of companies-suppliers as a result of cartel collusion. Thus, if an entrepreneur imports a product with more than a 35% share in the overall import of this product in Azerbaijan, the relevant state body should monitor the price he sets for this product on the market and in case of artificial pricing take the necessary legal steps.

Stronger control mechanisms

In general, the CC considers the economy of Azerbaijan as a single system. The document also covers import and export operations that are an integral part of the common market for goods and services. The principles of equal competition also apply to foreign economic activities. In certain cases, the relevant state service under the Ministry of Economy is authorised to protect the local market from the pressure of global corporations and monopolistic groups, as stipulated by the Anti-Dumping, Countervailing and Protective Measures Law.

Speaking at the parliamentary session, Azerbaijani Prime Minister Ali Asadov noted the important role of the new CC in ensuring a healthy competitive environment in the local market: "To ensure fair competition in the domestic market, control measures will be strengthened, and serious measures will be taken against market entities manipulating prices."

In parallel with the CC, a similar initiative—a bill on domestic trade—is expected to provide invaluable assistance in the fight against unfair competition, monopolisation of market segments and other negative manifestations. The document has been developed for two years and is expected to regulate relations between suppliers and retail chains.

"The Competition Code will be the main framework document to regulate the anti-monopoly activities. It will contribute to the development of a competitive environment and will prevent the influence of monopolistic tendencies on economic activities and the state budget," Azerbaijani Minister of Economy Mikayil Jabbarov said during the autumn parliamentary hearings of the bill. He underlined that the development of free business environment gives rise to such economic risks as market failures, monopolistic tendencies, and the expansion of illegal economic activities. According to Jabbarov, inadequate legislative framework leads to the disruption of economic activities and slows down inclusive development. So, to neutralise such negativity, the priority should be to increase the efficiency of state regulation.

Thus, the government is optimistic about the possibilities of achieving the main objective of the new code - to form legal and administrative mechanisms capable of preventing monopolisation of certain market segments and preventing dominant companies from dictating prices to other market participants.