We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
19 February 2015
Over the past few years, the legal obligation to develop a trade policy, as proposed by the Federal Antitrust Service (FAS), has triggered much discussion. Although this proposal was not included in the final edition of the fourth antitrust package (for further details please see "Government approves fourth antitrust package"), debate on whether the development of trade policies is necessary and practical is still in full swing.
Several dozen companies in various industries are now actively developing and implementing trade policies on their own initiative. These trade policies come in many different formats, with a range of titles and content.
However, the question remains as to whether companies really need a trade policy. What benefits does it provide and which problems can it solve? What provisions should such a policy contain? Are there any adverse consequences in having a trade policy? This update weighs the pros and cons.
A trade policy is, above all, a code of conduct regulating how a company:
A trade policy sets the company's trade and financial goals with respect to the markets in which the company operates. However, achieving these goals without due regard for antitrust legislation can lead to substantial adverse consequences.
Where a company holds a dominant position in a certain goods market, the risk of the company violating antitrust legislation will increase significantly. While still being able to circulate goods on the market, a dominant company is not allowed to:
Companies that do not hold a dominant position but do have a market share exceeding 20% can also be recognised as violating antitrust legislation by entering into agreements containing provisions prohibited by Article 11 of the Competition Law, such as:
Since the price of antitrust violations is high, large companies should know how to assess and prevent risks.
Antitrust violations often occur at the middle management level. For example, a sales manager with little knowledge of antitrust legislation may refuse to sign an agreement with a potential contracting party for no reason or propose contractual terms different from those concluded with other similar business partners. The aggrieved contracting party may then complain to the antitrust authority. As a result, the company may incur a turnover-based penalty for abuse of dominant market position or for concluding an agreement which restricts competition, leading to material losses of goodwill and liability for the head of the company.
Therefore, the company's interest in developing a trade policy is rooted in the need to:
A trade policy – especially one that is a part of the company's general compliance system – can fulfil all of these needs.
However, there are potential negative aspects of trade policies.
There are no clear criteria or requirements for the content of trade policies. Trade policies developed by companies on their own initiative and on request of the FAS vary greatly in subject matter and objectives. They can include:
The FAS has not specified the issues that a trade policy should regulate. As such, what should a trade policy contain in order to provide maximum protection of the company's interests and minimise potential antitrust risks? Unfortunately, there is no clear answer to this question.
This may compel a company to submit its trade policy to the FAS for approval, allowing the antitrust authority to assess whether it adheres to the antitrust legislation and confirm that the company may rely on it. However, there is more to it than this. The FAS does not approve trade policies in the same way as it does for draft agreements under Article 35 of the Competition Law. Rather, the FAS can only take note of the trade policy provided by the company and issue commentary if it finds any anti-competitive provisions. The company is not obliged to agree with the comments or amend the policy accordingly. The FAS's taking note of the trade policy does not guarantee that the company will not be held liable for antitrust violations. On the contrary, if it establishes that the company violated antitrust legislation when implementing the relevant trade practices, it will use the trade policy as evidence of the company's guilt.
Thus, as a general rule, the mere existence of a trade policy and its submission to the FAS are insufficient means of minimising antitrust risks. The optimum benefits of trade policies can be achieved only by ensuring proper control over compliance with the established rules through implementation of a general compliance system, which requires substantial expenditures.
Notably, the FAS is not yet willing to mitigate liability for companies that have already developed or are implementing a trade policy but still violate the antitrust legislation for whatever reason. There are concerns that the FAS might even see this scenario as aggravating the company's liability; since the company has adopted relevant rules, it thus supposedly would have assessed and been fully aware of the antitrust risks, but still failed to take necessary measures to prevent the violation.
Another risk to consider is that the company may become less flexible in building relations with contracting parties as a result of:
This will undoubtedly deprive the company of the opportunity to react quickly to changes in the market and may thus cost it part of its market share.
Notwithstanding the cons, it appears that implementing trade policies is ultimately more of a benefit for both companies and the FAS. Subject to the developing antitrust legislation and its application, a transparent system of pricing and cooperation with contracting parties should help to reduce and prevent antitrust risks, as well as decrease expenditures and increase business efficiency in general. For the FAS, this creates more transparent, competitive markets and reduces the authority's caseload by preventing potential violations.
However, companies should bear in mind that the mere existence of a trade policy does not in itself mean that they have fulfilled all requirements under the antitrust legislation. Companies must also exercise control over implementation of the policy rules in the course of carrying out business activities.
In addition, when developing a trade policy, companies should take into account the circumstances in which deviation from the prescribed conduct may be required and accordingly make provision for these circumstances in the trade policy. It should also be kept in mind that the antitrust legislation can change quickly and deviation from the adopted trade policy may be required in light of changes to the company's approach to its own strategic goals.
Issues pertaining to the use of commercial trade policies were discussed by experts and FAS officials at an October 2014 conference on antitrust regulation in Russia hosted by the Vedomosti newspaper and the Competition Support Association. The participants concluded that trade policies can make life much easier for companies, and that the main question is not whether policy rules need to be developed; rather, the questions are:
However, companies with trade policies still face possible consequences for antitrust violations. Should liability under the law be increased in future, companies will not be particularly motivated to develop such policies on their own initiative. Consequently, a range of tools facilitating prevention of antitrust violations will not be expanded. A resolution to this impasse can be found only through a constructive dialogue between the business community and the regulator. The debate continues.
For further information on this topic please contact Irina Akimova at Capital Legal Services International by telephone (+7 495 970 10 90), fax (+7 495 970 10 91) or email (email@example.com). The Capital Legal Services International website can be accessed at www.cls.ru.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.