The Customs and Economic Union between Russia, Belarus and Kazakhstan – regulatory framework

Marat MouradovNatalia Afinogenova

15 May 2013

2

Customs Union (CU): Why is it important?

15 May 2013

• CU currently covers three states: Russia, Belarus and Kazakhstan• Total area: ˃ 20 mln sq km

• Population: ˃ 165 mln

• GDP: $2.1 trillion (3% of nominal world GDP)

• Upcoming enlargement• Kyrgyzstan

• Tadzhikistan

• ? Ukraine ?

• ? Abkhazia, Pridnestrovie, South Osetia ?

• ? Siria, Vietnam?

• Increasing integrity

• Scope of CU’s regulation is increasing

3

Customs Union: What is it?

15 May 2013

• CU is a part of Eurasian Economic Community (EAEC or EurAsEC)

• EurAsEC

• Created in 2000

• Members: Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tadzhikistan

• Goals:• Single customs tariff• Free movement of goods, services, capital, and work• Single financial market• Single market of energy• Coordination of introduction of common currency

• CU: deeper integration of Russia, Belarus and Kazakhstan within the EurAsEC framework

• First idea of creation: 1995, formalized in 2007

• Members: Russia, Belarus, Kazakhstan

4

Customs Union: Current Status

15 May 2013

• 2007 – Agreement on the Establishment of the Single Customs Territory and the Formation of the Customs Union (Russia, Belarus, Kazakhstan)

• 2008 - 2009 – basic package of documents forming the framework for the CU is adopted

• July 1, 2010 – the Customs Code of the CU takes effect (based on the Kyoto International Convention on the Simplification and Harmonization of Customs Procedures)

• April 1, 2011 – transportation controls are abolished on the Russian and Belarusian border (moved to external border)

• July 1, 2011 – customs controls are abolished at the Russian, Belarusian and Kazakhstan borders (moved to external border) = Single Customs Territory

• Since January 1, 2012 – formation of Single Economic Space (Russia, Belarus, Kazakhstan)

5

Customs Union: Next Steps

15 May 2013

• Single Economic Space (SES) (formally declared created on January 1, 2012)

• common technical regulation• application of common sanitary, veterinary, and phytosanitary measures• formation of effective common transportation infrastructure• access to services of natural monopolies • formation of favorable investment climate• free movement of goods, capital, services, and labor on the basis of unified legislation• development of a single oil, petroleum products, and gas market• common state procurement regulation

Still to do: around 50 regulatory acts still need to be adopted and the Governments must implement more than 70 mandatory measures for SES to become fully functional (by 2015).

• The goal is to create Eurasian Economic Union (Russia, Belarus, and Kazakhstan) by 2015

• uniform tariffs• uniform technical regulations• harmonization of labor law, migration law• common banking system• common currency

6

European Union vs. Customs Union

15 May 2013

Criteria EU CU

Single Economic Space Yes Yes

Global strategy of development which is to be followed by each member state

Yes No

Common foreign policy Yes No

Common security policy Yes No

Common monetary and financial policy Yes No

Currently:

In future (by 2015?):

Further development of SES and creation of Eurasian Economic Union will make CU very similar to EU!

7

Customs Union and WTO

15 May 2013

• Initial plan: to join WTO as a single entity

• Russia joined WTO → CU vs. WTO regulations?

• May 19, 2011 – Agreement on the Functioning of the CU within a Multilateral

Trade System:

• After one or more CU members joins the WTO, the rules provided in the WTO Protocol

of Accession become binding for other members of the CU and prevail over CU rules

• If CU rules are more liberal and do not contradict WTO rules, they may be applied

As a result Belarus and Kazakhstan have accepted additional obligations without obtaining

additional rights

8

Customs Union: Regulatory Bodies

15 May 2013

• Supreme Eurasian Economic Board (Heads of States + Heads of Governments)

Decisions are mandatory for Russia, Belarus and Kazakhstan

• Eurasian Economic Commission • Counsel (“Soviet”): 3 members - Deputy Heads of Governments

• Executive Board (“Kollegia”): 9 members - 3 members from each country

Decisions are mandatory for Russia, Belarus and Kazakhstan

• Court of EurAsEC

• To secure unified application of CU norms• To resolve disputes between member states re: application of CU norms• To interpret CU legislation• To resolve disputes between member states and Eurasian Economic Commission • No consideration of individual claims

9

Customs Union: Competition Legislation

15 May 2013

• Areas of regulation:

• Common Principles and Rules of Competition Regulation in CU

• Activities of Natural Monopolies of Member States

• Provision of Subsidies to Different Industries of Member States

• State Agricultural Support Rules within CU

• State/Municipal Procurement within CU

10

Competition: Common Principles and Rules (1/2)

15 May 2013

• Agreement on Common Principles and Rules of Competition (2010):

• Goal of the Agreement: • Establishing common principles and rules of competition in CU

• Preventing anticompetitive behavior on cross-border markets

• Common Principles of Competition• Equality in the application of competition law rules

• Openness

• Effective cooperation

• Impermissibility of anticompetitive behavior

• Effectiveness of sanctions for committing competition offenses

• Ensuring effective control over economic concentration

• Effective administration

• Common Competition Rules• No restriction of competition

• No abuse of dominance

• No unfair competition

11

Competition: Common Principles and Rules (2/2)

15 May 2013

• Sanctions:

Violation Sanctions

Unfair competition up to RUR 500,000 (appr. EUR 12,500)

Entering into an anticompetitive agreement OR Abuse of dominant position OR Unlawful coordination of economic activity

up to 15% of company’s turnover on the affected cross-border market

Failure to provide requested documents for investigation

up to RUR 500,000 (appr. EUR 12,500)

No investigations or sanctions have taken place yet.

12

Competition: Supranational Antimonopoly Authority

15 May 2013

To be formally established by September 2013 and will be in

charge of:

• From September 1, 2013 – unfair competition practices

• From November 1, 2013 – anticompetitive agreements

• From January 1, 2014 – abuse of dominant position

13

Competition: Results of 2012

15 May 2013

Developed and approved in 2012:

• Market examination methodology

• Methodology for determining monopolistically high/low prices

• Methodology for calculating and procedure for imposition of fines

• Procedure for consideration of private complaints

• Antimonopoly investigation procedure

• Procedure for review of competition violation cases

• Procedure for cooperation between the CU and the authorities of member states

14

Competition: Main goals for 2013

15 May 2013

• Model Competition Law

• Based on the Russian Competition Law

• Of recommendatory nature to serve as a guidance for improvement

of CU member states’ Competition Laws

• No sanctions for its violation

• Agreement on Confidential Information Protection

15

Competition: Cross-border markets (1/2)

15 May 2013

• Cross-border market criteria:

• Unfair competition: violator and suffering entity are registered in different member

states

• Anticompetitive Agreement: at least 2 parties to an agreement are registered in

different member states

• Abuse of dominance:

• adverse consequences for a market with geographical boundaries encompassing two or more member states; and

• a dominant company’s share in each of affected markets must be at least 35% (or 15% for collective dominance)

16

Competition: Cross-border markets (2/2)

15 May 2013

Potential cross-border markets of CU:

•Natural gas

•Aluminium

•Cargo carriage

•Coal

•Oil products

•Nitrogen fertilizers

•Roaming

17

Competition: Parallel importation

15 May 2013

• Russia and Belarus: national principle of the exhaustion of exclusive rights

• Kazakhstan: international principle of the exhaustion of exclusive rights

• Customs Union: regional (CU) principle of the exhaustion of exclusive rights:

“It is not a violation of exclusive rights to a trademark to use the trademark with respect to goods that have been duly put into the commercial cycle in the territory of Party states by the rights holder or by other

persons with its consent”

• Consolidated Customs Register of Intellectual Property of the member states of the CU (contains intellectual property subject to legal protection in each member state)

• Ex Officio in CU: in accordance with national legislation (exercised by Russia and Kazakhstan, but not by Belarus)

• Russian FAS’ position: an international principle of the exhaustion of exclusive rights should apply, that is, parallel imports should be permitted into the CU from third countries, as well as within the CU.

Thank you

Marat MouradovNatalia AfinogenovaRussia, Moscow115035, Balchug street, 7tel.: + 7 495 644 05 00fax: + 7 495 644 05 99marat.mouradov@dentons.com natalia.afinogeonova@dentons.com

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Partner, Head of the Russian Competition Law Practice Group

Associate, Russian Competition Law Practice Group