In the past weeks, one of the agenda items of the 12th session of the UNCTAD Intergovernmental Group of Experts on Competition Law and Policy in Geneva was the Review of Competition Law and Policies in Mongolia. Within the framework of the Review Report [1] prepared after the financial aid provided by TIKA (Turkish Cooperation and Coordination Agency), the competition law and policy practices in Mongolia can be summarized as follows:
In Mongolia, which initiated efforts to transition to a market economy in the early 1990s after the dissolution of the Soviet Socialist Republics, the first law on the protection of competition was enacted one year before Turkey in 1993. This law prohibited restrictive practices by the state, monopolies, and other entities that limited competition and introduced some restrictions on how the state could intervene in markets. Subsequently, the law was amended five times to clarify its scope and enhance the authority of the institution responsible for implementing it. However, the authority responsible for enforcing this law, the Agency for Fair Competition and Consumer Protection (AFCCP) [2], could only become operational 12 years after the law came into force in 2005.
The Mongolian Competition Law, in parallel with modern competition law texts, prohibits anticompetitive agreements and abuse of dominance and provides for the control of mergers and acquisitions. However, it has some differences from the practices in Turkey, the US, and the EU:
- There is no distinction between horizontal and vertical restraints in evaluating anticompetitive agreements in the law and de facto. Therefore, cartels need to be evaluated within the framework of an effects-based approach.
- On the other hand, enterprises that hold more than one-third of the market (with a market share exceeding 33%) are automatically considered dominant. Practices such as price discrimination, quantity discounts, and refusal to deal are considered “per se” abuse of dominance.
- Regarding mergers and acquisitions, if more than 20% of a company’s shares are acquired, an application must be made to the competition authority. Still, the authority does not have the power to impose structural remedies.
- There is no legal certainty regarding the processes of competition law enforcement. In practice, after conducting an investigation, either upon complaint or initiated ex officio, the inspector concludes within a maximum of 60 days and makes a decision that may include penalties if necessary. Companies must pay the fine within 10 days or submit their objections to the relevant unit within 30 days. If the unit head approves the inspector’s decision, the parties can appeal to the AFCCP Board, the ultimate decision-making body. If the AFCCP Board approves the decision, the parties can appeal to the courts.
- The maximum fines for competition law violations are approximately $200. Still, due to a 2010 law amendment, it was stipulated that fines of up to 6% of the turnover from the previous year could be imposed, and damages could also be compensated. However, there is currently no regulation for victims to file compensation lawsuits.
- The law also introduces the concept of “active cooperation” (leniency) and exempts those who voluntarily provide information before an investigation begins. The first applicant after the investigation starts receives a 50% reduction in fines, and other relevant parties who apply within 30 days of the start of the investigation receive a 20% reduction. However, the leniency program is not implemented in practice because companies avoid paying fines, rendering the penalties ineffective.
- Additionally, individuals or entities providing documents and information of such a nature as to uncover a cartel, even if they are not cartel members, are entitled to a reward of 5% of the fines imposed on the parties.
Besides regulating competition, the AFCCP is also responsible for competition advocacy, state aid, public procurements, and consumer protection. Furthermore, the AFCCP also provides its opinions during the privatization process.
In terms of its institutional structure, the AFCCP consists of eight members, including the Chairman, five of whom are appointed by the Prime Minister, and three other members are nominated by the National Chamber of Commerce and Industry, the Confederation of Mongolian Trade Unions, and a civil society organization engaged in consumer protection. The Prime Minister also appoints them for four years. Although the AFCCP is independent in decision-making, it operates under the Deputy Prime Minister in terms of administration.
Regarding personnel, the AFCCP has 33 staff members, with an annual budget of approximately $150,000. Of these 33 personnel, 21 are “state inspectors” conducting investigations. Moreover, the AFCCP has the opportunity to seek the support of officers working in other institutions in investigations when necessary.
The Review Report highlights certain specific issues that are unique to the Mongolian markets and affect the implementation of competition law:
- According to the Review Report, approximately 98% of private enterprises in Mongolia have SME status. Additionally, there were 97 “natural monopolies” in the country, particularly in electricity, water distribution, and transmission. Most of the AFCCP applications are related to price increases by these monopolies. However, if the relevant regulatory authorities permit price increases in these areas, the AFCCP is only required to approve them.
- Public procurement comes second in terms of complaints and investigations. Thirdly, deceptive brands and labeling, the supply of products and services below standards, and the sale of products with expired expiry dates were cited in the Report as examples of applications related to consumer protection. Fourthly, complaints in the antitrust field were reported to be limited, possibly due to a lack of full understanding of competition law. Some complaints included price-fixing by driving schools and horizontal agreements limiting competition in banking and fuel trading.
The experiences of Mongolia in competition law and practice have shown that there were significant issues in the following areas:
- The ineffectiveness of competition enforcement due to the lack of deterrent penalties initially led companies to continue violations. Even when companies received fines, they found it more profitable to continue violations, which led to the ineffectiveness of the active cooperation program.
- As penalties increased, the appeal process and procedural provisions became more important. Companies used the lack of clear procedural rules and the lack of expertise in evaluating competition law cases by courts to their advantage, leading to the overturning of almost all decisions.
- Weak cooperation between the AFCCP and regulatory authorities and the practical priority given to the practices of regulatory authorities created contradictions in this area. Despite opposition from the AFCCP, the Mongolian government aims to create national champions by granting various privileges within the framework of the National Industrialization Plan.
- Institutional weaknesses include insufficient financial resources, staff, and personnel with limited experience despite being willing and dedicated. The lack of a complete structure to create institutional memory is a major problem, as new inspectors must start from scratch when experienced inspectors leave.
In light of Mongolia’s experiences, the lessons that can be learned for our country are as follows:
- It is important to approach competition law enforcement as part of the overall system. Competition authorities being diligent, careful, objective, and successful in their investigations are not sufficient on their own for the effectiveness of the implementation. Another important component of the system is the oversight of decisions. Therefore, it is important that the key actors in the legal system are well-versed in competition law.
- There is a direct correlation between the deterrence of penalties and active cooperation; expecting benefits from active cooperation in systems where no deterrent penalties or imposed penalties cannot be collected is meaningless.
- The initial focus of competition law in Mongolia on the decisions and actions of the state (and state enterprises) regarding competition, although strange at first glance, should be evaluated as a quite successful step, especially considering that Mongolia is a country with a tradition of central planning and the private sector is just beginning to emerge. In this context, the provision of an appeals process against administrative decisions and regulations restricting competition by a higher authority or the courts is also a significant development.
* The original article was published on the official website of the Turkish Competition Authority on 07/24/2012. The views expressed in the article are the author’s own and do not necessarily represent the views of the Turkish Competition Authority.
- This text is based on “VOLUNTARY PEER REVIEW OF COMPETITION LAW AND POLICY: MONGOLIA FULL REPORT (UNCTAD/DITC/CLP/2012/2).”
- The agency’s name mentioned in the document is as follows: Agency for Fair Competition and Consumer Protection (AFCCP).
- There is no turnover limit for SMEs in Mongolian laws; businesses with 199 employees or less are considered SMEs.
