1. Georgian Development
Research Institute
Competition Policy in Georgia
1992-2012
By Ketevan Lapachi
April 4, 2012

2. Content
 International rules and principles
 Georgia’s International obligations in field of
competition
 Competition Policy Development in Georgia
during 1992-2012
 Reforms in 2010-2011
 Problems and challenges
 old recommendations in new reality

3. International rules and principles
in competition
 The internationally acknowledged principles of
competition, amongst them the rules of state control over
business restricting practice (WTO, EU, OECD, UNSTAD)
oblige states to:
 Adopt
 Improve
 And efficiently implement the respective legal acts.
 Base their legislation on the principles of efficient
regulation and prevention of competition restricting
practices
 Ensure the non-discriminatory attitude to every enterprise
 Improve the enforcement measures

4. Georgia’s International
Commitments
 Georgia is pressing towards the integration into the
institutions of the European Union, it is a member of the
World Trade Organisation and also enjoys the status of a
full member or observer of many bilateral, regional or
multilateral agreements and international organisations.
 Consequently, Georgia has certain obligations in the light
of regulation of domestic legal framework for trade and
competition with due consideration of international
principles and best practice and first of all rules and
recommendations of the EU, WTO, UNCTAD, OECD.

5. EU and Georgia
 PCA (partnership and cooperation agreement with EC and
its member countries) 1996, article 44
 Free Trade agreement (FTA) and Neighborhood Policy
 EC Fact finding Mission (2009) and its recommendations
 DCFTA (Deep and Comprehensive Free Trade Agreement)
 Copenhagen Criterions (1993)

6. PCA Agreement, Article 44
 The Partnership and Cooperation Agreement between Georgia and the
EU and its member countries (1996) outlines key directions (Article 44),
which should be accorded particular attention in the course of
harmonisation of domestic competition law with that of the EU,
amongst them:
 “agreements and associations between undertakings and concerted
practices which may have the effect of preventing, restricting or
distorting competition,
 abuse by undertakings of a dominant position in the market,
 state aids which have the effect of distorting competition,
 state monopolies of a commercial character,
 public undertakings and undertakings with special or exclusive rights,
 review and supervision of the application of competition laws and
means of ensuring compliance with them.”

7. Four main policy areas of the EU
Competition Law include:
 Cartels, or control of collusion and other anti-competitive practices
which has an effect on the EU (or, since 1994, the
European Economic Area). This is covered under Article 101 of TFEU
(ex article 81 of the Treaty of the European Community (TEC).
 Monopolies, or preventing the abuse of firms' dominant market
positions. This is governed by Article 102 of TFEU (ex article 82 of
TEC). This article also gives rise to the Commission's authority under
the next area,
 Mergers, control of proposed mergers, acquisitions and joint ventures
involving companies which have a certain, defined amount of turnover
in the EU/EEA. This is governed by the Council Regulation 139/2004
EC (the Merger Regulation).
 State aid, control of direct and indirect aid given by
Member States of the European Union to companies. Covered under
Article 107 of TFEU (ex article 87 of TEC.

8. Competition authorities in the
acceding countries
 The enlargement of EU with the new members (as it was in May 2004)
provides new challenges and opportunities for cooperation. In order to
meet these challenges the accession process in the field of competition
aims to prepare the acceding countries for an active role in competition
enforcement.
 Negotiations are based on the conclusion of the Copenhagen European
Council (June 1993), which defined criteria that candidate countries
have to meet before than can join the EU.
 In the economic sphere these criteria require the existance of a
functioning market economy as well as the capacity to cope with
competitive pressure and market forces within the EU. “this criterion
of the accession negotiations into a principle whereby candidate
countries are seen as ready to join the EU only if their companies and
public authorities have became accustomed to a competition discipline
similar to that of the community well before the date of accession

9. Copenhagen Criteria
 three elements had to be in place in a candidate country before the
competition negotiations were concluded:
 a) the necessary legislative framework;
 b) an adequate administrative capacity (in particular a well functioning
competition authority) and
 c) a credible enforcement record of the competition acquis. In case of
new members these requirements were not only based on political
context of negotiations but also on the bilateral agreements that the
EU had concluded with each of the ten candidate countries from CE
and EEC. These agreements already provided a solid legal basis for
the accession preparation in the area of competition policy.

10. Main elements of competition
policy reforms
The foregoing puts forward the necessity of
improvement of competition policy in Georgia and
respectively, the care for the provision of such
elements, as:
 The existence of clear and predictable rules of
competition;
 Efficient state supervision over their observance;
 Reliable and transparent enforcement practice

11. Arguments for competition policy
 The best international practice treats competition as an
important factor of economic growth and public welfare.
 Strengthening of the competition policy is regarded as a
crucial direction of reforms in every country.
 The foregoing is proved both by the activities of
international organisations in this respect and the
competition regimes of more than 120 foreign countries and
the steps made towards their competition policy

12. Opposite opinion
there are some different opinions as well, that:
 The regulation of competition is an excessive and
purposeless bureaucratic burden; that it is not necessary
these days;
 The legislation is meaningless without efficient enforcement
and it will be better to revoke it;
 The regulation is an obstructing factor to the entry to any
market, innovations and the growth of local companies;
 etc.

13. II. Competition Law and Policy
Development
 Stages of development
 1992-1995
 1996-2000
 2001-2005
 Since 2005
 What about future?

14. The legal and institutional
framework
 Beginning
 Resolution N323 of the Cabinet of Ministers of 17 March
1992 on Certain Measures Aiming at the Demonopolisation
of the Economic Activities in the Republic of Georgia
 Resolution N870 of the Cabinet of Ministers
 Law of Georgia on the Principles of Entrepreneurial
Activities
 In February 1992 the Administration for Antimonopoly
Regulation, Consumer Protection and Promoting the
Entrepreneurship was created within the Ministry of
Economy of Georgia with 11-member staff.

15. Legal and Institutional Framework
1992-1995 :
 September 16, 1992 – Decree of the State Council “on the Restriction of
Monopolistic Activities and the Promotion of Competition” in the
Republic of Georgia
 Ordinances of the President of Georgia N60 and N160 of 1995 “on the
Protection of Consumers against Misleading Advertisement”
 In 1995 the Antimonopoly Administration of the Ministry of Economy
of Georgia was delegated with the duty of controlling the advertisement
activities, envisaged by the Ordinance of the President of Georgia N60
of 1995 on the Protection of Consumers against Misleading
Advertisement, 10 established posts were added thereto and the
Administration was transformed into the Main Administration for
Antimonopoly Policy

16. Legal and Institutional
Framework
 During 1995-2000 three laws were adopted
 1995 -The Law “on the Protection of Consumer Rights “
 1996 - The Law of Georgia on Monopolistic Activities and
Competition
 1998 - The Law on Advertisement
 Up to 40 normative acts adopted on the basis thereof
 The amendments and additions made to the Code of
Administrative Offences of Georgia, the Criminal Code of
Georgia, the Law of Georgian on Normative acts, the Law of
Georgia on the Procedure of Operation and Structure of the
Executive Power and the other legal acts for the purpose of
improvement of the performance of the Service
 By EBRD Georgian legislation was described as the best
one in the transition economies

17. Legal and Institutional Framework
 In December 1996, in the course of reorganisation of the
Ministry of Economy the Main Administration for
Antimonopoly Policy was transformed into the
Antimonopoly Service of the Ministry of Economy
 Commensurate with the Ordinance N137 of the President
of Georgia of 14 March 1997 on Monopolistic Activities and
Competition the subordinated to the Ministry of Economy
State Antimonopoly Service was created on the basis of the
Antimonopoly Service of the Ministry of Economy. The
same Ordinance provided for the number of the members of
the personnel (150 persons, amongst them 65 for central
office and 85 – for regional offices) and the structure of the
Service, which included 12 regional offices, the completion
of which offices was finished in 1998.

18. Legal and Institutional
Framework
 In 2000-2002 three reorganisations and many other justified
or unjustified perturbations were undertaken
 Fluctuation of Personnel
 The Head of the Service was changed four times within a
year. At the same time three of four heads of functional
departments (units) and some other trained (in
administrative establishments of Europe and US in EU and
USA) and experienced employees left the AMS.
 Fragmentation of antimonopoly policy according to sectoral
principle and gradual limitation of the powers of the
Antimonopoly Service (see changes in statistics and customs
laws, industry regulatory laws etc).

19. Legal and Institutional
Framework
 In 2001 the Service (which earlier was a public law legal entity) was
transformed into a subordinated entity, and its regional offices (the
formation of which, except for Adjara was completed in 1998) into
circuit ones with the reduction of their total amount
 Tbilisi Branch of the Antimonopoly Service was abolished
 At the expense of freed established posts the number of the personnel of
the central office was increased from 65 to 110 members
 The regional services were again re-established with the new names –
Bureaus

20. Independence Debates
 Despite the fact that during that period of the
Antimonopoly Service met all the requirements set forth by
the Law of Georgia on the Procedure of Operation and
Structure of the Executive Power (was repealed in 2004) for
an independent governmental entity, (See the law “The
Concept and Types of Governmental Entities) and its
independence was stressed by more than one international
experts (including Dr. William Kovacic, former Chairman
of the US Federal Trade Commission, Dr. Ben Slay – Chief
Economist, UNDP) it deemed impossible to develop it into
an independent authority and to improve its status.

21. International obligations and current
situation
 Commensurate with the agreement made with the
European Union and its member states Georgia has
committed itself to the approximation and harmonisation of
its legislation with that of the European Union.
 Despite foregoing, Georgia’s law (of 2005) and policy in
competition and consumer protection:
 Does not take account of competition and consumer
protection related problems in Georgia and the mechanisms
of their solution within the competition legislation.

22. International obligations and current
situation
 Is not compatible with the commitments undertaken by
virtue of international agreements of the country and
internationally acknowledged rules and principles of state
control over the business restricting practices.
 Such a situation impedes the development of competition
on consumer market, promotes anticompetitive practices of
forces, which are already established on the market,
amongst them of the abuse of dominant position and has a
negative impact both on the status of the consumers
(particularly within limited competition) and the
investment image of the country and public welfare.

23. Features of the law of 2005
 Unlike similar laws of the other countries (e.g. the laws of
the WTO, OECD and EU member countries, as well as
other countries), the Law on Free Trade and Competition
of 2005 does not apply to such manifestations of business
restricting practices, as anticompetitive agreements
monopolistic activity, concentration of market power
(mergers and acquisitions).
 The existing Law (2005) is unable to ensure the state control
in the following directions: concerted practices which aim
or have the effect of restricting competition, abuse of a
dominant position in the market, concentration of market
power.

24. Features of the Law of 2005
 the current competition law of Georgia regulates
only the anticompetitive actions of the
governmental authorities with respect to state aid,
amongst them, prohibits the discrimination of
economic agents in the course of issuance of state
aids.
 However, the Law is so inconsistent in this respect
as well, that it excludes the efficient practical
implementation of these provisions.

25. Free Trade Agency during 2005-2012
 Since 2005, Georgian antimonopoly authority existed only nominally as
a subordinate entity of the Ministry of Economic Development with its
personnel consisting of only 5 persons and than as an Though in an
independent competition agency (was established in February of 2010).
 Due to deteriorated institutional capabilities this authority was
practically inactive.
 The signs of monopolization of the markets are already apparent
(examples of unfair competition, limited choice, monopolistic prices,
etc.), what in long run will have a negative impact on: the investment
image of the country; on the outcomes of economic development and
 on the process of joining the European Union (in particular, will
considerably protract the process).

26. Policy Fragmentation
 No legislative or administrative initiatives to improve
competition policy have been implemented for the past 10
years and moreover after the Rose Revolution, except for
the addition of rather strict provisions to the law of industry
regulation aiming at the restriction of the rights of the
Competition Agency and fragmentation of the competition
policy according to industry principle.
 There are no efficient coordination mechanisms for
ensuring the cooperation between and joint activities of
industry regulators and the Competition Agency.

27. Major Enforcement Problems
Before the revocation of the Law of 1996 on “Monopolistic Activities and
Competition”:
 Legislative gaps and first of all, the deficiency of the secondary legislation;
 Political situation, which not always provided for the Antimonopoly service
(now the Agency) to implement the intensive enforcement measures;
 Lack of the information about the market (what was further intensified by the
amendments made to the Law on Statistics, the current situation in statistics
field, unreliability of the information and lesser transparency of pricing and
regulation process in the field of natural monopolies irrespective of the statutory
requirements);
 Weak institutional position of former Service – status, funding, lack of qualified
personnel;
 Inconsistency of state policy, inconsistent and non-complex nature of economic
reforms;
 Low level of coordination;
 Absence of political will.

28. Major Enforcement Problems
After the effectuation of the Law (of 2005) on Free Trade and Competition:
 The general competition law does not extend to the monitoring of
monopolistic practices and anticompetitive agreements any more;
 The restrictions, envisaged by industry regulatory acts and the Law of
Georgia on Independent Regulatory Authorities related to the
intervention of the Competition Agency in the respective fields in the
solution of competition related problems;
 Inefficient mechanisms of state and public protection of consumers;
 Non-readiness of judges to solve the consumer protection and
competition related problems;
 Low level of public activity.

29. Changes in 2010-2011
 Recommendations by EC fact finding missions
(March, 2009) regarding Georgia’s preparedness for
the DCFTA negotiations
 Four policy priorities including competition were
established by the above mentioned mission
 Comprehensive strategy on competition policy was
adopted on December 3, 2010 decree 1551
( www.gov.ge)

30. Capacity Building
 July 29, 2009 - GEPLAC training
 December 10,2009 - GEPLAC training in institutional arrangements on
competition
 January, 2010 Donor coordination roundtable was organized by state
minister’s office for Euro Atlantic integration issues. As a result the
project with SIDA, Estonian Competition Agency and Estonian
Embassy was launched
 February- March, 2010 World Bank video conferences: Sharing
experience in EU legislation and the process of negotiations with EU
 February, 2010 Chief advisor of the Prima Minister of Georgia
participated in in the OECD Global Forum on Competition
 February, 2010 experience sharing working visit in the German
Competition Authority financed by GTZ

31. Institutional reforms in 2010-2011
 February 26, 2010 by the decree of the President of Georgia
an independent legal entity of public law Free trade and
Competition Agency was set up
 From 2012 a legal entity of public law Competition and
State Procurement agency started functioning (according to
decree of Georgian Government December 27, 2011).
Prime minister
 In accordance with the competition strategy draft law on
competition was elaborated and submitted to the
parliament for consideration in September, 2011.
Discussions in 2011 and second hearing in February 29, of
2012.

32. Draft Competition Law (under
consideration)
 The draft law is still under consideration
 Discussions organized by the civic organizations (October 3,
2011, September 25, 2011, April 4, 2011 etc)
 Critical comments are provided by the NGO’s (TI Georgia,
GILA, GDRI and many independent experts).
 Some critical comments by Ketevan Lapachi are provided.
Full version of comments and suggestions is available (at
www)

33. Comments on the draft law
 Major problem areas in the draft law:
 Scope of application (Articles 1, paragraph 5)
 Agreements of minor importance (article 8)
 Exemptions (articles 9,12)
 Prioritization of tasks by the Georgian
Government (Article 19)
 etc

34. Scope of application
 Special attention should be paid to the scope of application of the
law and exemptions from forbidden anticompetitive agreements and
prioritization of tasks by government. Namely:
 According to the draft the scope of application is very limited
(Article1, paragraph 4). Free Economic Zones, small markets (with
share less then 0, 25% in GDP), goods and services for defense and
public safety, etc. are in exemptions. In addition, paragraph 5, of
the same article stipulates that all other laws prevail and
transitional provisions (article 35) exclude infrastructure industries
from law application.
 According to best practice, the general competition laws apply to all
sectors and products. To this end the law contradicts to all
recommendations and Georgia’s Comprehensive Strategy in
Competition Policy as well.

35. Exemptions
 Some individual and group exemptions are established by
the draft law, and in addition, the government is enabled to
establish additional exemptions and priorities. (Articles: 9,
para2 and 3, article 12 Para. 2/b,f, g, h, etc.)
 In accordance with international practice special
agreements are exempted according to so called de-minimis
rules. But this rule does not apply to the cartel agreements.
In addition, in spite of the same practice the benchmarks to
be established are to high and need to be revised

36. De minimis Rules
 According to draft law (Article 8) prohibition to the agreements shall
not apply
 “a) in case of horizontal agreements if aggregate market share of
parties does not exceed 25 %; b) in case of vertical agreements if
share on the relevant market of each party does not exceed 40 %
for each party; c) in case if agreement contains both characteristics
– aggregate share of parties does not exceed 40% “.
 It means that the great majority of anticompetitive agreements
would be in exemptions. Similar exemptions (“de-minimis” rules)
are usual for competition laws. But in Georgian case this article
establishes too high thresholds unusual for competition laws and
contradicts the international standards where the same banchmarks
are established on the level of 5-15 %.


37. Prioritization of tasks
 Article 19 – prioritization of tasks by the Georgian
Government is absolutely different (it should be done by
the agency but not government) than traditional
prioritization of tasks by competition authorities. Does it
mean that agency should respond only to government
massages? According to widespread opinion, to understand
the implications of a law, some standard policy analysis
questions should be asked: who are the affected parties;
what are the market effects; what are the administrative
costs; how will Georgia’s international relations be affected,
etc..

38. Article 19 and competition agency
independence
 Article 19 – prioritization of tasks by the Georgian Government is
absolutely different (it should be done by the agency but not
government) than traditional prioritization of tasks by competition
authorities.
 Does it mean that agency should respond only to government massages?
According to widespread opinion, to understand the implications of a
law, some standard policy analysis questions should be asked: who are
the affected parties; what are the market effects; what are the
administrative costs; how will Georgia’s international relations be
affected, etc..

39. Relations affected by the new law
 Analysing the draft law I doubt that it (if is adopted
without serious improvements) will positively impact on
the competition environment in domestic markets. The
critical provisions of the draft law need to be carefully
revised, otherwise they might frustrate the aim of the
law.
 As to the international relations to be affected –
Adopting this draft law (in its current condition) maybe
would serve as one of the necessary preconditions for
starting negotiation with EU, but it is expected that the
law will be criticized by European experts, when
negotiation on competition chapter starts.

40. Enforcement Practice (1999)
 In 1999 by the State Antimonopoly Service was
considered more than 800 cases of violation of
antimonopoly legislation, is revealed hundreds of facts of
violation of the law ,,On the Monopolistic Activity and
Competition”, important part of which were prohibited
voluntary, according to directions of the State
Antimonopoly Service.
 more than 400 cases were passed to courts
 public advocacy

41. structure of infringements of the ,,On
Monopolistic Activity and Competition”
 violation of the article 10 of the law by the government
bodies - especially in fields of telecommunication service,
transportation, on the markets of petroleum products and
baking products -40%
 violation of the article 13 (on the prohibition of
monopolistic activity) – 30%
 violation of the article 9 (unfair competition) -22 %
 violation of another articles - 8%

42. Violations of the Consumer Rights
 During 1999 especially often was violated the rights of
consumers in the sphere of trade and services (violation
,,Rules of trade and services” – 52 % of violation)
 especially in spheres of public utility services (violation of
contract terms – 25 %)
 violation of the rights on information -13%
 etc 10%

43. violations of the law ,,On
Advertising”
 The numerous facts of violation of the appropriate laws ,,On
Advertising” was revealed in the sphere of
telecommunications, mass media and in field of exterior
advertising.
 Since April 7, 1998 The Antimonopoly Service sent
hundreds of instructions to advertising agencies, TV
companies including (the Georgian TV and Radio
Corporation), mass media, producers and distributors of
goods in order to eradicate the cases of infringement by
common efforts, e.g. in connection with tobacco and spirits.
 110 economic agents were penalized.

44. The structure of violation of law ,,On
Advertising” (1998-1999)
 Infringement of the article 5 (General and specific
requirement for advertising)- 60 %
 spirits and tobacco advertisement 13%
 Specifics of outside advertising 8,5 %
 Characteristics of specific goods advertising – 5%
 Social Advertisement – 3.5%
 etc -10%

45. International Cooperation
 State Antimonopoly Service of Georgia had collaborated
with the international organizations such as the World
Bank, USAID, UNDP, TACIS, UNCTAD, OECD, foreign
competition agencies (Russia, Ukraine, Azerbaijan,
Belarus and with the republics of the Middle Asia) as well
of Romania, Belgium etc. , research and educational
centers, e.g. Luven La New University (Belgium) etc.
 With the financial and technical support provided by above
mentioned organizations, Antimonopoly Service of Georgia
was equipped by the required technical base, the employees
of the service take part in the workshops on topics of
antimonopoly regulation, competition policy and
consumers’ protection held as well in Tbilisi as abroad
(Moscow, St-Petersburg, Vienna, Istanbul, Washington etc).

46. Some important cases (1998-1999)
 Cases of unfair competition on the markets of Georgian
mineral waters, such as ,,Borjomi”, and Georgian wines
especially on the markets of the Russia, Moldova and
another CIS countries
 Notwithstanding joint measures carried together with
Antimonopoly Bodies of Russia, Ukraine, Uzbekistan,
Belarus and another countries falsification and illegal
use of Georgian trade marks ,,Borgomi”, and Georgian
wines (Xvanckara”, ,,Mucuzani” , etc) were among the
very difficult problems for the State Antimonopoly
Service of Georgia.

47. Some important cases and violators
 Abuse of dominant position by the energy providers (AES,
Tbilgazi, Imereti Gazi, TbilwatterChnnel ,
Sakteleradiocentri etc Anticompetitive actions by the
Customs Department (mesxeti case), “Sakaeronavigatia” ,
Ministry of Agriculture (Wino moldova case)etc
Competition restrictions by the entities involved in
telecommunication market, Restriction of competition in
field of insurance by the UGB, by local governments etc.
 Ministry of Agriculture ministry of Education
 Ministry of Communication Railway transport department,
customs department, Tbilisi municipality, “Samtrest”, etc

48. Statistics of violation revealed by the
regional branches (as to August of
1999)
 Tbilisi -92
 Shida Kartli– 68
 Kvemo kartli-172
 Kakheti –92
 Guria - 47
 Imereti– 80
 Samtsxe Javaxeti - 37
 Mtcheta Mtianeti - 36
 Samegrelo Semo Svaneti – 64
 Abxazeti - 0

49. Stucture of Violations
 Administrative Code, Article 159 - 75%
 Administrative Code, Article -153 – 20%
 Others – 5%

50. Possible Future Scenarios
 new challenges and problems
 old recommendations in new realities
 modern competition law and institution
 capacity building
 enforcement regime
 etc
Question: why competition policy is so unwelcome in
Georgia?