Kazakhstan’s new Entrepreneurial Code fails to give antimonopoly regulator enough independence, say observers.

The Kazakh government wants to use the new Entrepreneurial Code to regulate and restrict monopolistic activity and maintain effective functioning of commodity markets in the country.

Having been enacted in October 2015, the code underwent numerous amendments, including several that took effect on January 1 to bring it more into line with OECD standards. Lawyers have welcomed the changes to the code, though some doubt whether the new version represents much of a change from the old one, telling Asialaw that some important details remain uncertain. They believe the antimonopoly regulator still lacks independence. The 2017 amendments included a clarification of the role of the antimonopoly authority and changes how monopoly activities were defined and anti-trust compliance notified.

Zhanar Abdullayeva

“The 2015 antimonopoly regulation is more focused on maintaining competition as opposed to protection of consumer rights, which was the case with the previous regulation,” says Zhanar Abdullayeva, partner at Unicase Law Firm.

Antimonopoly authority

A separate chapter clarifies the rights of the antimonopoly authority, explaining the objectives of the authority, its interaction with other law enforcement agencies and the rights of its employees. However, counsel are sceptical about the effectiveness of this amendment and view it more as a replication of the old code.

“Even though the law was declared to be passed to make Kazakhstan compliant with the OECD standards most of the new provisions basically represent a replication of chapter six of the former law on competition created in 2008 outlining the status of the anti-trust authority,” says Bolat Miyatov, partner at Grata International.

Concerns persist around the overpowering control of the antimonopoly regulator. The regulator may unlimitedly ask for information from corporates, including commercial and private information. “If the business has no electronic workflow, submission of such documents may often paralyse several units of the business,” says Abdullayeva. “The methodology of qualification of whether the business has a dominant or monopolistic position is far from being transparent and quite difficult for a typical business to understand, which would compel the business to hire specialists for help, creating unnecessary expenses.”

Bolat Miyatov

“The role of the antitrust policy should be radically reassessed and the government has to understand the importance of having an independent authority,” says Miyatov. “It has to be provided with an autonomous position, one that is the same as in the EU for example, and a significant latitude in enforcing the anti-trust law.”

Monopoly activities clarification

A number of changes have been made to the definition of monopoly activities, including those targeting intellectual property (IP) and clarification of what a dominant position means.

The prohibitions in anticompetitive agreements have been eliminated though, there is no absolute exception for IP rights. “This means that in order to be compliant with Kazakh antitrust law, IP agreements should not have detrimental effects on competition,” says Miyatov. “The former requirements contained a general caveat that generally exempted such type of agreements from the realm of the Code and permitted the parties to them to disregard potential anti-competitive implications.” 

The definition of the dominant position of a market participant is more specific, focusing on qualitative indicators, such as the ability of a market participant to determine the level of prices unilaterally. The list of criteria deeming that the actions of market participants are concerted has also expanded. And the calculation of the aggregate share of market entities in the commodity market has changed such that it should not be more than 20% in vertical agreements.

Notification of antitrust compliance

Other changes include those on antitrust prevention and the detection of violations. “The antitrust compliance institute was introduced, whose main mission is to introduce the system of internal control of market entities for prevention of violations and to protect competition,” says Abdullayeva.

“Each market participant is allowed to draft an internal antitrust guidance and get feedback on it from the regulator and the relevant response of the state authority will be deemed as an official clarification of the pertinent laws,” says Miyatov.

“The government decided to reject the institute for the state register of market players which fall into the definition of dominant and monopoly position,” says Abdullayeva. “Therefore market players will not be informed that there were recognised as holders of such positions and have to be notified by the anti-monopoly committee that they have committed an offense or are under investigation.”

“The institute of regulated markets was changed to the institute of socially necessary markets for areas such as electricity, railway transport, airport services and gas supply,” adds Abdullayeva. “The amendments cancel the monitoring of activities of the market entities which are in dominant or monopoly positions in the regulated markets. There is no obligation to report regularly to the committee for such entities.”

The period of examination of a notice of economic concentration has been reduced from 45 days to 30 days while the time of investigation into violations increased from two months to three months.

“Since the legislation is still quite new and certain new principles are still unclear, businesses should carefully consider the provisions of the Code and request for clarification in case certain provisions are unclear,” says Abdullayeva.

“Particular attention should be paid to franchise agreements and other IP agreements,” says Miyatov. “Businesses may want to prepare a local antitrust guide outlining the firm’s policy and address gaps in the local legislation and receive and opinion on how to navigate through the anti-trust legislation.”

“Although the law comprehensively describes the status of the local regulator, it has not dealt with the issue of its dependency from the Kazakh government,” says Miyatov. “The local regulator exists in the form of a committee under the auspices of the Ministry of National Economy is limited in its ability to pursue autonomous policy.”

Adding to the concern about a lack of autonomy of the antimonopoly regulator, observers are also uncertain about how the antimonopoly regulator in Kazakhstan will interpret and enforce the antimonopoly rules in the Entrepreneurial Code. Businesses should seek clarification and watch for case law that surfaces as the amendments take effect.