Trends in Competition Legislation Between EU and the Russian Federation

Opening Remark by Andreas Andrianopoulos                                     

Russia is a large and proud country. Russia is also on the road of becoming an imposing actor in the world economy. Its huge supply of raw materials and its enormous energy deposits offers Russia a pivotal role in international economics and financial markets. Its rate of growth is already one of the fastest in the world. Its economic potential is widely recognized but it nevertheless carries with it some serious drawbacks. Russia dominates some of the most crucial global commodity markets. But it fails to impress the world’s consuming public. Because Russia’s products cannot yet be found in supermarket shelves. Neither do they dominate the most popular electronics markets and the entertainment and communications industries.

Russia is rich in natural resources. And she relies in gigantic mergers of raw material industries or behemoth natural monopolies to control its national market and direct – target its exports. The impact the country’s economy has upon the international scene is thus undisputed. The long term effects however of such an unhindered by vigorous internal competition and deep privatization processes are, to say the least, questionable.

There is no doubt that infrastructure industries and services are crucial for generating economic growth, alleviating poverty, and increasing international competitiveness. Reliable electricity saves businesses and consumers from having to invest in expensive backup systems, or more costly alternatives. Widely available and affordable telecommunications and transportation services can foster grassroots entrepreneurship, and thus are critical to generating employment, and advancing economic development. In most transition economies, however, private participation in infrastructure, and restructuring have been driven by the high costs, and poor performance of state-owned network utilities. Under state ownership, services are usually under-priced, and making therefore extremely difficult their expansion.

The essential danger of a continuous state control of major chunks of the economy is an inability to outperform international competitors, an executives’ aversion to take risks and a dysfunctional system of enterprise adaptability to developing technologies and management techniques. Similar concerns relate to the unopposed realization of mergers and the formation of huge business blocks in the natural resources sector. The lack of competition prohibits the emergence of new business actors in the field, sustains consumer prices high or renders the whole business sector as uneconomic and probably leads to the unorthodox dilapidation of valuable and non replaceable natural resources.

Although privatization, competitive restructuring, and regulatory reforms improve infrastructure performance, several issues must be considered and conditions met for these measures to achieve their public interest goals. First, reforms have to be undertaken to significantly improve performance, leading to higher investment, productivity, and service coverage and quality. Second, effective regulation-including the setting of adequate tariff levels-is the most critical enabling condition for infrastructure reform. Regulation should clarify property rights, and assure private investors that their investments will not be subject to regulatory opportunism. Third, for privatization to generate widely shared social benefits, infrastructure industries must be thoroughly restructured and able to sustain competition. Thus restructuring, to introduce competition should be done before privatization, and regulation should be in place to assure potential buyers of both competitive, and monopoly elements.

Competition is an essential ingredient for the implementation of a sustainable process of economic expansion and development. Notwithstanding other public policy goals and priorities the lack of competition may endanger the rise of productivity and the international competitiveness of a nation’s economy. Thankfully, the Russian competition watchdog, FAS, has done considerable leaps forward towards establishing a vigorous competition regime. It appears that as  far as the retail market is concerned the efforts of the Russian competition authorities are bearing fruit. Foreign investment is flowing to the country, new enterpreneurial projects are initiated and tax evasion and street market outlets are being controlled. The country’s laws are being fine tuned to adhere to international and European Union standards. What remains to be decisively tackled is the issue of competition violating mergers and the breaking up of established monopolies in the energy and metals industry sector.

The Russian consumer product industry has to find its own stable footing. It is important that lays out a line of products with great export potential.  For this achievement to materialize competition has to be thorough and penetration at every level of the Russian economy. The foundations have already been laid. The necessary legislation is in place. It remains for the authorities to implement it without exception and with a strict adherence to clearly defined principles and guidelines.