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EC Competition Law in the Republic of Lithuania
Patricia A. Streeter
Copyright 1999 Patricia A. Streeter
May 14, 1999
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Overview
I. INTRODUCTION
II. EC COMPETITION LAW
III. EU-LITHUANIA COMPETITION AGREEMENT
IV. OBSTACLES TO IMPLEMENTING COMPETITION LAW IN LITHUANIA
A. Deficiencies in the Lithuanian Legal System
B. Deficiencies in the Lithuanian Competition Scheme
V. CONCLUSION
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I. INTRODUCTION
The Baltic region in which Lithuania(1) is located is considered crucial to the economic prospects of half of the continent and a link between prosperity on the West and poverty on the East.(3) While each country in the region now has democracy, they do not necessarily have the rule of law necessary to support a free market economy.(4) In many of the countries relatively new to antitrust law, including the countries of Eastern Europe, one of the very first tangible legal reforms was the adoption of an antitrust law. Having an antitrust law is a symbol of both sovereignty and commitment to a market economy.(5)
Despite the
many competition statutes adopted in transition economies, most have been unable to implement them.(6) Lithuania is one of these.
In the first six years after independence, Lithuania's foreign trade changed significantly, prompted by
Lithuania's aim to liberalize and open foreign trade based upon principles of the World Trade Organization (WTO) and a search for cooperation with existing world economic structures. In doing so, the country sought to relieve
its dependence on one supplier (the former Soviet Union) of all main resource and raw materials strategically important for its economy. Trade relations with Western counties gradually increased, while imports and exports to
the former Soviet Union (FSU) declined.(7)
Lithuania's economic transition from a centrally-planned to a market economy continues to be complicated by the need to establish new institutions and legal framework for an
independent state.(8) Motivated by its desire to become a trading partner with the West, Lithuania is moving toward implementing a functioning competition policy. This is evident in the competition reforms it has undertaken to achieve accession to the European Union (EU).
The EU has made it clear that its competition law is part of the acquis communautaire (community rules) that any new member or treaty trading partner must adopt.(9)
II. EC COMPETITION LAW
Competition law is among the most developed forms of European Community (EC) law.(10) Called antitrust law in the United States, the EC rules are part of a broad competition policy which includes constraints on member states and anti-subsidy rules that together promote market integration and other EU interests. While the EU has engaged in both extraterritorial enforcement of its own competition laws and cooperation with other national enforcement agencies, it has done so more cautiously than the United States. The EU's dominant strategy for international antitrust enforcement has been to push for the harmonization or outright internationalization of competition law.(11)
As with
U.S. antitrust law, the European Community competition policy is a collection of different provisions, amended over time. The main tenets of EC Competition Policy are based upon the founding treaties of the European Community.
Articles 85 and 86 of the EC Treaty of Rome form the basis of EC Competition Law.(12)
Article 85 prohibits practices that "have as their object or effect the prevention, restriction or distortion of competition within the common
market." Article 86 prohibits the abuse of a dominant market position. While the mechanics for enforcement of these articles were provided in Council Regulation 17, various problems with interpretations and clashes with
the European Court of Justice (ECJ) as they applied to mergers resulted in the EC designing rules specifically aimed at preserving competition when two or more companies merged. The result was the 1989 Council Regulation
4064/89, the "Merger Regulation."(13)
The Merger Regulation applies to all companies, called undertakings in the EU, involved in a "concentration" that has a "community dimension,"
based largely upon the value of worldwide turnover, irrespective of whether the companies are incorporated or located within the EU. Thus, even where a company is not incorporated or doing business within the EU, it may
nonetheless qualify as having a "community dimension."(14)
III. EU-LITHUANIA COMPETITION AGREEMENT
The Europe Agreement with Lithuania, signed on June 12, 1995 will take affect once it has been ratified by the EU Member States. The agreement
provides for a competition scheme that will apply in trade relations between the Community and Lithuania, based on the requirements of Articles 86, 86 and 92, relating to agreements between undertakings, abuse of dominant
position, and state aid (subsidies). By the Agreement, Lithuania must implement its rules in these areas and ensure that the its rules on competition are compatible with those of the EC.(15)
IV. OBSTACLES TO IMPLEMENTING COMPETITION LAW IN LITHUANIA
As in other countries of the former Soviet Union, government bureaucracy, corruption and organized crime are often cited as the most significant
hurdles to trade and investment in Lithuania.(16) While the Lithuanian Government and the major political parties support a free-market system, Soviet methodology and regulatory traditions remain evident at lower levels of the bureaucracy.(17) Since 1990, Lithuania has implemented reforms aimed at eliminating the vestiges of the former socialist system. With the help of the International Monetary Fund (IMF) and other international institutions, the government has adopted programs to restrain inflation, reduce price controls, lower the budget deficit, and privatize the economy.(18)
Lithuania
is now entering a phase where the proper implementation and enforcement of its new laws, which must be enacted consistent with single market rules as a condition of EU membership, are just as important as the laws themselves.(19) Lithuania has indicated it will address deficiencies in areas that are of special significance to enforcement of competition law, including its legal system and competition policy.
A. Deficiencies in the Lithuanian Legal System
The European Commission (EC), having evaluated Lithuania's suitability for accession to the EU, found that Lithuanian courts take too long to deliver their
judgments. This is largely due to a shortage of qualified judges and to the 1995 reform of the judiciary, which created a four-tier judicial system. Commercial cases are particularly seriously affected, as the bottleneck
obstructs the application of the law on bankruptcy.(20) The Procurator's (prosecutor's) Office seems overloaded with work because its powers have not been clearly defined. This, in turn, delays legal proceedings.(21)
B. Deficiencies in the Lithuanian Competition Scheme
Lithuania introduced laws on competition and restriction of monopolies in 1993 that preclude businesses from manipulating prices or quantities of goods offered for sale and may not create artificial shortages in order
to boost prices. The Lithuanian Anti-Monopoly Committee oversees implementation of the law.(22) A further competition act was drafted in 1996. The rules applicable to business undertakings are consistent with the law of the EC, at least where procedural aspects are concerned. The investigative powers of the Competition Committee are fairly similar to those of the Commission.(23) The State Competition and Consumer Protection Office, which is under government control was established in 1995.(24) In 1997 the Lithuanian government adopted a resolution on the monitoring of State aid (government subsidies) which gives the State Competition and Consumer Protection Office the power to oversee the granting of such aid. The resolution is based on the Community's rules concerning state aid.(25)
EC areas
of concern in Lithuania stem from Article 3(g) of the EC Treaty, which requires that the activities of the Community include "a system ensuring that competition in the internal market is not distorted." Problems
remain in the areas of restrictive agreements, and state aid in which the requisite transparency is lacking.(26) Lithuania's state monopolies of commercial operations of alcoholic beverages, tobacco products, sugar, metals and scrap metal remain an obstacle to Community compliance with competition policy. Licensing requirements for production, distribution and imports in these sectors raise problems as they may be in breach of the Community's competition rules.
Lithuania must make a substantial effort to disclose the scope of the state aid it provides to commercial concerns. Further, there are aspects of the subsidies given by Lithuania that appear contingent upon export
performance, which is clearly incompatible with the European Agreement. The EC does allow some types of operating aid, but only under very strict conditions. Given Lithuania's lack of transparency in these regards, it is not
yet clear whether the conditions for granting operating aid are in line with existing Community rules.(27)
In addition, Lithuania needs to establish authorities that can effectively monitor state aid and restrictive agreements if competition
law is to be properly enforced. At the same time, economic operators should have a sufficient understanding competition law and policy(28).
The findings of the EC with respect to the status of
Lithuanian competition law are consistent with the general experience of other countries in transition. Lack of implementation is the weakness in competition law reform in transition economies. Successful implementation
requires not only careful design of substantive prohibitions, and the construction of effective enforcement, it also entails improvements in other institutions such as courts, professional associations and universities that
influence the direction of competition policy.(29)
Few transition countries, Lithuania among them, have created competition policy institutions or executed effective enforcement programs.
Resource-starved enforcement agencies often are assigned to execute ambitions legal commands against powerful economic and political opposition.
Governments have no access to local competition policy expertise to
enforce totally new concepts, and all work must be reviewed by those with little or no understanding of market process.(30) Because many foreign donors and investors consider passing the statute alone as a mark of progress in law reform, new competition systems are essentially doomed with supporting institutional implementation and enforcement.(31)
For this
reason, the new competition laws in transition countries should implemented in phases.
Each should begin with construction of the new agency, including its physical location and staffing. Each should include training of judges, and education of consumers, business operators and government officials in the traditions of the law and content of the antitrust statute. Only then should the second phase begin, to pursue an enforcement agenda that concentrates on addressing the readily proven, publicly-imposed impediments to rivalry.(32)
V. CONCLUSION
Lithuania has made significant steps since 1990 toward a free market economy. It is one of the transition countries that early on passed competition legislation, but has not fully implemented it. To be in the best
position to benefit economically from its geographic location, the country must make significant efforts to comply with the various trade agreements it has entered into. This includes compliance with EC recommendations to
discontinue its state-subsidized monopolies in commercial ventures, and intensifying efforts to reform of its legal system.
ENDNOTES:
1. Lithuania is the southernmost of the
three Baltic Sea States on the Eastern shore with a population of 3.8 million (1995). Country Commercial Guide, Fiscal Year 1998 (CCG 1998). The CCG is a review of Lithuania's commercial environment with economic, political and
market analyses. CCGs are prepared for the U.S. business community at U.S. Embassies through the combined efforts of several U.S. Government agencies. Available at <">http://www.iep.doc.gov/eebic> (visited May 14, 1999). (2)
2. U.S. Central Intelligence Agency, World Factbook Page on Lithuania. This document is also available on the Internet at http://www.odci.gov/cia/publications.
Of the three Baltic
states, Lithuania has the highest percentage of indigenous ethnics: Lithuanian 80.1%, Russian 8.6%, Polish 7.7%, Byelorussian 1.5%, other 2.1%. Id.
3. "The Baltic Revolution", The Economist, April 18, 1998.
4. Id.
5. Spencer Weber Waller, The Internationalization of Antitrust Enforcement, 77 B. U. L. Rev. 343 (1997), at 384-85.
6. William E. Kovacic, Getting Started: Creating New Competition Policy Institutions in Transition Economies, 23 Brook. J. Int'l L. 403 (1997), at 404.
7. CCG 1998, supra, note 1 at Current Developments.
8. Commission Opinion on Lithuania's Application for Membership of the European Union (hereinafter 1997 EC Opinion), Section B.2.1, The Economic Situation. This Opinion is a comprehensive evaluation of Lithuania's readiness to join the European Union (EU), published in 1997 as a part of its "Agenda 2000" to prepare countries for membership. It is available on the Internet through the EU home page, Europa,
at: <http://europa.eu.int>/comm/dg1a/enlarge/agenda2000_en/op_ lithuania/b31.htm> (visited May 14, 1999). The conclusions of the June 1993 European Council (EC) in Copenhagen established the guidelines for examining
the economic situation and prospects of Lithuania for membership in the EU, which requires "the existence of a functioning market economy, as well as the capacity to cope with the competitive pressure and market forces
within the Union". 1997 EC Opinion.
9. Waller, supra, note 4 at 382.
10. Id.
11. Id. at 380.
12. 11Amy Ann Karpel, The European Commission's Decision on the Boeing-McDonnell Douglas Merger and the Need For Greater U.S.-EU Cooperation In the Merger Field,
47 Am.U.L.Rev. 1029, 1036 (1998). Cases of state aid and dumping, are separately covered by Articles 91-94. Id.
13. Id. at 1036.
14. Id. at 1037, n. 32.
15. EC Opinion on Lithuania's Application for Membership, Comm. Op. COM(97) 2007 final.
16. CCG 1998, supra, note 1.
17. Id.
18. Privatization however, has proven much more complex then simply putting state assets into the hands of private parties.
Mass privatization programs initially led to either inside ownership of workers and manages or was dispersed to outside ownership. "Europe Struggles With Privatisation and Liberalisation", European Dialogue: May-June 1997,
Issue 3: Ownership. European Union (also available through the website of the European Union, Europa, supra, note 7).
19. Report on the Comments of EU Commissioner Hans van den Broek on his April 2-4, 1997 visit to Latvia and Lithuania in his
speech at the Old Town Hall, Vilnius, "Van Den Broek In Lithuania and Latvia", Together in Europe, European Union Newsletter for Central Europe, Number 107, April 15, 1997, supra, note 7.
20. EC Opinion, supra, note 14.
21. Id.
22. CEEBIC 1998, supra, note 1.
23. EC Opinion, COM(97) 2007 final, supra, note 14.
24. Id.
25. Id.
26. Id.
27. EC Opinion COM(97) 2007 final, supra, note 14.
28. Id.
29. Kovacic, supra, note 4 at 453.
30. Id. at 404.
31. Id.
32. Id. at 452-53.
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