Representatives of many different economic sectors in Latvia are currently suffering because of Russian and Belarusian military aggression and sanctions imposed against them. These businesses are at risk of suffering a major shortage of raw materials, such as metals, grains and other raw materials.
Considering the situation, Latvian Competition Council (KP) explains that businesses, regardless of the sectors they represent, have the right to organize joint raw material procurements to Latvia in order to secure the necessary raw materials at affordable prices. However, to make sure joint actions in procurements of goods do not breach competition laws, an agreement evaluation needs to be performed. Because each company’s situation is individual, the council advises local businesses to consider consulting with KP before making arrangements.
KP explains that agreements between different companies are not allowed to contain any conditions and restrictions that exceed the volume of information needed for the organisation of a single procurement.
For example, entrepreneurs are prohibited from any division of clients or markets. They are also not allowed to coordinate their operations on related markets after procurement of goods. This includes preparation of future public procurement offers. Entrepreneurs are not allowed to make deals about sale prices of procured goods and implement other activities outside the necessary and which may put at risk competition and harm consumers. Restrictions like that can be considered a breach of Section 11 of the Competition Law and Section 101 of Treaty on the Functioning of the European Union. Joint commercial deals usually affect both markets, notes KP.
First of all there’s there specific procurement market. Secondly there’s the sales market, which is the market in which both sides involved in the procurement act as salesmen. This means that by signing an agreement on joint procurement, it is important to consider that conditions listed in the agreement affect all markets involved in it.
If businesses don’t have major power over the market, the agreement on joint procurement does not cause any potential concerns for competition. But if the total market power exceeds 15%, then KP recommends market players to perform an evaluation of the joint procurement for compliance with Section 11 Part 2 of the Competition Law.
Chairman of the Competition Council Juris Gaiķis: «The Competition Council understands this is a difficult time for entrepreneurs. Agreements signed by competitors aimed at cooperation generally benefit both parties, their clients and consumers. This is why in the eyes of competition legislation they are not only permissible but also welcome. However, to ensure certain agreements made to overcome the crisis are compatible with competition regulations, we advise consulting with our experts».
Considering that the duty to follow competition regulations falls primarily on market players, KP urges participants of joint procurement deals to proactively consult with the institution at the early development of conditions of the project, especially if questions about competition legislation appear during said process. Because each case is reviewed individually and considering the specifics of each individual situation, KP explains that in accordance with Part 3 of Section 11 of the Competition Law, market participants have the right to submit a report to the Competition Council before an agreement is signed. In response to this request, the institution can provide an in-depth evaluation of the agreement and whether or not it meets requirements of the law.
Competition Council: entrepreneurs are allowed to procure raw materials together
