Commission Report (2002): Latvia

• Progress since the last Regular Report
• Overall assessment
• Conclusions

Chapter 6: Competition policy

Progress since the last Regular Report

Since last year`s Regular Report, Latvia has made further progress in this area.

In the anti-trust field, the new Competition Law, which entered into force in January 2002, introduced important improvements of both substantive and procedural rules, including the definition of dominance, the criteria for merger control, and sanctioning powers. In June 2002, a block exemption in the field of rail and cargo transport was adopted.

The Competition Council, together with its investigative Competition Bureau, has continued to build on its enforcement record over the past year. In 2001, it took 30 anti-trust decisions (compared to 20 in 2000), including 6 prohibitions (1 with fines). The decisions included 15 cases of abuse of dominant position, 11 cases of restrictive agreements and 4 merger cases. The Competition Council (in its decision-making capacity) has operated, for a large part of the year, with only 3 of the required 5 members. The level of overall staffing remained at around 40, but with a continued high turnover rate of 30%. The budget of the Competition Council was increased by 3.8%.

In the field of state aid, important amendments aimed at aligning the special economic zone and free port legislation with the EC acquis entered into force in January 2002. Latvia's annual state aid report for 2000 was presented to the European Commission in November 2001.

There has been progress with regard to measures to strengthen the administrative capacity for the enforcement of state aid legislation, and training activities have continued. In January 2002, a new division, the State Aid Control Division (currently with a staff of 3) was created within the Ministry of Finance. This division takes over the role of Secretariat to the State Aid Surveillance Commission (an independent collegiate institution made up of 13 officials representing different state institutions). In 2001, there were 21 decisions/opinions taken in state aid cases. Most of the cases were linked to tax debt capitalisation and write-offs of tax debts that originated before privatisation.

Overall assessment

As regards anti-trust, further strengthening is still required. While the Law on Competition of 2001 contains the main principles of Community anti-trust rules as regards restrictive agreements and abuse of dominant position and merger control, it must be ensured that the rules also allow for effective enforcement. Further implementing legislation still needs to be adopted, primarily in relation to the policy represented by the three EC block exemptions for vertical and horizontal agreements.

As regards the Competition Council, including its investigative Competition Bureau, increased priority still needs to be given to increasing the level of resources. Particular attention needs to be given to enhancing the competence of staff, as well as decreasing its turnover rate. The proper functioning and independence of the Council in its decisionmaking capacity must also be ensured (including the appointment of all 5 members). Not least in view of the planned modernisation and decentralisation of the application of EC anti-trust rules, efforts to further strengthen the enforcement record need to continue, giving priority to cases concerning the most serious distortions of competition, and imposing more deterrent sanctions. Increased awareness of the rules is important, especially among the business community, as well as training of the judiciary.

The state aid control legislation of 1998 contains the main principles of state aid control, and Latvia is also able to apply the acquis directly through the Europe Agreement. Moreover, a review of the state aid legislation, taking into account recent developments in the acquis, is under preparation. A regional aid map with maximum aid intensities of 50% for the whole country (as justified by GDP figures) is being applied, though still pending joint adoption in the Association Committee. As regards transparency, state aid reports have been submitted for the years up to 2000, which closely follow the methodology and presentation of the European Commission`s survey on state aid in the EC and are of good quality. The State Aid Surveillance Commission, together with its reinforced secretariat within the Ministry of Finance, functions well. It has a proven track record of enforcement. Increased awareness of the rules is important, especially among the aid grantors, the business community and the judiciary.

Conclusions

In its 1997 Opinion, the Commission concluded that Latvia was making progress as regards alignment with the acquis in the field of anti-trust and state aid, though further efforts were required as regards state aid transparency.

Since the Opinion, Latvia has made steady progress in adopting anti-trust legislation, developing the Competition Council's administrative capacity and establishing an enforcement record, although further progress is still required. Steady progress has also been made in adopting state aid legislation and increasing the transparency of the system, as well as in developing the administrative capacity in the State Aid Surveillance Commission and its secretariat and establishing an enforcement record. Overall, on legislative alignment, administrative capacities and enforcement record Latvia is reasonably advanced. However, increased attention needs to be paid to the implementation of the legislative framework and the strengthening of administrative capacity in the anti-trust sector.

Negotiations on this chapter have been provisionally closed. Latvia has not requested any transitional arrangements. Latvia is generally meeting the commitments taken and the requirements for sufficient legislative alignment, administrative capacity and enforcement record, arising from the negotiations in this field.

In order to complete preparations for membership, Latvia`s efforts now need to focus on ensuring that it continues to update its alignment as the acquis in this area evolves and, most importantly, on continuing to develop a track record of proper application and enforcement of both anti-trust and state aid legislation. In particular, Latvia will need to make important efforts to strengthen its legal and administrative capacity in order to ensure an effective anti-trust enforcement.

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