As a result of the Russian Federation’s military aggression supported by the Republic of Belarus and the associated sanctions imposed on these countries, businesses in several sectors are currently facing and may face significant shortages of raw materials, such as shortages of metal and crops for food production, as well as shortages of other raw materials. The Competition Council (the CC), considering the current situation, explains that entrepreneurs, regardless of the sector, are entitled to make joint purchases of raw materials for supplies to Latvia in order to purchase a larger amount of goods and thus benefit not only the entrepreneurs themselves but also their customers and consumers, receiving a lower price or a higher quality product offer. However, in order to ensure that joint and concerted action by economic operators in the procurement of goods does not infringe competition law, they must assess the agreement. Taking into account that each situation is individual, we invite entrepreneurs to use the consultation opportunities provided by the CC.
The CC draws attention to the fact that such an agreement between companies must not contain covert conditions and restrictions that would exceed the exchange of information necessary for the organization of the specific joint procurement. For example, economic operators are prohibited from agreeing on customer or market sharing and further coordinating their activities in related markets in relation to the product purchased, for example, by planning further tenders. Entrepreneurs are also prohibited from agreeing on the resale price of purchased goods and engaging in other activities that go beyond what is necessary for joint procurement and are aimed at restricting competition to the detriment of consumers. Restrictions of this kind could be considered anti-competitive according to Article 11 of the Competition Law and Article 101 of the Treaty on the Functioning of the European Union.
Joint purchasing can usually affect the specific procurement market and the sales market, i.e., a downstream market where the parties act as resellers to the joint purchasing transaction. Accordingly, the effects of the terms of that agreement on all affected markets must be considered when concluding a joint purchasing agreement. If companies do not have significant market power, the joint purchasing agreement does not even raise potential competition concerns. On the other hand, if the total market power of companies in a particular market exceeds the 15% market share threshold, the CC recommends that market participants make an individual assessment of their compliance with the efficiency and consumer benefit criteria set out in Section 11, Paragraph two of the Competition Law.
Juris Gaiķis, the Chairman of the Competition Council Juris Gaiķis: “The Competition Council is aware that this time is full of challenges for entrepreneurs, including the shortage of various raw materials. Collaborative agreements implemented by competitors generally benefit the parties to the agreement, their customers and also consumers, so that they are not only permissible under competition law but also supported. However, to make sure that the agreements specifically implemented to overcome the crisis are compatible with competition law, we invite entrepreneurs to consult with our experts."
Given that the obligation to comply with competition law lies primarily with the market participants themselves, the CC invites the parties to the agreement to proactively consult with the CC already in the process of drafting the terms of the agreement or during the drafting the project in case of uncertainties related to the competition law enforcement. As each case is assessed individually and considering the specifics of the specific situation, the CC draws attention to the fact that in accordance with Section 11, Paragraph three of the Competition Law, market participants have the opportunity to submit a report on the proposed agreement.