Uzbekistan: Uzbekistan Introduces A New Legal Framework To Govern Competition Within Commodity And Financial Markets

October 2023 – On 3 July 2023, the President of Uzbekistan signed the Law No. ЗРУ- 850 “[o]n competition” (the “New Law”), which comes into force on 4 October 2023, replacing the law on competition No. ЗРУ-319 dated 6 January 2012 (the “Old Law”).

The New Law (i) defines new criteria for identifying a dominant market position, (ii) introduces the concept of superior bargaining power, (iii) sets out antimonopoly compliance requirements for certain business entities, (iv) clarifies the requirements for obtaining preliminary consent for certain transactions, and (v) imposes financial sanctions for violations of the New Law.

Antimonopoly Compliance

The New Law introduces the concept of antimonopoly compliance (the “Antimonopoly Compliance”) defining it as an internal control system of organizational procedures designed to enhance competition, ensure compliance of activities with the requirements of the New Law, and identify and prevent the risks of competition law violations.

Antimonopoly Compliance is obligatory and shall be implemented in:

a) State executive bodies (ministries, agencies and committees of Uzbekistan) and other organizations;

b) business entities that hold a dominant position in the commodity or financial markets;

c) legal entities that have:

• an average annual revenue from the sale of goods exceeding 100,000 the base calculation rates (the “BCR”) (approx. USD 2,700,000) over the past 3 years; and
• 50% or more of its charter capital belongs to the state;

d) legal entities that have:

• anaverage annual revenue from the sale of goods exceeding 100,000 BCR (approx. USD 2,700,000) over the past 3 years; and
• 50% or more of its charter capital belongs to a legal entity, the state share in the charter capital of which is 50% or more.

e) associations of legal entities.

The implementation of Antimonopoly Compliance in other business entities is recommended but not mandatory.

Dominant position and superior bargaining power.

Dominant position

A dominant position is defined as the position of a business entity or a group of persons in a commodity or financial market allowing it to carry out its activities independently of competing business entities and exert a decisive influence on the state of competition, impede access to the relevant market for other business entities or otherwise restrict the freedom of their business activities.

Under the New Law, business entities are deemed to have a dominant position in case one of the following is present:

a) business entities are natural monopolies (natural monopolies are defined as the state of the commodity market, in which, due to technological features, it is impossible or economically inexpedient to create competitive conditions for meeting the demand for a certain type of goods;);

b) business entities or group of persons have no competition;

c) business entities or group of persons have exclusive rights to the production and sale of a type of good;

d) business entities or group of persons hold 40% of the market share.

It is worth noting that business entities or a group of personsin a commodity and financial market (excluding those that qualify as natural monopolies) are not considered to hold a dominant position if their revenue from the sale of goods in the previous calendar year is below 30,000 BCR (approx. USD 810,000).

Superior bargaining power

The New Law introduces the concept of superior bargaining power, which refers to the ability of a company or group of individuals, without holding a dominant position, to unilaterally influence:

a) the terms of a transaction;

b) the territory; and

c) the price at which goods are sold.

Abuse of the dominant position and superior bargaining power

The New Law further restricts persons with a dominant position or superior bargaining power, including digital platform operators, to take the following actions:

a) reducing the volume of goods in circulation in order to create or maintain a shortage in the commodity or financial market, leading to an increase in prices and/or detriment to the rights and legitimate interests of consumers;

b) causing detriment to consumer's rights to purchase goods in the required quantity and of proper quality;

c) setting monopoly high or monopoly low prices for goods;

d) imposing contractual conditions that are not related to the main subject of such contract, including unsubstantiated requirements to transfer financial resources, other property, or property rights to a third party;

e) establishing discriminatory conditions in the sale or purchase of goods, including imposing conditions on the utilisation of goods;

f) entering into an agreement only on the condition that the counterparty acquires or sells other goods or the counterparty refrains from purchasing or selling goods to or from other business entities;

g) unreasonably refusing to conclude a contract despite the possibility of production or sale of the relevant goods;

h) creating barriers for access to the commodity or financial market of other business entities;

i) charging in excess of the established price for goods that are subject to state price regulation, or violating the regulated price procedures, as well as charging fees for services not rendered or services that should be provided free of charge;

j) prohibition or restriction of the purchase or sale of goods produced by other business entities (competitors).

Preliminary consent from the Authorised State Body

Requirements for obtaining preliminary consent

Legal entities intending to acquire shares or participating interests in a business entity registered in Uzbekistan, or those considering the reorganization of a business entity through merger or acquisition, should evaluate whether these transactions meet the criteria that require obtaining preliminary consent from the Committee for the development of competition and protection of consumer rights of the Republic of Uzbekistan (the “Antimonopoly Committee” or “Authorised State Body”).

The Old Law lacked clarity regarding the criteria for legal entities to obtain preliminary consent from theAntimonopoly Committee before acquiring shares or participatory interests in an Uzbek legal entity. Due to the ambiguous wording of the relevant article in the Old Law, it might have been interpreted to require that either one OR two of the following prongs combined can trigger the requirement to seek preliminary consent from the Antimonopoly Committee before acquiring shares or participatory interest of business entities:

• acquisition of 50% of the participating interests (shares);
• the total book value of assets or the total proceeds from the sale of goods for the last calendar year of the persons participating in the transaction exceeding 100,000 BCR (approx. USD 2,700,000), or one of the participants in the transaction is a business entity occupying a dominant position in the commodity or financial market.

The New Law clarifies the ambiguities in the Old Law regarding the requirements for obtaining preliminary consent for business entities and establishes the concept of economic concentration. Economic concentration is defined as any transaction and/or action that affect the commodity and financial markets, and it requires preliminary consent from the Antimonopoly Committee if:

a) a business entity is reorganised by means of accession (joining) or merger; or

b) an acquiring business entity or group of persons receives the right to dispose of more than 25% of the voting shares of a joint-stock company, or more than 1/3 of the participatory interests in the charter capital of a limited liability company, provided that an approval of the Authorised State Body would only be required if the following thresholds are met; or

d) the balance sheet value of assets or proceeds from the sale of goods for the last calendar year of one of the business entities participating in the transaction exceeds 250,000 BCR (approx. USD 6,750,000), or

e) the total book value of assets or revenue from the sale of goods for the last calendar year of the business entities participating in the transaction exceeds 500,000 BCR (approx. USD 13,500,000).

There are certain exceptions for:

a) transactions on the merger or accession of enterprises with the participation of the state or the acquisition of participatory interest (shares) in their charter capital are carried out by decision of the President of Uzbekistan;

b) founders of a business entity upon its creation;

c) transactions for the acquisition by a business entity of its own participatory interest or shares in the charter capital;

d) transformation of a joint-stock company (a limited liability company or an additional liability company) into another organizational and legal form while maintaining the size of its charter capital;

e) acquisition of a participatory interest or shares by investment intermediaries for the purpose of their further resale;

f) transactions for the acquisition by an individual of a participatory interest (shares) in the charter capital of a business entity, if at the time of filing the application such individual did not dispose of more than 25% of the participatory interest (shares) in the charter capital of any business entity.

Financial liability

The New Law imposes penalties for violation of the competition legislation by business entities, in addition to administrative responsibility envisaged for officials:

If the violator fails to voluntarily pay the fine, the penalties, specified in the table above, shall be imposed by the court in the manner prescribed by the law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.