Features of foreign investment in business companies that occupy a dominant position in the commodity market

Milchakova Olesya Vladimirovna PhD in Law Associate Professor; Department of Competition Law; O.E. Kutafin Moscow State Law University (MGUA) 9 Sadovaya Kudrinskaya str., Moscow, 123995, Russia millov@yandex.ru Other publications by this author

"Dominant position in the commodity market" is one of the main categories of competition law and antimonopoly legislation. According to Part 1 of Article 5 of Federal Law No. 135-FZ dated 07/26/2006 "On Protection of Competition" (hereinafter – Law No. 135-FZ), the dominant position is the position of an economic entity (group of persons) or several economic entities (groups of persons) in the market of a certain product, giving such an economic entity (group of persons) or such economic entities (groups of persons) have the opportunity to exert a decisive influence on the general conditions of circulation of goods in the relevant commodity market, and (or) eliminate other economic entities from this commodity market, and (or) impede access to this commodity market for other economic entities.

The commodity market is the sphere of circulation of goods (an object of civil rights, including work, services), which cannot be replaced by another product, or interchangeable goods, within the boundaries of which (including geographical), based on economic, technical or other feasibility or expediency, the acquirer can purchase goods, and such There is no possibility or expediency beyond its limits (clause 4 of Article 4 of Law No. 135-FZ).

Thus, the dominant economic entity is an entity with such market power that provides an opportunity to shape the economic environment by influencing, and in some cases determining the number of market participants, the behavior of suppliers of goods (works, services) and their consumers.

"The fact of the economic reality of the state of the commodity market" – the dominant position of an economic entity "has legal significance for establishing the legal composition of an offense in the form of abuse of a dominant position" ^{[1, p. 91]}.

This fact is also important in the implementation of state antimonopoly control of economic concentration (transactions, other actions, the implementation of which has an impact on the state of competition), since the antimonopoly authority has the right to refuse to business entities in the preliminary approval of transactions, other actions, if the transaction, other action stated in the petition will lead or may lead to restriction of competition, including as a result of the emergence or strengthening of the dominant position of the applicant or the dominant position of the person who will be created as a result of the implementation of the transaction or other action stated in the petition (paragraph 5, part 2 of Article 33 of Law No. 135-FZ).

In addition, Russian legislation pays increased attention to the acquisition by foreign investors of assets of economic entities that occupy a dominant position in the commodity market, establishing requirements for the need to obtain additional regulatory approvals and, in some cases, special rules for determining whether or not an economic entity has a dominant position in the market, in comparison with antimonopoly legislation.

The foundations of such regulation were laid in 1996, when, taking into account the current state strategy of economic security, the State Antimonopoly Committee, which participates in the development of measures to prevent threats to economic security in the form of foreign and domestic legal entities and individuals gaining a monopoly position in the domestic market, the acquisition by foreign persons of Russian enterprises in order to displace domestic products from the outside, As well as from the domestic market, it was proposed to introduce certain restrictions on the investment activities of foreign companies in industries of particular importance for ensuring national security ^{[2, pp. 79, 82]}.

Federal Law No. 160-FZ dated 09.07.1999 "On Foreign Investments in the Russian Federation" (hereinafter – Law No. 160-FZ) in Article 18 since 1999 establishes the requirements on the obligation of a foreign investor to comply with antimonopoly legislation and prevent unfair competition and restrictive business practices, including by creating a commercial company in the territory of the Russian Federation an organization with foreign investments or a branch of a foreign legal entity for the production of any goods in high demand, and then self-liquidation in order to promote a similar product of foreign origin to the market, as well as through a malicious agreement on prices or on the distribution of markets for goods or on participation in auctions (auctions, contests).

At the same time, the concept of "economic security" covers a wider range of issues, since it means "the protection of the country's economy and its regions, economic entities from internal and external threats, allowing for sustainable socio-economic development of the Russian Federation, decent quality and standard of living, sovereignty, independence, territorial integrity and reliable defense capability countries" ^{[3, p. 7]}.

Currently, in order to ensure the defense of the country and the security of the state, the legislation on foreign investment establishes rules on the need for mandatory preliminary approval by the Government Commission for the Control of Foreign Investment in the Russian Federation (hereinafter referred to as the Government Commission) of transactions and other actions of foreign investors, a group of persons that includes a foreign investor, planned by them to commit in in relation to business entities that occupy a dominant position in the market in certain sectors of the economy, as well as the possibility of submitting transactions of foreign investors planned to be made in relation to business entities that occupy a dominant position in any market of goods (works, services) to a Government Commission by decision of its chairman, who is ex officio the Chairman of the Government of the Russian Federation.

A government commission may decide to approve a transaction (other action), to refuse such approval, or to approve it, provided that certain obligations are imposed on a foreign investor (for example, to fulfill the company's business development plan, maintain the average number of employees, ensure that the company maintains production volumes and product supplies at a level not lower than the previous one the date of the transaction).

The obligation to obtain the consent of the Government Commission for transactions and other actions of foreign investors (a group of persons that includes a foreign investor) follows from Federal Law No. 57-FZ dated 04/29/2008 "On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for Ensuring National Defense and State Security" (hereinafter – Law No. 57-Federal Law), since economic entities that occupy a dominant position in the market in certain sectors of the economy are recognized as business entities of strategic importance for ensuring the defense of the country and the security of the state.

Thus, paragraph 36 of Article 6 of Law No. 57-FZ refers to strategic activities the provision of services by an economic entity in the areas specified in paragraph 1 of Article 4 of Federal Law No. 147-FZ dated 08/17/1995 "On Natural Monopolies" (hereinafter - Law No. 147-FZ), with the exception of public telecommunication and public postal services communications, services for the transmission of thermal energy and the transmission of electric energy through distribution networks, services in ports.

Therefore, strategic activities include the provision of services in any of the following 12 areas of activity of natural monopoly entities listed in paragraph 1 of Article 4 of Law No. 147-FZ: transportation of oil and petroleum products through main pipelines, rail transportation, services in transport terminals, airports, operational dispatch management services in the electric power industry, the use of the infrastructure of inland waterways, the burial of radioactive waste, water supply and sanitation using centralized systems, communal infrastructure systems, icebreaking wiring of ships, ice pilotage of ships in the waters of the Northern Sea Route.

First of all, the subjects of natural monopolies should be recognized as an economic entity occupying a dominant position in the commodity market, since their position is presumed by virtue of a direct indication of this circumstance in Part 5 of Article 5 of Law No. 135-FZ.

It should be noted that in order to classify a business company as a natural monopoly entity, the fact of carrying out a natural monopoly type of activity and the availability of infrastructure for the provision of natural monopoly services is important. At the same time, it does not matter whether such a company is included or not in the register of subjects of natural monopolies, which is maintained by the Federal Antimonopoly Service (hereinafter – the FAS of Russia) as part of the control of the activities of subjects of natural monopolies. Inclusion in this register is mainly declarative in nature, and the register itself is actually of a reference nature. Thus, the absence of a business entity in the register of natural monopoly entities cannot indicate that it does not have the status of a natural monopoly entity (see, for example, the ruling of the Supreme Court of the Russian Federation dated 10/27/2017 No. 305-ES17-12788).

With regard to paragraph 36 of Article 6 of Law No. 57-FZ, it should also be noted that in order to control transactions of foreign investors planned to be made in relation to business entities for which water supply and (or) sanitation is not the main type of activity, provided that the book value of the property used for this type of activity is For the last three years, it has not exceeded 1% of the book value of the assets of such companies, Law No. 57-FZ provides for a simplified procedure for approving transactions (Article 10.1 of Law No. 57-FZ), in which a transaction can be agreed without its submission to a Government Commission directly by a decision of the FAS of Russia, which is authorized to perform functions to monitor the implementation of foreign investments (paragraph 3 of the Decree of the Government of the Russian Federation dated 07/06/2008 No. 510 "On the Government Commission for the Control of Foreign Investments in the Russian Federation").

Paragraph 37 of Article 6 of Law No. 57-FZ refers to strategic activities as the provision of certain communication services, services in ports by an economic entity occupying a dominant position within certain geographical boundaries of the commodity market.

In the field of communications, strategic activities include the provision of communication services within the geographical boundaries of the Russian Federation (with the exception of Internet access services), as well as fixed-line telephone services in the territories of five or more subjects of the Russian Federation or within the geographical boundaries of cities of federal significance (Moscow, St. Petersburg, Sevastopol).

A communication service is defined as the activity of receiving, processing, storing, transmitting, and delivering telecommunication messages or mail (Article 2 of Federal Law No. 126-FZ dated 07.07.2003 "On Communications", hereinafter – Law No. 126-FZ).

At the same time, for the purposes of applying Law No. 57-FZ, the economic entity occupying a dominant position in the mobile radiotelephone services market is a communications operator (a legal entity or individual entrepreneur providing communication services on the basis of an appropriate license), whose share in this market within the geographical boundaries of the Russian Federation exceeds 25% established by the antimonopoly authority (Part 4 Article 21 of Law No. 126-FZ).

It is necessary to pay attention to public telecommunication and public postal services, which are excluded from paragraph 36 of Article 6 of Law No. 57-FZ. At the same time, such services, in accordance with paragraph 1 of Article 4 of Law No. 147-FZ, belong to the spheres of activity of natural monopoly entities and, taking into account the already mentioned presumption of a dominant position (Part 5 of Article 5 of Law No. 135-FZ), business entities providing these services are recognized as strategic business entities on the basis of Paragraph 37 of Article 6 of Law No. 57-FZ.

For other services listed above in the field of communications, the general criteria for determining the presence of a dominant position established by Article 5 of Law No. 135-FZ are applied, while the minimum possible quantitative criterion for a share in the commodity market, allowing to conclude that an economic entity has a dominant position, is a share of at least 35% (if available other circumstances provided for by Law No. 135-FZ characterizing the qualitative conditions of functioning of such a commodity market).

In the field of port services, strategic activities are recognized as the provision of any of the 13 types of services in seaports and any of the seven types of services in river ports specified in the decree of the Government of the Russian Federation dated 06/17/2016 No. 1249-r, if the organization providing such services occupies a dominant position within the boundaries of the port.

A seaport is understood as its territory and the totality of seaport infrastructure facilities located within the boundaries of this territory, used to carry out activities for commercial navigation, including for the provision of services (paragraph 1 of Article 9 of the Commercial Navigation Code of the Russian Federation dated 30.04.1999 No. 81-FZ, hereinafter referred to as the Commercial Navigation Code).

Merchant shipping refers to activities related to the use of ships for the transportation of goods, passengers and their baggage, including on the sea line (including operations for loading, unloading cargo and baggage, boarding, disembarking passengers), and (or) towing, as well as cargo storage; fishing; conducting marine resource research; exploration and development of mineral and other non-living resources of the seabed and its subsoil; pilotage, ice pilotage and icebreaking; search and rescue operations; removal of sunken property at sea; hydraulic engineering, underwater engineering and other similar works; sanitary, quarantine and other control; protection and preservation of the marine environment; conducting marine scientific research; educational, sports and cultural purposes; other purposes (Article 2 of the Code of Merchant Shipping).

The list of services in the seaport, the provision of which is recognized as strategic activities, includes: ensuring the safety of navigation, passage of ships through approach channels, pilotage of ships, emergency rescue readiness and readiness to eliminate emergency oil spills, icebreaking provision of year-round navigation, provision of lighthouse structures and equipment, sash signs, vessel traffic control systems in the port, berths, cargo loading and unloading, cargo storage, ship maintenance at ferry crossings, passengers, coordination of search and rescue operations.

At the same time, for the purposes of applying Law No. 57-FZ, an economic entity occupying a dominant position in the market for the provision of services in seaports is an economic entity whose share in this market within the boundaries of the seaport territory exceeds 20% established by the antimonopoly authority (Part 10 of Article 17 of Federal Law No. 261-FZ dated 08.11.2007 "On Seaports ports in the Russian Federation and on amendments to certain legislative acts of the Russian Federation").

A river port is a complex of structures located on a land plot and the water area of inland waterways (inland waterway communication routes determined by the Government of the Russian Federation), equipped and equipped for the purpose of servicing passengers and ships, loading, unloading, receiving, storing and issuing goods, interaction with other modes of transport (Article 3 of the Inland Waterway Code Transport of the Russian Federation No. 24-FZ dated 07.03.2001, hereinafter referred to as the Code of Inland Waterway Transport).

Inland waterway transport is one of the modes of transport, which is a production and technological complex with its member organizations engaged in navigation and other navigation–related activities on the inland waterways of the Russian Federation.

Shipping is an activity related to the use of vessels on inland waterways for the transportation of goods, passengers and their luggage (including operations for loading and unloading cargo and luggage, boarding and disembarking passengers), mail, towing ships and floating objects, conducting prospecting, exploration and mining, construction, travel, hydraulic engineering, underwater engineering and other similar works, pilotage and icebreaking, rescue operations, measures to protect water bodies, protect them from pollution and clogging, lifting sunken property, carrying out control measures, conducting scientific research, for educational, sports and cultural purposes, and other purposes of inland waterway transport.

Services in river ports, the provision of which is recognized as strategic activities, include: ensuring the safety of navigation, pilotage of ships (in-port wiring), preparedness for emergency oil spill response, provision of berths, loading and unloading of cargo, cargo storage, passenger service.

For the purposes of applying Law No. 57-FZ, an economic entity occupying a dominant position in the market for the provision of services in river ports is an economic entity whose share in this market in a river port exceeds 20% established by the antimonopoly authority (Part 3 of Article 59 of the Code of Inland Waterway Transport).

It should be noted that in accordance with paragraph 1 of Article 4 of Law No. 147-FZ, the spheres of activity of natural monopoly entities include services in transport terminals, the use of inland waterway infrastructure, icebreaking wiring of ships, ice pilotage of ships in the waters of the Northern Sea Route. Taking into account the above-mentioned presumption of the dominant position of a natural monopoly entity (Part 5 of Article 5 of Law No. 135-FZ), business entities providing the listed services are recognized as strategic business entities simultaneously under two paragraphs of Article 6 of Law No. 57-FZ (paragraphs 36, 37).

The peculiarities of determining the dominant position of an economic entity in order to recognize the presence or absence of its status as a strategic business entity, in comparison with the rules of antimonopoly legislation, in addition to the above–mentioned exceptional provisions on quantitative indicators - the size of shares in the commodity market, is also the absence of the need to analyze the state of competition in the commodity market in the manner regulated by the order of the Federal Antimonopoly Service of Russia dated 04/28/2010 No. 220 "On Approval of the Procedure for Analyzing the State of Competition in the Commodity Market" (hereinafter referred to as FAS Order No. 220) and is applied primarily when considering cases of violation of antimonopoly legislation.

"In this case, the procedure for determining the share of an economic entity in the relevant commodity market is regulated by the norms of special legislation regulating the procedure for foreign investments in business entities of strategic importance for ensuring the country's defense and the security of a state with other goals and subject matter of regulation. At the same time, the information necessary to determine the share is established based on the parameters defined at the legislative level" (see: resolution of the AC of the North Caucasus District of 06/16/2022 in case No. A53-16168/2021). Order No. 220 of the Federal Antimonopoly Service of Russia "establishes an exhaustive list of violations of antimonopoly legislation in which the antimonopoly authority must conduct an analysis of the state of competition in accordance with the established procedure" (see: Resolution of the AC of the Volga Region dated 08/07/2019 in case No. A57-19729/2018). The provisions of Law No. 57-FZ are not included in this list.

Considering that the necessary parameters (product and geographical boundaries of the market) are established directly at the legislative level by the relevant (sectoral) legislation, the presence of a dominant position for the purposes of regulating Law No. 57-FZ can be confirmed by a set of evidence that allows determining the share of an economic entity in the relevant commodity market. Such evidence may be, for example, data from contractors of a business company confirming the fact of using products (works, services) purchased from it, information from potential manufacturers of products (works, services) similar to those produced by the company, as well as publicly available information from the company's official website on the Internet about the company's positioning itself as a leader market positions (see: Judicial acts in case no. A76-37167/2020).

In accordance with Article 6 of Law No. 160-FZ, by decision of the Chairman of the Government Commission, on the basis of information provided by the FAS of Russia, taking into account the positions of interested federal executive authorities, in order to ensure national defense and state security, transactions of foreign investors planned to be made in relation to any business entities may be submitted to the Government Commission for consideration. At the same time, paragraph 10 of Article 6 of Law No. 160-FZ provides criteria for business entities, transactions of foreign investors in respect of which are necessarily subject to the evaluation procedure of the FAS of Russia together with interested authorities for the presence or absence of the need to inform the chairman of the Government Commission about such transactions in order to make a decision on the presence or absence of the need for their consideration at the meeting of this commission.

Sub-paragraph 3 of paragraph 10 of Article 6 of Law No. 160-FZ refers to such business entities as organizations that occupy a dominant position in the commodity market. In this case, it is necessary to proceed from the general and special rules established by the antimonopoly legislation to determine the dominant position in the commodity market, and not from the above criteria provided exclusively for the purposes of applying Law No. 57-FZ in determining the dominant position of economic entities operating in certain commodity markets.

The signs and basic rules for the establishment by the antimonopoly authority of the dominant position of an economic entity in the commodity market are fixed in Article 5 of Law No. 135-FZ, and the procedure for analyzing the state of competition in the commodity market in order to determine the dominant position – by order of the Federal Antimonopoly Service of Russia No. 220.

As already noted above, the minimum quantitative value of the market share, in the presence of which a dominant position can be established, as a general rule, is 35% (subject to other qualitative criteria reflecting the conditions of the functioning of the commodity market). The exceptions to this rule are the presence of so-called collective dominance in the market, as well as special rules established by sectoral federal laws, the norms of which are part of the antimonopoly legislation.

Thus, sub-paragraph 3 of paragraph 10 of Article 6 of Law No. 160-FZ is subject to application not only if a business company has an individually dominant position in the commodity market, but also if such dominance is determined based on the presence of the so-called collective dominant position of several business entities that are not part of the same group of persons, in accordance with Part 3 of Article 5 of Law No. 135-FZ.

In addition, for the purposes of antimonopoly control, special rules have been established for determining the presence of a dominant position, for example, in the field of electric power industry.

Based on Part 3 of Article 25 of Federal Law No. 35-FZ dated 03/26/2003 "On Electric Power Industry" (hereinafter – Law No. 35-FZ), the provisions of sub-paragraph 3 of paragraph 10 of Article 6 of Law No. 160-FZ are subject to application to business entities if at least one of the following conditions is fulfilled:

– the share of the installed capacity of its generating equipment or the share of electric energy generation using the specified equipment within the boundaries of the free flow zone exceeds 20 %;

– the share of purchased or consumed electric energy and (or) power within the boundaries of the corresponding free flow zone exceeds 20%.

In turn, the dominant position of a financial institution is recognized as the position of such an organization, in respect of which the following conditions are fulfilled in aggregate:

– the share of this organization exceeds 10% in the only commodity market in the Russian Federation or 20% in the commodity market, in which the goods are also traded in other commodity markets in the Russian Federation;

– the share of a financial institution in the commodity market for a long period of time (at least 1 year or during the lifetime of the relevant commodity market, if such a period is less than 1 year) increases and (or) invariably exceeds 10% in the only commodity market in the Russian Federation or 20% in the commodity market in which the goods are traded It also applies to other commodity markets in the Russian Federation (Decree of the Government of the Russian Federation dated 06/09/2007 No. 359 "On Approval of the conditions for Recognizing the dominant Position of a financial institution (with the exception of a credit institution) and the rules for establishing the dominant position of a financial institution (with the exception of a credit institution)").

However, it should be borne in mind that the provisions of sub-paragraph 3 of paragraph 10 of Article 6 of Law No. 160-FZ do not apply to banks, other credit organizations and insurance organizations due to the exclusion from the scope of Law No. 160-FZ of investment relations in these organizations (paragraph 2 of Article 1 of this law).

In accordance with sub-paragraph 4 of paragraph 10 of Article 6 of Law No. 160-FZ, this article certainly applies to transactions of foreign investors in relation to guaranteeing suppliers of electric energy, unified heat supply organizations, regional operators for the treatment of solid municipal waste, which in practice, as a rule, occupy a dominant position in the commodity market due to their the status and features of the functioning of the relevant commodity markets.

A guaranteeing supplier of electric energy is a commercial organization engaged in energy marketing activities, to which the status of a guaranteeing supplier has been assigned in accordance with the procedure established by the legislation on electric power industry, in connection with which such an organization is obliged, in accordance with Law No. 35–FZ, to conclude an energy supply agreement, an agreement for the purchase and sale (supply) of electric energy (capacity) with any applicant to it by the consumer of electric energy or with a person acting on his own behalf or on behalf of the consumer of electric energy and in the interests of the specified consumer of electric energy and wishing to purchase electric energy (Article 3 of Law No. 35-FZ).

A unified heat supply organization in a heat supply system is a heat supply organization to which such a status in relation to a heat supply system(s) has been assigned by a federal executive body authorized to implement state policy in the field of heat supply, or a local government body and which is obliged to provide thermal energy to consumers in its area of activity, and is also responsible for reliability and quality heat supply (clause 28 of Article 2 and other provisions of Federal Law No. 190-FZ dated 07/27/2010 "On Heat Supply").

A regional solid municipal waste management operator is a legal entity to which such status has been assigned on the basis of a competitive selection conducted by the authorized executive body of a constituent entity of the Russian Federation, and which is obliged to conclude a contract for the provision of solid municipal waste management services with the owner of solid municipal waste that is generated and the places of accumulation of which are located in the area of activity of the regional operator (Article 1, Part 4 of Article 24.6 of Federal Law No. 89-FZ dated 06/24/1998 "On Production and Consumption Waste").

It is also necessary to take into account the provisions of sub-paragraph 7 of paragraph 10 of Article 6 of Law No. 160-FZ, which provides for the application of this article to transactions of foreign investors in relation to strategic business entities (which, as indicated above, include individual dominant business entities), if the transaction made by a foreign investor in relation to such a company is not subject to mandatory approval in accordance with the procedure provided for by Law No. 57-FZ (for example, in the case of an intra-group transaction provided for in Part 4 of Article 4 of Law No. 57-FZ).

Thus, the specifics of foreign investments in business entities that occupy a dominant position in the commodity market are predetermined by constitutionally significant goals to ensure the country's defense and state security and consist in the need to obtain additional regulatory approvals from the Government Commission, assess the risks of threats to the country's defense and state security, as well as special rules for determining the presence or absence of the dominant position of a business entity in the commodity market in relation to the objectives of Law No. 57-FZ. At the same time, it does not matter the book value of assets and the amount of revenue of a foreign investor, a group of persons to which he belongs, as well as a business company whose assets are planned to be acquired by a foreign investor (a group of persons to which a foreign investor belongs), unlike, for example, transactions subject to preliminary approval by the FAS of Russia within the framework of antimonopoly control in accordance with Law No. 135-FZ.