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Review of the guideline on the fair conduct between suppliers and retail chains

The RA Committee of the protection of economic competition (Competition authority) has activated its actions towards the check-ups and market revisions. Recently, the Competition authority has initiated several meetings with undertakings of different spheres. Particularly the Competition authority introduced and put for discussion the guideline named “rules of fair conduct between suppliers and retail chains” (Guideline).

Implementation of such a guideline is indeed a fair approach from the Competition authority perspective as it is intended not to fine but to prevent possible misconduct of the undertakings involved in the relevant market. The necessity of the Guideline itself, is arising from recently introduced and implemented section 5 (named “Strong Negotiating Position”) of the RA law “On protection of the economic competition” (enters into force as of 31st of May 2021).

Worth to mention that, the Guideline is using vague terms and inconsistent definitions which in any case does not fade of the. This for sure gives advantage to the Competition authority in case if the latter decides to incorporate guidelines in the laws or codes which are already mandatory to comply with.

The guideline is divided into 3 sections:

1. General provisions.

2. Supplier selection conditions and criteria, entrance of the new supplier into the retail chain(s).

3. Supply contract.

In the first section it is underlined that the Guideline has advisory character. That simply means that those “rules” are not mandatory for the implementation yet. However, such advisory character is arguable. The wording and style of the document suggest that sooner or later those rules are will transition and become obligatory to comply with for the involved undertakings.

Second section represents how shall the supplier selection/approval process to be undertaken to decide on the matter of their representation in the retail chain (such as for example: a supermarket). The Guideline is intended to assure an equal competitive conditions and criteria for the possible suppliers.

Particularly, undertakings shall refrain from stipulation and enforcement of any unreasonable discriminatory criteria and discriminatory conditions during their commercial activities. It is undeniable that such discriminatory criteria or condition may be ascribed only by the recipient undertaking, i.e., retail chain. However, there are exceptions prescribed by the Guideline for the cases if the denial of acceptance is grounded, balanced and reasonable.

Advise or an obligation:

It shall be highlighted that despite its advisory character the guideline includes imperative provision as well. Particularly, there is a prescribed obligation for the retail chain to make accessible for the potential suppliers those criteria and conditions based on which the suppliers’ application will be assessed.

However, it is uncertain what does the Competition authority consider as “making accessible” for the suppliers. This uncertainty is based on the fact that in one place, the Guideline it demands from the retail chain to make those criteria accessible to the potential supplier and in other mentions publication as a demand of such criteria.

As the Competition authority itself highlighted mentioned demand of publication does not require special means for that. That simply means that publishing anywhere, including official website or any other platform that the undertaking is primarily using and is largely accessible shall be considered as compliance to the publicity requirement.

Timelines?

Worth to mention that the Guideline includes timelines which are arguably short. Particularly, the guideline limits retail chains’ decision-making processes to 15 days period since the date when supplier’s offer is received.

If we consider that during that specific process the retail chain shall in dept inspect all relevant information about supplier and its offered products, the said period is not only short but is also unrealistic. It is understandable that the Competition authority intends to stand on the side of those who have weak negotiating position. However, with such short timelines practically the Competition authority may increase the rejection rates for the potential suppliers that are new to the market.

 Third section describes the key points of the supply agreement that shall be reflected in the Contract. However, it shall be noted that those key points are already referred to in the Civil Code of RA. Therefore, we don’t consider it reasonable to include those essential points into the Guideline.

All these said, one shall not forget that retail chains or even major retail platforms are not considered in this guideline, at least yet. This is an issue considering today’s reality, where due to many factors (including: COVID 19), the market share of e-commerce has significantly increased.

As a conclusion, it will be fair to highlight that the Guideline may be called one sided, considering the fact that it touches upon to those cases only, where the retail chains have the strong negotiating position. Moreover, it does not consider the e-commerce chains or platforms as a retail chain. However, taking into account that there is high possibility that in the future the rules provided by the Guideline will become part of the law all the above mentioned and raised issues shall be resolved.

 

Author: Arthur Buduryan/Partner


Disclaimer:

This material is produced by Legelata LLC. The material contained in this newsletter is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this material.

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