The times when most foreign automobiles were brought into Russia by gray dealers to be resold without the manufacturer's warranty have long gone. Following the active entry into the Russian market of major international automobile manufacturers, the industry seems to have taken its shape without significant interference from the Russian competition law authorities. The market is represented now by the manufacturers, some of which maintain production operations in Russia, and the manufacturers' authorized network, consisting of distributors or wholesalers importing automobiles and spare parts into Russia, and dealers, which, in most cases, combine the function of authorized retail sellers of automobiles and spare parts with the function of authorized providers of repair and maintenance services. There is also an independent market segment that has traditionally existed outside of the manufacturers' network, which consists primarily of independent providers of repair services and suppliers of spare parts.
While the Russian automotive industry was evolving into its present form, European competition law and practice was being amended, with the aim of allowing easier access for independent players to the European motor vehicle aftermarket. In late 2011, following the trend launched by its European colleagues more than two decades ago, and after having completed its examination of the Russian automobile industry, the Russian Federal Anti-Monopoly Service (FAS) identified several forms of what it claims are anti-competitive practices having a negative effect on the market of wholesale and retail sale of spare parts, motor vehicles, and repair and maintenance services. The FAS, in its attempts to reform the market, is focusing primarily on authorized distributors establishing excessively burdensome terms of participation in the dealership and repair services network. It claims, for example, that the distributors, being in most cases the sole importers of motor vehicles and spare parts of a particular brand, are forcing their dealers to combine the functions of sale and repair of motor vehicles, are setting excessively short durations for dealership contracts, are imposing discriminatory terms on existing dealers, are limiting the dealers in choosing the suppliers of spare parts and repair equipment, or are establishing resale prices on spare parts.
The FAS' primary goal seems essentially to be the setting up of an accreditation procedure for repairers, enabling independent repairers to provide services under warranty, a relative liberalization of the criteria for the selection of dealers, the legalization of parallel importation of spare parts, and ensuring the access of independent repairers to manufacturers' technical information, software and repair equipment in order to help them achieve the required level of quality of their services.
Given that most of the profits in the aftermarket are generated by the sale of spare parts and repair and maintenance services (including the services provided under warranty), the campaign launched by the FAS may well result in, according to some experts and market participants, a dramatic structural change of the Russian automotive industry.
The FAS is taking the position that distributors, by virtue of their status as the sole importers of automobiles and spare parts, occupy a dominant position in their wholesale markets. This implies that a wide range of restrictions on dominance abuse provided by the Russian competition legislation may now apply, including restrictions against setting monopolistically high or low prices, refusals to trade, discrimination, and others. FAS’ investigative efforts will most likely target not only companies, but also their managers, who FAS claims are in many cases the architects of anti-competitive practices.
Some industry participants are concerned that the FAS’ initiatives may lead to a decline in the overall quality of repair services offered in the market, which may damage the reputation of the manufacturers. Others claim that subjecting independent repairers to accreditation procedures will result in an increase in the price of their services, and ultimately in financial losses for those authorized dealers, who have invested significant amounts into the opening of dealerships with the hope of recouping their investment through the sale of spare parts and the provision of warranty services.
Given the continuing harmonization of the Russian and European competition regulations, some change in the current legal enforcement practices seems to be inevitable. The effect of this change on the industry over the long-term will depend upon the success of the dialogue that the FAS has recently opened with the industry.
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Salans partners have been advising global businesses and financial institutions in the legal aspects of investment, trade and finance in Russia, the CIS and Central / Eastern Europe for over three decades.
According to Chambers & Partners, Legal 500 and PLC Which lawyer? Salans Russian Practice is widely recognised for its high quality of service and commitment to clients’ interests.
Salans’ Russian Competition Practice advises on various aspects of Russian competition law and natural monopolies law, including:
- Analysis of M&A and other transactions and actions subject to state regulation; transaction structuring
- Preparation and submission of applications for prior consent of the RF Federal Antimonopoly Service (or its territorial divisions) for M&A and other transactions and actions subject to state antimonopoly regulation; preparation and filing of subsequent notifications
- Preparation of group charts and group lists as required by law for filing with the RF Federal Antimonopoly Service
- Drafting and analysis of cooperation agreements, agency agreements, franchise agreements, distribution agreements and other commercial arrangements that are potentially problematic from an antimonopoly law point of view
- Advising corporate clients on antimonopoly law compliance, including analysis of dominant position issues, concerted actions, vertical arrangements, counteracting monopolistic activities and unfair competition practices
- Representing clients in litigation before courts and in administrative proceedings with the RF Federal Antimonopoly Service in cases of alleged violations of antimonopoly law.
Marat Mouradov is a partner at Salans’ Moscow office, head of Salans’ Russian competition law practice.
He is ranked among the best Russian competition law experts by Chambers Europe 2011 (Band 2). Marat Mouradov focuses his practice on dominance abuse, vertical and horizontal restraints as may be applicable to structuring of product distribution schemes, on various forms of unfair competition practices, on state procurement projects and on merger control filings. He has also represented a number of large international and Russian groups in investigations launched against them by the Russian antimonopoly regulator.
Marat Mouradov has handled a number of large-scale internal antimonopoly and compliance audits and investigations aimed at revealing and assessing legal risks.
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