State Aid control rules entered into force in Ukraine and Vertical Block Exemption Regulation to be adopted in autumn 2017

State Aid control rules entered into force in Ukraine

On 2 August 2017, the Law of Ukraine "On State Aid to Undertakings" (the "Law"), adopted on 1 July 2014, fully entered into force. As requested under the Ukraine EU Association agreement, this Law provides a legal framework for regulatory control on state aid measures to business undertakings which distort competition. The state aid framework is to be applied and interpreted in compliance with EU regulations, guidelines and case law.

According to the Law, from 2 August 2017:

  • The Antimonopoly Committee of Ukraine (the "AMC") is entrusted with the monitoring of state aid, reviews of state aid applications, granting clearances for state aid and investigating instances of illegal state aid;
  • Grants, subsidies, tax reliefs and deferrals, debt write-offs, state guarantees, soft loans, capital injections on non-market terms and other forms of selective benefits constitute state aid if granted to an undertaking by public authorities through state or local resources on a selective basis that could distort competition;
  • New state aid measures exceeding EUR 200,000 per undertaking over a period of three fiscal years require the preliminary approval of the AMC;
  • State aid existing as at 2 August 2017 must be notified to the AMC by 2 August 2018, and aligned with state aid rules by 2 August 2022 following the AMC's review; and
  • Beneficiaries of existing state aid must repay it if the AMC finds such state aid incompatible with competition and thus unlawful (subject to a 10-year limitation period).

Vertical Block Exemption Regulation to be adopted in autumn 2017

On 3 August 2017, the AMC has approved the draft Vertical Block Exemption Regulation (the "Draft Regulation") following public discussions. The Draft Regulation provides guidance for the assessment of anti-competitive effects of vertical agreements based on the Regulation of the European Commission No. 330/2010. The Draft Regulation provides (i) a block exemption for certain categories of vertical agreements where the absence of anticompetitive effect may be presumed and (ii) a list of hardcore and other restrictions not covered by the block exemption.

Unlike the EU, parties can implement vertical agreements containing hardcore and/or other vertical restraints – described in p. 2.1. and 2.2. below – only after obtaining an individual exemption of the AMC if they prove that economic benefits from the agreement that outweigh the negative effects of the restriction of competition.

According to the Draft Regulation:

1. Block exemption applies to vertical agreements:

  • where the market share of each of the seller and the buyer is 30% in the relevant market(s);
  • concerning intellectual property rights if these provisions are directly related to the use, sale or resale of the goods or services;
  • between an association of retailers and either its (a) members or (b) suppliers, if no individual member of the association, together with its connected undertakings, has a total annual turnover in Ukraine > EUR 25 million; and
  • where the subcontractor undertakes to produce certain products exclusively for the contractor which provide the required technology or equipment to produce the products (subject to exceptions).

The vertical agreements mentioned above may be implemented without the approval of the AMC, as the absence of anticompetitive effects is presumed.

2. Block exemption does not apply to:

2.1. vertical agreements containing the following hardcore restrictions:

  • resale price restrictions (except for establishing maximum and/or recommended prices);
  • restrictions by territory / customers (except for restrictions on active sales into exclusive territories of other distributors; sales by wholesale distributors to end customers; sales to unauthorised distributors within selective distribution; sales of components for the finished goods to customers who intend to manufacture goods similar to those of the supplier(s));
  • restrictions on active or passive sales to end customers by authorised retailers;
  • restrictions on cross-supplies between authorised distributors; and
  • restrictions on sales of spare parts to end customers or to repairers.

2.2. other types of vertical restraints, being:

  • non-compete obligations for a period of more than 5 years (subject to exceptions);
  • a buyer’s obligation not to manufacture, purchase, sell or resell goods after termination of the agreement (subject to exceptions); and
  • a distributor's obligation in a selective distribution system not to sell the goods of certain supplier’s competitors.

If you would like to receive further information in connection with the above, please contact Dmytro Fedoruk or Anastasia Usova.