The Organization for Economic Co-operation and Development (OECD) has endorsed the Recommendation of the Council on Competitive Neutrality, which calls on countries to ensure that the principles of competitive neutrality are respected, without unreasonably impeding, restricting, or distorting competition in the market. The Latvian Competition Council (CC) has been monitoring the regulation of competitive neutrality since 2020, which requires observance of equal rules of the game for both private and public market participants.
The OECD has been addressing the issue of competitive neutrality in various aspects since 2004. On 31 May this year, by endorsing the Recommendation of the Council on Competitive Neutrality, the OECD called on nation-states to provide a legal framework that would ensure a level playing field with state and municipal companies for already existing and potential private companies. This applies to the obligation to develop and adopt a neutral regulatory framework, including to identify unjustified restrictions on competition in the framework through a competition assessment. Public administrative bodies’ owned capital companies cannot control that market at the same time. The recommendation also emphasizes the need to establish fair and non-discriminatory conditions of competition in public procurements in that way no groundless advantage is conferred on a particular company.
Member of the CC’s Council, Jānis Račko: “The OECD, by developing recommendations for countries, has taken an important step to harmonize the principles of creating a fair and neutral business environment also at international level. Distortions of competition between public administrative bodies are an equally topical problem in Latvia and other countries. Therefore, with the approval of the recommendations, OECD member states are obliged to set an example of the practical implementation of the principles of competitive neutrality at national level. Latvia is one step ahead of other countries, considering that practical monitoring mechanisms already exist in our legislation on how to ensure the observance of competitive neutrality.”
The CC had already started active discussions with entrepreneurs and policymakers several years before the law was adopted on the inclusion of the principle of competitive neutrality in the Competition Law, while providing the competition supervisor with broader powers to address distortions of competition caused by public administrative bodies. The regulation of neutrality included in the Competition Law entered into force in 2020. This was the first year of monitoring competitive neutrality in Latvia, and the CC received a total of 200 applications related to the activities of public administrative bodies, including possible distortions of competition. At the same time, the first year of supervision was spent in the “Consult first” sign, thus actively educating public administrative bodies, conducting market surveillance, and addressing possible violations through negotiations.
The Head of the Competition Promotion Division of the CC, Antis Apsītis: “The “Consult First” period provides an opportunity for public individuals to understand better the importance of competitive neutrality and the essential role of public administrative bodies in complying with these principles.
It is also important to remind that the regulation included in the Competition Law is not declarative, but it also provides that in case of unsuccessful negotiations, the CC is entitled to impose disciplinary sanctions on public administrative bodies’ companies - a fine of up to 3% of previous year's turnover.