1 Competition, Regulation and Development CUTs Project Interim Meeting: Advocacy and Capacity Building on Competition Policy and Law in Asia Frederic Jenny

1

Competition, Regulation and

Development

CUTs Project Interim Meeting:

Advocacy and Capacity Building on Competition Policy and Law in Asia

Frederic JennyCour de Cassation

Chair OECD Competition CommitteeProfessor of Economics ESSEC, France

16-17 August , Hanoi Vietnam

2

Issues to be addressed

1) Competition law enforcement, regulation and the development dimension: a comparative static view

2) Different aspects of interactions between regulation and competition in the development process: a dynamic view

3) The overlap between competition law enforcement and regulations: practical problems

4) Managing the interface

3

1) Competition, Regulation and Development a Comparative Static View

4

Competition Law Enforcement

Competition Policy

Socio Political goals

Market Failures


Competition Policy

Political Regulation

Technical Regulation

Development Stage 1

Development Stage 2

Market Failures :Small scale, incomplete market, informal sector, externalities, information asymetries

Socio Political Goals: Growth, Fairness, Security, Independance,Environment vs EfficiencyLimited scope for competition law enforcement

As a result of growth: larger markets, higher level of education and therefore more market opportunities and fewer market failures

Competition policy and competition law enforcement play a more important role

Development Stage 1

Development Stage 2

5

2) Different Aspects of Interaction between Regulation and Competition in the

Development Process: A Dynamic View

6


Competition Policy


Market Failures


Competition Policy


Technical Regulation

Development Stage 1

Development Stage 2


Competition Policy


Market Failures

7

Overinclusive or Misguided Technical Regulation Can Unnecessarily Limit

Competition


Competition Policy


Market Failures

Ex Cambodia:

« (…) The reserve requirement is 8% for banks and 5% for micro-finance institutions. However in practice the banks must maintain 10% of capital as a form of guarantee. This ideal reserve increases bank’s operational cost and eventually increases consumer interest rate ».

8

Regulations Dictated by Socio-Political Goals Can Prevent Competition

and Development


Competition Policy


Market Failures

EX: Cambodia: - « Quantitative restrictions onpharmaceutical products, gold, silver ornaments, ammunitions and various cultural and medical materials;

-Regulation prohibiting imports of pork, motorbike tyres, right hand drive vehicles, used footwear

-Local level restrictions: ex in Preah Vihear province the governor issued a regulation authorising only one person to conduct the sale of eggs ».

9

Competition Policy ( including Trade Liberalisation) Can Help Eliminate Political

Regulations


Competition Policy


Market Failures

Ex Cambodia: « Cambodia has proactively integrated itself into regional and global markets. The country has become a member od Asean since april 1999 and agreed to gradually reduce tariff rates by 2010 under the AFTA schemes.

In September 2003, Cambodia was fully admitted to the WTO with a package of membership deal that include concessions and commitments to reduce tariffs of goods, open the service sector and comply with TRIPs »

10

Competition, Regulation and Development: A Dynamic View


Competition Policy


Market Failures


Competition Policy


Sectoral Regulation

Development Stage 1

Development Stage 2


Competition Policy


Market Failures

11

Competition and Regulation

Antitrust Enforcement

Competition Policy:Ministry of Commerce

Ministry of Finance

Political Regulations: Government

CourtsLocal Authorities

Sectoral Regulator:Telecom regulator

Electricity RegulatorRail Regulator

Banking RegulatorSecurities Regulator

Ad

vocatin

g fo

r Co

mp

etition

Organizing the interface

Regulatory Reform

12

3) The Overlap Between Competition

Law Enforcement and Sectoral

Regulation: Practical Problems

13

The Goals of Sectoral Regulation and Competition Law Enforcement

Sectoral Regulation aims at:-Structuring the market ( granting licenses) to establish

competition ( if possible)-Regulating firm performances ( rates, quantities, return) if

competition cannot be established- Promoting and monitoring efficiency

Competition Law Enforcement aims at:- Preventing and sanctioning practices or transactions which

might pervert pre-existing competition

14

Essential facility: fixed network

Former monopolist

Competitive fringe

Competitors

Public serviceMonopoly

Tariffs of public service

Dominance

Sq

ueeze ?Subsidies

Abusively low prices

Abusively high prices

Subsidization of competitive activity

Preven

ting en

try

Tying

Licensing

Interconnection: price and conditions

Disputesettlement

Frederic Jenny

15

Examples of Overlap Between the Regulatory and the Competition Enforcement

ApproachesLicensing conditions- The number of licensees and the conditions of their

licences will have an effect on the intensity of competitionMarket definition and assessment of dominance:- by regulator to establish which operators must offer

interconnection- by competition authority to establish if an operator abuses

its market power Pricing- Price set by regulators for interconnection will determine

the extent of price competition (or lack of competition) at the downward level

Remedies

16

4) Managing the Interface

17

18

The Disenchantment of Latin Americans with Privatizations

19

Competition Authority Role in Sectoral Regulation

Advantages- Less risk of capture by some players- More consistency in the enforcement of competition law

accross sectors- Intervention limited to the minimumDrawbacks- Slowness of response (because of quasi judicial procedures) - Risk of contamination of competition law enforcement inother sectors- Lack of technical expertise- Risk of blurring the perception of the competition authority

20

No Unique Model

New Zealand : no sectoral regulation/ antitrust law

United States: from regulation to antitrust law and back to sectoral regulation

Australia : integration of regulation and antitrust

Europe: the mandate driven division of labor between sectoral regulators and competition authorities

Frederic Jenny

21

Managing the Interface in a Mandate Driven Division of Labor Model: Tip 1

Think of the interface problem ahead of time (consistent andcomprehensive provisions in the competition law and in thesectoral laws)

Example: Cambodia:

« The draft law on telecommunications is being prepared bythe Ministry of Posts and telecommunications of Cambodia(…) Competition legislation has also been on thegovernment’s priority list to be drafted »

Will the laws be consistent?

22


Technical regulators must be independent from business interests or government influence

Example: Cambodia

« There is no independent regulator or policy-making body in the telecommunications sector since the MTPC is at the same time regulator and one of the market operators. Therefore there is often some sor of conflict of interests in favour of the state sector. For example, the MTPC issued a regulation banning the Voice-over-Internet- Protocol facility that offers oversea calls at very low costs. The reason behind the VoIP prohibition is simply that the VoIP facility would reduce state revenue from the telecom industry, which contributes as much to the State budget as any other sector »

23


Regularly review technical regulations to assess whether they are still needed or whether there would be more efficient ways to achieve their policy goals

24


The allocation of responsibilities between the competition authority and the technical regulators must be clear if there is a mandate driven division of labor ( avoid overlaps)

25


Ensure that there are no gaps (i.e. that competition law applies in the absence of sectoral regulation)

Example Cambodia:

« The absence of some important regulations and procedures has also limited the sope of competition in the banking sector »

26


Establish a procedure of transparent mutual consultation ( or joint decision making) on topics of common interest to the competition authority and the sectoral regulators

27

Thank You

[email protected]

Documents

1 Competition, Regulation and Development CUTs Project Interim Meeting: Advocacy and Capacity Building on Competition Policy and Law in Asia Frederic Jenny