Productivity Commission Dr Warren Mundy Commissioner Presentation to Central Institute for Economic Management Hanoi 1 June 2015 Regulatory Governance

Productivity Commission

Dr Warren Mundy

Commissioner

Presentation to Central Institute for Economic Management

Hanoi

1 June 2015

Regulatory Governance and Competitive Markets

Productivity Commission 2

What should the objectives of a competition framework be?

• Support the well being of the people as a whole: Foster the development of markets Prevent collusive behaviour Prevent the abuse of market power by dominant

firms Regulate appropriately those markets or

arrangements where competition is unlikely to be fully effective

Remain focused on the long term interests of consumers


A robust competition framework must address the following

• The competition law

• Institutional arrangements

• Transparency, credibility and accountability

• Regulator behaviour


The law must cover the full range of offences

Competition offences is selected APEC countries

Conduct Australia Malaysia New Zealand

Singapore US and Canada

Vietnam

Abuse of dominant position effecting competition

Abuse of dominant position by excessive pricing

Collusive arrangements

Exclusive dealing

Unfair conduct towards consumers

Unfair conduct towards other businesses

Source: Various competition agency statutes.

Warren Mundy

replace table with various offences in the first column


The law must apply broadly, permanent exemptions must be narrow

• Competitive neutrality is key to ensuring market development – State owned enterprises, including the activities of local authorities, must be subject to full application of competition law, including penalties

• Law should provide for any firm, or group of firms, to apply for a fixed term exception, if such exemption would be in the public interest

• Penalties should reflect the extent of economic harm caused and the need to deter future conduct by firms involved as well as guide future market conduct


The law should provide for graduated enforcement

Criminalproceedings

Civil proceedings

Injunctions

Enforceable undertakings

Power to obtain information


But regulators must have a complete set of tools, and they rarely do

Available enforcement tools a selection of APEC countries

Tool Australia Malaysia New Zealand

Singapore US and Canada

Vietnam

Power to obtain information

Enforceable undertakings Limited

Injunctions Limited Limited

Civil proceedings Limited Limited

Criminal proceedings

Source: Various competition agency statutes.







Warren Mundy


Some basic principles for institutional design

• Institutions should have clear, separate functions

• They must be separate from each other and from policy ministries

• Merit appeals where appropriate should be provided for and access to courts where decisions may be unlawful


Challenges faced in developing new institutions

• Developing credibility with businesses, consumers and international investors

• Reshaping existing power and economic relationships

• ResourcingFinancial resourcesSuitable leadersQualified staff and consultants


An indicative design for a developing economy

Competition Commission

Economic Regulatory Commission

Competition Tribunal

Superior Courts

Policy Review Commission

Prosecutions

Coverage Decisions

Appeals

Appeals on law

Policy reviews


Indicative functions of these bodies would be

• Competition Commission – educate businesses and consumers on rights and obligations, investigate and prosecute potential offences, enforce CT decisions, make regulatory coverage decisions (where applicable)

• Economic Regulatory Commission – undertake price and other regulation for designated industries, administer access regimes

• Competition Tribunal – decide offences, hear appeals from ERC

• Policy Review Commission – undertake periodic reviews of industry and economy wide regimes and other reviews as directed by Government

• Superior Courts – hear appeals on matters of law








Credibility is critical – independence is key

• Agencies must not only be separate from each other but also from agencies that deal with policy and SOE ownership

• Agencies should have their own staff and budgets• Commissioners and tribunal members should be

appointed by the centre of government for fixed terms. Some tribunal members should be judicial officers

• Members maybe part-time but strict conflict of interest regimes should be in place.

• Consideration should be given to use of foreign experts for particular types of matters until expertise can be developed.


Transparency has many virtues

• Issues papers• Public

submissions• Public hearings• Draft reports• Publication of final

decisions

• Improved credibility

• Better information• Tested analyses• Development of

precedent• Education


Policy accountability is important for market development

• Even in economies not under going rapid change periodic review of policy is essential to ensure policy objectives are being met:

Market development and entry may reduce, or even remove need for regulation or change the appropriate form

Regulation can change the behaviour of firms, for better or worse

Interactions with other areas of government policy need to be monitored

Regulatory costs need to be kept to a minimum• Reviews should provide public advice to government for

appropriate policy action








Regulator practices should be developed with small businesses in mind

• In almost all countries, small businesses are the dominant type of business and account for significant output and employment (usually over half) Both the general law and regulator practices

should be structured on the assumption that businesses are small

It is large businesses that may require ex ante special regulation – natural monopolies, essential services, environmental risk, national security issues. These can almost always be identified on a sectoral basis


Compliance characteristics of small businesses

• Overwhelming want to comply

• Moreover, they want to know their competitors are compliant

• Do not see compliance performance as a way to gain competitive advantage or increase profitability

• They want clear simple guidelines to comply with and regulators that will help them to do so, they do not want to innovate around compliance

• Small businesses are not little big businesses


Competition regulators main types of engagement with small business

EDUCATION

REGULATORS

COMPLIANCE AND RISK MONITORING

· Meet regulatory obligations· Facilitate inspections & audits· Provide information to

demonstrate compliance

· Assess risks· Collect data, monitor

compliance & outcomes· Conduct inspections & audits

· Impose pecuniary & non-pecuniary penalties

· Reward good compliance practices

ENFORCEMENT

LICENSING AND APPROVALS

· Assess applications· Issue licenses, registrations &

accreditation· Impose & collect fees

· Implement required changes to practice

· Comply with penalties imposed

· Apply for licenses, registrations & accreditation

· Pay fees· Provide requested information

· Deliver information on regulatory requirements

· Provide advice on compliance

· Seek advice· Understand responsibilities· Provide feedback to regulators

(& policy makers)

SMALL BUSINESS


Competition regulators engage with small businesses on a range of matters

• Restraining small businesses Collusive arrangements Unfair dealings with consumers

• Protecting small businesses Unfair dealings with large businesses as

customers or suppliers Detriment as a result of use of market power by

dominant firms


There is a range of approaches regulators can use

• proactive rather than reactive — proactive approaches encourage, persuade and highlight ways to achieve or require compliance before a breach occurs. Reactive approaches wait until a problem has occurred.

• cooperative rather than combative — cooperative approaches focus on education, advice, working together, appealing to self-interest and mutual interdependence. Combative approaches see the firm as an enemy.

• discretionary rather than prescriptive —a discretionary approach is more tempered and able to assess alternative means of compliance, whereas a prescriptive approach entails strict enforcement and interpretation.


And a final word

• The competition law is not the only component of competition policy.

• Of equal importance is the administration of the laws that related to

Business licensing Planning, zoning and release of land Employment and work place safety

• Any failures in proper administration of such laws fall heavily on small business who are much less about than big business to influence outcomes.


Thank [email protected]

Documents

Productivity Commission Dr Warren Mundy Commissioner Presentation to Central Institute for Economic Management Hanoi 1 June 2015 Regulatory Governance