Competition, Regulation and Development

1. Competition, Regulation and Development Frederic Jenny Cour de Cassation Chair OECD Competition Committee Professor of Economics ESSEC, France CUTs Project Interim Meeting: Advocacy and Capacity Building on Competition Policy and Law in Asia 16-17 August , Hanoi Vietnam

2. Issues to be addressed • 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. Development Stage 1 Development Stage 1 Market Failures :Small scale, incomplete market, informal sector, externalities, information asymetries Socio Political Goals: Growth, Fairness, Security, Independance,Environment vs Efficiency Limited scope for competition law enforcement Development Stage 2 Development Stage 2 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

5. 2) Different Aspects of Interaction between Regulation and Competition in the Development Process: A Dynamic View

6. Development Stage 1 Development Stage 2

7. Overinclusive or Misguided Technical Regulation Can Unnecessarily Limit Competition 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 Competitionand Development • EX: Cambodia: • - « Quantitative restrictions on • pharmaceutical 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 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 Development Stage 1 Development Stage 2

11. Competition and Regulation Organizing the interface Advocating for Competition 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. Licensing Competitors Former monopolist Dispute settlement Interconnection: price and conditions Essential facility: fixed network Abusively low prices Squeeze ? Subsidies Preventing entry Abusively high prices Tying Public service Monopoly Dominance Competitive fringe Tariffs of public service Subsidization of competitive activity Frederic Jenny

15. Examples of Overlap Between the Regulatory and the Competition Enforcement Approaches Licensing conditions • The number of licensees and the conditions of their licences will have an effect on the intensity of competition Market 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

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 minimum Drawbacks - Slowness of response (because of quasi judicial procedures) • Risk of contamination of competition law enforcement in other 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 and comprehensive provisions in the competition law and in the sectoral laws) Example: Cambodia: « The draft law on telecommunications is being prepared by the Ministry of Posts and telecommunications of Cambodia (…) Competition legislation has also been on the government’s priority list to be drafted » Will the laws be consistent?

22. Managing the Interface in a Mandate Driven Division of Labor Model: Tip 2 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. Managing the Interface in a Mandate Driven Division of Labor Model: Tip 3 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. Managing the Interface in a Mandate Driven Division of Labor Model: Tip 4 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. Managing the Interface in a Mandate Driven Division of Labor Model: Tip 5 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. Managing the Interface in a Mandate Driven Division of Labor Model: Tip 6 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 frederic.jenny@club-internet.fr