BUILDING SUPPORT FOR COMPETITION REGULATION – THE IMPOPORTANCE OF THE CONSUMER INTEREST

Summary of presentation to

LAUNCH MEETING

7-UP Mark II/Mekong Project

Advocacy and Capacity Building on Competition Policy and Law in Mekong Countries

23-24 April 2004, Hanoi, Vietnam

by Robin Brown and Howard Hollow

Foundation for Effective Markets and Governance

Australia

MAIN POINTS

1 Successful introduction of competition regulation, as for other kinds of regulation, needs whole of government, business and broad civil society support.

2 Education and information – different programmes for different groups needed

3 A constituency for competition regulation cannot be artificially generated.

4 The ordinary consumer voice and the small business voice need support

5 Regulatory change creates winners and losers

6 Regulators do not operate in political vacuums

7 Regulation is whole of society process - triangular governance

8 The value of a single, independent competition and consumer protection regulator

1 Successful introduction of competition regulation, as for other kinds of regulation, needs whole of government, business and broad civil society support.

It is first important to make clear the distinction between competition policy and competition regulation (law).

  • Competition policy determines which sectors of an economy should be exposed to competitive markets. For example, in many countries there is very limited exposure if any of health and education services to competitive markets.
  • Competition regulation is intended to contribute to the benefits flowing from exposure of sectors to competitive markets.

All areas of government need some understanding of competition regulation. Clearly particular areas need higher levels of understanding such as

  • those concerned with industry and commerce policy and programmes
  • those concerned with monitoring or operating state owned enterprises
  • those concerned with law reform and enforcement, and
  • judicial officials

Regulatory policy as any public policy cannot remain out of step, either behind or in front, with public opinion. Competition regulation is for consumers and the community needs to be shown that it is just as important for the advancement of consumers’ interests as consumer protection regulation. But there is scepticism and suspicion in civil society in many developing countries that the push for competition policy/regulation by northern countries is driven by transnational corporations (TNCs) wanting to break into and exploit southern countries’ markets.

The process of gaining support of government, business and civil society took a very long time in Australia –1967 to mid to late 1980’s. It is to be hoped that other countries can draw on such experience and short cut the process. A collaborative process is required.

2 Education and information – different programmes for different groups needed

Overcoming negative and indifferent attitudes and gaining early civil society support for competition regulation requires extensive education and information and advocacy by trusted agents. Quite basic education on market processes is needed by many groups.

Business and lawyers and others who advise business need special education and information programmes

3 A constituency for competition regulation cannot be artificially generated.

It is critical that civil society support for competition regulation is built on existing civil society groups and networks.

4 The ordinary consumer voice and the small business voice need support

Consumer groups are likely to be the most effective civil society advocates, but in developing economies they need assistance. The consumer voice without support is unlikely to be as loud as the voice of producer interests that might be adversely affected by competition regulation. Often that producer voice will falsely assert that its interests are the same as the public interest.

Many small business sectors will benefit from competition regulation to limit the power of larger businesses, but their voice may also need support.

5 Selling the benefits – but regulatory change does create some losers

Regulation should have and be shown to have the dual goals of efficiency and equity. Improved efficiencies in particular markets and the overall GDP improvement can be shown, but ensuring equitable sharing in the benefits requires effective consumer protection regulation and other interventions.

As well as developing an understanding of the benefits, there must be openness that there will be short-run adjustment costs and some losers.

6 Regulators do not operate in political vacuums

There is an important role for civil society in maintaining government support for competition regulators – comprehensive law, adequately resourced regulator, support from bureaucracy and state owned enterprises.

7 Regulation is whole of society process - triangular governance

Once introduced, the highest levels of compliance with competition regulation, like other kinds of regulation, requires continuing government, business and broad civil society support. Compliance is limited as understanding is limited.

The wider the civil society support for any form of regulation the wider is the base of the compliance pyramid thus the more effective is the work of the regulator.

Consumer groups play an important continuing role supporting the regulator, counterbalancing business pressure to constrain the regulator, extending the eyes and ears of the regulator and stimulating it to action. (Small watchdogs to keep the big watchdog alert)

Regulators/policy makers need to have strategy in place – cultural issues are likely to be important in setting the parameters.

  • Regulators need to develop a culture of consultation – not always a natural or easy thing to do – but it must not be neglected.
  • Regulators can engage stakeholders in a variety of ways – formal consultancy committees with various sectors, addressing meetings, preparing publications, through the media, developing seminars for particular industries, etc.
  • A good way is to involve stakeholders in the development of policy guidelines and information brochures – a very effective way of achieving compliance and support of business.

8 The value of a single, independent competition and consumer protection regulator

The effectiveness of a competition regulator will be greatly improved if it is also the consumer protection regulator and is a whole of economy regulator.

  • It will enjoy greater confidence amongst consumers and a more positive image in public debate, thus stronger support for its work. For example in Australia the ACCC is portrayed in the media as the “Consumer Watchdog” whether it is warning or enforcing in relation to a consumer protection matter or a competition matter.
  • There are significant synergies and economies of scope if one regulator can work on making a market work in terms of both competition and consumer protection issues.
  • The general competition and consumer regulator should have an overview role in relation to special market sector regulators to ensure consistency across all markets and guard against regulatory capture.

OUTLINE OF SOME PROJECTS UNDERTAKEN BY THE FOUNDATION AND ITS MEMBERS

The Foundation has provided technical assistance and capacity building in a number of developing countries. Some of the projects are described briefly below. Some differences in approach will be noted.

Consumer Assistance Facilitation Project, Philippines

The broad thrust for this project was to build a constituency for the enactment of competition law. It was to do this through programs to enhance the capacity of the consumer movement. As major part of the project we were required to draft the Philippines’ first comprehensive competition law and major amendments to consumer legislation.

Many aspects of the project were successful particularly the training aspects for civil society despite the resistance in some sectors to competition law and the legislation was drafted and submitted to Congress.

However, the legislation has not been progressed. That aspect of the project was not successful partly because it failed to address the need to find support amongst Government and the bureaucracy and business - this unfortunately was not part of the terms of reference for the project

The competition law, however, provides a useful model for developing countries and the Philippines Tariff Commission continues to promote enactment of competition law.

Fiji Scoping Study

Fiji has had competition and consumer law for many years. The law is based on the Australian and New Zealand model which importantly provides for an exemption process where anti competitive conduct can be allowed if it can be demonstrated to be in the interests of the community.

The regulator was under resourced and there was little or no enforcement of law.

Recently the Government has recognised that there is a need for greater scrutiny of the domestic market place. The regulator now operates at arms length from Government and is better resourced.

We were asked to undertake a study of existing competition and consumer protection laws in Fiji with a view to enhancing the capacity of the competition and consumer regulator to administer those laws.

As part of the study we spoke with relevant stakeholders.

The Plan we developed would establish a framework facilitating more effective competition and consumer protection law through:

  • improvement in Fiji’s regulatory frameworks, including exemptions and compliance procedures and guidelines that are developed through community consultation and based on transparent and objective processes;
  • enhancement of the skills of those government institutions with relevant responsibilities;
  • guidance to Government, business, the legal profession and the community generally on rights and responsibilities that competition and consumer laws imposes; and
  • provision of access by regulatory institutions, on an ongoing basis, to the technical expertise of international consultants

We are currently negotiating a contract to provide ongoing technical assistance and capacity building for Fiji.

Samoa Scoping Study

Samoa has had some basic consumer protection for a number of years. It also has law that contains some competition law provisions, although we would see the law as inadequate as it does not contain any law that prevents horizontal or cartel type arrangements such as price fixing nor does it have any laws in relation to mergers or acquisitions. There is an exemption process but it has never been used.

There has been no enforcement of the law and there is a lack of technical skills on the part of the regulator.

We undertook a Study along the same lines as we did in Fiji. However, the outcome was different to Fiji. This was a reflection of the general level of appreciation of competition policy.

The Study recommended:

  • Enhanced appreciation and guidance on competition (and consumer) law and its administration by Government and the Government sector generally, the business sector (and their advisers), civil society and the community generally. This would be achieved a period of some two years via a series of workshops/seminars;
  • Capacity building for Fair Trading Division (the regulating agency). This would be achieved over a period of up to four years by a range of training workshops and provision of on going technical advice by international advisers;
  • Evaluation of the effectiveness of the existing competition (and consumer) law - Fair Trading Act. As part of this the workshops/seminars would consider the operation and provisions of competition law in other countries particularly Pacific Island Forum countries;
  • Provision of continuing technical advice and guidance to the Fair Trading Division and Government of Samoa Provision of continuing technical advice and guidance to the Fair Trading Division and Government of Samoa; and
  • Empowerment of consumers by a program of training consumer advocates to operate throughout Samoa.

Technical assistance to Papua New Guinea

Papua New Guinea introduced competition law in 2003. The law and the institution, the Independent Consumer and Competition Commission (ICCC), is based on the Australian model.

Prior to the introduction of the law the Foundation and Papua New Guinea developed a comprehensive program to assist the regulating agency. It included:

  • assistance in the development of an appropriate structure for the regulator;
  • assistance with recruitment of appropriate staff;
  • development of programs for implementation of the legislation – this would include devising procedures (and developing procedures manuals) for:

- dealing with complaints and enquires;

- prioritising, planning and conducting investigations and collecting evidence;

- reporting and assessing outcomes of investigations;

- dissemination of information on outcomes and designing effective media strategies;

- developing appropriate processes for exemption functions (including analysis of applicant submissions, market enquires; analysis of submissions of interested parties, development of evaluation techniques, preparation of decisions, promulgation of decisions, development of appropriate review procedures); and

- streamlined consideration of mergers and acquisitions;

  • development of programs of guidance for administrators and business, other government organisations and the community generally;
  • development of training programs and staff exchanges;
  • educating those groups to be effected by the legislation; and
  • provision of ongong technical support.

Overseas development assistance was sought but was refused. However, some assistance has been provided on a pro bono basis with the regulator meeting travel and accommodation costs. Assistance has taken the form of:

  • general technical advice;
  • assistance with recruiting of staff;
  • participation in training seminars with government and business;
  • assistance with investigations and consideration of applications for exemption;
  • preparation of guidelines;
  • preparation of draft reports;
  • review of legislation and administration;
  • attendance at PNG office to assist in management of ICCC;
  • assist in developing strategies and goals.