THE COMPETITION POLICY ADVOCACY AWARDS Changing Mindsets to Transform Markets: Lessons Learned from the First Annual Awards in Competition Policy Advocacy Competition Policy Advocacy Award Winners and Honorable Mentions The Competition Policy Advocacy Contest’s aim is to showcase the positive results for consumers, businesses, MEXICO and overall economic growth Honorable generated by forward- Mention leaning policies aimed at thwarting anti-competitive behaviors. In early 2014, the Bank Group announced the winners of the first contest. They were chosen from among a strong—and COLOMBIA highly competitive—field Winner of contenders. The Arab Republic of Egypt, Chile, Colombia, and Pakistan EL SALVADOR were selected as winners Honorable in one of several categories Mention emphasizing varying aspects of competition policy. Honorable mentions went to competition agencies in El Salvador, Mexico, Moldova, South Africa, and Turkey. CHILE Winner ii KEY FACT MOLDOVA Honorable Mention TURKEY Honorable Mention 35 countries from all over the world participated in the contest. • Colombia enabled additional firms to compete with the PAKISTAN dominant provider in the expanding market for mobile Winner Internet and voice service through the allocation process of spectrum. EGYPT • Pakistan broke up a price- Winner fixing and market-sharing cartel agreement affecting a high-profile international consumer market for air travel to Saudi Arabia by pilgrims attending the annual Hajj. • Egypt implemented a multi- faceted competition advocacy strategy that delivered positive results in a range of sectors from milk to steel to shipping to school uniforms. SOUTH AFRICA Honorable • Chile’s competition authority Mention engaged with trade associations in drafting pro-competition guidelines to end collusion among association members and instill a pro-competition outlook among businesses. iii THE COMPETITION POLICY ADVOCACY AWARDS © 2014 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. iv The Competition Policy Advocacy Awards Message from the Senior Director The World Bank Group helps client countries in the We are therefore delighted when countries, as a developing world grow their economies through result of their own initiative, implement policies to advice and lending, all in pursuit of our over-arching promote pro-competition practices by private and goals of eliminating extreme poverty and boosting public actors through innovative advocacy tools. shared prosperity. Competition policy has become In 2014, for the first time, the Bank Group has a critical part of our advisory work for countries formally recognized four countries for their work in seeking to develop dynamic and resilient economies, competition policy advocacy, along with five other expand market opportunities, and enable private countries receiving honorable mentions. initiative. Healthy competition rewards the most productive and innovative firms, allows new firms to Their stories reconfirm: Successful competition seize market opportunities and incentivizes private advocacy delivers clear results. Regulatory barriers investment, thereby boosting productivity. And a to competition are removed, public policies are productive and competitive private sector, as the designed with fewer distortions in the market, and source of 90 percent of the 600 million new jobs we firms refrain from colluding. More intense need to create over the next 15 years, is essential to competition fosters businesses that innovate, bring economic growth. new ideas and technologies to bear, and deliver better products and services at lower prices. This Ensuring competition requires effectively enforcing benefits consumers and allows businesses to laws against cartels, bid-rigging and other become more competitive at home and abroad. anticompetitive practices. However, the goal will be missed without advocacy for competition. Appropriately enough, there was plenty of Advocacy embeds competition principles in the competition for recognition this year, as some 35 mindsets of all stakeholders in the market: developing and emerging economies from all over governments become aware of the cost of laws and the world participated in the contest. I heartily regulations that inhibit competition and begin to congratulate the winners, Chile, Colombia, Egypt, champion reforms; private actors are better and Pakistan, and the honorable mentions, El informed about the law and increase compliance Salvador, Mexico, Moldova, South Africa, and efforts. Both of these forces can transform entire Turkey, for their diligent work advocating for economic sectors long-lastingly. pro-competition policies. The lessons learned and knowledge gained from their efforts will help the Bank Group in our ongoing work in competition policy. Sincerely, Anabel Gonzalez Senior Director Trade and Competitiveness Global Practice World Bank Group 1 Acknowledgments This project was made possible through financial Commission, and Patricio Cumming, Assistant support from the Facility for Investment Climate director of Forums and Logistics for the Mexican Advisory Services (FIAS) and programmatic Federal Economic Competition Commission; support from the United Kingdom’s Department Moldova: Viorica Carare, President of the for International Development (DfID). Competition Council of the Republic of Moldova, and Diana Lapteacru, Head, Abuse of Dominant The World Bank Group’s Trade and Position Department, Competition Council of the Competitiveness Global Practice (T&CGP) Republic of Moldova; South Africa: Mziwodumo wishes to thank the competition authorities of Rubushe, Head of Advocacy for the South African participating governments for their entries in the Competition Commission; Turkey: Erdem Aktekin, Competition Policy Advocacy Awards Competition. Competition Expert for the Turkish Competition Among the honoree countries, we would Authority and Ali Arioz, International Relations particularly wish to acknowledge the contributions Coordinator for the Turkish Competition Authority. of officials working in the competition policy field. For the winners: Chile: Mario Ybar, Deputy Head This publication was prepared by a team led of the National Economic Prosecutor’s Bureau by Martha Martinez Licetti, Senior Economist, (FNE) and Carolina Bawlitza, Deputy Head of the Global Lead Competition Policy T&CGP and Mergers and Studies Division for the National including Tanja Goodwin, Operations Analyst, Economic Prosecutor’s Bureau (FNE); Colombia: and Knowledge Management Specialists Patricia German Bacca, Deputy Superintendent for the Ellen Steele and John Diamond. Valuable inputs Protection of Competition for the Superintendence were provided by Tania Begazo, Economist; of Industry and Commerce and Juan Pablo Lucia Villaran, Competition Specialist; Georgiana Herrera, Coordinator of Economics Study Group, Pop, Economist, and Graciela Miralles Murciego, Superintendence of Industry and Commerce; Competition Specialist. Launch of this initiative Egypt: Haytham El Gammal, Head of Advocacy was supported by Pierre Guislain, Senior Director, for the Egyptian Competition Authority; Pakistan: Transport and ICT Global Practice; Marialisa Motta, Joseph Wilson, Chairman of the Competition Practice Manager, LAC Trade and Competitiveness Commission of Pakistan. For the honorable Global Practice; and Vyjayanti Desai, Lead Private mentions: El Salvador: Marlene Tobar, Chief Sector Development Specialists, T&CGP. Economist for the Superintendence of Competition of El Salvador; Mexico: Carlos Mena, Head of the Special acknowledgments go to Anabel Gonzalez, Investigative Authority for the Mexican Federal Senior Director, Trade and Competitiveness Global Competition Commission, Carolina Garayzar, Practice, Cecile Fruman, Director, T&CGP, Klaus Deputy Director General of International Affairs Tilmes, Director, T&CGP, and Najy Benhassine, for the Mexican Federal Economic Competition T&C Practice Manager. 2 The Competition Policy Advocacy Awards 90% of the 600 million new jobs we need to create over the next 15 years will come from the private sector. 3 Introduction Developing countries have enough obstacles to overcome—disadvantages of geography, Competition benefits many groups in the economy. climate, access to finance, lack of resources, poor Farmers in Kenya, Tanzania, and Uganda saved infrastructure—without the additional burden $49 million of markets that do not function well. But all too often in these countries, key markets do not yield innovative, low-cost solutions for consumers and businesses due to lack of effective competition. after the removal of restrictive seed regulations Despite significant progress by developing countries in improving their investment climates, many markets remain subject to entry barriers and anticompetitive behavior by a few dominant Intense competition in domestic markets is a key players. A World Bank Group Survey found that ingredient to a country’s performance in trade in high-income countries only 8 percent of key and competitiveness. A country’s steel companies markets were dominated by a single firm; in Africa or agribusiness enterprises that vie in a vibrant, and the Middle East, between 25 and 31 percent of competitive environment that rewards innovation, key markets were dominated by a single firm. efficiency, and productivity will be much more Anticompetitive norms and practices prevent likely to be competitive in the international entry of new market players, stifle innovation, and marketplace in those sectors. Firms typically buy reduce consumer choice. Moreover, in developing their inputs, such as energy, transport, financial countries prices tend to be 10 to 45 percent higher services, and agricultural inputs, from domestic in cartelized markets.1 An expansive body of suppliers. When firms in these upstream markets research demonstrates the benefits of competition do not have the right incentives to provide high policy, including innovation, job creation, lower quality at competitive prices, the cost of supplies prices, higher productivity, and sustainable growth. goes up and the competitiveness of the firms in One study of 20 developed countries estimated the international marketplace declines, affecting that strengthening competition policies would the performance of global value chains. Among increase long-run employment rates by 2.5 to 5 82 manufacturing industries in seven countries, percentage points. Another study concludes that if relatively higher domestic market concentration is OECD’s enhanced-engagement countries reduced associated with a smaller domestic share in world barriers to competition in key sectors, their GDP output and fewer net exporters.3 per capita would grow 0.4 percent more per year.2 2. Anita Wölfl et al., “Product Market Regulation: Extending the 1. M. Levenstein and V. Suslow, “Contemporary International Analysis Beyond OECD Countries,” Economics Department Cartels and Developing Countries: Economic Effects and Working Paper No. 799 (2010), Organisation for Economic Implications for Competition Policy,” Antitrust Law Journal 71 (3) Co-operation and Development; Giuseppe Nicoletti and Stefano (2004): 801–52; Yinne Yu, The Impact of Private International Scarpetta, “Regulation, productivity and growth: OECD evidence,” Cartels on Developing Countries, Diss. Honors Thesis (Stanford Economic Policy 18.36 (2003): 9–72. University, Department of Economics, 2003). 3. Aidan Hollis, “Industrial concentration, output, and trade: an empirical exploration,” Review of Industrial Organization 22.2 (2003): 103–119. 4 The Competition Policy Advocacy Awards Anticompetitive policies and practices allow few businesses to dominate the market without having to meet the challenges of efficiency, innovation, and productivity that are the true measure of success in competitive markets. In such closed markets, innovators are not allowed to emerge. Hide-bound companies that should fall by the wayside remain in business, overcharging for inferior products and services. Taxpayers overpay for inferior goods and services procured by the government under rigged bidding conditions. What the Bank Group’s contest highlights is that to prevent such conditions, enforcement is an important tool but by no means the only one. Competition benefits many groups in the economy. 20 million Farmers in Kenya, Tanzania, and Uganda saved $49 million after the removal of restrictive seed regulations; 20 million travelers in Mexico had travelers in Mexico had to pay 40% less for airline to pay 40 percent less for air tickets after one tickets after a low-cost competitor was additional competitor was allowed to fly on a allowed to fly. particular route; and Jamaican businesses and families saw their phone bills cut in half after pro-competitive regulation of mobile termination rates. On the contrary, exporters in Central America pay more for trucking services than their counterparts in some African countries and lack of competition has been found to explain 35 percent of Central American freight rates; the Zambian 5 government paid an extra $20 million for fertilizers competition and a set of rules structured and to two companies that colluded on public tenders; implemented so that anticompetitive behavior is Romanian firms would save $20 to $60 million if less viable or profitable. anticompetitive agreements among professional accounts were eliminated; and the lack of Advocacy is a key responsibility of competition competition in basic consumer goods affects the authorities. Around the world, competition poorest households in Mexico 20 percent more authorities are embracing this role and engaging than the richest.4 in individual initiatives to change mindsets of politicians, regulators, and private sector While benefits of competition are vast in sum, representatives. Several authorities have already they are often dispersed. In contrast, regulations been successful in transforming markets and that limit competition typically benefit few and generating real benefits to consumers. small interest groups or even individual firms. This can explain how anticompetitive policies and In 2013 the Bank Group decided to support practices prevail. It is therefore paramount to find this work by providing a global platform for mechanisms that make benefits of competition sharing lessons learned in competition policy become more widely known and recognized and advocacy and recognizing the efforts of individual that eliminate existing barriers to competition agencies. The Bank Group took a competitive stemming from regulation or business practices. approach by launching the inaugural Competition Policy Advocacy Contest. As defined by the Advocacy for competition encompasses International Competition Network, competition efforts geared toward promoting a competitive advocacy refers to those activities conducted by business environment through such means a competition agency related to the promotion as public learning and awareness campaigns, of a competitive environment by means of non- interaction with private sector firms and business enforcement mechanisms, mainly through its associations, and cooperation across multiple relationships with other governmental entities government agencies. This ”soft” approach seeks and by increasing public awareness of the benefits to address fundamental barriers to effective of competition. All country efforts that won competition, such as anticompetitive regulation or recognition show competition advocacy activities economic activities by the public sector, in favor that yielded measurable impacts, not only on of a business culture supportive of free and open markets but on consumers, businesses, and other stakeholders who participate in those markets. Potential applicants consisted of Bank Group client 4. Michael Waithaka et al., “Impacts of an improved seed policy countries with competition agencies in place. All environment in Eastern and Central Africa” (Policy Analysis and Advocacy Programme of the Association for Strengthening regions and sector-specific topics were eligible. Agricultural Research in Eastern and Central Africa, 2011); The stories were reviewed by members of the Augustin J. Ros, “A Competition Policy Assessment of the competition team working in different regions and Domestic Airline Sector in Mexico and Recommendations to Improve Competition” (2010); Theresa Osborne, Maria Claudia then validated by practice Directors. The criteria Pachon, and Gonzalo Enrique Araya, “What drives the high price used for selecting winners were: (i) collaboration of road freight transport in Central America?” Policy Research with other agencies/organizations and Working Paper 6844 (2014), World Bank; Carlos M. Urzúa, “Distributive and regional effects of monopoly power,” Economia stakeholders, (ii) results achieved— if intervention Mexicana NUEVA EPOCA 22.2 (2013): 279–295, Romanian was successful, (iii) overcoming political economy Competition Council, Annual Report (2010).” difficulties, and (iv) specific impact of the results. 6 The Competition Policy Advocacy Awards Some of the positive results from competition advocacy the price of HIV kits dropped Egypt saw steel rebar cost decline by 26 percent in South Africa 50percent The aim of competition advocacy is to showcase of steel rebar decline by 50 percent. Mexico’s the positive results for consumers, businesses, competition advocacy saved the government and overall economic growth generated by around $4.5 billion in public tenders, and Pakistan’s forward-leaning policies intended to thwart initiative saved pilgrims an estimated $60 million anticompetitive behaviors. In early 2014, the Bank in air fares. Colombia’s advocacy transformed the Group announced the winners of the first contest. mobile Internet market relevant to 55 percent They were chosen from among a strong—and of the population. In El Salvador, 75 percent of highly competitive—field of contenders. Efforts the competition authority’s recommendations to by competition promotion agencies in Chile, regulatory sectors such as health, air transport, Colombia, Egypt, and Pakistan were selected as and energy were taken into account. In Chile, winners in one of several categories emphasizing 73 percent of members of the legal community varying aspects of competition policy advocacy. responded in a survey that the competition Honorable mentions went to competition agencies authority had an influence encouraging more in El Salvador, Mexico, Moldova, South Africa, and competitive business behavior.5 Turkey. Their efforts had remarkable success on various 5. All information throughout this publication regarding the fronts: As a result of their influence in public advocacy cases, including estimated savings, is based on the decisions, the price of HIV kits in South Africa competition authorities’ official submissions to the World Bank dropped by 26 percent and Egypt saw the price Group and has been verified through available secondary sources. 7 Winning institutions have shown a strong Simply promoting deregulation is not equivalent commitment to advocacy over several years. to competition advocacy. In their advocacy For example, Egypt intervened on competition work, competition authorities often work closely issues twice from 2006 through 2009; the with sector regulators to implement economic number of interventions jumped to 10 from 2010 regulation that follows competition principles and through 2013. El Salvador increased the number ensures effective incentives are in place for market of formal opinions from 4 to 20 per year over actors to compete. the past six years. Colombia issued 26 advocacy recommendations in 2013 compared to 8 in 2009. Frequently advocacy consists in clarifying the effects on competition of well-intended policies In telling the stories of how these countries and practices. For example, cooperation between approached the problem of promoting competition businesses can achieve more general market through both government policy and private sector knowledge, leverage research and development behavior, a remarkable variety of applications in efforts, or improve quality by standardization. the competition policy field emerges. Some key Advocacy can serve to advise associations of when themes emerge in these narratives: this cooperation breaks competition rules. In the public realm, ensuring that products and services The efforts by the contest winners and honorees meet certain standards is crucial for public health show that enforcement and advocacy work in and safety. Governments put in place regulatory concert. Successful advocacy often depends requirements and compliance procedures for upon the credible threat of enforcement action, entering the market. Competition authorities particularly where the private sector is concerned. engage in the design of these procedures to Findings made in antitrust investigations avoid creating regulations that discriminate sometimes point directly to the need for a against certain market players, allow incumbent competition advocacy campaign as, for example, businesses to bar market entry to potential rivals, the discovery of regulations that sustain or or limit price competition. facilitate anticompetitive behavior. The most successful interventions identify key and strategic Competition policy agencies must work with areas with the potential to have significant impact the tools they have available. Few have the legal and then move forward with a mix of enforcement authority to eliminate or neutralize anticompeti- and advocacy. tive regulations or to sanction the anticompetitive actions of public enterprises or public officials. Often the issue is not a lack of legal authority to Most must rely more on their powers of persua- compel competitive behavior but a policy culture sion. A key element of success is for agencies to unfamiliar with the principles of competitive go beyond simply identifying a practice or rule as markets and a business culture ignorant of or anticompetitive by proactively devising alternative impassive to the sanctioning power of competition solutions so that policy makers and the private authorities. Anticompetitive structures exist for sector can more clearly see the potential benefits. many reasons, often having to do with a favored Advocacy strategies that leverage tools of persua- few, sometimes in government, sometimes in the sion effectively, such as interaction with media private sector, sometimes both, maneuvering to outlets or civil society organizations, or engage- control power. It is tolerated and sustained by ment with businesses harmed by anticompetitive regulatory barriers because policy makers and practices, can play an important role. protagonists do not see the link to the economic harm it does or the good that can come from Although advocacy is a “soft power,” authorities vibrant competitive markets. have concrete instruments at hand to achieve 8 The Competition Policy Advocacy Awards Change in mindsets occurs when people see prices go down as a result of thriving competitive markets. It occurs when firms previously excluded from markets are able to vie for business with innovative and better-quality products. It occurs when a country’s firms compete more effectively in international markets, and when policy makers and business leaders see competition contributing to an improved economic climate. real impact: Engagements with other public A thread running through these narratives is agencies or private sector organizations the recognition by competition policy officials may start with training or capacity building, that their efforts should go beyond dealing with roundtables with journalists or political parties, isolated cases of anticompetitive behavior. They and media campaigns. Formal guidelines help understood the need to bring about a full-blown to provide a standardized reference and orient cultural change to inculcate and embed pro- private and public actors in the market. Opinions competition principles into the business and and recommendations to proposed or existing political hierarchies. In some cases, selected use of regulations are the most common advocacy public pressure, with the help of media attention, tool. Market studies or policy notes can set out has helped bring abuses to light and change ways comprehensive reform agendas to unleash healthy of doing business. In other cases, media pressure competition. Transforming markets sometimes worked in the opposite direction—blocking requires a longer-term engagement with the rather than promoting reform, as established sector-regulator or line ministry. This can be power structures resisted efforts to do business facilitated by a memorandum of understanding differently. Gradually, though, and with committed or a protocol. Competition advocacy can be effort, even entrenched political and business institutionalized via mandatory competition interests strongly opposed to pro-competition assessments of draft legislations. initiatives can be won over as the benefits to the overall business climate become clear. Some of the highlighted cases concern a single economic sector such as telecommunications. A key ingredient in bringing about cultural change Other governments took an economy-wide is not just persuasive advocacy and well-crafted approach. Competition agencies—the arguments but concrete economic results. Change organizations that participated in this contest— occurs when people see prices go down as a result are usually independent authorities and several of thriving competitive markets. It occurs when layers removed from the top levels of central firms previously excluded from markets are able government. Political courage and wit, therefore, to vie for business with innovative and better- emerges as a critical element of success, quality products. It occurs when a country’s firms particularly where an agency had to take on compete more effectively in international markets, state-owned industries or firms favored by the and when policy makers and business leaders see prevailing power structure. A willingness to urge competition contributing to an improved economic powerful government ministries to review policies climate. Some of the most compelling success and curb anticompetitive practices recurs as a stories entail pro-competition efforts in specific key theme throughout these stories. Patience and market sectors or business lines that yielded persistence were equally important. Many of the concrete, measurable results, not only on markets pro-competition campaigns described here took but on consumers and other stakeholders who several years or even a decade to come to fruition. participate in those markets. 9 10 The Competition Policy Advocacy Awards THE BANK GROUP SELECTED WINNERS AND HONOREES GROUPED AMONG ONE OF THREE THEMES: Successfully promoting pro-competition market reforms, Assessing the potential negative effects of certain rules opening of markets, and infusion of competition and regulations on the market and informing policy principles in other sectoral policies: makers and public authorities: COLOMBIA, PAKISTAN EGYPT, WINNER; EL SALVADOR and CO-WINNERS TURKEY HONORABLE MENTION Raising awareness of private sector stakeholders and empowering consumers to deter anticompetitive behavior: CHILE, WINNER; MOLDOVA, HONORABLE MENTION Two additional countries, MEXICO and SOUTH AFRICA, received honorable mentions for improving the effectiveness of antitrust enforcement through advocacy with relevant public bodies. The agenda of the World Bank Group’s Trade and Currently the Competition Policy Thematic Group Competitiveness Global Practice is closely tied to works with teams from different regions and the work being done in the competition policy departments in more than 30 countries. Through field, and the issue of competition policy has analytical reports and technical advice, the Group progressively expanded its importance across the develops and shares best practices and innovative Bank Group. tools to identify and better tackle anticompetitive regulations and practices. Successful advocacy Bank Group teams have been working with for pro-competition policies and regulations is governments and the private sector in a generating specific reforms and positive economic number of developing countries to root out impact across regions and countries, including anticompetitive regulations and collusive Armenia, the East African Community, El Salvador, practices and to develop and implement policies Georgia, Honduras, Kenya, Mexico, Moldova, Peru, that foster the emergence of competitive and the Philippines. markets. At a basic level, promoting and protecting competitive markets involves In the long run, competitive markets will emerge and establishing and enforcing antitrust rules and thrive when private actors are conscious and alert punishing anticompetitive behavior. Increasingly, about competition norms and when policy makers though, the Bank Group has been placing believe this is the path to sustainable growth— particular emphasis on helping countries develop when they see the benefits for their constituencies: better competition advocacy tools as a means consumers, employees, and business owners. That’s to sustainably promote pro-competition policies, what competition advocacy is all about. We hope regulations, and practices to the same end. that this and future Competition Policy Advocacy Awards contests help make that case. 11 Winners 12 The Competition Policy Advocacy Awards THEME 1: [ Successfully promoting pro-competition market reforms, opening of markets, and infusion of competition principles in other sectoral policies. In many markets in developing economies, competition is hampered [ by laws and regulations that limit entry or affect firms’ capacities to compete. Bans to private investment or legal monopolies close markets to potential new investors; controls on prices and other variables increase business risk and reduce firms’ efforts to improve products or services and lower prices; and lack of pro-competitive rules in network sectors limit the ability of equally or more efficient players to compete with incumbents. To ensure effective competition in markets, it is essential for competition authorities to study legal and regulatory barriers to competition and implement advocacy strategies to remove or modify dispositions that are blocking development of healthy competition. 13 Co-Winners: Colombia and Pakistan Colombia 14 The Competition Policy Advocacy Awards After extensive research, Colombia’s competition authority successfully engaged with other government agencies in the allocation of fourth- generation long-term evolution (4G LTE) spectrum for mobile Internet and voice service to ensure competition in an expanding market. As a result, additional firms were able to compete with incumbents in the market, promoting innovation, price competition, and consumer choice. Key Points: »» In expanding mobile communications services, SPECTRUM Colombia was at risk of perpetuating market FOR MOBILE dominance by a single player. INTERNET »» Competition authority worked with other government departments to enable new entrants AND VOICE in the mobile phone and Internet services industries. SERVICE »» Achieved more choice for consumers and a more modern communications system attractive to businesses seeking to locate in Colombia. »» Industry-specific approach focused on an already huge business sector (mobile telecommunications) and one poised for rapid further growth 47 millon (mobile Internet). Narrative: In Colombia, as in many parts of the developing world, mobile phones are not just devices; they The estimated number of are a vitally important means of connection—to family and friends, to the workplace, to business mobile phones in Colombia prospects, to clients. There are an estimated 47 million mobile phones in Colombia—more phones than people. So when the Superintendence of 15 Industry and Commerce (SIC), the Colombian A number of reasons beyond the widespread government organization responsible for use of mobile phones compelled the government competition policy, got involved in the task of to intervene to promote greater competition in reordering the field of play in telecommunications, telecommunications. While mobile phones have it understood that this was no obscure regulatory saturated Colombian society, mobile Internet has action; this was something that was going to barely made a dent, with a 10 percent penetration affect just about everybody. into the Colombian market. There is room for tremendous growth, and it was important to The immediate issue was how to manage the the government that more than one firm play in allocation of spectrum for mobile voice and this expanding field. Mobile phone service, while Internet so as to promote greater competition widespread, was not yet available via the 4G LTE in a field dominated by a single provider. In 2011, technology allowing consumers in more and more SIC engaged early on with government agencies countries to connect faster. And there are still in charge of designing a national strategy for regions of Colombia with poor or no mobile phone telecommunications, including a policy for coverage. So a key goal of the pro-competition spectrum allocation. It immediately launched strategy was not only better service and prices for an extensive study of the existing market for Colombians but a business environment attractive mobile telecommunications and mobile Internet.6 to potential outside investors whose decisions on The study included simulations of various locating in Colombia might hinge on the availability scenarios to determine whether or how a new of state-of-the-art telecommunications services. allocation would change market conditions. Completed within six months after the Ministry “We are trying to promote the country to another of Information Technology (MinTIC) published its level of technology,” explained Juan Pablo Herrera first draft proposal for a spectrum auction, the Saavedra, coordinator of the SIC division whose study found that an open, unrestricted auction market study was critical to the design of the of spectrum would result in continued market spectrum auction. “This is so important for dominance by a single company. That finding businesses and consumers, and for the entire formed the foundation of a new approach, one economy and development of enterprises.” that would enable new market entrants whose participation could benefit consumers. SIC played The concern identified by Herrera’s Economic an important advisory and advocacy role that Research Group (GEE by its Spanish acronym), helped shape the terms of the auction. The result was that the dominant firm, Claro, with 74 percent was a more level playing field that allowed market of the profits in the telecommunications sector, entrants to effectively vie for a large and rapidly would crowd out competitors unable to match the growing customer base, with the promise of more company’s well-established infrastructure. A “free consumer choice, better service, faster innovation, and open” rivalry for spectrum would, in practice, and lower prices. become cost-prohibitive and closed to most competitors, SIC warned the relevant government ministries. The Superintendence did more than just warn of 6. The study is available in Spanish at: http://www.sic.gov.co/ drupal/recursos_user/documentos/Estudios-Academicos/ a problem; it proposed a solution. The essence of Documentos-Elaborados-Grupo-Estudios-Economicos/2_Estudio_ the idea was to divide the spectrum auction into Sector_Telecomunicaciones_Colombia_Septiembre_2012.pdf. “reserved blocks” and confine the dominant market 16 The Competition Policy Advocacy Awards player to competing in just one of those blocks with other established telecommunications firms. A separate reserved block in the advanced wireless service spectrum would be open to potential new market entrants. SIC also recommended that the 3% auction include provisions that would enable new market entrants to use existing infrastructure, such as mobile phone towers, at regulated rates. Over time, as part of the plan, these new entrants would gain sufficient market traction to develop their own infrastructure. At the conclusion of the spectrum auction, the of Colombia’s gross reserved block approach yielded two new market domestic product comes participants—Avantel and DirecTV. from the communications sector “This sector is related to each citizen,” said Herrera. “In fact, it’s not a ‘sector’ to consumers, it’s everything; it’s a way to connect.” 7.2% The communications sector represents about 3 percent of Colombia’s gross domestic product. With the telecommunications market growing at a 7.2 percent annual rate, and with mobile Internet services in their infancy in Colombia, the communications share of the economy seems certain to expand. is the annual rate of growth of the telecommunications Colombia’s approach might seem counterintuitive, market in Colombia which makes it all the more impressive as a case of how technical knowledge of market dynamics can improve public policies. Competition advocates in the government understood that open and unregulated competition among firms for access to public airwaves would stifle rather than foster competition. The counterintuitive move was to restrict competition at the front end in order to produce a more competitive market, and all its benefits, as an end result. The lessons learned are useful beyond the telecommunications field. 17 Knowledge Brief Colombia’s 4G spectrum allocation 18 The Competition Policy Advocacy Awards The Colombian government has Impact prioritized mobile Internet as an The auction resulted in the adjudication of five emerging, important market for growth. licenses for the next 10 years, allowing two In response to a proposed public auction of 4G new companies to enter the Colombian mobile LTE spectrum, Colombia’s competition authority, telecommunications market. This result is the Superintendence of Industry and Commerce, expected to promote competition, higher quality acted quickly at a strategic moment to inform a and coverage, and competitive prices on mobile decision beyond its usual regulatory comment. SIC voice and Internet services. Service via 4G LTE is conducted an economic analysis of the country’s now available in over 130 cities and municipalities mobile voice and Internet market, including in Colombia, and the country is becoming a leader simulations of post-auction market scenarios. in 4G development in South America. One of the The study identified risks in the plan to assign four companies already providing this new service the spectrum that could prevent new entrants reports coverage of 55 percent of the population. from participating in the auction. These findings Among the emerging differentiated products are prompted SIC to recommend a reconsideration packages targeted to business applications and of the auction design. The government adapted per-second charging. the auction process and promoted regulations on infrastructure sharing and network access (roaming) to encourage at least one entrant in the market. Key Lessons Competition Advocacy 1) Market and other economic analysis SIC advised the national government’s regulatory can provide the critical empirical basis agencies on the protection of competition for competition advocacy. SIC’s study in allocating spectrum and participated in examined market characteristics and congressional discussions on the importance of simulated various scenarios to advance competition in the telecommunications sector. the bidding process. The process involved collaboration among several branches of government: the National Spectrum 2) Continuous monitoring of key sectors Agency (ANE), the Communication Regulatory was necessary to take advantage of Commission (CRC), the Ministry of Information strategic moments to intervene. SIC was Technology (MinTIC), the military, the academy, the able to inform the process at its earli- General Prosecutor Office, the Comptroller General, est stages—before the auction design and the National Planning Department. During was released for public consultation—by the process, SIC kept in close contact with the reacting swiftly upon notification of the ANE, CRC, and MinTIC and presented their points proposed auction design. of view on various adjudication process drafts for the Congress and other stakeholders. Private institutions and firms, including current providers, had the opportunity to provide comments, which were received and considered. 19 Reform Design at a Glance: How Colombia leveled the mobile Internet playing field scenarios, forecasting the participation of different Objective current providers and possible entrants under the planned process for allocating the spectrum. Ensure that effects on competition are considered in the design of the Identification of risks: The original design of the government’s auction of 4G LTE auction process proposed an open mechanism in spectrum and its planned development of which incumbents and entrants were able to bid on two segments of spectrum to develop mobile the mobile Internet market. This objective Internet services. GEE concluded this design posed supports the goal of better allocation of several risks that could hinder competition. The public resources, in this case, spectrum. findings indicated the proposed plan to assign the spectrum for mobile Internet services would likely replicate the structure of the existing mobile voice Approach market. Smaller operators and market entrants, Economic study: The Economic Research Group who would not have the means to deploy the (GEE), a unit within the Superintendence of Industry necessary infrastructure, would be deterred from and Commerce, conducted an analysis of the mobile competing against the well-capitalized, dominant telecommunications market, using the Herfindahl- provider. Herschman Index (HHI) and the Stenbacka Index Advocacy strategy: SIC informed the Ministry of of Dominance.7 The team considered the barriers Information Technology (MinTIC), the National to entry, such as the infrastructure requirements Spectrum Agency (ANE), the Communication to deploy service in the new spectrum, and the Regulatory Commission (CRC), and Congress of potential implications for price competition, the study’s conclusions. In two concept papers8 judging by international experience. The analysis published in early 2013, SIC recommended that the revealed the mobile voice market in 2010 was plan for allocating the spectrum be adapted to (i) dominated by one operator (with 74 percent share, encourage the entry of at least one new operator in terms of sector profits, and 62 percent in terms in the voice and mobile Internet market; (ii) include of subscribers) and a wide disparity in terms of mechanisms for implementing network access financial capacity between the dominant operator (roaming) and infrastructure sharing to expedite and other providers. GEE simulated a set of market a new competitor’s entry and position in the market; and (iii) include a forward-looking strategy for new operators to build and deploy their own 7. A. Melnik, O. Shy, and R. Stenbacka, “Assessing Market Dominance,” Journal of Economic Behavior 68(1) (2007): 63–72. The infrastructure within four to five years of using the Herfindahl-Herschman Index (HHI) concentration indicator is a spectrum to effectively operate in the market. commonly accepted measure of market concentration in competition analysis, based on the market shares of firms in a particular market. The Stenbacka Index determines when an 8. Concept papers are available at http://www.sic.gov.co/drupal/ individual firm has a dominant position. It takes into account the recursos_user/documentos/Competencia/Integraciones/ intensity of existing competition and any entry barriers. Resoluciones/Abogacia/2013/Febrero/13-014194-1.pdf. 20 The Competition Policy Advocacy Awards Results: MinTIC and CRC designed different scenarios to advance the bidding process, weighing the pros and cons of reserving spectrum for entrants (and excluding the dominant operator). The auction process was adapted to specify which operators could bid on available blocks of spectrum, and two blocks were held for bids from entrants and smaller operators. The ministry promulgated regulations about infrastructure sharing (roaming) and network access, which meant new operators in their early years would face lower costs in providing services than incumbents. A follow-up mechanism was designed to ensure that entrants would develop infrastructure sufficient to enable them to compete autonomously after several years. Milestones in SIC’s Advocacy Process February 2009: The Communication Regulatory Commission declares Claro (then ComCel) the dominant operator. December 2011: MinTIC invites stakeholders to participate in the auction design process of the spectrum allocation. March 2012: MinTIC publishes the first draft of the auction design for comment. September 2012: SIC publishes market study with auction design scenarios. October 2012: SIC publishes recommendations to MinTIC that auction be designed to allow at least one new operator. November 2012: MinTIC publishes second version of auction design for comment. February/March 2013: SIC publishes additional advocacy concepts with further pro-competition recommendations. 21 Co-Winners: Colombia and Pakistan Pakistan 22 The Competition Policy Advocacy Awards Pakistan identified and corrected a sector-specific problem affecting a high-profile international consumer market for air travel to Saudi Arabia As a result of the Competition by pilgrims attending the annual Hajj. Commission’s intervention the The negotiated solution, brought about leading Saudi and Pakistani airlines cartel agreement was with the help of public pressure, quickly broken-up and other airlines were resulted in new choices and price allowed to enter into a previously competition in the marketplace and restricted marketplace. presented an approach that promises to yield positive results in other business sectors. Key Points: »» Rapid response to public complaints over price spike for plane tickets to religious pilgrimage. »» Effective use of media and public leverage to bring about a swift negotiated solution that delivered concrete results in the form of more market competition and lower prices. Narrative: The Hajj, or pilgrimage to Mecca and other holy sites, brings millions of people to Saudi Arabia each year in what for many is a once-in-a-lifetime $60 million experience. Travel arrangements for the pilgrims is a major undertaking, one that became the central concern of a cartel case in Pakistan in which pilgrims contended they were being gouged in savings to Pakistani for the cost of airline tickets. The controversy became public as Pakistani newspapers reported travelers to the Hajj during complaints about a dramatic price spike for air the year 2013–14. travel on both scheduled and chartered flights from Pakistan to Saudi Arabia during the Hajj season in late 2008. It then unfolded as an enforcement and competition policy issue, one that involved alleged violations of law by government-run institutions. It was resolved through a combination of enforcement and advocacy. 23 At the center of the action was the Competition between Pakistan and Saudi Arabia—about Commission of Pakistan, which undertook to 165,000 passengers in 2008—to the exclusion of investigate the price-spike complaints when they all other potential competitors. came to light. As often is the case in competition policy disputes, this one required an agency to So great is the demand for travel to the holy challenge powerful economic and political interests sites that Saudi Arabia grants each country a while working to shift priorities in other, higher- set number of pilgrimage travel slots. Pakistan’s ranking government ministries. The results of Hajj customer base was fixed at 165,000 pilgrims the Competition Commission’s intervention were in 2008; the total number of foreign pilgrims considerable: the break-up of a cartel agreement attending the Hajj that year was estimated at between the leading Saudi and Pakistani airlines, 1.73 million. Also fixed were the airlines that could the entry of other airlines into a previously carry them and the rates at which they would fly. restricted marketplace, and some $60 million in Hajj travelers paid more than regular passengers savings to Pakistani travelers to the Hajj during the on some of the same routes, the Competition year 2013–14. The case showed how a combination Commission noted, and pilgrims wishing to stay for of public pressure, persistent investigation, and a shorter time in Saudi Arabia paid more still. negotiation can yield significant results. After completing a detailed inquiry, the An agreement on fares between Pakistan Competition Commission reported that it could International Airlines (PIA) and Saudi Arabian find “no objective justification” for the fare Airlines (SV), both state-owned enterprises, came discrimination and no sound economic reason for to light when the Competition Commission made the price increase over 2007 rates. Jet fuel prices inquiries with both airlines about reports that had been generally stable and even declined during fares to fly from Pakistan to Saudi Arabia for the some periods of 2008. Since other fares had not Hajj were more than 80 percent higher than in the gone up by similar amounts, the price increase previous year. In the case of pilgrims who wanted a seemed to the Competition Commission to have shorter-duration trip, fares had more than doubled. more to do with the anticompetitive agreement A Saudi airline official politely responded that since between the two airlines granting them exclusive the national airlines of Pakistan and Saudi Arabia market rights and with the captive nature of the had mutually agreed on fares, queries should be customer base than with any economic or cost directed to the Pakistani airline. explanation. The statement amounted to an admission of price The Competition Commission found that PIA collusion. On further inquiry, the Competition had engaged in price fixing and had imposed Commission learned that the two airlines had unreasonable and discriminatory increases entered an agreement to split the customer base of on passengers, all in violation of the country’s Pakistani Hajjis and for PIA to pay royalties for any competition law. Because the Saudi and Pakistani pilgrim carried in excess of its agreed share. The governments had authorized the price-fixing bilateral government agreement allowed these two agreement, the two airlines were not found to have firms to control the entire Hajj air travel market violated the Competition Ordinance provision on 24 The Competition Policy Advocacy Awards “prohibited agreements.” PIA was ordered to work out a refund to be paid back to Hajjis based on the amount they were charged over what regular “Advocacy is an passengers paid along the same routes at the same time. But the emphasis in its finding was on inherent obligation of a a negotiated solution that would end the cartel and give consumers fairer prices and more choice competition authority.” going forward. —Dr. Joseph Wilson, Chairman, Competition Commission of Pakistan “With law enforcement, you only treat a single patient; with advocacy you get to the source of the problem and eradicate the disease,” said Dr. Joseph Wilson, Chairman of the Competition Commission of Pakistan. A non-binding policy note issued in 2010 to the Pro-competition government ministry that oversees air transport formalized a negotiated resolution of the case. Other countries seeking to foster Two new airlines, one from each country, would be more competitive business able to compete with PIA and SV for Hajj travelers. environments through pro- Fares would be determined independently and competition policies have taken competitively by each airline. There would be note of Pakistan’s example. no agreements or passenger quotas among the airlines. Previous competition cases had tended to be technical in nature and drew little if any public attention. This case was different. “Press coverage—positive coverage of the benefit to consumers—was important to doing the advocacy,” Dr. Wilson said. Other countries seeking to foster more competitive business environments through pro-competition policies have taken note of Pakistan’s example. “There was no change in law,” he said. Through advocacy and public pressure and at least the possibility of sterner enforcement action, “the bilateral agreement between the airlines changed, and the cartel was stopped.” 25 Knowledge Brief Pakistan’s air services agreement with Saudi Arabia 26 The Competition Policy Advocacy Awards Pakistan’s Competition Commission Impact determined, during a 2009 cartel Two airlines—one from each country—were allowed investigation of Hajj season airfares, to enter the market and offer direct routes between that a 1972 bilateral agreement Pakistan and Saudi Arabia. The market now between Pakistan and Saudi Arabia includes four competitors offering more choices had created an unduly severe barrier to for passengers in flights, scheduling, and fares. competition. The agreement granted exclusive Fares for Pakistani Hajj passengers decreased from rights to operate direct routes between Pakistan 2008 rates (before the Competition Commission’s and Saudi Arabia to two state-owned airlines9— actions were taken), reflecting an aggregate $60 one in each country—and allowed them to jointly million in consumer savings in the year 2013 alone. set prices. This practice resulted in higher airfares Fares in 2013 in Pakistan rupees were nearly the and limited choice for international passengers. In same as in 2007; taking into account the dollar 2010, the Competition Commission recommended parity, jet fuel prices, and inflation, passengers to the Pakistani government that the existing each saved approximately 50,000 rupees off 2007 bilateral agreement between Pakistan and Saudi rates, a benefit enjoyed by more than 120,000 Arabia be amended to allow for competition in air Hajj passengers in 2013.12 Positive media coverage travel services. conveying the consumer benefit helped improve the competition culture in Pakistan. Competition Advocacy With support from the Civil Aviation Authority, the Competition Commission proposed in a policy Key Lessons note10 that the bilateral agreement be amended 1) Advocacy can provide a path to resolution to (i) allow multiple airlines from each country when prosecution is not an option. In this to operate direct, scheduled services between case, the root of the problem was collusion Pakistan and Saudi Arabia, including during involving a state-owned enterprise, which Hajj season; (ii) require open and unrestricted was facilitated by a bilateral air regulation competition between all airlines operating between that effectively legitimized exclusivity and the two countries; (iii) abolish any quotas or price fixing. payment of royalties;11 (iv) require each airline operating between the two countries to decide its 2) The policy note was a particularly own airfare independently, without interference effective tool in bringing together the from either country’s aviation authority or interests of stakeholders at an opportune airlines. These recommendations were accepted time. The Competition Commission was and implemented through an amended bilateral able to address problems with the Hajj agreement between Pakistan and Saudi Arabia. pilgrimage at a time when the Ministry of Defense was ready to renegotiate 9. In 1972, there were no private airlines operating in Pakistan. bilateral service agreements to attract new airlines. 10. Policy note available at http://www.cc.gov.pk/images/ Downloads/policy_notes/basa%20policy%20note%20-%2018%20 may%202010.pdf 11. Under the 1972 bilateral agreement, the two airlines had agreed to split the market during Hajj season by setting a joint 12. This calculation by the Competition Commission of Pakistan airfare and payment of royalties (for service in excess of one is based on an exchange rate of 1 U.S. dollar equals 100 airline’s 50 percent share). The cost of the royalty paid by the Pakistan rupees. Pakistani airline resulted in a $20 increase in airfares for all its Hajj passengers. 27 Reform Design at a Glance: How Pakistan opened the market for air travel Results: The Competition Commission’s Objective recommendations were implemented in a renegotiated air services agreement between Amend the Pakistani government’s Pakistan and Saudi Arabia. bilateral air service agreement to allow multiple airlines to ply direct Milestones in the Competition Commission’s routes between Pakistan and Saudi Advocacy Process Arabia, thereby allowing lower fares November 2008: The Competition Commission of and more choices for international Pakistan notices media reports about Hajj fare passengers, particularly during Hajj increases and writes to Pakistan International Air- season. This objective supports the lines to determine facts and to Pakistan Ministry Competition Commission’s goal of of Defense to request relevant documents. increasing consumer welfare—reflected December 2008: PIA replies to the Competition in low prices, innovation, and choice in Commission, including the fact that PIA cannot products—through competition. carry passengers from Saudi Arabia to Pakistan. The Pakistani Ministry of Defense provides copy of Approach “Hajj Agreement” between PIA and Saudi Arabian Airlines. An official from Saudi Airlines writes that Law enforcement: The Competition Commission “Hajj fares were mutually agreed upon with the took notice of media reports that the state-owned National Carrier of Pakistan International Airlines.” airline was charging exorbitant fares for Hajj season travel and filed a complaint charging the April 2009: Competition Commission Inquiry airline with abuse of dominance. Officer submits inquiry report finding “no objective justification” for 80-percent fare increase and Inquiry report: The report issued following initial says PIA/SV agreement violates 2007 Competition investigations noted the presence of a quota- Ordinance. sharing agreement between the two state-owned airlines through their respective governments. May 2009: The Competition Commission issues show-cause notice to PIA. Advocacy strategy: The Competition Commission issued a non-binding policy note to the Ministry June 2009: PIA cites 1972 Air Services Agreement of Defense (which oversees the Civil Aviation allowing each country to designate one airline Authority), recommending changes to the bilateral for air service to Saudi Arabia and says Hajj fares agreement. Talks in process and the policy note are set by the Ministry of Religious Affairs. First provided the impetus to strengthen the will of hearing is held by the Competition Commission on other stakeholders. Copies of the note were made Hajj fares case. available to print and electronic media for public dissemination. 28 The Competition Policy Advocacy Awards September 2009: Second hearing is held. November 2009: The Competition Commission finds that PIA, not the Ministry of Religious Affairs, was responsible for price increase and that it was in violation of two counts of the Competition Ordinance for “abuse of dominant position” and “price discrimination.” Because PIA and SV set prices at the behest of their governments, they were not found to have violated the Ordinance provision concerning “prohibited agreements” such as collusion between two firms. November 2009: The Competition Commission issues a “token” fine and orders PIA to work out a refund agreement with overcharged passengers. March 2010: The Ministry of Defense renegotiates the Bilateral Air Services Agreement between Pakistan and Saudi Arabia that allowed two new airlines, one from each country, to ply direct routes between Pakistan and Saudi Arabia. 29 Winner 30 The Competition Policy Advocacy Awards THEME 2: [ Assessing the potential negative effects of certain rules and regulations on the market and informing policy makers and public authorities. Policy makers and regulators often design laws and regulations [ without consideration of the effect on competition. Regulatory requirements and compliance procedures to enter the market, sell a new product, or provide a new service may limit the ability of new firms to enter and compete without contributing to an identified policy objective, such as safety or public health. Policies that aim at promoting the development of certain sectors or regions may tilt the playing field, for example, if only a few firms in the same market are aware of or eligible for state-provided aid. Many competition authorities have understood the relevance of cooperating with policy makers and public officials in the design of norms to avoid regulations and policies that discriminate against certain market players. 31 Winner Egypt 32 The Competition Policy Advocacy Awards Egypt’s Competition Authority implemented a comprehensive and multi-faceted advocacy strategy to promote competitive marketplaces in “Law No. 3” a difficult environment in which state- owned businesses and longstanding traditions of political favoritism presented significant political and policy challenges. Early successes have established in 2005 along been achieved in markets for steel, milk, with the ECA was Egypt’s first school uniforms, and shipping agents. experience with competition policy as it related to economic Key Points: development. »» The Egyptian Competition Authority (ECA) took on entrenched political and business interests to address the lack of competition culture as it related to economic development that was exerting downward pressure on the economy. July 2014 »» Deft navigation of government ministries and business interests brought about solid results amid tumultuous period of political transformation in Egypt. marks a new law that Narrative: consolidates ECA’s The task undertaken by competition policy officials independence and allows in Egypt was formidable. The political and social for greater effectiveness in turmoil touched off by the Arab Spring included enforcement and advocacy. periods during which the national legislature was entirely dissolved. An economy that was not In particular, it mandates that overly robust to begin with was further hobbled the Competition Authority is by instability. At a time of civil unrest and political consulted on any draft laws re-setting, the Egyptian Competition Authority and regulations that are likely ceased activities considered too dangerous (such as to harm competition. surprise raids on suspected cartels) and redoubled its advocacy efforts. Overarching these conditions was a private enterprise culture only newly emerging and without a tradition of competitive business practices. In this environment, ECA sought to change the way the country does business. 33 In a series of interventions involving anti­ helped set the competition reform agenda and competitive practices in products ranging from played an influential role in shaping new or construction rebar to school uniforms to raw milk, reformed laws, policies and procedures. As part ECA investigated, identified, and took enforce- of its advocacy approach, ECA made a particular ment and advocacy action to promote more free point of enlisting the potential support of and open competition. Because competition policy “unconventional allies” — businesses affected by would ultimately be enforced in the courts, ECA anticompetitive practices. For example, a business undertook a training program that has so far paying too much for key supplies because of a provided guidance in the nuances of competition cartelized supply chain might consider blowing laws to more than 80 percent of the economic the whistle on the colluding suppliers. Taking on court judiciary. considerable political risk, ECA directly challenged existing government practices including price fixing Egypt was a relative newcomer in terms of policies, restrictive purchasing strategies, and focusing on competition policy as a component of special protections for state-owned enterprises. economic development. ECA was only established in 2005 by “Law No. 3” for that year, the Law So ingrained were some anticompetitive practices on Protection of Competition and Monopolistic in Egypt that at one point ECA itself was informed Practices. The authority’s agenda was far- that any advertisements it wished to broadcast reaching, entailing the spreading of a culture of would be carried exclusively on Egypt’s state- competition throughout both the public and private owned television channels. The authority informed sectors so that business interests—some of them the Ministry of Communications, which had issued well entrenched in the existing power structure— the edict, that without an exemption, the proposal and government ministries understood the value of would violate Egypt’s competition law. In another open and competitive marketplaces. instance, ECA challenged a plan by the Ministry of Petroleum to provide a price advantage for Strategic communications, therefore, were a established natural gas firms over potential new critical part of ECA’s implementation agenda. The competitors. The Competition Authority was able Competition Authority saw the need not only to to prevail in these and other instances because the enforce competition laws but also to persuade problem at the ministerial level was not so much a key stakeholders of their value. One of ECA’s first determination to thwart competition but rather a steps, therefore, was the launch of an awareness “lack of competition culture among senior officials,” program aimed at spreading the culture of in the words of an ECA document. competition among business interests. Companies were not only urged to comply with competition In a pattern replicated by other countries’ laws but to act as whistleblowers when competition authorities, enforcement and appropriate, reporting anticompetitive practices. advocacy tended to mutually reinforce one another This latter point helped ECA emphasize one of its in Egypt, as actions in specific cases generated important messages to businesses: that they are positive results that helped widen support for the just as likely to be victims of collusive behavior as pro-competition effort. In addressing concentration beneficiaries, if not more so. A series of workshops and market dominance in Egypt’s steel industry, in major cities and regions provided a platform for for example, an ECA study found that the conveying these key messages to businesses and dominant manufacturer of steel rebar faced only trade associations. one viable competitor, which had managed to gain a market share of less than 1 percent. ECA Dialogue with the private sector, academia, worked with the Ministry of Trade and Industry political parties, and key government agencies on two fronts. First, it pushed the ministry to 34 The Competition Policy Advocacy Awards support licenses for more modern and integrated rebar manufacturing plants in Egypt. Second, it pushed for the elimination of the customs tariff and adaptation of the technical specifications on imported rebar. In 2009, the amount of steel rebar imported to Egypt jumped from 1 percent of the Egyptian market to 23 percent as a result of these “Our approach was to make changes, while the price per ton decreased by 49 percent between 2008 and 2010. the agency effective in a state “A key lesson is that it’s always easier to of crisis, which we saw as an tackle contemplated legislation and remove opportunity for advocacy.” anticompetitive provisions than to take on existing laws and regulations and try to change them after —Haytham El Gammal they’ve come into force,” said Haytham El Gammal, Head of Policy and Advocacy head of ECA’s Policy and Advocacy Department. Egyptian Competition Authority Following the revolution, ECA undertook to work with all of the key political parties engaged in the national election campaign to urge them to incorporate pro-competition provisions in their party platforms. In 2012, the new government was hypothetical cases, but it did not bring up any seeking only minor strengthening changes in the specific competition policy issues already pending existing competition law; ECA pushed for a more before the courts. comprehensive approach. “We’re not imposing on them how to interpret the Continuous dialogue on the importance of laws, but we want to give them a ‘competition competition with various stakeholders—but sense,’” said El Gammal. “You get different courts in particular with political parties— as well as and divergent decisions; we want to instill the tangible results of successfully advocating for pro- competition concept and a competition sense.” competitive market regulation bore fruit: As of July 2014, a new law is in effect that consolidates ECA’s As of early 2014, Egypt’s constitution prohibits independence and allows for greater effectiveness monopolistic practices and as such, competition in enforcement and advocacy. In particular, it has become part of the national economic model. mandates that the Competition Authority is The new provisions in law and ECA’s advocacy consulted on any draft laws and regulations that and training programs may prove particularly are likely to harm competition. timely. Competition policy advocates in Egypt are well aware that the economic crisis resulting As always, words on paper are one thing; from political instability may lead to retrenchment actual practice in the field is another. So ECA and a trend back toward protectionism and undertook a training program designed to anticompetitive provisions in certain industrial introduce the Egyptian judiciary to key concepts policies. of pro-competition policy. The program provided comparisons to policies in other countries, In that event, says El Gammal, “Our role is to try to articulated the underlying motivations for minimize the adverse effects. If you cannot stop it, these policies, and explained the specifics using you need to minimize the adverse effects.” 35 Knowledge Brief Egypt’s advocacy to infuse competition into government practices 36 The Competition Policy Advocacy Awards Although Egypt began moving to a coordination with the judiciary by promoting market economy in the early 1990s, competition policy among public prosecutors the country did not adopt competition and judges of the economic and administrative courts; (vi) spread the competition culture legislation until 2005. In recent years the among economic journalists, academia, and non- Competition Authority, established under the governmental organizations. 2005 law, embarked on a wide-ranging advocacy campaign to inform public stakeholders of the Impact potential impact of their actions on competition. ECA dramatically increased its activities, engaging Steel rebar: The Ministry of Trade and Industry political parties on the reform agenda, lawmakers opened the steel rebar market to new integrated on existing and contemplated legislation, and plants and eased imports, which neutralized the policy makers on specific decisions, such as price monopoly pricing power of the dominant firm controls. The agency worked with prosecutors and and reduced its market share by 10 percent. Four judges to build their capacity to administer the law new licenses to operate integrated plants were and trained public procurers to curb bid rigging on awarded. Prices decreased (from 8,000 to 4,100 government contracts. Targeting anticompetitive Egyptian pounds per ton between 2008 and 2010), activities of state-owned enterprises, ECA and imports rose from 1 to 23 percent of the successfully intervened to help the government national rebar market. remove restrictions to competition in a number of cases. Raw milk: Following the Competition Authority’s recommendation that packed milk producers Competition Advocacy adopt a “milk-to-feed” ratio formula when dealing with farms, the industry’s main buyer (holding 65 The objectives of ECA’s multi-faceted advocacy percent market share) agreed to apply the formula campaign were to: (i) introduce competition policy and signed a protocol with many farms on this to a full spectrum of political parties and gain basis. ECA proposed the “milk-to-feed” ratio, an stakeholder support for the authority’s proposed international standard for pricing raw milk, to review of the competition law and amendments help ensure supply and relative price stability by that further empower ECA in its advocacy role; allowing Egyptian farms to cover their feed costs (ii) target government price-fixing policies by and stay in business. inducing the Cabinet and departments to review and comply with the law;13 (iii) introduce the School uniforms: After discovering private schools’ concept of collusive tendering and methods to widespread practice of imposing given suppliers prevent and detect bid rigging to public procurers; of uniforms on students resulting in high prices (iv) build awareness of competition policy among and bad quality, ECA cooperated with the Ministry businesses, help ensure their compliance, and of Education to publish a “periodic book” of rules encourage whistleblowing of firms affected by binding on all private schools to (i) prevent the cartels among their suppliers; (v) ensure better schools from requiring such specific uniforms that students are forced to buy from one supplier (de 13. Article 10 of Egypt’s competition law: “The Cabinet of facto exclusivity); (ii) levy administrative sanctions Ministers may, after taking the opinion of the Authority, issue a on schools that do not comply and refer the decree determining the selling price for one or more essential suspected practices to ECA. products for a specific period of time”(emphasis added by the authors). 37 Shipping services: As a result of the Competition Authority’s awareness program, the Ministry of Transportation was alerted by a reform bill to the Maritime Law and requested ECA’s revision with respect to potentially anticompetitive provisions. ECA pointed out that the reform would seal off As a result of the Competition state-owned shipping agency services from any Authority’s awareness program, effective competition due to its bans on foreign the Ministry of Transportation companies and significant limits to market participation by domestic private agencies. The was alerted by a reform bill to the proposed reform did not come into effect; foreign Maritime Law and requested ECA’s and private actors remain in the market for revision with respect to potentially shipping services, which will be important for the anticompetitive provisions. success of the new large-scale development project around the Suez Canal. Key Lessons 1) Making marginal improvements to an anticompetitive regulatory environment can be a viable strategy. Confronted with a range of regulatory barriers to competition, ECA targeted achievable changes at the outset to produce demonstrable results, build capacity, and gradually strengthen the Competition Authority’s position to enforce the law. 2) ECA recognized that businesses are not alone in originating conduct that discourages competition. The authority added the government and the judiciary to its advocacy and scrutiny, backed by a provision in Egypt’s constitution that prohibits anticompetitive practices. 38 The Competition Policy Advocacy Awards 39 Reform Design at a Glance: How ECA widely advocated with public and private stakeholders held 93 training workshops and conferences and Objective 11 media events between July 2005 and October 2013. The authority also developed a simulation Address anticompetitive behavior module as part of its academic outreach. of public and private actors and Results: ECA intervened in an increasing number anticompetitive legislation, regulations, of cases (from 2 in the 2006–09 period to 10 and policies. This objective contributes in 2010–13) involving several ministries and to ECA’s goal of ensuring an effective regulators. As a result of ECA’s government competition policy within a framework advocacy efforts, then Prime Minister Hesham of scarce public resources. Kandel issued a circular to all ministries and governmental entities directing their compliance with competition law and rules in drafting laws, Approach decrees, and policies. ECA also succeeded in Legislation: ECA recommended a full review of engaging with political parties to further its Egypt’s competition law and several amendments recommended legislation. that further define the law’s scope and strengthen the authority’s independence and effectiveness. Advocacy strategy for specific public policy actions to adhere to competition principles: Through ECA intervened in an increasing formal recommendations, ECA identified potential number of cases from violations and contradictions with Egypt’s 2 competition law in agreements initiated or undertaken by the government. A key objective was to induce the government to comply with the in price-fixing article of its competition law. 2006–09 Advocacy strategy to raise general awareness: The Competition Authority targeted political parties, to senior officials, and sector regulators to promote the concept of competition and its positive impact 10 in on consumers and the economy at large. Through customized programs for specific audiences, including business federations and associations, smaller businesses, public procurers, construction 2010–13 regulators, public prosecutors, and judges, ECA 40 The Competition Policy Advocacy Awards Milestones in ECA’s Advocacy Process March 2013: Launch of ECA’s judiciary advocacy May 2005: Egypt’s competition law goes into program for both economic and administrative effect. courts. July 2008: The Ministry of Trade and Industry June 2013: A second revolution removes President awards four new licenses to operate integrated Mohamed Morsi from office. steel plants, allowing for more competition in the long run. August 2013: Prime Minister Hazem Al Beblawi assigns his powers to initiate criminal lawsuits and September 2008: Minister of Trade and Industry, settle with violators to the chair of ECA. Rashid Mohamed Rashid, issues a decree relaxing the specification requirements of imported steel September 2013: ECA prevents promulgation of rebars, breaking monopoly power. provisions that would have restricted foreign and domestic private competitors to the state-owned December 2009: The Competition Authority enterprises from providing shipping agency services. launches an awareness program to educate public procurers on preventing and detecting bid rigging. January 2014: The new constitution includes explicit prohibition of anticompetitive practices January 2011: Mass protests demand overthrow of (article 27). Egyptian President Hosni Mubarak in January 25 Revolution. June 2014: Abdel Fattah el-Sisi is elected President. September 2011: ECA launches an advocacy July 2014: A new competition law is passed that program targeting political parties to introduce consolidates ECA’s independence and advocacy the concept of competition policy within their powers. programs. June 2012: Mohamed Morsi is elected President. September 2012: Prime Minister Hesham Kandel issues circular requiring public entities to comply with competition law in their draft laws, decrees, and policies. November 2012: Release of formal rules banning the practice of forcing students to buy school uniforms from one exclusive supplier. 41 Winner 42 The Competition Policy Advocacy Awards THEME 3: [ Raising awareness of private sector stakeholders and empowering consumers to deter anticompetitive behavior. [ Private market players are often unaware of the anticompetitive nature of certain actions in the market, whether their own or their competitors’. Also, they are often unaware of the sanctioning power of the competition authority. Raising awareness can help deter anticompetitive behavior, increase compliance efforts within firms and trade associations and stimulate private stakeholders affected by cartels or abuses of dominance to report such behavior. Competition authorities recognize that awareness of these issues among firms, entrepreneurs, and consumers leverages their capacity to monitor behavior of market players. 43 Winner Chile 44 The Competition Policy Advocacy Awards The Competition Authority engaged directly with trade associations in drafting guidelines to head off the risk of collusion among association members while also carrying out related enforcement actions. The effort showed positive impact in changing the overall business culture of the country toward a more pro-competition outlook. Key Points: »» A team from the National Economic Prosecutors Office identified and reported on the anticompeti- tive influence flowing from business associations. »» Against strong initial resistance, the team opened discussions, an awareness campaign, and training. »» The team achieved a marked shift in attitudes toward competition and wider understanding of the contribution pro-competition practices can make to economic growth. Narrative: The existence of trade and business associations in a maturing economy would seem to imply a sufficient number of market players as to assure a healthy level of private sector development. The trouble is that while trade associations can play a beneficial role in promoting economic growth, for example, by working together to jointly seek The right balance is crucial for the more synergies and efficiencies, they sometimes development of Chile’s economy: work to stifle competition and secure an entire business sector for a few key players. Instead of Thriving businesses that cooperate to serving the useful purpose of promoting research, pursue market opportunities without development, and innovation in a given field, these hampering open and competitive associations can evolve into forums for collusion, markets. price fixing, protectionism, and other forms of market control. 45 The problem in Chile was not the absence part of the problem into part of the solution. of laws and regulations designed to prohibit At first glance, an advocacy approach might anticompetitive behavior but rather private appear to be the “softer” option, as compared to sector actors unaware and unobservant of the enforcement. But the information and advocacy anticompetitive nature of some of their actions. campaign launched in 2010 by the Chilean National In good faith or not, in practice the association Economic Prosecutor’s Office (NEPO), or FNE by its of electricians, for example, fixed service fees, an Spanish acronym, was plenty controversial. In the association of manufacturers divided urban zones early going, reaction to the Economic Prosecutor’s into exclusive supply areas, and an organization of agenda was quite hostile, not only among business bus companies penalized one of its members for and trade associations but in the Chilean media as charging a price below that of all other members. well. The president of a bakers’ association even announced a bread price increase of 17 percent in The tough action against the poultry producers— the newspaper.9 14 including NEPO’s recommendation that the association be fined and then dissolved—fueled Enforcement actions remained part of the charges from the business community that the government approach; for example, a complaint government viewed normal business association against poultry producers alleged that their activity as criminal. The Economic Prosecutor trade association helped organize collusive continued to press the advocacy strategy, practices in the sale of chicken to supermarkets. including extensive efforts to clarify guidelines But enforcement only accomplishes so much, for business and trade association behavior and since it is necessarily limited to individual cases even counseling for individual associations. NEPO as opposed to overall market conditions. While engaged the help of communications specialists enforcement, whether actual or threatened, often to better frame strategic messaging and ensure strengthens advocacy efforts, the poultry case an inclusive, consultative process. Associations, was one in which the stick would not have been individual businesses, consumers, and other so effective without the carrot. The case against stakeholders had the opportunity to comment on anticompetitive practices in the poultry markets draft guidelines. was strengthened because Chile’s Competition Authority had already clearly and openly stated At their core, the guidelines focused on the what kinds of behavior are subject to sanction. kind of information collected by business and trade associations and shared internally among The Competition Authority in Chile recognized association members. Specifically, associations some of the symptoms of trade association were cautioned against information sharing about involvement in anticompetitive practices and prices, costs, production and trade volume, and decided to combine enforcement with an advocacy other sensitive business information. strategy designed to turn the associations from NEPO considers its information campaign a work in progress. But gradually, attitudes are starting to change. Opinions within associations about pro- 14. While in this case, the final verdict determined that the mere announcement of a price increase by the association’s president competition policies and public attitudes about was—even though very “unsuitable”—not anticompetitive, the the activities of associations have shifted, with publication of an actual agreement among bus companies did keener public awareness—driven by traditional trigger a sanctioning verdict a few years later. and social media coverage of the poultry case—of 46 The Competition Policy Advocacy Awards anticompetitive tendencies of associations. An impact study that was planned from the beginning by authorities as part of the campaign found that among a group of 22 lawyers experienced in “Regardless of the heat of the competition and antitrust law, nearly three out of four reported that trade associations are changing public debate, we encouraged their ways as a result of the campaign. Media an open and technical coverage has continued to be critical of the pro- competition effort, but even the negative coverage discussion with the private helped disseminate the issue more broadly. sector.” A degree of pro-competitive self-regulation has emerged, as industries and powerful associations –Mario Ybar, Deputy Head of the National Economic Prosecutor’s Bureau of Chile such as the Chilean Chamber of Construction and Mining Council develop their own guidelines. Notably, three Chilean entities joined forces in publishing competition guidelines “to create awareness among company staff, irrespective of their seniority, on the importance of competition.” process.15 10 Free, open, and competitive markets The three entities were an association of are crucial at this stage in Chile’s development executives that oversees business ethics, the to continued economic growth. Competition is Confederation of Production and Trade, and the increasingly seen as a critical driver of innovation, leading Chilean newspaper that had been so as, for example, new market entrants test critical of NEPO previously. These self-generated new technologies and business approaches in guidelines counseled business leaders “never a competitive arena, where the best ideas can (to) hold discussions with competitors about flourish. Economies the size of Chile’s, with a well- competitively sensitive topics … never make established middle class and maturing markets, agreements with competitors … (and) always are particularly vulnerable to members of the apologize and retire if, during a conversation with same business community seeking efficiency in a competitor, some issues that violate competition information sharing and standardization—often come out.” on the borderline of anticompetitive practices. The issue, then, was not economic survival but the NEPO is aiming for nothing less than a paradigm more ambitious idea of “getting to the next level” shift in Chile, driven by a greater public awareness that NEPO saw as particularly at risk. of the dangers of business collusion and a greater appreciation among businesses of the benefits of a more competitive business environment. The broader context concerns Chile’s economic 15. World Economic Forum. Global Competitiveness Report trajectory. The World Economic Forum has 2013–14 (2013). characterized Chile as an economy transitioning from a focus on efficiency to a focus on innovation, an important step in the economic maturation 47 Knowledge Brief Chile’s advocacy with trade and business associations 48 The Competition Policy Advocacy Awards Since the creation of the Competition meetings all over Chile, counseling associations, Tribunal in Chile, 40 percent of its cartel and applying the guidelines in particular cases. cases have involved trade associations. Impact In 2010, the National Economic Prosecutor’s Office decided to evaluate the risk of collusion presented A shift has occurred in the business community’s by trade and business associations, commissioning acceptance of competition principles, even among a study of Chilean trade association conduct associations; former skeptics of the Economic and undertaking a review of regulations in other Prosecutor’s actions seem more willing to accept countries. Acting on the research findings, NEPO the rules of competition in their work. Industries, established its preliminary position and embarked such as those represented by the Chilean Chamber on a broad-based and controversial advocacy of Construction and Mining Council, have begun process to curb collusive practices among to develop antitrust guidelines to help trade association members. The Economic Prosecutor associations adjust their conduct to conform with raised the issue for public discussion early in competition principles. Three important players the process, filed complaints against suspected in Chile’s economy, the Fundacion Generación violators and their associations, and developed Empresarial (Enterprise Generatión Foundation),16 and promoted guidelines to help businesses the Confederation of Production and Trade, and comply with the competition rules. Despite initial a newspaper previously critical of the Economic opposition in the business community and media, Prosecutor, have jointly published competition NEPO’s efforts have begun to change how the guidelines for company staff. associations operate and their members exchange information. Key Lessons Competition Advocacy 1) Competition advocacy strategically Addressing concerns related to trade associations supports a country’s economic growth was an important opportunity for NEPO to and development progress. NEPO acted to effectively use the country’s competition deter trade associations’ anticompetitive advocacy policy to: (i) initiate changes in the behavior at a time when it was considered country’s business culture; (ii) act in areas where vital for Chile’s development to intensify enforcement tools are not as efficient, because competition.17 costs are higher and enforcement is limited to particular cases; (iii) enable Chile to enjoy the real 2) Involving stakeholders early in a public benefits emerging from trade associations, such as discussion can build awareness and an increase in research and development activities; understanding. NEPO encouraged a (iv) foster a cultural change on the subject and dialogue from the outset, which resulted promote practices within business associations in broader visibility and a more informed that are consistent with a competitive market. view of the issues among the country’s NEPO implemented a broad advocacy process to trade associations. inform Chile’s trade and business associations about how they should adapt their conduct to 16. Fundacion Generación Empresarial is a non-profit organization comply with competition rules. The process to foment ethical behavior in the work environment by supporting included issuing guidelines, holding a series of firms with compliance-focused programs and other activities. 17. World Economic Forum, Global Competitiveness Report 2013–14 (2013). 49 Reform Design at a Glance: How NEPO challenged the culture of collusion among trade associations business and legal communities to comment on Objective the draft guidelines, sparking a discussion and eliciting opposition from major associations. The Ameliorate the anticompetitive risks final guidelines, published in August 2011, were conveyed by trade associations. promoted through conferences and seminars Promoting policies in this area is at universities and visits to major national intended to help trade associations associations in each of Chile’s regions.18 contribute to Chile’s greater economic Enforcement: The Economic Prosecutor filed benefit and foster innovation among complaints before the Competition Tribunal, various industries. including one against three poultry producers alleging collusion in the sale of chicken to major Approach supermarkets. The Tribunal recently ruled in favor of this complaint, which cited the trade association Evaluation of risk and review of regulatory best as a platform for the producers’ collusion. It practices: Chile’s main competition policy center sanctioned the producers with the maximum fine was commissioned to conduct a study to evaluate and ordered dissolution of the association as a the actual risk of collusion via trade associations. violator of competition rules. The study concluded, based on national case law, that the associations were “common instruments Results: At the end of 2012, NEPO commissioned for collusive behavior” and foster practices that a survey to measure the perceptions of antitrust “increase implicit coordination among competitors lawyers on the deterrent effect of antitrust leading to less competition in the market.” institutions in general and NEPO’s activity in NEPO also conducted a review of best practice particular. The survey19 found that 73 percent of regulations to understand how trade associations respondents believed trade associations in Chile are treated. had modified their conduct since the guidelines were published. Advocacy strategy: The issue was presented and discussed with stakeholders during an annual seminar for the national competition 18. A cooperative project with Mexican competition authorities community. This process led to the drafting of the financed several visits to each region to promote the guidelines and inform trade association members of potential anti- Economic Prosecutor’s advocacy materials, which competitive risks. established guidelines and recommendations for business associations to comply with competition 19. Of 22 lawyers mentioned in Chambers as competition experts rules and explained the analysis and criteria used and with great presence before Chile’s Competition Tribunal, 73 percent noted changes in the internal structure of associations in NEPO’s investigations to assess breaches of and information exchanges to comply with the principle of antitrust law. Public consultation allowed the antitrust regulation. 50 The Competition Policy Advocacy Awards Milestones in NEPO’s Advocacy Process 73% December 2010: A study conducted by Chile’s main competition policy center concludes that Chilean trade and business associations are instruments for collusive behavior. December 2010: NEPO conducts a review of of antitrust lawyers surveyed best practices in regulations related to trade said trade associations in Chile associations. had modified their conduct since the guidelines were published. November 2010: NEPO first presents and discusses the issue with stakeholders at annual Competition Day Seminar. January 2011: Draft guidelines and 2012 recommendations are released for public consultation. August 2011: Final guidelines are published. May 2011 – December 2012: NEPO begins “roadshow” to present and discuss guidelines with 3 entities from the private major national associations and at conferences sector and media reacted to and seminars. advocacy with a joint initiative November 2011: The Economic Prosecutor files to ensure compliance with complaints against poultry producers before the antitrust rules. Competition Tribunal, and against their trade association. December 2012: A study commissioned by NEPO finds that a majority of antitrust lawyers surveyed believe trade associations have modified their conduct. September 2014: The Competition Tribunal rules in favor of the complaint against the poultry trade association and orders its dissolution. 51 Honorable Mentions El Salvador Undertook a broad training effort in the Honorable Mentions analysis of regulatory impact on competition El Salvador and managed to embed competition as a main principle in the process of rulemaking and Turkey and design of broader public policy. Narrative: In some countries, laws and regulations designed to promote private sector competition are on the books but not well understood or enforced. El Salvador’s Competition Authority (Superintendencia de Competencia) confronted a THEME 2: different and all-too-common problem: regulations expressly restricting competition. Research by the Competition Authority’s very small staff Assessing the potential negative effects disclosed that key government institutions simply of certain rules and regulations on the were not considering the implications for private market and informing policy makers sector competition of the regulations they were and public authorities. promulgating. Inadvertently or otherwise, these restrictions were having a negative impact on Policy makers and regulators often design laws key economic sectors. Lack of awareness of and regulations without consideration of the the benefits of open competition—rather than effect on competition. Regulatory requirements opposition to the concept—was the problem. The and compliance procedures to enter the result was a raft of anticompetitive regulations market, sell a new product, or provide a new that failed to meet the criteria normally imposed service may limit the ability of new firms to on such rules, namely, that they be proportionate enter and compete without contributing to an identified policy objective, such as safety or to the issue at hand and carefully targeted public health. Policies that aim at promoting to promote the policy objective with minimal the development of certain sectors or regions distortions to the market. may tilt the playing field, for example, if only a few firms in the same market are aware The solution was to engage directly with the of or eligible for state-provided aid. Many government ministries and agencies with competition authorities have understood the the most influence over policies that bear on relevance of cooperating with policy makers competition and try to inject greater awareness and public officials in the design of norms to avoid regulations and policies that discriminate of the importance of pro-competition policies against certain market players. to consumers and overall economic growth. In 2012, the Competition Authority identified three government entities with considerable influence over policies affecting competition: the Presidency’s legislative and legal secretariat and 52 The Competition Policy Advocacy Awards technical secretariat; and the Ministry of Foreign entering the market and providing products at Affairs. Virtually all important economic and better prices. Following the agency’s opinion, the trade legislation passes through one or more of acknowledgment of foreign sanitary registrations these institutions; taken together, they could from countries with high sanitary standards form an effective filter to identify potentially was implemented, so as to increase competitive anticompetitive legislation and send it over to the pressures on the incumbent agents in the Competition Authority for review. The Unit for Salvadoran market of pharmaceuticals. Economic Analysis developed a set of guidelines to help government officials assess the impact “Inter-institutional cooperation was the basis of various policy options on competition. The for achieving greater dissemination” of pro- team also organized workshops to help those competition ideas, said Marlene Tobar Silva, responsible for drafting regulations and legislation Chief Economist in the Competition Authority. better understand the key elements of pro- The agency’s small budget and staff required competition policies. a strategy that would leverage the leaders and staff of existing government organizations by While the project is ongoing, it has already informing them of key competition policy priorities produced concrete results. In 2013, the and enlisting their support for pro-competition Competition Authority issued a total of 20 initiatives. “The endorsement of key institutions in opinions on various draft regulations that included charge of the design of regulation is fundamental pro-competition elements. The opinions went to before regulation drafters” begin their work, said other government departments and secretariats Tobar. “It is required that officials placed in high either for immediate implementation or further levels of public institutions commit to the initiative consideration. Ten of these, ranging in subject area in order to implement a strategy in favor of from civil aviation to health registrations to energy competition.” efficiency and consumer protections, received favorable reviews. Five, covering such issues as public purchasing, food safety, and micro, small, and medium enterprises, were partially accepted. Through these means, the Competition Authority was able to influence important policy changes: incumbent airlines are no longer exempt of financial guarantee requirements and scheduled flight operators can no longer block permits for charter flights. The agency also prevented a provision that would have allowed the public authority responsible for supervising the public accountants’ profession to deny applicants new licenses based on a subjective and potentially discretionary evaluation of the applicant’s “professional aptitude.” Finally, sanitary registrations guarantee public health, but they should not constitute a barrier to competitors 53 THEME 2 Turkey The resulting report was drafted to be relevant across all the key government agencies. The Competition Authority presented the report in a symposium in 2013 attended by 30 top Launched an awareness-raising campaign government officials including ministers, MPs, aimed at government officials, business and undersecretaries and chairpersons, along with market leaders, and the general public to an audience of 100 public officials, businessmen promote pro-competition principles and their and academics. The report outlines the benefits beneficial impact on economic growth. A key of pro-competition policies, surveys the state challenge is ensuring that a trend toward of play in Turkey under existing regulations, and privatization does not yield market- makes recommendations on how to improve the dominating players but rather a transparent, competition culture in Turkey. free, and open market. “The report points out that public involvement in Narrative: important sectors such as energy, banking, and transportation are still high,” said the TCA official. Advancing competition policy begins with effective “The most important negative effect this brings communication, to demonstrate to leaders and is surely the fact that advantages and exclusive key government agencies, as well as private sector rights granted to public enterprises distort compe- interests and the public at large, the benefits of tition in the market.” economies that foster competition. The challenge is doubly daunting in countries like Turkey, where The Competition Authority knew it had to do more government agencies not only lack a clear under- than simply recommend a change in the status standing of the benefits of competition but—in the quo from heavy public sector involvement in the case of state-owned enterprises—are the direct economy to a much more privatized economy. TCA beneficiary of anticompetitive structures. understood that anticompetitive conditions can be just as insidious in the private sector, so the report The Turkish Competition Authority (TCA) under- warned against simply transferring monopoly took this task by assembling a team of experts rights from a state-owned enterprise to a domi- to produce a detailed report seeking to increase nant private sector player. Subsidies, protection- awareness across the government of key elements ism, and anticompetitive regulations should be the of competition policy. The goal, in the words of a exception rather than the rule, TCA recommended. TCA official, was to help officials “internalize the Turkey’s ongoing efforts are having a catalytic role. concept of competitive neutrality and to make In the wake of the TCA report, the Turkish Industry it clear where the regulation starts to become ‘a and Business Association commenced an effort to bad thing.’” amend laws limiting competition. 54 The Competition Policy Advocacy Awards In the wake of the TCA report, the Turkish Industry and Business Association commenced an effort to amend laws limiting competition. 55 Moldova Cooperated with the telecom regulator Honorable Mention to induce new business practices that Moldova improve transparency on prices in the market, helping consumers compare and choose between competing service providers. Narrative: Moldova’s Competition Council has been in existence for more than seven years during which THEME 3: time the country has enacted legislation designed to promote competition in the business sector. The Competition Council has pursued a policy of Raising awareness of private investigation and intervention, but not necessarily sector stakeholders and sanction. Rather, it has taken a hybrid approach empowering consumers to deter to achieve effective competition in the market— anticompetitive behavior. sanctioning specific anticompetitive behavior to deter others from engaging in illegal agreements Private market players are often unaware of with competitors, but using advocacy approaches the anticompetitive nature of certain actions to resolve other barriers to competition through in the market, whether their own or their cooperation with regulators to improve legislation competitors’. Also, they are often unaware and through negotiations with industry. of the sanctioning power of the competition authority. Raising awareness can help deter In 2011, the Competition Council began anticompetitive behavior, increase compliance investigating complaints by consumers in Moldova efforts within firms and trade associations and that mobile Internet providers were abusing their stimulate private stakeholders affected by cartels or abuses of dominance to report such market power by charging high fees for data behavior. Competition authorities recognize service above customers’ individual monthly that awareness of these issues among firms, traffic limits. No violation of the competition law entrepreneurs, and consumers leverages their was identified, but the Competition Council did capacity to monitor behavior of market players. not leave the matter there. Instead, it identified the need to improve the way the market was functioning: The over 1 million Moldovan mobile Internet consumers should be able to make better informed choices of their mobile Internet 56 The Competition Policy Advocacy Awards 2012 marks the beginning of changes in procedure by mobile Internet providers, which ensured that subscribers can compare more easily how much they will actually pay for their monthly mobile Internet services. providers and how much to use their services. The council focused on a lack of transparency on the actual costs of the services that was limiting the incentives for competitors to make their service packages more attractive to consumers. By partnering with the National Regulatory Agency for Electronic Communications and Information Technology (NRAECIT), the Competition Council managed to change industry practices. NRAECIT specialists determined how consumers could be informed about the effective price they would pay for data service above the limit. By the end of 2012, two of the three providers had implemented voluntary changes in procedure to ensure that sub- scribers received notice when they were approach- ing their traffic limits. These voluntary changes in procedure will become mandatory under new rules being adopted by NRAECIT. Now consumers can compare more easily how much they will actually pay for their monthly mobile Internet use and then choose the best offer on the market. 57 Mexico Honorable Mentions Teamed with the largest public health Mexico and care provider to launch effort aimed at anticompetitive practices in public South Africa tenders, achieving tangible savings for consumers. Narrative: The Mexican Federal Economic Competition Commission (COFECE) accomplished two things in its intervention in public procurement of THEME 4: pharmaceuticals and medical supplies. It saved consumers real money—an estimated $4.5 billion between 2006 and 201120—and it got Improving the effectiveness of antitrust the attention of other government agencies enforcement through advocacy with that saw the solid gains from a more open and relevant public bodies. competitive procurement process. This approach took advocacy of pro-competition policies to a new Public officials are often unaware of their level: advocacy not just by the drafting of reports responsibility to detect and report market and the staging of seminars and training sessions, conduct that violates antitrust rules. For but also advocacy by setting a proactive example. example, public procurement sectors are often dominated by harmful coordination among The case involved the Competition Commission’s bidders, particularly in developing economies engagement with the Mexican Institute of where tenders are seldom designed to ensure Social Security (IMSS by its Spanish acronym), effective competition. The result is higher costs for taxpayers for important basic goods and an institution serving nearly half of Mexico’s services and lower quality of services received. population and its third largest public purchaser. Competition authorities play a key role in COFECE, an agency with experience dating back to helping public procurement units design tenders the 1990s, began working with IMSS as part of a that promote competition and in increasing the broader effort to take on the problem of bid rigging detection of bid rigging. in public procurement. In particular, over more than five years, it worked with IMSS on its tender design and procurement processes to reduce the risk of 20. Organisation for Economic Co-operation and Development. 2012. Latin American Competition Forum, Contribution by Mexico. http://www.oecd.org/officialdocuments/publicdisplaydocu mentpdf/?cote=DAF/COMP/LACF(2012)17&docLanguage=En. 58 The Competition Policy Advocacy Awards bidders secretly agreeing to eliminate competition. This practice often enables the bid winner to overcharge for goods and services at the expense of taxpayers and health care recipients. By allowing more firms to bid on a non-discriminatory basis, reducing possible interaction between firms and monitoring tenders more closely for unusual patterns, IMSS was able to make firms compete more fiercely for public contracts. More specifically, the Competition Commission’s approach combined enforcement actions with advocacy. Through enforcement, COFECE seeks “to send the clear message to the market that engaging in bid-rigging activities will have an important cost for the infringers,” explained Carlos Mena, Head of the COFECE’s Investigative Authority. Through advocacy, COFECE “is seeking the reform of public procurement legislation to enhance competitive processes and reduce $285 million companies’ incentives to engage in collusive was saved by Mexico’s government conduct.” through the consolidation of public In 2013, IMSS, along with five other health care sector purchases of medical supplies institutions and five state governments, undertook and competition advocacy. a historic effort in public procurement through the consolidation of public sector purchases of medical supplies, the largest in Mexican history, which saved a total of $285 million. This result is perhaps the most visible in terms of achieving substantial savings for the public and thus contributing to government with their procurement processes. consumer welfare. These agreements provide for COFECE to act in favor of the public entities by outlining specific The successful intervention at IMSS triggered recommendations on legislative, regulatory, and other public entities, such as the Federal Electricity procurement measures and developing capabilities Commission and the government of Nuevo León through training of public servants responsible for state, to seek counsel on how to be more vigilant procurement processes. about competition in their procurement processes. The overall endeavor in the public procurement COFECE also entered into interagency sector that represents about 6 to 10 percent of collaboration agreements with the Organization for gross domestic product is “considered a landmark Economic Co-operation and Development and the intervention that resulted in savings of millions of Mexican Institute for Competitiveness to support pesos of taxpayer money,” said Mena. the Electricity Commission and Nuevo León’s 59 THEME 4 South Africa procurement officials; institutionalizing bid- rigging detection by introducing a Certificate of Independent Bid Determination; and ensuring that the new policies would be sustained by developing Developed a competition advocacy mandatory training programs. In a stunning program that educated, trained, and surprise for CCSA officials, procurement officers empowered procurement officers across enrolled in the training programs said they had the government, enabling them to detect seen these bid-rigging practices for years, but and take action to thwart collusive they had not fully appreciated that the practices practices such as bid rigging. were illegal and had no tools or strategy in place to stop them. Another problem the Competition Narrative: Commission discovered was that government South Africa has been engaged in a long-running departments were sometimes more focused on effort to stop collusive practices among a few spending down their budgets before the end of well-positioned businesses and to redirect a a fiscal year than on ensuring the competitive business culture that tolerated anticompetitive conditions in the assignment of public funds. practices. The Competition Commission of South Africa (CCSA), established 15 years ago, became A CCSA survey of South African procurement increasingly aware of the pervasive practice of officers conducted in 2012 drew overwhelmingly bid rigging in public procurement tenders. CCSA positive feedback on the training and detection pointed out that since much of the government program. The majority of the 700 public officials spending subject to these questionable practices trained said they felt empowered to detect and was intended to reduce economic inequality and thwart collusive behavior. Greater awareness of the provide job and investment opportunities, illegal harm done by collusive behavior at procurement coordination of prices and other factors in tenders units of government departments, municipalities, was undermining one of the key purposes of the and state-owned enterprises has sparked an influx public investment. A CCSA study on savings from of reports of alleged bid rigging to the Competition prosecution of the cement cartel revealed that by Commission for further investigation. Overall, the avoiding the average overcharges of 17 percent, program has already saved an estimated $22,000 public authorities can purchase 9.7 percent more in two years. In one case, the National Treasury essential goods and services. The problem drew uncovered evidence of suspicious bidding patterns intensive public focus when a 2009 investigation for government purchase of around $9.2 million disclosed bid-rigging practices in connection with in HIV test kits.21 The Commission referred the construction of the World Cup stadiums, which case to the Competition Tribunal, and in 2013, two cost the government $2.3 billion. companies paid administrative penalties. The price of the HIV kits in the next round of bidding declined In response, the Competition Commission by 26 percent. developed and fielded a bid-rigging detection program as part of an advocacy strategy to 21. These kits are distributed by the government to public broaden support for pro-competition policies. hospitals to test for the human immunodeficiency virus. The strategy consisted of three pillars: raising awareness, particularly among government 60 The Competition Policy Advocacy Awards As a result of the Competition Commission’s investigation of collusive behavior in government tenders, the cost of HIV kits declined by 26% 61 THE COMPETITION POLICY ADVOCACY AWARDS Related Resources Kitzmuller, Markus, and Martha Martinez Licetti. 2012. World Bank Group. 2013. “Competition Policies Open Markets Competition Policy: Encouraging Thriving Markets for in Kenya.” Project brief. Development. Viewpoint note no. 331. 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Mexico: Towards a more competitive World Bank Group. 2013. “Benefiting Honduran Farmers business environment. through Competition Reforms.” Project brief. http://www.worldbank.org/content/dam/Worldbank/document/ https://www.wbginvestmentclimate.org/advisory-services/ Mexico%20Policy%20Note%202.%20Competition%20and%20 cross-cutting-issues/competition-policy/upload/Project- business%20environment-July28.pdf Brief-Hondruas-Competition-Policy.pdf World Bank Group. 2011. Russian Federation – Export Diversification through Competition and Innovation: A Policy Agenda. https://openknowledge.worldbank.org/handle/10986/13012 62 Credits Photography: World Bank (Cover and pages 3, 5 [top], 10, 18, 21, 22, 32, 36, 39, 44, 45, 48, 55, 57, and 59) Stock Photography (pages 5 [bottom], 12, 23, 26, 29, 30, 42 and 61) Panos image (page 14, Alfred Caliz photographer) Design Partner: Corporate Visions, Inc.