interface between competition law and sector regulation cornelius dube cuts centre for competition,...
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Interface between competition law and sector regulation
Cornelius DubeCUTS Centre for Competition,
Investment and Economic Regulation (CUTS CCIER)
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Introduction
• A competition law establishes a competition authority, whose role is to ensure that firms do not resort to anticompetitive behaviour aimed at stifling competition.
• In addition, governments also enact sector specific legislations, which establish sector specific regulators to regulate the sectors concerned.
• Both competition and sector regulation are departures form reliance on market forces in fostering social welfare and are actually regulatory tools intended to regulate behaviour of economic players.
• Interventions by both are aimed at broadening the scope for private markets to allocate resources thereby improving general economic efficiency.
• Although the mandates of the two are different, there are areas of overlaps and potential conflicting areas that necessitate the need for proper regularisation of their operational framework.
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Introduction (cont..)
• The trend in most developing countries is that it is the sector regulators to be established first, with their roles extending to administering fair competition in their respective sectors.
• The establishment of competition authorities later on therefore ushered in some overlaps in mandate, and potential conflict areas.
• Similar mandates by different authorities is apt to result in conflicting decisions, where the two agencies differ on procedures.
• It is therefore important that mechanisms of operation and co-existence be mapped out between competition authorities and sector regulators.
• The presentation discussed some of the possible operational mechanisms, based on various country experiences.
Why need a framework?
• The different approaches to competition matters that can be taken by the two sets of regulators over any particular issue result in different decisions with many implications:– Manipulation by the players through forum shopping.
– One regulatory authority’s decisions might be contrary or contravene the provisions of the other regulators’ law.
– Confusion on the various players themselves as to which regulator to approach.
– Regulatory authorities being asked or forced to reverse their decisions by line ministries, thereby undermining their authority.
– Conflicts and animosity between the two regulators, resulting in failure to obtain desired outcomes.
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Some few examples of problems• In South Africa, it was stipulated that the Competition Act would not apply to ‘acts
subject to or authorized by public regulation’. Firms used this provision to argue in the High Court that the Competition Act did not apply to agricultural and banking issues, as there are other acts regulating the practices of these sectors. The stipulation was later removed from the Act.
• The Securities Exchange Commission (SEC) in Zambia also has overlapping responsibilities with the Zambia Competition Commission. As a result, the SEC decision and that of ZCC often clashed in share transfer cases.
• In Tanzania, a case of conflict arose between competition authority and the Tanzania Communication Commission, concerning licensing issues. The competition authority filed a complaint against the communication authority for permitting dominance of two mobile phone operators (Mobile and Tritel) in the country by refusing to license other companies.
• Source: CUTS (2003), “Pulling up our Socks”, A study of competition regimes of seven developing countries of Africa and Asia: The 7-UP project.
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General roles of the regulators• Generalisation of sector regulator roles is difficult: number and mandates
differ across countries.
• Interventions by regulators are generally aimed at such issues as market opening privatisation; liberalising restrictions on entry, prices and enforcing normal business practices; frameworks for consumer protection in the sector etc.
• Regulatory authorities thus impose conditions which players should abide by, prescribe entry requirements standards and give operational guidelines to companies operating within the sector.
• Competition authorities focus on identifying and helping to eradicate attainment and abuse of market power by some few players in the market.
• Competition rules tell the agents in the market what they should not do, while sector regulation does the reverse and tells market agents what to do.
• Attempts have been made to distinguish between the two mandates.
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Ex Ante Versus Ex Post Regulation
• Ex Ante regulation generally refers to regulation before players start operations.
• It also refers to regulation based on a forward looking exercise, i.e what the situation is likely to be after some action.
• Ex Post regulation refers to regulation based on the conduct already done.
• This implies that the regulatory authority has to prove what has been done.
• Sector regulatory roles are generally ex ante regulation while competition authorities (except merger regulation) generally perform ex post regulation.
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Structural Vs Behavioural issues
• Structural issues generally refer to specified standards guiding players’ operations, which players have to address before starting operations.
• They play a critical part in determining entrance into the industry and hence determining the industrial structure (hence structural).
• Behavioural issues on the other hand refer to those regulations aimed at controlling the behaviour that firms may engage in (against each other or consumers) after they are already in operation.
• Thus it can be shown that ex ante issues are generally structural while ex post issues are generally behavioural.
• Structural issues include standard setting and monitoring; safety and externality enforcing; spectrum or rights of way allocation; licensing; price controls; outlining terms of sale, etc.
• Behavioural issues are largely competition related (abuse of dominance, agreements; M&As)
The OECD Classification
• OECD classifies regulation into technical regulation, access regulation and economic regulation in addition to competition enforcement.– Technical regulation- standard setting and enforcing (environment and
switching cost externalities); allocating publicly owned or controlled resources such as spectrum or rights of way, etc.
– Economic regulation -directly controlling or specifying production technologies (other than those linked with setting common technical product standards); granting and policing licences; terms of sale (i.e. output prices and terms of access); and standard marketing practices (e.g. advertising and opening hours).
– Access regulation involves ensuring non-discriminatory access to necessary inputs, especially network infrastructures
– Competition enforcement- applying competition law to control anticompetitive practices
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Possible approaches
• Structural issues (ex-ante) to sector regulators and behavioural issues (ex post) to competition authorities
– Structural issues require on-going monitoring and application of sector-specific expertise, which is difficult for a competition authority to perform, given its cross-sector cutting overall responsibility.
– Structural issues also require more frequent intervention and continuous assessment of performance against set standards, requiring a continual flow of information from regulated entities which makes it more suitable for a sector specific authority to handle.
– behavioural issues have cross sector implications, and may be best handled by competition authorities, which have competition mandates over all sectors.
– Behavioural issues are largely to do with competition law violations
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Possible Approaches (cont..)
(a) Combining technical and economic regulation in a sector regulator and leave competition enforcement exclusively in the hands of the competition authority;
(b) Combining technical and economic regulation in a sector regulator and give it some or all competition law enforcement functions;
(c) Combining technical and economic regulation in a sector regulator and give it competition law enforcement functions which are to be performed in coordination with the competition authority;
(d) Organizing technical regulation as a stand-alone function for the sector regulator and include economic regulation within the competition authority;
(e) Relying solely on competition law enforced by the competition authority for all aspects of regulation.
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Country experiences (UNCTAD 2006)
Country Approach (from (a) to (e) in previous slide
Australia (d) and (e)
Brazil (a)
Canada (b) and (c)
France (b) and (c)
Kenya (b)
Malawi (c)
New Zealand (e)
Mauritius (b)
Portugal (c)
South Korea (a), (c) and (d)
South Africa (c)12
Country Experiences (cont)
(i) Concurrent Approach
• Gives both competition authorities and sector regulators mandates in competition matters, using the same competition law.
• In UK, sector regulators such as OFGEM ( Office of Gas and Electricity Markets); OFWAT (Office of Water Services); OFCOM ( Office of Communications); CAA (Civil Aviation Authority); and OFREG (Office for the Regulation of Electricity and Gas) can also apply the Competition Act, 1998 concurrently with the OFT.
• In Netherlands, the Netherlands Competition Authority (NMa) and the Commission of the Independent Post and Telecommunications Authority (OPTA) concurrently exercise authority in telecoms sector.
• Success of the approach is hinged on the establishment of a working framework between the two regulators to harness their respective expertise.
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Country Experiences (cont..)
(ii) Cooperation Approach
• Although each authority has a distinct mandate, inputs from the other has to be sought before decision is passed on matters with overlaps.
– In Jamaica under the Telecommunications Act, the Office of Utilities Regulation has a duty to refer matters of competitive significance to, and consult with, the FTC before making declarations of dominance in the voice telephony market, and prescribing competitive safeguard rules.
– In Ireland, there are formal co-operation agreements between the competition authority and the sector regulators in accordance with the laws
– In Italy the competition authority is requested to provide opportunities to the sector regulators to air their views on competition matters pertaining to their sectors.
– In Singapore, the Competition Act 2004 provides that CCS may enter into cooperation agreements with any regulatory authority for the purposes of facilitating co-operation between the Commission and the regulatory authority in the performance of their respective functions to avoid duplication.
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Recommendations
• One size fit all approach not possible, countries are free to decide the best framework for their case.
• Exclusive jurisdiction approach difficult because there are overlaps in mandate.
• Concurrent jurisdictions are becoming popular but operational mechanisms need to be mapped out to avoid forum shopping.
• Best framework is the cooperation approach calling for mandatory consultations between the two regulators.
• Regulators can not be competent in all areas, hence it is important to let those best poised to deal with the issue deal with it.
• Several counties have seen competition and sector regulators developing MoUs on how they will exercise their functions when dealing with issues involving overlaps.
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