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

Productivity Commission 2 What should the objectives of a competition framework be? Support the well being of the people as a whole:  Foster the development of markets  Prevent collusive behaviour  Prevent the abuse of market power by dominant firms  Regulate appropriately those markets or arrangements where competition is unlikely to be fully effective  Remain focused on the long term interests of consumers

Productivity Commission 3 A robust competition framework must address the following The competition law Institutional arrangements Transparency, credibility and accountability Regulator behaviour

Productivity Commission 4 The law must cover the full range of offences

Productivity Commission 5 The law must apply broadly, permanent exemptions must be narrow Competitive neutrality is key to ensuring market development – State owned enterprises, including the activities of local authorities, must be subject to full application of competition law, including penalties Law should provide for any firm, or group of firms, to apply for a fixed term exception, if such exemption would be in the public interest Penalties should reflect the extent of economic harm caused and the need to deter future conduct by firms involved as well as guide future market conduct

Productivity Commission 6 The law should provide for graduated enforcement

Productivity Commission 7 But regulators must have a complete set of tools, and they rarely do

Productivity Commission 8 A robust competition framework must address the following The competition law Institutional arrangements Transparency, credibility and accountability Regulator behaviour

Productivity Commission 9 Some basic principles for institutional design Institutions should have clear, separate functions They must be separate from each other and from policy ministries Merit appeals where appropriate should be provided for and access to courts where decisions may be unlawful

Productivity Commission 10 Challenges faced in developing new institutions Developing credibility with businesses, consumers and international investors Reshaping existing power and economic relationships Resourcing  Financial resources  Suitable leaders  Qualified staff and consultants

Productivity Commission 11 An indicative design for a developing economy Competition Commission Economic Regulatory Commission Competition Tribunal Superior Courts Policy Review Commission Prosecutions Coverage Decisions Appeals Appeals on law Policy reviews

Productivity Commission 12 Indicative functions of these bodies would be Competition Commission – educate businesses and consumers on rights and obligations, investigate and prosecute potential offences, enforce CT decisions, make regulatory coverage decisions (where applicable) Economic Regulatory Commission – undertake price and other regulation for designated industries, administer access regimes Competition Tribunal – decide offences, hear appeals from ERC Policy Review Commission – undertake periodic reviews of industry and economy wide regimes and other reviews as directed by Government Superior Courts – hear appeals on matters of law

Productivity Commission 13 A robust competition framework must address the following The competition law Institutional arrangements Transparency, credibility and accountability Regulator behaviour

Productivity Commission 14 Credibility is critical – independence is key Agencies must not only be separate from each other but also from agencies that deal with policy and SOE ownership Agencies should have their own staff and budgets Commissioners and tribunal members should be appointed by the centre of government for fixed terms. Some tribunal members should be judicial officers Members maybe part-time but strict conflict of interest regimes should be in place. Consideration should be given to use of foreign experts for particular types of matters until expertise can be developed.

Productivity Commission 15 Transparency has many virtues Issues papers Public submissions Public hearings Draft reports Publication of final decisions Improved credibility Better information Tested analyses Development of precedent Education

Productivity Commission 16 Policy accountability is important for market development Even in economies not under going rapid change periodic review of policy is essential to ensure policy objectives are being met:  Market development and entry may reduce, or even remove need for regulation or change the appropriate form  Regulation can change the behaviour of firms, for better or worse  Interactions with other areas of government policy need to be monitored  Regulatory costs need to be kept to a minimum Reviews should provide public advice to government for appropriate policy action

Productivity Commission 17 A robust competition framework must address the following The competition law Institutional arrangements Transparency, credibility and accountability Regulator behaviour

Productivity Commission 18 Regulator practices should be developed with small businesses in mind In almost all countries, small businesses are the dominant type of business and account for significant output and employment (usually over half)  Both the general law and regulator practices should be structured on the assumption that businesses are small  It is large businesses that may require ex ante special regulation – natural monopolies, essential services, environmental risk, national security issues. These can almost always be identified on a sectoral basis

Productivity Commission 19 Compliance characteristics of small businesses Overwhelming want to comply Moreover, they want to know their competitors are compliant Do not see compliance performance as a way to gain competitive advantage or increase profitability They want clear simple guidelines to comply with and regulators that will help them to do so, they do not want to innovate around compliance Small businesses are not little big businesses

Productivity Commission 20 Competition regulators main types of engagement with small business

Productivity Commission 21 Competition regulators engage with small businesses on a range of matters Restraining small businesses  Collusive arrangements  Unfair dealings with consumers Protecting small businesses  Unfair dealings with large businesses as customers or suppliers  Detriment as a result of use of market power by dominant firms

Productivity Commission 22 There is a range of approaches regulators can use proactive rather than reactive — proactive approaches encourage, persuade and highlight ways to achieve or require compliance before a breach occurs. Reactive approaches wait until a problem has occurred. cooperative rather than combative — cooperative approaches focus on education, advice, working together, appealing to self-interest and mutual interdependence. Combative approaches see the firm as an enemy. discretionary rather than prescriptive —a discretionary approach is more tempered and able to assess alternative means of compliance, whereas a prescriptive approach entails strict enforcement and interpretation.

Productivity Commission 23 And a final word The competition law is not the only component of competition policy. Of equal importance is the administration of the laws that related to  Business licensing  Planning, zoning and release of land  Employment and work place safety Any failures in proper administration of such laws fall heavily on small business who are much less about than big business to influence outcomes.

Productivity Commission 24 Thank You