UNCTAD work on COMPETITION POLICY WITH A

DEVELOPMENT APPROACH
CHALLENGES FOR SMALL ECONOMIES IN THE
CURRENT FINANCIAL CRISIS

Ana María Alvarez

Competition and Consumer Policies Branch
DITC/UNCTAD

13 May 2009

Presentation at the Visit of the University of

West Indies
Palais des Nations, Geneva
Outline

Competition Law and Policies in Latin America and

the Caribbean: national and regional context

Competition policy in small economies: challenges

UNCTAD work on competition and consumer

protection policies
 Development of competition laws and
institutions in Latin America and the Caribbean

 Competition institutions in the 90s

 Argentina, Brazil, Colombia, Chile, Costa Rica, Jamaica,
Mexico, Panama, Peru, Venezuela
 The new competition institutions
 Barbados, El Salvador, Uruguay
 Countries that have recently adopted/developed competition laws
 Ecuador, Honduras, República Dominicana, Trinidad & Tobago
 Countries with competition projects
 Guatemala, Paraguay

3
 Status of competition law and policies
in the LAC region

- Argentina (1980)
- Barbados (2005)
- Bolivia (Decreto Ley, 2008) - Guatemala *
- Brazil (1960)
- Chile (1973, rev. 1980) - Paraguay *
- Colombia (1992)
- Costa Rica (1992) * Projects in preparation
- Domiinican Republic (2008)
- Ecuador
- El Salvador (2005)
- Honduras (2006)
- Jamaica (1993)
- Mexico (1992)
- Nicaragua (2007)
- Panama (1990)
- Peru (1992)
- Trinidad &Tobago (2007)
- Venezuela (1991)

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 The need for regional and
international cooperation
 National Law enforcement stops at the borders while
 Anti-competitive practices are increasingly cross-border:
• International cartels
(e.g. export and import cartels and bid-rigging)
• Vertical restraints by dominant firms
(e.g. prohibition of parallel imports)
• Mega Mergers and Adquisitions take place abroad, may be
authorised there but often have anti-competitive effects in third
countries
 Types of cooperation agreements

a) Bilateral (formal) and Agency to Agency agreements

• Arrange Comparable economies
• Imbalance of interest if large with small economy
• Risk of inconsistencies and heavy burden in case of
proliferation of bilateral agreements

b) Regional Integration
Negotiations in many regions; some involve common
competition rules as a longer-term objective
(e.g. CARICOM, COMESA, Andean Community)
 Competition in regional trade agreements

Competition provisions in regional

National Competition Laws agreements
- CEMAC
- COMESA
Africa
- UEMOA
- SACU

- ASEAN
Asia
- SAARC
APEC

- MERCOSUR
- ANDEAN COMMUNITY
Latin America and the
Caribbean - CARICOM *
- NAFTA (+ US & Canada)
*The Caribbean Community is in the process of operationalizing a regional competition authority, the CARICOM Competition Commission. Jamaica,
Barbados, Guyana, St Vincent and the Grenadines and Trinidad and Tobago have competition laws in place, but Jamaica was the only country with
significant enforcement practice. Other members of Caricom need to set up national competition regimes to be in compliance with the 1973 CARICOM
Treaty. The Dominican Republic Competition Law entered into force in January 2008 (see UNCTAD. Investment Policy Review. Dominican Republic.
UN, 2009.
 Negotiations of an EPA -
CARIFORUM
Why did CARIFORUM initial a comprehensive rather than an interim or partial agreement?

 The need to sign some form of agreement before the expiration of the Cotonou waiver because
of the probable disruption of CF exports to the European Union (EU) from 1st January 2008.
Avoid that a number of products would have been subject to tariffs.

 The need to conclude an agreement in trade in goods

 
 An EPA package, incorporating Development Cooperation, Trade in Goods, Trade in Services,
and Trade related issues (SPS etc): ensure CARIFORUM ability to use progress in one area &
to gain leverage  

 The importance of maintaing integrity of the region and avoid separate bilateral or sub-regional
agreements with the EU.
 Competition Chapter in the
CARIFORUM – EPA text
• Objective: to agree on common principles to ensure that markets are not distorted by anticompetitive
practices by companies.
• Due to the lack of national competition regimes in most of the Cariforum countries, there is a transition period of
five years to put such laws and authorities in place (art. 127).

• Anti-competitive practices covered by the Agreement:

The types of anti-competitive conduct by companies that are prohibited (art. 126) are:
– 1) cartels and other "concerted practices" ("agreements and concerted practices between undertakings which
have the object or effect of preventing or substantially lessening competition on the market" of one of the
parties);
– 2) abuse of dominant position ("abuse by one or more undertakings of market power" in the territory of either
the EU or Cariforum).
Mergers and State Aid are not covered. In the light of the very different development level between the
EU and Cariforum, it was considered that such inclusion was not necessary at this stage.

Provisions on public enterprises and so-called "enterprises with special rights" 3 (art. 129). Such
enterprises are of course not prohibited
The agreement expressly states that parties have the right to design or maintain public or private
monopolies. However, such enterprises must respect competition laws to the extent that the
application of these laws does not obstruct the execution of the special task assigned to them.
Following the request of the Cariforum countries, certain specific sectors are exempted from this provision
on public enterprises (art. 129.3).

http://trade.ec.europa.eu/doclib/docs/2008/october/tradoc_140976.pdf
 Competition Chapter in the
CARIFORUM – EPA text cont….
Enforcement
• The above competition rules laws will be enforced by specific competition authorities: one
for the Caricom countries (Caricom Competition Commission) and one for the Dominican
Republic (Comision Nacional de Defensa de la Competencia) (Art. 125.1)6.
• The enforcement cooperation provisions in the Cariforum EPA go less far than those
in some other EU agreements, thus recognising the specific situation in the region

Cooperation

• The EU will provide technical assistance and capacity building, through assistance in
drafting guidelines, manuals etc., training key personnel, provision of independent experts
etc… (Art. 130).

• Cooperation between Competition Authorities (mainly through exchange of information),

which may be very useful in the case of anti-competitive behaviour by companies on an
international scale, such as hard-core cartels (Art. 128).
 Implementation issues
• Supply-side constraints which have been negatively affecting competitiveness of Caribbean
economies

• In small developing economies, this include:

– high production costs (usually related to small scale of operations); a limited export base
dependent on one or two commodities; widespread operational inefficiencies; ineffective or
non-existent regulatory institutions; and a general lack of international competitiveness.

• In the case of CARIFORUM, the situation is exacerbated by the high inbound and outbound
transport costs linked to the reality of small islands scattered across a vast expanse of ocean.

• CARIFORUM states, as small economies, are increasingly dependent on the services sector

• Negotiating capacities: the need to ensure consistency between trade and competition negotiations.

See ECLAC also Competition Provisions in Regional Trade

Agreements, www.unctad.org/competition/competition
 Competition policies in small economies

• Higher levels of concentration may be necessary (?) in

order to achieve productive efficiency
• Competition policy = sympathetic (temporarily?) toward
the enhancement of output by individual firms, through
either internal growth, mergers, or joint ventures

Competition policy should strike the optimal balance

between structural efficiency and competitive vigor so
that firms may operate at efficient scales and transfer
benefits to consumers

See also M. Gal: Competition Policy for Small Market

Economies. 2003.
 Competition Law and Policy and
competitivieness of SMEs

SMEs:an economic force, employment opportunities

 Vulnerable to trade openness
 Face the proliferation of informal enterprises
 Face anticompetitive practices from both, domestic and multinational
enterprises
 In a competition environnment, only competitive enterprises survive

CLP contributes to ensure a level playing field

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UNCTAD mandate on Competition Law
and Policy

• Havana (1946)
• U.N. Code on TNCs (1970’s)
• UNCTAD Code on TOT (1970’s)
• UNCTAD Set of Principles & Rules on
Restrictive Business Practices (RBP’s, (adopted
in 1980 by UN G.A.)
• WTO Working Group on Trade and
Competition
 International cooperation

The UN Set • Recommends countries to

on Competition adopt and fully implement
competition legislation
1980 • Non-binding voluntary code:
recommendations to States
and enterprises including
TNCs
• First attempt to raise
cooperation with a
DEVELOPMENT DIMENSION,
in particular
Special and Differential
treatment
• Useful direction and
inspiration
for cooperation agreements
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 UNCTAD • UNCTAD elaborated a Model Law
Model Law • A technical assistance tool to
on respond to developing countries
and economies in transition
Competition technical assistance requests
• Implementation in full cooperation
with national States and
international organisations
experienced in competition
(OECD, World Bank, EU and
WTO)
 • Adopted by the General Assembly in
1985 and reproduced in UNCTAD
series on issues in the field of
UNCTAD Competition Law and Policy
• Internationally agreed statement of
laws necessary for consumer
UNITED NATIONS GUIDELINES
protection
FOR CONSUMER PROTECTION • Promote consumer rights - for
example, through education and the
provision of consumer information.
• Emphasise the need for consumers to
be protected: safety, freedom from
exploitation, redress, and access to
basic goods and services.
• Promote competition through:
- Enhancing production and
consumption patterns responsive to
the needs and desires of consumers
- Curbing abusive business practices
which adversely affect consumers
- Promoting the development of market
conditions which provide consumers
with greater choice at lower prices.

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UNCTAD research activities

•Competition for development, as seen by

developing countries themselves: IDRC studies on
Competition, Competitiveness and Development
•Mechanisms through which competition
policy can contribute to improved economic
performance by fostering enterprise development,
investment, productivity and export performance.
•Specific lessons from developing countries on
the adoption and implementation of competition
laws and policies.
•Prerequisites for successful implementation of
a development-oriented competition policy.
•Case studies: South Korea, Brazil, Peru,
Thailand, South Africa, Nepal, Tanzania and
Zambia
 COMPAL PROGRAMME
Strengthening Institutions and Capacities in the area of Competition and
Consumer Protection Policies in Latin America :
Bolivia, Colombia, Costa Rica, El Salvador, Nicaragua, Peru

exchange of
market studies
experiences

conferences, Internships
seminars COMPAL (COMCO)

capacity
building
strengthening
research and institutions
substantive work

See also competition.unctad.org/competition and

http://compal.unctad.org
Some elements to Peer Review
appreciate the Cooperation on competition
provisions
graduality and
Cooperation on case solving
flexibility in the
implementation of
Competition Law Enforcement of sanctions and remedies

n/
and Policy

io
at
nt
is me Law enforcement: investigations, analysis, data
ys le
collection
al p
an im
se the

Training officers in charge of implementing the

ca in

Law
by lity
se ibi
ca ex

Design of the institution in charge of implementing

Fl

l
ca
the Law

ni
Competition Bill: consensus, consultations with the

ch
te
Legislative Authority, civil society, adoption of the Law.

n
Advocacy

e
ce riv
Sensitizing at the level of economic actors (Competition culture).

a n -d
st d
Inventory of the Laws. Assessment of the socio-economic

si an
situation in each country

as m
De
 Competition Policy and the current
financial crisis
• The global financial crisis is spilling over into the real
economy where goods and non-financial services are
made and traded.
• Economies are affected differently. Developing
countries, which must deal with the effects on their
domestic economies, appropriate steps include
increasing private sector flexibility and market
resiliency and continuing to improve the climate for
investment
• Competition law and policy is then crucial
• Competition agencies need to take appropriate
measures
 Reaction to the crisis
The crisis could atract anti-competitive conduct.
Cartels or monopolies may try to take advantage of the environment of economic distress.
Suppliers that normally have no market power may gain substantial market power during periods
of market crisis. Even a firm with a small market share has market power – the ability to raise
price for a substantial period – when its rivals are capacity constrained or cannot react.

Demand for staple foods and fuel is likely to be highly inelastic in the short run, so withholding
only a small quantity from the market can result in large price increases

Responses could be contradictory.

• Stepped up enforcement of antitrust rules, but only against selected targets;
• Relaxed enforcement of other antitrust rules, to permit mergers and export or recession
cartels;
• Rescue of weak competitors via mergers or subsidy;
• Price controls; and
• Import or export constraints;

Source: Global Forum on Competition. OECD. Feb. 2009

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 Advocacy at a turning point
• Economic downturn:
– Loss of faith in markets?
– More vulnerable consumers
– Failing firms
– Incentives for cartels
 Competition Advocacy Initiatives

 Competition policy given lower priority by

government alongside other policy goals?
 Pressure to circumvent or soften competition
rules?
 Greater direct government involvement in
markets
 Reduced confidence in markets and market
outcomes among policymakers and
consumers

Turn the current situation into

opportunities
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Many thanks

Ana María Alvarez

ana.maria.alvarez@unctad.org