On 26 April 2001, the OECD Council adopted a Recommendation concerning Structural Separation in Regulated Industries. It calls for governments to consider structural separation, in particular the pros and cons of separating the structure of a regulated firm's activities.
Rationale for the Recommendation
When a firm provides products or services regulated by government, structural separation may be required so as not to hinder the entry of competitors in the market. “Structural separation” of a firm may be important to advance the process of market liberalisation. It is applied notably in sectors such as electricity and telecommunications where the main service (or product) is generally provided by a supplier and other firms commercialise the end product or service to consumers.
The issuing of a recommendation became necessary to draw attention to the benefits of structural separation but also to clarify since it may not always bring economic and public benefits that justify its implementation. Governments should therefore carefully assess the costs and benefits of structural versus behavioural measures especially in the context of privatisation, liberalisation or regulatory reform.
Implementation reports and the 2016 revision
The Recommedation calls for regular implementation reports: a first report was issued in preparation of the 2001 recommendation, a second one was published in 2006 and a third report led to the revision of the Recommendation in 2011. The 2011 report showed that the impact of separation policies on investment incentives should also be amongst the benefits and costs assessed. It focused in particular on the electricity, gas, railways and telecommunications sectors.
In 2016, a fourth report [coming soon] showed that structural separation remains a relevant remedy to advance the process of market liberalisation and that the areas of application can include vertically integrated industries where only some activities are subject to competitive constraints.
Scope of the RecommendationThe recommendation applies to OECD member countries. Other economies are welcome to associate themselves with the recommendation.
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