Transparency and non-discrimination

 

Rationale | Key considerations | Policy practices | Resources | next

 

4.1 Are the competition laws and their application clear, transparent, and non-discriminatory? What measures do the competition authorities use (e.g. publishing decisions and explanations on the approach used to enforce the laws) to help investors understand and comply with the competition laws and to communicate changes in the laws and regulations?


Rationale for the question

For competition laws and enforcement to be effective, businesses and other stakeholders need to understand the “rules of the game”. Competition laws need to be transparent and their enforcement predictable, and rulings on competition cases should be both consistent and based on non-discriminatory criteria. In other words, while each case is different, the decisions ought to be consistent with one another under reasonably similar circumstances.

Transparency and predictability help to improve the investment environment by reducing the risk of inconsistent application of laws and regulations and by lowering the uncertainty faced by investors and others. Transparency reduces firms’ costs of compliance and promotes confidence by reassuring investors that they are being treated fairly and that government is exercising its powers responsibly.

As in the Investment Policy chapter, competition laws applicable to investors need to be easily accessible, and any changes in laws and regulations should be communicated to interested parties. Foreign businesses wishing to invest in a country through mergers and acquisitions (M&As) need to be able easily to obtain information on the process for obtaining merger approval of the local competition authority. The same is true for domestic firms wishing to enter new product markets through M&As within the same country. Lack of transparency about the procedures, inconsistent application of merger review policies and potential biases against foreign investors can significantly discourage short and long-run flows of investment and entry of new firms.

In cases of abuse of dominance and cartels, the process is not automatic. An investigation is undertaken when a complaint is filed with the competition authority or when the authority pro-actively decides to investigate. The procedures and costs both for filing complaints and for defence when an allegation is made need to be transparent.

 

Key considerations

Many of the issues relating to transparency raised in Question 1.1 apply equally well to this question.

Availability of relevant information to investors Well-functioning market economies depend on access to information. For investors this means being easily able to obtain meaningful information on all measures that may materially affect their investments. And to reassure all market participants that business operates on a level playing field, it also means that investment laws and regulations and their enforcement should be codified and clear to all.

This requires a consistent, predictable system of laws, policies, regulations and administrative practices, as well as information on rulings and judicial decisions. Potential investors need to know what steps, if any, are required to obtain approval for a merger. Investors and firms also need to know what constitutes abuse of dominance or a cartel, how investigations will be conducted, the scale of penalties and the procedures for appeal.

Prior notification and consultation Involving investors and other stakeholders in the process of legal and regulatory changes contributes to their legitimacy and effectiveness. It also reflects a commitment to professionalism and contributes to building trust between investors and the relevant stakeholders. Moreover, policy is more likely to be sound and not produce unintended side effects if it is formed in a structured and transparent manner that permits input from all interested parties. Prior notification and consultation is a process that begins with public hearings, policy papers outlining the reasons why changes are needed, circulation of draft regulatory changes to all concerned stakeholders, and processes for revision and recirculation based on these public inputs.

Public appeals processes Public appeals processes increase procedural transparency, thereby helping to avoid regulations that impose undue burdens and limiting the discretionary power of officials. Procedural transparency can be institutionalised by systematically ensuring that changes in implementing regulations and administrative decisions are subject to an open, prompt and impartial public review and appeals process.

 

Policy practices to scrutinise

A key issue for the PFI user in assessing the transparency of a country’s competition law and enforcement is how information on laws and any amendments is provided.

The following criteria ought to be considered:

  • Information on competition policy and law and administrative requirements is provided through a legally stipulated and codified system with exceptions and qualifications to making information available clearly defined and delimited.
  • The PFI user should be familiar with the various means to communicate and disseminate information on a country’s competition policy and law, including the systematic use of print (e.g. official gazettes), government websites and other electronic communication technologies (e.g. on-line compendiums and e-gateways), as well as formal and informal contacts by government departments and regulatory agencies.
  • While new communication technologies like the internet simplify, extend and speed up information dissemination between governments and stakeholders, the internet is not an end in itself. The PFI user needs to evaluate the frequency and timeliness of information updates and whether the information offered is clear and succinct.
  • The PFI user should also pay attention to how changes in competition policy and law are made. Modifications are clear and transparent when based on:
    • a codified prior consultation procedure accessible to all stakeholders with clear accountability procedures on how comments are handled.  This should apply to all ministries whose decisions can materially affect the investment climate (e.g. tax authorities, customs assessors, foreign exchange and financial systems regulators, company/securities regulators, labour, environment and other sectors);
    • timely and widespread dissemination of new laws and frequent updating of electronic information distribution systems.
  • The PFI user should also pay attention to whether competition policy and law are designed and managed in a manner that avoids favouritism or accusations that decisions are politically motivated. This may entail introducing statutory delays for rendering decisions and the possibility of presenting additional facts and arguments.

The following questions will also assist the PFI user in addressing the question:

(a) Are the competition laws and their application clear, transparent, and non-discriminatory?

Transparency

  • Is information about the procedures for obtaining approval for M&As and for dealing with abuse of dominance and cartel cases easily available? Are investors and businesses able to gauge the time and procedural costs involved?
  • Provide a list of sources, such as websites, competition authority information portals or other governmental sources, by which firms and investors can easily gain the above information.

Non-discrimination

  • Are there any rules or restrictions that place foreign investors and firms at a disadvantage compared to domestic ones with regard to approval for M&As or when dealing with abuse of dominance and cartel cases?
  • If yes, then list the rules and restrictions and describe the motives behind them.
  • Are there any initiatives to relax these restrictions in the near future?
  • Are there instances where foreign firms have complained about unequal treatment? If yes, cite the instances.

(b) What measures do the competition authorities use (e.g. publishing decisions and explanations on the approach used to enforce the laws) to help investors understand and comply with the competition laws and to communicate changes in the laws and regulations?

  • Does the competition authority publish information on merger, abuse of dominance and cartel investigations:
    • Total number of investigations under each category?
    • Total number of investigations cleared without any competition concern?
    • Total number of investigations where some remedy was applied to alleviate competition concerns?
    • If remedy was applied, is information about the remedy, including the agency’s decision whether to take action, available to firms and investors?
  • Are detailed decision reports on mergers, abuse of dominance and cartels published and easily available?
  • If there are any changes in the competition laws related to mergers, abuse of dominance or cartels, are they widely publicised for all firms and investors to see? How is this information disseminated?
  • If there are any changes in the scale of penalties for abuse of dominance, cartel and other types of cases, are they widely publicised for all firms and investors to see? How is this information disseminated?

 

Resources

  • The websites of the European Commission’s DG Competition and the US Federal Trade Commission provide extensive information on procedures. See also the SEAE Technical Team report on the criteria used for assessing mergers in Brazil.
  • The UK Office of Fair Trading annual report provides information on how stakeholders rate their work on various criteria such as: independence, fairness and objectivity, professionalism, transparency, clear analysis, consistent accountability, proportionate/considered judgment and diversity.

 

previous | previous | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | next

 

Competition policy home page