Document(s) 7 of 9

The introduction and implementation of a competition law is fraught with problems. Political will is necessary every step of the way. However, competition law will not be broadly accepted or fully enforced unless key leaders in government have adopted market principles as the underpinning of economic development.

The following 11 recommendations provide practical strategies for introducing and enforcing a competition law. They are grouped in three clusters: drafting the statute and setting up the competition authority, engaging public support, and contending with anticompetitive conduct that crosses national borders.

Drafting and implementing competition law

1. Enact legislation that is strong and supported

Sound legal drafting is vital. The law must be designed to prevent opponents from undermining its aims. Any exceptions or exemptions granted to industries or firms must be based on solid economic justification. They should be openly decided and scrutinized regularly with the expectation that they will eventually be terminated. As the APEC–OECD (n.d.) checklist of regulatory reform states, “When exclusions from competition law exist, they need to be narrowly targeted and no broader than necessary to achieve other legitimate public policy objectives that cannot be better served in other ways.”

Developing countries must be able to apply the principles of flexibility and progressivity when developing their competition regimes. This may require special provisions to address market failures that lead to social injustices and interventions to protect the poor. The law may also need to be phased in over time.

Any competition law must

• Adhere to basic legal principles: The law must, at minimum, meet a country’s constitutional requirements and standards of natural justice.
• Endow the authority with powers of investigation, including search and seizure: The authority must be able to initiate investigations. Investigatory powers should extend to regional competition authorities established by intergovernmental agreements. The law must provide for an appeal process.
• Allow flexibility to set fines and other penalties: The authority should have discretion in setting fines according to the size of the firms involved. Fines must be high enough to deter, but not so high as to bankrupt violators. Fines should be based on a percentage of the company’s annual turnover, with a range up to 10%.

External expertise should be sought to ensure that draft laws meet these criteria. This can be done at no cost through technical assistance or informal cooperation with mature agencies. Those developing the competition regime will need to engage in skilful coalition-building to fend off attacks by powerful vested interests.

Concessions granted to gain support should be temporary and subject to review. Central American states initially granted many concessions to get their laws onto the statute book, but a few years later were able to revise and strengthen them. A progressive approach allows the introduction of a competition regime in a limited way, with the option to extend and strengthen it after conducting a program of advocacy and education.

In a hostile environment, it may be useful to allow a moratorium of up to 2 years, during which stakeholders are educated and official opinions on firm conduct are provided without fines or sanctions being imposed. This allows stakeholders to become familiar with the law, inducing greater compliance and building technical expertise in the authority.

2. Appoint and encourage strong leadership

Leading a competition authority — especially in its early years — requires determination, independence, and a tireless facility for public engagement. Strong competition authority leaders in countries as diverse as Australia, South Africa, and Zambia have demonstrated the power of lively media relations and public engagement. Successful leaders secure an authority’s reputation and build its legitimacy. Competence is crucial to sustainable leadership. Leadership appointments should be non-partisan, both in process and outcome. Leaders of competition authorities must be tenacious and discrete. They need to pick their early targets carefully, choosing cases they can win, that rely on available and convincing evidence, and that will attract popular interest and approval.

A new competition authority must be given media relations resources and training and should be encouraged to court the media to get its message across. Every new authority must have a well-connected, strong leader who can withstand the high levels of pressure that he or she will come under.

3. Recruit expert staff and remunerate them well

New authorities need to hire lawyers with experience in competition, courtroom, and administrative law and procedures, and they may have to retain outside counsel in difficult cases. Economists must be trained in industrial organization. All professionals should be paid well, and prestige should be built into the job. Staff should be trained through workshops, scholarships, internships with mature competition authorities, and secondments of foreign competition-law experts into the new organization.

The new authority should have the statutory power to develop its own budget and submit it for legislative approval. It is generally unwise to force an authority to subsist on the fines it levies, as this may also create a temptation to impose self-serving and excessive fines.

4. Ensure that judges receive specialized training in competition law

A few judges, strategically assigned to deal with competition cases, should be trained in the minutiae of competition law and economics. The cases will then be competently heard and decided, while more judges are exposed to the complexities of competition-law issues.

Engaging stakeholders

5. Recognize that not everyone will be your friend

Although outreach is important, not everyone that a competition authority wishes to engage with will share its enthusiasm for competition law and policy. Indeed, some may well be hostile to both what the authority wishes to do and the very existence of the authority. Even those who seem to be natural allies could initially be opposed to the authority and its works.

A coherent mapping exercise should be carried out to identify organizations that currently engage with the authority. Each should be surveyed to identify the degree to which it is a friend or opponent of the authority, in general or in specific instances. The likelihood of each organization being turned into an ally should be assessed and an action plan developed to identify the best strategy to increase the authority’s allies.

6. Build alliances with the beneficiaries of competition law

Coalitions must be built between the competition authority and those who will benefit from predictable and lasting implementation of competition rules. Such groups can include consumer organizations, farm groups, labour unions, NGOs interested in good governance and economic justice, small businesses victimized by monopolists, and others.

There is a particular reason for using a mass media specialist to publicize the harms resulting from anticompetitive abuse and the benefits of rigorously enforcing the competition law. Journalists should be offered training by independent and expert advisers on the various aspects of competition law and policy. Whenever a case is decided, targeted background kits should be developed and media briefings held to help journalists cover the authority’s work.

7. Activate popular interest in competition questions

Any competition authority should provide regular briefings for media of all kinds, from mass-market newspapers and broadcasters to sector-specific journals and NGO newsletters. Journalists should be briefed in legal and economic details. Competition authorities should consider establishing offices in outlying cities and regions, staging seminars, and giving speeches to specific audiences about the law and its significance. The authority’s chief executive should be central in publicizing the authority’s work.

Key members of authority staff should be media trained and put in contact with key media contacts. Working relations between key staff and key journalists should be encouraged.

8. Build alliances with other government departments

A competition authority should search out and foster coalitions with like-minded departments and agencies of government. The authority should not hold back from dealing with the anticompetitive outcomes of government actions. It should prosecute anticompetitive practices, even if they have been blessed — expressly or tacitly — by other government offices. Where it does not have authority to investigate, it should persuade sector regulators to stand against any abuses by newly privatized monopolists. Clear demarcation of responsibility and mechanisms for cooperation can limit conflict with other regulators.

Competition authorities should consider working with partner organizations in neighbouring countries or those with whom they have a twin or donor relationship to encourage dialogue between foreign authorities and local government departments. Efforts should be made to encourage important government departments to follow discussions at the World Bank, OECD, and other forums focused on regulatory reform.

Dealing with cross-border anticompetitive conduct

9. Institute both leniency programs and tough fines

In cracking cartels, a competition authority should use a leniency program in which the first cartel member to confess is provided with immunity from prosecution in return for cooperating in the investigation and surrendering all available evidence of wrongdoing. Competition legislation should provide the authority with the power both to be lenient with defectors from cartels and to punish the rest.

Competition authorities should follow best-practice guidelines in the design of leniency programs. However, a leniency program is only as effective as the punishment it is designed to avoid. If a leniency program is to work effectively, competition authorities must ensure that they have a series of strong enforcement tools and a reputation for using them.

10. Develop interagency cooperation and entrench competition provisions in trade agreements

Intergovernmental cooperation against anticompetitive activities across borders is imperative. Agency-to-agency arrangements between developing and developed countries can be useful. Informal cooperation and collaboration are very effective for young or small agencies. Travel funds should, therefore, be provided to enable staff to travel to meet other officials.

Competition provisions in RTAs should encourage information sharing among national competition authorities and facilitate investigative and prosecutorial cooperation.

The interaction between sectoral regulators, often found in energy and water markets, and competition regulators is enormously important. Sectoral regulators often have competition powers that overlap with the more general competition authority.

It is important that these organizations develop procedures to share the workload in specific areas. There are many examples of such procedures in developed countries that can act as guides for less-developed regimes.

11. Monitor liberalized markets closely

The entry of large foreign-owned companies into a developingcountry market can bring sizeable benefits to the domestic economy. But the cost of these benefits may be losing local competitors and unfairly squeezing local suppliers who now confront a buyer with considerable market power. A competition authority must pay close attention to signs of possible abuse of market power, such as imposed conditions on suppliers, predation of smaller competitors, and the like. It may be necessary to impose heavy sanctions for non-cooperation in investigations to ensure that multinational enterprises surrender information.

Document(s) 7 of 9