The International Competition Network‘s 13th annual conference — being hosted by Morocco’s King Mohammed VI at the “Palmeraie Golf Palace” — concludes today. It is the second ICN event in recent memory to take place on African soil since the October 2013 ICN Cartel Workshop in Cape Town, South Africa.
The conference web site’s headline points out, somewhat vaguely, that the event is “more than a meeting, it’s our future“, perhaps implying that competition law is essential to this African nation’s future economic growth — a fact that bodes well for the enforcement activities of the thus-far largely dormant Moroccan Conseil de la Concurrence, an agency that has notably seen its budget slashed by over a quarter to a mere $1.74m in 2012 (last available year of its annual reporting).
Substantively, one of the key topics discussed at the event is the question how antitrust enforcers should deal with state-owned enterprises (SOEs). Especially in emerging ICN member countries (including many African nations with relatively young competition-law authorities), this topic is hotly debated, as their economies are transitioning from a largely SOE-dominated environment to a more open and competitive one. The Moroccan Conseil has therefore created a “Special Project” on the issue, including a survey to be distributed to members, outlined as follows:
The Moroccan Conseil de la Concurrence (MCC) wishes to address the issue of competition enforcement in relation to State Owned Enterprises (SOEs) as the Special Project for the 2014 ICN Annual Conference. The MCC wishes to address this issue not only because it is a hot-topic in developing economies, but also because of the liberalization of markets, this may lead to the revocation of exemptions for certain SOEs and subsequent investigation of competition infringements as an issue of interest for all ICN members.
One of the biggest economic dilemmas is how far a government should supply goods and services. In many developing economies, government intervention and the creation of public enterprises is a common way to cope with the need for economic and social development in key sectors. However, once a sector has reached sufficient maturity, the need for a SOE often decreases.
Many jurisdictions face the legacy of SOEs, some of which are entirely exempted from the ambit of competition enforcement. Once the economy is ripe for private sector entrants, it can be difficult to dislodge SOE supported monopolies. It is noted that this situation has created shortcomings in performance, competitiveness and operating systems in some sectors.
Looking at Morocco as an example, the country adopted in 1989, a law pertaining to the privatization of SOEs and started to implement a liberalization process of an important part of its economy. In 2000, this whole process culminated in the adoption of a law on freedom of prices and competition, thus marking the end of a long period of price control and restriction of competition.
All these elements lead Morocco naturally to question the position of SOEs relating to competition rules, especially in the current context of the reform of Moroccan competition law.
So what do we mean by SOEs in the context of this project? In our opinion, SOEs are those publicly owned enterprises created to ensure that a public need for a product and/or service is fulfilled and universally accessible.
Generally, a SOE must provide coverage to all consumers, irrespective of geographical location at regulated prices. As the Moroccan government has deemed that the service which the SOE provides is necessary for the well-functioning of the state, a SOE must be in a position to guarantee consistent supply, which includes a requirement to have reserve/standby capacity available at all times for possible peaks.
There are also SOEs that may have purely commercial activities without any goal of general interest satisfaction.
Although most jurisdictions assess SOEs under competition law, there are often a few exemptions for certain sectors or businesses. These SOEs are then exempted from falling under competition law and potentially other national laws (sovereign immunity). When the exemption is created, the purpose is generally to ensure that a nascent industry has enough financial (and political) backing to survive.
SOEs are generally put in place where the provision of essential goods or services may be at risk. In some sectors, the market may fail to provide essential goods or services as a result of a private enterprises’ inherent desire to minimize risks, for example, risk selection which might otherwise occur in the health care or education sectors and in other markets, based on infrastructure networks, the incentive (or means) to carry out the initial investment may be lacking or may lead to natural monopolies (telecom, post, rail, gas, electricity)
One of the issues this Special Project wishes to address is whether (and to what extent) an exemption which excludes a SOE from the purview of competition enforcement is appropriate in view of the public interest objective. SOEs that do not face free competition may lack an incentive to be innovative or to be efficient, for example to search for the cheapest – yet most effective materials or means of production to provide a certain good. This is linked to the question of how (or to what extent) governments and competition authorities can (re)introduce a certain sector, or business, to the forces of competition. A related issue is the question of whether competition authorities can have a role to play in encouraging a sector, or a SOE within that sector, to evolve in such a way as to ensure the eventual maturity of the market so that a SOE or an exemption for a SOE from competition law is no longer necessary to provide the state with the needed services/products.
A further issue this Special Project wishes to address is the potential difficulty in ensuring that competition enforcement involving SOEs is effective. For example, how do members deal with political and social pressure; and what can members do to ensure that sanctions serve a deterrent purpose.
This brings us to the final issue the MCC wishes to address within the ambit of this Special Project, namely, advocacy and guidance efforts. How can a competition authority best explain to the government why the inclusion of SOEs within the jurisdiction of competition rules will lead to better conditions for consumers?
The MCC wishes to gather information on this topic for the purposes of an information sharing experience among ICN members on the more practical aspects of investigating SOEs. It is thought that the discussions which spring from this Special Project will help all ICN members in understanding regulated sectors and their advocacy efforts.
The three core issues identified above are vital to the daily work of many newer competition authorities and of mature competition authorities in emerging economies. Although many excellent papers have been written by the ICN Unilateral Conduct Working Group, the Organisation for Economic Co-operation and Development and the World Trade Organization, as well as several academics, very few of these articles touch upon the above mentioned practical implementation issues.