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Small and developing competition agencies – UNCTAD – December 2017 OECD discussion

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This presentation by UNCTAD was made during Break-out Session 3: Creating Legitimacy in the framework of the discussion on “Overcoming adversity and attaining success: Small and developing competition agencies” held at the 16th meeting of the OECD Global Forum on Competition on 8 December 2017. More papers and presentations on the topic can be found out at oe.cd/sda.

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Small and developing competition agencies – UNCTAD – December 2017 OECD discussion

  1. 1. OECD GLOBAL FORUM ON COMPETITION Competition Policy and Public Procurement Teresa Moreira Head, Competition and Consumer Policies Branch UNCTAD Paris, 7-8 December 2017
  2. 2. The Size of Public Procurement  WTO estimates the share of Public procurement in GDP globally to be between 10 and 15%.  In the European Union, the average share of Public procurement in the GDP of its 28 Member States is estimated to be 16%.  The share of Public procurement in GDP of 35 OECD countries is 12% on average (2015).  Low-income countries have the largest share of Public procurement in GDP, at 14.5%; followed by upper-middle income countries, at 13.6% (World Bank data for 123 countries for 2015).  In Eritrea, Public procurement is 33% of GDP. In Angola, the share is 26% of GDP; in the Netherlands and India 20%; whereas in China only 2,8% (World Bank).
  3. 3. The benefits of Competition in Public Procurement  Public procurement is an important area in terms of allocation and use of public resources.  Modern design and reform of existing Public Procurement systems will help developing countries and countries with economies in transition to fully benefit from trade liberalization, services privatization and deregulation. It will pave the way for increased FDI and will provide opportunities for SMEs.  Competition policy may help Public procurement to be more transparent and more efficient: it will benefit consumers and will make good use of taxpayers’ money. Competitive Public Procurement will ensure best value for money
  4. 4. Key Factors to Promote Competition in Public Procurement  Design of the regulatory framework - principles of non-discrimination, equal treatment, due process, access to information and transparency.  Guidance of 2011 UNCITRAL Model Law on Public Procurement - explicit reference to the principle of Competition.  Careful drafting of the scope of Procurement law to apply to all economic sectors and to all undertakings, limiting exceptions due to exceptional and specific purposes.  Clear bid-rigging prohibition in Competition law as a complement to Public Procurement legislation: often with very harsh sanctions (criminal).  Allow for appeals and review procedures of Public Procurement decisions.  Centralized vs. decentralized procurement systems.
  5. 5. Key Factors to Promote Competition in Public Procurement (2)  Promoting Competition – widening the circle of potential bidders • Liberalizing Public Procurement markets: see WTO Agreement on Government Procurement (last revised in 2014): 47 WTO members. 31 WTO members are observers (developing countries and economies in transition) 10 acceding to the Agreement as parties.  Facilitating access through on-line platforms, the standardization of Procurement systems, the launch of E-Procurement, encouraging the participation of SMEs.  Balancing Competition with other public policy objectives of Public Procurement: fostering innovation, a greener economy and economic & social development.
  6. 6. Prevention, detection and prosecution of anti-competitive practices in Public Procurement  See OECD 2009 Guidelines for fighting bid-rigging.  Market monitoring activities focused in key sectors - infrastructures, health-care goods and services.  Advocacy activities: Government bodies, business associations, consumer organizations, media - it is crucial to raise awareness and to create a competition culture.  Effective competition law enforcement: appropriate and effective tools, sanctions and remedies (“blacklisting”).  Cooperation and coordination between Competition Authorities and Public Procurement Authorities is extremely important.
  7. 7.  Success stories - Russia, Mexico, Japan, Republic of Korea and Russia  UNCTAD Voluntary Peer Reviews of Competition Law and Policy
  8. 8. Success stories – Mexico  Mexico’s Cofece detected bid rigging in the pharmaceutical sector in 2006.  The Authority took measures in both ways. Sanction Advocacy Imposing a fine of Mex$151.7 million on the bid rigging in 2010 • Consolidated purchases • Reverse tendering • Reduced reference prices • Opening of bidding procedures to international suppliers Mexican Government saved approximately Mex$ 46 billion between 2006 and 2011
  9. 9. Efforts of the Japan Fair Trade Commission (JFTC) against bid-rigging  Vigorous law enforcement - 43 Cease-and-desist orders and surcharge payment orders of approximately 200 million euros against bid-rigging cases in public procurement sector (FY2012-2016).  Outreach activities toward the public procurement agencies - Liaison meetings JFTC - Procurement agencies (FY2016: 10 times). - Nation-wide seminars for Procurement agencies' officials (FY2016: 287 times).  Status survey - Periodic surveys to analyze the competition status in procurement sectors and recommend measures for improvement to Proc. Agencies.  The Involvement Prevention Act (enacted in 2002) - JFTC demands the Procurement agency to take necessary measures to eliminate the involvement of its officials in the bid-rigging case. Source: Yukinari SUGIYAMA, JFTC ,“Prevention of bid rigging in public procurement in Japan”, ICN Cartel Workshop (October 6, 2017)
  10. 10. Korea Fair Trade Commission (KFTC) experience against bid- rigging  Strengthening competition law enforcement - Launching the bid-rigging investigation division (2013).  Preventive measures - Bid Rigging Indicator Analysis System (BRIAS, 2006). - Introduction of mandatory prearranged damage clause in the contract (2010). - Disqualification of bid riggers (2009).  Advocacy activities - Staff exchange program between the KFTC and the Public procurement agency. - Operates education sessions for bidders to prevent bid- rigging.
  11. 11. KFTC experience against bid-rigging (2) KFTC data on bid-rigging cases • 2014 • 2015 • Source: Korea Fair Trade Commission • 2016 Year 2012 2013 2014 2015 2016 No. of case 14 22 51 66 39 Fine 10 million 56 million 877 million 53 million 140 million
  12. 12. • Public procurement law enacted in 2005 (Law 94-FZ): process more transparent and competitive. • Transition to e-auctions as the main form of PP placement on a limited number of e-platforms to ensure effectiveness of tenders and minimization of risks of digital (electronic) fraud (collusion). • E-auctions: an effective measure to prevent collusion and instrument for the creation of competitive environment with strictly set quality requirements. • Positive impact: sharp drop in prices in public procurement; Government savings reached 1448 billion Rubles (approximately 36 billion Euros); openness and transparency as key achievements. Source: Contribution of the Russian Federation on Competition Policy and Public Procurement, UNCTAD, IGE on Competition Law and Policy, July 2012. RUSSIAN FEDERATION
  13. 13. • Significant Antitrust legislation amendments in 2016: namely, improvement of investigation in cartel cases and more severe penalties. • Public procurement in Russia reaches 30% of GDP. More than 80% of the total number of cases of Russia cartels identified by FAS Russia are in the area of bid-rigging, where the damage to the parties can reach 40% of the initial price of the contract. • In 2016, FAS reported on the audit and completed the investigation of cases of several major cartels: the delivery of medicines through 700 auctions for regional hospitals; and the delivery of uniforms for law enforcement agencies in 18 auctions (by 3.5 billion rubles). Source: Global Legal Insights, Cartels 2017, Russia at: https://www.globallegalinsights.com/practice-areas/cartels/global-legal-insights---cartels-5th- ed./russia RUSSIAN FEDERATION (2)
  14. 14. UNCTAD’S VOLUNTARY PEER REVIEWS ON COMPETITION LAW AND POLICY Developing Countries/Economies in Transition • Since 2005: 24 member States, 1 regional economic organization (WEST AFRICAN ECONOMIC AND MONETARY UNION), 1 tripartite Peer Review (Zambia-Zimbabwe-Tanzania); • Explicit reference, assessment and/or recommendations on Public Procurement in the Reports of: - Indonesia (2009) – successful KPPU fight against bid-rigging; - Serbia (2012) – harmonization with EU law was not yet achieved, it was recommended to strengthen policies to fight bid-rigging in procurement at central and local Governments levels.; - Mongolia (2012) – increased thresholds for tenders, electronic bidding for Government orders and inter-agency coordination were recommended;
  15. 15. UNCTAD’S VOLUNTARY PEER REVIEWS ON COMPETITION LAW AND POLICY (2) Explicit reference, assessment and/or recommendations on Public Procurement in the Reports of: - Ukraine (2013) – although Procurement responsibilities had been assigned to the Competition Agency and the framework had been amended to meet EU law and World Bank requirements but it was still recommended to refine Public Procurement law; - Albania (2015) – through the Authority’s advocacy and following Peer Review's recommendations, the Public Procurement law was amended to include “blacklisting”, amongst other points; - Uruguay (2016) – Competition Commission study (2014) was followed by recommendations to public bodies on this issue; - Argentina (2017) – highlight of recent enforcement case in the health-care sector.
  16. 16. FINAL REMARKS o Competitive Public Procurement is a main goal for Developing countries and countries with Economies in Transition to fully benefit from their integration in the world economy through the trade liberalization, privatization and deregulation; o This goal entails the modernization and/or review of legal frameworks, for which it will be advisable to follow international guidance and best practices - see UNCITRAL Model Law; o Small and young Competition Authorities may feel challenged by Public Procurement: however, the infringement cases (bid-rigging) are cartels, anticompetitive practices they are familiar with in law enforcement; o Different solutions may be implemented to achieve a competitive Public Procurement: Competition authorities may not have special responsibilities in the field of Public Procurement but need to cooperate and coordinate with Public Procurement bodies and to do strong advocacy to Government bodies, business and civil society;
  17. 17. FINAL REMARKS (2) o Technical assistance and capacity building projects are crucial to support developing countries and countries with economies in transition and raise awareness on this issue: a change of culture may be needed and the experience and practical and successful tools (checklists; Government and business awareness raising road-shows; appropriate sanctions - harsh fines; "blacklisting", disqualification) of other Competition Authorities may prove very helpful; o International organizations and development partners should  join efforts,  pool resources,  share information and knowledge and  implement multi-agency cooperation programmes to better assist the beneficiaries for a more effective assistance.
  18. 18. THANK YOU ! Teresa.Moreira@unctad.org http://www.unctad.org/Competition

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