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Mexican Competition Assessment - A. Capobiano, OECD Secretariat - 23 july 2019

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This presentation by Antonio Capobianco, OECD Secretariat, on the Benefits of Competition Policy for a National Economy, was made during the launch of the report on the "Mexican Competition Assessment in the Gas Sector" held on 23 July 2019 in Mexico. More information on the report and the highlights brochure in English and Spanish can be found out at http://www.oecd.org/daf/competition/oecd-competition-assessment-mexico-2019.htm.

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Mexican Competition Assessment - A. Capobiano, OECD Secretariat - 23 july 2019

  1. 1. Benefits of Competition Policy for a National Economy Improving Procurement and Regulatory Frameworks Mexico City – 23 July 2019 Antonio Capobianco Acting Head of Division Competition Division, OECD Antonio.Capobianco@oecd.org
  2. 2. • Benefits of competition • Improving Regulatory Frameworks • Improving Public Procurement Frameworks Outline of presentation
  3. 3. BENEFITS OF COMPETITION
  4. 4. Why We Care About Competition? 4 Productivity + 12 – 15 % InequalityEmployment Growth Competition Source: OECD 2014
  5. 5. • Aggregate economic benefits: – Short-term for consumers, and other buyers including public sector – Longer term: innovation and growth • Distributional benefits – Inequality – Poverty reduction – Employment • Social benefits – Fighting corruption Benefits of competition policy for the national economy 5
  6. 6. Consumer benefits …from lower prices Source: Estudio de la OEDE sobre telecomunicaciones y radiodifusion en Mexico (2017) 6
  7. 7. Consumer benefits …from better access to services Source: Estudio de la OEDE sobre telecomunicaciones y radiodifusion en Mexico (2017) 7
  8. 8. Productivity and growth Mechanisms 8
  9. 9. Productivity and growth Economic studies: Australia 9 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Australia OECD average Australian growth has been higher than the OECD since the Hilmer Reforms Hilmer reforms
  10. 10. Distributional outcomes Competition reduces poverty and increases prosperity 10
  11. 11. Distributional outcomes The poor suffer most from price-fixing 11
  12. 12. …and it’s not just economic outcomes Monopolies corrupt the political process 12
  13. 13. IMPROVING REGULATORY FRAMEWORKS 13
  14. 14. OECD Competition Assessment Toolkit • Competition Assessment Toolkit (CAT), 2011  http://www.oecd.org/daf/competition/assessment-toolkit.htm 14
  15. 15. Using the toolkit all over the world OECD competition assessments in the past: – Romania (2016) – Greece (2013, 2016 and 2017) – Portugal (2018) – Mexico (2018, 2019) Ongoing competition assessments: – Iceland – Tunisia – 10 ASEAN countries 15
  16. 16. Using the toolkit all over the world 16
  17. 17. • Competition assessment is: – The assessment of whether regulations restrict competitive conditions; and – The development and evaluation of alternatives to achieve the policy maker’s objectives • It is designed for government officials in decision-making roles and staff who will conduct the assessments • The Toolkit is constructed around a two-step assessment process OECD Competition Assessment Methodology 17
  18. 18. Step One: Initial Evaluation - A competition assessment checklist – Initial screening of relevant legislation – Competition Checklist: Does the Law or Regulation: A. Limit the number or range of suppliers? B. Limit the ability of suppliers to compete? C. Reduce the incentive of suppliers to compete vigorously? D. Restrict consumer choice? Legal provisions identified potentially restrict competition 18 Competition assessment methodology: Step one
  19. 19. • Some of the problematic categories include – Regulations that distort market prices – Regulations that limit advertising and marketing – Regulations that create entry and mobility barriers – Granting or extending exclusive rights – Restrictions on flow of goods, services and capital – Exempting specific businesses from competition laws – Rules that set standards and content – Grandfather clauses • The CAT “Guidance” volume contains details on each Problematic regulation 19
  20. 20. Step Two: Full evaluation - Detailed review A ‘yes’ answer to any of the key questions will warrant a more thorough review of the rule or regulation under consideration.  Identify the underlying policy objectives;  Meetings with industry stakeholders, consumer associations and government experts  Evaluate the harm to the economy from the restriction;  Collect economic data and case studies  Assess the benefits from removing the harmful regulation;  State alternative regulations;  Compare the alternatives. Where such alternatives cannot be identified, a rigorous assessment of the proposal’s impact must be made 20 Competition assessment methodology Step two
  21. 21. The detailed evaluation would focus on the specific intervention and potential quantification of whether the rule or regulation might – Impose barriers to entry of new businesses – Force certain types of businesses to exit – Increase the prices of goods and services – Reduce product or process innovation – Significantly increase concentration in the relevant market Also: – How will the new regulation or standard affect different types of firms? – What will be the nature of grandfathering clauses? – How else could the policy goal be reached? If upstream or downstream markets are affected: – Evaluate effects on the related markets – Initial review – Detailed review Competition assessment methodology Step two – The detailed review 21
  22. 22. • Important to understand the policy rationale • There are important and valid policy objectives other than competition – and we can only advise on costs and benefits: nobody elected us • Every expert with an interest in the status quo will say “this sector is different”… – and occasionally they will be right. Getting results: understand the reasons 22
  23. 23.  Data commonly subject to measurement include consumer benefits, costs, employment, output, productivity and profitability  Intangible measures of consumer benefits can be both important and difficult to assess • For example, a rule that raises the price or restricts access to hearing aids will affect the hearing of many people, their social, family and professional interactions will be affected • Placing a value on the losses from fewer interactions is inherently difficult 23 What is measured?
  24. 24. IMPROVING PUBLIC PROCUREMENT FRAMEWORKS 24
  25. 25. 2009: OECD Guidelines for Fighting Bid Rigging in Public Procurement Translated in 24 languages 25
  26. 26. The Guidelines for Fighting Bid Rigging help to identify … Markets in which bid rigging is more likely to occur Methods that maximise the number of bids Best practices for tender specifications, requirements and award criteria Procedures that inhibit communication among bidders Suspicious pricing patterns, statements, documents and behaviour by firms 26
  27. 27. 2012 Recommendation Governments should assess public procurement laws and practices at all levels of government in order to promote more effective procurement and reduce the risk of bid rigging in public tenders. Guidelines become an integral part of Recommendation. 2012: OECD Council Recommendation for Fighting Bid Rigging in Public Procurement 27
  28. 28. OECD Bid Rigging Work Global reach 28
  29. 29. › Mexico – 2011 to 2018 › Colombia – 2014 › Argentina – 2018 › Brazil, Ukraine and Peru - Forthcoming Main components: • Recommendations for changes in procurement regulations and practices • Training and capacity building • Manuals and train-the-trainers OECD fighting bid rigging projects… 29
  30. 30. … from 2011 to today 30
  31. 31. • Several OECD projects in Mexico: › IMSS – 2011 › State of Mexico (GEM) – 2012 › ISSSTE – 2013 › CFE – 2015 › PEMEX – 2016 › CFE – 2018 › IMSS – 2018 OECD bid rigging studies Mexico 31
  32. 32. • Market studies are critical for competitive tenders • Consolidation of tenders can reduce collusion but watch out for supply concentration • Limitations on bidders by regions or nationality reduce competition and may facilitate collusion • Transparency rules may facilitate collusion • Joint awards, splitting contracts and sub- contracting may facilitate collusion Common issues affecting competition in tenders 32
  33. 33. • Remove provisions that discriminate against certain suppliers • Limit the use of non competitive procurement procedures • Eliminate the requirements to hold clarification meetings and to publish a reference price • Ensure disclosure requirements are not excessive • Require suppliers to submit signed certificates of non- collusion • Check legal framework regarding guarantees and penalties, which may make it difficult for SMEs to bid OECD recommendations about legislation 33
  34. 34. • Successful collaborations require high-level commitment, sufficient resources and a willingness to change • Training of public procurement officials is necessary and pays immediate dividends • Procurement officials demonstrate an eagerness to be a part of the solution • Recommendations in procurement reports must be tailored to the specific department/agency and commitments must be long-term • Implementation plans are critical Lessons learned 34
  35. 35. • 2011: OECD review of IMSS internal procurement regulations and practices  20 recommendations to IMSS on how to improve procurement procedures to avoid bid rigging • 2016-2018:OECD assessment of the status and implementation of the 2011 recommendations  The majority have been – fully or partly – implemented • Report (2018) identifies new actions that IMSS can follow to improve its procurement practices IMSS (Mexican social security institute) 35
  36. 36. • IMSS saved costs through wider use of competitive procurement processes and opening up participation. • Central and consolidated tenders have generally led to more favourable supply terms. • Significant positive spillover: the terms agreed at central level were often replicated in similar locally awarded IMSS contracts. • Overall positive impact of the OECD recommendations on tender design Results of the 2011 OECD recommendations 36
  37. 37. • The use of a public tender results in prices 11.2% to 11.9% lower than the prices of direct awards or restricted invitations • Opening up participation to foreign suppliers in tenders has a 1.3% to 2.1% impact on prices • Savings produced by centralisation of purchases (inside IMSS): Savings for IMSS are estimated between 7.4% and 8.8% for the period 2009-2016, which translates in savings of approximately USD 600 to 700 million for the same period Results: some figures 37
  38. 38. • Savings produced by consolidation of purchases (with other government entities): – Consolidated tenders generally achieve price outcomes that are between 8.2% and 11.2% lower than those of standard tenders – IMSS realised savings of around USD 300 million over the period 2013-2016, which corresponds to 5.3-5.8% of its spending on those products Results: some figures 38
  39. 39. Mexico City – 23 Juy 2019 Antonio Capobianco Acting Head of Division Competition Division, OECD Antonio.Capobianco@oecd.org Thank you for your attention

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