Transcript Competition conditions and policies in Central America

Competition conditions and
competition policies in Central
America
Claudia Schatan
Three Aspects that make competition
particularly difficult in Central America
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Small market size: natural monopolies and
oligopolies exist in several markets
Economic reforms implemented -trade
liberalization, price deregulation, and
privatization - before counting with
appropriate competition policy.
Domestic and foreign capital flow
deregulation and privatization took place
without legal and institutional framework to
avoid anti-competitive practices by national
and multinational firms.
Progress in competition policy in recent
years
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Costa Rica and Panama have competition laws and a
Commission to implement it (COPROCOM and
CLICAC). They still have limitations, for example:
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Enterprises do not need approval by Commissions to merge.
Law application is also limited because state monopolies are
exempted from it.
El Salvador, Guatemala, Honduras and Nicaragua
have faced considerable political obstacles to pass
such law, although all of them have competition law
projects being discussed in their congresses.
Progress in competition policy in recent
years
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All countries have a consumer protection
entity that works reasonably well (greater
information for consumers is needed).
Various measures have been taken to
improve the conditions under which the
economic agents operate. They include
administrative simplification to set up a new
enterprise, among others.
Competition from abroad
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Imports are a very important source of competition
and may help create “contestable” markets in the
region.
Institutional framework in charge of domestic and
international competition are not linked. Antidumping
policies and anti-monopoly policies are handled by
entities that have little relation with each other in
most countries.
Antidumping policies are seldom used by C.A.
countries because of lack pof information, lack of
resources, lack of specialized personnel, etc.
Obstacles for competition policies
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The regulation system that has promoted crossed subsidies,
specially for public services, has created great price distorsions
in the market, particularly for some industrial sectors. But
rebalancing of tariffs has to be done carefully not to hurt
marginal social sectors. There is not enough coordination
between regulation and competition policies.
Competition policy must rely on ordinary justice for some of the
cases it handles and such instance is not prepared to manage
them adequately.
Privatization has often been carried out through special
treatment to foreign investors, guaranteeing dominant or
monopolistic position in the market.
Challenges for competition policy
Three sectors were studied in detail:
Cement, sugar and fertilizers:
 These products have the following common
characteristics. They are all commodities:
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Homogeneous products
Uniform quality standards
Standardized technologies
Collusion is easier among firms that produce
commodities.
Challenges for competition policy
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Transport and storage are expensive for all
three products and, hence, can give way to a
geographic market distribution among firms.
Wide demand of these good; form part of
basic consumption of the population
(fertilizers indirectly through food).
Cement
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Privatizations together with acquisitions and mergers,
vertical integration.
Large multinacional conglomerates have taken
dominant positions in the market: CEMEX and
Holcim.
Technical innovations, cost reduction (energy, water),
better distribution facilities.
Since prices were deregulated they have tended to
rise and are among the world’s highest.
Sugar
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Strong national cartels worldwide and
international market segmentation.
All countries of the region consider this
product as strategic because of employment
generated as well as its weight in diet of
population.
Highly protected, regulated and inefficient in
C.A.
Escapes most competition policy tools (in
Costa Rica, the specific law that regulates
sugar is placed above the competition law).
Fertilizers
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Trade liberalization and deregulation was
carried out before adequate product
standards and ways to guaratee their
application were established in each country.
Prices have fallen, and so have quality of
agrochemicals (“generic” products
introduced).
Food consumers are negatively affected for
lack of effective regulatory framework.
Conclusions
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It is urgent to create (or strengthen) laws and institutions that
promote competition within national markets in Central America.
Those sectors that are closely influenced by international
markets and foreign capital flows require a legal framework
which may allow them to act in cases of collusion between
national and international enterprises or among international
enterprises that may distort national markets.
Greater coordination between economic policy, regulatory and
competition policy; and trade policy should be reached to avoid
too much deregulation leading to unfair trade (fertilizers); too
much regulation and protection (sugar) leading to inefficiencies;
etc..
The capacity to act internationally against trade competition
restrictive practices requires an active collaboration among
countries, particularly if these are small.