Competition conditions and competition policies in Central America

1
Competition conditions and competition policies
in Central America

• Claudia Schatan

2
Three Aspects that make competition particularly
difficult in Central America

• 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.

3
Progress in competition policy in recent years

• Costa Rica and Panama have competition laws and a
  Commission to implement it (COPROCOM and CLICAC).
  They still have limitations, for example
• 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.

4
Progress in competition policy in recent years

• 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.

5
Competition from abroad

• 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.

6
Obstacles for competition policies

• 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.

7
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
• Homogeneous products
• Uniform quality standards
• Standardized technologies
• Collusion is easier among firms that produce
  commodities.

8
Challenges for competition policy

• 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).

9
Cement

• 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 worlds highest.

10
Sugar

• 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).

11
Fertilizers

• 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.

12
Conclusions

• 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.