Economic Policy Reform and Competitiveness Project

On 14 April, the Parliament Economic Standing Committee and the Agency for Fair Competition and Consumer Protection (AFCCP), with project assistance, sponsored a presentation of the Chilean experience in promoting fair competition and its potential relevance for Mongolia as it seeks to revise its legislation on competition. MP Ganhuyag, chair of the working group drafting a new Competition Law, MP Bud of the Parliament Economic Standing Committee, and Mr. D. Mandakh, Chairman of AFCCP, opened the meeting. Mr. Pablo García, an international expert on fair competition who has been assisting the AFCCP, led the presentation of the Chilean experience and lessons learned.

In attendance were nineteen participants, including members of Parliament and staff, members of the working group drafting the law, Ministry of Justice and Home Affairs, the Communications Regulatory Commission (CRC), the Energy Regulatory Authority (ERA), and AFCCP officials.

MP Ganhuyag, the initiator of the current draft law on competition, presented the framework for the law and Mr. D Mandakh discussed current activities of the agency. Mr. García presented Chile’s experiences during 2004-2009 in revising its legal and institutional framework on competition.

Revisions to the legal framework included major amendments to the Competition Act, the Civil Procedural Code, the Law on Unfair Competition, and the Criminal Procedural Code. These changes were aimed to promote and defend free competition in the markets and defined as illicit “…any deed, act or contract that prevents, restricts or obstructs free competition, or that tends to produce these effects.”

A key feature of the institutional reforms was the establishment of a “Competition Tribunal” (CT), an independent judiciary court introduced with the reforms of 2004. The CT reviews cases submitted by the Fiscalía Nacional Económica (FNE), the Chilean agency that investigates cases of unfair competition. Under this institutional arrangement, FNE has investigative powers and the CT determines whether or not violations of the law have taken place. In cases of documented violations of the law, the CT assesses the penalties. Companies can appeal the verdict and cases can be taken to the Supreme Court.

Mr. García discussed the strategy of FNE to focus on cases of importance to the public as a way to increase the profile of the agency and gain respect. “Big cases” of competition in Chile included:

• Private health insurance (cartel, financial sector)
• Supermarket chains (mergers and upstream buying power, retail)
• The Plasma war (cartel, electronics retail, and credit)
• D&S Falabella (merger, retail)
• Pharmacy chains (cartel, medicines retail)

In reviewing the draft law, Mr. García commented that it should:

• Insure the independence of the regulatory agency (in Chile, the head of the agency, once appointed, can only be removed by the Supreme Court)
• Provide the competition agency with sufficient technical resources to conduct proper investigations (AFCCP needs approximately seven more lawyers and economists)
• Define market power clearly, instead of market share, to satisfy criteria of market dominance
• Refrain from giving the agency powers to set prices as these are set by market forces; the agency should, instead, set up a market intelligence unit and improve its investigative powers
• Provide for significant penalties for violations as current fines for violations of fair competition are extremely low.

Participants found the lessons from Chile in improving fair competition of markets useful and discussed their applicability to Mongolia as it seeks to revise its legal and institutional framework. The project will continue to assist, as needed, the AFCCP and the Parliamentary Working Group in charge of revising the Competition Law.