New push for competition policy in Latin America

New push for competition policy in Latin America

Latin America has a chance to reap the benefits of competition policy and anti-trust regulation for economic development and regional integration.

Competition policy is arguably the best complement to trade policy for inclusive, sustainable development. It is only within large, competitive markets – that promote efficiency, innovation and diversity – that consumers can maximise their welfare. For Latin America this is particularly important given the renewed pro-market attitude and the subsequent push for further regional integration; not to mention the multiple regional and inter-regional trade agreements currently under negotiation. Furthermore, competition policy (CP) can be an ideal tool to bolster economic growth and poverty alleviation.

Competition policy for regional integration and investment

CP is a cornerstone for economic integration. It prevents international cartels from forming as well as keeping dominant firms from abusing their market share, as a recent UNCTAD report highlights. For instance, all free trade agreements signed by the EU contain provisions on CP. Now that Latin America’s spirit of integration has been renewed, CP is a necessary mechanism for deeper, more solid liberalisation: regional tariff barriers are at a record low yet non-tariff and bureaucratic barriers are still a pressing issue.

This means extensive homework for Latin-American trade and competition authorities alike, if there are expectations of reaching trading levels akin to the EU intra-bloc rates of around 63% (compared to Latin America’s 18%).

Moreover, as the region’s Pink Tide ebbs, tougher sanctions for anti-competitive behaviour must be implemented if lobbying and corruption are to be overcome. The beneficial spillover effect would strengthen the CP framework and rule of law so as to make Latin American markets more attractive for new investors; whilst additionally acting as a partially stabilizing mechanism from external shocks.

In terms of timing, attracting said foreign capital is crucial not only because of the end of the commodity boom and widespread economic deceleration, but because political and economic turmoil elsewhere (famously Brexit and other European affairs) could force capital out and into the aforementioned markets. By and large, CP can be the means to seize these opportunities; simultaneously ensuring liberalisation and growth do not only benefit elites.

Competition policy for poverty reduction and sustainable development

The Fifth Annual Meeting of the Working Group on Trade and Competition of Latin America and the Caribbean, hosted by UNCTAD and the Latin American Economic System (SELA) focused on the impact of intellectual property provisions on competition enforcement. This has been a sensitive, controversial topic; for instance in regards to the pharmaceutical industry. Representatives pointed to big corporations using intellectual property rights to delay the production of generic medicines, an issue that is critical in developing countries where there is a desperate need for affordable medication. In this sense, antitrust regulation and CP is key to improving health and poverty levels. Indeed, CP allows for goods and services diversification as it pushes businesses to increase quality and lower prices, which is pressing in markets with fluctuating or medium-to-low purchasing power.

On the other hand, CP often facilitates particular exemptions for SMEs and small producers to enter markets, procure materials at competitive prices and ultimately produce to export. The informal sector – where oftentimes small business and entrepreneurs’ activities end up due to bureaucracy – also represents a huge challenge as a source of fiscal, security and unfair-competition issues.

To address this, a CP framework is needed to harmonise best practices that promote formalisation and smooth integration into the economy. At the conference, a few countries, including Jamaica and Paraguay, explained how certain social and administrative measures could facilitate this. Thus, these measures would strengthen weak tax collection systems across the region; something incumbent and past governments have long struggled with.

Competition policy prospects into the future

As previously mentioned, the harmonisation of best practices for a solid CP framework is pivotal for regional integration rates. This requires cooperation in advancing legal bases that cohesively support antitrust regulation in a way that does not clash with national interests. This has to be balanced with effectively sanctioning and/or correcting non-competitive practices — which problematize commerce — with faster, deeper market integration.

One good example of such harmonisation are CP platforms within supranational institutions such as the UNCTAD, SELA, SIECA (Central American Secretariat for Economic Integration), and other working groups that explicitly address and instruct on CP. Latin American experts extensively benefit from conferences where they exchange experiences and innovative methodology.

In the globalised economy, multinational activity and global value chains carry out mergers and acquisitions constantly. These challenge off-the-shelve competition frameworks; therefore, cooperation at the policy-making level is increasingly imperative. A recent case was the Pfizer-Nestlé integration that required cooperation between Mexican, Colombian and Chilean authorities since the transaction affected competition in many markets.

Another necessity for effective CP enforcement are mechanisms for sharing information. Extensive and specific sectorial knowledge is needed to cement CP implementation both at the national and regional level. Said information sometimes lies in government investigations, and as such interests require reconciliation. Needless to say, budget cuts and other austerity measures might hinder this vis-à-vis fiscal contraction.

Nevertheless, to the extent that trade liberalisation and regional integration continue being promoted as new growth engines (e.g., MERCOSUR-Pacific Alliance), it is safe to say that existing frameworks will be strengthened just as new ones compound its effectiveness. Indeed, competition policy may well become centre-stage discourse, permeating all negotiations for economic growth and development, to the benefit of investors and consumers alike.

Categories: Economics, Latin America

About Author

Gabriela Lecaro Calle

Gabriela Lecaro currently works in research in the non-profit sector and has previously worked in various independent consulting and academic projects. Her research specializes in Latin America, particularly in trade policy, macroeconomic trends and development issues. She holds a BA in Economics from the University of Manchester, and an MSc in International Public Policy from University College London.