Competition Law and the State: How 35 Jurisdictions Treat Anti-Competitive Acts of Governments and State-Owned Enterprises
This post is based on Competition Law and the State: Competition laws’ prohibitions of anti-competitive State acts and measures, Volume 1: Summary of answers to questionnaire (UNCTAD/DITC/CLP/2015/3), part of the UNCTAD Research Partnership Platform Publication Series. The project was coordinated by Eleanor Fox (Professor, New York University School of Law) and Deborah Healey (Associate Professor, Law Faculty, University of New South Wales), with a research group that also included Michal Gal (University of Haifa), Kusha Haraksingh (University of the West Indies) and Mor Bakhoum (Max Planck Institute). Ulla Schwager and Ebru Gökçe participated on behalf of UNCTAD, and Graham Mott of UNCTAD assisted in compiling the volume. All credit for the research and findings goes to them and to the many respondents from competition agencies worldwide.
When people think of competition law, they picture cartels and mergers between private companies. But some of the biggest barriers to competitive markets are created by governments themselves, through state-owned businesses, licences, regulations and favoured bidders. Can competition law touch the State? This UNCTAD study asked competition agencies around the world, and the answers are more surprising than you might expect.
About the Study
The research group drafted a questionnaire that UNCTAD’s Competition and Consumer Policies Branch sent to competition authorities. Agencies of 35 jurisdictions, or in some cases a researcher, answered it, and most responses were completed or reviewed by an agency. The results span six continents, with developed, transitional and developing economies and a mix of income levels. Respondents included, among others, Australia, Brazil, China, the European Union, France, India, Japan, Kenya, Mexico, Pakistan, Russia, Singapore, Turkey and the United States.
The authors’ headline finding is that competition laws reach state-owned enterprises far more widely than might be assumed. It also confirms a global shift towards a more pro-competition policy, with growing appreciation of the market harm caused by unjustified State restraints. The authors explain that the State affects markets in several ways: through state-owned businesses, through distortive regulation, through entities holding special or exclusive privileges, and through complicity in bid rigging.
Finding 1: State-Owned Enterprises Are Covered Everywhere
Asked whether their competition statute covers state-owned entities and other entities in which the State has an interest, every responding jurisdiction answered yes. The approaches differ in how they get there:
European Union and Italy: What matters is not ownership but whether the entity carries out an economic activity. The concept of an undertaking covers any entity engaged in economic activity, whatever its legal status or how it is financed.
Brazil: The antitrust law expressly says all legal entities, privately or publicly owned, are subject to it.
Pakistan: The Competition Act applies to all undertakings, which includes governmental bodies engaged in producing or supplying goods or services.
Tunisia: Despite the law being silent, the Competition Council’s case law extends to public enterprises and even public administrative institutions when they engage in economic activity.
United States: Entities owned or controlled by a State or local body are covered.
Finding 2: Exceptions Exist, and They Matter
Only four respondents, Peru, the Russian Federation, Turkey and the United States, said there are no exceptions from statutory coverage of State-interested entities. For the rest, the exceptions follow familiar lines:
Sovereign functions: India excludes state-owned enterprise activity relating to sovereign functions, such as atomic energy, currency, defence and space.
Public authority and solidarity: Italy, following EU case law, treats activities based on solidarity or linked to the exercise of public authority powers as not economic, so they fall outside competition law.
Central versus local government: In Poland, the central government and its officials are not bound by competition law, while local government is covered when it manages public property but not when exercising public authority powers.
Statutory bodies: In Hong Kong, government statutory bodies are not caught unless specified by regulation.
Public interest exemptions: Australia allows governments to exempt conduct by law on rigorous public benefit grounds, but the study notes it is not widely used.
Finding 3: Coverage on Paper Is Not Always Enforcement in Practice
Twenty-two jurisdictions told the study that competition law is in fact enforced against the State or state-owned enterprises. The authors also highlight real limits:
Guyana: The legislation and Commission are new, and the Commission has not yet dealt with a case where the State was a party.
Pakistan: The Competition Act is applied against state-owned enterprises but not against the State itself. The Commission can only make policy recommendations to government.
Seychelles and Tunisia: Both said the law is not applied equally to State and non-State actors. Seychelles describes a softer approach, with more advocacy and behavioural remedies than penalties.
France: Enforcement applies with one exception, where the activity serves a public interest mission and the State or entity uses powers conferred by public authority.
As the authors note in their introduction, even where laws apply squarely to the State, enforcement agencies may lack the will, independence, resources or capacity to enforce them against State bodies, so law on the books may not be properly implemented.
Finding 4: Can Competition Law Challenge State Administrative Acts?
On whether competition law prohibits certain anti-competitive acts of State bodies such as administrative authorities, 21 respondents said yes and 11 said no. Those saying yes include Australia (only where the authority carries on business), China, the European Union, France, India, Japan, Mexico, Spain and Sweden. Those saying no include Brazil, Greece, Singapore, Turkey, Poland and the United States.
Finding 5: Procurement, Bidding and Corruption
Only eight respondents said their competition law applies against State officials who are complicit in bidding rings or anti-competitive corruption in awarding State contracts: Australia, Brazil, Guyana, Jamaica, Kazakhstan, Mexico, Seychelles and Spain. Fourteen said no. Many handle it through procurement and criminal law instead. For example, in Greece, State officials involved in bid rigging may commit a criminal offence pursued by the criminal prosecutor, and the competition authority must notify the public prosecutor.
Asked whether competition law covers corruption in any other way, only Tunisia answered yes.
Finding 6: State Measures and State Aid
Fewer jurisdictions allow competition law to challenge laws and regulations themselves. For measures that limit the entry of goods from other localities, nine respondents said competition law can proscribe or limit them: China, the European Union, Hungary, Italy, Kazakhstan, the Republic of Korea, Lithuania, Mexico and Spain.
On State aid, only seven respondents said their competition law controls it: the European Union, France, Kazakhstan, Mexico, Pakistan, the Russian Federation and Spain. Twenty-six said no.
Finding 7: Shielding Private Anti-Competitive Conduct
A different question is whether private parties can defend a cartel by saying the government encouraged or ordered it, often called the State action defence. Fourteen respondents said yes, including Australia, the European Union, France, Italy, Korea, Singapore, Spain, Turkey and the United States. Thirteen said no, including Brazil, China, Japan, Mexico and Sweden.
Where the defence exists, the responses suggest it is narrow. One response in the study describes it as available when the State has ordered, requested and supervised the conduct but not where it merely encouraged it, and the State must clearly articulate its intention to replace competition and actively supervise.
Hungary’s example in the study shows how it plays out. In a cartel case involving transport companies, the competition authority rejected arguments that the firms shared a State owner and that the State had approved their tariff rules, because the firms retained real decision-making rights. The State involvement was treated only as a mitigating factor when fines were calculated.
Success Stories: Competition Law Against State Restraints
The study ends with agencies’ own success stories. Brazil’s account of a hydroelectric concession stands out. In 2008, on a BRL 20 billion concession, the antitrust authority suspended exclusivity agreements between a construction company and four major turbine suppliers that stopped the suppliers from working with other bidders. After the agreements were cancelled, the winning bid came in substantially lower than the reserve price, and total savings to Brazilian consumers over the 30 year concession were estimated at about BRL 16.4 billion, or roughly USD 9.4 billion.
Brazil also describes its experience in the oil and gas sector dominated by the state-controlled Petrobras, where its competition authority has prosecuted fuel cartels and reviewed mergers with conditions. France’s account describes how its authority’s advice on a proposed healthcare insurance law influenced the Constitutional Court’s ruling on parts of the statute.
Key Takeaways
Competition law reaches state-owned enterprises almost everywhere, but exceptions for sovereign functions, public authority and public service tasks can be wide.
Coverage in law does not guarantee enforcement. Capacity, independence and political will limit what agencies can do against the State.
Few jurisdictions let competition law challenge State laws, State aid or complicity in bid rigging, so those problems are usually left to procurement, criminal or other regimes.
The State action defence exists in many places but is usually narrow and requires real State compulsion and supervision.
The right response varies with each jurisdiction’s political economy and stage of development, as the authors stress.
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Frequently Asked Questions
1. Does competition law apply to state-owned enterprises?
According to the UNCTAD study, yes. Every one of the responding jurisdictions said its competition statute covers state-owned entities, although many have exceptions, for example for sovereign functions or public authority activities.
2. What does the term undertaking mean for state-owned entities?
In the European Union approach described in the study, an undertaking is any entity engaged in economic activity regardless of its legal status or how it is financed. A state-owned entity is covered when it carries out an economic activity, not because of who owns it.
3. Can competition law be used against government bodies themselves?
Only partly. The study reports that 21 respondents said competition law prohibits certain anti-competitive acts of State bodies such as administrative authorities, while 11 said it does not. Many limit this to cases where the body carries on business.
4. What is the State action defence in competition law?
It lets private parties argue that a government body ordered or authorised their conduct. Fourteen respondents said it is available, but responses indicate it is narrow and requires real State compulsion and active supervision, not mere encouragement.
5. Does competition law control State aid?
Rarely. Only seven respondents said it does, including the European Union, France, Kazakhstan, Mexico, Pakistan, the Russian Federation and Spain, while 26 said it does not.
Keywords
Competition law and the State, UNCTAD competition law study, state-owned enterprises competition law, anti-competitive State acts, State action defence, State aid control, bid rigging and procurement, Eleanor Fox Deborah Healey, UNCTAD Research Partnership Platform, undertaking economic activity, competition law exceptions sovereign functions, antitrust and government
Credits and Source
This post is an original summary prepared for educational purposes. All credit for the research and findings goes to:
Project Coordinators: Eleanor Fox (New York University School of Law) and Deborah Healey (University of New South Wales)
Research group: Michal Gal (University of Haifa), Kusha Haraksingh (University of the West Indies) and Mor Bakhoum (Max Planck Institute)
UNCTAD collaborators: Ulla Schwager and Ebru Gökçe, with Graham Mott assisting in compiling the volume
Publication: Competition Law and the State, Volume 1: Summary of answers to questionnaire, UNCTAD Research Partnership Platform Publication Series, UNCTAD/DITC/CLP/2015/3
Related article cited by the authors: Eleanor M. Fox and Deborah Healey, When the State Harms Competition: The Role for Competition Law, 79 Antitrust Law Journal 769 (2014)
Readers are encouraged to consult the full study and its Volume 2 for the complete answers and sample statutory excerpts.
Source Document
Download the study: Competition Law and the State, Volume 1 (UNCTAD), PDF
Source link: Study on Google Drive
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