Promoting competition and influencing regulatory reforms[2] has been part of the FCA’s work for its entire 15-year history. The FCA seeks to influence the decision-makers of the government and trade and industry, regulations that prevent competition, and the structure and modes of operation of the economy. In recent years, competition advocacy has gained momentum, and it has been one of the FCA’s strategic aims to shift the focus of operations from reactive to proactive activities. There is also an international consensus on the importance of the competition authorities’ advocacy work: e.g. the OECD’s Competition Committee and the International Competition Network, ICN, have emphasised the importance of advocacy.
The OECD has also invested resources into improving the quality of regulation and developing regulatory impact assessment. Impact analysis of regulatory reforms refers to a systematic, empirical analysis of the costs and benefits of regulation and its alternatives. The European Commission has also committed itself to enhancing the quality of legislation and developing and simplifying regulation on the EU level. An important part of the Commission’s action plan is boosting the impact assessment of legislative proposals.
Regulatory impact assessment may be considered integral to effective regulatory reform projects and law drafting. And, considering the importance of effective competition to economic efficiency and welfare, the analysis of economic impacts should always include competitive impact assessment where the issues under review e.g. include the effects of regulation for the entry of new companies to the market, the use of competitive methods (such as pricing, advertising, opening hours), the equal competitive conditions of market operators and the structure of the markets.
From the viewpoint of effective competition, regulation should not — when meeting social goals — limit competition more than is necessary. If the result of the competitive impact assessment is that a particular reform has a major negative effect on competition, it should be considered, whether there exists a less restrictive regulatory option to obtain the desired goals. However, if a decision is made to implement regulation which significantly impedes competition, it should always be explicitly argued in law drafting why restricting competition is necessary to reach an important social goal.
How does the FCA promote competition?
Influencing legislative reforms and the decision-making of other authorities is an important part of the FCA’s advocacy work. The objective is that regulations, the conduct of public entities or the market activities of the public sector would not prevent effective competition. To draw attention to competitive concerns, the FCA participates in the working groups preparing legislative reforms and their implementation, expert hearings of the Parliament’s select committees and influences through other, more unofficial interest group co-operation. Making initiatives to dismantle restrictive rules and regulations and giving opinions on the legislative proposals affecting competition to other authorities are also important tools of the FCA’s advocacy.
Advocacy also includes convincing consumers and other market operators of the benefits of competition, i.e. promoting "competition culture". How strong the competition culture is, i.e. how widely the meaning of effective competition in increasing economic efficiency and consumer welfare is known, naturally also increases the other public authorities’ receptiveness to competitive concerns in their law drafting work and other activities.
The legal basis for the FCA’s advocacy work can be found in Article 2 of the Act on the Finnish Competition Authority (711/1988) and Article 1 of the Decree on the Finnish Competition Authority (66/1993). According to the provisions, the FCA shall follow the preparation of economic legislation and give opinions about questions related to its field. The FCA shall also take initiatives to promote competition and to dismantle any restrictive regulations and orders.
In its 2002 report on advocacy based on the views of the competition authorities from 53 countries, the ICN has summed up the components of effective competition advocacy. The first of these is timing: competition authorities should be able to present their views at an early stage of the regulatory or legislative process — this would enable the inclusion of competitive considerations. Secondly, the consultation of the competition authorities should be systematic, possibly even statutory, and the views of the competition authorities should always be considered when the regulatory reform is likely to have competitive effects.[3] Thirdly, another component of effective competition advocacy is the importance of systematic competitive impact analysis and the follow-up thereof.
The follow-up of the competitive impacts of regulatory reforms and the related development of analytical methods and expertise are among the FCA’s immediate strategic aims. When the FCA proposes views on regulatory reforms to other authorities, the office generally bases its observations on empirical information of the markets and the competitive problems that business undertakings are faced with. This information derives from the complaints and other contacts made by companies and consumers to the office. The FCA also benefits from being a highly independent expert body. However, more systematic data collection strategies on the competitive impacts of regulatory reforms would enhance the FCA’s competition advocacy.
OECD’s Regulatory Reform Programme and Finland
The OECD commenced a Regulatory Reform Programme in 1997[4], with multi-sectoral country reviews of the Member States at its core. So far, some 20 Member States have been evaluated within the Programme and recommendations have been given for further measures. The aim of the OECD regulatory reform project is to assist the Member States in improving the quality of regulation and implementing regulatory reforms which promote competition, innovations, economic growth and specific social objectives.
In its country report on Finland[5], the OECD paid attention to the need for the systematic analysis of the economic impacts of regulation, both in preparing new regulation and reforming the existing one. A transparent, consistent and regularly conducted regulatory impact assessment system is the key for the further development of the regulatory reform. With the help of impact analysis, it is possible to systematically and consistently study the possible impacts of the activities of the government and to convey this information to the political decision-makers. Regulatory impact assessment is hence designed to improve the quality of the information used by the decision-makers.
Several units of Finnish public administration participate in regulatory impact assessment, and each ministry is responsible for the impact assessment within its sphere of competence. The ministries have wide discretionary powers as to how the assessment is carried out, and individual ministries are not responsible for its execution to outside bodies. According to the OECD, the development of a more coherent legislative proposal process within the administration is the only way to ensure systematic, high-quality law drafting, a dynamic approach and the effective implementation of regulation. Moreover, the transparency of the law drafting process needs to be ensured. The development of regulatory impact analysis also requires strong political support.
The FCA’s efforts to dismantle unnecessary restrictive practices won praise in the OECD’s country review. However, the OECD was concerned about the FCA’s weakened role in the regulatory reform and recommended that, in the future, Finland should see to it that competition policy considerations and impacts on enterprises’ activities should be considered more systematically then before in regulatory impact analysis. Hence, the ministries should regularly consult the FCA on the competitive impacts of regulatory reforms. The OECD recommended that a binding order be enforced for law drafting under which a statement should always be requested from the FCA when it is likely that a regulatory reform will prevent, restrict or distort effective competition. Competitive effects should thus be evaluated as part of the general impact assessment of legislative proposals.
EU and OECD’s attempts at better regulation
In 2002, the European Commission issued an action plan "Simplifying and Improving the Regulatory Environment"[6], and one component of it is an extended and harmonized impact assessment of the Commission’s initiatives.[7] Impact assessment promotes effective legislation and improves the quality and coherence of policy design. In 2003, the Commission gradually began the implementation of impact assessment according to the new model, and the objective is to carry out the impact assessment concerning impacts on the society, the economy and the environment for all the Commission’s major initiatives.
For example, an extensive impact analysis has been published on the Commission’s Proposal for a Parliament and Council Directive on Services in the Internal Market of January 2004[8], the aim of which is to remove obstacles from the free movement of services between the Member States[9]. The impact assessment of the proposal examines the economic impacts of the obstacles in the common market of services and analyses alternative methods of regulation in removing the obstacles to the free movement of services. The impact analysis also includes the implementation and supervision of the proposed Directive. The Commission bases its report on economic research data and information obtained from the consultation of companies and other interest groups.
Particularly in the work of the Public Management Committee[10], the OECD has focused on the development of regulatory impact assessment. In 1995, the OECD has also issued a Recommendation on improving the quality of government regulation[11].
Development of regulatory impact assessment in Finland
Several instructions have been issued on impact assessment conducted in the context of law drafting in Finland. Of these, the most important is the "Instructions on the Drafting of Government Proposals" (Finnish HELO instructions). Impact assessment of government proposals has been required in the HELO instructions since 1976, and the present instructions date from 1992. In 1996, a government resolution was passed (Law Drafting Development Programme of the State Council) to the effect that when law drafting projects were planned the ministries were obliged to ensure that enough time and resources would be reserved for impact assessment.
Instructions on the assessment of the economic impacts[12], environmental impacts, impacts on enterprises[13] and regional development impacts of legislative proposals have also been passed as government resolutions. These specific instructions supplement the HELO instructions. Competitive impact analysis is also included in the instructions: in the assessment of the impacts of legislative proposals on enterprises, one aspect to be studied is the effectiveness of the markets and competition, whereas in the assessment of economic impacts, attention is paid to the competitive conditions of the economy, the industry and the companies.
Particularly in recent years, several measures to improve the quality of law drafting have been implemented. The most recent of these was the working group reforming the instructions on the drafting of government proposals set up by the Ministry of Justice, which issued its proposal in autumn 2003. The working group memorandum seeks to propose solutions which highlight the relevant impacts of the provisions and exclude those that are irrelevant. In the summer of 2003, a Permanent Secretaries’ Group on Law Drafting was established with the task to develop the law drafting of the State Council and to coordinate the development. The group e.g. follows impact assessment. Additionally, the Ministry of Justice set up, in the autumn of 2003, a regulatory reform group of government law drafting composed of ministry representatives to support the coordination of inter-ministerial law drafting.
The Ministry of Finance co-operates with the Ministry of Justice and the other ministries in the development of impact assessment. The work is based on the OECD reports and recommendations and the work conducted by the organ. The measures implemented in Finland largely conform to the OECD recommendations. Based on them, a checklist was published in 1998 to improve the quality of regulation; this checklist corresponds to the Finnish HELO instructions.
In spite of the many sets of instructions, regulatory impact assessment has been inadequate in practice and the results of the development measures to improve the quality of the assessment have been rather modest. Above all, this may be attributed to not ascertaining the practical implementation of the development measures. Further, regulatory governance has not been properly integrated into the planning and management work of the ministries. Law drafting is often impaired by haste, which contributes to the qualitative problems of legislation, such as the complexity of the text and defective impact assessment. The deficiencies in the management, planning and resourcing may lead to excessive regulation and the unnecessary width of the commentary to the government proposals.[14]
However, there are some positive examples of enhanced impact assessment. For instance, the working group on taxi transport legislation established by the Ministry of Transport and Communications in November 2003 will commission an impact assessment of the new regulatory model chosen for the taxi transport. The FCA is also represented in the working group.
It is typical that regulatory reforms encompass many different social aims, and impact assessment may hence have to consider widely differing areas of impact — in addition to competitive impacts, these may include employment impacts and the impacts on the position of small and medium-sized enterprises, income distribution or the environment. Furthermore, it is necessary to distinguish the potential costs and benefits accruing to the various interest groups from the regulatory impacts on the total efficiency of the industry and the economy and on the welfare of the society. These considerations are surely noteworthy, for example in dismantling and developing the regulation of taxi traffic.
Towards better regulation — and competition — through regulatory impact analysis
The attempts to develop regulatory impact analysis and to improve the coordination of impact assessment between the different authorities are supportable. The recent report of the Legislative Working Group for the Government's Entrepreneurship Policy Programme[15] proposes improving the level of assessment of economic impacts on enterprises and increasing the expertise related to enterprises in law drafting.
At the same time that impact assessment is improved in law drafting, the analysis of competitive impacts should be better integrated into the overall impact assessment of regulatory reforms. The importance of effective competition for companies and the efficiency of the economy and welfare is so high that the competitive effects of regulatory reforms should be assessed each time that it is likely that the reform will affect competition.
The analysis of competitive impacts is already included in the instructions on the assessment of the impacts of legislative proposals on enterprises. The Instructions on the assessment of economic impacts of legislative proposals mention economic, industrial and competitive impacts as components to be assessed. Both sets of instructions may be considered too general for competitive impact analysis, however, as a thorough competitive impact assessment requires systematic analysis, knowledge of the markets and expert views on effective competition and its components.
The FCA seeks to contribute to the development of regulatory impact assessment for basis of its advocacy work, both regarding the activities commenced on its own initiative and its opinions. The FCA is e.g. preparing an internal checklist on the components to be considered in competitive impact analysis of regulatory reforms. The FCA also seeks to promote research work which attempts to improve the tools of the impact analysis.
To improve the quality and consistency of competitive impact assessment, the participation of the competition authorities in regulatory reforms, the impact assessment process and its development may be considered crucial. The ministries should also always consult the FCA before issuing any regulations which will prevent, restrict or distort effective competition.
[1] Liisa Lundelin-Nuortio is a Senior Adviser at the FCA’s Advocacy Unit and Soile Tahvanainen is a Research Officer at the Cartels Unit.
[2] Competition advocacy; in early 1990s, the term deregulation i.e. dismantling regulation was used, which is a narrower concept than regulatory reform but reflects well competition advocacy in the previous structural circumstances.
[3] Advocacy and Competition Policy. International Competition Network. 2002. (cf. www.internationalcompetitionnetwork.org)
[4] Cf. www.oecd.org/regreform.
[5] Regulatory Reform in Finland — A New Consensus for Change. OECD 2003.
[6] COM(2002) 278
[7] Commission communication on impact assessment. COM(2002) 278 final.
[8] COM(2004)2 final
[9] Extended Impact Assessment of Proposal for a Directive on Services in the Internal Market. Commission Staff Working Paper. SEC(2004)21.
[10] PUMA, OECD Programme on Public Management and Governance
[11]
Recommendation of the Council of the OECD on Improving the Quality of Government Regulation. OECD 1995.
See also Regulatory Impact Analysis: Best Practices in OECD Countries. OECD 1997.
[12] Instructions on the assessment of economic impacts of legislative proposals. Ministry of Finance. Helsinki 1998.
[13] Instructions on the assessment of the impacts of legislative proposals on enterprises. Ministry of Trade and Industry. Helsinki 1999.
[14] Towards better law drafting and management. Development proposals of the Permanent Under-Secretary working group. Council of State publications 8/2003.
[15] Operational environment of entrepreneurship — legislation. Working group and committee reports of the Ministry of Trade and Industry 2/2004.
last modified 6/30/2004