Summary of Conference on Promoting Competition and Creating Contestable Markets in Armenia and Action Plan for Engagement on Competition Reforms ID: P166748 1. Conference summary Background In June 2019, a conference on “Promoting Competition and Creating Contestable Markets in Armenia� was held as a follow up activity of the World Bank Group’s Competition Reform Assessment for Armenia (ID: P166748). The conference was co-chaired by the World Bank Group (WBG) and the Ministry of Economy (MoE) and brought together Government of Armenia (GoA) institutions with a mandate on competition topics (including Ministry of Finance, Ministry of Economic Development and Investments, State Commission for the Protection of Economic Competition (SCPEC), National Center for Legislative Regulation, State Revenue Committee, Public Services Regulatory Commission of Armenia, and the Central Bank of Armenia) for discussions on actions that can help to boost competition and market contestability in Armenia. Key development partners such as the EU delegation and IMF also attended. Key aims of the conference included: (i) Providing peer-to -peer learning for GoA based on international experience from countries that have successfully implemented reforms in these areas; (ii) Identifying potential areas for engagement between the GoA and the World Bank Group to support reforms in the short/medium term which could sustainably boost competition in Armenia. The conference agenda is included in Annex 1. Discussions and outcomes The topics covered were based on the scoping, conducted under this ASA, of potential measures to address competition constraints across the economy and in specific sectors – and were focused on mechanisms to embed competition policies in public policies, including: - • Tackling regulatory barriers to competition • This included (i) integrating competition checklists into regulatory impact assessments and fostering collaboration between competition authority and better regulation officials; and (ii) tackling administrative barriers to competition through powers of competition authorities to sanction public bodies ex post. Participants discussed: • Institutional arrangements for integrating competition in RIA in Armenia (given that the revised RIA methodology currently being developed in Armenia is moving towards a centralized model under the PM’s office, it is was discussed what this could mean for the involvement of SCPEC and parallels were drawn with the Mexican system); • How provisions against administrative bodies that imposed barriers to entry could be enforced (e.g. how cases can be initiated, what sanctions could be imposed, whether raids could be carried out, the need for judicial confirmations) as, for example, SCPEC currently has the mandate on detecting and sanctioning Anticompetitive Actions of Public Bodies but has not yet begun enforcing these provisions; • How to build trust and independence of bodies, such as SCPEC, with the mandate to tackle regulatory barriers to competition. Here the need for good institutional design, transparency and communication were highlighted, as well as the need for sufficient staff. • Implementing effective state aid control for a level playing field • Participants discussed precise steps that would be needed to start developing a state aid framework, including questions on the way state aid should be defined and how an initial list of state aid grantors could be developed, using well known schemes as a starting point. • There was broad agreement that the best starting point for Armenia would be to develop a state aid inventory. There was some discussion on how this should be operationalized, what type of legal backing (if any) would be needed to begin the collection and publication of information on state aid schemes, and how this agenda could be embedded in the program of relevant agencies. The participants agreed that the inventory required some legal backing and agreed as a key action for follow up to identify whether a decree would be sufficient or if other legislative changes would be required, e.g. through amendments to the competition law. • MoE and SCPEC confirmed their willingness to engage with the WBG on this topic and to form a working group for further discussions in the first instance. As major granting agencies are identified, these agencies could be brought into the working group. • Developing and implementing National Competition Policies. • There was some divergence of views on whether a National Competition Policy could be helpful in the context of Armenia, with SCPEC stating that they felt this was not necessary, while MoE was more open to the idea of a holistic program. It was agreed overall that this was a lower priority for Armenia at present. The section below provides a plan of action building on the policy note and discussions held at the recent conference for short-medium term engagement between WBG and GoA on a set of actions that can help foster market contestability and competition across the economy. 2. Plan of action for collaboration between World Bank Group and Government of Armenia on competition policy in the short-medium term Planned collaboration between the GoA and the WBG will support the government to take a holistic approach to competition policy by identifying and improving government interventions that restrict entry, facilitate collusion or create an unlevel field. The objective of the activity is to boost market contestability and foster an environment where firms, including SMEs, are able to enter, access competitively priced inputs and expand based on their merits. This work is intended to be complementary to support provided by other development partners – most notably the EBRD – who will focus on strengthening the enforcement of the competition law to tackle anticompetitive behavior by firms. The key focus of the technical assistance will be support for the development of a state aid control framework in Armenia and collection and assessment of information on state aid granted. Given that discussions with counterparts focused particularly on confirming a Development Policy Operation prior action on state aid with MoE and since this will be the priority action for follow up technical assistance in the immediate term in FY 2020, the development of a state aid framework will be given particular prominence in the following section. However, other proposed activities include: strengthening assessment of competition impact in Regulatory Impact Assessment (RIA), and support to SCPEC to implement aspects of the competition law related to Anticompetitive Actions of Public Bodies. Activity 1: Legal and economic support for the implementation of a framework to minimize distortions to competition from the granting of state aid in Armenia1 The initial stages of the development of a state aid framework generally involves the steps of defining of state aid, designating the public body responsible for establishing/maintaining a state aid database to monitor granted aid for implementation of the framework, promoting transparency in the provision of public resources to the private sector, and establishing the principles of state aid regulation. Taking into account previous experiences in attempting to implement a state aid legislative package in Armenia2, the proposed approach for follow up engagement will be phased in a way that first calls for the establishment of an inventory of state aid schemes to be made publicly available (with this inventory potentially backed by an appropriate legal instrument). Information in the database will be used to inform a future state aid control strategy, including potentially the drafting of a full state aid control legislation to expand the current framework (and/or other options to increase transparency and minimize discretion in granting of incentives and other financial advantages provided to firms). Thus, the following steps are envisaged for this work in Armenia: • Step One. Support development of a definition of state aid in Armenia and implementation of mechanisms to collect and publish information on state aid schemes from granting agencies (i) Define state aid in the Armenian context and consider amendments to Article 16-1 of the Competition Law to include the definition of state aid; (ii) Designate a coordinating body for the collection and publication of information on state aid schemes; (iii) Develop mechanisms for the collection and publication of an inventory of state aid schemes– and for the regular updating of this inventory on regular basis. This requires: a. MoE to collect information on state aid schemes contained in government orders available through central GoA databases. A template for capturing this information is provided in Annex 2. b. WBG, MoE and SCPEC to conduct a mapping of such schemes to identify any state aid schemes that are not available through central government databases and assess 1 Note that an alternative to developing a formal state aid framework would be to explore other options to increase transparency and minimize discretion in granting of incentives and other financial advantages provided to firms 2 A draft Law on State Aid Control was prepared under an EU-funded project for Strengthening the Enforcement of Competition and State Aid Legislation completed in 2013. While the draft is outdated, it could provide some useful directions for the reform and point to available experience and understanding on this area within the Government. whether legal instruments would be required to mandate provision of missing information from granting agencies3. (iv) Consider amending Article 16-1 of the Competition Law to clarify the obligations of granting agencies to notify state aid. • Step Two. Conduct a mapping and analysis of information collected on state aid schemes, develop recommendations, and engage in advocacy with granting agencies: - (i) Identify current practices in the granting of state aid that may affect its ability to distort competition (e.g. assessment of competition effects, degree of selectivity, monitoring mechanisms, availability of award criteria and granting processes); (ii) Develop recommendations for implementing a state aid control framework (and/or other options to increase transparency and minimize discretion in granting of incentives and other financial advantages provided to firms), including legal and institutional required reforms; (iii) Hold advocacy workshops with MoE and SCPEC for granting agencies on i) findings on recommendations for the establishment of a state aid control framework and ii) capacity building for assessing competition distortions linked to state aid. • Step Three. Support for the development of an updated state aid control framework (i) Draft and support the package of an updated legislative package on state aid (where appropriate depending on recommendations developed in Step Two) (ii) Conduct one assessment of a state aid measure using international good practices aligned with the Armenian framework (iii) Develop guidelines on ex ante design of state aid to identify objectives and potential negative effects on competition for state aid grantors / support to optimize the design of current/future state aid schemes This work would build on current legislation and draft regulations, taking into account current institutional capacity and institutional evolution since the drafting of these regulations, as well as on the WBG’s experience on working with partner countries to strengthen their state aid control systems. Activity 2: Strengthen assessment of competition impact in Regulatory Impact Assessments. Assessing the impact of market regulations on competition ensures that policy objectives are achieved in an effective manner while minimizing market distortions . Assessment of regulations under a RIA system can help to systematically identify and improve those regulations with the potential to harm competition. While a checklist of competition issues has been applied as part of the RIA system since 2015, the checklist shows room for improvement and the government body/bodies conducting and supervising RIA require enhanced technical capacity relating to competition to implement it. This would also involve fostering closer cooperation and dialogue between the body/bodies implementing RIAs and SCPEC. 3 If so, MoE has stated that they will confirm the appropriate legal instruments. The sub-activities involved under this activity would include. • Strengthening the competition checklist used in the RIA process based on the WBG’s Markets and Competition Policy Assessment Toolkit checklist and experience in other countries. • Training relevant government bodies in applying the competition checklist in collaboration with SCPEC (including on the underlying legal and economic principles that inform the checklist). • Pilot implementation of the revised checklist for the assessment of one proposed regulation. Activity 3: Technical assistance on measures needed to implement aspects of the 2018 amendments to the competition law related to Anticompetitive Actions of Public Bodies. Recent amendments have given SCPEC the possibility to identify/sanction “Anticompetitive Actions of Public Bodies� (actions, conduct or legislation by a state body or official that restricts, prevents or blocks competition). However, SCPEC does not currently have experience of implementing this provision. Between 2010 and 2017, SCPEC identified around 221 issues based on its conducted reviews which the institution deemed involved powers of other state bodies. Proper enforcement of this provision could help tackle the mentioned issues and could be an important part of a government-wide strategy to embed competition principles in public policy. The sub-activities involved under this activity would include. • Develop guidelines or implementing regulations for the implementation of provisions relating to Anticompetitive Actions of Public Bodies to identify and deter decisions of officials of public bodies that restrict competition. • Hold a workshop to provide training and capacity building on implementation of this amendment. The WBG Markets and Competition Policy Team has mobilized to support the GoA on Step One of Activity 1 in the immediate term, with follow up activities for Activity 1 – 3 being pursued later in FY20 conditional on funding becoming available. ANNEX: DRAFT AGENDA Conference on Promoting Competition and Creating Contestable Markets in Armenia 4th June 2019 Marriot Hotel, Yerevan, Armenia MORNING SESSION 08:30-09:00 Registration of participants and welcoming coffee 09:00-09:10 Introductory remarks Sylvie Bossoutrot, Country Manager for Armenia, World Bank Group 09:10-09:30 Introductory remarks and presentation on Representatives of Ministry of Government of Republic of Armenia strategy for Economic Development and competition policy in Armenia Investment 09:30-09:45 Overview of key findings and topics for Sara Nyman, Senior Economist, World discussion from World Bank Group policy note Bank Group on “Promoting Competition and Creating Contestable Markets in Armenia�: Proposals for Market Regulation and Competition Policy Embedding competition policies in public policies 09:45-10:30 International experience with assessments of Rodrigo Ríos, Deputy Director General regulatory impact on competition – and fostering of Promotion of Competition/Director collaboration between competition authorities, for Regulatory Analysis, Federal better regulation bodies and regulators Competition Commission, Mexico Francisco Madrigal, Director of Economic Intelligence, National Commission for Regulatory Improvement, Mexico 10.30-10:45 Coffee break 10.45-11:30 Tackling bureaucratic barriers to competition: Francisco Ochoa, Technical Secretary Recent experience from Peru for the Regional Technical Secretariat for the Elimination of Bureaucratic Barriers, National Institute for the Defense of Free Competition and the Protection of Intellectual Property, Peru 11:30-12.00 Q&A on embedding competition policies in public All policies Effective state aid control for a level playing field 12:00-12:45 The importance of state aid control frameworks Juan Jorge Piernas López, Assistant to promote a level playing field Professor of European Union and International law at the University of Murcia 12:45-13:00 Q&A on embedding competition policies in public All policies on state aid 13:00-14:00 Lunch AFTERNOON SESSIONS Developing and implementing National Competition Policies 14:00-15:00 International experience in developing and Rod Bogaards, former Director at the implementing National Competition Policies Productivity Commission of Australia Focus on a holistic national competition policy to boost productivity Including Q&A 15:00-15:15 Coffee break 15:15-16:15 Roundtable discussion on developing a All comprehensive competition ecosystem for Armenia 16:15-16:30 Closing remarks Representative of MEDI, Representative of WBG Annex 2: Template for the collection of information on state aid 1. Basic information for a state aid inventory (whether part of a program or provided on a case by case basis): State Aid Inventory Template World Bank Group for Ministry of Economy, Government of Armenia, June 2019 Please refer to the explanatory notes for definitions and further information of certain terms Basic information for a state aid inventory (whether part of a program or provided on a case by case basis) Origin (state budget, social Total Sector of Does the scheme Crisis- security Description of Does the scheme Total amount amount of Number of activity Duration of Granting Title of the target a specific related Grantor budget, local Legal basis Type of state aid objective of the target specific of aid aid planned beneficiary of the aid (if date (year) programme geographic measure budget or scheme sectors? (Yes/No) awarded (if firms beneficia applicable) region? (Yes/No) ? other available) ries sources) Explanat- Year in Agency that Source of the State if the legal basis is: Type of state aid Specify the policy Choose "Yes" if Choose "Yes" if Total amount Number of Provide Was the For example ory notes which the awards the budget for - Primary Legislation (Law, instrument used. objective/goal the the scheme is only the scheme is only of aid firms that have more aid the duration scheme aid the scheme Presidential/Ministerial E.g. Grants, credit, incentive is offered to firms in offered to firms in awarded received the than provided of a loan, was first decree, Directives); tax exemptions, tax specifically aimed specific specific sectors; from aid to date sector, if in the guarantee, etc granted - Secondary Legislation relief, tax arrears, at achieving. For regions/municipali Choose "No" if it is inception to according to applicabl context (Regulations, subsidies, interest examples see ties/states/provinc offered to firms date latest available e of a crisis implementation laws/ by- subsidies, additional sheet es regardless of their data If (e.g. laws, letter from the guarantees, "Objectives of Choose "No" if sector or activity. possible economic President/Minister, provision of goods state aid" the scheme is provide or Communication from or services on available nation- the financial President/Minister); preferential terms wide Nomencl crsis) - Other legal basis (Please or below market ature of specify) rates. Economi - No legal basis (If granted See additional sheet c outside the official legal with "Examples of Activities framework. Example: a types of state aid" (NACE) cash subsidy is provided to for further code of a local firm without such a description of the 2. Other information required for a thorough mapping and analysis of state aid schemes Other information that will helpful for a mapping/assessment of state aid Was/is an assessment of the Is there a mechanism comparative costs and Were/are clear Has the scheme Has aid been to monitor the use of Has the scheme been benefits or of distortions to eligbility criteria targeted a provided on a the aid granted and characterised by competition carried out available for the specific company first come first effectiveness of the selectivity? before granting the state aid scheme? (Yes/no) in the market? served basis? scheme ex post? under this scheme? (Yes/no) Choose "Yes" if the Choose "Yes" if the Note: In this eligibility criteria are scheme is available only template available publicly for to companies in specific "Company" can incentives applicants sector(s), geographic include SOEs or a to understand criteria region(s) or firms with firm with state that need to be met certain characteristics holding Choose "No" if no Choose "No" if the criteria are specified or scheme is available to if criteria are not any type of company, available publicly. with any characteristic in any sector or geography