Competition neutrality and government subsidies
October 13, 2017
Competition regulations are mainly used in order to intervene in problems in private business activity, but even public entities may distort competition in the market. Public businesses may have financial advantages or other advantages that distort the prerequisites for competition between public and private businesses.
In some cases, the Competition Act may be used as basis for intervening in activities that distort the neutrality of competition; this involves what is known as distortion of competition due to practices and structures. For example, low-cost financing or other financial benefits provided by a public owner give a public entity the opportunity to offer goods or services at prices below value. On the other hand, businesses operating as public utilities or agencies may have taxation benefits or protection from bankruptcy.
Competition may also be distorted through prohibited government subsidies if the public sector grants financial subsidies or other benefits to companies. The regulations apply to private and publicly owned companies, such as companies owned by municipalities or joint municipal authorities. The form of subsidy does not matter: it may be direct financial assistance or rent below market price, for example. A public utility’s protection from bankruptcy, its more beneficial tax treatment or selling public property at below market value, for example, may be considered prohibited government subsidies.
Competition neutrality and government subsidies are two sides of the same coin, and both aspects often require consideration in the same projects. Very often, problems with competition neutrality may be related to prohibited practices involving government subsidies or public procurement.