Chapter 1. Assessment and recommendations

This assessment identifies distortions to competition in Romanian legislation and proposes recommendations for the removal of regulatory barriers to competition in three key areas of the Romanian economy: construction, freight transport and food processing. The 227 potential regulatory restrictions that were identified were analysed, and the report makes 152 specific recommendations. Among the benefits from increased competition will be lower prices and greater choice and variety for consumers as a result of entry of new, more efficient firms or from new forms of production in existing firms. This report identifies the sources of those benefits and, where possible, provides quantitative estimates. If the particular restrictions that have been quantified are lifted and the expected effects are realised, the OECD has calculated a positive effect for the Romanian economy of around EUR 434 million.

The Romanian Competition Assessment of Laws and Regulations project has identified and evaluated regulatory barriers in the sectors of construction including public procurement, freight transport and food processing, and pinpoints the necessary steps required to remove these restrictions in order to stimulate the emergence of a more competitive environment for Romanian businesses. This section outlines some of the key economic benefits that arise from competition. It then summarises the main recommendations for regulatory change and their expected benefits, both to the Romanian consumer and to the Romanian economy.

1.1. The benefits of competition

One of the main reasons to pursue pro-competitive regulatory reforms is to benefit the economy. When customers can choose between different providers of goods they benefit, and so does the economy as a whole. Their ability to choose forces firms to compete with each other. Choice and variety for consumers is a good thing in itself but, most importantly, firms that operate in competitive markets experience faster productivity growth than firms in less competitive environments. Although it is hard to measure the effect of, for example, changes in competition law on economic growth, there is solid evidence in support of each of the relationships shown below.

This has been confirmed in a large number of empirical studies, both on an industry and on a firm level.

Improving productivity on a widespread scale enhances economic growth. Other benefits from competition can also be important. These include lower consumer prices, greater consumer choice and better quality of products and services, more employment, greater investment in R&D, and faster adoption of innovations by firms that are close to the technology frontier.

The primary reason that competition stimulates productivity seems to be that it allows more efficient firms to enter and gain market share at the expense of less efficient firms. Increased productivity from competition may arise as a result of both static and dynamic gains. Static gains follow from eliminating inefficiencies as the monopolists facing competitive pressures cease to live the “comfortable life”. Dynamic efficiency improvements arise, for example, because competition improves the ability of owners or the financial market to monitor managers, by enhancing opportunities for comparing performance, enhancing the incentive to innovate to gain market share or because competition leads managers to work harder to maintain profits (Nicoletti and Scarpetta, 2003).

The productivity impact of competitive rivalry has been studied empirically with event studies of large regulatory changes, analyses of cross-country or cross-sectoral regulatory differences and their impact on competition or productivity, and detailed firm-level analyses of productivity. In all these studies, there is ample evidence that productivity increases when competitive forces are augmented.

Box 1.1. Empirical evidence for productivity gains from lifting regulatory barriers to competition

In Australia, broad efforts to revise laws to promote competition, which took place in the 1990s, have delivered significant benefits. In 2005 the Productivity Commission examined the effects of selected pro-competitive reforms and calculated that, by enhancing productivity in particular sectors, they had boosted Australia’s GDP by about 2.5% above levels that would have otherwise prevailed. Moreover, those reforms examined were only a selection of all reforms, suggesting that the 2.5% figure is likely to be a conservative estimate (Sims, 2013; Productivity Commission, 2005). The studies on Australia are consistent with the positive relationship between competition policy and productivity. Sims (2013), the OECD (2006) and the Productivity Commission (2005) attribute Australia’s performance turnaround to pro-competitive reforms, including those from the National Competition Policy’s regulatory reviews as well as from other reforms, such as tariff reductions that increased international competition. Australia’s productivity performance went from being one of the worst in the OECD to one of the top performers during the period of the National Competition Policy reforms.

Policies liberalising industries that were previously regulated monopolies (especially utilities) also provide clear natural experiments on the effects of competition. For example, in the US electricity industry, Fabrizio et al. (2004) find that private electricity generators facing competition had 5% higher productivity than privately-owned generators facing no competition. Cahuc and Kamarz (2004) find that after deregulating the road transport sector (“trucking”) in France, employment levels in road transport increased at a much faster rate than before deregulation, with employment growth increasing from 1.2% per year between 1981 and 1985 to 5.2% per year between 1986 and 1990. Between 1976 and 2001, total employment in the road transport sector doubled, from 170 000 to 340 000.

Davies et al. (2004) note the significant price effects from deregulation that had the effect of introducing competition, such as the introduction of low-cost airlines within Europe.

Taking the opposite approach, Haskel and Sadun (2009) look at an increase in regulation, finding that increased regulation of retailing in the United Kingdom from 1996 reduced total factor productivity growth in retailing by about 0.4% per year. More generally, Cincera and Galgau (2005) find that tighter regulation that reduced entry into European markets raised mark-ups and lowered labour productivity growth.

Source: OECD compilation.

Direct measurement of the effects of competition

The conclusion that increased competition generates high productivity is supported by detailed studies of industries and individual firms. For example, Nickell (1996) states that the evidence he examined suggests that “competition, as measured by increased numbers of competitors or by lower levels of rents, is associated with a significantly higher rate of total factor productivity growth.” Building upon and deepening Nickell’s work, Disney, Haskell and Heden (2003) use data on 140 000 separate businesses and conclude that “market competition significantly raises both the level and growth of productivity”. Blundell, Griffith and Van Reenen (1999), by examining a set of data on manufacturing firms in the United Kingdom, find a positive effect from product market competition on productivity growth.

OECD research has also provided substantial evidence that product market deregulation can result in increased growth. Mechanisms identified include shifting resources from less efficient to more efficient providers through the process of competition and lifting restrictive regulation that was holding back the take-up of information and communication technology (ICT) (Nicoletti and Scarpetta, ; Conway et al., 2006). Looking at 15 countries and 20 sectors, Bourlès et al. (2010) find that eliminating regulatory restrictions on competition in upstream sectors would enhance multi-factor productivity growth by 1% to 1.5% a year.

In a cross-country comparison of anti-competitive regulatory restrictions using the OECD’s Product Market Regulation (PMR) index,1 Arnold, Nicoletti and Scarpetta (2011) find that product market regulations that restrict competition are associated with reduced total factor productivity of firms. They sample evidence from 100 000 firms in 10 European countries, finding that anti-competitive regulations may particularly restrict the firms that are on a path to catching up with the most productive firms in their industry. Competition ensures that firms catch up more quickly to reach the technological frontier within their sector.

In Japan, work by Michael Porter and others demonstrated that it was those industries exposed to international competition that experienced rapid productivity growth, while those that operated in protected domestic markets stagnated. For example, Sakakibara and Porter (2001) conclude that “local competition – not monopoly, collusion or a sheltered home market – pressures dynamic improvement that leads to international competitiveness”. Other economists have confirmed the findings. For example, Okada (2005) finds that “competition, as measured by lower level of industrial price-cost margin, enhances productivity growth, controlling for a broad range of industrial and firm-specific characteristics.”

Ospina and Schiffbauer (2010) use firm-level observations from the World Bank Enterprise Survey database, and find that “countries that implemented product-market reforms had a more pronounced increase in competition, and correspondingly, in productivity: the contribution to productivity growth due to competition spurred by product-market reforms is around 12% to 15%”.

A detailed study of management practices in more than 10 000 firms from 20 countries finds that those firms facing more product market competition have better management practices and, in turn, higher productivity. In high competition cases, firm management practices tended to be concentrated around best practices. In contrast, when competition was less intense, a “fat tail” of firms with poor management practices was found even while some firms were well managed. Competition is a mechanism that incites firms to improve their management practices (Bloom et al., 2012).

To sum up, anti-competitive regulations that hinder entry into and expansion in markets may be particularly damaging for the economy because they reduce pressures to increase productivity and ultimately limit economic growth. Revising regulations to ensure they are pro-competitive, and lifting any barriers identified, can unleash rivalry that makes firms become more productive and, when widespread, can generate aggregate increases in economic growth.

Removing regulatory barriers to competition was the overall aim of the competition assessment project carried out by the OECD with the support of the Romanian Competition Council (RCC). The rest of the chapter outlines the main findings from the project.

1.2. Key findings from the Competition Assessment project in Romania

The main aim of the Competition Assessment of Laws and Regulations in Romania project is to improve competition in three sectors of the Romanian economy – construction, freight transport and food processing – through the removal of regulatory barriers. These three sectors had a combined gross value added (GVA) of 12.4% (construction: 6.29%2 [total NACE group F], Transport: 5.08%, Food processing: 0.98%3) of GDP by output in 2014 (2013 for Food processing as it is the last available year).

In 2014 freight transport generated a turnover of approximately 5.08% of GDP (by output), whereas transport, including passengers, generated a GVA of 5.11% of Romania’s GDP (GDP by GVA).

These three sectors represented 401 281 jobs (Construction: 111 568 jobs4 in selected subsectors of NACE groups F and B, Transport: 133 100 jobs, Food processing5 156 613 jobs6 or 10.3% of total employment in Romania in 2014 (the total number of employees in Romania in 2014 was 3 887 461, of which 401 281 were in the three analysed sectors7). Lifting the restrictions to competition in these sectors is therefore likely to have a significant positive economic impact, both in the short term and in the long term.

The outcomes discussed in this section were reached by identifying regulatory barriers to competition, assessing their impact in terms of harm to competition, and suggesting specific recommendations to lift the restrictions. This is not an economic impact assessment. It is a methodical analysis of the legislative texts related to the sectors under analysis.

The work has led to the identification of 227 regulatory restrictions found in the original 895 legal texts selected for assessment. In total, the report makes 152 specific recommendations to mitigate harm to competition. These are all available in Annex B to this report.

Table 1.1. Legal provisions analysed by sector
	Construction	Freight transport	Food processing
Legislation scanned	162	566	167
Prima facie restrictions found	95	85	47
Recommendations made	72	46	34
Source: OECD analysis.

1.3. Main restrictions identified and recommendations

Below we briefly summarise the restrictions found, as well as our main recommendations in the construction, freight transport and food processing sectors. Those will be discussed in detail in the specific chapters.

Construction

The construction sector is of high importance in the development of the Romanian economy, as it generated a GVA of EUR 9.48 billion (total NACE group F) in 2014, representing 6.29% of Romanian GDP in 2014 and employing approximatively 1 115 000 people in the same year9 (selected subsectors of NACE groups F and B). Of the total turnover generated in 2014 by the companies that are active in this sector (selected subsectors of NACE groups F and B), 66.7% was generated by the construction of roads and railways subsector, 17.0% by the construction of utility projects subsector and the rest of 16.2% by the construction of other civil engineering projects subsector.

The main issues and recommendations in the construction sector are as follows:

Limitation of the number of participants in public tenders. A smaller number of participants in tenders reduces competition and leads to higher prices for the contracting authorities. We identified several provisions which, if applied discretionarily by the contracting authorities, might limit the number of participants in public tenders. Such restrictions include the possibility of starting negotiations without prior publication of the participation notice, the limitation of participants to public procedures based on prior experience, and setting deadlines for submitting the tenders at the minimum threshold provided by the law which might be too short in case of more complex projects. These issues arise not from the legislation but from the practice of the contracting authority, due to the broad discretion they are granted by the law. Our recommendation is to draft guidelines to give market participants and contracting authorities a sufficient level of predictability and transparency with respect to the application of legal provisions. A lower award price may lead to savings of approximately EUR 418 million.
Provisions in construction legislation derogating from procurement legislation. We identified various provisions granting exceptions to procurement legislation, such as that no tender procedure is needed for the concession of terrains to developers building houses for young people under the age of 35 or in order to lease private terrains owned by public authorities if they are to be used by the initial owner of a building for extending the existing building on nearby terrains. We recommend abolishing these exceptions and applying the usual tender procedure.
Maximum prices for gravel and sand are set by the Ministry of Finance (MoF) for each individual producer and are adjusted yearly based on a consumer price index. We recommend abolishing the maximum price for sand and gravel as it might lead to horizontal effects of producers aligning to the maximum price.
Unclear provisions that give unguided discretion for public authorities. We found several provisions in Romanian legislation that do not contain definitions of important notions and leave far-reaching discretion to the public authorities without any guidelines. These provisions allow authorities to discriminate between competitors, giving some of them cost advantages over others which might lead to an unpredictable business environment for private investors. Such provisions include the manner of granting parking places on public land or the manner in which the State Construction Inspectorate (SCI) carries out its control activity. We recommend defining and clarifying these provisions.
Street sale through stalls. Construction works for placing stalls, without foundations or platforms and which only need to be supplied with electricity, for the distribution and trading of newspapers, books and flowers are exempted from the obligation to obtain a building permit. Restricting the products that vendors are allowed to sell in stalls may potentially limit the development of businesses and consumer choice. We recommend extending the exemption to all such stalls independently of their purpose.
Construction works in coastal areas. Currently, it is forbidden to execute construction or maintenance works between 15 May and 15 Septembers in the coastal areas of the Black Sea, in seaside resorts and areas of tourist beaches. By applying automatically, without a prior assessment, irrespective of the execution period, location, risk of adverse health and safety of persons made by the local public authority, this interdiction interferes with the business activity of undertakings. We recommend abolishing this provision. Any temporal restrictions to build should be decided at a local community level.
Conflict of interests likely. We identified various provisions which might lead to potential conflicts of interest between competing undertakings (or potential competitors), mainly due to the involvement of professional associations in the decision-making process of the competent public authorities. For example, members of professional associations collaborate with the public authorities, providing technical expertise, and thus contributing to the decisions undertaken by the authorities. Members of professional associations may even control the activity of other competitors, by being subsequently involved in the controls carried out by the SCI. The same issue arises with respect to the composition of the Standing Technical Council for Construction (CTPC), where competitors are in a position to decide on their competitors’ activities. We recommend establishing a complete, clear and accessible set of conflict rules to be followed by professional associations. The implementation of an ethical code of conduct should be mandatory for each professional association involved in decisions made by public bodies. Also, the legislation should be amended by mentioning independence rules so as to avoid possible conflict of interest.
Obsolete legislation. We found two types of obsolete legislation: Some restrictions have been superseded by more recent legislation but have not been explicitly removed from the body of legislation. Another type of obsolete legislation contains restrictions that are outdated by nature, but are still formally in force. Among these are: professional schools have to be built within 1 000 metres (m) of a housing area, medical assistance for chronic diseases should be located outside town areas, regardless of the type of disease. The OECD recommends that all such provisions should be abolished or, where new legislation has been enacted, to specifically repeal the outdated provisions.
Environmental law. The issues identified in this field arise from a lack of clear national guidelines and rules, especially with regard to the wide discretion granted to the environmental authorities in the authorisation process of the economic operators subject to the industrial emissions legislation. For example, environmental authorities may impose stricter authorisation conditions for the economic operators in the field of industrial emissions than the ones established as best practice at the European level but without clear guidelines as to when this can be done. We recommend drafting guidelines in order to provide authorities with clear criteria for the application of the identified provisions.

The full analysis and recommendations for the construction sector including public procurement are set out in Chapter 2.

Freight transport

Freight transport plays an important role in the Romanian economy, generating a turnover of approximately 5% of gross domestic product in 2014 and employing around 133 000 people. The modal split of freight transport in 2014 in terms of volume was 60.9% for road, 16.2% for rail, 13.9% for maritime, 8.89% for inland waterways and 0.01% for air. Romania’s indicator for road transport in the OECD Product Market Regulation indicator shows that it is one of the most regulated in the European Union, while Romania’s rail transport is one of the most liberalised rail transport markets.

The main issues and recommendations in the transport sector are as follows:

Road transport

Authorisations. We found various authorisations that may unnecessarily limit the number of operators and may increase costs. For example, the authorisation for repairing, adjusting, reconstructing and dismantling of vehicles should be abolished. Instead, the garage should be checked by the Romanian Automotive Register (RAR) in order to prove that its manager possesses a certificate of professional studies or a degree issued by the RAR and that its employees have certificates of professional studies.
Local taxes. Local authorities impose additional taxes for the use of national roads that cross municipalities and for the use of local and county roads they manage. These taxes generally lack transparency. Also, it is difficult for road freight transporters to pay such taxes, as currently there does not seem to be an efficient tax payment system in place. We recommend introducing an appropriate legal framework in order to ensure the transparency and efficiency of the payment system for local road taxes. A good measure might be the publication of all road taxes on the websites of the Ministry of Transport (MoT) and Ministry of Regional Development and Public Administration (MDRAP). Furthermore, an online payment system of taxes or a system which involves payment with mobile phones should be introduced.
Plates for trucks. We recommend that the provision requiring road transport freight operators to display on their vehicles a plate containing information on the size and maximum weight authorised for the vehicle to be abolished. Instead, compliance of the transport operators with the rules on weight and dimensions can be achieved through documentation such as the vehicle identity card or the periodical technical inspection certificate, which should be carried by the vehicle driver. We estimate that the benefits for road freight transport operators of abolishing the plate requirement for vehicles with a maximum weight greater than 3.5 tonnes (t), would be approximately EUR 1.14 million a year.
Copy of transport licence. Road transport operators must obtain a copy of the transport licence for each vehicle in their fleet, which must be renewed annually. We recommend that the provisions should be modified and the copy be issued for the same period of time as the duration of the licence to which it refers, i.e., 10 years. The benefits of freight transport operators from modifying the provision are estimated to be around EUR 7.1 million a year.

Rail transport

Access to railway infrastructure and the independence of the infrastructure manager. We found various unclear provisions and a lack of definitions for relevant terms which might lead to discrimination against private operators. For example, for railway infrastructure capacity allocation, the relevant provision simply mentions that the Romanian railway company, CFR SA, has the right to reject a path allocation requested by railway operators when statistics related to freight transport operating on that route show an under-use below 20% for the timetable in place. Another provision refers to access to the railway infrastructure: when dealing with a request for access to some facilities and services, such as a power supply system, fuel supply, freight terminals, etc., the infrastructure manager CFR SA can reject such requests if there are alternative options in the market. These “alternative options” are not defined. We recommend that all these provisions shall be made clearer and definitions should be given to provide further guidance to railway operators.
No recommendation concerning CFR Marfă’s privatisation. Privatisation may represent the best opportunity to address issues of possible discrimination because splitting ownership of the infrastructure manager and the rail freight operator would eliminate any incentives for CFR SA to favour its affiliated freight rail company, CFR Marfă. However, there is no clear conclusion in the existing economic literature on whether full vertical separation is necessarily more suitable than other structural approaches and whether there is a one-size-fits-all solution. Nevertheless, evidence on rail freight privatisation seems to point in a positive direction.

Inland waterway and maritime freight transport

The lack of transparency in the calculation of tariffs charged by port authorities may lead to abuses as there is a risk that the tariffs may be disproportionate to the economic value of the services provided. We recommend that port authorities set their charges based on a transparent cost-based approach. Furthermore, port authorities’ autonomy in setting charges should be balanced by allowing an independent regulatory body the right to supervise these charges. For that, we recommend that an independent supervisory body approve ex ante all tariffs set by the port authorities.
Pilotage and towage services should not be granted directly by the port authority, but instead they should be tendered in an open competitive procedure. The introduction of a more transparent procedure would ensure more reliable, better quality services for freight shippers and lower costs for the port authority, which is the contracting authority for these services. We estimate that the introduction of tendering procedures in granting the right of operating pilotage and towage services by the port authority to economic operators would generate savings for the port authority and further for freight shippers, if the port authority passes on the savings to its customers, of approximately EUR 6.5 million a year.
Moreover, the provisions requiring a certain number of pilots or tugboats should be abolished. The law should not impose a minimum number of pilots or tugboats per port, but instead require a minimum service level, such as a maximum ship waiting time. The required service level must also be transparent, non-discriminatory, objective and relevant to the category and nature of the port services concerned.
Lack of transparency and unguided discretion. We found several provisions in Romanian law that grant significant discretion to the Romanian Naval Authority (ANR) when carrying out its tasks. These provisions may lead to discrimination between market participants. For example, the provisions regarding the compliance of Romania with its flag state obligation should be modified in order to state the activities that the ANR is entitled to carry out in order to verify compliance with safety rules by Romanian vessels. Also, we found that the powers of the ANR to suspend or to withdraw the licence of a supplier of liquid fuels for travel by sea may lead to more advantageous treatment of some bunkering companies. We recommend the relevant provision be amended in order to clearly establish the instances in which a warning is proportional and adequate, as well as the instances that require the suspension or withdrawal of the company’s authorisation.

The full analysis and recommendations for the freight transport sector are set out in Chapter 3.

Food processing

The food processing sector generated a GVA of EUR 1.4 billion in 2013. This represents approximately 1% of total GVA across all economic sectors in Romania, and approximately 10% of the GVA generated by the manufacturing sector. Processing and preserving of meat, bakery and farinaceous products, and dairy products are the most significant subsectors, representing a combined output of approximately 65% of total sector output. Since the financial crisis in 2008/09, the sector has undergone significant restructuring and increased productivity, as the number of firms as well as the number of employees have decreased, while revenues recovered after a sharp drop and today exceed 2008 levels. Despite this trend toward consolidation, the sector remains fragmented. The top 10 firms represent approximately one-third of the sector’s total revenues.

The Food processing sector also represents an important activity of the Romanian economy. In 2014, the sector employed a total of 156 613 people.10 From the total GVA generated in the sector in 2013, 31.5% came from the processing and preserving of meat and production of meat products activity (EUR 0.44 billion), 25.5% from the manufacture of bakery and farinaceous products (EUR 0.36 billion), 12.0% from the manufacture of other food products activity (EUR 0.17 billion) and 10.3% from the manufacture of dairy products (EUR 0.14 billion).

Compared with other EU Member States, food prices in Romania are quite low. Household consumption expenditure for food items in absolute terms is among the lowest among all EU Member States. However, in terms of percentage of total household expenditure, households in Romania spend a higher share on food products than households in any other EU Member State. Thus, even moderate efficiency gains that could result from regulatory reforms in this sector would provide measurable benefits to Romanian households and could benefit the less well off in particular.

The main recommendations in the food processing sector are as follows:

Modalities of sale and food preparation. We found various provisions in Romanian law and regulations limiting the production or sale of food products. For example, bakery products must be sold in specially designated, separated areas of stores that, as regards bread, must be at a minimum 10 m². Such restrictions impose costs on market participants and can create entry barriers for new players. We recommend amending existing rules to grant operators greater flexibility with respect to selling conditions, so long as food safety can be ensured.
Staff Training. We identified one instance where Romanian law imposes training and examination requirements for all staff handling food products. Staff qualifications must be attested by a certificate issued after completion of a training course and passing of an exam. The course and exam, which costs approximately EUR 20 per person, must be repeated every three years. These rules impose costs on market participants including not only the fees for course and examination but also the costs of absent personnel that go beyond what appears necessary to attain the legitimate policy goals of ensuring a high level of food safety. We recommend applying these rules in a more targeted fashion only to those employees that could in fact pose risks to food safety because they come into direct contact with foodstuffs. We have estimated that excluding personnel which are not involved in activities that imply direct contact with foods (such as technical and administrative personnel), would result in a total cost saving of between EUR 0.53 million and EUR 0.73 million annually
Licensing requirements. We found several instances where market operators must obtain licences before they take up activities, and the conditions under which such licences can be granted can lead to a restriction of competition. This includes, for example, instances where licences must be obtained from state authorities, but regulations do not clearly spell out by when the authorities must act on the application of a licence. This also includes the situation where a licence for operators of storage facilities for edible seeds that is required to obtain deposit certificates must be approved by a commission where the incumbent operators (who would compete with the new licence holder) represent more than half of the commission members. In such a situation, decisions may reflect the interests of incumbents rather that the public interest in creating liberal market access. We recommend reviewing licence regimes in order to provide for clear deadlines by which authorities must decide on applications for licences, and to ensure that the process of reviewing licence applications is free from potential conflicts of interest.
Control regimes. We found several instances where control regimes concerning operators in the food processing sector can harm competition. These include controls for compliance with the same legal requirements by two different authorities that may use different standards to assess legal compliance and control regimes or that use unclear terms and therefore create unnecessary uncertainty for market players. It also includes rules concerning the inspection of food products on the Romanian border, where in practice the authorities require importers to keep their goods in (more expensive) refrigerated trucks for several days while the analysis of food products is carried out. These control regimes impose costs on market players. We recommend amending control regimes to eliminate costs for market players that are not necessary to achieve the policy goals related to the control of food products.
Discrimination based on nationality. We identified one instance where Romanian laws related to the testing of animal feeds impose higher costs on importers than on domestic producers. This situation results in discrimination of certain market players and could be an entry barrier for foreign producers. We recommend eliminating the discrimination of importers of animal feed products.
Rules encouraging competitor collaboration. We found one instance in which rules concerning voting rights in milk producer associations which may encourage association members to exchange commercially sensitive information about each individual member’s milk production or production capacity. Exchanging this information may help members to reach an understanding of how future production should be allocated among them, or it could be used to monitor compliance with an already established understanding of how production should be allocated among members. We recommend amending association rules so that voting shares are established in light of historic production data, and that only the association has access to individual member production information.
Ambiguity in legislative provisions. We have identified instances where rules related to the handling and selling of food products include unnecessarily ambiguous terms. Frequently, the norms seek to establish exceptions for smaller operators from generally applicable rules for the relevant sector. They therefore pursue the legitimate policy goal of avoiding an unnecessary regulatory burden on small market players as the risk to public health posed by small operators is limited. However, ambiguity in rules creates uncertainty for operators as the scope of the rules remains unclear and leaves unnecessary discretion to the authorities and, in the worst case, may encourage corruption. We recommend amending existing laws and regulations to use clear legal terms and to remove uncertainty for market operators.
Outdated legislation. We have found several instances in which rules contained in domestic legislation are redundant in light of EU regulations with the same regulatory content that became effective when Romania joined the European Union. The domestic rules typically predate EU accession. We recommend abolishing redundant domestic norms to create greater legal certainty.

The full analysis and recommendations for the food processing sector are set out in Chapter 4.

1.4. Quantification of the recommendations

It was not possibly to quantify the effects of all the restrictions identified, either because of a lack of data, or because of the nature of the regulatory change. However, it is clear from the above that the ramifications for the Romanian economy in terms of long-term positive economic effects on productivity and growth will be significant, provided all the recommendations are implemented in full.

More specifically, if the particular restrictions that have been identified during the project and quantified are lifted, the OECD has calculated a positive effect for the Romanian economy of around EUR 434 million. This amount stems from a few issues that we were able to quantify – in other words, the full effect on the Romanian economy is likely to be even larger. The amount is the total of the estimated resulting positive effects on consumer surplus in the sectors analysed as a result of removing current regulatory barriers to competition.

Although only a small number of the restrictions could be fully quantified, we consider that the cumulative, long-term impact on the Romanian economy of lifting all of the restrictions identified as harmful, including those that were more technical in nature (for instance, regulations on foodstuffs), should not be underestimated. The rationalisation of the body of legislation in these sectors will also positively affect the ability of businesses to compete in the longer term, provided that the recommendations are implemented fully. Finally, by removing obsolete or redundant legislation, investors face a more transparent and less uncertain business environment.

Table 1.2 below summarises the quantifiable effects of lifting the regulatory barriers to competition for selected obstacles.

Table 1.2. Synthesis of positive effects quantified by item
Sector	Number of provisions affected	Consumer benefit/year
Construction/ public procurement	8	418.0
Estimated effect of stimulating an average of one additional acceptable bid per procurement procedure		418.0
Freight transport	9
Plates	1	1,1
Copy of licence	1	7,1
Breaking energy	1	0.9
Pilotage services	2	3.4
Towing services	2	3.1
Waybills and registers of input-output wood material	2	0.3
Food processing	1
Staff qualification	1	0.7
Total	18	434
Note: Some of the issues identified and analysed are related to the expected consumer benefit included in the table. The expected consumer benefit of EUR 418 million reflects the effect of stimulating, on average, one additional accepted bid in every procurement procedure.

1.5. Conclusion: Overall benefits from removing the regulatory barriers to competition

The present chapter summarises the main findings and recommendations resulting from the analysis of almost 900 legal provisions. If our recommendations are fully implemented, benefits to consumers in Romania and to the Romanian economy should arise in all three sectors, and throughout the economy as a whole through dynamic effects.

Throughout this report, we have sought to identify the sources of those benefits and, where possible, provide quantitative estimates. Because the benefits of competition arise from innovative actions by many private sector agents – perhaps not even operating in the market just now – any such estimates are highly uncertain and must be regarded as providing, at best, orders of magnitude for the likely effects. Moreover, the aim of the report is to assess the harm to competition, and the expected benefits to consumers from lifting barriers. It was not always possible to quantify the effects of lifting all the restrictions because in many cases it was not possible to measure them. Out of the small number of issues we were able to quantify we find total effects in the range of EUR 434 million, arising from efficiency gains and lower prices on goods and services for consumers. But the positive effects on the Romanian economy over time are likely to be far greater.

Such benefits generally take the form of lower prices and greater choice and variety for consumers. Often this will result from the entry of new, more efficient firms, or from existing suppliers finding more efficient forms of production under competitive pressure. As noted earlier, more competitive markets result in faster productivity growth over a longer timescale, but we do not attempt to estimate this effect.

The rest of this report describes the results of the assessment in the three sectors. For each of the provisions or groups of provisions that were identified as potentially harmful, the report describes the nature of the restriction, the harm it causes to competition, the policymakers’ objective and the recommendations and associated benefits that the OECD has identified.

Annex A to the report describes in detail the methodology followed in the process, both to screen the laws and regulations, and also to assess the harm to competition from the restrictions, as well as the benefits to the Romanian economy and to consumers from removing the barriers to competition.

Annex B to the report provides, line by line, a summary of all the regulations identified, to help the reader identify the law or article that was analysed, as well as a summary description of all the analyses carried out.

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Notes

← 1. The OECD Indicators of Product Market Regulation (PMR) are a comprehensive and internationally comparable set of indicators that measure the degree to which policies promote or inhibit competition in areas of the product market where competition is viable. They measure the economy-wide regulatory and market environments in 30 OECD countries in (or around) 1998, 2003 and 2008, and in another four OECD countries (Chile, Estonia, Israel and Slovenia) as well as in Brazil, China, India, Indonesia, Russia and South Africa around 2008; they are consistent across time and countries. More information is available at: www.oecd.org/eco/reform/indicatorsofproduct marketregulationpmr.htm.

← 2. This includes total NACE group F (Romanian National Institute of Statistics, http://statistici.insse.ro/shop/index.jsp?page=tempo3&lang=en&ind=CON104H (accessed on 11 February 2016) and Deloitte calculations.

← 3. Source: Eurostat, codes: sbs_na_ind_r2 and nama_gdp_c (accessed on 11 February 2016), and Deloitte calculations.

← 4. Source: Eurostat, codes: sbs_na_ind_r2 and nama_gdp_c (accessed on 11 February 2016), and Deloitte calculations.

← 5. Despite the fact that the Food Processing sector generates the highest turnover and employs the largest number of people of the three sectors presented in thisreport, Food Processing also has the smallest percentage contribution to GDP of the three in 2013 (0.98%). This is mainly because Food Processing is a low value added industry compared to other sectors of the economy. A large share of the turnover generated by the sector corresponds to intermediate consumption / purchase of inputs and therefore most of the value is transferred to input producers situated further up in the value chain of the food industry, including to agriculture.

← 6. Ibid.

← 7. ibid.

← 8. Romanian National Institute of Statistics, http://statistici.insse.ro/shop/index.jsp?page=tempo3&lang= en&ind=CON104H (accessed on 11 February 2016) and Deloitte calculations.

← 9. National Agency for Fiscal Administration (ANAF): www.anaf.ro/indicatori/indfinanciari.html (accessed on 16 March 2016) and Deloitte calculations.

← 10. ANAF, www.anaf.ro/indicatori/indfinanciari.html (accessed on 16 March 2016) and Deloitte calculations.