Annex A. Methodology

This study covers the Portuguese self-regulated professions. In particular, the study analyses 13 self-regulated professions and also framework legislation. The professions covered in this study are as follows, accompanied by the corresponding codes according to the Statistical Classification of Economic Activities in the European Community (NACE):

Legal professions: lawyers, notaries, solicitors and enforcement agents (NACE code M.69.10);
Technical/scientific professions : architects (NACE code M.71.11), engineers and technical engineers (NACE code M.71.12);
Financial-economic professions: auditors, certified Accountants (NACE code M.69.20).

The professions of “economist”, “customs broker and customs agent” and “nutritionist” are included in Eurostat statistical classes representing wider sets of economic activity, namely “Business and other management consultancy activities”, “Other transportation support activities” and “Other human health activities”. These classes represent the highest disaggregation for which we are able to gather data, and may include many activities other than the ones practised by those three professions. Hence, to avoid an overestimation of their weight, those three professions were excluded from our data on turnover, gross value added, number of employed people and gross operating rates.

As for pharmacists, the closest NACE code is G.47.73 for “Dispensing chemist in specialised stores”. The pharmaceutical retail activity in Portugal is subject to regulation that goes well beyond self-regulation by its professional association. This fact justifies some limitations in the analysis undertaken and is noted when necessary. Pharmacists as a profession are quite different from the remaining 12 professions analysed in this report. Their ‟profit margins” are regulated and most of their turnover comes from selling products and not from providing services.

In one case, that of notaries, the statistical information was complemented taking into account the Portuguese statistical code, CAE M.69102 (Atividades dos cartórios notariais) as it includes an additional level of classification when compared with NACE 69.10.

To better describe the activities performed by each of the professional categories, we used the information available from the INE.

The INE item “legal services (including notarial services)” includes all the activities related to clients' legal rights and obligations and which aim at their legal advice. I.e., this includes all juridical and notarial services, plus other services. Juridical services can be in civil, commercial, labour, criminal, and IP law. The activities included within this INE item are similar to the activities included within the Eurostat NACE code M.69.10 under the heading “Legal activities” and correspond to the professional activities carried out by the four legal professions under analysis: lawyers, notaries, solicitors and enforcement agents.

The INE item “architecture and engineering services” includes activities that aim at the elaboration of drawings and architectural plans for buildings and other structures, drawing up projects and preparing dissemination and demonstration materials, preliminary studies on facilities, environmental and climatic concerns, occupancy, cost constraints, analysis of the selection of yards and elaboration and construction schedules. It also includes activities for the design of machines, apparatus and industrial plants; consultancy in the scope of the elaboration of projects of industrial engineering (electrical and electronic, mines, chemical, mechanical, systems, acoustics, refrigeration, geology, hydraulics, among others); construction; preparation of specialised technical studies for the industry (production processes, air conditioning, against pollution, refrigeration, static, among others); forecasting of atmospheric conditions; evaluation of geological conditions and prospecting (measures and observations on the structure of soil and subsoil and location of resources), geodetic surveying, hydrographic and soil boundaries; mapping and spatial information (including aerial mapping); and industrial and technical withdrawals. The activities included within this INE item correspond closely to the professional activities carried out by the three technical and scientific professions under analysis: engineers, technical engineers and architects.

Finally, the INE item “accounting, auditing and consulting services” includes activities that go beyond the activities that the financial/economic professions under analysis typically perform. This INE item comprises several services from which we select the following: financial auditing services; accounting services; auditing, compilation of balance sheets and bookkeeping; other accounting services; and tax consulting services. The value for the rendered services we find for these selected activities in the data from INE is still higher than the value we find for the turnover associated with the Eurostat NACE Code M.69. 20 under the heading “Accounting, bookkeeping and auditing activities; tax consultancy”. We will use the data from INE as it closely corresponds to the professional activities carried out by the two financial/economic professions of certified accountants and auditors.

The assessment of laws and regulations in these professions has been carried out in four stages, with a fifth stage for review and drafting of the final report. The present annex describes the methodology followed in each of these stages.

Stage 1 – Mapping the sectors

The objective of Stage 1 of the Project was to identify and collect all sector-relevant laws and regulations. As a prior condition, it was necessary to define the scope of the sectors in detail. Whenever possible, we adopted a definition consistent with the NACE classification in order to ensure consistency with international practice and to facilitate comparisons with other European countries. However this approach was not entirely sufficient to characterise all the professions. Hence, the definition was developed on the basis of the NACE in conjunction with other sources, such as the CAE, professional associations, EC directives and implementing Portuguese laws, past competition assessment studies, other relevant academic and non-academic literature, and consultations with ministerial experts from the Portuguese government.

The task of collecting the legislation relevant for these sectors was conducted by the OECD team using a variety of sources. The LegiX legal database1 together with the website of the official gazette (Diario da Republica, www.dre.pt) were the main tools used to identify the applicable legislation. These were complemented by the websites of the relevant professional associations, and of the main industry associations. In addition, in order to ensure that all important pieces of legislation were covered by the study, input was solicited from all the competent line ministries and public bodies involved in the sectors, from the members of the high-level committee (HLC) composed of senior government officials and from the industry.

Over the course of the Project, the mapping of the legislation was refined, as additional pieces of legislation were discovered by the team or were issued by the authorities, while other pieces initially identified were found not to be relevant to the sectors. In total, 393 pieces of legislation were selected for analysis (from a total of 11 986 relevant provisions for professions), including laws, ministerial decrees, ministerial decisions and circulars.

For each of the professions, we collected data and information, covering activity trends and main indicators such as turnover, employment, GVA and GOR. Input was solicited from professional associations, to improve the Project team’s understanding of the sectors and the challenges faced by the Portuguese market for professional services. A very important task that started during Stage 1 and was continued for the entire duration of the Project was the establishment of contact with the different professions and key agents through professional associations, individual professionals and professional firms, among others. The interviews with market participants contributed to a better understanding of how the sectors under investigation work in practice and helped in the discussion of potential barriers deriving from the legislation or misinterpretation of specific provisions.

Stage 2 – Screening of the legislation

In the second stage of the Project, the main work stream was the screening of the legislation to identify potentially restrictive provisions. Pieces of legislation transposing EU directives were examined. EU directives need transposition into national legislation and grant Member States some flexibility with regard to their implementation, for instance flexibility to impose additional requirements. Therefore, when transposing directives, the national policy maker may establish a stricter regulatory framework than originally intended in the directive (i.e. so-called gold-plating). These provisions, introduced at national level, were examined from a competition point of view. EU rules that are directly applicable in Portuguese legislation and require no further national legislation, i.e. regulations, were not screened to assess if they restricted competition. In addition, the Project team checked Portuguese legislation for duplication with existing EU regulations.

The legislation collected in Stage 1 was analysed using the framework provided by the OECD "Competition Assessment Toolkit".2 The Toolkit, developed by Working Party 2 of the OECD Competition Committee, provides a general methodology for identifying potential obstacles in laws and regulations. One of the main elements of the Toolkit is a "Competition Checklist" that asks a series of simple questions to screen laws and regulations that have the potential to unnecessarily restrain competition.

Following the methodology of the Toolkit, the OECD team compiled a list of all the provisions which answered any of the questions in the checklist positively. The government experts received draft lists and were given an opportunity to comment, as were the members of the HLC. After this stage, there were 1 143 individual articles remaining with the potential to restrict competition in the transport sectors in Portugal.

Box A A.1. OECD competition checklist

Further competition assessment should be conducted if a piece of legislation answers ‟yes” to any of the following questions:

(A) Limits the number or range of suppliers

This is likely to be the case if the piece of legislation:

1. grants exclusive rights for a supplier to provide goods or services
2. establishes a licence, permit or authorisation process as a requirement of operation
3. limits the ability of some types of suppliers to provide a good or service
4. significantly raises the cost of entry or exit by a supplier
5. creates a geographical barrier to the ability of companies to supply goods services or labour, or invest capital.

(B) Limits the ability of suppliers to compete

This is likely to be the case if the piece of legislation:

1. limits sellers’ ability to set the prices for goods or services
2. limits freedom of suppliers to advertise or market their goods or services
3. sets standards for product quality that provide an advantage to some suppliers over others or that are above the level that some well-informed customers would choose
4. significantly raises costs of production for some suppliers relative to others (especially by treating incumbents differently from new entrants).

(C) Reduces the incentive of suppliers to compete

This may be the case if the piece of legislation:

1. creates a self-regulatory or co-regulatory regime
2. requires or encourages information on supplier outputs, prices, sales or costs to be published
3. exempts the activity of a particular industry or group of suppliers from the operation of general competition law.

(D) Limits the choices and information available to customers

This may be the case if the piece of legislation:

1. limits the ability of consumers to decide from whom they purchase
2. reduces mobility of customers between suppliers of goods or services by increasing the explicit or implicit costs of changing suppliers
3. fundamentally changes information required by buyers to shop effectively.

Source : OECD (2011a)

Stage 3 – Analysis of the selected provisions

The provisions carried forward to Stage 3 were investigated in order to (i) identify the objective of the policy maker; and (ii) to assess whether they could result in harm to competition.

The team researched the policy objectives in order to examine the proportionality of the selected provisions with the intended policy objective. An additional purpose in identifying the objectives was to prepare for the formulation of alternatives to existing regulations, when required, taking into account the objective of the specific provisions. The objective of the policy maker was researched in the recitals of the legislation, when applicable, or through discussions with the relevant public authorities.

The analysis of the harm to competition was carried out qualitatively and involved a variety of tools, including economic analysis, collection of background information on the sector and its regulation, and research into the regulation applied in other OECD countries. All provisions were analysed, relying on the guidance provided by the OECD Competition Assessment Toolkit. Interviews with market participants and with government experts complemented the analysis, by providing crucial information on the actual implementation and effects of the provisions.

In the course of Stage 3, several more potential barriers were eliminated from the analysis because the boundaries of the sectors were further narrowed to focus exclusively on the most relevant services for business in the selected sectors. At the end of Stage 3, there were thus 393 barriers left which were deemed harmful to competition.

Stages 4 and 5 – Formulation of recommendations

The team developed draft recommendations for those provisions which were found to restrict competition. In this process, we relied on international experience whenever available. When it was not possible to identify from international practice examples of regulation with a lesser impact on competition, we favoured alternatives which were less restrictive for suppliers while still aiming at the initial objective of the policy maker. For instance, these could be policy changes likely to:

lower barriers to entry into certain professions (e.g. when certain professionals were prevented from supplying certain professional services);
improve the ability of suppliers to compete (e.g. restrictions on advertising and reserved activities), to form professional associations, and of third parties to invest and participate in the management of professional firms.

The benefits from removing barriers to competition were analysed qualitatively and, whenever feasible and meaningful, quantitatively. Whenever feasible and appropriate for the analysis of the issue under consideration, the OECD team gathered data that could be used for the quantification of the effects. In these cases, the data were analysed using statistical techniques. In other cases, the expected impact of lifting a regulatory restriction was not modelled directly, for instance because of the lack of sufficient data. Therefore, the OECD team relied on the standard methodology of measuring the effect of policy changes on consumer surplus. In particular, as a result of data limitations, we followed the approach in OECD (2015) which derives a formula for changes in consumer benefits when only sector revenue and the average price effect of the restriction found are available. This is explained in Box A.2 below.

Box A A.2. Measuring changes in consumer surplus

The effects of changing regulations can often be examined as movements from one point on the demand curve to another. For many regulations that have the effect of limiting supply or raising price, an estimate of consumer benefit or harm from the change from one equilibrium to another can be calculated. Graphically, the change is illustrated for a constant elasticity demand curve. Er shows the equilibrium with the restrictive regulation, Ec shows the equilibrium point with the competitive regulation. The competitive equilibrium is different from the restrictive regulation equilibrium in two important ways: lower price and higher quantity. These properties are a well-known result of many models of competition.

Under the assumption of constant elasticity of demand the equation for consumer benefit is:

CB=C+D≈(P_r-P_c ) Q_r+1/2 (P_r-P_c )(Q_c-Q_r )

Where price changes are expected, a basic formula for such a standard measure of consumer benefit from eliminating the restriction is:

CB= (ρ+1/2 ϵρ^2 ) R_r

Where CB: standard measure of consumer harm, ρ: percentage change in price related to restriction, R: sector revenue and ε: demand elasticity. When elasticity is not known, a relatively standard assumption is that |ε|=2. This value corresponds to more elastic demand than in a monopoly market, but also far from perfectly elastic as in a competitive market. Under this assumption, the expression above simplifies as:

CB= (ρ+ρ^2 ) R_r

Several economic assumptions were made:

1. We assume away any taxes, i.e., any implication resulting from the taxation regime on consumer surplus.
2. We assume a regular, linear (or near linear), demand function, with no random term.
3. We assume the set of services within each professional sector constitutes a “composite service” with “volume” Q, for which a “composite price” P is charged in the market – hence, we can talk of a “composite legal service”, a “composite technical/scientific service”, and a “composite financial/economic service”.
4. We assume the balance among the different professional services within each “composite service” does not change, or changes only in a negligible way, following the price changes that may result from the implementation of the recommendations issued.
5. We do not factor in any interdependence between price and quality levels (although changes in any one of them may have an impact on the other). This is the equivalent of assuming that the "quality" of the different services remains constant or experiences non-significant changes. By "quality", we mean a term that can involve a distribution of quality levels depending on who provides the service. The quality mean could remain unchanged as a result of implementing a certain recommendation, but the distribution of such quality over the different service providers could change (mean-preserving spread). In the latter case, even with an unchanged mean, there would be welfare effects just due to the change in the mean-preserving distribution of quality levels.
6. We make no distinction here between Marshallian (relation between price and income) and Hicksian (relation between price and utility) demand functions. In any case, since we will be assuming certain values for the demand elasticities (ϵ=2); these values could be assumed for any of these two types of demand functions.

Source: OECD (2015)

Draft recommendations were submitted to the Portuguese administration. Following consultation with ministerial experts and the stakeholders, the recommendations were finalised. In total, 348 recommendations were submitted to the Portuguese administration:

Framework: 10
Legal: 182
Technical/scientific: 68
Financial/economic: 53
Health: 35

Co-operation with the Portuguese administration

Another important component of the Project was to provide assistance in building up the competition assessment capabilities of the Portuguese administration. The OECD organised four workshops during the course of the Project, one in each of the stages. In Stage 1 of the Project, we covered an introduction to competition and regulation, and provided an overview of the Project and of our methodology in the mapping stage. In Stage 2, the team provided substantive training on the OECD Competition Assessment Toolkit applied in screening the legislation. In Stage 3, examples and applications of quantitative methods were presented. In Stage 4, OECD experts presented two topics relevant for the Project: (i) the Product Market Regulation (PMR) index compiled by the OECD and policy analysis which relies on this indicator; (ii) the OECD guidelines on fighting bid rigging in public procurement.

The government experts provided a significant contribution on the mapping exercise of the legislation by commenting on whether the regulations collected were comprehensive. Subsequently, the close co-operation with the government experts continued with the identification of the objectives of the legislation in their sectors of expertise and discussion on the provisions identified by the OECD as restrictive on the basis of the Competition Assessment Checklist. More than 100 meetings and phone calls were held to discuss the provisions in detail, to understand to what extent they were implemented in practice and to provide feedback on the OECD’s draft analysis of the selected provisions.

Notes

← 1. The LegiX database is owned, operated and managed by Priberam Informática, S.A.

← 2. OECD (2011a), Competition Assessment Toolkit: Principles, OECD, www.oecd.org/daf/competition/46193173.pdf

OECD (2011b), Competition Assessment Toolkit: Guidance, OECD, www.oecd.org/daf/competition/45544507.pdf

OECD (2015), Competition Assessment Toolkit: Operational manual, OECD, http://www.oecd.org/daf/competition/COMP_Toolkit_Vol.3_ENG_2015.pdf

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