Portugal’s services markets are among the most heavily regulated in the OECD. As vital inputs into the business sector, services provided by professionals, such as lawyers and engineers, generate up to 1.8 times their value in outputs by firms that use them. However, structural flaws in the regulation make professional services highly expensive for firms, diminishing their ability to compete effectively. Regulatory restrictions also hamper innovation and efficiency within the professions. Against this backdrop, this report examines regulations for 13 self-regulated professions (lawyers, solicitors, notaries, bailiffs, architects, engineers, technical engineers, certified accountants, auditors, economists, customs brokers, nutritionists and pharmacists). From 923 pieces of legislation analysed, the report makes 348 individual recommendations for amending or removing provisions to improve competition, and makes a detailed inventory of the analysis underlying the work. Analysis of Portuguese legislation and professions was complemented by research into international experiences and wide consultations with stakeholders from the public and private sectors. The OECD recommendations aim to remove or modify overly restrictive provisions in order to facilitate the access or exercise of the professions, to benefit businesses and consumers alike. This report identifies the sources of those benefits and gives estimates of their impact. Provided all recommendations are fully implemented, the benefit to the economy from lifting the barriers in the 13 liberal professions is estimated at around EUR 130 million a year.
OECD Competition Assessment Reviews: Portugal
Abstract
Executive Summary
In 2016, the OECD was asked by the Portuguese Competition Authority to carry out a study to identify and assess the impact of regulatory barriers to competition in the land and maritime transport sectors, and in 13 self-regulated professions in Portugal. This volume of the project report describes the outcome of the Competition Assessment Project for the self-regulated professions.
Liberal or self-regulated professions are a central force in any economy. They provide key services to businesses and individuals and are indispensable for the good functioning of society. Well-regulated professions contribute to the respect of and the trust in the rule of law and support the business environment. Moreover, several liberal professions in themselves provide essential business inputs in the form of knowledge, skills and expertise to support other businesses, and as such act as multipliers in the production function.
However, the presence of protectionist regulation can reduce access and stifle the conduct of the professions to the benefit of vested interests, and in such cases professionals have few incentives to improve their services. As a consequence, consumers and businesses may suffer from a lack of access, sub-optimal service provisions and, in many cases, high prices that do not reflect the real cost of providing those services. Competition assessment of regulation can identify and analyse such restrictive regulations, using the results to propose better and smarter regulation that allows for a better functioning of the professions and their service provision.
Out of the 18 self-regulated professions in exercise when the Project started, 13 were chosen for analysis: lawyers, solicitors, enforcement agents, notaries, engineers, technical engineers, architects, auditors, certified accountants, customs brokers, economists, pharmacists and nutritionists, as these all contribute to the business environment in one form or the other.
The Project was divided in five stages, using the OECD methodology of the Competition Assessment Toolkit. This included mapping all existing legislation with potential restrictions, identifying the policy objectives for each provision, in-depth analysis of the regulations, and an assessment of whether the barriers identified were proportional to the policy objective (such as public safety, etc.). When necessary the report proposes changes to regulations that are hampering market entry and access to the self-regulated professions beyond what is necessary to guarantee the public interest.
The report identifies 363 provisions as restricting or harming competition, and makes 348 recommendations for change. In addition, six provisions were found to constitute an administrative burden to consumers and society. Annex B of this report provides the full set of recommendations identified as harmful as well as analysis of other provisions that were found to contain only moderate barriers, or that were not considered harmful.
The most common restrictions found in the provisions analysed were the protective powers of the regulatory professional bodies, entry barriers (academic qualifications; long internships); exclusive rights (attribution of professional titles; reserved activities); prohibition on advertising; and restrictions of organisational forms (prohibition of multi-disciplinary practice; restrictions on partnership or management). The report also outlines the expected benefits from lifting these restrictions and, whenever possible, provides a quantitative estimative of the benefits of these recommendations to the Portuguese economy or to consumers.
From lifting the restrictions, we calculate a total positive impact on the Portuguese economy of around EUR 128 million per year, based on a highly conservative estimate of a price reduction of 2.5% for some professional services. Moreover, we find a multiplier effect of 1.49 in the case of legal and accounting activities together. This means that one euro (EUR 1) of additional final demand for ‟legal and accounting services” leads to an increase of EUR 1.49 in output for business. This turnover effect should be added to the direct benefit to consumers and customers from a price decrease.
Provided the recommendations are fully implemented, we also expect a cascade of qualitative benefits, including more entry into most professions; a reduction in the administrative burden for professionals; a price reduction for some services; a wider offer of services and the emergence of new business types (so-called alternative business structures); an increase in the demand for professional services due to lower prices and increased trust in those services; as well as better access to professional services, including legal support, for the most vulnerable consumers.
Key recommendations:
Separate the regulatory function from the representative function for self-regulated professional associations. This could be either through the creation of an over-arching independent supervisory body by sector or trade—or through the creation of a supervisory body within the current professional orders with the necessary “Chinese walls”. The supervisory body would take on the main regulation of the profession such as regulating access to the profession, the upholding of standards and similar functions.
The board of the supervisory body will include not only representative of the profession but also other people, including high-profile and experienced individuals from other regulators or organisations, representatives of consumer organisations and academia. The introduction of independent oversight will encourage better regulation of the sector, and create more incentives to innovate, to the benefit of clients.
Broaden the pathway to certain professions to allow for individuals with a non-specialised university degree in the topic to compete for entry. Candidates may be required to take a postgraduate degree in their desired profession or a conversion course, and should undergo the same on-the-job training as others, including passing the relevant entry exams administered by professional associations. This will broaden the entrance into professions, stimulating diversity and innovation.
A number of reserved activities for engineers, technical engineers and architects should be replaced with output-focused regulation, such as quality standards for building works or materials, as is already the case in many jurisdictions in the European Union. Current strict entry requirements already guarantee that only qualified individuals may perform the work.
Allow for the provision of online services where possible. Online provision of services, especially in standardised form such as routine legal documents through the use of specialised software and artificial intelligence will allow consumers easier, speedier and cheaper access to professional services.
Partnership, ownership and management of professional firms, most importantly but not solely, law firms, should be open to individuals outside the profession and multidisciplinary firms should be allowed. The creation of "alternative business structures" will enable different forms of business models to emerge within the market, to cater for different types of market players whether innovative start-ups, one-person cabinets or traditional professional firms.
For notaries, the establishment criteria (quotas and territorial limitations) should be abolished to allow for competition between notarial offices. As an alternative, a technical study should reassess the demand for notarial services (in urban areas, on the coast, in touristic areas) and the viability of notarial offices. Based on this study, areas of free establishment should be created where demand and economic activity are high. Access would remain controlled in rural and weakly populated areas, where the viability of notarial offices is reduced.
The recently introduced requirement of a having a university degree for customs brokers should be abolished to allow for easier access to the profession to those who may meet all other criteria, including moral and financial criteria.
