7-UpDate
towards a healthy competition culture

A bi-monthly, internationally circulated e-newsletter of the CUTS-Centre for International Trade, Economics & Environment (CUTS-CITEE), which has been designed to disseminate information about the "7 UP Project", in addition to reporting interesting newsitems, which have been reported across the globe on competition and other related issues.

The 7-Up Project is a 2 year research and advocacy programme being conducted by the Centre with the support of DFID, UK for a comparative study of competition regimes of seven developing countries of the Commonwealth.

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7 Update: Vol. 1, No. 2, December 2000

Contents

Editor’s Note
I. Project Progress

 1. Report of the Launch Meeting
 2. Compilation of preliminary country papers

II.  Major News & Views

 1.  Australian Wheat Board’s Monopoly Harmful to National Interest
 2. Workers Protest Banks’ Merger in South Korea 

III.  Country Focus

 The South Africa Story: High Levels of Inequality

IV.   Announcements/Publications

Editor’s Note
In the first edition of this bi-monthly newsletter, which was sent out in October 2000, we had informed our readers about the launch of this newsletter as a part of the 7-Up Project. This project involves a comparative study of the competition regimes of seven developing countries: South Africa, Kenya, Zambia and Tanzania in Africa; and Pakistan, Sri Lanka and India in South Asia.  It is being supported by DFID, UK, in its endeavour to promote development in developing countries. The purpose of this project is to evaluate how these countries have enacted and implemented a competition law, and how effective it is. All these countries are at different levels of socio-economic development, while the only common factors are common law and the use of English language. They can also learn from each other’s experience.

While South Africa has its own peculiarities, it has scrapped its old competition law and enacted a new one in 1998. We carry a brief write-up about South Africa in this edition. On the other hand, India is also considering the enactment of a new law. Its old competition law, enacted in 1969, doesn’t serve its purpose in the new economy. In Tanzania, the government has provided staff to the competition authority but no budget, and also the institutional setup is still to be formed. However, the staff of the authority is responding to complaints and also succeeding in some cases by asking the violators to cease and desist. These were some of the highlights, which came up at the launch meeting of the project, which was organised at Jaipur on December 20-21, 2000. A brief report is being carried in this edition. We hope to publish the initial papers carrying each country’s report on the existing competition law. Readers interested in the same are welcome to write to us for a copy. 

The 7-Up project has now been launched and all the participants at the launch meeting felt very comfortable with the approach as well as that it would be quite useful. More about it in our forthcoming publications. There is also a quarterly printed newsletter: ReguLetter being published on competition policy and economic regulation. Details are given in this newsletter also, and enquiries are welcome. We do look forward to your comments and suggestions. A very happy New Year from all of us here at CUTS and the 7-Up Team. 

7-Up Project: Report of Launch Meeting

The launch meeting of the 7-Up Project was organised in Jaipur, India, on December 20-21, 2000. The meeting was organised to chalk out the programme and agenda for the first phase of the project. The main objectives of the meeting were to:

• orient and familiarise all partners about the whole project and with each other; 
• establish the detailed methodology of the field study and plan for the same; 
• adopt a plan of action for the project; and 
• provide a platform for interaction between various competition experts and the country researchers.

The meeting started with a welcome address by Mr. Pradeep S Mehta, Secretary General, CUTS, India who also introduced the project and highlighted the objectives of the project as well as of the meeting. The other speakers at the inaugural session were Professor Frederic Jenny, who spoke about the relation between competition law and policy; Mr. Allan Asher, who emphasised the importance of an effective competition law in today’s world; Mr. Peter Holmes, who talked on how to get optimum benefits from the meeting, especially for the researchers and Mr. K. C. Ganjwal, who talked about the significance of the project in the changing global scenario. It was opined that a project of the dimensions of 7-Up, was very important and would be replicated a number of times, if successful. Further, various fundamental, domestic, multilateral, regional and project specific issues, which should be considered to make the project more effective, were discussed. 

The highlights of the seminar were presentations on ‘What’s happening on the International scene’, Cross-border competition concerns’, and ‘Causes and reasons for introducing a new competition law’ in countries, where a new law has either been introduced or is in the process of being introduced. Burning issues relating to the erstwhile competition law in UK, South Africa and India were discussed in this regard. It was explained in detail as to how the new law would address these issues and overcome the shortcomings of the old competition law in the present scenario. Issues related to current views of the Secretariats of UNCTAD and WTO on competition policy, experiences of developing countries: Brazil, Zambia and India and growing concerns with regard to international cartels and cross-sectoral issues were explained in a lucid manner.

The workshop, designed to be an interactive session, was a combination of presentations and group work. The presentations were made on each project country including Zimbabwe. The country researcher highlighted the important issues related to the competition regime of the respective country and its political and economic scenario. A response panel comprising of resource persons, then made a comprehensive analysis of the presentations and various conclusions were reached at.

The group work was primarily an exercise aimed at framing of a questionnaire and the methodology for research in the manner, which would throw light on issues, related to institutional framework of competition authority vis-à-vis enforcement of competition laws. The participants were divided into three groups with members of the response panel joining each of the groups. The groups were asked to frame questions on the given topics such as budget and costs, staff composition, infrastructure, cases and outreach. The outcomes of each group and project implementation strategies were then discussed and deliberated at length. 

The meeting immensely benefited the participants, especially the project researchers. Sharing of experiences of the developing and developed countries helped in preparing the methodology for research in a comprehensive manner. It helped in getting a clear picture of what needs to be done in the context of taking the project forward and marked the real beginning of the first phase of the project.
 

Compilation of preliminary country papers of project countries
As a first step towards the project, it was planned to have a preliminary country paper made for each of the project countries.  The main objective of this exercise was to get a basic picture of each country’s competition regime and to understand the commonalties and differences among the regimes.  It was also decided that this would be some sort of orientation to all our project partners.  An annotated agenda, giving broad outlines of the contents of the country paper was sent to each of the core researchers.  On the basis of the outlines, country researchers prepared a paper, which was then compiled and collated by the project Core Researcher, Prof. Rakesh Basant.  Some of the key observations made were, most of the 7-Up project countries have initiated economic reform in recent years, introducing a wide variety of liberalisation initiatives. The key issue for the 7-Up project countries in the current phase of transition is of managing the competition that the economic reform and liberalization processes have set in motion. 

It is evident that the countries differ significantly in terms of population size, size of the economy, per capita incomes, industrial structure and exposure to the world economy. All these countries have undertaken significant trade liberalisation in recent years including conversion of non-tariff barriers into tariffs and reduction of existing tariff rates. However, the exposure to world markets through exports and imports differs considerably across the project nations. The scope of competition law and its framework of implementation also vary significantly across these countries.

A matrix highlighting various aspects of the country papers such as socio-economic characteristics, features of competition law and other regulations, enforcement structure of competition law and related details is available on request. 
 

Australian Wheat Board’s Monopoly Harmful to National Interest

The Australian Competition & Consumer Commission considered the restructure of the Australian Wheat Board (AWB) in October 1997. This involved the formation of a holding company and two wholly owned subsidiaries for the single export desk wheat pool activities and the domestic grain trading activities. The stated objective of the restructure was to preserve the single desk status for the export of Australian wheat, i.e. all Australian grain companies sell through the Australian Wheat Board.

AWB is the world’s single biggest exporter of wheat, competes in 70 countries with pretty stiff opposition. However, Australia’s national competition policy panel has concluded that AWB’s monopoly is injurious to national interests and it is proposed to dismember the Board as it canalises Australian wheat. But once AWB is abolished or even truncated, life would never be same for Australian wheat. The Indian sugar exports that fell down drastically post-decanalisation are a good example in this respect. 

Decanalisation per se achieves nothing if the industry loses in the bargain. The foreign buyers might find it cheaper to deal with one body having professional expertise, which could meet even large orders at best prices instead of procuring from tiny individual mills and the losses can also be spread equitably. If AWB were sacrificed at the altar of political correctness, not Australian companies but chief rivals Canada and USA would do the greatest rejoicing. 
 

Workers Protest Banks’ Merger in South Korea
Kookmin Bank and Housing & Commercial Bank, two of South Korea’s strongest banks, announced their merger last month as a step forward for the restructuring of the troubled banking sector. The combined bank would be among the 100 largest in the world, with assets of Won167bn ($136bn), once the merger is completed by next June. The merger was protested strongly by the trade unions at the two banks because of feared job cuts. A six-day strike was called which involved almost 12,000 workers. The two banks claimed minimal job losses as not many branches would be closed and the government warned to take stern action against the strikers if they did not return to work. 

The strike ended on December 28, 2000 as workers at other banks failed to join sympathy protest. However, the trade unions of the two banks said that it would call a new strike early next year if the management failed to consult labour on merger plans. One reason for the lack of support was that workers did not want to jeopardise government’s plans to rescue Korea’s weakest banks, which have received labour approval. The government will shortly recapitalise Hanvit, Cheju, Kyongnam, Kwangju, Peace Bank and the Seoul Bank with $5.9bn to raise their capital adequacy ratio to 10 percent. These banks would later be grouped under a state-run financial holding company. 
 

The South African Story: High Levels of Inequality
South African economy is characterised by high levels of inequality, with distribution of economic power and resources skewed along race and gender lines.  Corporate South Africa is characterized by high levels of concentration and conglomeration as a result of the political economy and the development path followed. With the coming to power of the left-of-Centre ANC government there was political commitment to introduce a new and effective competition policy regime as part of a broad programme of policy reforms. The ANC was committed to breaking up economic concentration in an apartheid economy, which excluded participation by black people. The rallying document of ANC, the Freedom Charter, called for nationalisation of finance and mining houses and the break up of conglomerates. In 1994, the ANC produced its Reconstruction and Development Programme, which outlined its policy framework to redress apartheid’s inequities and dealt specifically with competition in the economy. While these policy initiatives in themselves did not explicitly address competition issues, the emphasis on expanding, and creating new entrants into, the South African economy were consistent and complementary to the policy objectives of the South African’s new competition law.

The new Competition Act was promulgated in 1998.  Crucial for the policy process, was the importance given to competition policy on the international agenda, especially at the time when South Africa was re-establishing international relationships and undergoing liberalisation of trade and capital markets. The South African approach has drawn heavily from the experience and practice of developed countries, especially with regard to the institutional framework. Three institutions were created by the new Competition Act: the Competition Commission, the Competition Tribunal and the Competition Appeal Court. The Commission is the investigative and prosecutorial body and the Tribunal and Appeal Court are adjudicative. The Tribunal, effectively the court of first instance, is composed of 10 lay persons – lawyers, economists, accountants –  appointed by the President who can be dismissed only under the most exceptional circumstances. The Tribunal adjudicates all matters regulated by the Competition Act.  It has the power to issue compliance orders or interdicts, to prohibit mergers, to levy large fines and order divestiture.  Its decisions can only be appealed to the Competition Appeal Court, a specialist division of the High Court manned by judges with a special interest in competition law. No decisions of the Commission, the Tribunal or the Appeal Court are subject to ministerial veto.  Not even the Supreme Court of Appeals, the highest court in the land, has jurisdiction over competition matters. The separation of the investigative/prosecutorial and adjudicative functions allows for the Commission and Tribunal to act independently of each other. The Commission is thus able to encourage compliance, act on independently conducted research and explicitly on behalf of the public interest. The Competition Tribunal has inquisitorial powers and its own, albeit limited, research capacity to investigate cases.

The Act specifies a range of objectives to be served by competition law and be promoted by the agencies responsible for their enforcement. The highlighting fact is that public interest objectives are taken into account in the decision making process. The Act also includes objectives like protection of small and medium sized enterprises, promotion of employment and growth of black-owned enterprises. The Act further, sets out clear criteria for assessment, but assumes that economic efficiency and the public interest are not inconsistent and does not explicitly weigh these objectives. Adjudicators are left to interpret the public interest criteria in the context of specific cases. 

While a range of interests – organised workers, small business, exporters and others - have managed to have their interests reflected, consumers were not represented directly in constructing the new competition policy. Despite a strong civil society, an autonomous consumer movement has not taken root although organised worker and civic constituencies have a history of consumer activism and boycotts in the resistance struggle against apartheid. Consumer welfare, however, was evoked by almost all the other participants in the policy process and is a key objective in the new Act. 

In the absence of a consumer movement, it is up to the Commission to represent consumer interests. This requires the Commission to proactively take on cases such as excessive pricing and collusion. If the Commission were to act only on complaints, mainly firms complaining about vertical restraints, it may not directly and demonstrably impact on consumer welfare. Consumer policy is currently being reviewed by the Department of Trade and Industry and this will give an opportunity to closely examine its link with the competition policy. 
 

New Publications

1. MONOGRAPHS 

(a) Trade, Competition & Multilateral Competition Policy
This monograph clarifies the areas of interaction between trade and competition and highlights the need for a multilateral competition policy. It brings forward the debate vis-à-vis multilateral competition policy currently taking place at various for a and the efforts being made for the same. (36p#0005, Rs. 20/$5)

(b) All About Competition Policy & Law
 This monograph meant for advance learner deals with competition law and policy, their various elements and how they can be used to curb various kinds of restrictive business practices. It draws out interface of competition policy with economic development, poor and foreign investment. It describes the genesis of competition law/policy and in which direction it is moving. (70pp #006, Rs 20/$5)
 

2. BRIEFING PAPER

Globalisation: Enhancing Competition or Creating Monopolies?
This paper, written by Mr. Philippe Brusick, Chief of Competition Law and Policy and Consumer Protection Section, DITC/UNCTAD, throws light on development dimension of competition law/policy and how to build in such dimension into the multilateral framework in order to make it an equitable system. (No.8/2000)
 

3. RESEARCH REPORT

The Functioning of Patent Monopoly Rights in Developing Economies: In whose interest?
This report is written by Dr. Taimoon Stewart, Research Fellow at Sir Arthur Lewis Institute of Social and Economic Studies, University of West Indies, St. Augustine, Republic of Trinidad and Tobago. It questions the persisting view that developing countries would gain by pursuing a strong IPR protection regime in terms of flows of trade, investment and technology transfer by examining both the functioning of patents in developing economies in past and current structural trends in the world economy in these areas. (ISBN 81087222-36-0, Rs.100/$25)
 

4. NEWSLETTER

ReguLetter
It is a quarterly newsletter of the CUTS Centre for International Trade, Economics & Environment covering developments relating to competition policy and economic regulations. The purpose of this newsletter is to provide a forum to understand the issues clearly and promote a healthy competition culture in the world. The first edition (NO. 1 December 2000) contains an article on the New Competition Bill of India, an article by Philippe Brusick on the Fourth UN Conference to review all aspects of the UN Competition Code and many interesting news items like The Vitamin Saga, Sugar Scam in Kenya, MS Allies with Infosys in India and some Auto blues. (Annual Subscription $15/Rs. 50)

CONTACT US

CUTS Centre For International Trade, Economics & Environment (CITEE)

D–217,  Bhaskar Marg,  Bani  Park, 

Jaipur  302 016,  India,

Ph: 91.141.2282821

Fax: 91.141.2282485  

Email: cuts@cuts.org