ANNEXURE A
Draft
What the Stakeholders Think on Competition Issues:
Reflections from NRG Meetings in 7-Up Countries
Introduction
One of the important components
of the 7-Up project is the formation of a National Reference Group (NRG) in
each of the project countries. NRGs have been formed to deliberate on the inputs
prepared in each country and create a base that would be used for launching
advocacy for a healthy competition culture. The NRGs comprise of representatives
of the following categories of organisations/persons:
·
Consumer organisations and other civil society organisations
with demonstrated interest in economic issues
·
Research institutions, academia, experts (economists and lawyers)
·
Chambers of Commerce
·
Competition & Regulatory Authorities
·
Government (External Trade, Internal Trade and/or Consumer Affairs
Departments)
·
Politicians and/or Parliamentarians
·
Media
NRGs in all the project countries met in the month
of June mainly to discuss the draft country reports for first phase of the project.
However, the deliberations in these meetings were not limited to the draft country
reports. The participants discussed all the issues that they thought important
to instill a healthy competition culture in the economy. A brief synthesis of
what came out of discussions in these meetings is presented below:
The Competition Law
Out of the seven countries, in three, the competition
laws are relatively new, two countries are in the process of adopting a new
law while two others are considering adopting a new law. In the countries with
a new law (Tanzania, Zambia and South Africa), the NRG meetings deliberated
mainly on the issues of enforcement and the interface between the competition
authority and the regulatory authorities. In the countries that are in the process
of adopting a new law (India and Sri Lanka), the NRG attempted to evaluate the
existing competition regime and on the basis of that came out with some suggestions
regarding the proposed competition law to make it more effective. In the other
two countries (Kenya and Pakistan) the NRG members were almost unanimous in
feeling the need for a new competition law or at least a thorough review of
the existing law in the changed economic scenario both at home and outside.
This shows that there is an overwhelming consensus
regarding the need for an appropriate competition law in all countries. However,
the general feel that has been reflected in these meetings is that the effectiveness
of the law depends on the following factors:
- The way the law is drafted;
- The way the law is enforced;
- The degree of autonomy enjoyed by the competition authority including the
way it is funded;
- Continuous monitoring of market situations; and
- Policy environment in the country
There was a strong recommendation from many of the
NRGs that the competition law should explicitly deal with the abuse of intellectual
property rights (IPRs). The national competition authority is the ideal body
to weigh up the anti-competitive effects of a licensing agreement. Even TRIPs
has a provision to allow the national governments to deal with this.
In most of the 7-Up countries, there is no comprehensive
consumer protection law. The NRGs in these countries strongly felt the need
for such a law to complement the competition law. Code of conduct for advertising
is another issue that came up in discussions. Advertising is important, as it
is channel through which business provides information to the consumers. Thus
misleading information can cause serious harm to consumer interest.
Objectives, Scope
& Public Policy Context
There is some agreement over the basic objectives
that a competition law or policy would try to achieve. These are:
- Consumer welfare
- Economic efficiency
- Checking undue concentration
However, individual countries, although recognise
these objectives in their competition law, they usually combine these with other
objectives to make them in line with the overall policy and goals of the government.
That being the case, the NRGs naturally were interested
in discussing the issue of objectives of the competition law. The issue was
a major point of discussion in South Africa. There was a feeling among a section
of NRG members that the objective of promoting employment and advancing socio-economic
welfare for all South Africans may be in conflict with other main objectives,
namely, to promote efficiency, adaptability and development of the economy and
to provide consumers with competitive prices and product choices.
The issue also came for discussion in the Indian
NRG meeting. Some also expressed concern that the new competition law may be
used to harass private business.
Protection of domestic industries was another concern that
repeatedly came in the discussions in these meetings. In all these countries
NRGs were of the opinion that the competition law should be able to address
their development concerns and protect their national champions from unfair
competition from the mighty Trans-National Corporations (TNCs). Particularly
because even the largest enterprises in these nations are quite small compared
to the TNCs.
This concern was more pronounced in the African
countries. Particularly in Zambia, it raised a stormy debate where Chilanga
Cement was taken over by Lafarge. The Zambia Competition Commission allowed
it with the condition that Lafarge will not close down the factory. However,
there is a general feeling that the primary motive behind the takeover was to
close the factory and eventually serve the Zambian market from outside. They
fear, in due course, Lafarge will find some excuse to close down the factory.
In South Africa also this was a major point of discussion
and section of the NRG viewed that the competition regime cannot ignore the
racial dimension of the economic structure in the country. Hence taking employment
out of the equation could be potentially dangerous. It was suggested that even
while looking at mergers, the competition authority should look at the potential
job loss side by side with the impact on the consumers.
Enforcement Mechanisms
This was another area of concern for all the NRG
members. In the majority of 7-Up countries, the existing competition authority
does not enjoy adequate autonomy, which everybody agreed is a must for an effective
competition regime. A competition authority essentially arbitrates between business,
the consumer and the government, especially when government retains a significant
stake in providing many goods and services to consumers.
This is particularly true in the cases of Kenya
and Tanzania. In both of them, the competition authorities come under a government
ministry. Another concern that the groups expressed in these countries is that
competition authorities there are a “one person commission” and not a multi-member
body. It was pointed out that in a situation where one person is vested with
massive authority there is a tendency to misuse the power.
The issue came up for discussion even in Pakistan
where people felt that the Monopoly Control Authority needs more functional
and financial autonomy. But this will need substantial changes in the existing
competition law or new legislation. In India the existing competition authority
enjoys substantial autonomy and even the proposed new Act envisages an autonomous
competition authority. However, concerns were expressed, that certain provisions
in the proposed Act have the potential of curbing its autonomy.
One peculiar but important issue that was raised
in Indian NRG was related to the age of the Members and Chairperson in the proposed
commission. The participants felt that it was too high especially in case of
Chairperson who can serve till 70 years of age. The past experience in India
has shown that these bodies get filled up by retired bureaucrats and judges
and as a result the commission becomes over-bureaucratised.
One important aspect of enforcement is the kind
of punishment given to the offenders under the competition law. Penalties imposed
on the offenders are relatively low. In some cases the authorities have power
only to issue cease and desist orders. In such a situation, the imposed penalties
cannot work as a deterrent. A business can indulge in anti-competitive practices
under the assumption that it will stop such activities once it comes under the
scrutiny of the competition authority until then it is well and good.
In the area of enforcement it was observed that
the most difficult issue to handle was cartel cases. There were number of complaints
on cartels, especially in India. However, they could not be proved both due
to definitional problems as well as lack of clinching evidence even though prima
facie there were sufficient grounds to suspect existence of cartels. In this
regard it was suggested that high fines with criminal liability combined with
whistleblower protection and leniency programmes can help.
It was also suggested in one of the NRG meetings
that the competition authority should monitor the prices on a regular basis
so that it is in a better position to detect anti-competitive practices and
take appropriate measures.
They were equally concerned about the effectiveness
of domestic competition law to take care of anti-competitive practices in the
globalising environment. However, they stopped short of recommending a multilateral
competition framework as they were not very sure of the implications of such
a framework.
Interface with Regulatory Bodies
A concern was expressed in several of the NRG meetings
that the competition policy is made complicated by the fact that there are various
sectoral regulators who also manage competition separately from the competition
authorities. In Kenya it was suggested that the competition authority should
take the ultimate responsibility for competition in a broad range of economic
activities and to achieve this it is absolutely necessary to create a firm working
relationship between the competition authority and all sectoral regulatory authorities.
The issue was discussed in Indian NRG meeting as
well. It was observed that even in the new competition Bill, no attempt has
been made to sort the overlapping area of functioning of other utility regulators
and the competition authority. The house was of the opinion that the competition
authority should take precedence over the regulators when some competition issue
is involved. In fact the competition authority should as the apex coordinating
agency and the watchdog to ensure fair competition in all sectors of the economy.
Exceptions & Exemptions
This is an important area that the participants
discussed at length in some the NRG meetings especially where state enterprises
are exempted from the competition law provisions. For example in Kenya, the
law explicitly precludes action or investigation against state owned enterprises
and professional bodies that are governed by separate statutes. The members
felt that this seriously harms consumer interest since state owned enterprises
are major cause of lack of competition in many sectors in Kenya. The participants
also opined that many of the service/utility providers still under state control
should be privatised with proper regulatory mechanisms put in place.
In Sri Lanka the state enterprises are excluded
from the purview of the proposed Bill which is potentially dangerous and the
NRG was unanimous in saying that they must not be excluded.
Advocacy
The NRGs also felt that it was essential to have good advocacy
and a strong support base to enforce the laws effectively. At the same time
they recognised the need for a strong consumer movement in ensuring that. They
also recognised that the consumer movement in these countries (with the exception
of India) was rather weak, and needs to be strengthened. In fact in South Africa
one of the participants in the meeting was quite confident in saying, “I don’t
think there is any major disaster about the Competition Policy and Law. What
needs to be done is to increase the ability of the consumer to participate better
and more effectively.”
For example, in one of the countries, the competition authority
handled some 68 cases over 1998-2000, but not a single complaint was received
from any consumer organisation or such other NGOs. In the African region, in
some countries, consumer organisations simply do not exist. In some other where
they exist are highly constrained by lack of funds and manpower with adequate
expertise. In some of the African countries the NRGs felt that in view of the
weak consumer movement in the region, cooperation between sub-Saharan Africa
and South Asia (particularly India where consumer movement is relatively strong)
should be promoted in the area of consumer movement.
It was also emphasised in one of the meetings that
there is a need for social audit of all state regulatory functions. The best
agencies to do such work will be the consumer organisations. This will require
adequate capacity building of the consumer organisations.
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