ANNEXURE A
7-Up Project: Phase-I
Culmination Meeting
7-8th
September, Goa, India
Brief Report of the
Proceedings- Draft 12.09.01
OUTLINE OF THE CASE-STUDY REPORTS
1. Factual presentation
Description of
the case. What is/was happening?
For instance
the merger between two large MNCs like the Coca Cola – Cadbury Schweppes
merger or a takeover of a domestic company by a foreign MNC. Or formation and
prevalence of a cartel or any other restrictive trade practice.
-
What is the structure of the relevant market? Product market and
geographical markets. Are there regional considerations that would require
the geographical market to be redefined, make it broader?
-
What are the effects on the domestic market of each country? Does
such an M&A create a dominant position of market power or does the
practice in question create significant entry barriers or weaken competition
in the market?
2. What are the legal issues?
What are the
relevant provisions of the competition law? What are the provisions that bring a
particular case under the auspices of the competition authorities?
-
On what grounds can the
competition authority approve or deny approval for the merger? Or on what
grounds can it interfere in a certain sector of the market?
-
What are the provisions that
prescribe how the evaluation should be made? What are the factors that have
to be taken into account?
3. Analysis of the case vis-à-vis the
provisions
This is the
core of the study. It is the actual analysis. An analysis of point 1 vis-à-vis
point 2.
-
What are the effects on
competition of the merger, or the existence of a dominant position or a
cartel?
-
How will the market change?
Or what changes are necessary to bring more competition into the market?
-
What are the effects on trade
and the economy/public interest?
-
Etc.
4. Decision or lack of the decision by the
competition authority
What was the
outcome of the authority’s analysis, if any? Why did they make this decision
or not
-
What were the pressures on
the authority from the government; public opinion; the companies under
investigation?
-
What were the difficulties in
obtaining information?
-
Was any regional or
international cooperation necessary to analyse the case?
-
Was the decision of the
authority influenced by outside pressures?
-
Was the decision of the
authority enforced properly (in letter and spirit)?
5. How did the authority deal with these
problems?
Did they deal
with them at all? If not, what were the reasons?
-
Was the authority pro-active
enough?
-
Did they seek outside help
(from other agencies within and outside government, including chamber of
commerce, consumer organisations & NGOs, govt. departments, experts etc.
and foreign agencies.)?
-
Could they deal with these
problems adequately?
6. Causes and possible recommendations
What were the
areas/causes that made it difficult for the authority to deal with the
case/problems adequately and what recommendations could be made to solve them?
-
Was it because of faults in
the legal provisions? If so, what needs to be changed?
-
Was it because of lack of
funds?
-
Lack of capable staff
-
Lack of available data to
make a good market assessment
-
Lack of cooperation from
foreign agencies
-
Lack of support from other
government agencies
-
To much interference from the
government.
-
Etc.
Notes:
1.
This outline is not meant as an exhaustive questionnaire, but as a setup
instruction for the case study reports. It is intended as a guide for writing
the report on a particular study. Also, it is not necessary to have chapters one
to six, for it could be done in three. Chapter one could be a combination of
points 1 and 2, chapter 2 the analysis of point 3 and chapter three could be a
combination of points 4 to 6. Other combinations or even further divisions are
also possible, only the sequence should be followed as indicated above. The
questions in each of the points are to serve as an indication of what should be
done and not as a precise or exhaustive description. Since the situation in each
country might vary, different issues could be more important in one country than
in another. The purpose of this outline therefore is to serve as a guide, and
adherence to this general outline will help make the different analyses more
comparable to each other.
2.
The case study should be as objective as possible and refrain from any
rhetoric. The length of each case study paper should ideally be between 10-15
pages, but must not exceed 20 pages.
3.
The factual presentation as mentioned in Section 1, should be kept to the
minimum – just an account of the case. It
should also discuss about how the competition authority became aware of the
merger or the RBP, eg. pre-notification, reading about it in the newspaper,
complaints etc.
4.
In section 3, the researcher may report the analysis of the situation as
seen by the competition authority and supplement ‘where possible’ by the
researcher’s own comments and information regarding the adequacy and focus the
analysis on the adequacy of the procedures and remedies given the situation seen
by the agency. However, when such analysis is not done by the agency or the
analysis is grossly inadequate, the researcher may make an independent
assessment and contrast it with the analysis of the CA (if that has been done).
le
to him) and staff support for the range of activities expected out of its
office. There is also no consumer movement in Tanzania to provide any
assistance. Despite this, 10 cases have come up and have been decided by the
Competition Commissioner. Given the limitations, this is a remarkable
achievement.
There is low public awareness on what competition policy means, let alone
the need for it. During the NRG meetings, this was evident.
In response to questions from the floor, the presenter mentioned that
capacity building exercises on competition policy and law are taking place.
However, this is not a priority for the government still and the issues and
discussions continue to be largely interest-group driven. With time this is
likely to improve.
4.
Zambia: George Lipimile, Zambia Competition Commission, Zambia
Chair:
Taimoon Stewart, University of West Indies, West Indies
The presenter discussed the transition of the Zambian economy from a
socialist economy to a market economy. Like in Tanzania, this change was part of
the IMF and World Bank sponsored reform process. The Zambian Competition
Commission came to be set up only because it was part of the World Bank
conditionalities. In fact there was no debate in the Zambian Parliament while
they legislated to create this agency. The lack of political will is reflected
by the appointment of the Board of Commissioners in late 1995, when in fact the
Competition legislation came in 1994.
For the Zambian country report, the assessment of the efficiency of the
Competition Authority has been carried out on the basis of their functions as
stated in the Preamble.
The Board of Commissioners comprises representatives of various interest
groups and therefore it is both an expensive and a tedious process of
decision-making. Despite this, they have been able to arrive at some good
decisions. However the presenter agreed with a suggestion from the House that
shifting from an interest group politics based model to one where professionals
man the Authority and take decisions based on sound socio-economic basis, is
desirable.
The Commission has been resolving cases since 1998. An analysis of this
study shows that the majority of cases handled by the Commission pertain to
M&A’s.
The EU is carrying out capacity building in Zambia. However, this needs
to be upped.
A few other specific points were made by the presenter. They are as
follows:
·
As there is no
separate consumer legislation, the Commission receives complaints as well. These
are normally resolved by the intervention of the Commission staff, informally.
·
The Commission
also tries to help consumer organisations become stronger, by requesting them to
litigate individual complaints.
·
The Commission
gives wide and extensive publicity to their work and their decisions.
·
Till
date, there has been no political interference in the working of the Commission.
·
The strongest
aspect of the Commission is its power to imprison the Chief Executive of the
defaulting company for a period of 5 years, for violations of any of its Rules
or decisions etc.
·
The Commission
prefers to use the threat of imprisonment especially while dealing with large
MNCs, for whom the threat of fine is not deterrent-enough.
·
Representatives
of the Commission sit on the sector-specific regulatory Commissions.
5. Sri Lanka: Pubudini Wickeramaratne, Law &
Society Trust, Sri Lanka
Chair:
Phil Evans, Consumers Association, London
The need for competition policy within the national
development agenda gained popularity in the 1990s and it was endorsed as a
method of enhancing economic efficiency and consumer welfare by developed
nations.
At the time of economic liberalisation in 1977, the state
sector of Sri Lanka played a dominant role in production, distribution and
financing in the economy. Although the economy was liberalised in 1977, the full
scale privatisation initiative did not start until 1987 due to:
·
The existence of a system of government controls and
regulation which were difficult to dismantle.
·
The public sector was a convenient form of generating
employment and dismantling would have lead to unemployment.
·
It was viewed that the dismantling of public sector may
impact the productive base of the country in the absence of any alternative.
The output of public sector increased by 24 percent in real
terms in 2000 as compared to 12 percent in 1999. The crisis that has affected
the power sector has opened up the possibility of private participation in the
vertically integrated sectors of the electricity market.
Sri Lanka policy environment is very conducive to foreign
investment and approval is automatic for most foreign investments. The
Government of Sri Lanka offers a wide range of incentives to both domestic and
foreign investors. An enterprise may become eligible for incentives offered by
either of these two regimes:
·
Special incentives available to enterprises approved by the
Board of Investment under Section 17 of the BOI Act.
·
General incentives available under the normal laws of the
country.
Economic liberalisation in 1977 brought forth a liberal
policy towards FDI. In 1978, capital inflow as a share of GDP increased by 6
percent compared to 1 percent in 1977. 1989 saw a second round of reforms,
undertaken under the assistance of IMF structural adjustment facility, promoting
reform in the public sector through privatisation while continuing with a
liberal policy towards FDI.
Scope of Competition law: The FTCA was passed in 1987. Trade
practices or anti-trust laws regulating firms in Sri Lanka is limited to Part
III of the FTCA. Section 12, 13 and 14 of Part III relate to monopolies, mergers
and anti-competitive conduct respectively. The FTCA is unclear as to the exact
scope of the operation of FTC but by virtue of Sec 11, the FTC has powers to
investigate complaints with respect to Sections 12-14. Sec 12 states that a
monopoly will exist in relation to supply of goods or services or export of
goods in specific cases or export of goods generally, or export of goods to any
particular market if it is of a “prescribed percentage” that is supplied in
Sri Lanka to one or the same persons. The prescribed percentage is not less than
one-third of the total market share of the product and is determined in relation
to the supply and export of goods and services of “any description”.
FTCA defines anti-competitive practices in Section 14. It is
also essential to prove that such a practice under established Sec 14 was
against public interest under sec 15(1)(a). If the anti competitive practice is
found to exist, the FTC has the power to remedy the situation by issuing an
order to terminate such practice.
The FTC was given wide price controls but at present
pharmaceuticals remain the only item which is under price control of the FTC. In
case of mergers, all M&As must be notified in writing to the FTC. The FTC
can commence investigations either on a complaint made to it or on its own
motion.
Sri Lanka does not have extra territorial jurisdiction on
matters of law relating to competition and anti-competitive issues. However,
legislation in the areas of anti dumping and computer crimes is currently being
drafted. A new Intellectual Property Act has been drafted that is in line with
the WTO TRIPs agreement.
Consumer Protection Law: The task of consumer protection is
currently under the authority of Department of Internal Trade. The DIT has
investigative powers and the commissioner can undertake studies in respect of
quality, price and availability of any article. He also addresses the areas of
misleading conduct, false representations, exclusive dealing, price
discrimination and warranties.
Under the proposed CPA, the FTC and DIT will cease to exist
and will be replaced by the Authority and the Council. The objectives include:
control and eliminate restrictive agreements, investigate into monopolies,
mergers and anti-competitive practices and abuse of dominance and promote
effective competition between suppliers of goods and services.
Section 50(a) of CPA exempts all public sector monopolies
from Part III of CPA Section 81 of the CPA states that the provision of
monopolies mergers and anti-competitive conduct will not apply to persons who
supply goods and services under agreement entered in to with the govt.
Sri Lanka does
not have an overall economic policy on competition that encompasses different
products and geographical markets. The govt. response so far has been ad hoc
approach to industrial, trade development policies, etc. focussing on specific
issues for redress within the different sectors of the economy.
6.
Pakistan: Sajid Kazmi, Sustainable Development Policy Institute, Pakistan
Chair:
Phil Evans, Consumers Association, London
The need for a
competition legislation in Pakistan was felt due to the concentration of wealth
in few hands and due to the monopolistic and oligopolistic nature of the market.
The Monopolies and Restrictive Trade Practices Ordinance Law was enacted in 1970
and the Monopoly Control Authority was established. After remaining dormant for
25 years, it started asserting in 1995.
There is an
interplay amongst the economic policies such as privatisation, investment and
trade policies and the competition policies. But there is not much strong links
among the regulatory bodies (NEPRA, Pakistan Telecommunication
and the MCA.
The Monopoly
Control and Restrictive Trade Practices Law was enacted with the objective of
dealing with undue concentration of economic power, monopolies and restrictive
trade practices. The scope of the law extends only to the private monopolies.
The state monopolies are not covered in it. It is necessary to extend the
coverage of MRTPO to public enterprises that will provide a level playing field
to both private and public sector organisations.
The MCA
consists of three members, each appointed by the Federal Government for five
years. There are 128 employees including twenty other officers, working in
various capacities. The authority is an autonomous organisation and there is no
interference from the government.
The authority
has discretionary, recommendatory, investigative and legislative powers. For
proceeding on an enquiry, the authority has the powers of a civil court under
the CPC 1908, in respect of certain matters. The law empowers the authority to
issue general orders amplifying the scope of the law. Through registration
requirement, the authority collects information relevant to the market share of
firms or undertakings. The law enumerates the registrable situations and the
market share for this purpose is calculated by reference to the Monthly
Statistical Buletin of the Federal Bureau of Statistics.
Penalties are
imposed if a person or an undertaking fails to carry out the directions of the
authority under the law or has willfully failed to register a registrable
situation or has furnished false information to the authority.
In the case of
Polka-Walls merger, since there was no data available with the FBS, the MCA
relied on the data provided by the parties, which in turn hired Integrated
Development Consultants to measure joint market share of Polka-Walls along with
other competitors.
There exists a
consumer protection legislation at the federal level, yet there is a need to
expand its jurisdiction to the rest of the country to help general public in
getting relief from any damages done. There is a strong need to constitute a
Consumer Protection Council.
7. India: Pradeep
Srivastava, National Council of Applied Economic Research, India
Chair: Phil Evans,
Consumers Association, London
In India,
competition policy dates back to the 1960s- the establishment of Monopoly
Enquiry Commission in 1965 with the mandate to enquire into the extent and
effect of concentration of economic power in private hands, the prevalence of
monopolistic and restrictive trade practices and the social and economic
consequences of the same.
Cocentration
was defined in product- wise, industry-wise and country-wise terms. The causes
of such concentration were economies of scale, system of managing agencies,
benefits of doubt to the incumbents and licensing.
The MRTP Act
1969 came into existence at the recommendation of the above Commission. It was
influenced by several foreign acts including Sherman Act, FTC and Clayton Act.
The thrust of the MRTP Act is directed towards: Prevention of concentration of
economic power to the common detriment, control of monopolies, prohibition of
monopolistic trade practices and prohibition of unfair trade practices.
The Act has
been amended sevn times and the significant amendment was of 1984 when the
provision for regulating UTP was introduced and a new authority, Director
General (Investigation & Registration) was set up. By 1994 amendment, public
sector was brought within the fold of the Act.
The
competition authority in India is the Monopolies and Restrictive Trade Practices
Commission. It has the powers of the Civil court as under the Code of Civil
Procedure- Isswue summons, punish for contempt, initiating proceedings against
MTP/RTP/UTP, Grant temporary injunctions, etc.
Complaints to
the MRTPC can be lodged by private individuals or registered associations, trade
associations, state/central govt’s department/organisation, DGIR and on its
own knowledge or information received from any source.
The CA is
typically staffed by retirees from judiciary or government, or government
officials on deputation. At present there are four members of which two are with
the background of general administration. There are no regular training
programmes for staff at any level.
The annual
budget of the CA is 1.5-2crore. Out of this, almost two-third go on wages and
salaries and the rest to the establishment costs. Travel involves just 2% of the
budget.
There is no
database on industries, no facilities for scanning and there is no keeping up
with international publications. The CA has subscribed 17 newspapers and 21
peridicals. Out of these, only one is a locally produced specialised
publication.
No new
investigation relating to MTP has been launched since 1997. In all, about 5000
cases are pending. About 3000 cases are compensatory cases and the rest are
roughly, evenly split between RTP and UTP.
At present,
Inia is considering a new law and there are diverse views on this. One school of
thought is that we need competition but not competition law. We had a
competition law without having a competition policy. There is no standardised
relationship between Comptt. Law, Comptt. Policy and competition authority. It
is felt that the CA would just have useless bureaucrats. Big industrial and
business houses recognise the need of a good competition law but the small
enterprises do not want any competition with foreign firms.
The
relationship between Competition policy and CA is determined by the role and
nature of State. In conclusion, it is no use having a good and strong
competition law if cannot be enforced effectively.
Floor discussions:
1)
There is always a formal document on trade policy, Industial policy, etc.
but a formal document on Competition policy does not exist in any of these
countries.
2)
There seems to be a gap and the Govt and the business community seem to
be conspiring for not allowing the competition to develop in these developing
countries. In India, it is not exactly conspiracy. But the govt. does not have
money and proper work culture and the people are not aware of the advantages of
competition. There is a strong need for advocacy to eliminate this ignorance and
for proper channeling of the resources of CAs. In Pakistan, a conspiracy
certainly exists and so the competition policy is given the least priority. In
some countries like Malaysia, there is a definite competition policy, else the
other policies lay down the provisions for competition.
3)
The way a policy is implemented in a country depends to a large extent on
its political culture.
4)
The turnover in the CAs of developing countries is too much and there
needs to be developed some balance between the young and old staff. In case of
Pakistan, the salaries paid to the staff are hopeless and so the young people
are not interested in joining and as such the CA has mainly very old people
serving it. In Sri lanka, the appointments need the approval of Ministry of
Internal Trade but this is not given priority and so delays in appointments.
Also, people are not aware of competition law and its advantages. It is not
taught in any schools and there is not a single document in this regard. In
India, under the new law, the balance is quite possible to be maintained as
there is no mandatory provision regarding high age for appointments.
5)
In Sri Lanka, the unfair trade practices are dealt under the competition
law itself and the performance has been quite good as there are not many cases
of mergers, etc. In India, the Consumer Protection Act deals with UTPs and not
the competition authority.
6)
Regarding budget, the
implementation of the new law in India, would certainl involve high expenses.
But this can be easily met if the current wastage done by the CA on useless
magazines, etc. is cut down.
III.
SESSION TWO: SUMMING UP
1. Synthesis of Country Reports: Rakesh Basant
Chair: Phil Evans,
Consumers Association, London
Rakesh Basant
made a presentation covering the theoretical background to the linkages between
competition policy and development and the interaction between competition and
other policies. He then presented some of the findings from the synthesis
report, comparing institutional features of competition regimes across project
countries.
He outlines
the objectives of CP/CL:
·
Dynamic
efficiency
·
Equitable growth
·
Capability-building
However,
competition policy is only one instrument needed to achieve these goals. Firm
performance and the economic environment are affected by a large number of
policies.
At the global
level, there has been a change in the paradigm for looking at competition
issues, from structure to conduct. This is more demanding and rigorous. The
notion of contestability of markets
which has become central to competition discourse has highlighted the existence
of entry and exit barriers. The CA therefore has to have much more skill and
capacity for analysis and that the skill and resource requirements of
competition authorities are greater.
Key concerns
for developing countries:
·
How should the
competition policy be contextualised?
·
How to recognise
and deal with the trade-off between policies?
·
Should CL be
dealing with these trade-offs?
·
How can countries
build regulatory capacity?
The
relationship between CP and liberal FDI policy is ambiguous. On the one hand,
domestic firms may not be on a level playing field with TNCs and this could be
used to justify preferential treatment under the competition law, but a strong
competition law may also force TNCs to compete with each other and therefore
maximise the positive spillovers to the domestic economy. Of the 7-Up countries,
the interface of FDI policy and CP is a concern for India, South Africa and
Zambia.
An
intervention from the Chair led to the redirection of the presentation towards
the administrative issues relating to competition that had emerged in the
project.
·
Independence: the
CA has to work independently of the various stakeholders
·
Separation of
investigatory and judicial functions
·
A variety of
resources and capabilities are critical to the successful implementation of law.
Almost all the
7-Up countries are yet to meet to these requirements. SA, however, has met most
of these requirements.
Apart from the
law, each CP has detailed guidelines about the implementation of the law which
are constantly updated. None of the papers mention any of these guidelines.
Guidelines may also create problems, e.g. a cut-off for market share that
triggers an investigation, which leads to unnecessary bureaucratisation of the
CA.
What kind of
pre-notification of M&As do developing countries need? If you have a very
low limit, then the workload is high and there is a danger of regulatory capture
and over-zealousness by the regulator. However, if there is a high cut-off, then
the CA considers very few cases and there is little learning and capacity
building in the CA.
Should the CA
be housed within a Ministry or separate? It should be as independent as possible
given the trade-off between independence and the extra resources that the CA may
have if it is part of a strong government Ministry. To counter the lack of
resources felt by the CAs, authorities can charge fees. This also helps the CA
to prioritise cases. However, you then run the risk of over-zealousness.
Should the
country have specialised courts for competition cases? If competencies are
limited, this poses a problem.
How should
countries deal with the overlapping jurisdictions of sectoral regulators and the
CA? All the countries are privatising and so this is an issue for all of them.
SSRs (sector specific regulators) deal with the conditions under which firms
enter the market, but it is not adequate to say that the SSR deals with
competition issues before privatisation and leaves ex-post to the CA because the
conditions created when privatisation takes place will determine what the CA can
do later.
In general, at
present the relationship between the competition authorities and SSRs is not
clear in the 7-Up countries. SA is developing a conflict resolution mechanism,
while Zambia has CA representatives in the SSR boards.
Consumer
issues. Consumers go to the consumer courts rather than the CA in India, but
there is no theoretical reason why you should do one or another. Countries need
to consider how to deal with the interface between competition and consumer
policy.
Peter Holmes
expressed his thanks and congratulations to the researchers. He noted that the
priority now should be to collect remaining pieces of data from the
questionnaire. And that the NRG meeting learnings should be integrated into the
final outputs of Phase I. What was the response from government and civil
society, in general, and competition authorities, in particular?
In terms of
the country reports, there seemed to be a sense of disappointment that the CAs
have not been able to achieve much. The striking fact is that the laws and
institutional conditions seem to be much less important than other factors. For
example, the Indian authority has powers that it doesn’t use and the Pakistan
Authority was slapped down when it tried to implement the law. Individual
leadership is clearly very important, which has been demonstrated in Poland and
Peru among other countries.
Reputational
issues are also important e.g. the perceptions of the public at large. Publics
are concerned about related issues such as anti-dumping and the protection of
small local businesses, social objectives such as black empowerment in SA. What
implication would this have for an international agreement?
Shyam Khemani
highlighted the original aim of the project which was to look at the cases
handled by the CAs and whether the priorities of the CAs fit with their
developmental needs? The results of the questionnaires were not adequately
reflected in the synthesis report.
The following
issues were identified for the comparative part of the study:
·
What are types of
competition authority?
·
Volume of
activities being carried out
·
Nature of the
regime
·
Complaints from
consumers, government and business
·
What are the
priorities of the Cas?
·
Were those
priorities met? Etc.
Themes were
suggested for further discussion:
·
The nature, scope
(does it cover all sectors? What are the exceptions and exemptions?) of the CL
·
CL objectives
(consumer welfare vs. economic efficiency)
·
Consideration of
producer’s welfare
·
Is it possible to
use a benchmark, relating the characteristics of the CP/CL of the project
countries with the OECD/World Bank frameworks or the UNCTAD model law? To take
just one example, a lack of independence on paper does not necessarily mean that
there is any political interference, but some benchmarking is useful to identify
capacity-building needs.
Floor
discussions:
It was noted
that the 7-Up study was groundbreaking in that there was hardly any literature
available in most of the 7-Up countries on competition law and policy. The
project outcome reflects that there is a grave necessity for the same. There is
also very little public awareness about competition and varying degrees of
commitment from the governments.
The models (OECD/UNCTAD
etc) may not meet the needs of developing countries. One problems for developing
countries is the quality of personnel in the CA. In India, they tend to be
retired and inactive civil servants who have very little understanding or
expertise of the intricacies of competition issues. Another challenge is how to
institutionalise the energy of dynamic CA leaders. CAs have to accept turnover
of personnel. However, if they have a good reputation, then they can attract
young, dynamic and ambitious young people.
CAs need to
instill the competition culture in governments, too, as they are the largest
consumers of certain products like pharmaceuticals and cement. The empowerment
of the consumer movement is vital to successful implementation of the law. India
has a unique consumer protection regime under the Consumer Protection Act, 1986,
which has a huge network of consumer courts that is present in every district of
India (more than 500 in number). It also encompasses UTPs and at least two
anti-competitive practices, mainly found at the retail level. The India report
needs to be amended in this light, i.e. to cover competition cases dealt within
COPRA. However, multi-jurisdiction (b/w CA and consumer dispute redressal
agencies) might not be in the interests of producers. But in country like India this structure is very
much needed, as CA is not easily accessible by normal consumers.
Excellent
leadership can work wonders even with a bad law. Leaders with vision, in SA,
Mexico and Hungary, for example, have a clear idea about their strategic visions
and use their resources to achieve this. The project can provide a strategic
vision for countries that are implementing new laws. There is no difference
between developing and developed countries on this. The FTC of the US in the
1950s and 60s was transformed by new leadership and went from looking at petty
issues such as the labels in socks to considering and shaping the way the
economy is regulated.
Developing
country CAs can receive crucial support from UNCTAD and other institutions.
IV.
SESSION THREE: PANEL DISCUSSION
Chair: Frederic Jenny,
France
To start with
Frederic Jenny, the Chairman of the session made some introductory remarks where
he emphasised the following:
There are two
approaches that are important to look into: (a) anti-competitive
practices like M&As and International cartel
(b) Regional
context – how this can help handle these practices
1.
Dealing with International Mergers: Ross Jones, Australian Competition &
Consumer Commission
He dealt with
the following main points in his presentation:
·
Australia is a
small country in terms of its population. In the context of small countries
where the market is concentrated mergers need to be examined closely from the
perspective of the local market. In Australia, most of the mergers are approved
if there is sufficient import competition. Most international mergers are not
anti-competitive.
·
The CA has the
responsibility to look at the competition. In many industries, a single firm
dominates the market. If the international mergers are not approved, there may
be what is called the branch economy.
·
Australia has
formal cooperation agreement with the US and informal arrangement with New
Zealand, Canada and Taiwan. It has of course been observed that informal
arrangement works better than formal agreements. It is also easier to cooperate
with smaller jurisdictions.
·
Coke
Cadbury-Schweppes merger could not be approved in Australia as they were the two
largest companies in the country.
2.
Impact of
International Cartels on Developing Countries: Shyam Khemani, LECG, Paris
With globalisation, there should be more competition but we are seeing more cartels.
There is hardly any information available on these cartels, esp. in the
developing countries which are greater victims. Even about the cartels which are
discovered and investigated in developed countries, developing countries do not
have much information. Another reason for non identification of these cartels in
developing countries is the existence of little or no recourse mechanism to
address these issues, lack of capacity and scarcity of resources.
There are
three kinds of cartels:
1)
Government cartels like OPEC cartel, etc;
2)
Export cartels that are exempted by domestic competition law;
3)
Private international cartels which have been successfully prosecuted in
Japan, US and Canada.
Developing
countries are likely to be more affected by these cartels since there are a
number of other distortions in domestic market and thus the pricing behaviour is
not very transparent. There is a lack of capability on the part of CAs to detect
and prosecute cartels at both the domestic and international level.
Ways to deal
with these cartels:
1)
Free riding on the information collected by the CAs of developed
countries;
2)
Effective enforcement by compliance;
3)
Legal standing in competition matters at the CAs of developed countries;
4)
Capacity building of CAs and International Cooperation agreements are
really useful. Sharing of information with developed countries would help to
prosecute these cases in developing countries.
5)
Change in law to include provision of whistle blower protection, leniency
programme, etc.
International
cartels are more serious and difficult to detect. As an example, the Heavy
Electrical Equipment cartel eliminated the heavy electrical equipment company in
Brazil.
3. Anti-competitive
practices in a regional context: EU region: Stefan Amarasinha, European
Commission
Competition
policy and law should be in tune with global economic condition. The
implementation and the enforcement should also keep in view the conditions of
the economy. The bilateral and regional practices may fall short to deal with
anti competitive practices and so there is a great need of multilateral
arrangements as well.
Cross-border
anticompetitive practices are big threat and could substantially reduce the
benefits of having a common market. There has also been widespread
liberalisation in energy and telecom sectors. In this context there was a
realization on part of the politicians that competition law and regulation
needed to be strictly enforced. This is the reason that Mario Monti, competition
commissioner has been asked to adopt proactive stance on competition.
Indeed, the
introduction of competition has brought in lower prices and better quality in
goods and delivery of services.The general EU law applies to EU when there is
cross-border implications, whereas the member states have theneir own
competition laws. The recent merger proposal between GE and Honeywell was not
approved as it was perceived that it would have led to substantially decreased
competition.
The regional
rules apply to EU-wide areas. There is certain element of extra-territoriality
in jurisdiction. However, international cooperation is important is necessary at
bilateral and even at multilateral levels. It may be a good idea to have a
multilateral framework at WTO.
The European
model need not be appropriate everywhere. The historical background also plays
an important role. Regional rules/agencies should be able to take care of those
needs.
4.
Anti-competitive practices in a regional context: CARICOM region: Taimoon
Stewart, University of West Indies, West Indies
The
competition regime must be tailored to tackle individual country concerns. A
challenge for the CARICOM Single Market and Economy in setting up a regional
Competition Commission is the different stages of liberalisation in different
countries. Countries have to be ready to sacrifice some sovereignty for a
regional CA to work.
The CC will
have limited authority under CARICOM’s COTED (Council for Trade and
Development). It will only be able to respond to a request by a member state or
the COTED. However, the creation of a regional competition regime has to seen as
a process. It is necessary for the Commission to earn respect and authority from
the member states before it is given power. In this initial period it may be
better for it to have limited authority. Later, member states may be more
willing to cede power to the Authority when it has established its reputation.
Most of the
Caribbean states have moved from having no domestic competition law to having a
not just a national law but also a regional law. It has been tough for countries
to adjust to these rapid developments. Spreading information about competition
and the new law and moral suasion of governments and businesses should come
first, and only be followed later by implementation of the law.
The states
that do not yet have a competition law should use a common model. A regional
arrangement based on a common national-level competition law in all the
countries would reduce the costs of compliance.
The greatest
challenge for the success of the Competition Commission and for the region’s
competition regime is the massive task of putting into place the adequate
resources and skills to implement the policy.
5.
Anti-competitive
practices in a regional context: Bruno Werneck, centro Universitario De Brasilia
Setting the
effort of regional competition law in MERCOSUR in a wider background, it is
necessary to recognise that competition is not all that is necessary for the
protection of the consumer – a strong consumer law is also needed. A belief in
the benefits of competition law for the society is also very important to a
healthy competition regime. In order to raise awareness and support for
competition law, the Brazilian CA does a lot of outreach through colleges,
universities, government departments etc.
The MERCOSUR
protocol on competition was drafted but not approved by two of the four
countries in MERCOSUR (Argentina and Uruguay) so it was not adopted. It
contained provisions for a common authority and harmonisation of merger control
among the countries. Under the protocol, all concerned agencies will continue to
fight cases in their own jurisdiction, i.e. where the issue does not affect
commerce between the countries.
The creation
of a regional body was intended to minimise transactions costs but this may be
premature for MERCOSUR. Other ways to reduce these costs is to use bilateral
cooperation treaties like the US-Brazil treaty or cooperation along the lines of
the OECD model, as in the Brazilian approach.
Problems with
the protocol include:
·
Inadequate
provisions relating to cooperation
·
Different stages
of economic and policy development in these countries;
·
Decision-making
by consensus;
·
Timing of
decisions.
Floor Discussion:
On the issues
of cooperation between CAs, it was noted that in order to get cooperation on
tackling cartels from developed countries, developing country CAs need to be
credible in their own countries and should try to develop the confidence of
consumers and the respect of business. Cooperation on competition issues should
not be limited to piggy-backing on the investigations by the developed country
CA.
An example
served to demonstrate one way in which developing countries can use cases in
developed countries: in the 1971 case brought against the drug cartel in US
courts, India and the Philippines tried to intervene in the process. They were
allowed to, but didn’t receive compensation. Next year, the law will be
amended to close that option.
On the issue
of regional CAs, it was noted that Europe was a special case in terms of the
depth and extent of cooperation. However, there are still conflicts between the
national authorities and the Commission. For example, the French CA would be
much more lenient when considering vertical restraints that the EC. In the UK,
the cases decided in Europe set a precedent under the new Competition Act of the
UK.
Responding to
a question on whether it was better to have harmonisation or uniformity of
national policies in a regional agreement, Stewart pointed to the special
circumstances in CARICOM where only one of the members has a state level
competition law. This has created an opportunity to introduce national laws with
a common model. Others commented that while uniformity could be better, this is
dependent on a high degree of political will.
The question
was raised as to whether competition cooperation could precede an economic
grouping. While competition agreements normally deepen economic integration that
is already entrained, competition issues are a good area in which two countries
can extend their cooperation even where there is no economic integration.
Merger control
is a question of the global market, as much as about global firms working in the
domestic market. Even small economies should be concerned about mergers, so even
they should have merger controls. Merger control does not mean that all mergers
are blocked and can even allow for a domestic monopolist where competition
exists from imports depending. If the market is defined internationally, then
merger control can also allow for the creation of national champions. In terms
of the impact of cross-border issues on the domestic market, the CA can
effectively block the merger by setting stringent conditions for divestiture,
etc. In the BAT-Rothmans merger, for example, the ACCC ordered divestiture.
V.
SESSION FOUR: PANEL DISCUSSION
Chair: Shyam Khemani
1.
Possible Inputs
to WTO Trade & Competition Discussions: Frederic Jenny
·
There are three
aspects where 7-Up could be extremely helpful:
§
Substance of the
competition law (CL)
§ &n |