Betty Maina- Welcome to the second meeting of the National reference Group on Competition Law and Policy. We have with us two visitors from the office of the Consumer Unity and Trust Society (CUTS-India). They will give us a project update.

Anjali- This project on competition regimes in seven British Commonwealth countries has two primary phases. The first phase that is presently ongoing is that of finding out about the state of affairs and the performance of the competition policy.

The second phase deals with cross-border issues and considers the effects of mergers and acquisitions on more than one country. In effect, the second phase is an expanded look of what how economic arrangements spill over into one country from another.

N. Nanda- Competition policy is everything and anything that protects consumer interests. The economic benefits of a competition policy can be seen in the case of anti-competitive effects of the Unilever Corporation in Bhutan. The Ministry of Trade and Industry in Bhutan asked the corporation to appoint more than one distributor for its products and the company was reluctant. The MTI was given an ultimatum and allowed a second operator rather reluctantly.

The act of appointing a competitor to its traditional distributor led to an expansion in Unilever’s market since the turnover nearly quadrupled. This was achieved by the second operator creating new markets and by aggressive marketing. This example helps to show that competition is beneficial to both consumers and the economy even in small economies.

By this example also, we learn that competition policy when applied well ensures a win-win situation for all. It cannot be overemphasised therefore that there is a real and positive relationship between enforcement of competition policy and overall competitiveness.

In addition, as the NRG for Kenya, we should consider the fact that there is the need to understand the difficulty of enforcing competition policy against Multi-National Corporations (MNCs). Under the World Trade Organisation, rules are binding on governments much more than on corporations and yet it is corporations that often engage in anti-competitive behaviour.

It is for this reason that the developing countries that cannot individually confront some MNCs should think of supporting a multi-lateral competition policy. A multi-lateral policy will ensure that one MNC does not play developing countries against one another in order to get terms of trade that favour it against its competitors.

D. Ongólo- The principal consideration underpinning Kenya’s competition law was to protect consumers against price increases. This explains to a large extent the character of the competition law and the fact that it has a strong price control component.

My findings and analysis reveals that perhaps the most appropriate approach or model for a country like Kenya would be to apply competition policy to enhance productive efficiency. This would be akin to the Japanese model where competition was progressively allowed with each industry or sector being considered on its own merits.

On Kenya’s competition policy needs, there is a clear observation that in order to ensure optimal efficiency and economic growth, it is imperative to merge industrial policy and competition policy. At the same time, there is need to comprehensively amend the RTP Act to cater for consumer protection. We may begin by looking at Consumer International’s Model Consumer Law as it incorporates both the required protection and education of consumers.

Recommendations include the focus on the long-term growth and sustained productivity. The competition policy should ideally operate under this structured system to facilitate dynamic efficiency.

Mr. Kijirah (Monopolies and Prices Commissioner)- I often insist that there is nothing inherently right or wrong with a competition policy. The crucial factor is that where it does exist, does it serve the public interest by protecting the competition process and not individual competitors.

Apart from the European Community (EC) there is no other single regional trading organisation or economic union that has a functional competition policy. To that extent therefore, competition policy regimes are at present limited to national jurisdictions.

For Kenya’s case, the competition policy largely addresses only private practices and conduct in the market place. There is need for an all-encompassing policy addressing both public and private aspects of competition policy.

Other relevant matters for Kenya and perhaps for many other developing nations are the reduced public influence in the market, issues of intellectual property rights and the definition of national interests and how the present competition structure impacts thereon.

The present Competition Law (Cap 504) was designed basically to act as a transition instrument to move the country from a largely controlled to a market oriented economy. It is beyond doubt now that benefits can be derived out of competition both domestically and internationally.

The progressive application of competition in a market is best illustrated by Japan’s case that provided more than encouragement of small and medium sized companies whose growth led to formidable trans-national corporations.

Competition can also act as an instrument of enhancing commercial benefits.

What is needed for Kenya?

There is the major problem of a lack of rules and principles guiding the competition law. This could be resolved by the crafting of principles of competition to achieve economic goals. The competition policy must encompass the overall economic goals and be factored in them.

Secondly, there is the need to address cross border mergers and acquisitions. This is imperative because the effects of such consolidation and economic concentration are becoming apparent in Kenya.

Thirdly, we require a nucleus of competition practitioners on competition policy and law. Specifically, this nucleus will develop Kenya’s competition policy. In addition, this nucleus will have the ability to enforce that law objectively and competently. This they will do by necessarily negotiating at bilateral and multilateral levels by focusing on outcomes that are economically rational and also protective of the national interest.

Fourthly, public support for the competition authority and the competitive process is required. As of now, the public the public is least informed about the competition problems in the economy where they procure goods and services. This ignorance is not good for the competition process. This state of ignorance is partly because the country has just recently emerged from a controlled economy where public participation is limited to only making purchases.

Finally, the Monopolies and Prices Commission is concerned about the potential effects of electronic commerce to competition. This is because the business environment created by electronic commerce is raising the level of transparency in the market place and this is good for monitoring the market structure and behaviour on the one hand and also for consumer scrutiny of prices.

All in all, what Kenya desperately needs is a harmonised and coherent system between the competition policy, competition law and the Monopoly and Prices Commission (MPC) as the agency of enforcement.

Discussion Session

J. Kihumba- Kenya has not tried to manage competition towards benefiting the people. This is because upon liberalization, the economy was left open without the goals of liberalization being well defined. As a result, external competition has been quite intense and sometimes has unfairly wiped out Kenyan firms and aggravated poverty for Kenyans.

In contrast to our approach in Kenya, most of the Southeast Asian countries managed competition far better than we did and ensured that indigenous firms survived.

Regarding internal competition, we should think carefully about the role of the Monopolies and Prices Commission, as it can be the protector of small firms against unfair trade practices. This it can only perform better if it allowed to engage in consumer education, quality assessments and it controls unfair practices. We could strengthen its role by introducing an office of fair-trading as a department in the MPC.

D. Ouma- I noticed that David Ongólo recommended that the Japanese model of applying competition policy selectively and cautiously could be appropriate for Kenya. Now that we see the state of the economy in Japan and the role of government protection of some businesses leading to the lack of competitiveness, is this model still appropriate?

S. Ochieng – We all note that competition policy in Kenya is made complicated by the fact that there are various sectoral regulators who also manage the competition separately from the MPC. This situation supports the insistence by both the IEA and David that we should have a national competition policy.

Secondly, we should consider the role of taxation policy in improving the performance of local firms and businesses. This may influence their behaviour towards increased efficiency and enhance their competitive ability.

J. Delorie- To the extent that organisations are also consumers of competition policy, I am a bit concerned that the Marketing Society of Kenya (MSK) was not interviewed. Individual members of our organisation were interviewed but the organisation’s views were not taken into account. Perhaps it is not too late to consider the MSK now.

C. Mukulu- Competition problems manifest themselves more prominently when the sectoral regulatory frameworks are unconnected to the overall competition law. Again, the problem of lack of capacity will not be easily addressed until the remuneration of regulators is sufficiently raised to attract the right staff.

J. Kihumba- Speaking of the problems faced by regulators, we should take o mind the matter of crafting the law to make these regulators completely autonomous.

L. Indetie- I speak with some experience from the petroleum sub-sector. It was a good thing for the government to open up the markets in this sub-sector because it has ensured quality control through competition.

Secondly, the petroleum industry is one that exhibits serious barriers to entry and the liberalization herein has began to reduce these barriers. Such barriers tend to limit the number of market players and are conducive to the formation of cartels. In this sector, the report should perhaps stress that the greater need for the MPC and the competition policy to remove the barriers to entry and work against collusion in setting of the prices.

For instance, the only refinery in Kenya is part owned by the government and two other market players. Smaller players have no capacity to construct another refinery but there should be vigilance to ensure that such an ownership structure does not impact negatively on the other competitors.

Thirdly, I am interested in the sector specific findings, as they would help us to identify the competition hot spots. Competition policy should apply such that it allows inefficient competitors to die a natural death.

R. Bell- The major competition problem comes from the fact that whereas there is verbal government commitment to liberalization, the reality is that this has not been allowed to happen. Instead we have what I refer to as “partialization” where the sectors are not freed completely. This means that there is only partial liberalization and this does not work at all.

By way of example, consider that there are currently 62 companies registered to operate as Internet Service Providers (ISPs). While these companies are expected to compete with one another for market share, they are compelled to procure get Internet connection services from Telkom Kenya, a monopoly. This situation is just plainly ridiculous because it is not at all sensible to allow competition on one end of the market only.

This is what “partialization” means and it never works. All over the world, right from Poland to other progressive countries, there is no case study that documents negative effects of complete liberalization. There are no options and we must infuse competition in the telecommunications sector without delay. There is no choice.

Regarding the regulatory authorities, the Communications Commission of Kenya (CCK) is at present answerable to nobody and acts without ant scrutiny of its actions. This is not a prudent set up for the growth of any sector since review of the decisions of the regulatory authorities must be subjected to reasonable review. This helps to reinforce confidence in the credibility of the regulatory agency.

Finally, a national policy should be put in place to separate policy making and implementation. At present, the CCK carries out both functions.

D. Ongólo- The RTP Act in Kenya creates exceptions under section 5 that exclude the actions of the MPC from having effect on those services. Our proposal is that the competition authority should take responsibility of a broad range of economic activities under which competition is necessary. To achieve this, it is absolutely necessary to create a firm working relationship between the competition authority and all sectoral regulatory authorities.

In essence, the competition policy and law should be applicable across the board unless there is real and justifiable reason to create exceptions. I find it paradoxical that most of the service sectors in Kenya are exempt from the competition law just as competition in services is becoming a pertinent issue in the world.

This situation emerges from our study as a possible area of reform because services will gradually assume an important part of the overall Gross Domestic Product. The likelihood of anti-competitive practices occurring is real and indeed there are instances at present where the professional associations could face challenges on the manner of licensing. I stress that competition law should be applicable across the board.

In the Kenyan law, the competition statute explicitly precludes action or investigation against state owned enterprises and professional bodies that are governed by separate statutes. This is an interesting situation now especially since state owned enterprises are the major cause of lack of competition in most sectors in Kenya.

Mr. J. Kijirah- The study has identified fairly accurately some of the challenges faced at the commission, our successes and the status of the competition policy in Kenya.

I would like to highlight the fact that at present, there are no legal and administrative linkages between the commission and the sectoral regulators. In addition, there is no formal linkage among the sectoral regulators themselves. This is a situation that rightly concerns you and my office too.

The exclusion of professional services from the competition law is equally notable and I think that a reworked law should provide linkages with the professional regulators and scope for the commission to tackle competition within the services industry.

B. Maina- We close this meeting. We shall get back to you with the completed report that you may later debate at your professional interest levels. Thank you.

CONTACT US

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

D–217, Bhaskar Marg, Bani Park,

Jaipur 302 016, India,

Ph: +91(0)141-228 2821

Fax: 91.141.2282485

Email: cuts@cuts.org

Top

Hosted by: www.fullestop.com