E-Newsletter
Vol. II

CUTS Centre for Competition, Investment &
Economic Regulation (C-CIER)

Advocacy and Capacity Building on Competition Policy and Law in Asia

The CUTS Centre for Competition, Investment & Economic Regulation (C-CIER) is implementing a two-year project titled “Advocacy and Capacity Building on Competition Policy and Law in Asia” (7Up2), with support from the State Secretariat for Economic Affairs, Switzerland (SECO), the Swiss Competition Commission (COMCO) and the Department for International Development (DFID), UK. The project endeavours to accelerate the process towards a functional competition policy and law for selected countries (Cambodia, Lao PDR, and Vietnam in Southeast Asia, and Bangladesh, Nepal and India in South Asia), and advance the enabling environment for the law and policy to be better enforced.

The project is undertaken in partnership with renowned institutions in each of the project countries:

  • Cambodian Legal Resources Development Centre (CLRDC) in Cambodia;
  • National Economic Research Institute (NERI) in Lao PDR;
  • Central Institute for Economic Management (CIEM) and Vietnam Standard and Consumer Association (VINASTAS) in Vietnam;
  • Bangladesh Enterprise Institute (BEI) in Bangladesh; and
  • South Asia Watch on International Trade, Economics & Environment (SAWTEE) in Nepal.

More about the project can be found at http://www.cuts-international.org/7up2.htm
News Briefs from the project countries…
BANGLADESH
1. Code of conduct for shipping agents

Bangladeshi garment exporters have suggested formulating a code of conduct for shipping agents and freight forwarders to prevent them from realising 'arbitrary and unjustified' shipping charges from exporters and importers.

Such high shipping charges are making export-import costlier and if the charges are not reduced the readymade garments might lose competitiveness in the international market in the quota-free regime from next year, said the garment exporters.

Bangladesh Garment Manufacturers & Exporters Association (BGMEA) President Annisul Huq said the exporters had to pay huge amount of money as 'unjustified' shipping charges imposed by agents and freight forwarders. He, therefore, suggested uniformity of all shipping charges under a 'multi-modal licensing system' to help the readymade garment exporters face the stiff competition in the post-MFA (multi-fibre arrangement) regime. Citing examples of high charges against imports, he said the shipping agents and freight forwarders are charging Tk6,000 to Tk15,000 on each consignment.

The BGMEA President also recommended simplification of port and customs clearance steps and proper enforcement and monitoring of all related government regulations and charges. "Many customs regulations need to be amended." "We need help from the shipping industry as well as from the government. Otherwise, we cannot survive in the quota-free regime," he said.

Amir Humayun Mahmud Chowdhury, president of Chittagong Chamber of Commerce and Industry, underscored the enactment of a licensing regulation for the freight forwarders. At present, these forwarders do not have to take any license from the government or the central bank. International Chamber of Commerce (ICC)-Bangladesh President Mahbubur Rahman said freight forwarders and shipping agents must comply with all the rules and regulations related to shipping and ports.

(The Daily Star, 09.09.04)
2. Over-dependent imports cause price hike

Bangladesh has to depend heavily on imports mostly to meet the demand of consumer items, especially onions, pulses, edible oil, sugar, which result in price hike – especially in the wake of the great demand during Ramadan [1] .

Importers and wholesalers have alleged that prices of the essential, especially onions, pulses and sugar were marked up in line with the price hike in the international market. They added that they had to import at higher rate before Ramadan, thereby raising the retail price in the local markets. According to government statistics, consumption of onion, pulses and sugar during Ramadan increases by fifty percent as compared to the other months.

The business community has urged the government to take initiatives to encourage Bangladeshi farmers to grow onions and pulses on a larger scale.

(The Daily Star, 25.09.04)

3. Companies Act with sweeping changes on the cards

Independent directors, constitution of the Company Law Tribunal and the Company Law Commission, punishment of auditors, e-maintenance of statutory record, and explanatory statement of mergers and acquisitions (M&As), are some of the major features of a draft Companies Act 2004 prepared by a high-level committee in Bangladesh recently.

The Company Law Reform Committee, in its report, had suggested sweeping changes in the existing Companies Act 1994, making it compatible with the world’s financial, accounting and auditing standards. The Committee also suggested enforcement of the International Accounting Standards (IASs) and International Standards of Auditing (ISAs) so that the local companies could adhere to the best international practices.

The Draft Companies Act 2004 has recently been submitted to the Commerce Secretary, and the amendments discussed. Official sources said the Draft Act would be translated into Bangla and then necessary changes would be made on the basis of opinions of different stakeholders.

Two sub-committees, one led by former deputy prime minister Jamaulddin Ahmed and the other by M. Jahir, prepared the draft act with reference to relevant acts of India, Pakistan, UK, Australia, New Zealand, Canada and the US.

According to the compilers of the report, the proposed Companies Act (CA) would improve the shortcomings of the existing act, especially in terms of catalysing the emergence of the private sector as a driving force for the improvement of Bangladesh’s economy. The law will also streamline further issues of shares, ensure professionalisation of the liquidation of the companies and provide for further explanatory statement on M&As.

The amendments have been classified into ten sections. They are: company law administration, auditing, accounting and disclosures, establishment of companies, corporate governance, meetings and resolutions, capital issues, liquidations, mergers and minority interests and fines and fees.

(Financial Express, 04.09.04)
CAMBODIA
4.         WTO entry mixed blessings for Cambodia
Cambodia’s entry as a member of the WTO will be a test on whether poor countries in the world could be better off by becoming members of this global trade body. Phnom Penh is up against a slew of WTO-imposed requirements that, as felt by some analysts, weigh heavily on one of the world’s poorest countries. The Cambodian government is riding high on the accession issue; given the economic benefits it foresees coming the country’s way to boost up the lucrative garment sector.
Cambodia will face a tough time as a member of WTO on account of the conditions imposed on it in areas like Agriculture and Pharmaceuticals.
However, economists feel that WTO membership will put Cambodia to a stiff test on account of the obligations required from the country in areas like Agriculture and Pharmaceuticals. Cambodia, with nearly 9 million people engaged in agricultural production, now has to set a maximum tariff of only 60%, which obviously tilt the balance against the country so long as the European Union and the US continue to impose tariff barriers of 252% and 120% respectively to protect their farmers. In addition, compliance with TRIPS (by 2007) would impede Cambodians’ access to cheap drugs, and possibly jeopardise the lives of the estimated 200,000 HIV patients in the country.

Cambodia is placing faith in new investment, and gearing up to create an enabling environment for the FDI being attracted its way through its commitment to enact about 40 new laws within the next 3 years.

(Inter Press Service, 23.09.04)
5.        Public administrations or the lack of it!
A United Nations probe into the World Food Programme (WFP) in Cambodia revealed an appalling story. About 44 percent of the food sent to the country as a part of the US$72mn programme got stolen or diverted by government officials over the period from January 2003 to February 2004.
A high level of corruption in public administration, poor quality, expensive infrastructure, lack of modern financing, and shortage of skilled workers are the major impediments to doing business in the country.

The WFP estimates that about 4,000 tonnes of rice failed to reach the impoverished families, for whom it was intended. ‘People who did the work got paid their entitlement, but not all of those who should have been working, worked’, says Heather Hill, WFP Regional Public Affairs Officer. ‘It was a complex fraud’.

While the Royal Government of Cambodia (RGC) has agreed to compensate WFP for the stolen food, the fraud revelation is a reminder that Cambodia is still falling well short of the ideals of a law-based society. Both the World Bank and IMF have warned that the country could see growth collapse and violence eruption unless it takes special efforts to tackle pervasive corruption that has destroyed the confidence of the fledging private sector and repelled foreign investment. “The choices before Cambodia are really quite stark. WTO presents an opportunity, but to utilise that opportunity, Cambodia needs to clean up its act domestically”, observed Nisha Agarwal, the World Bank’s Country Director.

A high level of corruption in public administration, poor quality, expensive infrastructure, lack of modern financing, and a shortage of skilled sophisticated workers are the major impediments to doing business in the country.

IMF suspects that the Cambodian economy that has managed to grow in spite of all the internal barriers over the last few years at an average level of 6-7%, would shrink considerably to about 2% in 2005 as local textile factories are exposed to global competition.

‘There is an awareness that, for our competitiveness and the survival of the nation, Cambodia must work very hard”, opines Sok Siphana, Secretary of State in the Commerce Ministry and a driving force behind Cambodia’s WTO accession.

(FT, 10.09.04)
INDIA
6.         Supreme Court of India asks Govt to amend The Competition Act

The Supreme Court has asked the Government of India (GOI) to amend the Competition Act 2002. Quite clearly the matter has got further extended with dim hopes of an early resolution. The issue revolving around the chairmanship of the proposed Competition Commission to be held by an expert or a judge did not appear to be resolved, with the court coming down heavily on the government.
To ensure effectiveness of the Commission, it should be able to undertake `judicial adjudication' and the Supreme Court of India saw a grave risk in letting the Commission be headed by experts like economists, businessmen, chartered accountants and the like.

The Government had come up with half-baked and unconvincing changes, observed the Court. At the last hearing of the case on 11th October 2004, the government had proposed the bifurcation of the competition body, with an appellate tribunal to be headed by a sitting or retired judge. This apparently did not jell with the Supreme Court.

The apex court's view was that, from the government's suggestions it appears that executive functions take an upper hand over judicial functions. This is in spite of a spirited defence by the GOI that the Competition Commission is an expert body, and therefore should comprise of personnel with experience in the areas of competition policy and law and other associated economic policy and business management science.

The court asserted that in order to ensure effectiveness of the Commission, it should be able to undertake `judicial adjudication' and saw a grave risk in letting the Commission be headed by experts like economists, businessmen, chartered accountants and the like.

The counsels for the petitioners and the Government had agreed to the proposal that the government should apply `separation of power' as provided under Article 50 of the Constitution, thus splitting the regime with a regulator and an appellate body.

The ball is back in the government's court, with the task of coming up with suitable framework for the Commission.

(Business Standard 03.11.04 & 04.11.04)

7. PM Gets active on Infrastructure

Indian Prime Minister Manmohan Singh announced that a committee would be set up under his chairmanship to monitor the focus of all key infrastructure projects. The Planning Commission of India would function as an executive arm of this committee on infrastructure, identifying bottlenecks in policy implementation and guiding the relevant ministries to speed up projects. The government will ensure a regulatory framework that is transparent, independent and provides impartial balance between public and private sectors, said Singh.

 The Prime Minister added that he has asked the Planning Commission to prepare a paper indicating the regulatory structures for different areas such as power, roads and ports.
The paper will look into the gaps in the existing system, comparing them with international best practices and recommend changes in the existing policies, if necessary.

To end the tyranny of over-inspection, Singh said he would reconstitute the Prime Minister's Council on Trade and Industry. One of the focus areas of the Council will be to reduce the ‘Inspector Raj’. Against just six inspections of a factory in China, factories in India have to go through 30 inspections.

(Economic Times, 25.08.04)

8. Ending Concor’s monopoly?

Will the monopoly over movement of cargo containers by rail come to an end for Container Corporation of India (Concor), a subsidiary of the Indian Railways?

This question has once again begun to do the rounds in port and shipping circles of the country in the wake of the recent reports that the Railway Ministry has permitted Pipavav Rail Corporation Ltd (PRCL) to transport containers by rail on some 10 routes from Pipavav port in Gujarat to all dry ports, including inland container depots (ICDs), breaking Concor’s monopoly for the first time.

Even though there has been a long-standing demand by the trade for allowing private participation in container movement over rail; industry analysts are of the opinion that PRCL's entry into this segment is a prelude to the opening up of the sector to private operators. Several private and Government organisations have indicated their willingness to enter this sector.

For a long time, a significant chunk of the port and shipping industries has been seeking private participation in container movement over rail, especially with Concor struggling to meet the surge in demand for container movement to and from the Indian ports in recent times.

Industry experts said that with the expansion in the network of dry ports, connectivity with the gateway ports has been constricted. Further, with India's container traffic swelling in the recent years, the pressure on domestic rail movement of containers is being increasingly felt.

(The Hindu Business Line, 26.11.04)

LAO PDR

9.        New foreign investment policy on the anvil

The Laotian Government is all set to announce two new policies to facilitate foreign investment. The move is being initiated by the Department of Domestic and Foreign Investment (DDFI), aimed at ensuring efficiency and transparency in the process of approving foreign investment projects.

These policies would help investors conduct their business without delay, once their investment applications have been approved. Steps would also be taken to ease the process of importing raw materials, machineries and other equipments currently unavailable in Laos, by offering tax incentives.

Earlier, in April 2003, a Government Decree was released, empowering the local authorities in Lao PDR to receive foreign investment of less than US$2mn directly. The government asserts that such an arrangement would facilitate the entry of foreign investment projects into the country.

It is noteworthy that Laos has witnessed a steady increase in foreign investment over the last few years. The current financial year has already brought US$261mn in the country, with nearly 54 foreign investment projects at the value of US$26mn being approved by provincial authorities.

Dr. Khamlien Pholsena, DDFI Director General, said Lao PDR takes the ‘success of investment’ very seriously, as it ensures subsequent investment (including re-investment) into the economy.

(Vientiane Times, 01.09.04)

NEPAL

10.       Private sector and competition law

Having missed the deadline of the voluntary commitment made at the WTO for enacting the competition law by 31 July 2004, the Royal Government of Nepal remains conspicuously silent over when and how the legislation is going to be enacted.

The country’s private sector seems to be in a state of dilemma over the contours of the new legislation. On account of the WTO membership and the commitment to the Mode 3 of service supply, Nepal is expected to receive higher amount of FDI offering formidable competition to the domestic private sector.

Under the circumstances, experts feel that the private sector in Nepal would have to raise their voices for the inclusion of the following features into the competition legislation, for the benefit of the domestic players:

  • Exemption of ‘export cartels’ from the purview of the competition law.
  • Promotion of some industries as ‘national champions’ to spur export earnings.
  • Excepting small farmers and farmers’ cooperatives from the Act.
  • Allowing business associations to thrive
  • Permission to retain dominant position (without abusing it) for certain businesses for the sake of enhancing overall efficiency.
  • Protection of some sections – like the indigenous population from the ‘onslaught’ of competition.
  • Preserving certain rights of some groups – e.g. right to collective bargaining of labourers.

(The Kathmandu Post, 20.08.04)

11.       Fresh sugar imports ease demand pressure

Consumers who were having a tough time facing acute shortage of sugar and skyrocketing prices, could breath a sigh of relief when local businessmen started to import sugar to meet the unprecedented mismatch in demand and supply during the festive season of Tihar.

Commenting on the hike in sugar prices, the president of Nepal Sugar Industries, said that the rise was an artificial one and was bound to fall sooner or later, when businessmen were able to import the adequate quantity of sugar. Despite this claim, sugar shortage haunted the Valley dwellers and the price at some places of Kathmandu district like Bishalnagar was recorded as high as Nepalese Rs.60 per kg. Due to the shortage of sugar, prices had steeply climbed above the 50-rupee mark.

 While government officials blamed the private players of indulging in unfair practices and hiking prices, local businessmen, in turn, accused the government for their shortsightedness and for not anticipating the increase in demand during the festive season of Tihar. Officials from the Department of Commerce and District Administration Office even raided godowns to crackdown illegal practices. 

(The Kathmandu Post, 11 November 2004)

VIETNAM

12.       Rising drug prices left consumers reeling – Who to blame?

When Vietnam's Ministry of Health together with health departments from Ho Chi Minh City and the capital Hanoi carried out a survey of pharmacies, they found that the prices of almost 800 drugs had been marked up, some by more than double. More than 60 percent of the drugs that bore the higher price tags, the survey also found, are imported.

"The state could not control the exact price of imported drugs, and foreign pharmaceutical companies in Vietnam therefore have pushed prices to their highest levels," said Tran Quang Trung, chief inspector at the Ministry.

Pharmaceutical companies and distributors, however, attributed the need to increase prices to fluctuations in the exchange rate between the Vietnamese dong (VND) and the euro. The euro had appreciated 15 percent against the dong from the beginning of 2003, but a 10 percent hike in import tariffs and the rise in the price of oil were also blamed for the price rise.

Not correct, health inspectors said. They pointed to the monopolistic nature of the system for importing, distributing and pricing of drugs in the country. Their data showed that while there were about 4,500 branded foreign drugs available in pharmacies, about 1,000 were handled by sole distributors.
"Domestic firms exclusively distributing European-made drugs normally make a profit of between 15 and 30 percent," Trung said. However, what can explain - a margin of almost 130 percent in this case: a box of 50 pills of Tegretol, an anticonvulsant, imported from France for VND51,744 ($3.34) was resold at VND118,190 ($7.62).
"For drugs imported from South Korea, Thailand, India and Malaysia, the margins can be 120 percent, and even as high as 390 percent," Trung added.
Drugs made in these countries are generic, and are exported from there to developing countries at costs much lower than similar products made by western multinational companies. Yet their prices in Vietnam were as high as those for the multinational firms' products.

With a local company being the sole representative of an international pharmaceutical company, it could lobby the Ministry for the right to import its principal's products and negotiate quantities.

Analysts held out the abolition of the sole representative system as the best method to keep drug prices low and affordable. "Various medicines of the same category should be given the chance to appear legally on the market," said Trung.

  
He believed that "parallel imports" - allowing several firms to import the same drug from different sources - would limit and prevent price hikes and speculation. "The Ministry will then be able to control the prices of drugs and their fluctuation from suppliers to retailers.”
Health officials also pointed out drug manufacturers who had hiked the prices of their products. They named Zuelling Pharma VN, which they claimed to have increased prices on two-thirds of the drugs it supplied to Vietnam. Diethelm was another manufacturer mentioned by health officials, as also Thailand's Mega Products, which has hiked prices on all its drugs, and India’s Ranbaxy, who even possessed a manufacture site in Vietnam.

However, whether such a policy would reach the market quickly enough to provide relief to Vietnamese consumers was not clear. In the meanwhile, experts called for the State to manage the issue of drug pricing more cohesively. At the moment, while the Ministry of Health regulated import licenses and quotas, the Ministry of Finance had in place a policy that allowed city wards to set their own price bands, which added to the pricing confusion.

(http://www.atimes.com/atimes/Southeast_Asia/EG16Ae03.html)
13.       Vietnam NA passes Competition Law
Vietnam National Assembly (NA) passed the new Competition Law with 77.89 percent voting in favour on Nov. 9, the fourteenth day of the month-long National Assembly legislative session. It is the first time that definitions of market dominant position, multi-level trade, and unfair competition will be contained in a comprehensive legal document. The introduction of the competition law has been seen by many as an urgent necessity since a market economy has been steadily developed in Vietnam.
During discussions prior to the adoption, many National Assembly deputies have raised their concerns over the feasibility of various provisions in the Bill.
Discussion on the definition of a market dominant enterprise was an example. National Assembly deputies failed to reach a consensus on the threshold of market share that a market dominant business must have. Deputy Vo Quoc Thang from southern Long An province pointed to the fact that small and medium-sized enterprises (SMEs) make up 96 percent of Vietnam's total economy. Therefore, he said, a market dominant business should hold a maximum of 30 percent of market share. This threshold will help mitigate negative impacts that market dominant businesses might have on the majority of SMEs.
Deputy Nguyen Thi Hong Sinh from the southern coastal province of Ba Ria-Vung Tau argued that regulations contained in the bill on financial punishment were not strong enough to have any deterrence effect against unfair competition practices, which have become increasingly common in Vietnam. Unfair measures to lure employees away from one business to another, dumping products, and stockpiling should be illegal, she added. 
HCM City's deputy Nguyen Dinh Loc, the former Minister of Justice, proposed that the Ministry of Trade should not hold both SOEs managerial and competition administrative functions, which he said, would hinder competition. Vietnam needs stronger economic groups so there should not be regulations against this effort but ones to help it and make it more effective, he added.
Meanwhile, Deputy Nguyen Ngoc Tran from HCM City is worried about the guarantee of a consistent relationship between the Competition Law and other laws, especially the Intellectual Property Rights and Civil Laws. According to Tran, a number of regulations on managing and dealing with unhealthy competition in the Competition Draft Law have not yet been shown to be consistent.
Many of the NA deputies' suggestions during the ongoing session were added to the bill, according to the NA lawmaking group.
The new law particularly singled out "pyramid schemes" as a serious violation, banning four activities, which facilitate pyramid scheme operations.

This type of business, also known as "network marketing," has been abused in Vietnam by a significant number of companies. It promises consumers or investors large profits based primarily on recruiting others to join their program, not on profits from any real investment or real sale of goods to the public. All pyramid schemes would eventually collapse when they reach a point where further recruitment is not feasible, experts say. Then, most investors find themselves unable to recoup their losses, while the "promoters" keep the bulk of the money.

(Various sources)

[1] The 9th month in Islamic calendar, a holy time for the Muslims.