E-Newsletter
Vol. IV

CUTS Centre for Competition, Investment & Economic Regulation (C-CIER) is implementing a two-year project entitled: ‘Advocacy and Capacity Building on Competition Policy and Law in Asia’ (7Up2), supported by 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 an 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.

Details of the project are available at http://www.cuts-international.org/7up2.htm.

End to Garment Quota System Spells More Competition, More Poverty

The World Trade Organisation (WTO) terminated the Multi-fibre Agreement’s (MFA) quota system for apparel on January 1, 2005, after 10 years of incremental phase-outs. MFA, a piece of US legislation, was created in 1974, to set export quotas on all textile-manufacturing nations.

These limits on how many garments a country could export served to protect America’s ailing garment industry from being overwhelmed by a growing number of cheap imports from developing countries, particularly China.

However, in the last 30 years, the quota system had resulted in positive growth for developing nations’ starting garment industries, which were made competitive simply by the fact that all other countries were working under imposed quotas.

In an unregulated, quota-free market, developing nations and their embryonic garment industries would not have been able to compete in large and lucrative markets like the US and Europe.

This quota system forced buyers, including large retailers like J C Penney, the Gap, Wal-Mart, and Ralph Lauren, to purchase textiles and ready-made garments from a long list of countries, such as Bangladesh, Cambodia, Mexico and South Africa. Developing nations like Bangladesh built up their garment industry through this system, which accounts for 75 percent of all its exports. The country is expected to lose nearly a million jobs, as a result of MFA’s termination. 

Predictions from experts about the impact of the MFA’s termination paint a wide range of scenarios. Many predict that China – with the world’s largest workforce and some of its lowest wages – will control nearly half the global apparel market within ten years.

India and Vietnam are also expected to gain a large share of the apparel market, for the same reasons as China: raw materials, cheap labour, weak or nonexistent unions in the industry, and a vertically-integrated apparel industry that allows them to manufacture their own textiles.

J C Penney’s Purchasing Department President, Peter McGrath, described the post-quota trade environment as “the law of the jungle: only the strongest will survive.” Increased competition is expected to drive down prices, which could potentially drive down wages, as a result.

After learning that Bangladesh had asked the World Trade Organisation (WTO) to review the quota eliminations and its impact on poor nations, J C Penney threatened to pull work from the country if the request was not withdrawn.  McGrath said, “We will have to question our business relationship with our partners if they continue to act like this… We can’t go back without causing major disruption to US importers, so we are talking tough to people who want to bring up any issue at all.”

On the other hand, the American garment industry might take a big hit. Since 1994, the US has lost 800,000 textile and apparel jobs. The New York Times reported last September that the US could lose 600,000 more jobs after the quota expiration if protections were not made.

(http://www.labornotes.org/archives/2005/02/articles/a.html)

Lack of Interconnectivity for Teletalk

Teletalk subscribers in Bangladesh are suddenly facing a virtual call restriction by all private mobile operators due to a lack of adequate interconnectivity.

About 10,000 customers of the state-owned Teletalk now cannot make calls to or receive calls from subscribers of the four private cellular operators, who have over 5 million subscribers across the country.

This, however, is no unfair competition practice. The private operators claimed that they had never refused to deal with Teletalk, who until present did not have any interconnectivity agreement with them. The private operators allowed Teletalk access to their network for about a month, starting from March 31, 2005, when the state-owned company started its commercial operation, hoping that Teletalk would come forward to make such deals.

"We showed courtesy for about a month but they (Teletalk) did not reciprocate. They launched service without any interconnectivity agreement with us and continued it, " a senior official of the Association of Telecom Operators Bangladesh (ATOB) said.

For testing their network, Teletalk took one E-1 connectivity from the private operators-GrameenPhone, Telecom Malaysia International Bangladesh (TMIB), Pacific Bangladesh Telecom Limited (PBTL) and Sheba Telecom, service provider of Banglalink.

Bangladesh Telegraph and Telephone Board (BTTB) signed a memorandum of understanding (MoU) with the ATOB for temporary use of interconnectivity, which expired on March 25, 2005.

ATOB officials said they have not snapped interconnection with Teletalk but its subscribers are facing problems due to over exploitation of capacity. "No-one from Teletalk contacted us, so far. Rather, we signed a MoU with the BTTB. So, we first need to know the status of the company for further cooperation," another ATOB official said.

Meanwhile, Teletalk has suspended its subscription drive because of lack of its capacity to handle the huge rush for its service, and for technical problems.

(The Daily Star, http://www.thedailystar.net/2005/04/24/d50424012018.htm)

Insurance Agent Commission  to Stop Unhealthy Competition

The Government of Bangladesh (GoB) is likely to reintroduce the commission system in general insurance business to stop unhealthy competition among fellow companies.

The GoB suspended the commission system in March, 2002 following request of the Bangladesh Insurance Association. However, the insurance firms were giving increased percentage to their agents in the name of business development.

Sources from the Ministry of Commerce of Bangladesh said that general insurance companies tend to spend excessive money on roping in clients due to stiff competition among the companies.

According to the Insurance Act-1938 of Bangladesh, the firms are allowed to give commission to the insurance agents and employer of agents.

The Ministry sources said that the general insurance business is seeing dull period largely due to increased number of companies in the business. Some 35 general insurance companies are operating in the country now.

“For the rat race in the sector, the insurance firms are spending increased amounts to earn business,” a high official in the Ministry said.  The unhealthy competition creates scope for making shady transactions in the sector, he added.

He also said for increased expenditure in business development, the management cost of the insurance firms is increasing rapidly.

The Controller of Insurance (CoI), in a letter, recently told the Commerce Ministry that the financial base of general insurance companies is becoming shaky due to high business development cost. The CoI recommended the Ministry to reintroduce the commission system immediately.

The Ministry sources said that the reintroduction of the commission system would help increase government revenue as well as bring financial discipline in the sector. The GoB would get licence and renewal of licence fee from the insurance agents and employers of agents.

 (http://www.bangladeshnewsarchives.com/bangladesh-news/2005/04/27/govt-likely-to-reintroduce-agent-commission-in-general-insurance/)

Misusing Power to Snatch up Land in Siem Reap Area

A report prepared for Cambodia’s Prime Minister Hun Sen by Vann Sophanna, Director of the Forestry Administration in the North region, claimed that more than half of Banteay Srey district’s 29,000 hectares of Permanent Forest Estate (PFE) had been illegally claimed by private landowners. PFEs are defined as forested areas that can only be managed by the government, concession holders and local communities for the purpose of long-term sustainability.

The report investigated land ownership in Khnar Sanday, Rumchek, Preah Dak, Thbang, and Ta Ek communes. It named 97 people who said they owned a combined total of 2,483 hectares of protected land. A further 14,616 hectares was claimed by unidentified parties. Most of the identified landowners were from Phnom Penh. Sophanna said that as property values increased, those with power and money were using local officials to claim the land.

In reply, Un Vong, District Governor of Banteay Srey, refuted the results of the report, saying that no land grabbing was occurring in his district, although his name appeared on a document indicating the transfer of a 440-hectare plot from villagers to some anonymous name.

(Phnom Penh Post http://www.phnompenhpost.com/TXT/current/stories/rich.htm)

National Assembly Passed Law on Commercial Enterprises

The National Assembly of Cambodia has passed the Law on Commercial Enterprises, seen by the business community, as a key piece of legislation to improve Cambodia's appeal to investors.

Approved on May 17, 2005, the law is the first major piece of legislation the government has passed that further accedes Cambodia's membership to the WTO. It gives a clear legal definition for a company, outlines the role of directors and shareholders, and even opens the door to a future stock exchange in Cambodia.

"This is a good sign that the WTO agenda is being taken seriously (by the government)," said Brett Sciaroni, Chairman of the International Business Club. "It gives definition, a greater understanding of what a company is – the responsibilities and liabilities of shareholders and directors."

Up to this point, corporate governance has been limited to the policies of the Ministry of Commerce, which apparently is too risky for foreign investors to take.

"Investors want to see on paper what the law says before they create a company here," Sciaroni said.

The new law will also address dispute resolution. "When there is a dispute in a company, the (Ministry of) Commerce officials are reluctant to act because they are only covered by policies, not law," Sciaroni said. "This will give them guidelines."

The new legislation is fundamental to any modern market economy; say those in the business sector. It will bring laws dealing with Cambodia's corporate governance closer in line with developed nations, and at the same time meet the requirements of WTO membership.

But there are still important laws waiting to be drafted or passed, including legislation dealing with bankruptcy. While the new company law fills a gap in the regulatory needs of the private sector, it also fills a gap in the national budget. Passing the Law on Commercial Enterprises was a condition set for the release of two Asian Development Bank (ADB) loans.

The Financial Sector Programme loan, worth US$10mn, can now be dispersed to the Ministry of Finance (MoF) in June after a little more paperwork is completed, according to Vanndy Hem, an ADB economics and finance sector officer. The loan is classified as "budget support" received by the MoF as the representative of the government, said Hem.

A further US$7mn, the first tranche in a US$20mn Small and Medium Enterprises Development Programme loan, will be immediately dispersed to the MoF, once the formalities of the law have been completed.

(Phnom Penh Post, http://www.phnompenhpost.com/TXT/current/stories/na.htm)

Eurasie Travel to Challenge Angkor Wat Ticket Deal

For the first time, there was some competition in the bid for ticketing rights at the Angkor Archaeological Park, currently held by Sokimex, a Cambodia multi-sector giant corporation founded in 1980, with close ties to the Cambodia People’s Party (CPP) government.

Eurasie Travel, which has operated in the tourism sector for 18 years, recently announced that it hopes to bid for a contract at the historical site when Sokimex's agreement with the government expires in August, 2005. Sokimex has held exclusive ticketing rights at the park, since 1999.

Moeung Sonn, Managing Director of Eurasie Travel, said that having another company challenge Sokimex will help to promote a free market in Cambodia and encourage transparency in the government. He added that, if granted rights to Angkor, Eurasie Travel would help increase state revenues.

"The government should consider (our request) as my company's proposal is parallel to (the government's) policy," Sonn said. "I have talked with the Apsara Authority's officials, and they said they had no choice besides Sokimex as there was no competition from other companies," he added.

In a letter, written on May 10, 2005 to Bun Narith, Director General of the Apsara Authority, Eurasie Travel requested the right to put in a bid when Sokimex's contract expires. Sonn proposed that the company receive a maximum of 10 percent of total revenues for ticket sales.

Sok Kong, Director General of Sokimex, said his company plans to continue holding ticketing rights at Angkor Archaeological Park, but he has not yet discussed a future contract with the Apsara Authority.

"I'm not concerned about the competition," he said. "But I'm afraid (Eurasie Travel) does not have the millions of dollars needed for investment."

But Kong said Sokimex recently cancelled its proposal to invest in ticketing rights for six northwestern temples because other companies wanted to compete for them. Sokimex contributed approximately US$1mn per month to the state budget in 2004. Before Sokimex took over ticketing rights, annual revenue reported by the Ministry of Tourism and Ministry of Culture and Fine Arts was around US$100,000 to US$200,000.

Beginning June 1, 2005, ticket prices for foreigners visiting Angkor Park will increase by US$3, with a one-day visit going from US$20 to US$23, a three-day visit from US$40 to US$43 and a week-long visit from US$60 to US$63.

Sonn criticised the increasing price of tickets and said tourists may reconsider vacations to the park if prices continue to go up.

 (Phnom Penh Post, http://www.phnompenhpost.com/TXT/current/stories/eurasie.htm)

Vietnam to Back Producers and Retailers 

Vietnam will assist roughly 15-29 major goods producers and retail distributors this year in anticipation of increased competition from foreign corporate retail giants as the domestic retail market opens to foreign competition, said a Trade Ministry Official. The move comes as Vietnam tries to implement international pledges in order to join World Trade Organisation (WTO).

Many local distributors are also planning ways of increasing their competitiveness on domestic market. “Corporations, including steel, cement and foodstuff corps, will set up their own distribution systems to closely link their production with the market,” said Hoang Tho Xuan, Director of the Ministry of Trade’s Domestic Market Policy Department.

Trade Ministry statistics show that Vietnam’s current distribution network includes 8751 markets, 160 supermarkets and 32 commercial complexes primarily in Hanoi and HCM city. However, all of the stores are small scale. Turnover for the country’s largest supermarket is only VND200bn (US$12.5mn) yearly.

Echoing Xuan, businesses are fully aware of the challenges ahead. Sai Gon Co-op General Director Nguyen Ngoc Hoa, said domestic distributors would face fierce competition as Vietnam opens its retail market to global wholesale and retail giants. He suggested that in order to win on the domestic market without a long-term investment strategy, Vietnamese distributors should cooperate closely.

(East Asia Competition Policy Forum News, Vol. 22, 31.03.05)

Desire to Acquire

Five international banks have set their eyes on Vietnam’s two biggest private commercial banks, as a first step towards penetrating the country’s potentially vast retail banking market. The suitors for Vietnam’s Sacom Bank and Asia Commercial Bank are understood to be HSBC, ANZ, Standard Chartered, Citibank and Singapore’s DBS, all keen to expand in one of the Asia’s fastest-growing economy that has 80mn people.

Vietnam limits foreign ownership in local companies to 30 percent. No individual foreign investor can hold more than a ten percent stake. But even small stakes on one of the two Vietnamese banks would give strategic partners a toe-holding in an otherwise closed local market with room to grow, said Deepak Khanna, country representative of the International Finance Corporation, the World Bank’s private-lending arm.

(FT, 03.03.05)

Vietnam Rural Enterprises Need Assistance

A recent survey by the United Nations Development Programme (UNDP) found that Vietnam's rural enterprises are disadvantaged compared to urban ones, even though they account for 10 to 11 percent of Vietnamese business. Although most rural businesses operate on smaller scales, with an average of 22 employees and a capital of $76,433, there are often unforeseen costs resulting from bad infrastructure.

Companies in some parts of the country must pay electricity bills that are 10-100 percent higher than those in urban areas. Rural enterprises also have difficulty buying or hiring state land and cannot endure the complicated procedure, so many of them are forced to pay premium prices to rent private land.

In addition, credit for rural enterprises is dropping and the survey found that half of the 300-surveyed enterprises must borrow money from unofficial sources that charge higher interest rates. To secure an official loan, the enterprises most pay one or two per cent to an intermediary, further complicating the process.

Rural enterprises still lack support from national and local authorities and only a few enterprises are invited to talks, conferences, and training classes on land and credit management, while most rural businesses are unfamiliar with tax and customs regulations and urban enterprises are relatively proficient.

(Asia Pulse, http://www.adbi.org/e-newsline/050419.html#9)