Transcript Rahman - cuts ccier

Competition Policy and Pro-Poor Development in a LeastDeveloped Economy - The Case of Bangladesh
Presented by:
Dr. Atiur Rahman
Bangkok, 27 June 2006
Issues will be covered:
Competition policy and law
Competition policy in Bangladesh
Need for competition policy and law in a leastdeveloped economy like Bangladesh
Effects on the poor as consumers as well as
producers and/or suppliers of goods and
services
Towards having an effective competition policy for
pro-poor development in Bangladesh
Competition Policy/Law?
In market economy, competition is a process whereby firms fight
against each other for securing consumers for their products
Competition policy => government measures directly affecting
both Firm Behavior and Industrial structure.
A competition policy should include both:
i) Economic policies adopted by Government, that enhance
competition in local and national markets, and
ii) Competition law designed to stop anti-competitive business
practices.
Fair Competition
 Producing quality goods
 Becoming cost-efficient
 Optimizing the use of resources
 Adopting the best available technology
 Investing in research and development, etc.
Competition Policy in Bangladesh
Bangladesh has no competition policy.
Monopolies and Restrictive Trade Practice (Control and
 Prevention) Ordinance, 1970
Has not been implemented but still valid
Initiatives were taken to develop a competition policy after
discussions at the 1996 Ministerial Conference in Singapore
but abandoned after Doha Meet.
Competition Policy in Bangladesh
At Doha in 2001, there were disagreements among WTO
members to adopt competition policy for developing
countries.
Consequently, Bangladesh has been giving least attention
towards competition policy.
Bangladesh considers it to be a dead issue.
That does not mean demand for a well-developed
competition policy has become irrelevant, particularly if
consumers’ interests are considered.
Competition Policy in Bangladesh
Consumers do certainly want a competitive regime
for their benefits.
Consumers’ right protection law – 2004 was
approved in the cabinet. This was supposed to go to
the parliament for final legislation but never saw the
day light.
This draft act has, of course, emphasized
consumers’ right to have goods and services at
competitive price
It has focused on consumers’ right to have
information regarding quality, quantity, standard and
value of the goods and services.
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Most
Prevalent
Anti-Competitive
Bangladesh (BEI Findings)
Practices
50%
40%
30%
20%
10%
0%
in
Anti-competitive Practices in Bangladesh
Natural monopolies (e.g. distribution of power and gas,
railways, telephone and other public utility services.
Natural monopolies not only inhibits modernisation of
these services but also hinder private investment into
these sectors)
Lack of legal provision (no legal entity to oversee the
trading practices of business firms.) Absence of
autonomous and independent effective and efficient
judicial system fails to ensure a favourable business
climate for competition.
Anti-competitive Practices in Bangladesh
Price fixing (raising prices
through
collaboration
among
importers,
local
manufacturers, suppliers etc.)
Presence
of
state-owned
inefficient
industries (e.g. Textile, sugar, nationalized
commercial banks etc.)
Manipulation of supply (through collaboration
among
importers,
local
manufacturers,
suppliers etc)
Anti-competitive Practices in Bangladesh
Exclusive dealing and tying arrangements (e.g.
diagnostic services, educational inputs from
particular outlets) This type of unfair arrangement
increases the cost of diagnosis/education, which
is borne by the consumers.
Weak regulatory framework (judicial system cannot
guarantee property rights e.g. ETV)
Bid rigging (pre-arranged and threat driven)
Price discrimination (Dumping and charging
different prices for identical products)
Bribery and gifts (e.g. bribing tax officials to avoid
taxes)
Extortion (e.g. sellers extorted by a purchasing
agent)
Anti-competitive Practices in Bangladesh
An increase in transport fare prior to religious
festivals is a common phenomenon in
Bangladesh, and Government has no control over
this price increase
Price hikes are artificial and are caused by a
group of traders through collusion
Pharmaceutical companies often persuade
doctors through bribing to prescribe medicine
produced by the companies themselves.
Low entry and exit barriers are an important
feature in maintaining a competitive environment
in Bangladesh
Anti-competitive Practices in Bangladesh
City Cell is a company involved in the mobile
telecommunication business. When a consumer
takes a mobile phone connection from City Cell,
they have to pay for the particular mobile set
supplied by the company. In this case, the
consumer is deprived of having the option of
another mobile set. This is surely a tying
arrangement. So, this practice may be
considered as anticompetitive.
In early 1990s there was only one company (City
Cell) in the market. Price per connection was
around 50 to 100 thousand Taka
Now four companies operate in the market and
price has come down to round 1000 Tk. due to
greater
competition
and
taking
various
liberalization policy.
The Indian Case Study
 Ghoten Gas Agency, a Kolhapur based gas supplier in India, was
forcing the buyers to buy hot plates at the time of releasing fresh gas
connection.
 The Competition Authority held such a practice.
 The Authority directed that wherever a customer purchased a hot plate
simultaneously with a fresh gas connection, the gas agency should
make it clear on the invoice that the hot plates were purchased
voluntarily.
 Further a notice board should be prominently displayed in the
agency’s premises that the customers were free to purchase hot plate
either from Ghoten Gas agency or from any other source.
Source: CUTS “Competition Policy and Law Made Easy”
Anti-competitive Business Conduct in Bangladesh
Monopoly in CNG Auto Rickshaw (Four Stroke
Engine) business
Only one company is allowed to import (Uttara
Motors is the sole distributor of Bajaj)
In India, Price is Tk. 150, 000.00
In Bangladesh 400,000.00
Passengers have to bear the additional cost
(Daily Prothom Alo 30 March 2006)
Therefore, we need competition policy to monitor, prevent
and control anti-competitive practices.
Recent Sugar Price Hike (April 2006)
Existing situation
17011100 (raw
cane sugar)
CD
SD
30% 30%
US price: $0.46/Kg 0.59
DS
VAT
4% 15%
0.77 0.80 0.93
Market
price
Tk.
75/kg
Tk.60
Monopoly in sugar business (only
three/four importers)
In India price is Rs25 to 30
The Spanish Case Study
 Four Sugar producers in Spain were engaged in market allocation
agreement (apart from price fixing, sales quota agreements) that
restricted sugar supply to the level at which maximum monopoly
profits could be earned.
 As a result. Spanish sugar prices, for many years, were 5 to 9 percent
higher than those in the rest of Europe.
 The Spanish Service for the Defence of Competition uncovered the
cartel and slapped 8.7 million euros fine on the four producers.
Source: CUTS “Competition Policy and Law Made Easy”
Hence, we need a Competition Policy
Benefits to Consumers
 A fair deal in the market place with:
The best possible choice of quality
The lowest possible prices, and
Adequate supplies of commodities.
Benefits to Efficient Producers
A safeguard against practices that could drive companies
out of business.
Lower entry barriers to promote entrepreneurship and
growth of SMEs.
Efficient allocation and utilization of resources ensures
more output and employment.
Control of international unfair competition and
restrictive business practices, such as international cartels
On the whole, a competition policy maintains and
promotes the competitive spirit and culture in the
market and stimulate development.
How can national competition policy be
formulated for pro-poor development?
Four critical factors are important:
Political will
Expertise
Efficiency
Resources
Right to information
How can national competition policy be
formulated for pro-poor development?
Role of government
Role of political parties
Role of international organisations
Role of consumer associations
Role of media
Concluding Remarks
There are varieties of anti-competitive practices and
consumer abuses, so the regulatory authority should
be innovative in nature.
For least developing countries, resource constraint is
one of the major problem in establishing
competition authority.
Knowledge gap regarding how a competition
authority can be made functional is also quite in
LDCs
 Lack of effective consumers’ association (consumers are
not organized and cannot play any role in promoting their
own interest)
Concluding Remarks
Educating consumers and consumer activists in
a sustained manner;
Need testing and informing the people about
the quality of various goods;
It is very important that the reports on anticompetitive practices be published in the
media to raise the awareness of the consumers.
Need effective pressure group for getting the
consumer law formulated and enacted, and
strengthening it from time to time.
Thank You.