Transcript Douglas Brooks

Competition Policy and
Development: Evidence
from the Asian Region
Presentation by
Douglas H. Brooks
June 27, 2006
Outline
Introduction
Country Experiences
• Competition policy regimes
• Consistency with other
development objectives
Lessons Learned
Introduction
Results of 6 country studies
• PRC, India, Korea, Malaysia,
Thailand, & Viet Nam
• Selection based on diversity of
their income levels and
experiences with competition
policy, including competition law
Comparative Statistics:
General Economic Indicators
GDP, 2004 ($
billion)
GNI per capita,
2004 ($)
Time required
to start a
business (days)
PRC
1,930
1,500
48
India
691
620
89
Korea
680
14,000
22
Malaysia
118
4,520
30
Thailand
162
2,490
33
Viet Nam
45
540
56
Country Experiences:
Competition Policy Regimes
Competition policy objectives
• PRC: to safeguard development of socialist market
economy
• India: to prevent practices with adverse effects on
competition
• Korea: to promote fair and free competition
• Malaysia: growth with equity, which is the general
development objective
• Thailand: to promote free & fair trade with a
competitive environment
• Viet Nam: to promote an equitable &
nondiscriminatory competitive environment
Country Experiences:
Competition Policy Regimes
Implementation Problems
• Laws too broad and vague
• Differences in interpretation,
especially if implementation is
decentralized
• Need for supplemental regulations to
clarify law
Country Experiences:
Competition Policy Regimes
Implementation Successes
• In Korea, corrective measures and
penalties have been imposed on
chaebols
• Campaign in PRC to counter
anticompetitive acts by public utilities
resulted in a large number of antitrust
cases, especially involving bid rigging.
Country Experiences:
Competition Policy Regimes
• Passage of competition laws has
informed consumers and small
enterprises of their rights, instilling
a competition culture.
• Competition advocacy activities
have been implemented to raise
public awareness.
Country Experiences:
Consistency with Development Objectives
Industrial policy and competition policy
• Korea promoted the establishment of
chaebols, allowing them to gain political
and economic power. This resulted in
inefficient operations and reduced
opportunities for new entrants,
necessitating the introduction of
competition policy.
Country Experiences:
Consistency with Development Objectives
• PRC has been pursuing industrial
policies since the late 1970s. It
promoted the establishment of
large conglomerates to achieve
economies of scale and compete
with MNEs. At the same time, in
domestic markets, inter-firm rivalry
is encouraged.
Country Experiences:
Consistency with Development Objectives
• In India, adopting a planned strategy for
economic development involved controlling
the direction of private investment through
the use of industrial licensing, protecting the
small-scale sector, and controlling firm
closures and labor retrenchment. By 1991,
industrial policies underwent substantial
change and were geared towards
liberalization. These catalyzed competition in
manufacturing and services.
Country Experiences:
Consistency with Development Objectives
• In Malaysia, growth with equity is the
primary economic objective, and
redistributive policies were adopted.
Industrial policies to promote national
champions, however, have limited
competition in some sectors. This was
partly offset by the adoption of market
liberalization in both tradable and
nontradable sectors.
Country Experiences:
Consistency with Development Objectives
• Thailand’s industrial policy encourages
companies that employ advanced
technology, invest in R&D activities,
provide training programs, utilize
available domestic resources, and
promote industrial linkages. But many
state rules (eg, high tariffs & surcharges
on competing imported products,
exclusive rights, etc.) pose entry
barriers to certain industries.
Country Experiences:
Consistency with Development Objectives
• Industrialization and modernization are
Viet Nam’s strategic development
objectives, with strong emphasis on
government-led industrialization
policies. For a long time, competition
was limited and special preference was
given to SOEs. At the same time,
conglomerates are being promoted to
face increasing competition from
foreigners.
Country Experiences:
Consistency with Development Objectives
Trade policy and competition policy
• Until 1970s in India, trade policy promoted
import substitution and domestic industry
protection. Reforms since 1991 centered on
licensing and tariffs. To meet its WTO
commitments, quantitative restrictions and
nontariff barriers were removed. Tariffs were
also reduced. These measures enhanced
market competition.
Country Experiences:
Consistency with Development Objectives
• Korea also liberalized trade since 1980s.
After the Asian financial crisis, it
redoubled efforts. In line with its
agreement with IMF and its Uruguay
Round commitments, quantitative
restrictions and export subsidies were
removed. Trade liberalization is thus
likely to have rationalized the market by
allowing inefficient firms to exit.
Country Experiences:
Consistency with Development Objectives
• In Malaysia, where competition
concerns are addressed through
sectoral regulations, there are some
strains between trade liberalization,
industrial policy, and competition
pressures. A particular case is its
commitments to AFTA and its desire to
support the national car industry.
Country Experiences:
Consistency with Development Objectives
• While Thailand is an open
economy, it still maintains high
tariffs compared with other ASEAN
countries. Its commitments under
AFTA and other bilateral FTAs,
however, has allowed increased
competition from its trading
partners.
Country Experiences:
Consistency with Development Objectives
• Viet Nam has moved towards a
more open, transparent, and
enabling trade regime, but some
price controls and quantitative
restrictions remain. These controls
created barriers to entry that led to
high market concentration in
affected sectors.
Country Experiences:
Consistency with Development Objectives
• Local protectionism is prevalent in
PRC. This involves imposing taxes
on commodities made in other
provinces and banning exports to
other regions of local raw materials
in short supply or of high quality.
This has led to duplication of
investments and excess capacity.
Country Experiences:
Consistency with Development Objectives
FDI policy and competition policy
• In PRC, FDI is encouraged but entry is far
from free, as foreign investors are subject to
numerous regulations. Merger notifications
are also required only of foreign investors.
This has led to widespread concern that
future antimonopoly legislation may not be
equally applied to foreign and domestic firms.
Country Experiences:
Consistency with Development Objectives
• Korea undertook liberalization in
the 1980s, and further liberalization
was undertaken after the Asian
financial crisis. This has, however,
led to some tightening in market
concentration in some sectors.
Country Experiences:
Consistency with Development Objectives
• FDI is an important source of
capital in Malaysia’s development.
While it is encouraged in
manufacturing, it is restricted in
service sectors that may drive out
home-grown small businesses.
Country Experiences:
Consistency with Development Objectives
• The Thai economy is likewise open
to foreign investment except for a
negative list of sectors where
foreign ownership is prohibited or
limited.
Country Experiences:
Consistency with Development Objectives
• Viet Nam’s FDI policy has become
liberal in recent years, but
restrictions still exist that effectively
limit competition. These include
restricted sectors and forms of
operation, performance-based
requirements, and regulations in
the financial and land markets.
Lessons Learned
• Undertaking industrial policies for
development should be accompanied by
an effective competition policy.
• Openness to trade and FDI do not
always lead to increased competition,
as government regulations sometimes
create barriers to entry and protect
domestic industries.
Potential cross-country
comparisons
• Role of FDI in shaping how officials and analysts perceive the
current and future role of national competition law (PRC, India,
Malaysia).
• PRC and Viet Nam on competition law and its role in moving
towards a greater market-based economy.
• Role of industrial policy in shaping the design and debate over
national competition law (PRC, India, Malaysia, Viet Nam).
• Experience with enforcement of competition law (Korea,
Thailand)