Dr. Atiur Rahman

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Competition Policy and Pro-Poor Development in a
Least-Developed Economy - The Case of Bangladesh
Presented by Dr. Atiur Rahman Bangkok, 27 June
2006
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Issues will be covered

• Competition policy and law
• Competition policy in Bangladesh
• Need for competition policy and law in a
  least-developed 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

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Competition Policy/Law?

• In market economy, competition is a process
  whereby firms fight against each other for
  securing consumers for their products
• Competition policy gt 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.

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Fair Competition
Producing quality goods Becoming cost-efficient Optimizing the use of resources Adopting the best available technology Investing in research and development, etc.
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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.

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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.

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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 Practices in
Bangladesh (BEI Findings)
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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.

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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)

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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)

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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

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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.

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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 agencys 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

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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.
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Recent Sugar Price Hike (April 2006)
Existing situation 17011100 (raw cane sugar) CD SD DS VAT Market price Tk. 75/kg
Existing situation 17011100 (raw cane sugar) 30 30 4 15 Market price Tk. 75/kg
US price 0.46/Kg 0.59 0.77 0.80 0.93 Tk.60

• Monopoly in sugar business (only three/four
  importers)
• In India price is Rs25 to 30

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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

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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.

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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

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On the whole, a competition policy maintains and
promotes the competitive spirit and culture in
the market and stimulate development.
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How can national competition policy be formulated
for pro-poor development?

• Four critical factors are important
• Political will
• Expertise
• Efficiency
• Resources
• Right to information

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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

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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)

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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
  anti-competitive 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. 

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Thank You.