Competition Policy and Development: Evidence from the Asian Region

1
Competition Policy and Development Evidence from
the Asian Region

• Presentation by
• Douglas H. Brooks
• June 27, 2006

2
Outline

• Introduction
• Country Experiences
• Competition policy regimes
• Consistency with other development objectives
• Lessons Learned

3
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

4
Comparative StatisticsGeneral Economic
Indicators
5
Country ExperiencesCompetition 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

6
Country ExperiencesCompetition Policy Regimes

• Implementation Problems
• Laws too broad and vague
• Differences in interpretation, especially if
  implementation is decentralized
• Need for supplemental regulations to clarify law

7
Country ExperiencesCompetition 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.

8
Country ExperiencesCompetition 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.

9
Country ExperiencesConsistency 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.

10
Country ExperiencesConsistency 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.

11
Country ExperiencesConsistency 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.

12
Country ExperiencesConsistency 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.

13
Country ExperiencesConsistency with Development
Objectives

• Thailands industrial policy encourages companies
  that employ advanced technology, invest in RD
  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.

14
Country ExperiencesConsistency with Development
Objectives

• Industrialization and modernization are Viet
  Nams 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.

15
Country ExperiencesConsistency 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.

16
Country ExperiencesConsistency 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.

17
Country ExperiencesConsistency 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.

18
Country ExperiencesConsistency 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.

19
Country ExperiencesConsistency 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.

20
Country ExperiencesConsistency 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.

21
Country ExperiencesConsistency 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.

22
Country ExperiencesConsistency 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.

23
Country ExperiencesConsistency with Development
Objectives

• FDI is an important source of capital in
  Malaysias development. While it is encouraged in
  manufacturing, it is restricted in service
  sectors that may drive out home-grown small
  businesses.

24
Country ExperiencesConsistency 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.

25
Country ExperiencesConsistency with Development
Objectives

• Viet Nams 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.

26
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.

27
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)