Competition Policy and Development: Evidence from the Asian Region Presentation by Douglas H. Brooks June 27, 2006

Competition Policy and Competition Policy and Development: Evidence Development: Evidence from the Asian Regionfrom the Asian Region

Presentation by Presentation by

Douglas H. BrooksDouglas H. Brooks

June 27, 2006 June 27, 2006

OutlineOutlineIntroductionIntroduction

Country ExperiencesCountry Experiences

•Competition policy regimesCompetition policy regimes

•Consistency with other Consistency with other development objectivesdevelopment objectives

Lessons Learned Lessons Learned

IntroductionIntroductionResults of 6 country studiesResults of 6 country studies

•PRC, India, Korea, Malaysia, PRC, India, Korea, Malaysia, Thailand, & Viet NamThailand, & Viet Nam

•Selection based on diversity of Selection based on diversity of their income levels and their income levels and experiences with competition experiences with competition policy, including competition policy, including competition lawlaw

Comparative Statistics:Comparative Statistics:General Economic IndicatorsGeneral Economic Indicators

GDP, 2004 ($ GDP, 2004 ($ billion)billion)

GNI per GNI per capita, 2004 capita, 2004

($)($)

Time Time required to required to

start a start a business business (days)(days)

PRCPRC 1,9301,930 1,5001,500 4848

IndiaIndia 691691 620620 8989

KoreaKorea 680680 14,00014,000 2222

MalaysiaMalaysia 118118 4,5204,520 3030

ThailandThailand 162162 2,4902,490 3333

Viet NamViet Nam 4545 540540 5656

Country Experiences:Country Experiences:Competition Policy RegimesCompetition Policy Regimes

Competition policy objectivesCompetition policy objectives• PRC: to safeguard development of socialist market PRC: to safeguard development of socialist market

economyeconomy• India: to prevent practices with adverse effects on India: to prevent practices with adverse effects on

competitioncompetition• Korea: to promote fair and free competitionKorea: to promote fair and free competition• Malaysia: growth with equity, which is the general Malaysia: growth with equity, which is the general

development objectivedevelopment objective• Thailand: to promote free & fair trade with a Thailand: to promote free & fair trade with a

competitive environmentcompetitive environment• Viet Nam: to promote an equitable & Viet Nam: to promote an equitable &

nondiscriminatory competitive environmentnondiscriminatory competitive environment


Implementation ProblemsImplementation Problems

• Laws too broad and vagueLaws too broad and vague

• Differences in interpretation, Differences in interpretation, especially if implementation is especially if implementation is decentralizeddecentralized

• Need for supplemental Need for supplemental regulations to clarify lawregulations to clarify law


Implementation SuccessesImplementation Successes

• In Korea, corrective measures and In Korea, corrective measures and penalties have been imposed on penalties have been imposed on chaebolschaebols

• Campaign in PRC to counter Campaign in PRC to counter anticompetitive acts by public anticompetitive acts by public utilities resulted in a large number of utilities resulted in a large number of antitrust cases, especially involving antitrust cases, especially involving bid rigging.bid rigging.


• Passage of competition laws has Passage of competition laws has informed consumers and small informed consumers and small enterprises of their rights, enterprises of their rights, instilling a competition culture.instilling a competition culture.

• Competition advocacy activities Competition advocacy activities have been implemented to raise have been implemented to raise public awareness.public awareness.

Country Experiences:Country Experiences:Consistency with Development Consistency with Development

ObjectivesObjectives

Industrial policy and competition Industrial policy and competition policypolicy

• Korea promoted the establishment Korea promoted the establishment of of chaebolschaebols, allowing them to gain , allowing them to gain political and economic power. This political and economic power. This resulted in inefficient operations resulted in inefficient operations and reduced opportunities for new and reduced opportunities for new entrants, necessitating the entrants, necessitating the introduction of competition policy.introduction of competition policy.



• PRC has been pursuing industrial PRC has been pursuing industrial policies since the late 1970s. It policies since the late 1970s. It promoted the establishment of promoted the establishment of large conglomerates to achieve large conglomerates to achieve economies of scale and compete economies of scale and compete with MNEs. At the same time, in with MNEs. At the same time, in domestic markets, inter-firm domestic markets, inter-firm rivalry is encouraged.rivalry is encouraged.



• In India, adopting a planned strategy for In India, adopting a planned strategy for economic development involved economic development involved controlling the direction of private controlling the direction of private investment through the use of industrial investment through the use of industrial licensing, protecting the small-scale licensing, protecting the small-scale sector, and controlling firm closures and sector, and controlling firm closures and labor retrenchment. By 1991, industrial labor retrenchment. By 1991, industrial policies underwent substantial change policies underwent substantial change and were geared towards liberalization. and were geared towards liberalization. These catalyzed competition in These catalyzed competition in manufacturing and services.manufacturing and services.



• In Malaysia, growth with equity is the In Malaysia, growth with equity is the primary economic objective, and primary economic objective, and redistributive policies were adopted. redistributive policies were adopted. Industrial policies to promote Industrial policies to promote national champions, however, have national champions, however, have limited competition in some sectors. limited competition in some sectors. This was partly offset by the This was partly offset by the adoption of market liberalization in adoption of market liberalization in both tradable and nontradable both tradable and nontradable sectors.sectors.



• Thailand’s industrial policy Thailand’s industrial policy encourages companies that employ encourages companies that employ advanced technology, invest in R&D advanced technology, invest in R&D activities, provide training activities, provide training programs, utilize available domestic programs, utilize available domestic resources, and promote industrial resources, and promote industrial linkages. But many state rules (eg, linkages. But many state rules (eg, high tariffs & surcharges on high tariffs & surcharges on competing imported products, competing imported products, exclusive rights, etc.) pose entry exclusive rights, etc.) pose entry barriers to certain industries.barriers to certain industries.



• Industrialization and modernization Industrialization and modernization are Viet Nam’s strategic are Viet Nam’s strategic development objectives, with strong development objectives, with strong emphasis on government-led emphasis on government-led industrialization policies. For a long industrialization policies. For a long time, competition was limited and time, competition was limited and special preference was given to special preference was given to SOEs. At the same time, SOEs. At the same time, conglomerates are being promoted conglomerates are being promoted to face increasing competition from to face increasing competition from foreigners.foreigners.



Trade policy and competition policyTrade policy and competition policy

• Until 1970s in India, trade policy Until 1970s in India, trade policy promoted import substitution and promoted import substitution and domestic industry protection. Reforms domestic industry protection. Reforms since 1991 centered on licensing and since 1991 centered on licensing and tariffs. To meet its WTO commitments, tariffs. To meet its WTO commitments, quantitative restrictions and nontariff quantitative restrictions and nontariff barriers were removed. Tariffs were also barriers were removed. Tariffs were also reduced. These measures enhanced reduced. These measures enhanced market competition.market competition.



• Korea also liberalized trade since Korea also liberalized trade since 1980s. After the Asian financial crisis, 1980s. After the Asian financial crisis, it redoubled efforts. In line with its it redoubled efforts. In line with its agreement with IMF and its Uruguay agreement with IMF and its Uruguay Round commitments, quantitative Round commitments, quantitative restrictions and export subsidies restrictions and export subsidies were removed. Trade liberalization is were removed. Trade liberalization is thus likely to have rationalized the thus likely to have rationalized the market by allowing inefficient firms market by allowing inefficient firms to exit. to exit.



• In Malaysia, where competition In Malaysia, where competition concerns are addressed through concerns are addressed through sectoral regulations, there are some sectoral regulations, there are some strains between trade liberalization, strains between trade liberalization, industrial policy, and competition industrial policy, and competition pressures. A particular case is its pressures. A particular case is its commitments to AFTA and its desire commitments to AFTA and its desire to support the national car industry.to support the national car industry.



• While Thailand is an open While Thailand is an open economy, it still maintains high economy, it still maintains high tariffs compared with other tariffs compared with other ASEAN countries. Its ASEAN countries. Its commitments under AFTA and commitments under AFTA and other bilateral FTAs, however, other bilateral FTAs, however, has allowed increased has allowed increased competition from its trading competition from its trading partners.partners.



• Viet Nam has moved towards a Viet Nam has moved towards a more open, transparent, and more open, transparent, and enabling trade regime, but some enabling trade regime, but some price controls and quantitative price controls and quantitative restrictions remain. These restrictions remain. These controls created barriers to entry controls created barriers to entry that led to high market that led to high market concentration in affected sectors.concentration in affected sectors.



• Local protectionism is prevalent in Local protectionism is prevalent in PRC. This involves imposing taxes PRC. This involves imposing taxes on commodities made in other on commodities made in other provinces and banning exports to provinces and banning exports to other regions of local raw other regions of local raw materials in short supply or of high materials in short supply or of high quality. This has led to duplication quality. This has led to duplication of investments and excess of investments and excess capacity.capacity.



FDI policy and competition policyFDI policy and competition policy

• In PRC, FDI is encouraged but entry is far In PRC, FDI is encouraged but entry is far from free, as foreign investors are subject from free, as foreign investors are subject to numerous regulations. Merger to numerous regulations. Merger notifications are also required only of notifications are also required only of foreign investors. This has led to foreign investors. This has led to widespread concern that future widespread concern that future antimonopoly legislation may not be antimonopoly legislation may not be equally applied to foreign and domestic equally applied to foreign and domestic firms.firms.



• Korea undertook liberalization Korea undertook liberalization in the 1980s, and further in the 1980s, and further liberalization was undertaken liberalization was undertaken after the Asian financial crisis. after the Asian financial crisis. This has, however, led to some This has, however, led to some tightening in market tightening in market concentration in some sectors.concentration in some sectors.



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



• The Thai economy is likewise The Thai economy is likewise open to foreign investment open to foreign investment except for a negative list of except for a negative list of sectors where foreign sectors where foreign ownership is prohibited or ownership is prohibited or limited.limited.



• Viet Nam’s FDI policy has become Viet Nam’s FDI policy has become liberal in recent years, but liberal in recent years, but restrictions still exist that restrictions still exist that effectively limit competition. effectively limit competition. These include restricted sectors These include restricted sectors and forms of operation, and forms of operation, performance-based requirements, performance-based requirements, and regulations in the financial and regulations in the financial and land markets.and land markets.

Lessons LearnedLessons Learned• Undertaking industrial policies for Undertaking industrial policies for

development should be accompanied development should be accompanied by an effective competition policy.by an effective competition policy.

• Openness to trade and FDI do not Openness to trade and FDI do not always lead to increased competition, always lead to increased competition, as government regulations as government regulations sometimes create barriers to entry sometimes create barriers to entry and protect domestic industries.and protect domestic industries.

Potential cross-country Potential cross-country comparisonscomparisons

• Role of FDI in shaping how officials and analysts perceive the Role of FDI in shaping how officials and analysts perceive the

current and future role of national competition law (PRC, India, current and future role of national competition law (PRC, India,

Malaysia).Malaysia).

• PRC and Viet Nam on competition law and its role in moving PRC and Viet Nam on competition law and its role in moving

towards a greater market-based economy.towards a greater market-based economy.

• Role of industrial policy in shaping the design and debate over Role of industrial policy in shaping the design and debate over

national competition law (PRC, India, Malaysia, Viet Nam). national competition law (PRC, India, Malaysia, Viet Nam).

• Experience with enforcement of competition law (Korea, Experience with enforcement of competition law (Korea,

Thailand)Thailand)

Documents

Competition Policy and Development: Evidence from the Asian Region Presentation by Douglas H. Brooks June 27, 2006