Competition Policy Issues in Competition Policy Issues in Regional Cooperation ArrangementsRegional Cooperation Arrangements

The Case of SAARC The Case of SAARC

Malathy Knight-John, Institute of Policy Studies Malathy Knight-John, Institute of Policy Studies &&

Ratnakar Adhikari, UNDP Asia Pacific Regional Centre Ratnakar Adhikari, UNDP Asia Pacific Regional Centre

State of economies in the SAARC regionState of economies in the SAARC region

Seven countries: Bangladesh, Bhutan, India, Maldives, Seven countries: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka. Eighth country (Afghanistan Nepal, Pakistan, Sri Lanka. Eighth country (Afghanistan in the process of membership) in the process of membership)

Relatively closed economies until the end of 80s (except Relatively closed economies until the end of 80s (except for Sri Lanka) for Sri Lanka)

Since early 1990s started policy of economic reform Since early 1990s started policy of economic reform – Deregulation Deregulation

– Privatisation Privatisation

– Financial sector reform Financial sector reform

– External sector reform External sector reform

Reduction in tariffs and QRs Reduction in tariffs and QRs

Removal of regulations on foreign investment Removal of regulations on foreign investment

Regional trading agreements Regional trading agreements – within SAARC Framework – within SAARC Framework

Preferential trading arrangement (SAPTA) entered into force Preferential trading arrangement (SAPTA) entered into force in December 1995; proven a non-starter due to “positive in December 1995; proven a non-starter due to “positive list” approach for the liberalization of tariffs list” approach for the liberalization of tariffs

Free trade agreement (SAFTA), to enter into force from July Free trade agreement (SAFTA), to enter into force from July 2006 2006

– Shallow integration arrangement with a commitment to fully Shallow integration arrangement with a commitment to fully liberalize trade in goods by 2016 liberalize trade in goods by 2016

– Talks on services and investment yet to begin Talks on services and investment yet to begin

– Lengthy sensitive lists (upto 1,335 items at six digit level) Lengthy sensitive lists (upto 1,335 items at six digit level) mean that protectionist tendency is widely prevalent mean that protectionist tendency is widely prevalent

– Trade liberalization under SAFTA unlikely to promote Trade liberalization under SAFTA unlikely to promote competitioncompetition

Regional trade agreements – Regional trade agreements – outside SAARC Framework outside SAARC Framework

Trade agreement with Thailand and Myanmar Trade agreement with Thailand and Myanmar – Five countries of the region (except Maldives and Pakistan) are Five countries of the region (except Maldives and Pakistan) are

part of a trans-regional trade agreement called Bay of Bengal part of a trans-regional trade agreement called Bay of Bengal Multi Sectoral Technical and Economic Cooperation (BIMSTEC) Multi Sectoral Technical and Economic Cooperation (BIMSTEC)

– Shallow integration arrangements with a commitment to Shallow integration arrangements with a commitment to liberalize goods, services and investment by 2017 liberalize goods, services and investment by 2017

Bilateral trade agreements Bilateral trade agreements – e.g., India-Sri Lanka; India-Nepal; Pakistan-Sri Lanka e.g., India-Sri Lanka; India-Nepal; Pakistan-Sri Lanka

– Shallow agreements with liberalization of goods only Shallow agreements with liberalization of goods only

– India and Sri Lanka moving into a relatively deeper integration India and Sri Lanka moving into a relatively deeper integration arrangement through Comprehensive Economic Partnership arrangement through Comprehensive Economic Partnership Agreement Agreement

Country-wise status of Country-wise status of competition policy competition policy

No well defined competition policy No well defined competition policy

Competition laws – limited experience Competition laws – limited experience

India, Pakistan and Sri LankaIndia, Pakistan and Sri Lanka – Some experience with the implementation of competition laws Some experience with the implementation of competition laws

– New laws are in the various stage of preparation/ New laws are in the various stage of preparation/ implementation implementation

BangladeshBangladesh prepared a draft but has not move far enough prepared a draft but has not move far enough

NepalNepal made a “voluntary” commitment to enact a competition made a “voluntary” commitment to enact a competition law at the time of its accession to the WTO, but missed the law at the time of its accession to the WTO, but missed the deadline; draft ready deadline; draft ready

BhutanBhutan is mulling over a combination of competition and is mulling over a combination of competition and consumer protection law consumer protection law

MaldivesMaldives is not making any plans is not making any plans

Competition concerns within the Region Competition concerns within the Region

Cross cutting Cross cutting – Cartel Cartel – Bid-rigging Bid-rigging – Price discrimination Price discrimination – Exclusive dealing Exclusive dealing

Country specific Country specific – Public monopoly transforming into private monopoly – (e.g., Sri Public monopoly transforming into private monopoly – (e.g., Sri

Lanka, Nepal) Lanka, Nepal) – Syndicate (e.g., Nepal and India – trucks and public Syndicate (e.g., Nepal and India – trucks and public

transportation)transportation)– Tied selling (e.g., Nepal and India – school uniform) Tied selling (e.g., Nepal and India – school uniform) – Predatory pricing (e.g., Nepal – airlines, newspapers) Predatory pricing (e.g., Nepal – airlines, newspapers)

Cross border competition concerns Cross border competition concerns International/regional cartels (like infamous vitamin, heavy International/regional cartels (like infamous vitamin, heavy electrical equipment and graphite electrodes cartels) electrical equipment and graphite electrodes cartels)

Export cartels (which provides immunity in many Export cartels (which provides immunity in many jurisdictions including India and Pakistan) jurisdictions including India and Pakistan)

Cross-border mergers and acquisitions Cross-border mergers and acquisitions

Spill-over effects (mainly due to huge informal trade) Spill-over effects (mainly due to huge informal trade)

Dumping (alleged dumping of battery and FMCGs) Dumping (alleged dumping of battery and FMCGs)

Abuse of market power by foreign investors (e.g, Unilever in Abuse of market power by foreign investors (e.g, Unilever in Bhutan) Bhutan)

Regional approachesRegional approachesSouth Asia at crossroads – I South Asia at crossroads – I

Regional competition policy helps… Regional competition policy helps… International/regional competition abuses require International/regional competition abuses require regional solutions due to limited capacity to regional solutions due to limited capacity to prosecute them, acting individually prosecute them, acting individually

Rapid learning possibility Rapid learning possibility

Cooperation possible either through sharing of Cooperation possible either through sharing of information or positive comity information or positive comity

Cost effective – pooling of resources and expertise Cost effective – pooling of resources and expertise

““Direct effect” – access to regional law to challenge Direct effect” – access to regional law to challenge domestic competition abuses (e.g., UEMOA and domestic competition abuses (e.g., UEMOA and Andean) – as an interim solution, for example, in Andean) – as an interim solution, for example, in South Asian LDCs not having domestic laws South Asian LDCs not having domestic laws

Regional approachesRegional approachesSouth Asia at crossroads – II South Asia at crossroads – II

……However, there are problems too However, there are problems too – Shallow regional integration means that regional Shallow regional integration means that regional

competition policy appear neither necessary nor feasible competition policy appear neither necessary nor feasible (like the EU) (like the EU)

– Limited national capacity (like CARICOM, COMESA) Limited national capacity (like CARICOM, COMESA)

– National laws either non-existent or evolvingNational laws either non-existent or evolving

– Issue of sovereignty Issue of sovereignty

– Development dimension is a matter of concern Development dimension is a matter of concern particularly for LDCs particularly for LDCs

– Critical constituency for regional competition framework Critical constituency for regional competition framework non-existent non-existent

The way forward – I The way forward – I Feasibility study on regional competition law Feasibility study on regional competition law taking into account taking into account – Cost-benefit analysis of models ranging from “best endeavour Cost-benefit analysis of models ranging from “best endeavour

clauses” to binding supra-national enforcement and dispute clauses” to binding supra-national enforcement and dispute settlement mechanism settlement mechanism

– Inclusion of special and differential treatment provisions such Inclusion of special and differential treatment provisions such as transition period, technical assistance, training and capacity as transition period, technical assistance, training and capacity building building

– Incorporation of “development dimension” – such as Incorporation of “development dimension” – such as exemption to energy, agricultural sector and SMEs for a limited exemption to energy, agricultural sector and SMEs for a limited period period

– Focusing on cooperation and sharing of information and Focusing on cooperation and sharing of information and expertise expertise

The way forward – IIThe way forward – IIIn the interim In the interim – Enactment of national competition laws Enactment of national competition laws

– Incorporating competition provisions in bilateral trade Incorporating competition provisions in bilateral trade agreements agreements

– Allowing smaller countries to have access to competition Allowing smaller countries to have access to competition authority of a bigger neighbour (e.g., Nepal and Bhutan authority of a bigger neighbour (e.g., Nepal and Bhutan using Indian competition authority)using Indian competition authority)

– Gradual learning processGradual learning process

– Cooperation on training and capacity building Cooperation on training and capacity building

– Creating critical constituency in favour competition Creating critical constituency in favour competition issues issues