Competition Policy Issues in Regional Cooperation Arrangements The Case of SAARC

1
Competition Policy Issues in Regional
Cooperation Arrangements The Case of SAARC

• Malathy Knight-John, Institute of Policy Studies
• Ratnakar Adhikari, UNDP Asia Pacific Regional
  Centre

2
State of economies in the SAARC region

• Seven countries Bangladesh, Bhutan, India,
  Maldives, Nepal, Pakistan, Sri Lanka. Eighth
  country (Afghanistan in the process of
  membership)
• Relatively closed economies until the end of 80s
  (except for Sri Lanka)
• Since early 1990s started policy of economic
  reform
• Deregulation
• Privatisation
• Financial sector reform
• External sector reform
• Reduction in tariffs and QRs
• Removal of regulations on foreign investment

3
Regional trading agreements within SAARC
Framework

• Preferential trading arrangement (SAPTA) entered
  into force in December 1995 proven a non-starter
  due to positive list approach for the
  liberalization of tariffs
• Free trade agreement (SAFTA), to enter into force
  from July 2006
• Shallow integration arrangement with a commitment
  to fully liberalize trade in goods by 2016
• Talks on services and investment yet to begin
• Lengthy sensitive lists (upto 1,335 items at six
  digit level) mean that protectionist tendency is
  widely prevalent
• Trade liberalization under SAFTA unlikely to
  promote competition

4
Regional trade agreements outside SAARC
Framework

• Trade agreement with Thailand and Myanmar
• Five countries of the region (except Maldives and
  Pakistan) are part of a trans-regional trade
  agreement called Bay of Bengal Multi Sectoral
  Technical and Economic Cooperation (BIMSTEC)
• Shallow integration arrangements with a
  commitment to liberalize goods, services and
  investment by 2017
• Bilateral trade agreements
• e.g., India-Sri Lanka India-Nepal Pakistan-Sri
  Lanka
• Shallow agreements with liberalization of goods
  only
• India and Sri Lanka moving into a relatively
  deeper integration arrangement through
  Comprehensive Economic Partnership Agreement

5
Country-wise status of competition policy

• No well defined competition policy
• Competition laws limited experience
• India, Pakistan and Sri Lanka
• Some experience with the implementation of
  competition laws
• New laws are in the various stage of preparation/
  implementation
• Bangladesh prepared a draft but has not move far
  enough
• Nepal made a voluntary commitment to enact a
  competition law at the time of its accession to
  the WTO, but missed the deadline draft ready
• Bhutan is mulling over a combination of
  competition and consumer protection law
• Maldives is not making any plans

6
Competition concerns within the Region

• Cross cutting
• Cartel
• Bid-rigging
• Price discrimination
• Exclusive dealing
• Country specific
• Public monopoly transforming into private
  monopoly (e.g., Sri Lanka, Nepal)
• Syndicate (e.g., Nepal and India trucks and
  public transportation)
• Tied selling (e.g., Nepal and India school
  uniform)
• Predatory pricing (e.g., Nepal airlines,
  newspapers)

7
Cross border competition concerns

• International/regional cartels (like infamous
  vitamin, heavy electrical equipment and graphite
  electrodes cartels)
• Export cartels (which provides immunity in many
  jurisdictions including India and Pakistan)
• Cross-border mergers and acquisitions
• Spill-over effects (mainly due to huge informal
  trade)
• Dumping (alleged dumping of battery and FMCGs)
• Abuse of market power by foreign investors (e.g,
  Unilever in Bhutan)

8
Regional approachesSouth Asia at crossroads I

• Regional competition policy helps
• International/regional competition abuses require
  regional solutions due to limited capacity to
  prosecute them, acting individually
• Rapid learning possibility
• Cooperation possible either through sharing of
  information or positive comity
• Cost effective pooling of resources and
  expertise
• Direct effect access to regional law to
  challenge domestic competition abuses (e.g.,
  UEMOA and Andean) as an interim solution, for
  example, in South Asian LDCs not having domestic
  laws

9
Regional approachesSouth Asia at crossroads II

• However, there are problems too
• Shallow regional integration means that regional
  competition policy appear neither necessary nor
  feasible (like the EU)
• Limited national capacity (like CARICOM, COMESA)
• National laws either non-existent or evolving
• Issue of sovereignty
• Development dimension is a matter of concern
  particularly for LDCs
• Critical constituency for regional competition
  framework non-existent

10
The way forward I

• Feasibility study on regional competition law
  taking into account
• Cost-benefit analysis of models ranging from
  best endeavour clauses to binding
  supra-national enforcement and dispute settlement
  mechanism
• Inclusion of special and differential treatment
  provisions such as transition period, technical
  assistance, training and capacity building
• Incorporation of development dimension such
  as exemption to energy, agricultural sector and
  SMEs for a limited period
• Focusing on cooperation and sharing of
  information and expertise

11
The way forward II

• In the interim
• Enactment of national competition laws
• Incorporating competition provisions in bilateral
  trade agreements
• Allowing smaller countries to have access to
  competition authority of a bigger neighbour
  (e.g., Nepal and Bhutan using Indian competition
  authority)
• Gradual learning process
• Cooperation on training and capacity building
• Creating critical constituency in favour
  competition issues