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Competition%20Policy%20and%20Consumer%20Rights:%20Bangladesh%20Scenario

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Title: Competition%20Policy%20and%20Consumer%20Rights:%20Bangladesh%20Scenario


1
Competition Policy and Consumer Rights
Bangladesh Scenario
  • M. Abu Eusuf
  • Assistant Professor, Department of Development
    Studies, University of Dhaka
  • Unnayan Shamannay, 16 April 2006

2
Competition Policy
  • Intervention by public authorities
  • for ensuring competition in the markets.
  • for ensuring delivery of better quality goods at
    better prices
  • Concerned with actual competition

3
Objectives of Competition Policy
  • to promote competition by preventing agreements
    between firms that lead to anti-competitive
    behavior either through explicit cartels or
    through tacit collusion.
  • to protect the consumers interest by ensuring
    that they have greater choice in terms of price,
    quality and service

4
Objectives of Competition Policy
  • to maintain a competitive environment so that an
    efficient allocation of resources can take place,
    which promotes economic growth.
  • to allure foreign direct investment
  • to remove obstacles to market entry for foreign
    investors
  • to protect abuse of dominant position by
    multi-national companies in the developing
    countries market

5
Objectives of Competition Policy
  • to regulate monopoly of firms
  • to motivate competing players to increase their
    efficiency with a view to retain their
    superiority in the market.
  • to weed out inefficient operations
  • to enhance consumer welfare

6
Competition Policy Global Context?
  • Out of 149 members of WTO, 80 have competition
    policy
  • Having competition policy for all countries,
    still a matter of negotiations at the
    international level.

7
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.

8
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 for its competition policy.
  • Bangladesh considers it to be a dead issue.
  • That does not mean demand for a well-developed
    competition policy has become irrelevant.

9
Bangladesh Competition Policy!
  • Consumers do 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
    went.
  • This act has, of course, emphasized consumers
    right to have goods and services at competitive
    price
  • It has focused consumers right to have
    information regarding quality, quantity, standard
    and value of the goods and services.

10
Most Prevalent Anti-Competitive Practices in
Bangladesh (BEI Findings)
11
Anti-competitive Practices in Bangladesh
  • Natural monopolies (e.g. distribution of power
    and gas, railways, telephone and other public
    utility services)
  • Lack of legal provision (no legal entity to
    oversee the trading practices of business firms)
  • Mergers (e.g. Standard Chartered Grindlays Bank,
    visa fees of some foreign embassies need to
    deposit particularly in this bank)
  • Lack of effective consumers association
    (consumers are not organized and cannot play any
    role in promoting their own interest)

12
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)

13
Anti-competitive Practices in Bangladesh
  • Exclusive dealing and tying arrangements (e.g.
    diagnostic services, educational inputs from
    particular outlets)
  • 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)

14
Lack of Legal Provision
  • There is no effective legal provision designed
    to protect the interest of the consumers in
    Bangladesh. Besides, there is no legal entity to
    oversee the trading practices of business firms.
    These tasks are complicated. On the one hand, it
    needs to be ensured that consumers are not
    cheated, and on the other hand special care
    should be taken so that private firms and
    business do not feel regulatory powers are
    excessive
  • Overseeing trading practices also requires
    knowledge about market structure, product
    quality, and above all technical expertise
  • Some businesses may consider gaining unfair
    competitive edge by misleading claims about their
    products value, quality, and place of origin and
    ingredients in order to promote sells

15
Lack of Effective Consumers Association
  • Civil society groups acting on behalf of the
    consumers are almost non-existent in Bangladesh.
    The existing Consumers Association of Bangladesh
    (CAB), has not been particularly very effective
    in raising the concerns of the consumers
  • As a result, policy makers most often see strong
    lobbying in favour of demands for protection,
    they hardly encounter with popular public demands
    for not grating those protective measures

16
Natural Monopolies
  • In Bangladesh sectors such as railways,
    telephone, and other public utility services have
    generated such anti-competitive structures that
    not only inhibits modernisation of these services
    but also hinder private investment into these
    sectors
  • In recent times private sector has entered into
    the business of cellular phone, but competition
    has been restricted to a few firms only. This
    allows the state owned BTTB (or Bangladesh
    Telegraph and Telephone Board) to continue
    inefficiently
  • Though a regulatory commission has been set up
    for the telephone sector. However, it is still in
    infancy and yet to acquire any teeth

17
Regulatory Framework
  • Overall policy framework of the country acts as
    hindrance to the promotion of an efficient and
    competitive market mechanism in Bangladesh
  • The regulatory framework in the country is yet to
    be developed (only telephone sector though
    inefficient)
  • Absence of autonomous and independent effective
    and efficient judicial system hampers to ensure a
    favourable business climate for competition.
  • Currently the countrys legal system is burdened
    with more than half a million cases. Such a slow
    and inefficient judicial system increases the
    costs of litigation
  • There are other sectors (e.g., telecommunication,
    power generation and air transport) which are
    gradually being opened up and some participation
    of the private sector is taking place. However,
    it has been alleged that these are being done in
    a non-transparent and unpredictable policy
    environment resulting in increased business
    transaction costs and widespread rent-seeking
    opportunities.

18
Anti-competitive Behavior in the Banking Sector
  • Nationalised commercial banks (NCBs) are
    burdened with bad loans and loan defaults.
    Largely because of these bad loans the spread
    between lending and deposit rate is very high in
    Bangladesh.
  • When private Banks were allowed to operate it
    was hoped that they would charge lower interest
    rates on lending as they did not have to start
    with bad loans. It was found that private banks
    price loans follow those of the NCBs, who act as
    the price leaders. Such anticompetitive behaviour
    was responsible for allowing the NCBs to become
    much bigger than the private banks and also more
    inefficient.
  • Access to governments development fund has
    been restricted for the private banks. Moreover,
    NCBs also operate in such activities where
    private banking is absent (such as agriculture
    and rural development projects). This also
    reduces the competition between the public and
    private sector

19
Anticompetitive Business Conduct in Bangladesh
  • In Bangladesh, local manufacturing companies
    often appoint one sole distributor, in a region
    of the country, allowing it to dictate or
    manipulate prices in that region. Often, foreign
    manufacturing companies even go so far as
    appointing one sole distributor or agent for the
    entire country.
  • This sole distributor or agent establishes a
    monopoly for that product and charges prices
    according to their whims. They never display
    company price lists, and may even refuse to show
    it if a customer asks to see it. As an example,
    H.S. Enterprise has been the sole distributor
    in Bangladesh of Honda Motor Company Limited,
    Japan, for 20 years, and the firm declares its
    status as a sole distributor in public. These
    types of practices are surely anticompetitive.
  • 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 also be
    considered as anticompetitive.

20
Towards Efficient Regime
  • Setting up of an effective regime in this regard
    will remain a challenging task for Bangladesh,
    which would require amongst others
  • Legal and regulatory reforms
  • Implementation of rule of law
  • Development of civil society group protecting
    the consumers interest

21
Bangladesh Competition Policy!...
Competition Policy is not panacea for
competitiveness. This depends to a significant
extent on factors such as human capital,
institutional infrastructure, ethical business
codes and commitment to good governance. The
civil society too has a role to play in raising
consciousness regarding vices of anti-competitive
practices. Education, media and social
organizations have a role in mobilizing a society
for appropriate competitive regime.
22
Caution !
  • There is also a danger of excessive competition,
    which may have adverse socio-economic
    implication. There is, therefore, a need for open
    public debate on these issues and continuous
    monitoring of the impact of competition on the
    weaker sections of the economy (particularly on
    SMEs). Simultaneously, there is need for
    realistic assessment of the extent to which MNCs
    are following the disciplines of competition law
  • Indeed,government should undertake measures to
    significantly improve corporate (both local and
    multinational) governance, increase corporate
    transparency, prevent fraud and ensure corporate
    social responsibility

23
Thank You
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