Report and Proceedings from the Competition Law and Policy Roundtable 16–17 May 2006 • New Delhi, India

LAW AND POLICY REFORM AT THE ASIAN DEVELOPMENT BANK

07-0103Law&PolicyPrelim.pmd 1 17/05/2007, 1:23 PM This volume was edited by V.S. Rekha and Christine V. Lao of the Office of the General Counsel, Asian Development Bank

Asian Development Bank. Report and Proceedings from the Competition Law and Policy Roundtable. 1. Asian Development Bank. 2. Competition Law and Policy

The views expressed in this paper are those of the authors and do not necessarily reflect the views or policies of the Asian Development Bank or its Board of Governors or the governments they represent.

The Asian Development Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

Use of the term “country” does not imply any judgment by the authors or the Asian Development Bank as to the legal or other status of any territorial entity.

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07-0103Law&PolicyPrelim.pmd 2 17/05/2007, 1:23 PM Preface

Competition and Competitiveness V.S. REKHA Senior Counsel, Asian Development Bank V.S. Rekha Senior Counsel, Asian t is commonly believed that competition law and policy relate to matters of competition Development Bank and competitiveness; with the result, among others, that goods and services are sold at competitive prices and that consumers have a choice as to the products they wish to purchase. But that would not be all. Competition would also be a matter of larger application—that of overall governance and development of economies, that of better Iregional and global balances in trade and development. The International Institute of “Different Management Development (IMD), which ranks countries according to competitiveness, assesses a country’s competitiveness by considering not only its economic performance, government countries have and business efficiency and infrastructure but also factors spanning various sectors including education, technology, health, and social services. IMD’s most recent report is indicative that different policy some Asian economies have moved up in their competitiveness ranking by considerable notches; India, for instance, moved up by 10 notches and the People’s Republic of China by 12 concerns and notches.1 From deliberations at the Roundtable, it is clear that different countries have different policy needs. There concerns and needs. In other words, it appears there is no one-standard approach in determining the type of competition laws or policies that may prove beneficial to all countries. It may well is no one- be that one rule may not fit all given the ground realities and different stages of economic development in different countries. standard Accordingly, some basic principles that could be generally applicable to each country, notwithstanding variances in the existing regimes, are relevant. Such principles need to be approach in relevant from the vantage point of competition agencies and regulators. After all, it is the representatives of competition agencies and regulatory agencies, who implement competition determining law and policies; who also would thus better understand the policy debates waged on the ground, and are sensitive to local realities. the type of Debates exist even in the most basic areas of defining key concepts and tools in implementing competition law and policies. For example, there are many views on what competition constitutes “market power.” Countries may consider different factors in determining whether market power exists; such as market shares, barriers to entry and expansion, barriers to exit, laws or policies buyer power, etc. However, it may well be argued that reality does not present clear cut situations where market shares alone can be determinative of market power; where one can clearly that may prove identify what constitute barriers to entry and expansion, or barriers to exit. It may very well illustrate that in a country specific context, buyer power may not always be undesirable as far beneficial to all as promoting competition is concerned, but arguments to the contrary would also hold good. It was useful to observe and learn from the roundtable deliberations on the various aspects countries.” of competition matters. These deliberations not only enriched the discussions, but also allowed

1 The Financial Express. 2006. India moves up 10 notches in competition. (12 May).

Preface iii

07-0103Law&PolicyPrelim.pmd 3 17/05/2007, 1:23 PM articulation of relevant issues, needs and concerns, as also helped identify possible best practices on competition matters. I do hope that the Roundtable deliberations were potentially useful to participating countries and agencies in identifying and implementing solutions and policies that take into consideration existing development in the local, regional and perhaps even global context. I would like to thank the Government of India for supporting the roundtable held in New Delhi, and its participation in the roundtable deliberations. I also express my gratitude to the resource speakers, panelists, facilitators, and participants from over 13 countries, for their presence and the wisdom they have shared at the roundtable. I am grateful to the Asian Development Bank’s (ADB’s) General Counsel Mr. Arthur M. Mitchell, and Deputy General Counsel Ms. Eveline Fischer, for their guidance and active support for this roundtable. I also thank Mr. Tadashi Kondo, ADB’s Country Director for India, and ADB’s India Resident Mission, for fully supporting this endeavor. Finally, I extend my sincere appreciation to my team for putting in long hours in organizing this roundtable: Ms. Christine Lao, Ms. Amabelle Asuncion, Ms. Mary Jane David from ADB headquarters; and Mr. C.T. Abraham, Ms. Meenu Lalit, Mr. Rupes Dalai, and Mr. Sudhir Nair from ADB’s India Resident Mission office.

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07-0103Law&PolicyPrelim.pmd 4 17/05/2007, 1:23 PM Contributors

Philippe Brusick heads the United is the Dean of the Australia and New Zealand Nations Conference on Trade and School of Government, a new institution Development (UNCTAD)’s Competition and established by the Governments of Australia, Consumer Policies Branch and, as such, is New Zealand, Victoria, New South Wales, responsible for UNCTAD’s technical Queensland, and Western Australia, and 12 assistance, advisory, and training programs in universities and business schools (The this field. Mr. Brusick graduated with a degree University of Melbourne, Monash, Melbourne in Economics from Geneva University, and Business School, Australian National University, joined the United Nations Economic Canberra, Queensland, Griffith, Sydney, New Commission for Europe in 1971. A staff South Wales, and the Victorian University of member of the UNCTAD since 1976, he actively Wellington, Curtin University of Technology, participated in that organization during the and University of Western Australia) for high- negotiations that led to the adoption of the UN level public sector managers. Professor Fels Set of Principles and Rules on Restrictive was also Dean of the Graduate School of Business Practices in 1980. Management of Monash University where he has been an Honorary Professor in the Faculty Ashok Chawla was appointed as of Economics and Business since 1996. He is Additional Secretary (Economic Affairs), also a Professorial Fellow in the Department Department of Economic Affairs, Ministry of of Political Science at the University of Finance, Government of India, in April 2005. Melbourne. Professor Fels has extensive Concurrently, Mr. Chawla is the Chairman and experience in competition policy formulation Managing Director, Security Printing and and implementation, having been Chairperson Minting Corporation of India Ltd.; Director of of the Prices Surveillance Authority from 1989 the Oil and Natural Gas Corporation Ltd.; and to 1992, Chairperson of the Trade Practices Member, Insurance Regulatory and Commission from 1991 to 1995, and Development Authority. Mr. Chawla has two Chairperson of the Australian Competition and Master of Arts degrees, in English Literature Consumer Commission from 1995 to 2003. and Economics. He also has a diploma in Micro-level Planning. He joined the State Bank Eveline N. Fischer, a Dutch national, is a of India as Probationary Officer in 1972, and graduate of the University of Leyden (the the Indian Administrative Service (Gujarat Netherlands) Faculty of Law. She holds a Cadre) in 1973. Master of Laws degree, with a major in Civil Law and electives in Economics, European Vinod Dhall is the only Member of the Law, and Industrial Property Law. She Competition Commission of India. Previously, practiced law for 12 years in Amsterdam, the he was Secretary to the Government of India. Netherlands, with the Dutch firm Loeff & Van During his tenure in the Indian Administrative der Ploeg. She has been with the Office of the Service, he held several important positions General Counsel at the Asian Development in the Central and State Governments. He Bank (ADB) since 1988, handling various legal specialized in the areas of industrial technical assistance projects in Viet Nam and development, foreign investment, financial Cambodia. She was also involved in the sector management and reforms, corporate preparation of a legal needs analysis and a governance, and competition law and policy. long-term framework for development of the legal system of Viet Nam. She is the Deputy Allan Fels, AO, is a well-respected General Counsel in charge of, among other academician and competition law expert. He things, the Law and Policy Reform Unit.

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07-0103Law&PolicyPrelim.pmd 5 17/05/2007, 1:23 PM Anurag Goel assumed charge as the Director General, World Trade Organization Secretary, Ministry of Company Affairs of the (WTO). Upon completing his tenure in 1999, Government of India on 1 May 2006. Prior to he was appointed Special Adviser to the this, he held charge as Additional Secretary, Director General of WTO for the Ministerial Department of Expenditure, Ministry of Conference in Seattle, Washington. Before Finance, Government of India. He has joining the Planning Commission in July 2004, considerable experience in financial he was a Professor at the Indian Council for management; the aviation industry; and Research on International Economic regulatory administration. As Joint Secretary Relations, New Delhi, India. of the Ministry of Civil Aviation, he received the National Citizens’ Award for outstanding Tadashi Kondo is the Country Director of contribution to the field of civil aviation. Earlier, the India Resident Mission (INRM) of ADB. Mr. he held assignments in the Ministries of Home Kondo was previously Director of ADB’s Affairs and Defense, and in the Government Transport and Communications Division of the of Uttar Pradesh. Mr. Goel joined the Indian South Asia Department. He has completed Administrative Service (Uttar Pradesh Cadre) almost 20 years of service at ADB and has in 1972. extensive and diversified experience in the development field, particularly with regard to Prem Chand Gupta is the Minister, ADB operations, and project design and Company Affairs, Government of India. After implementation. completing his initial studies in Bhiwani, he graduated with a degree in Economics. He was V. Krishnamurthy is currently Chairman, first elected to the Rajya Sabha in 1996. During National Manufacturing Competitiveness his tenure at the Rajya Sabha, he served in Council, Government of India. Concurrently, some very important positions. He was he is Member of the National Advisory Council, reelected to the Rajya Sabha in 2002, and was the Prime Minister’s Council on Trade and National General Secretary of the Rashtriya Industry, the Prime Minister’s Trade and Janata Dal in 2000–2001. In his present Economics Relations Committee, and the assignment, he spearheads many Prime Minister’s Energy Coordination transformation initiatives that aim to help Committee. Dr. Krishnamurthy held several evolve business-friendly ecosystems while assignments in the Government of India that creating an investor-protection climate in India. include Member, Planning Commission, and Among the initiatives that he is championing Chairman: BHEL, SAIL, Maruti Udyog, etc. He for the Ministry are the enterprise-wide has also been Chairman: IIMs (Bangalore, initiative, MCA 21; the largest e-governance Ahemdabad), IIT, Delhi, and others. Conferred program of the Government of India; and the with several awards—Padma Shri and Padma initiation of a comprehensive revision of the Bhushan—by the President of India, Dr. Companies Act 1956. Krishnamurthy, who is a chartered engineer (FIE), obtained his doctorate in economics Anwarul Hoda is Member, Planning from the Soviet Academy of Sciences. He also Commission, Government of India. He joined holds a Doctor of Sciences (Honoris Causa) the Indian Administrative Service in 1962. As a from Banaras Hindu University, as well as a civil servant, he worked mainly on assignments Doctor of Letters (Honoris Causa) from Central relating to International trade and economic University, Pondicherry. relations. From 1974 to 1981, and from 1985 to 1993, Mr. Hoda worked in the Ministry of Dong-kyu Lee is the Director General of Commerce. Prior to his current appointment, Headquarters for Competition Policy of the he was Special Secretary of the Ministry of Korea Fair Trade Commission (KFTC). He Commerce and was mainly involved in graduated with a bachelor’s degree in multilateral trade negotiations under the Economics from the Seoul National University General Agreement on Tariffs and Trade and obtained his master’s degree from the (GATT). He was the Chief Policy Coordinator Korea National Defense University. From 1979 of the Government of India during the Uruguay to 1982, he worked with the Office of Customs Round. In 1993, he was appointed as Deputy Service and then transferred to the Economic Director General of the ICITO/GATT; and in Planning Board. In 1994, he began his career 1995, he assumed the position of Deputy at KFTC, serving as director of various

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07-0103Law&PolicyPrelim.pmd 6 17/05/2007, 1:23 PM departments, namely the Assistant General Mitchell formerly served as Secretary of The Counsel Division, Contract Terms Screening Japan Society in New York and as Secretary of Division, Competition and Regulation the Asian Affairs Committee of the Association Division, Unfair Trade Practice Regulation of the Bar of the City of New York, and is a Division, Subcontract Planning Division, member of the Council on Foreign Relations. Regulation Reform Division, Antitrust Policy As the current General Counsel of ADB, Mr. Division, and Subcontract Planning Bureau Mitchell is actively engaged in the promotion Antitrust Policy Bureau. He was Director of the rule of law as a key development tool General of the Antitrust Bureau and the for Asian countries. Competition Policy Bureau before he was appointed to his current position. Toshiyuki Nanbu is the Director of the Japan Fair Trade Commission (JFTC) Arvind Mayaram is Joint Secretary, International Affairs Division. He earned his Department of Economic Affairs, Ministry of law degree from the Tokyo University Faculty Finance, Government of India. He is of Law. He joined the JFTC in 1982 and has responsible for economic policies relating to since held various positions including infrastructure, the Asian Development Bank, directorship of the JFTC Investigation Bureau, the energy sector and coins and currency. Mr. Economic Affairs Bureau, and Trade Practices Mayaram, joined the Indian Administrative Department. He was also First Secretary of the Service in 1978. His earlier positions held permanent delegation of Japan to the include in Government of India: Deputy Organisation for Economic Co-operation and Secretary, Foreign Trade and Foreign Development in 1992. He is also Convenor of Investment, Department of Economic Affairs, the Asia Pacific Economic Cooperation/ Ministry of Finance; and in Government of Competition Policy and Deregulation Group. Rajasthan: Commissioner (Investment and NRI), Secretary, Planning, Institutional Annetje Ottow is the advisor to the Finance and Externally-Aided Projects, board of directors of the Post and Secretary, Industries, Public Enterprises and Telecommunications Authority (OPTA), the Information Technology, and Secretary, telecommunications and post regulator of The Tourism, Art and Culture. Netherlands. She has two Master of Laws degrees—one from Leiden University (1988) Arthur M. Mitchell holds a Bachelor of and the other from the Queen Mary College Arts degree from the University of California at in London (1990). After completing her studies, Berkeley (1970) and a Juris Doctor degree from she interned at the European Commission. the Harvard Law School (1973). He is one of From 1997–2007, she practiced with the the leading American lawyers specializing in Regulatory & Competition section and the trade, investment, and financing transactions Telecoms & Cable Group of Houthoff Buruma in Asia. He has dealt with matters related to Law Firm. Ms. Ottow specializes in Japan for more than 35 years and served in competition and telecommunications law. She New York as head of the Japan Practice Group is the editor of the Dutch journal Mediaforum at Coudert Brothers, an international law firm. (Journal of Media and Communication Law) As a young lawyer, he studied Japanese politics and regularly publishes articles in legal at the International Christian University and journals. She also teaches competition and Japanese law at Kyoto University, under a telecommunications law at the University of Japanese Ministry of Education grant. Also, he Amsterdam and the postgraduate college, once served as a private secretary to Japanese Grotius Academy of the Netherlands. She Prime Minister Masayoshi Ohira. A frequent finished a thesis on Telecommunications commentator on legal and regulatory issues Regulators for her doctorate degree. affecting trade, investment, and finance, Mr. Mitchell writes regularly in The Asian Wall Bernard J. Phillips holds a bachelor’s Street Journal, Nihon Keizai Shimbun, and degree in Economics from the University of other publications. He has taught Japanese law Michigan and a Juris Doctor degree from the at Columbia University’s Parker School of Stanford University Law School. He was International and Comparative Law and is an admitted to the California bar and the District active participant in major international of Columbia bar. From 1974 to 1985, he conferences relating to law and finance. Mr. worked at the United States Federal Trade

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07-0103Law&PolicyPrelim.pmd 7 17/05/2007, 1:23 PM Commission, handling various areas of T.K. Viswanathan is Law Secretary to the competition and consumer policy. Since 1985, Government of India, since April 2006. He he has been working for OECD in Paris and joined the Ministry of Law in 1988 and had has, since 1989, been the Head of the served as Additional Secretary (Legislative Competition Division and responsible for the Department) since June 1998. He was Competition Committee. Mr. Phillips has Member-Secretary, Law Commission of India helped OECD develop and manage programs until September 2003. He was appointed to promote regulatory reform and strengthen Secretary, Ministry of Law and Justice competition institutions in developing and (Legislative Department) from 2003–2006. He transition countries. He is also the editor of the holds a master’s degree in Jurisprudence from OECD Journal of Competition Law and Policy. Madras University. Mr. Viswanathan practiced Mr. Phillips’ contribution to this volume was as an advocate (1972–1976) and served as a coauthored by Sean Ennis, a Senior professor at Madras Law College. He attended Economist at OECD’s Competition Division. the Institute of Advanced Legal Studies at the University of London where he underwent the V.S. Rekha is Senior Counsel in the Office Government Legal Advisers’ Course in of General Counsel, Asian Development Bank Legislative Drafting, Constitutional and (ADB). Ms. Rekha is posted in the India Administrative Law, International Commercial Resident Mission office of the ADB since 2005 Transactions, International Law, and Treaty and advises on a broad portfolio of legal Drafting. matters within ADB’s major functional areas related to operations, policies, structure, Richard Whish has been a professor of administration, and organization. With a law at King’s College, London since January graduate degree in law from Delhi Law Faculty, 1991. Prior to that, he taught at the University a masters in law from the Harvard Law School of Bristol. He is also a professor at the College (1989), and extensive work experience in the of Europe (Bruges). He is a qualified solicitor legal field, Ms. Rekha joined ADB’s Office of and was a partner at Watson, Farley and General Counsel in 1998. She has the Williams from 1989 to 1998. He acts as a experience working in several South Asian consultant to a variety of companies and countries in areas of energy, surface transport, regulatory agencies, and is a nonexecutive urban development, emergency assistance, director of the Office of Fair Trading. He is also irrigation, governance, and legal reforms. As a member of the Board of the Singaporean country counsel for India, she in particular Energy Market Authority. assists in ADB’s India operations.

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Preface iii Contributors v Executive Summary xi Inaugural Session 1 Welcome Remarks, Arthur M. Mitchell 2 Inaugural Address, Prem Chand Gupta 5 Keynote Address, V. Krishnamurthy 7 Address, Anurag Goel 10 Address, Ashok Chawla 11 Vote of Thanks, Tadashi Kondo 13

Session I: Competition, Competitiveness, and Sustainable Growth 15 Competition Regimes: Analyzing Their Nature and Effect, Professor Allan Fels, AO 15 Address, Vinod Dhall 29 Address, Arvind Mayaram 31

Session II: Competition Regimes Across the Region and Interface with Regulatory Regimes 33 Approaches and Challenges in Implementing Competition Law 33 and Policy, Toshiyuki Nanbu Interface with Regulatory Regimes, Bernard J. Phillips and Sean Ennis 44 Competition Agencies and Their Interface with Regulatory Agencies, 54 Annetje Ottow

Closing Session - Day 1 61 Summary of the Day, Eveline N. Fischer 61

Session III: Competition Law and Society 64 Competition Culture, Advocacy and Civil Society: Korea’s Experiences and Cases for Spreading Competition Culture, Dong-kyu Lee 64 Address, T.K. Viswanathan 69

Session IV: Harmonization and Convergence of Competition Laws Across the Region 72 Bilateral/ Multilateral Agreements and Competition Law, 72 Philippe Brusick

Closing Session - Day 2 77 The Road Ahead, Arthur M. Mitchell 77 Valedictory Remarks, Anwarul Hoda 78 Vote of Thanks, V. S. Rekha 79

Appendices 81 Participants 81 Agenda 84

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I. Inaugural Session

t this session, Mr. Arthur M. Mitchell, competition framework may help provide a General Counsel of the Asian coordinated response to concerns that enable Development Bank (ADB) the countries in the region to liberalize their welcomed the participants. This was economies and expand their markets while, followedA by addresses to the audience by at the same time, mitigating risks inherent in senior officials of the Government of India— globalization. He said it will help build stronger Mr. Ashok Chawla, Additional Secretary, economic integration in the region, and can Department of Economic Affairs, Ministry of lead to the coordination and harmonization of Finance, Government of India; and Mr. Anurag laws concerned with the proper regulation of Goel, Secretary, Ministry of Company Affairs, FDI in the region. Despite differences in Government of India. Sh. Prem Chand Gupta, domestic legal and institutional structures, he Honorable Minister, Company Affairs of the believed that such a regional framework could Government of India, formally inaugurated the be formed, given that there is growing roundtable and Dr. V. Krishnamurthy, international consensus regarding the Chairman, National Manufacturing fundamentals of competition law and policy. Competitiveness Council of the Government Moreover, the benefits of converging of India, delivered the keynote address. The competition regimes are easily apparent to session was concluded by a vote of thanks developing countries, which are bent on delivered by Mr. Tadashi Kondo, Country attracting foreign investment. They will provide Director, India Resident Mission, ADB. A brief investors with more certainty and greater summary of the session is provided below. predictability in determining the scope of Mr. Arthur Mitchell welcomed all resource acceptable competitive behavior, and this will persons and participants to the Competition make the country, as well as the region, a more Law and Policy Roundtable. He mentioned that attractive investment destination. ADB’s interest in competition law and policy Mr. Ashok Chawla stressed the springs from its recognition that competition importance of competition law in checking is necessary for developing countries to obtain persons inclined to manipulate the market, the benefits promised by trade liberalization and in addressing market distortions and and privatization. Competition laws and barriers to free trade. These distortions and policies aim to level the investment playing barriers may be caused by geographical field. A level playing field, together with the limitations, natural monopolies, and weak increased business opportunities brought distribution networks; cartels, entry barriers, about by privatization, makes an economy an predatory pricing, and oligopolies. He said that attractive investment destination in the global competition policy should be an integral part market. Setting up a competition framework of a country’s economic development plan, will allow developing economies to protect as this will benefit consumers who will pay themselves from the threat of multinational lower prices for better quality goods. He noted companies’ anticompetitive practices—which that since the Government of India introduced increasingly have cross-border effects— reforms aimed at liberalizing its economy, instead of employing protectionist regulations certain regulated sectors—notably, that often restrict the flow of foreign direct telecommunications—have been able to investment (FDI) to these economies. achieve successes in promoting competition. Mr. Mitchell invited the audience to However, there remain sectors—particularly consider building consensus regarding a those with a large number of state-owned regional competition framework. A regional enterprises (SOEs) and a low level of private

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07-0103Law&PolicyPrelim.pmd 11 17/05/2007, 1:23 PM investment—where competition is weak. to Dr. Krishnamurthy, competition is “the most Finally, he enumerated three challenges acceptable mode of making goods and regarding competition policy in India: (1) services available in abundance in acceptable ensuring that the Competition Commission of quality and at affordable prices.” On the other India (CCI), which was established pursuant hand, competitiveness is “obtained by the to the Competition Act (2002) but whose optimal use of resources, efficiency in existence was being challenged in court at the production through continuous innovation, time the roundtable was held, will be able to improvement in processes, better quality of become fully effective and exercise goods and services, and lower cost and adjudicatory powers; (2) addressing the prices.” He observed that—until the end of the overlap between the jurisdictions of 1980s—the Indian political economy did not competition and sector regulators; and (3) actively promote competition and that this, encouraging private entry in natural together with other factors, caused India’s loss monopolies. of competitiveness in the international market. Mr. Anurag Goel said that the Government The reason for this is that markets, which of India, like other governments around the everyone acknowledges, are the engine of world, recognizes that competition plays a key economic growth, operate best when role in ensuring the efficient functioning of competition between businesses is markets. He said that increased privatization encouraged. He emphasized that competition and private sector participation in sectors law, competition policy, and competitiveness conventionally dominated by the public sector are all interconnected. Competition laws have ushered in a new economic environment trigger competitiveness; they provide the in India. This new environment will function framework necessary to achieving effectively and efficiently if the market can competitiveness. function without distortions. Although certain To achieve competitiveness, the provisions of the 2002 Competition Act were Government of India has strategically identified under review and the CCI (which was created the manufacturing sector as the key to ensuring to ensure the enforcement of the competition the return of India’s competitiveness. It has framework established by the Act) was not formed the National Manufacturing fully operational, CCI had already begun Competitiveness Council and has introduced playing an advocate’s role in promoting a National Strategy for Manufacturing as well competition. An advocate should initiate an as a National Competitiveness Program. informed debate on the issues relating to According to Dr. Krishnamurthy, these competition. Such a debate would awaken strategies have emphasized that the public interest and educate the public on manufacturing industry must develop without relevant competition issues. Mr. Goel also said subsidies or the use of protectionist measures. that CCI is building capacity to perform all its Instead, competition laws and regulations that functions when it is fully constituted. encourage competition must be set up and International cooperation is important to enforced. Such a competition framework will capacity building, as different countries have create a market environment that will benefit had different experiences in addressing consumers. He noted that wherever India competition-related issues, and these altered the regulatory framework to promote experiences can inform developing countries competition, prices have come down. Other that wish to adopt a competition framework. benefits that a country may enjoy include However, a developing country should accelerated growth, lasting social benefit, a remember to consider its special needs when population that is gainfully employed, and the it adopts its competition policy framework. development of a business environment that Finally, Mr. Goel said that countries with promotes sustainable competitiveness and competition authorities and sector regulators increased productivity on regional and global should ensure that competition laws and levels. regulations should avoid overlap with Dr. Krishnamurthy also noted that any regulators’ procedures to avoid confusion, strategy to improve a country’s competitive- duplication of efforts, and conflict. ness needed competition advocacy and clear Dr. V. Krishnamurthy’s address revolved rules and regulations delineating the functions around the interrelated concepts of of sector and competition regulators. Compe- competition and competitiveness. According tition advocacy involves the active promotion

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07-0103Law&PolicyPrelim.pmd 12 17/05/2007, 1:23 PM of good competitive practices in the market- become better informed about the policy place. Competition advocacy is a function that implications of enforcing particular kinds of needs to be carried out both by competition competition laws and regulations that they authorities as well as sector regulators. Dr. might be considering. He noted that countries Krishnamurthy said that he has observed situ- have adopted different competition laws and ations when competition authorities and sec- varied ways of enforcing such laws. For certain tor regulators appear to cancel out each other’s developing countries—particularly those with effectiveness. Such situations occur when laws immature markets and vulnerable populations delineating the functions of each are unclear. that are barely able to access such markets— He further emphasized that countries must trusting market forces to ensure economic adopt competition laws and regulations that growth may not be wise. Some of these encourage the development of a fair business countries have resorted to initiating state action environment. Exempting a particular business in strategic industries. from the operation of competition laws dis- He noted that India initially adopted a torts the market and should be avoided. The strategy of ceding control over industries to cost of overcoming such market distortions is the state to develop a broad industrial base costly and outweighs any perceived benefit and achieve self-reliance in critical industries, derived from exempting the business. As re- economic growth, and social justice. At the gards sector regulations, proposed regulations time India adopted this strategy, its industrial must be tested to ensure that the measures and capital base was weak and the country to be introduced will not produce was faced with widespread poverty. During anticompetitive effects. this period of state-led industrial development, Finally, Dr. Krishnamurthy emphasized India enacted its first antitrust law—the that competition laws should not aim at Monopolies and Restrictive Trade Practices establishing perfect competition that can lead Act (1969), which focused on preventing the to fragmentation of industries. Perfect over-concentration of economic powers in an competition may also hinder a country from entity. building economies of scale, which are Today, however, the Indian economy necessary to encourage innovation and capital enjoys consistent improvement in its growth formation. Competition is not an end in itself rates and is poised to play a meaningful role but is a means to attain competitiveness. To in the world economy. A liberalized economic attain competitiveness, laws that introduce regime has been introduced, and this has competition should suit the local context and contributed to the realization that the antitrust consider public welfare concerns. Such laws regime falls short of a modern competitive need to be periodically revisited to take into economy’s requirements. Consequently, the account changes that will take place both Competition Act (2002) was enacted to domestically and internationally. In a fast- address three kinds of anticompetitive globalizing world, the increased integration of practices: (1) anticompetitive agreements, (2) economies likewise increases the cross- abuse of dominant position, and (3) border effects of local anticompetitive combinations in restraint of trade. It also practices. In this context, the development of provided the establishment of the CCI, which integrated competition policy frameworks will is intended to prevent practices having adverse prove to be important in the coming years. Dr. effects on competition; promote and sustain Krishnamurthy suggested that a mechanism competition in Indian markets; protect that will help competition authorities consumers’ interests; ensure freedom of trade periodically exchange views, ideas, and in Indian markets; and act as an advocate with information regarding competition-related respect to competition issues and concerns. issues might be helpful in developing such an He noted that the Competition Act was integrated framework. undergoing certain amendments at the time Hon. Minister Prem Chand Gupta said that the roundtable was taking place to address while competition is recognized as an efficient some legal issues relating to some provisions market system’s foundation and an important of the Competition Act, 2002. Until the law precondition for economically optimal and becomes fully operational, CCI will continue socially fair results, there is a need to examine working in the areas of capacity building and how competition policies have worked in competition advocacy. It will attempt to create diverse economies. This will help governments awareness about the law so as to increase

Executive Summary xiii

07-0103Law&PolicyPrelim.pmd 13 17/05/2007, 1:23 PM voluntary compliance with minimal state among participants on the floor. A brief intervention and, in doing so, build a healthy summary of this session is described below. competition culture in the country. Professor Allan Fels delivered a The Honorable Minister stated that with presentation that identified core elements of global integration of economic forces, it is a comprehensive national competition regime; important that all countries have a common examined questions relating to competition understanding of competition issues. and foreign investment, public-private Competition laws should operate fairly, partnerships (PPPs), and sustainable recognizing the special needs of developing development; provided a model and countries and emerging markets. Recognition framework for analyzing the operation of of this imperative would help in the evolution competition authorities; and identified the link of competition frameworks, which are more between competition policy and economic sustainable in the long run in the international performance. arena. In discussing the core elements of a Mr. Tadashi Kondo expressed gratitude to comprehensive national competition regime, the distinguished inaugural speakers for he differentiated between competition law sharing their thought-provoking insights on and competition policy. Competition law competition. He also thanked ADB’s Office of comprises general and specific prohibitions the General Counsel for organizing the administered and applied by an independent roundtable, as well as the audience regulator, the violations of which would subject (composed of competition authorities and the violator to credible, adequate sanctions. regulatory agencies, international agencies in On the other hand, competition policy Asia and elsewhere, as well as representatives encompasses a much wider scope and from Indian government offices, and civil addresses all government policies that affect society). He said it was encouraging that competition. Competition policy is established competition authorities and regulatory because various government laws and agencies are actively seeking ways to ensure regulations (including those on foreign and that competition laws and policies are domestic investment; intellectual property; enforced. Enforcement of competition laws taxation; public and private ownership; small and policies is important to creating a healthy business policy; licensing; monopoly and modern economy. The establishment of franchises; laws and regulations governing legal and regulatory frameworks that promote certain sectors such as agriculture, mining, competitive market structures—where such construction, manufacturing, health, frameworks do not exist—as well as strategies education, and social security services) can to enforce these laws and regulations, is affect competition in many areas. A likewise important. comprehensive national competition policy regime involves the review of laws that restrict competition and analysis of conduct with II. Technical Session I: anticompetitive potential according to Competition, Competitiveness, appropriate and transparent assessment and Sustainable processes. It ensures that no participants in the Economic Growth market should be able to engage in anticompetitive conduct against public This session featured the presentation of interest. In addition, universal rules of market resource speaker Professor Allan Fels, Dean, conduct should be uniformly applied to all Australia-New Zealand School of market participants. Government. Professor Fels presented a While FDI often promotes competition, paper entitled, Competition Regimes: certain circumstances may generate little or Analyzing Their Nature and Effect. This was even reduced competition—such as when followed by presentations and remarks of the mergers with established domestic enterprises panelists. The panelists included Mr. Vinod may be at the expense of direct pro- Dhall, Member, Competition Commission of competitive entry, or where a foreign firm may India, and Mr. Arvind Mayaram, Joint quickly acquire monopoly power, engage in Secretary, Department of Economic Affairs, predatory pricing, or participate in global Ministry of Finance, Government of India. The cartels. A comprehensive competition policy session concluded with a 1-hour discussion may remove anticompetitive and unnecessary

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07-0103Law&PolicyPrelim.pmd 14 17/05/2007, 1:23 PM regulation. It may operate against the granting competition laws encourages continual im- of anticompetitive concessions to new entrants provement and innovation that can increase and signal the government’s willingness to the competitiveness of a country’s industries. have a level playing field. But competition policy needs to be tempered Competition-related issues are also linked by broader considerations of social equity, to reforms that promote PPPs. The move to social welfare, and public interest. privatize the public sector in developing Mr. Dhall suggested that the structure of economies assumes that privately owned developing countries’ markets was enterprises operate under competitive market significantly different from that of industrialized conditions that would replace virtual state countries and possessed special monopolies. This assumption is not always characteristics that might demand the sound, since the private sector can put, and adoption of competition policies or laws often puts in, monopoly arrangements to different from the dominant models of maximize revenue—to the detriment of the competition frameworks employed by the public. Traditional competition law can prevent United States (US) and the European Union or at least mitigate the foregoing risks. (EU). Aside from addressing local needs, a Professor Fels introduced a model that competition framework for developing competition and sector regulators may find countries must consider the following relevant with respect to important details questions: (1) Should the law seek to protect concerning the workings of such agencies. The domestic competitors from powerful model identifies three key variables that are multinational corporations? (2) To what extent important in analyzing competition authorities’ must law accommodate arrangements by or regulators’ work: (1) their value added to small-scale or cottage industries to coordinate the public; (2) operating capability; and (3) the their activities with a view to providing “authorizing environment”—or the political meaningful competition to larger enterprises? environment that gives rise to law, regulations, (3) Should there be exemptions from and values that govern their work. This competition laws in developing countries? and “Competition Policy Strategy Model” (4) Should the law frown on incentives for highlighted some very important issues that growth of disadvantaged regions? are often overlooked in law and policy reform Although there is no clear consensus yet efforts. Misalignments in the three variables as to how the architecture of competition law will result in failure to bring about an effective in developing countries should differ from US competition policy that can be sustained in the and EU models, development-friendly long run. Professor Fels also emphasized that competition policies need to be specific to the a “one size fits all” approach does not work stage of a country’s economic and industrial and that the “authorizing environment” is development, as well as its institutional and likely to differ not only between countries but governance capacities. also in each country depending upon the Mr. Arvind Mayaram affirmed that a strong stage of a country’s economic development competition framework is important for at a given time. With regard to “operating developing economies. It promises consumers capability,” Professor Fels emphasized that better services at lower prices. In sectors where regulatory institutions as well as the judiciary prices are regulated, such as water or power, need capacity building and international popular resistance against price increases technical assistance can play an important have successfully kept prices artificially low. role in this regard. The public resists price increases because the As regards the link between competition service provided by public utilities is very poor. and economic benefits, the adoption of But insufficient tariffs on the other hand impact competition laws and a national competi- on the quality of services provided by the tion policy alone will not result in econom- utilities. This vicious cycle impacts the poor ic benefits. Economic benefits from more most. For example in case of water supply, competitive markets will result, provided well-to-do communities enjoy water at low that the laws and regulations adopted are prices. However, since the providers do not effectively implemented. have adequate capital to maintain necessary Mr. Vinod Dhall noted that increasing trade infrastructure to deliver services to the poorest globalization is generating economic compe- communities in far flung areas, private tankers tition between countries. The enforcement of supply water to the slums at high rates.

Executive Summary xv

07-0103Law&PolicyPrelim.pmd 15 17/05/2007, 1:23 PM Mr. Mayaram also pointed out that PPPs Participants also took special interest in have been identified as a means of obtaining mergers as a possible exception to the en- the capital to fund and upgrade infrastructure forcement of competition law. The business projects. A strong competition framework that sector often argues that mergers should not genuinely levels the playing field the between be identified as being potentially anticompet- the private and public sectors would assist in itive because mergers can improve economic increased private sector participation in the development and are good for efficiency. But public sector. a bare claim that merger is good for econom- Mr. Mayaram stated that while private ic development is often used as an excuse for sector monopolies are worse than public mounting a merger with anticompetitive ef- monopolies particularly in infrastructure fects. It should be noted that while many services, a competition framework can mergers have delivered benefits as far as effi- regulate PPPs in order that they do not stifle ciency is concerned, contrary effects have competition from other private sector groups also resulted in other cases. Professor Fels ex- that invest in the sector where they operate. plained that laws that identify mergers as Mr. Mayaram also emphasized that that the anticompetitive have their origins in the early desire to attain perfect competition should be success of anti-cartel legislation. When these balanced out by the need to avoid the creation laws took effect, cartel parties decided to of redundancies; the loss of economies of merge, and this neutralized anti-cartel laws. scale; and the collapse of services on account He suggested that competition authorities and of excessive competition. A fine balance needs regulators approach mergers in the following to be struck between these competing policy manner: (1) Ask whether or not the business concerns, and proper solutions can be arrived can achieve efficiency through normal mar- at only by going through a learning curve and ket processes instead of mergers; and (2) If a experiences. merger’s effect is that it may result in the con- During the discussion, participants asked centration of market power in one player that whether developing countries could carve out will slowly wipe out other entities, then the exemptions and exceptions from the merger should be declared anticompetitive. enforcement of competition law and policy for As regards the capacity of competition public policy and public interest reasons. authorities to fulfill their mandates, Professor Fels was of the view that competition participants identified the competition law should admit of no exceptions, and should authorities’ possession of independence as be strictly enforced. The underlying assumption particularly important. The following features for such a position is that competition is for the of an optimal structure for such authority’s public good. However, he believed that there independence in developing countries were can and should be public interest exceptions identified: (1) fiscal independence and (e.g., when dealing with public safety laws or autonomy, such as when its funds are made health laws) in enforcing competition policy by law to be an automatic charge on the (i.e., broad restrictions on competition). He budget instead of a discretionary amount from emphasized that the proponent of the exception government; (2) security of tenure for had the burden of proof to show that such members of the competition authority; (3) the exception was warranted, and insisted that the power to issue directives and exemptions grounds for the exception should be proven from the enforcement of competition laws; transparently and publicly. and (4) strong accountability features that Professor Fels noted that priorities of ensure its own independence, such as having competition policy could be refocused to representatives from outside the jurisdiction contribute to other state priorities, such as (competition experts) or nongovernment attainment of Millennium Development Goals organizations (NGOs) (as in Jordan and (MDGs), which are a priority in developing Zambia) or consumer groups (as in Australia) countries. In Africa, for example, practices sitting as members of the competition involving intellectual property such as parallel authority. Of particular interest was the import restrictions, which are anticompetitive, practice in the United Kingdom (UK) of have hindered treatment for AIDS. Competition designating a consumer association as a authorities may focus on enforcing “super complainant” which, when it files a competition laws in this area to aid in the complaint with the competition authority, achievement of MDGs. obliges the competition authority to

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07-0103Law&PolicyPrelim.pmd 16 17/05/2007, 1:23 PM investigate the complaint and decide the challenges to enforcing competition policy matter within 90 days. during each of Japan’s eras of economic growth Participants also discussed useful and development. His presentation illustrated strategies to build the capacity of competition the point made by Professor Fels on the need authorities. In designing capacity-building for an “authorizing environment” to ensure strategies, competition authorities should effective implementation of competition policy. remember to develop a culture of law When Japan’s competition law was adopted enforcement. Sometimes, competition in 1947, Japanese society was not ready for the authorities find themselves parties to concept of competition, and therefore, JFTC countersuits on substantive law issues. They had to face an uphill battle. Mr. Nanbu also need to be prepared for these actions while, emphasized how different economic cycles at the same time, build capacity to quickly act may influence the government’s willingness to upon complaints involving anticompetitive promote competition. The experience in Japan practices. showed that in times of economic depression, Capacity-building strategies should also business lobbies were able to push for include training in prioritization of cases and exemptions from certain prohibitions. case management. In the UK, the Office of Fair Mr. Nanbu underlined the importance Trading (OFT) has created a preliminary played by the establishment of an independent investigation unit to identify which complaints competition authority in Japan; the more ac- should be prioritized and pursued tive role that courts are called to play today for immediately among the hundreds that are competition law to be enforced; and the need filed with the office. Cases that would have to get the business sector to understand the great impact on competition law and policy importance of competition policy. Mr. Nanbu enforcement are prioritized. summarized his presentation on JFTC with three key lessons: (1) government, industrial, and development policies suitable to each III. Technical Session II: stage of economic development all need to Competition Regimes Across be taken into consideration in the enforcement the Region: Approaches and of competition laws; (2) governments need to Challenges in Implementing consider minimizing the introduction of Competition Law and Policy exemptions from competition laws’ applica- and Interface with Regulatory tion; and (3) ultimately, competition policy and Authorities the government’s industrial and development policies need not be mutually exclusive and This session featured papers on (i) could, in fact, be complementary. Mr. Nanbu Competition Regimes Across the Region: then turned his attention to the development Approaches and Challenges in Implementing of competition policy in the APEC region and Competition Law and Policy (presented by Mr. the promotion of international cooperation and Toshiyuki Nanbu, Convenor, Asia-Pacific competition networks impacting on the region. Economic Cooperation [APEC]/Competition He emphasized that the formation of a region- Policy and Deregulation Group, and Director, al network is important to enable countries International Affairs Division of the Japan Fair within the region to cooperate and enforce Trade Commission [JFTC]); and (ii) competition policy. Competition Regimes Across the Region: Mr. Bernard J. Phillips noted that although Interface with Regulatory Authorities (two competition authorities and sector regulators papers presented by Mr. Bernard J. Phillips, have often disagreed over regulatory Head, Competition Division, OECD, and by Ms. approaches, there are actually many areas Annetje Ottow, Associated Member of the where they should cooperate. He stressed the Commission of Onafhankelijke Post en importance of cooperation and coordination Telecommunicatie Autoriteit [OPTA, between sector regulators and competition Netherlands]). The presentations were authorities to achieve pro-competitive followed by discussions. A brief summary of regulations. In this regard, he mentioned this session follows below. practical suggestions for cooperation of Mr. Toshiyuki Nanbu provided a brief history competition authorities and regulators, such as: of the oldest competition agency in Asia, JFTC. (1) giving statutory powers to competition Founded in 1947, JFTC encountered different authorities for some aspects of regulatory

Executive Summary xvii

07-0103Law&PolicyPrelim.pmd 17 17/05/2007, 1:23 PM review; (2) providing competition authorities knowledge of the industry to identify the with standing to submit public comments that existence of anticompetitive practices or require written response by the regulator prior practices with anticompetitive effects to the adoption of a final decision; and (3) accurately. placing senior officials of competition SSRs may also be particularly useful in authorities on oversight boards of sector sectors characterized by the existence of state- regulators, and vice versa. Even exchanges at a owned enterprises (SOEs). SSRs may assist lower level will lead to informal exchanges of states transitioning from controlling dominant knowledge and improve mutual understanding. firms to a more competition-oriented economic Mr. Phillips also identified the following structure. In the early part of the transition, the mechanisms as helpful in ensuring domestic regulator may closely regulate the transitioning consistency in the application of competition SOEs. There is a view (e.g., in the PRC) that rules: (1) a common appeal route must be administrative monopoly issues—meaning, created so that competition cases filed with those involving SOEs—should be settled by multiple agencies with competition oversight reforms in administrative law (involving functions are governed by common standards; regulators) and not competition law. (2) competition objectives should be taken into Some participants noted that the account by regulators in regulatory impact transition from an SOE framework to a more assessments; and (3) competition authorities competitive one does not necessarily result should be given the right to intervene with in the abolition of a sector regulator even after respect to existing and proposed regulations a competition authority is established. In the that are potentially harmful to competition. UK, the telecom and broadcasting regulators Ms. Ottow shared the perspective of a sector have integrated, instead of having the regulator (of the post and telecommunications functions of the telecom regulator sector) in a maturing competition environment disappearing into the Office of Fair Trading. (the Netherlands). She emphasized the Even in jurisdictions such as the Netherlands importance of good coordination and interface where there is a “sunset clause” for regulators between competition authorities and sector in the Telecommunications Act that implies specific regulatory authorities to avoid that eventually all activities of the sector unnecessary conflict, because the complex regulator, OPTA, will be taken over by a regulatory framework in Europe may competition authority that will act in sometimes interfere with implementation of accordance with the competition law—the general competition law. regulatory agency has not been stripped of its It appears that in the Netherlands, both the powers because specific market behavior competition authority and the sector regulator needs to be controlled by the regulator. (for the telecommunications sector in her case) are willing to consult each other. There 2. What is the optimal “divide” in the is a protocol between the competition and jurisdictions of competition authori- telecommunications authorities to ensure ties and regulatory agencies? consistent application of concepts. In theory, the regulator can disregard the competition Panelists agreed that there should be no authority’s advice but in practice there is much conflict between the mandates of competition formal and informal coordination between the authorities and regulatory agencies. What is two bodies. As a result, competition and important is that there are clear laws and regulatory authorities succeed in avoiding regulations defining the jurisdiction of unnecessary conflict. competition and regulatory authorities. Also The discussions that followed the important are a common understanding of the presentations centered around five questions: interrelated functions of these two classes of authorities and a common desire to cooperate 1. When should there be a sector-specific with each other. Panelists discussed how regulator (SSR)? conflict has been avoided in their respective jurisdictions. An SSR agency was determined as useful In Japan, government line ministries are if a natural monopoly exists in a particular in charge of utilities regulators. The ministries industry. The existence of a natural monopoly involved supervise all activities relating to those requires ongoing regulation and specialized industries, and it is these ministries that deal

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07-0103Law&PolicyPrelim.pmd 18 17/05/2007, 1:23 PM with regulation of the industries involved, even Much discussion was devoted to the role those regulations involving competition within that competition authorities and regulators the industry. However, JFTC has power over need to play in making regulatory impact these industries to the extent that it can deal assessments (RIAs). It was emphasized that with anticompetitive practices within those RIAs should go beyond just a cost-benefit industries. Recently, regulators and JFTC have analysis of new regulations. Some participants entered into cooperative arrangements to noted that competition authorities may not issue joint guidelines for uniformity of practice have sufficient knowledge of the regulated and policy. sector to make a fair assessment. Others In the Netherlands, there is a formal noted that regulators may not have sufficient agreement (protocol) between the knowledge of competition issues and end up competition and telecommunications making only cost-benefit analyses. Likewise, authorities. Although in theory the regulator line ministries from the national government can disregard the competition authority’s may not have the capacity or knowledge to advice, there is much formal and informal undertake RIAs. coordination between the two bodies so that The role that competition authorities conflict is routinely avoided. The only criticism should play in a RIA is to identify any law that against the practice is that there is a lack of is anticompetitive at every sector and at every transparency with regard to their informal level. Who then undertakes the RIA itself? In coordination practices. Australia, the national government set up a fund that would finance RIAs. Local 3. Should competition authorities be government bodies would then initiate the given a role in SSR and, if so, what reviews. Local governments would be able to should this role be? access the national government’s fund on the condition that the reviews were done properly Competition authorities should be given and transparently. Consequently, local some roles in SSR. Among the types of roles governments in Australia are now very played by competition authorities around the aggressive in asking for reviews and ensuring world in the context of SSR are the following: that such reviews are properly done. It may a. In some jurisdictions such as Mexico, the be appropriate for a national government to competition authority was given a limited promote competition by providing incentives role to play in certain sectors before the for other interested entities to do the RIA. regulator could take certain actions such as price regulation. For example, the 4. What role do courts play in the competition authority would need to enforcement of competition law make a finding, following an investigation and policy? in a specific sector, that an entity had dominant market power that justified This appears to be an issue that will merit price regulation. more attention in the EU in the coming years. b. In some jurisdictions such as the Asian countries would do well to examine Netherlands, the regulator consults the this issue as well. In the past, disputes competition authority on a competition- regarding telecommunications issues in the related issue that arises in the regulated Netherlands were heard by the regulator and sector and the competition authority acts the latter’s decision may be appealed to the on the regulator’s request. courts. It was usually rare for parties to go to c. Certain jurisdictions have competition the court directly. Today, however, in line with authorities that play a role in granting the EU 2002 Regulatory Framework imposing licenses or in allowing privatization member states to introduce effective appeals of government assets. Competition mechanisms, important decisions of the authorities may disqualify potential sector regulator, such as on significant bidders on the ground that the bidders’ market power (SMP) designation and acquisition of a license or concession is imposition of obligations following market anticompetitive. A similar practice is a pre- analyses, can be directly appealed to the merger review where the competition highest administrative court. authority can disqualify potential bidders for the same reason.

Executive Summary xix

07-0103Law&PolicyPrelim.pmd 19 17/05/2007, 1:23 PM 5. Is there benefit in creating a ministe- government body does not adopt the rial position for competition so that recommendations of KFTC during prior competition concerns may be better consultations, KFTC still has the opportunity represented at the Cabinet level? to rediscuss the issue at the Cabinet and Vice- Ministers’ Meeting. The KFTC chairperson is A ministerial position for competition was also an ex-officio member of the Regulatory suggested in Australia some time ago but was Reform Committee, which has control over all not realized. One view was that there be regulatory reforms. In this capacity, the limited use for the position as it would be a chairperson is able to influence the regulatory fairly minor position in the Cabinet (since reform process in Korea. Cabinets are driven by important ministries KFTC’s education and public relations such as Finance and the Treasury) and programs include training opportunities for consequently, budget for the office would students and company representatives to likewise be limited. improve their understanding about competition laws and commitment to voluntary compliance with competition laws. IV. Technical Session III: Major KFTC policies and achievements have Competition Law and Society been published on newspapers, TV, radio, and other media. KFTC is operating an electronic In this session, Mr. Dong-kyu Lee, Director “Policy Customer Relationship Management” General of Headquarters for Competition facility that delivers KFTC newsletters and Policy of the Korea Fair Trade Commission information on competition policies tailored (KFTC), presented a paper on Competition to subscribers’ respective needs. It is also used Culture, Advocacy and Civil Society: Korea’s to collect public opinions on competition Experiences and Cases for Spreading policies and measure the level of their Competition Culture. The presentation was satisfaction with such policies. followed by an address delivered by Mr. T.K. KFTC has adopted some innovative Viswanathan, Law Secretary, Government of programs to develop a competition culture India. The session closed with a discussion such as the Compliance Program that among the participants. A brief summary of promotes companies’ voluntary compliance this session follows. with competition laws. KFTC benchmarked Mr. Dong-kyu Lee, drawing from the the experience of developed countries with experience of the KFTC, discussed how a regard to introducing voluntary compliance competition authority can assist in the schemes to the private sector. Companies that development of a “competition culture”—that have adopted the KFTC Compliance Program is, market participants’ “attitudes or ways of have their own in-house team that monitors thinking, to put into practice their and regulates their activities to ensure understanding about competition laws and compliance with competition laws. KFTC has policies, and usefulness of competition in their also introduced a business review system that daily lives.” Mr. Lee categorized KFTC’s enables businesses to request KFTC to review competition advocacy activities into three potential business activities to see if these types: (1) improving anticompetitive laws and would violate competition laws. KFTC delivers regulations; (2) education and public relations its opinion to the applicant within 30 days. If a campaigns on competition laws and policies; business activity is determined to be and (3) other innovative programs that foster legitimate, it will not be subsequently competition culture. reexamined for violating competition laws. Mr. Lee said that KFTC is in a unique Finally, KFTC has staged a “Mock Court Contest position to improve anticompetitive laws and for University Students” where students debate regulations because the Monopoly Regulation on hypothetical cases of competition law and Fair Trade Act obliges heads of violations. administrative bodies to consult KFTC prior to Mr. Lee emphasized that competition enforcing laws or policies that may have culture cannot take root by competition anticompetitive effects. In addition, KFTC’s authorities’ efforts alone. Aside from the chairperson and vice-chairperson regularly competition authority’s strict law enforcement attend the Cabinet Meeting and Vice-Ministers’ and competition advocacy, it requires Meeting, respectively. Consequently, if a companies’ voluntary compliance with

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07-0103Law&PolicyPrelim.pmd 20 17/05/2007, 1:23 PM competition laws and their managers’ ciency vis-à-vis adverse effects on competition. commitment to compliance. Civil society On a case-to-case basis, this may assume the groups and consumers that actively monitor form of a block exemption. Mr. Viswanathan the market, and courts and prosecutors that also briefly discussed the concept of unlawful aggressively crack down on anticompetitive monopolization, which is an offense charac- activities all contribute to the development of terized by the following elements: (a) posses- a competition culture. sion of market power in the relevant market; Mr. T.K. Viswanathan viewed the subject and (b) willful acquisition or maintenance of of competition law and society in the context that power, as distinguished from growth or de- of globalization and emerging knowledge velopment as a consequence of a superior economy. Once a dominant economic player, product, business acumen, or historic accident. the state is now withdrawing from the Finally, Mr. Viswanathan emphasized that expanded role it had assumed in running a competition law must protect citizens and country’s economy. As liberal markets and free consumers in the same manner as the enterprise emerge around the world, constitution limits a government’s power by competition is no longer confined within the preventing the arbitrary exercise thereof. boundaries of a state. Countries must compete In the discussions that followed, on a global playing field. In such a setting, state participants considered what it meant to have borders and regulations are less relevant, as a “competition culture” and its importance to capital flows to places where returns on a country. The development of competition investment are more likely. In such a context, culture involves the development of more competition laws and competition authorities people who know how competition policy would play a more dominant role in regulating operates in general, and in specific sectors. To economies, activities, and lives. For a country identify what is anticompetitive, one needs to to compete globally, it must understand the have industry-specific knowledge. Otherwise, basics of competition law and how markets one will not be able to apply competition law and market actors operate. A country’s laws to specific industries. must keep pace with the social changes, Developing competition culture includes including increased competition across educating central ministries (such as the borders, that globalization brings about. Ministry of Finance), legislators, and regulators, Lawyers cannot afford to ignore the field of who often have a limited understanding of the competition law, which, besides principles of market environment and competition issues. contract law, requires some knowledge of For example, in Australia, a policy of free and microeconomics (price theory) and industrial fair interstate competition on gas and energy organization (specifically, knowledge relating was adopted. All impediments to competition to how firms behave in the market). in the sector were removed. The Government Mr. Viswanathan described the character- was persuaded to give a 1-year transition istics of competition law. Competition laws period, such that the new gas and energy law prohibit the deliberate exploitation of a firm’s applied to new contracts drawn up after the dominant market position, any agreement, transition period. While this was in principle arrangement or understanding between enter- harmless, players in the gas sector knew that prises that has the effect of substantially less- contracts involving gas were long-term ening or limiting access to the market. This contracts (25 years), and they amended prohibition applies not only to written but to existing contracts or entered into new long- oral and informal agreements as well. Inher- term contracts within the transition period. ently anticompetitive agreements are deemed Thus, the new regime was made virtually “per se” offenses that are always illegal, regard- ineffectual. less of the parties’ intent or their actual effect In the United States, competition culture on competition. Examples include price fixing, is often equated with consumer advocacy. fixing of output by a cartel, collusive tender- Consumer advocates try to be heard by the ing, and market sharing. On the other hand, state regulator. They let the regulator know competition law sometimes provides excep- how they think the regulator should carry out tions to certain prohibited practices so as to its tasks; or they try to be heard by the state enhance economic efficiency. Competition government and lobby for the passage of authorities may also provide exemptions after certain laws. Consumer advocates are they have weighed the anticipated gain in effi- generally not represented when critical

Executive Summary xxi

07-0103Law&PolicyPrelim.pmd 21 17/05/2007, 1:23 PM decisions are being made by lawmakers and clarified that KFTC would need to be consulted regulators, but contribute to the development about any law, provided that the law would of competition culture by raising consumer potentially restrict competition in some way awareness of the issues involved. While some (i.e., through the creation of a monopoly, the participants viewed this concept of “consumer setting of a minimum price; the requirement advocacy” as weaker than the kind practiced of limited entry, etc.). Once consulted, KFTC in Korea, it was generally agreed that this type would need to give its opinion on the matter. of consumer advocacy was still helpful in Participants also asked whether the business developing a competition culture. review system burdens the KFTC. Mr. Lee Participants identified the following replied that as of its introduction, 38 institutional mechanisms and innovative applications have been filed, and 35 have been practices as helpful in developing a reviewed—implying that KFTC had sufficient competition culture: capacity to carry out the review system. Participants also exchanged views 1. Competition authority’s or regulator’s regarding private actions against access to all cabinet papers being put anticompetitive practices. In addition to forward successful public enforcement of competition law (which a competition authority or In Korea, the competition authority is part of regulator undertakes), the successful private the Cabinet, where decisions are made. Some enforcement of competition law—through participants asked whether the KFTC’s inde- filing private actions against anticompetitive pendence was compromised by the fact that practice—will be useful in propagating a its head was part of the Cabinet. Mr. Lee competition culture. However, for private replied that KFTC’s independence is safe- enforcement to succeed, judges and courts guarded by the fact that competition law must understand competition issues. At present, expressly provides that KFTC works indepen- it is not very common for courts to enforce dently. To strengthen its independence, KFTC competition laws at the initiative of private was also separated from the Ministry of Eco- parties. Furthermore, private enforcement of nomic Planning. anticompetitive practice is not widespread. It was noted that in Europe, the There are, however, notable exceptions. Mr. Lee Commissioner on Competition sits on the mentioned a leading Korean case relevant to European Commission. In principle, any the issue of private enforcement actions. The proposal going to the Commission from any case involved 3,500 Korean parents who filed a Directorate may be examined by the civil action for damages against a manufacturer Competition Commissioner, and the latter can of school uniforms that had engaged in intervene in any such matter. anticompetitive practices. The civil court upheld their claim against the manufacturer. Prior to 2. Institutional mechanisms allowing the parents’ filing of the aforementioned case, competition authority to review all KFTC had issued a cease and desist order anticompetitive laws and practices in against the manufacturer. The manufacturer both national and local levels of filed a case in court asking the court to order government (such as in Australia) KFTC to withdraw its order. The court ruled against the manufacturer. In Australia, the competition authority has reviewed local government practices involving V. Technical Session IV: allocation or reservation of jobs that do not go Convergence and Harmonization through competitive bidding. Competition of Competition Laws Across the issues have also arisen in national ministries such as the defense department, with regard Region: Bilateral/Multilateral to procurement and supply arrangements. Agreements and Competition Participants showed great interest in the Law strategies employed by KFTC to develop a competition culture. Participants asked if KFTC This short session featured a presentation by was consulted by administrative agencies on Mr. Philippe Brusick, Head, UNCTAD’s all legislative proposals or only on competition- Competition and Consumer Policies Branch, specific legislation (i.e., fair trade). Mr. Lee which was followed by discussions among

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07-0103Law&PolicyPrelim.pmd 22 17/05/2007, 1:23 PM participants on the floor. A brief summary of the manner in which competition laws are the session is provided below. enforced. In many countries, violations of Mr. Philippe Brusick said that countries competition laws are enforced by the com- have begun to feel the need to adopt petition authority whose decision may be competition laws and harmonize with the appealed to the courts. In other jurisdictions, competition laws of other countries because such as the US, violations are brought by the of four phenomena promoting convergence: competition authority or relevant administra- (1) the transition of centrally-planned tive office directly to the courts. Some coun- economies or economies with industrial tries apply administrative sanctions (fines) policies into market-oriented economies; only, while others apply criminal sanctions (2) deregulation and privatization; (3) trade for cartels and bid-rigging. He also noted that liberalization and the proliferation of regional while many countries have accepted that a trade agreements (RTAs); and (4) FDI competition authority is necessary for the ef- liberalization. Other factors that have caused fective enforcement of competition law, countries to adopt competition laws have been there are differences in the extent to which a desire to protect its intellectual property from competition authorities are independent unfair competition and infringement, and the from the government. In some jurisdictions, desire to protect consumers from monopoly a minister may overrule the recommenda- interests. Mr. Brusick suggested that these tion of a competition authority while, in turn, factors promoting the adoption of competition the minister’s decision may be appealed to law in various countries have led to the courts. convergence and harmonization of such laws. Mr. Brusick emphasized that international He said that the text of the law in various cooperation in enforcing competition laws is jurisdictions, broadly read, is similar. For essential. Globalization has caused example, competition and antitrust legislation anticompetitive practices in most jurisdictions in different countries all refer to the prohibition to have cross-border effects. Countries have of cartels, collusive tendering or bid rigging, attempted to cooperate through “pure and prohibition of abuse of dominant position. competition agreements” (bilateral cooperation He also noted that many jurisdictions have also between competition authorities) and adopted merger control. Most, if not all, provisions on competition included in free countries have accepted that meaningful trade agreements (FTAs). The first type of application of competition laws requires the agreement contains a notification procedure establishment of a competition authority. for enforcement, technical cooperation Mr. Brusick noted that it is in the application arrangements, arrangements for periodic of the laws that divergence, instead of meetings and consultation procedures. convergence, occurs. He said that different Dispute settlement or conciliation procedures types of countries at different levels of may be included in this agreement. Provisions development and with varied social needs in the second type of arrangement usually require different ways in which to enforce contain a commitment for parties to the FTA competition policy. Countries also differ in the to adopt and enforce competition legislation. manner in which they sequence reforms that Sometimes they provide technical assistance introduce competition law and policy. Some in competition. They also require exchange of favor an abrupt and immediate transition; information on competition issues but in all others, a more gradual approach that begins cases, such exchange is subject to with prohibitions against cartels, then later confidentiality rules. RTAs sometimes adopt addresses anticompetitive mergers, abuse of regional competition rules; they usually dominant position, and other anticompetitive contain prohibitions against cross-border practices. Another key area of difference in cartels, control of abuses of dominant position, competition laws is that of scope—for example, and merger control. In regions where there is some competition laws exclude SOEs from their a regional competition authority, such authority application. Others exempt regulated sectors. takes the lead with respect to enforcing the Certain divergence in practice also occurs in foregoing prohibitions. the type of prohibitions under the law—some Finally, Mr. Brusick identified international laws provide general prohibitions with possible organizations that are working in the field of exemptions, others, per se prohibitions. building convergence and harmonization of There is some variance with respect to competition laws around the world. Notable

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07-0103Law&PolicyPrelim.pmd 23 17/05/2007, 1:23 PM among these are UNCTAD, OECD, and the eral public—including students and NGOs, International Competition Network (ICN). researchers, and members of the develop- The discussions that followed emphasized ment community.1 that, while competition laws can be written in The idea is for the toolkit to present basic different ways, it matters less that the laws are principles in competition law and direct not identical. What matters is that competition readers to materials that tackle these basic authorities have similar views on competition principles in greater depth. Links to existing policy enforcement. In this regard, networks glossaries of terms relevant to competition law such as OECD, UNCTAD, and ICN are useful, are also provided. The toolkit also provides a as they provide venuew for practitioners to sit brief chapter on countries that have adopted down and discuss cases. They encourage competition laws, as well as links to websites intellectual exchange and cooperation in the containing further information about these enforcement of competition policy. competition regimes. Similarly, it is unnecessary to have bilateral To ensure accessibility for everyone, and agreements for cooperation in competition not just lawyers and economists or experts in enforcement to take place. Competition the field, it is composed of chapters that provisions included in FTAs have not been employ short and simple language, actively used according to an OECD survey. summarizing key ideas, concepts, and issues Some believe that these provisions, which are that anyone interested in competition law and drafted by trade officials, are of limited use for policy would find relevant. competition policy enforcers. What is more The toolkit provides chapters on the important is the competition authority’s practices that competition law aims to control. capacity to network with other agencies and The practices identified as harmful to the form alliances to cooperate (through repeated process of competition, and which interactions) with each others’ requests. But competition law is concerned with, are: while bilateral agreements are not necessary • Anticompetitive agreements, which have, for cooperation to take place, if the law of a as their object or effect, the restriction of country prevents sharing of certain confidential competition; information, this may discourage bilateral • Abusive behavior by a monopolist, or by a cooperation in competition policy dominant firm with substantial market enforcement. For example, much information power, which enables it to behave as if it involved in cartel cases are confidential—they were a monopolist; are collected in the course of investigation or • Mergers between independent firms that are given by an applicant in exchange for could be harmful to the competitive promise of less punishment. To address this, process, such as, if one competitor were one strategy has been to file anti-cartel cases to acquire its main competitor; and in multiple jurisdictions. OECD has identified • Public restrictions of competition such as adequate conditions for legislation facilitating laws, regulations, licensing rules, or the sharing of information. provisions of subsidies, which may distort the process of competition. VI. Technical Session V: There is a need to be clear on what Presentation of the Draft ADB competition law seeks to regulate because the Competition Law Toolkit term “competition law” is often used quite loosely to refer to legislation on economic Professor Richard Whish presented the draft welfare, consumer law, laws relating to foreign ADB Competition Law Toolkit and facilitated investment, and even rules designed to protect the technical session. The draft toolkit was minority shareholders from abuse by majority prepared to provide countries with tools that shareholders. Popular misconceptions of what can be used to implement and assess policies competition laws seek to regulate get in the that will increase competition, and thereby, the way of making correct policy choices that can competitiveness of their economies as a help increase a country’s competitiveness. whole. The finalized toolkit will be a web- based document that is easily accessible to 1 The finalized Toolkit on Competition Law is available at: competition and regulatory agencies and www.adb.org/Document/Others/OGC-toolkit/Competition- other government offices, as well as the gen- law/default.asp

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07-0103Law&PolicyPrelim.pmd 24 17/05/2007, 1:23 PM The toolkit also provides a chapter all discussed under this chapter. References outlining the key concepts in competition law. to relevant laws, administrative guidance, Its ultimate focus is the concept of market policy statements, academic literature and power; it identifies certain factors that other sources are provided in the toolkit. countries may wish to consider in determining The toolkit was generally well-received. whether market power exists—such as market Delegates of the roundtable actively shares, barriers to entry and expansion, participated in the discussions on the toolkit. barriers to exit, and buyer power. It is common They pointed out that to be useful to to equate market power simply with market developing countries, the toolkit should definition which, in turn, is defined by market address more specifically the concerns of shares. It has been observed that this approach developing countries with respect to can be problematic. For example, it may well competition law. Examples of enforcement be argued that reality does not present clear- mechanisms employed in developing cut situations where market share alone can countries and cases involving anticompetitive be determinative of market power; where one behavior in such countries were referred to can clearly identify what constitute barriers to during the discussions. entry and expansion, or barriers to exit. A chapter discusses how competition VII. Closing Session promotes allocative and productive efficiency, leads to lower prices for consumers, promotes This session was commenced by Mr. Arthur innovation and the availability of better M. Mitchell, ADB General Counsel, who offered products in the market, and provides his views on the road ahead for ADB and the consumers with choices as to the products participants of the roundtable. Mr. Anwarul they buy. Another chapter is devoted to Hoda, Member, Planning Commission, discussing the importance of competition law Government of India, delivered the valedictory, and policy in emerging economies. The and Ms. V.S. Rekha, Senior Counsel, ADB, chapter provides arguments to support the delivered the vote of thanks. A brief summary position that the effect of anticompetitive of the session is provided below. activities on the poor is proportionally greater Mr. Arthur M. Mitchell said that the in developing countries as compared to their roundtable had been useful in bringing to light developed counterparts. The chapter also the nexus between competition and poverty discusses issues relating to the adoption of reduction, which is ADB’s overarching goal. competition laws in a specific country context That the participants recognized the close link and provides a comparative analysis of the between competition and poverty reduction strengths and weaknesses of different was evident in their questions—particularly competition regimes, which can serve as a tool those relating to whether or not basic for identifying best practices in the field. The competition principles should be approached interface between competition and regulatory from a developing country ‘s perspective. Many regimes is discussed in the toolkit in the participants opined that developing countries’ context of specific sectors—public utilities, special concerns and local circumstances infrastructure, and banking and finance. need to be taken account when adopting and The toolkit also provides a review of enforcing competition laws and policies, or enforcement mechanisms that are essential when undertaking or sequencing related for effective application of competition laws. reforms. Mr. Mitchell then requested the It is not enough to adopt competition laws. It participants to provide feedback regarding is important to ensure that these laws are how useful the roundtable has been to them. enforced. The chapter on enforcement He said that such feedback would inform ADB mechanisms outlines what one needs to what types of activities and knowledge its consider when establishing a competition members find useful. He also expressed the regime. The design of independent, hope that the roundtable participants would accountable, and transparent competition form a network of competition authorities and authorities; powers and procedures of such regulators in the region, which could meet and authority; sanctions and remedies for exchange views on a regular basis. anticompetitive practices; compliance Mr. Anwarul Hoda summarized and programs; administrative guidance; and commented on the presentations delivered procedures for appeals and judicial review are during the roundtable. He believed that the

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07-0103Law&PolicyPrelim.pmd 25 17/05/2007, 1:23 PM roundtable had exposed the participants to many countries now realize that competition different perspectives on competition law and law and policy reforms must be introduced policy. In his view, the experiences of Australia sooner rather than later. Moreover, countries and Korea, where competition law and policy are beginning to see the necessity for occupy an important position on the national international cooperation and the need for agenda, were particularly useful. Australia converging competition policies. In this benefited considerably from the adoption of regard, the presentation on convergence and competition policy. The importance Korea harmonization of competition laws was attaches to competition law and policy is enlightening. Mr. Hoda pointed out that apparent from the fact that the KFTC convergence did not necessarily refer to the chairperson sits in the Cabinet. Mr. Hoda also establishment of a uniform competition mentioned the postwar Japanese experience framework across countries. Indeed, a as being an interesting case of a government number of countries had eschewed the that gave increasing importance to adoption of a national competition law, yet competition law and policy as their economic had adopted competition practice and situation improved. Mr. Hoda said that the principles that were enforced by sector presentations on competition law regimes regulators. Mr. Hoda pointed out that the across region and interface with regulatory adoption of competition law was not enough. regimes offered the following two conclusions: The culture of competition had to seep into (1) economic growth is enhanced by pro- sensibilities of the private sector for its competitive regulation; and (2) competition objectives to be fully realized. authorities and regulators share common Ms. V.S. Rekha concluded the roundtable objectives. He emphasized the importance of with a vote of thanks. She said it was useful competition authorities and regulators, saying to observe and learn from the deliberations that without these institutions, commercial on the various aspects of competition matters enterprises would be unable to resist the during the course of the roundtable. These temptation to increase profits by means of deliberations not only enriched the anticompetitive practice. discussions but also allowed the articulation As regards the discussion on competition of relevant issues, needs, and concerns, as and society, Mr. Hoda offered his own views well as helped discuss on possible best on the subject. He said that while no one practices on competition matters. She then doubts the benefits of competition, the debate thanked the resource persons, panelists, in some developing countries has revolved representatives of the Government of India, around the right time to seriously start the audience, and ADB staff at the Office of addressing competition issues given the many the General Counsel and India Resident challenges that developing countries face. Mission for contributing their time and talent Nevertheless, Mr. Hoda said he believed that to the roundtable.

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07-0103Law&PolicyPrelim.pmd 26 17/05/2007, 1:23 PM “Competition is necessary Inaugural for developing countries to obtain the Session benefits promised by trade Welcome Remarks, Arthur M. Mitchell, General Counsel, Asian Development Bank liberalization Inaugural Address, Prem Chand Gupta, Honorable Minister, and Company Affairs, Government of India privatization.” Keynote Address, V. Krishnamurthy, Chairman, National Manufacturing Competitiveness Council, Government of India Address, Anurag Goel, Secretary, Ministry of Company Affairs, Arthur M. Mitchell, Government of India General Counsel Address, Ashok Chawla, Additional Secretary, Department of Asian Development Bank Economic Affairs, Ministry of Finance, Government of India Vote of Thanks, Tadashi Kondo, Country Director, India Resident Mission, Asian Development Bank Q

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07-0103Law&PolicyPrelim.pmd 27 17/05/2007, 1:23 PM Welcome Remarks

Toward an Asian Regional Competition Framework ARTHUR M. MITCHELL General Counsel, Arthur M. Mitchell Asian Development Bank General Counsel, Asian Development Bank As early as 1995, ADB recognized, in its Governance Policy, the importance that competition played in ensuring sustainable economic growth in its developing member countries.1 ADB saw then, as it does now, that competition is necessary for developing countries to “A regional obtain the benefits promised by trade liberalization and privatization. For while trade liberalization and privatizing the public sector have increased business opportunities in the international competition market, they do not, by themselves, level the investment playing field or make an economy an attractive investment destination. framework may Privatization, regulation, competition help build In the last decade, many developing countries have sought to privatize public sector monopolies. stronger But experience in many countries such as the United Kingdom (UK) shows that without a corresponding increase in competition, privatizing the utilities sectors has not maximized sector economic efficiency or led to lower prices for the consumer. Competition thus emerges as the most significant factor in this regard.2 integration in Without the appropriate safeguards to ensure competition, privatizing the public sector may lead to a substitution of public sector monopolies with private monopolies, and thus, the region. decrease social welfare. Historically, many of ADB’s developing member countries have responded to increased Despite their privatization by creating regulatory regimes or undertaking regulatory reforms to safeguard consumer welfare and ensure competition. In some regimes, competition laws and policies differences, the continue to be enforced primarily by sector regulators. Much can be learned from the specialized knowledge and experience of these sector regulators. region’s many In recent years, competition agencies and commissions have been formed alongside existing sector regulators. It is important that appropriate regulatory and competition policy markets do frameworks be put in place to ensure improved economic performance. What are the ingredients of the right relationship between the competition authority and sector regulators? share common How does one resolve jurisdictional overlaps between competition authorities and sector regulators? How does each contribute to enforcement of competition law and the development issues and of competition policy? These are some of the issues we hope will be discussed during the roundtable. concerns.” Competition, market liberalization, regional cooperation

Competition laws are rapidly being adopted in many developing countries, in all continents, Q and in all types of economies. There are at least 100 systems of competition law worldwide, and more are being contemplated.3 Of course, enacting competition laws is not enough; we need to learn how to implement these new laws effectively. Among the many challenges facing agencies tasked with enforcing competition laws is how to enable developing countries to use their competition laws to protect them from cross-

1 ADB. 1995. Governance: Sound Development Management. Manila. 39. 2 Pollitt, M. 1999. DAE Working Paper, No. 9901: A Survey of the Liberalisation of Public Enterprises in the UK since 1979. Cambridge: University of Cambridge. 3 Whish, R. 2006.Competition Law Toolkit for the Asian Development Bank. Draft presented for review at the Competition Law and Policy Roundtable. New Delhi, India, 17 May.

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07-0103Law&PolicyPrelim.pmd 28 17/05/2007, 1:24 PM border anticompetitive behavior. A large and growing part of foreign direct investment (FDI) in emerging economies has come from cross-border takeovers.4 Such takeovers sometimes allow large multinationals to increase their market power, and increase the risk of abuse of market power. Abuse of a dominant position has an adverse impact not only on domestic economies but also on international trade. Other anticompetitive practices such as running hard-core cartels engaged in price-fixing or bid rigging likewise pose threats to domestic and global economies. The cross-border implications of these anticompetitive practices will likely be the subject of greater regional attention as the volume of international trade rises.5 Conventionally, the Asian response to the threats posed by large multinationals has been to employ a screening process and impose pre-entry requirements on all foreign investors. They have imposed limitations on foreign equity and ownership and divestment requirements and other protectionist regulations, which prevent foreign investors and firms from becoming dominant forces in the economy. 6 However, such regulations also restrict the flow of foreign investments into the region. And since such restrictive investment laws and regulations focus on protecting national industries from foreign investors, they do not prevent local firms from establishing oligopolies in specific sectors by merging with or acquiring other local or foreign firms. Such arrangements are incompatible with fair competition. They distort prices and restrict the scope of consumers’ choices. Implementing competition law and policy in the region may be a better way of dealing with the risks brought about by liberalizing one’s economy. Competition laws normally apply to all firms operating in the national and regional territory, whether in the areas of domestic sales, imports, or FDIs. Countries will find that adherence to a widely understood and regionally accepted competition framework will enable them to use widely accepted standards in assessing the competitive impact of foreign firms at the time of entry and thereafter. Such adherence will help a country, in tandem with its neighbors, to monitor the competitive behavior of global firms in host countries to ensure that these do not engage in anticompetitive practices. In this way, converging competition law and cooperation in the enforcement of competition law in Asian countries can help regulate and control cross-border mergers and acquisitions that may give rise to an abuse of dominant market positions in the region.

Toward a regional competition framework

Today, we have the opportunity to build consensus regarding a regional competition framework. Discussions currently taking place domestically with regard to the formation of competition agencies and establishing or amending competition law also need to be conducted on a regional scale. Regional integration in Asia has increased—and continues to increase—even after the Asian Financial Crisis, which demonstrated how inextricably linked Asian economies already are. A regional competition framework may help build stronger economic integration in the region. Despite their differences, the region’s many markets do share common issues and concerns. A coordinated response to those concerns will enable the countries in the region to liberalize their economies and expand their markets, while at the same time mitigating some of the risks inherent in globalization. Moreover, discussions regarding a regional competition framework may help coordinate and harmonize laws that are concerned with the proper regulation of FDI in the region. But can such a framework be developed in Asia? Some have contended that the harmonization of competition laws may prove to be a challenge in the region, given the diversity of competition laws and enforcement practices—all of which are said to follow the variances in the markets that they regulate.

4 United Nations Conference on Trade and Development (UNCTAD). 1999. Trade and Development Report,1999. New York and Geneva: United Nations. 5 “Global exports of goods and services rose by an annual average of 5.8% in real terms and 10.3% in nominal terms from 1970 to 2004. Exports increased from 11.6% of output in 1970 to more than 27.2% in 2004.” Brooks, D. 2005. Competition policy, international trade, and foreign direct investment. In Competition Policy and Development in Asia, edited Brooks, D. and S. Evenett. United Kingdom: Palgrave Macmillan, 27. 6 Thanadsillapakul, L.The Harmonisation of ASEAN Competition laws and Policy from an Economic Integration Perspective. Available: www.thailawforum.com/articles/theharmonisation.html.

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07-0103Law&PolicyPrelim.pmd 29 17/05/2007, 1:24 PM However, it should be noted that significant variances in competition law exist not only within Asia but also around the world. A 2002 World Bank survey of competition laws in 50 countries has identified differences in three important areas: (a) definition of dominance, (b) treatment of cartels, and (c) enforcement.7 Notwithstanding this diversity, many have undertaken efforts to build frameworks within which core principles in competition law and policy may be enforced. Despite differences in domestic legal and institutional structures, there is growing international consensus regarding the fundamentals of competition law and policy. This consensus relates to core competition principles such as transparency and accountability, nondiscrimination, due process, and procedural fairness. Without insisting on outright harmonization, countries may consider negotiating the acceptance of these binding core principles as part of domestic competition laws. Converging competition regimes provide investors with less uncertainty in sifting through conflicting definitions of key concepts in competition laws. As a result, investors will have greater predictability in determining the scope of acceptable competitive behavior—and this should make the region a more attractive investment destination.

Conclusion

Competition is a public good that can potentially spur economic efficiency and growth, not only within a country but also within the Asian region. But the right legal infrastructure to support competitive practices both domestically and regionally must be constructed. While appropriate laws are necessary, equally important is how the legal infrastructure is implemented. Further developments in competition law regime and capacity building within countries and in the region—these are what lie ahead. None of these will develop effective and efficient market economies overnight, but all are key to lasting development. Surely, the magnitude of what lies ahead will not discourage you who are at the forefront of competition law and policy reforms in your respective jurisdictions. We look forward to learning lessons from all of you— lessons that are so urgently needed by the developing world.

7 World Bank. 2002. World Development Report: Building Institutions for Markets. Washington DC and New York: World Bank and Oxford University Press.

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07-0103Law&PolicyPrelim.pmd 30 17/05/2007, 1:24 PM Inaugural Address PREM CHAND GUPTA Honorable Minister, Company Affairs, Government of India

Prem Chand Gupta I extend a very warm welcome to all the distinguished participants and delegates to this Honorable Minister, Competition Law and Policy Roundtable organized by the Asian Development Bank. I thank Company Affairs, you all for coming to New Delhi during this hot summer to participate in this exercise. Your Government of presence here is an indication of the importance of the issue of competition in today’s economic India environment. I also compliment the Asian Development Bank (ADB) for organizing a meeting that will foster a better understanding of the common principles applied across countries in governing competition. Such interaction will be a learning experience for all of us. “With global Competition is recognized as the foundation of an efficient market system. It is the important precondition for economically optimal and socially fair and desirable market results. Several integration of studies have indicated the stimulating effects of competition on overall growth and prosperity. I understand that healthy competition policies have resulted in net real increase in household economic incomes in some countries and have also helped in increasing employment. There is a need to closely examine these issues in diverse economies so that policy implications with respect to forces, it is competition and the associated legal framework will emerge in sharper focus. Workshops will be useful in achieving a better understanding of these issues. important that While competition as a concept has coexisted with the markets in the world economy, it is really only in the last quarter of the previous century that the issue came to occupy an important all the countries place in international discourse. I am informed that there are more than a hundred countries that have competition laws in place today. However, nations differ markedly not only in terms have a common of the nature of competition laws, but also in terms of the extent to which they have enforced such laws. This calls for a greater understanding of the state of markets and the nature of understanding competition processes in various countries. This is more relevant for the developing countries that are still faced with problems of uneven economic development and deprivation affecting on competition large numbers of their population. In such countries, resorting to market forces as a means of addressing the problems and ensuring economic growth may not be the sole credible issues. ” development option. There would also be a need for state action in certain areas. Thus, while the goal of achieving functioning markets could be considered a desirable objective, it stands to reason that various countries would be at different levels in their achievements of such objectives. It would be appropriate to learn from each other and more particularly, from those Q who have had a head start in the process of setting up effective competition regimes. India too, after achieving independence in 1947, initially followed economic policies based on the “control regime” with the objective of developing a broad industrial base to achieve economic growth and self-reliance in critical areas and social justice. This was the requirement of the times, when the industrial and capital base of the country was weak and the country was faced with widespread poverty. However, in recent times, the Indian economy has been in a state of transition. The overall growth rates have shown consistent improvement over the last two decades and today, India is poised to play a meaningful role in the world economy. The Indian industrial and corporate sector has achieved levels of efficiency and capabilities that would allow it to compete internationally. Appreciable gains have been made in the services and knowledge-based sectors, with Indians contributing significantly to global trade and industry. The need to curb monopolistic practices that would lead to unhealthy accumulation of economic power was felt long ago and India enacted its first antitrust law in the form of the Monopolies and Restrictive Trade Practices Act in 1969. The thrust of this law, however, was on the prevention of concentration of economic power and of monopolistic, restrictive and unfair trade practices.

Inaugural Session 5

07-0103Law&PolicyPrelim.pmd 31 17/05/2007, 1:24 PM However, the economic reforms of the last two decades have enabled a liberalized economic regime, and this has resulted in a sea-change in the competitive environment in the country. Considerable changes have taken place in policies dealing with, among other things, “Competition trade, industry, and investments. It is now recognized that the existing antitrust regime falls short of the requirements of a modern competitive economy. Hence, the need for a new laws should competition law—as well as the creation of a competition regulatory body—was felt. Recognizing this need, the Government started the process of enacting a modern competition law in 1999. operate fairly, This eventually led to the enactment of the Competition Act in 2002, with the objective of providing for the establishment of a Competition Commission that would: recognizing the • prevent practices having adverse effect on competition; • promote and sustain competition in markets in India; special needs of • protect the interests of consumers; and • ensure freedom of trade, carried on by participants in markets in India. developing The Competition Act seeks to address three kinds of anticompetitive practices: countries and anticompetitive agreements; abuse of dominant position; and anticompetitive combinations. In addition, the Competition Commission of India was also entrusted with the task of advocacy emerging with all the stakeholders in economic progress. However, the new law faced some legal challenges in the process of initial implementation, and as of this writing, it is being amended markets.” so as to address the issues arising from these challenges. Until the Competition Act becomes fully operational, the Competition Commission of India will be working in the areas of competition advocacy and capacity building. Its aim would be V. Krishnamurthy to create awareness about the law so as to increase voluntary compliance with minimal Prem Chand Gupta, intervention and contribute in building a healthy competition culture in the country, which Honorable Minister, will help India become an economic superpower as predicted by many economists around Company Affairs, the world. Government of The Government of India is committed to fully operationalize the Competition Commission India as early as possible. I am sure that a few months hence, when you meet in other conferences and roundtables, India would have had considerable experience to share with you all on implementation of a modern competition regime. Meanwhile, we would like to learn from your experience so as to ensure that we avoid the pitfalls and build on successes based on Q international best practices. Friends, nations of the world are engaged today in devising an equitable world trade regime that would operate on commonly accepted, principles to the benefit of all. With global integration of economic forces, it is important that all the countries have a common understanding on competition issues. Competition laws should operate fairly, recognizing the special needs of developing countries and emerging markets. Recognition of this imperative would help in the evolution of competition frameworks, which are more sustainable in the long run in the international arena. I am happy to note that this roundtable aims to enhance Asian competition authorities’ understanding of competition law and policies and help them strengthen their capacities. I am confident that the deliberations over the coming two days would help the participating countries in chalking-out appropriate strategies for the coming years. With these words, I wish the roundtable all the success in their endeavors. Thank you and Jai Hind.

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07-0103Law&PolicyPrelim.pmd 32 17/05/2007, 1:24 PM Keynote Address V. KRISHNAMURTHY Chairman, National Manufacturing Competitiveness Council, Government of India

V. Krishnamurthy I must compliment the Office of the General Counsel of the Asian Development Bank (ADB) for Chairman, having invited so many representatives and experts from other parts of the world to discuss National competition, a subject that is relevant to my own country, India, particularly in the context of its Manufacturing current efforts to improve its competitiveness of the Indian economy and in the framing of Competitiveness appropriate competition laws. While the Honorable Minister for Company Affairs is in a better Council, position to put across the Indian point of view, walking through certain stages in the Indian Government political economy and development will highlight importance of promoting competition and of India need to address this subject with greater diligence.

A brief history of Indian political economy “Competition India is a large country with reasonable endowment of natural resources. It is a nation with large domestic market and talented people. Its human resources are its greatest asset, which policies, its founding fathers have exerted great efforts to further develop. Despite these advantages, India’s role in the international market place is limited. It has not grown at all, has remained competition static, and in some areas, was even better off 30 to 40 years ago. Problems of unemployment and rural poverty persist despite the best efforts of its political leaders. laws, and India’s founding fathers attempted to provide a strong foundation for a strong resurgent India. The first 15 years (1950–1965), saw the establishment of numerous centers of higher competitiveness learning, engineering and scientific teaching institutions, and enterprises. This period witnessed the establishment of a large number of research laboratories in order to cultivate innovation are all and the talents of the Indian youth. The following 15 years (1965–1980) involved the framing of several policies that lay greater emphasis on self-reliance and import substitution. The last 10 interconnected. years, starting from 1980, went into de-licensing since by this time, the economy was seen as sufficiently strong. While

India and the quest for competitiveness competition

Until the end of the 1980s, India did not actively promote competition, and we may have had a laws provide price to pay. But beginning 1991, a series of steps were taken to initiate liberalization, allowing the free entry of people into any line of business. In the last 5 to 6 years, intensified liberalization, the necessary as well as globalization, have increased competition not only among Indian companies, but among Indian and international entities that have gained entry into the country. framework, Although India has enjoyed economic growth of about 6% in the last 10 years, this growth has unfortunately been imbalanced. We prematurely migrated to services; whereas growth of competitiveness the manufacturing and industry sectors, which should form the backbone of any large economy and which have the potential of providing employment opportunities for most of India’s working is the final population, has remained stagnant. The contribution of the gross domestic product through industry has remained at 25 to 26%, which is lower than the desirable rate of 40%. Growth of effect. ” the manufacturing sector in India has remained at 16 to 17%, far less than the 30 to 35% growth rate in other countries.

Competitiveness, the industrial manufacturing sector, and the National Manufacturing Q Competitiveness Council (NMCC)

Imbalanced growth has prevented rural areas and needy sections of society from sharing the benefits of India’s advancement and economic growth. It does not provide sufficient gainful

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07-0103Law&PolicyPrelim.pmd 33 17/05/2007, 1:24 PM employment for the population. The Government is concerned not only with accelerating the economy’s growth but also with providing employment to 8–10 million boys and girls entering the employment market every year—especially for those in and from the rural areas and this is the genesis for setting up the National Manufacturing Competitiveness Council (NMCC) for improving the competitiveness of the manufacturing industry and bringing these to the fore. Some may view that we lost our competitiveness because competition was not actively encouraged. Unless its competitiveness is increased, India will not be able to increase the growth of the industrial manufacturing sector to a level that would address substantially the unemployment problem. The growth rate of the manufacturing sector is presently at 7% as against the targeted growth rate of 14%, one that would address unemployment. This can be achieved only if we are going to be competitive not only domestically but also globally. For this reason, the NMCC—comprising representatives from the industry, academia, and government— has been discussing how to make the Indian industry, as well as the Indian economy more competitive. Last month, India evolved a national strategy for manufacturing under which the Prime Minister of India announced a national competitiveness program. In formulating the national strategy, NMCC identified several issues that must be addressed to improve competitiveness, and formulated its recommendations responsive to these issues ranging from taxation to innovation. One important recommendation is that the country needs to provide the right market framework and regulatory environment; that while competition is the key to success, competitiveness should be arrived at without having to protect the Indian industry, without having to provide subsidy for any sector. The national strategy stresses the need for a proper environment to build competitiveness. A market framework, a set of competition laws and proper administration of these rules and procedures that encourage competition—these have been our principal recommendations in the national strategy. Competitiveness is the prime role of all countries in today’s world, and there is a need to urgently improve the competitiveness of the Indian economy if we are to play our role in the global market. The setting up of NMCC is a direct result of this particular desire of the present Government. However, enhancing, and more importantly, sustaining competitiveness is a formidable challenge that all entrepreneurs, industries, and states, must overcome.

Competitiveness, competition policies, and competition laws

Competition policies, competition laws, and competitiveness are all interconnected. Competitiveness and competition are complementary. Competitiveness is obtained by optimal use of resources, efficiency in production through continuous innovation, improvement in the processes, better quality, and lower cost and prices. Competition is the most acceptable mode of making goods and services available in abundance, in acceptable quality, and at affordable prices. While competition laws provide the necessary framework, competitiveness is the final effect. The market, which generates growth, operates best when the environment encourages competition among businesses. I have noticed that whenever India adopts a regulatory framework to promote competition— as the fundamental goal of every regulation is the promotion of healthy competition—prices come down, and customers enjoy better deals. The mutually reinforcing benefits of competitiveness are accelerated growth, lasting social benefits, a population that is gainfully employed, and the development of a business environment. A properly managed environment helps businesses flourish, promotes and sustains competitiveness, increases productivity, accelerates growth, and assists in the country’s global and regional trade. All competition authorities face the challenge of promoting such an environment. This roundtable provides competition authorities to share knowledge and experience in this area, and will be valuable to everyone present.

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07-0103Law&PolicyPrelim.pmd 34 17/05/2007, 1:24 PM Building an environment that enables competitiveness: Strategies to promote competition

Any strategy to promote competition has two important policy standards: competition advocacy, and clear rules and regulations that delineate the functions of sector and competition regulators. Competition advocacy involves the active promotion of good competitive practices in the marketplace. Here the relationship between the sector wise market regulators and competition authority should be clearly defined and balanced. Only clear laws and rules can ensure that they act in a synergetic manner and ensure genuine competition in the interest of all stakeholders. On the other hand if the rules are unclear or vague, this can then become a zero-sum game. One needs to be careful in ensuring that this does not happen. In the world of competition, prevention of any distortion is far better than cure. It must also be ensured that rules themselves are the right ones for a fair and comprehensive business environment. The governing regulations should be well targeted, and should include tests to ensure that the measures proposed do not bring unintended side effects that would hold back competition. Bad laws must be avoided at all times. Defective laws can make life miserable, doubly so if they are badly implemented. On the subject of competition, it may well be that competition in its purest form, i.e., what we call a perfect competition, may not or does not exist; and that it may not even be in the best interest and may not always be helpful. Competition laws should not lead to fragmentation that is against economies of scale, a scale necessary to encourage innovation and capital formation. An appropriate competition policy that is enacted into law must not only enhance competition, but enable efficiency, growth, and innovation to flourish. The law should be simple enough for an ordinary person to understand. It should be easily and effectively implemented. Each country enacts a competition law that suits local conditions. Each country must consider public welfare concerns when adopting a competition law best suited to its needs. Competition laws and regulations cannot also remain static and need to be periodically revisited to take into account the changes taking place both domestically and internationally. For instance, when the rules of the game between countries change, when countries adopt new trade agreements, domestic competition rules may need to be revised. Global or regional integration, whether in trade, investment or financial sector, would have its impact on competition in the local economy. Public and private monopolies in one country may impact on another country’s level of competition. To develop coherent competition policies within the region, a roundtable of this type is essential. There may even be a need for a more formal mechanism that will facilitate the periodic exchange of views, ideas and information among competition authorities in Asia. Once again I wish the roundtable all success. Thank you, ladies and gentlemen, for giving me this opportunity.

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07-0103Law&PolicyPrelim.pmd 35 17/05/2007, 1:24 PM Address ANURAG GOEL Secretary, Ministry of Company Affairs, Government of India

Anurag Goel Secretary, It is a privilege to address this roundtable on competition law and policy organized by the Asian Development Bank (ADB). ADB deserves to be complimented for organizing this conference Ministry of and bringing together experts from all over the world, representing a number of countries and Company Affairs, international organizations. I extend a warm welcome to the distinguished participants. I am Government of sure the exchange of views and experiences in this roundtable would contribute to better India understanding of the need and impact of competition on consumer welfare, economic efficiency, and economic growth in a fast integrating world. There is increasing recognition of the impact of competition on efficient functioning of markets, broad international economic trends point to market forces guiding the future development of “The ultimate various economies including our own. The Indian economy has undergone considerable change since 1991 with progressive liberalization, private sector participation, emergence of functioning objective is markets in a number of sectors and reduction of trade barriers leading to a new economic environment. The need for markets to function without distortions assumes further significance in such a situation. It was indeed a realization of these imperatives that led the Government to the to usher in enactment of Competition Act 2002 with the establishment of the Competition Commission of India (CCI) in October 2003. Unfortunately, there were some legal challenges; and because of an informed these challenges, the Commission has not yet become fully functional. While these issues are being tackled separately, the Commission currently focuses on advocacy and capacity-building debate on the functions. In the meantime, a bill has been introduced in the Parliament to amend the said Act. The bill addresses the legal issues that are under consideration by the Parliament. The ultimate issues relating objective is to usher in an informed debate on the issues relating to competition, a process that we all recognize is essential to the development of a competition culture. It is important that CCI is fully equipped to take up the task of capacity building. to competition, We, of course, have the advantage in India of a vast number of institutes of excellence. All over the world, Indian institutes of technology are well-known, Indian institutes of management, a process that Delhi School of Economics, National Law School, etc. In the approach to capacity building of the Commission, a large number of people from these institutes are also proposed to be we all sensitized, so that a reservoir of personnel to whom recourse could be made whenever required is ensured, as a resource not only for India but for other countries in the region too. recognize is Different countries have had different experience on competition regulation, whether in setting up regulatory structures or in ushering public policy on the subject. While some economies have been exposed for a long time to application of competition laws, others are essential to the still in the process of setting up modern competition regimes. In this context, the role of international cooperation is very important. The special needs of the developing countries also development of need to be understood and met. Roundtables such as this organized by ADB provide these interactions. a competition Further, while organizations like United Nations Conference on Trade and Development (UNCTAD), Organisation for Economic Co-operation and Development (OECD), or International Cooperation Network (ICN) provide a platform for exchange of views and deliberations on culture.” best practices; the requirement is of a more sustained cooperation and forging of workable arrangements that bring about positive value addition to the respective jurisdictions. I am sure that this roundtable will be able to dwell on the subject and throw up some practical solutions in this regard. Q Another general area that needs closer look is the manner in which the competition regulator would coordinate its work with that of other sectors specific regulators. The basic principles and guidelines of their functioning, the areas of possible overlaps must be carefully addressed and avoided. Everyone concerned must be very clear on their respective roles, there should be no forum shopping, there should be no possibility of confusion, and there should be no possibility of turf battles and related matters. I would only say that I have no doubt that the participants will immensely benefit from this roundtable that would deliberate on several issues including those that I have raised. I also hope to benefit and look forward to the recommendations that are arrived at. Moreover, I would like to congratulate ADB once again for organizing this roundtable.

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07-0103Law&PolicyPrelim.pmd 36 17/05/2007, 1:24 PM Address ASHOK CHAWLA Additional Secretary, Department of Economic Affairs, Ministry of Finance, Government of India

Ashok Chawla Allow me to begin by recalling and congratulating ADB for its recent and eminently successful Additional Annual Meeting. We were privileged to play host once again, after 15 years or so, to this major Secretary, event. As always, ADB with its constructive and forward-looking perspective brought center Department of stage the idea of “financial integration” in Asia. I am sure this is a theme that will generate a lot Economic Affairs, of interest in the years ahead. Ministry of Finance, A brief word about ADB in India. We are one of the founding members of ADB and also one Government of of its largest borrowers. The annual borrowing has been in the region of $1.2 to $1.5 billion. This India is expected to double in the next few years. An aspect that merits mention is that ADB’s focus and lending—on infrastructure sectors such as energy, transport, and urban bodies—coincides with the approach of the Government of India. ADB also provides technical assistance, which we have found valuable in our transition to a more open economy. “ A good ADB deserves to be complimented for organizing this roundtable on competition law. The discussion is not only timely but also extremely relevant. Given the stage of economic competition development and the changes taking place in many sectors of the economy, there is a felt need for capacity building. There is equally a need for learning from regional and international best policy should practices in the field. Hence, my congratulations to ADB for hosting this 2-day roundtable, which brings together a wide spectrum of stakeholders on competition law and policy. ideally be an Why is there so much focus on competition? One opinion is that the dynamics of the marketplace would be adequate to address competition-related concerns and that no specific integral part intervention through competition laws is necessary. However, like all opinions at the extreme, this line of thinking does not address distortions. We know that there are sectors in which of the overall goods and services are not tradeable. There are barriers to free trade such as geographical limitations, natural monopolies, stranglehold of distribution network, etc. Consequently, cartels, economic entry barriers, predatory pricing, and other undesirable consequences of oligopolistic tendencies can emerge. Competition laws are, therefore, necessary to keep a check on the market players development who may be inclined to manipulate the system. A good competition policy should ideally be an integral part of the overall economic plan of the development plan of the country. In such a scenario, the competition policy will bring about not only reasonable prices and adherence to quality but also help in optimal allocation of country. ” resources. There is evidence to show that competitive pressure is the most important factor accounting for positive variation in productivity of businesses. It has further been estimated in a World Bank Policy Research paper that anticompetitive practices can reduce private growth rates by as much as 10 percentage points over 3 years.1 Q What has been the evolution of competition law internationally? Canada was the first country to enact such a law more than 100 years ago. Several states of the United States (US) also enacted competition laws around the same time. Today, more than 90 countries have enacted competition laws. In the Indian context, we enacted the Monopolies and Restrictive Trade Practices Act a long time back. However, the right competition environment could not grow; our industrial policy had a plethora of licensing requirements such as restrictions on capacities, on foreign technology tie-ups, on industrial location, and so on. Similarly, trade policy was characterized by high tariff barriers, quantitative restrictions, and investment controls. The parastatal organizations were insulated from market forces and benefited due to entry barriers and

1 Hellman, J., G. Jones, and D. Kaufman, 2000. WBI Policy Research Working Paper 2444: Seize the State, Seize the Day: State Capture, Corruption and Influence in Transition. World Bank. Washington, DC.

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07-0103Law&PolicyPrelim.pmd 37 17/05/2007, 1:24 PM subsidies. Things changed with the process of economic liberalization that began in 1991. Hence, the need for an effective competition law in tune with the post reforms era; India thus got its proper competition law about 3 years ago. This led to the setting up of the Competition Commission of India. Different sectors of the economy, depending on the historical baggage and the speed with which economic liberalization has unfolded, have responded differently in their contribution to competition. For instance, the telecom sector is widely recognized as a success story. The same is not true of, say, the energy or the ports sectors where there are a large number of state organizations and low levels of private investment. The challenges in regard to competition policy in India are essentially threefold: (i) to ensure that the competition commission becomes fully effective and gets down to work without further delay; (ii) the overlap between competition law and the concerns of regulation in various infrastructure sectors needs to be seamless; and (iii) the “natural monopoly” syndrome has to be curbed by encouraging private entry. Monopoly, whether state or private sector, has its own undesirable consequences. Let me conclude by wishing the roundtable 2 days of interesting and fruitful discussions. We look forward to the conclusions which, no doubt, will serve as valuable inputs for the Government of India.

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07-0103Law&PolicyPrelim.pmd 38 17/05/2007, 1:24 PM Vote of Thanks TADASHI KONDO Country Director, India Resident Mission, Asian Development Bank Tadashi Kondo Country Director, I am very pleased to have the opportunity to close the inaugural session of the Asian Development India Resident Bank (ADB) Competition Law and Policy Roundtable with a vote of thanks. Mission, On behalf of ADB’s India Resident Mission, let me begin by expressing gratitude to our Asian Development distinguished speakers: the Honorable Minister, Prem Chand Gupta, Ministry of Company Affairs; Bank Chairman, National Manufacturing Competitive Council, Dr. Krishnamurthy; Secretary, Ministry of Company Affairs, Shri Anurag Goel; and Additional Secretary, Department of Economic Affairs, Shri Ashok Chawla. Their thought-provoking insights on competition matters reflect the “Enforcement Government of India’s growing interest in the area. They also provide an inspiring beginning to the roundtable. of competition My gratitude likewise extends to Mr. Arthur Mitchell and his staff at the Office of the General Counsel, for organizing the roundtable. In his remarks, Mr. Mitchell had summarized ADB’s law and policy various interventions in the area of competition law and policy reform—all of which have been in response to growing demand in the region. His remarks reflect the growing consensus within is key to the Asian region that competition is necessary to economic growth and efficiency, and that countries are interested in establishing the right legal infrastructure to support competitive creating a practices both domestically and regionally. This roundtable, then, comes at an extremely opportune time for Asian competition and regulatory authorities to exchange views and learn healthy and from each other. Finally, I wish to thank all of you present today at the inauguration of the roundtable. No modern less than 14 competition authorities, relevant agencies and stakeholders from countries across the region are here today, to exchange views about issues confronting competition authorities economy. ” in various jurisdictions within the region, and how these issues have, or could be addressed. It is indeed generous of you to share your thoughts and experiences with ADB, and your counterparts within the region. I find it encouraging that competition authorities and relevant regulatory agencies are actively Q seeking ways to ensure that such laws and policies are enforced. Enforcement of competition law and policy is key to creating a healthy and modern economy. This realization needs to be followed by the establishment of legal and regulatory frameworks that promote competitive market structures, where such frameworks do not exist; as well as strategies to enforce laws and regulations promoting competition. I leave you with these thoughts, and hope, as representatives of your countries’ respective competition agencies or relevant regulators, you would share and enhance on your knowledge in the deliberations of these two days. Like Mr. Mitchell, I hope this roundtable will be only the beginning of greater cooperative efforts on this issue going further.

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07-0103Law&PolicyPrelim.pmd 39 17/05/2007, 1:24 PM “Countries are interested in establishing the right legal infrastructure to support competitive practices both domestically and regionally.”

Tadashi Kondo, Country Director, India Resident Mission, Asian Development Bank

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07-0103Law&PolicyPrelim.pmd 40 17/05/2007, 1:24 PM “Competition law and policy has had Session 1 profound effects in many countries. Competition, Competitiveness It is being and Sustainable Growth implemented (Including the impact of competition regimes on more seriously economic growth, foreign investments, trade) than ever in most countries.” Q Competition Regimes: Analyzing Their Nature and Effect, Allan Fels, AO, Dean, Australian and New Zealand School of Government Allan Fels, AO Q Address, Vinod Dhall, Member, Competition Commission of India Dean, Q Address, Arvind Mayaram, Joint Secretary, Department of Economic Australian and New Zealand Affairs, Ministry of Finance, Government of India School of Government

Q Competition (1) Competition law Competition law applies to businesses (usu- Regimes: Analyzing ally including publicly owned ones) and is designed to break up cartels, anticompetitive Their Nature mergers, the abuse of market power (or dominance) and in some countries misleading and and Effect deceptive conduct. It takes the form of statu- ALLAN FELS, AO tory prohibition of certain kinds of business Dean, Australian and New Zealand School behavior. The prohibitions can be of: of Government a) a general nature e.g. a prohibition on all arrangements between businesses which Part I – The elements of competi- substantially lessen competition; and tion law and policy – b) a specific nature e.g. price fixing A review arrangements between competitors are automatically prohibited, irrespective of This section of the paper reviews the key whether they affect competition. The elements of a comprehensive competition reason for automatic prohibition is that regime. the arrangements are assumed nearly always to be harmful to the economy and Such a regime has two components: rarely or ever offset by any benefits to the economy. Accordingly, it is considered 1. A conventional “competition” or “antitrust” best to ban them automatically rather or “trade practices” law. than consider the effects of each 2. A policy for dealing with government arrangement individually before banning actions – whether laws, regulations, them. Resale price maintenance is policies – that affect competition. treated similarly.

07-0103Law&Policy.pmd 15 17/05/2007, 1:20 PM Larry Ramos Larry • In other areas, there may be a trade off “Competition law and policy between competition and efficiency e.g. can have a substantial economic some mergers may enable the achievement of scale economies at the effect if seriously implemented expense of competition. but should not be equated with • The treatment of monopoly has some special features. Monopoly itself is not unlaw- generating fully competitive ful. Monopoly may, after all, result from a Allan Fels markets in every sector.” firm being more efficient then any other Dean, Australian and competitor or potential competitor and New Zealand School of Government thereby eliminating them. • In some countries, there is no power to break up monopolies. In other countries (e.g. the United States), the law goes a step Competition law is administered and further. There is court power to break up applied by an independent regulator, which a monopoly where it has actually acted has powers to investigate behavior it believes anticompetitively in breach of competition may be unlawful. law. There is, however, usually no power In North America and Australia, such to break up a monopoly without there regulators play a prosecutorial role: they having been some anticompetitive collect evidence, seek to prove their case in behavior. court, and obtain court orders. In Europe, the • In competition law, there is normally no regulator itself may have power to make prohibition on the prices which a orders, including fines (although appeals may monopoly charges even if they are usually be made to a court). considered excessive. Competition law can only work effectively • The law applies to all or nearly all forms if there are credible, adequate sanctions. of business. However, the millions of small Courts can impose injunctions, fines, dam- businesses are generally unaffected by the ages, and other orders. law and/or are exempt when there is The penalties most often take the form of some possibility that a technicality might fines and sometimes damages can be added catch them. on. But are fines sufficient in all situations? • Of greater importance, however, is the There is the possibility of jail sentences for fact that there is pressure from nearly collusion on prices, market sharing, and bid every sector to gain exemptions from rigging because fines alone may be an the law on the grounds that their circum- insufficient deterrent. stances are special. In Australia, there is In North America and Australia is that it is an interesting way of dealing with claims also possible for individuals including individual for exemption. If someone believes that businesses to take action themselves. They can the law should not apply to them they sue for damages and injunctions (but not fines) may apply in public to the independent in a court. This is an important and powerful regulator who holds a public hearing be- backup to competition law that usually works fore deciding whether they should have well and is likely to be adopted more so called “authorization” to continue to substantially in Europe before long. engage in anticompetitive behavior. This is an alarming sounding exception to the Some features of competition law are: competition law but, in practice, the Aus- • Most often, the direct beneficiaries of tralian regulator has been strict and does enforcement action under the law are not grant many authorizations. businesses (especially small businesses) • Anticompetitive behavior can occur on a rather than consumers. On balance, most global scale but there is no global businesses gain from competition law. competition law or regulator. When a • In some areas, there is a fine line be- global cartel is detected, however, it is tween competitive and anticompetitive usually possible to obtain fines and behavior. An example is when a monopo- damages at national levels: this is a reason list reduces prices in response to entry why a domestic competition law is by a new competitor. desirable. If the US, for example, uncovers

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07-0103Law&Policy.pmd 16 17/05/2007, 1:20 PM a global cartel, a local regulator can often • appropriate access to essential facilities piggyback on its actions to obtain fines and where they are monopolies; damages where local harm has occurred • removal of unjustified state aids; providing there is a local law. • ‘competitive neutrality’ for government • A considerable administrative and legal businesses, such that they do not trade at apparatus is needed to apply competition an artificial net competitive advantage law. It can take years to build up. over private sector competitors by virtue • The law may not have much relevance to of being government owned; some important state-owned utilities in • separation of industry regulation from areas such as telecommunications, pub- industry operations (for example, domi- lic transport, energy, and water. Very of- nant firms should not set technical stan- ten, these are monopolies protected by dards for new entrants); and statute from entry by competitors. Being • a level playing field for all participants. a monopoly, there is no competition to collude with, to take over, or to take mo- The need for a comprehensive competi- nopolization action against. But having a tion policy arises because government laws protected monopoly can be economically and regulations can affect competition in nu- harmful. To deal with it requires more than merous areas. Some of the areas include leg- the application of competition law. islation and regulation about the legal system, • Competition law regulates anticompetitive foreign and domestic investment, intellectual behavior by businesses. It may apply to property, taxation, public and private owner- anticompetitive behavior to government- ship, small business policy, licensing, contract owned businesses. It does not apply to nor out and bidding for monopoly franchises. The override the many laws, regulations or policies extend across all sectors, including other actions of governments that limit agriculture, mining, construction, manufactur- competition. ing, and all forms of services, including health, education, and social security. They apply at (2) Comprehensive national competition all levels of government: supranational, nation- policy al, state, regional, and local. The laws affecting competition can take A wide range of government policies can af- many forms. They may be embodied in fect competition, either positively or negatively. constitutions, statutes, and/or regulations. They Competition policy has traditionally been may be general laws affecting all businesses, equated with antitrust, competition or trade such as taxation laws, or industry specific, such practices law. A comprehensive competition as telecommunications laws, or they may policy, however, must address all government range across a number of markets, such as policies that affect competition. A comprehen- laws limiting shopping hours, licensing laws sive competition policy therefore involves: and so on. • prohibition of anticompetitive conduct through traditional antitrust and competition laws; Legislation affecting competition may directly • liberal policies regarding international or indirectly: trade and the free movement of all factors • govern the entry and exit of firms or of production, including labor and capital, individuals into or out of markets; across international borders; • control prices or production levels; • liberal policies regarding free trade and the • restrict the quality, level or location of free movement of all factors of production goods and services available; across internal borders; • restrict advertising and promotional • repeal of laws and removal of government activities; regulation that unjustifiably limits compe- • restrict price or type of inputs used in the tition, such as legislation creating entry production process; and barriers of all kinds, including profession- • provide advantages to some firms over al licenses, minimum price laws, restric- others by, for example, sheltering some tions on advertising; activities from the pressures of com- • reform of inappropriate monopoly petition. structures, especially those created by governments;

Competition, Competitiveness and Sustainable Growth 17

07-0103Law&Policy.pmd 17 17/05/2007, 1:20 PM Principles of a comprehensive national com- increased scrutiny, with the requirement petition policy as adopted in Australia are: that any significant restrictions on • no participants in the market should be competition lapse within a period of say able to engage in anticompetitive conduct no more than five years unless reenacted against the public interest; after further scrutiny through a public • as far as possible, universal rules of market review process; conduct should be uniformly applied to all • subjecting existing regulations that impose market participants, regardless of the form a significant restriction on competition to of business ownership; systematic review to determine whether • conduct with anticompetitive potential they conform with the first principle, and said to be in the public interest should be requiring them to lapse within say five analysed by an appropriate, transparent years, unless reenacted after scrutiny assessment process, with provision for through a further review process; and review, to demonstrate the nature and • reviewing regulations taking an economy incidence of public costs and benefits wide perspective, to the extent practi- claimed; cable. • changes in the coverage or nature of competition policy should be consistent Part II: Foreign investment, public- with, and support, the general thrust of private partnerships, and reforms: sustainable development and their relationship to - an open, integrated domestic competition policy market for goods and services should be developed by I have been requested to discuss three topical removing unnecessary subjects: barriers to trade and • Foreign investment, competition; and • Public-private partnerships (PPPs), and - in recognition of the increas- • Sustainable economic development. ingly national operation of markets, Each is a large topic which raises ques- complexity and administrative tions that go beyond the scope of competition duplication should be re- policy. I shall mainly concentrate on competi- duced. tion-related issues.

Australia therefore has a comprehensive (1) Foreign investment competition law with the following main elements: Foreign direct Investment (FDI) refers to • a competition law applicable to all financial investment by a foreigner that allows businesses; its significant direct influence on the policy • promotion of interstate and international decisions of an enterprise e.g. the acquisition competition; of more than 10% of the equity of a firm. • reviews and potential removal of all national, state and local laws and FDI takes two forms: government actions that inhibit • real investment (e.g. establishing a new competition unjustifiably; plant or business); and • reviews of structures of publicly owned • financial investment (e.g. total or partial industries to consider whether they could acquisition of existing assets ) be structured less anticompetitively; • an access regime; and As we note later, the former is more likely • price regulation of monopoly. to be pro-competitive than the latter but much depends on circumstances. Implementation includes: However, before discussing competition • accepting the principle that any restriction questions, some general aspects of FDI need on competition must be clearly brief consideration. demonstrated to be in the public interest; FDI has benefits but may have some costs • subjecting new regulatory proposals to for the country in which it is occurring.

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07-0103Law&Policy.pmd 18 17/05/2007, 1:20 PM Benefits may include: costs. Nevertheless an aim of policy should be • increased supply of capital; to maximize its benefits and minimize its • technology transfer; negative effects. As we shall see below • better management; competition policy has a role to play in • job creation; maximizing the benefits. • increased demand for local inputs or local In the context of a discussion of production; competition policy it is also important to note • increased export growth; that there are a number of obstacles to FDI. • increased diversification of the economy; • possible improved access to international These include: markets and integration into the world • direct restrictions on some or all foreign economy; investments (e.g. India has some • an improvement in the balance of restrictions on FDI in retailing); payments; and • overregulation, red tape and bad gover- • stability in foreign inflows of funds (as nance may prevent or deter investment; opposed to portfolio investments). • inadequate infrastructure may prevent or deter foreign investment; and Concerns about FDI can be dealt with, for • a lack of protection from anticompetitive the purposes of this paper, under two behaviour by incumbent monopolists that headings. The first is a set of broad concerns may deter entry. This can be especially about possible harm to the environment, important in utility areas such as exploitation of labor and loss of sovereignty. I telecommunications, energy, and shall not debate these issues. transport. The second set of concerns relate to how in particular circumstances FDI, rather than (2) Competition issues bringing benefits, may do little good or actual harm. Examples might include: FDI may promote competition. It may: • there may be no contribution to real • introduce new players into an industry; investment if a foreign enterprise merely • make it more efficient and more competi- acquires a local business; tive, even if a foreign firm only acquires • there may be no or negative contribution an established business; to net investment if foreign investment • be a factor that causes a new entrant not merely replaces domestic investment e.g. to cooperate with established collusion or by domestic firms that are driven out of general anticompetitive practices; and business; • bring about competition when there is no • transfer pricing, tax avoidance and evasion competition law or no serious competition and other practices may greatly limit the law (a foreign entrant may be especially benefit of the foreign investment; important in bringing competition in this • imported technology and skills may be situation). inappropriate for local conditions; • there may also be job loss e.g. if a capital On the other hand FDI may generate little or intense foreign firm drives out labor even reduced competition: intensive firms; • acquisition or merger with an established • it may not encourage exports if the focus domestic enterprise may be at the is on domestic investments or if the expense of direct pro competitive entry; multinational owner does not wish to • a foreign firm may enter a local market encourage exports from the country in on the basis of being granted an anticom- which it is investing; and petitive concession; • in some circumstances FDI may • foreign firms may quickly acquire contribute to financial instability. monopoly power (or shared monopoly power); under some conditions this may One broad conclusion from this brief be more harmful to consumers than the listing of pros and cons is that FDI can have status quo; mixed effects, both positive and negative. My • a foreign firm may engage in predatory view is that on the whole in most countries pricing or other forms of abuse of the benefits of FDI considerably outweigh the dominance thereby harming competition;

Competition, Competitiveness and Sustainable Growth 19

07-0103Law&Policy.pmd 19 17/05/2007, 1:20 PM • foreign local firms may become involved • FDI may be encouraged and its benefits in cross border mergers and acquisitions maximised by the application of competi- that may lead to reductions in competition tion foreign policy in domestic markets; and • a similar point applies in relation to the There is therefore a strong case for linking participation of foreign local firms in global the two policies to ensure the best possible cartels where the anticompetitive benefits from FDI. agreements are implemented in the local market. (3) Public-private partnerships

Against this background we may consider The term “public-private partnership” is the role of competition policy. First, traditional applied in a number of ways. competition law can prevent some of the detri- PPPs are, according to the World Bank, mental effects identified above. Competition collaborations between public bodies, such as law can prevent anticompetitive mergers and local authorities or central governments and acquisitions, cartels, abuse of dominance and private companies in a variety of areas, includ- other restrictive practices. It may also reduce ing health care, education, infrastructure, and uncertainty about the future nature of competi- improving the general environment. PPPs can tion law. A comprehensive competition policy take numerous forms and have varying levels may remove much of the anticompetitive and of responsibility and authority.2 unnecessary regulation that prevents, limits, or deters foreign entry. It may also be a force op- The UK government also defines PPPs in very erating against the granting of anticompetitive broad terms, including: concessions to new entrants. At a more gen- • the introduction of full or part private eral level, the adoption by governments of com- sector ownership into state owned petition laws and policy may constitute a signal businesses; concerning the willingness of governments to • arrangements where the public sector have a level playing field. contracts to purchase services or infra- An important element in competition structure or both on a long term basis so policy in most countries is its neutrality with as to take advantage of private sector respect to ownership—that is, it does not management skills incentivized by having discriminate against foreign firms. Indeed, it private finance at risk (This includes may be seen as helping foreign firms in some cases when the private sector partner cases – if local firms with large shares of local takes on the responsibility for providing a markets are prohibited from merging, it can public service, including maintaining create the opportunity for foreign acquisition enhancing or constructing the necessary by a new foreign entrant. infrastructure); and CUTS has provided some interesting cases • selling government services in wider in this regard. In reviewing the soft drinks markets and other partnership arrange- market in India, it concluded that the absence ments where private sector expertise in of a competition law meant that foreign finance is used to exploit the commercial dominance of the market had occurred. On potential of government assets.3 the other hand in the cement industry, entry by foreign firms had shaken up competition.1 Can competition law and policy deter foreign entry? Would that be harmful? Most often, competition policy helps foreign entry. 1 Pandey, P.R. 2005. CUTS Centre for Investment and It could prevent or deter foreign entry if it were Economic Regulation. Briefing Paper No.2/2005: Agriculture badly applied or applied in a way that in the July Package: An Assessment of Implications for Least discriminates against foreign players. Developed Countries. Available: www.cuts-international.org/ pdf/No.2-AgricultureinJuly%20Package.pdf. See also Graham, E.M. 2000. Fighting the Wrong Enemy: Antiglobal To sum up: Activists and Multinational Enterprises. Washington D.C.: • FDI brings benefits and may bring costs; Institute for International Economics. 2 World Bank. Frequently Asked Questions. Private Sector • FDI may promote competition but in some Development. Available: http://vu.worldbank.org. circumstances it can be anticompetitive; 3 H.M. Treasury. 2000. Public-Private Partnerships: The Government’s Approach. United Kingdom. Available: and www.hm-treasury.gov.uk/media/B54/D8/80.pdf.

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07-0103Law&Policy.pmd 20 17/05/2007, 1:20 PM The IMF/OECD definition is: • the allocation of projects can be the • “PPPs refer to the private sector financing, subject of competition with the possibility designing, building, maintaining, and of lower costs and greater efficiency; operating infrastructure assets traditionally • PPPs can relieve governments of playing provided by the public sector.”4 inappropriate roles and free them to concentrate on core business; and I shall adopt the last definition in this pa- • Governments value cooperating with the per. I shall proceed on the basis that a PPP private sector almost for its own sake. involves a contract between the government and a private supplier that integrates the initial There are, of course, disadvantages in provision of capital assets (public infrastruc- particular cases which largely mirror the above ture) and subsequent operations and mainte- advantages. They include: nance of these assets into one contract. This • hiding the true long term cost of projects is to be distinguished from conventional pro- from the public; curement where contracts for provision of • PPPs provide a tempting possibility to capital assets (public infrastructure) are sepa- bypass budget constraints; rated from contracts for operation and main- • PPPs may not provide value for money tenance of the assets. because the public sector pays too much; • PPPs may involve an inappropriate Some of the advantages of the PPPs are: allocation of risk between the public and • in an era when there is a gap between private sector; infrastructure needs and public sector • PPPs may involve increased capital costs: funding capabilities, private sector capital government borrowing is cheaper than can be harnessed to fill the gap; private financing; • PPPs enable infrastructure building and • PPPs may involve anticompetitive arrange- the provision of services that would not ments (see below); otherwise occur; • PPPs may inappropriately or incompletely • PPPs are an attempt to overcome the specify the contractual requirements and many problems of traditional public thereby generate poor outcomes; procurement and operation; • PPPs often involve contractual complexi- • PPP places the responsibility for supply- ty—there is a demanding task to regulate ing, maintaining and operating infrastruc- potential future outcomes; and ture on the same supplier, regulated in one • There is strategic vulnerability: the long term contract; this integration of government is tied to a private monopolist responsibility gives the private supplier an at future negotiations of the contract. incentive to obtain an overall cost effectiveness of the production—from the pro- It is not the purpose of this paper to debate vision of infrastructure to its maintenance the pros and cons of PPPs, but to consider and operations; some competition questions. • PPPs may provide better value for money: Do PPPs enlarge the scope for using pri- private sector operators may be more vate suppliers of public goods? The answer is efficient and innovative and quicker to possibly, but not necessarily. Conventional pro- deliver; curement can well be based on separately con- • PPPs provide the possibilities of better tracting out supply, operation and maintenance allocation of risk between the public and of capital assets (e.g. by separate public ten- private sector; ders). PPPs may actually reduce competition • PPPs often lead to a transfer of industrial as the government enters into one long-term relations policies from political to private contract instead of separate short-term con- sector control; tracts. However, if the government relies on a • PPPs avoid large scale government debt traditional approach, it may still involve a mo- (or at least the transparency of such debt); nopoly at all stages. On the other hand, PPPs provide an alternative to conventional procurement and contracting out. Competition may not 4 Baltzersen, M. 2006. Public-Private Partnerships. Presentation work so well if there is a limited market of sup- at the 6th Annual OECD Public Sector Accrual Symposium. 6–7 March. Available: www.oecd.org/dataoecd/58/52/ pliers. It is important to build up and foster com- 36319347.ppt#260,2,Definition. petition in the market of PPP providers.

Competition, Competitiveness and Sustainable Growth 21

07-0103Law&Policy.pmd 21 17/05/2007, 1:20 PM Most often PPPs do not themselves raise Competition law mainly contributes to questions of competition. There may, however, the first of these components. In some cases, be a few instances where they require the it directly contributes to the second by scrutiny of competition regulators (e.g. if the eliminating monopoly profits – which are often partnership prevents competition that might unfair – and by preventing monopolies from otherwise have occurred between a public suppressing the business opportunities of sector business and a private sector business, small players. But competition sometimes or between two or more private sector seems unfair – a new foreign entrant that is businesses which the government links both big and efficient crushes small local together in a partnership). There is a business people. Competition policy, for better temptation to put in private monopoly or worse, is, in the end, about getting good arrangements to maximize revenue for economic results rather than specific fairness. everyone (however, the same may apply with As to the environment, this is not a matter public ownership). The important point is to easily addressed by competition policy. It is ensure that competition regulators have the best addressed by specific environmental power to scrutinize such deals. policies. I cannot leave this topic without pointing Accordingly competition policy has an out that while there are many obvious benefits important role to play in achieving sustainable from PPPs, there are dangers. The dangers economic development but mainly because arise from chronic weaknesses on the of its contribution to economic growth, and to government side, especially the fact that the general resulting reduction of poverty. governments are often outmaneuvered by superior bargaining skills of the private sector. Part III – A Competition Regime Model These superior skills arise in essence from Having discussed some general issues about (a) the simple clear objectives of the private competition policy, I would now like to open sector—profit—compared with the public up the subject of the operational side of sector, which typically has multiple, competition law and policy. As this is the first conflicting, confused, nonquantifiable paper of the roundtable, I wish to set out a and ever changing objectives; general, but in my view useful, framework (b) the greater industry specific knowledge within which some of the later papers at the and commercial savvy of the private conference can be viewed. sector players; and The third part of this paper therefore (c) the reality that in practice, government provides a short introduction to a framework tends to have the objective of supporting or model which is useful for regulators and the private sector for its own sake, thereby officials concerned with regulation in analyzing somewhat weakening the public interest the work which they perform. The framework focus. is also useful for officials in government departments who may have to oversee the These dangers can include occasional legislation and its general application by harm to competition as private sector players independent regulators, courts and others. jockey for an anticompetitive arrangement to This framework is especially relevant to be part of the deal. discussions of the organization and function of competition agencies. There is a very wide (4) Sustainable development range of questions which arise in analyzing and planning the organization and function of This refers to the fact that in today’s world we competition agencies. This part of the paper look to the balanced achievement of then seeks to provide a general framework within which the important details concerning (a) economic growth; the working of competition agencies are (b) social justice, and the avoidance of considered. It sets out a method of analysis poverty; and which tries to keep the important general (c) an absence of environmental harm. questions which arise in every detailed issue under consideration.

22 Law and Policy Reform at the Asian Development Bank

07-0103Law&Policy.pmd 22 17/05/2007, 1:20 PM There are typically three key questions for a regulator or official in any country, developed Figure 1 or developing: Competition authorizing • What should be done (i.e. what would be Policy Strategy environment of public value to the nation?); Model • What may be done (i.e. what does the f public legislation permit or require to be done?); value and f • What can be done (i.e. what is adminis- f tratively possible, given the resources and powers available to the regulator?) operating capability These days, there usually is a fourth important question to be considered in most government agencies, including regulatory bodies. This concerns whether the outcomes that the regulator seeks to achieve require (or In this part of the paper, we discuss the are hindered by) the actions of others. A key nature of each variable briefly. It is contended question is then: What cooperation is required that each variable is a useful focus in itself for from others to achieve the goals of the regulators and administrators. regulator? For example, cooperation of business is required to achieve compliance with the law. (2) Public value added The cooperation of other parts of government is also required and so on. I shall in this paper • Public value is a concept which refers to touch on the issue of analyzing “coproducer” the collective value created for the public contributions in a limited way even though this of a country by government through is a very large question in itself. services, laws, regulation, and other The framework or model is based on action.6 Public value refers to anything strategy models first developed in business which is of value to the public. Citizens schools but now applicable, with adaptation, themselves ultimately define it. Value to the work of regulators, and public officials tends to fall into three categories: generally. I then draw especially on the outcomes, services, and trust. It should be framework which has been developed by noted that public value can be positive or Professor Mark Moore,5 Professor of Harvard’s negative or nil. Public value can also be Kennedy School of Government, and Fellow achieved by the private sector through its of the Australia and New Zealand School of provision of goods and services that the Government (ANZSOG), for extending this public demands. But this is outside the model to the public sector. scope of this paper.

(1) A Competition Policy Strategy Model Public value may be compared with private sector output or value added but The key variables are: there are some substantial differences. Broadly speaking the private sector is • the value added to the public (public judged by its output (as valued by the value) market). In the public sector the • the operating capability. This includes the contribution of a public agency is judged powers and resources of the regulator. • the “authorizing environment” i.e. the political environment which gives rise to 5 See Moore, M. 1995. Creating Public Value: Strategic legislation, regulation, and other political Management in Government. Cambridge, Massachusetts: Harvard University Press. I have also drawn from work by requirements and values which govern two other teachers—Professor John Alford of the Australia- the work of the competition policy. New Zealand School of Government and Professor Herman Leonard of the John F. Kennedy School of Government, Harvard University. This model is shown in Figure 1. 6 Kelly, G., G. Mulgan and S. Muers, United Kingdom Cabinet Office, Strategy Unit. 2004. Creating Public Value: An analytical framework for public service reform, 4. Available: www.strategy.gov.uk/downloads/files/ public_value2.pdf.

Competition, Competitiveness and Sustainable Growth 23

07-0103Law&Policy.pmd 23 17/05/2007, 1:20 PM quality; or they focus on increasing output Figure 2 without regard to input cost. Public Value • There is much discussion and controversy concerning what constitutes public value COMPETITIVE SUCCESSFUL f f in competition law and policy. There are PROSECUTIONS ECONOMY discussions about the objectives and PROPER USE OF ETHICAL BEHAVIOR PUBLIC f f outcomes of the application of GOVERNMENT AND TRUST IN VALUE POWER GOVERNMENT competition law and the conclusions may FAIR f A FAIR f differ according to the stage of OPPORTUNITY SOCIETY development of the economy. The conclusions that are drawn in these controversies may be embodied in the framework set out in this paper. by its contribution to social outcomes or • Even though the term “public value various social outcomes. This may or may added” is difficult to reach agreement on not be measured by reference to a single, and to specify, it is nevertheless a useful simple “output” or set of “outputs.” For device for focusing discussions about example, a competition regulator would competition law and policy. If a policy be seen as contributing to the outcome of does not add to public value, it is not a competitive, more efficient economy justified. with lower prices and better goods and services. This may, in practice, be (3) The “authorizing environment” measured (somewhat controversially) by some indicator of its output e.g. the • The “authorizing environment” refers to number of successful court cases. the laws and regulations (and other • Unlike in the private sector value does not explicit or implicit values) and budgetary stop here, however. Public value does not resource allocations which authorize the normally rest just on some notion of nature and scope of the public value output. Under most public sector activities which a competition policy strategy seeks there are a number of additional features to achieve. which can add to public value. These • An analysis of the authorizing environment include fairness in process and perhaps requires some analysis of interest group fairness in outcome, or fairness in pressures, the media, social attitudes, opportunity. Figure 2 suggests some political parties, the courts and so on. dimensions of public value. Some of the influences are shown in • The term “public value added” refers to Figure 3. the addition to or subtraction from the • Even though those implementing policy collective welfare of a country that results are bound at any moment to comply with from a particular public policy or public its instructions, nevertheless it is unwise institution. The term “value added” draws in any strategy analysis to ignore the attention to the fact that value added can factors which drive that environment and be increased by decreasing the amount which cause it to be unstable or of input per unit of output (e.g. by changing, or to be the source of conserving resources) or by increasing the ambiguity, conflicting or ambiguous quantity or quality of output with a given directives and so on. It is these factors amount of input. Some discussions of which can give rise to sudden changes regulatory strategy neglect one or other of in the mandate of a regulator. Such the dimensions of value added. They may possible changes may need to be emphasize the value achievable by recognized in strategy planning. reducing inputs for a given output or they may overstate the public value of an There is no time here to pursue a full activity by stressing the value of outputs, analysis of the many factors affecting the ignoring the input costs. Some regulators authorizing environment. However, some may be locked into increasing value by general points may be made about it: reducing inputs ignoring that they can add • An important characteristic of competition value by increasing output quantity or law is that it encounters somewhat seem-

24 Law and Policy Reform at the Asian Development Bank

07-0103Law&Policy.pmd 24 17/05/2007, 1:20 PM ingly contradictory attitudes by those af- Figure 3 fected by it. Most people and most busi- GOVERNMENT ECONOMIC nesses want their suppliers, customers, The Authorizing POLICY NEEDS f and sometimes their competitors to be Environment POLITICAL PARTIES f SOCIAL ATTITUDES f AUTHORIZING subject to the stringent application of com- BUSINESS INTEREST GROUPS f ENVIRONMENT petition law. This is for their benefit. How- MEDIA f ever, when the law is applied to them, they COURTS f ADVOCACY f do not welcome it. It is usually harmful to their interests, which they put ahead of any f f acceptance that there might be public in- f

terest considerations. In any case, they RESOURCE VALUES LAWS often fail to see the public interest consid- ALLOCA- REGULATIONS TIONS COURT erations that may be involved in cases DECISIONS affecting their own immediate interests.

This inevitably leads to strong pressures the stage of economic development. To against competition law. The losers from develop this point further one would need competition are most often a powerful lobby to make a more systematic analysis of while the winners are a weak one. Moreover, the many factors affecting the authorizing the size of the property rights involved in environment and to consider its competition law is very large and this implications for legislation or the exercise exacerbates the tensions. In just about every of regulatory authority. Simply, this means country, there is quite strong opposition by big that some laws are unacceptable in some business lobbies to the vigorous application of countries, even though acceptable in competition law. They seek to water it down. others. They may support its general application but • It is clear from this discussion that the role seek special exemptions and special deals, of advocacy is likely to be especially and since the amounts of money involved can important unless one has a passive be very large, they press vigorously to weaken attitude to the authorizing environment. competition law. Fuller analysis of this model would dig more deeply into the role and nature of • Competition law normally involves advocacy particularly having regard to the substantial government intervention to likelihood of a mismatch discussed later achieve competitive markets, so-called in this paper between public value and “free competitive markets.” This is in operating capability on the one hand and some respects a paradox and it can create the authorizing environment on the other unusual constituencies which either favor hand. Advocacy may change that or oppose competition law. Some pro- relationship by altering the authorizing market-minded persons oppose environment. competition law because too much intervention is needed to achieve good (4) Operating capability market outcomes. Other persons who temperamentally do not enthuse about the • Operating capability refers to the legal working of markets or who have some authority; physical, human and financial kind of anti-market attitude often support resources; the powers of investigation and that competition policy is applied because research; culture; and organizational it is seen as striking at big business, a structure and arrangements employed to worthy target at all times in their view. carry out the tasks of the regulatory • The authorizing environment is likely to authority or government agency. differ from one country to another. In • Competition policy requires very detailed particular, the authorizing environment in enforcement and administration. It differs a country with a newly established from some other policies where, once the competition policy is likely to differ from law has been enacted, there is relatively that in a country with a well-established little for the government to do. A tax rate competition policy. Likewise, the change or an import tariff rate change, environment will differ depending upon once enacted, requires relatively little

Competition, Competitiveness and Sustainable Growth 25

07-0103Law&Policy.pmd 25 17/05/2007, 1:20 PM Figure 4 Figure 5 Operating LEGAL POWERS f RESOURCES A Competition Policy Strategy Model: Capability people Interrelationships f OPERATING money f skills f CAPABILITY culture f INTERNATIONAL ASSISTANCE f authorizing environment

implementation by the government. The f public law is changed at the stroke of a pen and value

nothing remains but for the market to get f to work to reallocate resources. Competi- f tion law is quite different. Once the law has been enacted, a plethora of activities operating must occur: the undertaking of investiga- capability tions; decision making in the light of investigations; judicial processes including appeals; educational activities; and so on. • Substantial regulatory institutions need to be set up. They need to develop appropri- (See Figure 6) The vigor of the regulator in ate economic and legal skills. In develop- enforcing the law and achieving public value ing countries, they can benefit from tech- may upset interest groups that are important nical assistance and other help with politically. This may have consequences: The capacity building. Sometimes regulatory government may weaken the law, reduce the institutions are in a weak position at the resources of the regulator, and alter its outset of the policy process and this membership. Or the regulator may pull back means in turn that the law must be lim- on its activity. On the other hand, through ited in its ambitions. advocacy, it may bring the authorizing • In most countries, the courts have a key environment into line with its expanded role. They may or may not have good pro- public value. If the regulator is independent, cesses. They often have difficulty with it has more ability to survive political tensions economics. They are in many countries compared to otherwise. accepted as legitimate fora for the reso- Second, another misalignment may be lution of important disputes over prop- between public value and operating erty rights. In all countries, but perhaps especially in developing countries, they need education in this area of the law. Figure 6 (5) The interrelationship of the variables Misalignment

The next step is to relate the three circles to one another to determine if they are in authorizing f alignment. If they are, this is not necessarily environment cause for complacency (e.g., the authorizing environment may set a low public value on an important activity). However, even more public

interesting is a misalignment (e.g. the public f value value is less than or greater than that desired f by the authorizing environment). Such misalignments tend to be unstable. operating Consider some of the possible capability relationships. First, public value may be misaligned with the authorizing environment.

26 Law and Policy Reform at the Asian Development Bank

07-0103Law&Policy.pmd 26 17/05/2007, 1:20 PM capability. (See Figure 7). There may be great public value in having a full-scale competition Figure 8 law with all the bells and whistles of an A Competition authorizing advanced economy but if there is no Policy Strategy environment administrative capacity to implement it, value Model: Coproducers may not be achieved. Another possible f public instance of mismatch would be where there value is a global cartel which harms a country f which has no capacity to prosecute it. Public f value can only be achieved by establishing operating capability.

operating co- capability f producers

Figure 7 Misalignment (7) The use of the framework

authorizing Each circle is important in itself. But its environment relationship with the other circles is of great importance since each depends upon and is f public influenced by the others. value A great deal of analysis of regulatory issues f – whether by regulators, academics, lawyers, advisers, etc – tends to locate itself in one circle

and to disregard the others despite their operating f relevance. capability Much discussion at seminars and conferences is about the public value of a particular action or policy (e.g., there would be high value from merger law). This may overlook that there is no mandate for such a law from the authorizing environment, or that (6) Coproducers there is no administrative capability of implementing such a law, or that there would It is sometimes useful to extend the model to be noncooperation from business or other cover instances where those implementing the parts of the system. strategy need to receive help (or may receive As has been mentioned, there is also a hindrance sometimes) from others in tendency to emphasize only the input or output achieving desired outcomes. Coproducers side of value added, and to focus on narrow include business, the legal profession, the aspects of public value (e.g. on output courts, etc.7 Of great importance to developing measure). countries is foreign assistance. Some discussions within regulatory In the simple case, coproducers can be bodies may focus entirely on what the seen as entities which can be harnessed to add authorizing environment will permit (whether to the operating capability of the regulator to this refers to the political environment or to achieve greater public value. If the regulator the courts as well). Such discussions would can persuade business to comply with the law often benefit from a greater focus on public then that increases the operating capability of value. the regulator and there is a higher public value Yet other discussions within regulatory through greater compliance with the law. bodies focus entirely on operating capability, on what is possible, without considering public 7 Depending on one’s perspective, the courts could belong to value or the authorizing environment. The any one of several circles. For the regulator, they may be in focus may be on maximizing the output given either the authorizing environment or the coproducer circle. the operating capability. It may neglect, for For the government official overseeing competition policy as a whole, they would be in the operating capability circle. example, that the authorizing environment

Competition, Competitiveness and Sustainable Growth 27

07-0103Law&Policy.pmd 27 17/05/2007, 1:20 PM could be well disposed to increasing the further (e.g. by tackling anticompetitive operating capability with changed laws or structures) but in practice such policies are more resources if it was persuaded of public usually not very seriously implemented. value. Competition law and policy, if seriously Finally, some problems are seen as implemented, makes markets more beyond the capability of an organization by competitive, rather than fully competitive. virtue of ignoring the role of the coproducers. In addition, the stated public value objectives of competition policy may Part IV – The effect of competition potentially give rise to good economic effects regimes if implemented. But to some extent, the effects of the policy are limited by the requirements In this part of the paper, I shall avoid the usual concerning the proper use of government and well-known remarks about the many power and sometimes, fairness. In short, benefits of competition and competition law process requirements limit results. and policy – even though there are many. Moreover, the operating capability of the Instead, I will focus on some aspects of the competition agency may be very limited. The issue of the translation of competition policy law itself may also be a weak instrument in practice into real economic benefits. I will lacking adequate powers of investigation, only deal with a few aspects of the question. adequate sanctions, and so on. In addition, the Instead of asserting that competition is a skills and resources of the regulatory body may desirable property of an economy and then be limited. assuming that competition law (and policy) Also, every law depends to some extent will bring out desirable effects by mere virtue on the cooperation of various coproducers, of its adoption, I would like to unpack the idea most notably business. Again, this may be that there is a total correspondence between lacking in practice. competition policy and competition. Finally, the authorizing environment may I believe that the foregoing parts of the block the optimal development of competition paper provide a framework helpful for law. assessing some aspects of the effects of Accordingly, one cannot say that the competition regimes. There is a tendency often adoption of a competition law and/or a to assume that the mere adoption of a national competition policy will necessarily competition law will have a substantial effect generate economic benefits. It depends on on competition and the overall performance what kind of public value is sought. How much of an economy. Nothing could be further from public value is achieved in turn depends upon the truth. There is a massive implementation the authorizing environment, the operating challenge and where the policy is not seriously capability of the regulator, and the degree of implemented, it will have no effect. cooperation from coproducers. In short, it Even if a competition law is seriously depends upon effective implementation. implemented, it should not be assumed that it I do not wish to end this part of the paper would bring about competitive markets. on a gloomy note. Competition law and policy Competition law essentially tries to stop has had profound effects in many countries. It unlawful anticompetitive behavior—which is is being implemented more seriously than ever an important thing to do—but to use a cliché, in most countries. Implementation in any one it is a bit like leading a horse to water: The case can have big demonstration effects: If horse will not necessarily drink it. Breaking up businesses see the regulator seriously applying illegal cartels does not, by itself, positively the law in one case, they will sit up and take generate competition: It may make com- notice that they could be next. The general petition more likely but it does not guarantee deterrence effects of individual cases can be it. Likewise, the law does not prohibit large. monopoly; it merely prohibits monopolization. So we conclude that competition law and Antimonopoly law does not mean there are policy can have a substantial economic effect no monopolies. This is true with regard to if seriously implemented but should not be competition law. In principle, a equated with generating fully competitive comprehensive competition law goes a lot markets in every sector.

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07-0103Law&Policy.pmd 28 17/05/2007, 1:20 PM Part V – Conclusion Competition policy may have to be tempered by broader considerations of social equity, This paper has discussed the characteristics social welfare, and public interest. The theory of an ideal competition policy. The ingredients of perfect competition has its limitations since include both traditional competition law and the assumptions underlying the theory do not policies to deal with laws, regulations, and prevail in reality. Competition is not government actions that limit competition. necessarily the best solution in all situations, The paper has drawn attention to the as in the case of natural monopolies, frequent but not invariable competitive industries with network effects, or in services benefits of foreign investment, but has ended such as primary health care and basic on a note of caution concerning PPPs. education. But broadly there is agreement This paper has also sought to present a that competition is generally beneficial, and useful framework for analyzing how a the debate between a competitive market competition regime model works. economy and the state-controlled economy A key point is that in making regulatory is for all purposes settled now in favor of the decisions, all relevant factors— the authoriz- former. Countries around the globe are ing environment, operating capabilities of the restructuring their economies through market- regulator, process requirements, and regula- oriented reforms with competition as one of tor’s need for cooperation by other parties— the central organizing principles. should be taken into account. Failure to do so The structure of markets in developing leads to poor decision making. countries can be significantly different from the Finally, the paper has stressed that the markets of industrialized countries. There is adoption of a competition policy does not greater pervasiveness of poverty and wide dis- automatically bring about competition in parity in incomes. There are higher barriers to every market. entry, some of which arise from government restrictions. Generally, such markets are more

Address 1 A World Bank research project (published 2000) found that effectiveness “of antitrust and competition policy VINOD DHALL enforcement is positively associated with long-term Member, Competition Commission of India growth.” Dutz, M.A. and A. Hayri.2000. World Bank Policy Research Working Paper No. 2320: Does More Intense Competition Lead to Higher Growth? World Bank. Available: www-wds.worldbank.org/servlet/WDSContentServer/ ompetition is the preeminent WDSP/IB/2000/05/25/000094946_00050405325137/ Rendered/PDF/multi_page.pdf. dynamic force in a market The McKinsey Global Institute analyzed the performance economy. It maximizes effi- of selected industries in a representative group of 13 countries and compared it with performance of the same ciency, both static and dynamic, industries in a handful of other countries. The research as it provides an incentive for revealed that “Economic progress depends on increasing innovation and invention. It also generates productivity, which depends on undistorted competition. C When Government policies limit competition, even consumer welfare and brings wider choice, unintentionally, companies that are more efficient cannot replace less efficient ones. Economic growth slows and lower prices, and improved services to the nations remain poor.” Lewis, W. 2004. The Power of common person. Increasing globalization of Productivity: Wealth, Poverty, and the Threat to Global Stability. Quoted in Innovations Magazine. 2004. trade is erasing national boundaries in Competition trumps education. 21 April. Available: http: // economic activity, and leading to greater innovations.eu.com/FishWrap/April-2004/21.htm. 2 In a contemporaneous review of deregulation of natural movement of goods and services across the gas, long-distance telecommunication, airlines, trucking, world. Competitive rivalry between enterprises and rail industry in the United States, it was reported that within 10 years of deregulation in those industries, real is a critical factor for increasing national prices dropped by at least 25% and sometimes close to competitiveness.1 A number of recent studies 50%. The annual value of consumer benefit from such deregulation was estimated in billions of dollars in each of have tried to gather empirical evidence about these industries. See Crampton, P. 2003. Competition and how competition has worked to improve Efficiency as Organizing Principles for All Economic and 2 Regulatory Policymaking at 3. Available: www.oecd.org/ markets and economic growth. dataoecd/43/26/2490195.pdf. A study by the Australian The economic gains from competition are Productivity Commission, quoted by OECD, estimates that Australian households’ “annual incomes are on average underscored both by economic theory and by around A$7,000 higher as a result of competition policy. empirical studies. A word of caution: OECD. 2005. DAF/COMP/GF(2005)2: The Relationship between Competition Authorities and Sectoral Regulators. Competition is not a panacea for all illnesses Issues paper presented at the Global Forum on or a solution to all economic problems. Competition, Paris, 17–18 February.

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07-0103Law&Policy.pmd 29 17/05/2007, 1:20 PM political goals. A proper intellectual “A question that persistently framework of analysis needs to be established for this purpose. Moreover, a arises is whether the special weak tradition of competition in developing characteristics of developing countries can make the evolution of an markets and developmental effective competition policy a challenge. In addition, there are genuine political and concerns of poorer countries social compulsions. As a result, many sectors Vinod Dhall demand a different competition of the economy are still subject to Member, Competition unnecessary or excessive control and Commission of India law.” regulation. Clearly, more work is to be done to learn the distinct features of competition law for developing countries. concentrated and display greater instances Public-private partnership is a new mantra of dominance, particularly by previous pub- in reform, particularly in infrastructure services. lic sector monopolies. Developing markets This involves awarding of concessions to private are often segmented into smaller markets, enterprises for a long period for providing such with high prevalence of small-scale and cot- services. Examples include concessions for tage enterprises providing livelihoods to large roads, airports, electricity distribution, and port numbers of people. There is also the problem terminals. A number of competition issues arise of missing economies of scale. There is evi- in granting, designing, and regulating such dence that developing countries are no less concessions. Poor handling of these issues has vulnerable to anticompetitive practices by led to unsatisfactory experiences in many private enterprises. For example, the material countries resulting in high prices and poor collected by The Organisation for Economic services for the consumers.5 Co-operation and Development (OECD) Glo- Inconsistencies or deviations from bal Forum on Competition in 2001 contains a competition principles indicate a need for list of 26 cartel and bid-rigging cases in 12 evolving a coherent national competition developing countries.3 These collusive activi- policy that would lay down certain basic ties were suspected to be operating in diverse principles of competition to serve as sectors of the economy—transportation, guidelines for government, sector regulators, phone cards, gasification, engineering, con- and other stakeholders, thereby promoting struction, milk products, aviation, courier consistency and coherence in sectoral services, drugs, and electrical energy. policies and a healthier competition outlook A question that persistently arises is within government. Some basic principles of whether the special characteristics of competition, for example, would be strong developing markets and developmental concerns of poorer countries demand a different competition law. For example, should 3 OECD. 2001. CCNM/GF/COMP(2001)4: Draft Report on the Nature and Impact of Hard Core Cartels and the Sanctions the law seek to protect domestic competitors under National Competition Laws. Note by the Secretariat from being overwhelmed by more powerful for Discussion of the Global Forum on Competition, Paris, multinational corporations? To what extent 17 October. Available: www.oecd.org/dataoecd/41/31/ 2491373.doc. must the law accommodate arrangements by 4 Ajit Singh has suggested that development-friendly com- the small-scale or cottage industries to petition policies need to be specific to the stage of country’s economic and industrial development as well as its coordinate their activities with the view to institutional and governance capacities. See UNCTAD. 2002. provide meaningful competition to larger UNCTAD/GDS/MDPB/G24/18: Competition and Competition Policy in Emerging Markets: International and Developmen- enterprises? Governments in developing tal Dimensions. G-24 Discussion Paper No. 18, September. countries provide incentives for the growth of Available: www.unctad.org/en/docs/gdsmdpbg2418_en.pdf. 5 For example, a document contributed to the OECD Global disadvantaged regions: Should competition Forum on Concessions Roundtable points out that in 17 Lat- law frown on such incentives? Competition in American and Caribbean countries, 63% of the people feel that privatization of state companies has not been ben- law allows exemptions. Should there be more eficial. About 30% of the concessions were renegotiated in exemptions in developing countries? just over 2 years after the award of the concession. In the renegotiations, the concessionaires gained while the users Some thinkers believe that competition lost. Heimler, A., Lead Discussant, Global Forum on Compe- law in developing countries should be based tition. 2006 DAF/COMP/GF/WD (2006)35: Contribution to 4 Roundtable on Concessions. Document for discussion at the on a different model. No law can isolate itself Global Forum on Competition, Paris, 8–9 February, at 6. Avail- from the surrounding economic realities and able: www.oecd.org/dataoecd/3/25/36049205.pdf.

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07-0103Law&Policy.pmd 30 17/05/2007, 1:20 PM enforcement of the competition law; neutrality may find itself unable to tackle a market failure of treatment between private and public that arises out of the actions of firms overseas, enterprises; separation of policy making, or it may risk taking action against such firms, operation, and regulation functions; assured that could ultimately impact on interests of autonomy of regulators; third-party access to other countries. This underlines the need for essential facilities; and competition audit and cooperation among competition authorities. impact assessment of existing and new laws Asia is a rising economic powerhouse and and policies. Some economic studies have trade between its countries is multiplying shown that overall the Australian economy rapidly. Anticompetitive activities in any one benefited substantially from adopting a country can adversely impact markets in one coherent national competition policy that was or more other Asian countries, disrupt their based on substantial political consensus. In economic activity, and harm their consumers. the United Kingdom, government requires that Furthermore, any related conflicts and there be a regulatory impact assessment prior disputes can undermine the potential benefits to the enactment of new laws or the that can be derived from the expanding trade announcement of a new policy. The Asian in the region. Development Bank (ADB) may wish to Therefore, we need to consider how we consider how it could assist in this area. can best cooperate on competition matters, The growing globalization of trade has including on anticompetitive practices with brought into focus the question of international cross-border effects, training, capacity cooperation in competition law. Increasingly, building, and experience sharing. In this competition cases involve more than one regard, acceptable approaches on the form, jurisdiction. Global cartels, cross-border content, and levels of cooperation should be mergers, and abuse of dominance by such as are best suited to specific situations. multinational corporations all have increasing Possibly, ADB could study these issues and cross-border effects. A competition authority see how best these can be further explored.

Address “The desire to attain perfect ARVIND MAYARAM Joint Secretary, Department of Economic Affairs, competition should be balanced Ministry of Finance, Government of India out by the need to avoid the creation of redundancies, the loss

ompetition law and policy proof economies of scale, and the motes transparency and predict- collapse of services on account of Arvind Mayaram ability of rules, and thereby sup- excessive competition. A fine Joint Secretary, ports good governance. In the In- Department of Economic Affairs, Ministry of Finance, dian context, a strong competi- balance needs to be struck Government of India Ction framework is important for the following between these competing policy reasons: First, competition addresses the concerns concerns.” of people who, even as they need to compete for scarce resources, are unfairly subjected to the inconvenience of receiving poor services increases have successfully kept prices and overpriced products of low quality on a artificially low. The decision to avoid collecting daily basis. the correct price for the utilities provided Second, competition allows us to break results in the public utility companies’ suffering away from the practice of keeping the price of losses. Because insufficient tariffs are utilities artificially low through administrative collected, the companies are unable to fiat, which contributes to utilities’ providers’ maintain public utilities properly or to provide inability to conduct proper maintenance or better services. Poor services lead people to provide better services. In sectors where prices continue resisting proposals to increase tariffs. are regulated—such as the water and power The poor suffer most from this vicious cycle. sectors—popular resistance against price For example, while well-to-do communities

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07-0103Law&Policy.pmd 31 17/05/2007, 1:20 PM enjoy water at a very low price, providers do from other private sector groups that invest not have the capital to maintain the in the sector where they operate. infrastructure necessary to deliver water to the Fifth, competition attracts foreign direct poorest communities, which often live in far- investment (FDI). India recognizes FDI’s flung areas. Instead, private tankers supply importance to its economy. It expects FDI to water to the slums at high rates. add to its available domestic resources and fuel Third, India’s current resource needs its continuing economic growth. In the past, require competition, which levels the business India adopted a very restrictive foreign playing field and encourages private sector investment policy. In the 1960s, its stance was: participation in public sector projects. We prefer to buy technology rather than receive According to India’s Planning Commission, foreign investment. Its position gradually shifted India will require, up to 2012, an estimated to: We will receive foreign investment, but only $320 billion dollars to fund infrastructure with technology. Later, the position became: we projects and upgrade existing infrastructure. will receive FDI, but in certain sectors only. Public-private partnerships have been Today, we admit that we need FDI in most identified as a means of obtaining the capital sectors. Because of this gradual shift in policy, required to get things done. If we are to many foreign investors have remained reluctant increase private sector participation in public to view India as a viable investment destination. sector projects, we will need to build a stronger A strong competition policy that ensures competition framework that genuinely levels “national treatment” to foreign investors, would the playing field between the private and be immensely valuable in persuading foreign public sectors. The private sector’s confidence investors that things have changed for the better. in the public sector needs to grow. For some Competition policy and law, as well as a time, there was a perception that, in public strong competition authority, are important if sectors that were opened to private sector we are to address these issues seriously. The participation such as telecommunications, the competition authority—in India’s case, the private participants competing against the Competition Commission of India—is established public company were subject to expected to assume the role of leveler of the discrimination. playing field. Fourth, just as competition protects the However, as pointed out in this roundtable, private sector against potentially unfair we must remember that there are serious limits business practices of the public sector, it to competition law as regards its ability to likewise protects the consumer from the risk provide a perfect fit for all countries. The desire of potentially unfair business practices of the to attain perfect competition should be private sector. Private sector monopolies are balanced out by the need to avoid the creation worse than public monopolies, particularly in of redundancies, the loss of economies of infrastructure services, which are generally a scale, and the collapse of services on account natural monopoly. Public-private partnerships of excessive competition. A fine balance needs (PPPs) could also result in creation of to be struck between these competing policy monopolies in the absence of competition. A concerns—and we will arrive at the proper competition framework can regulate PPPs solutions only by going through a learning in order that they do not stifle competition curve, and learning from our own experiences.

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07-0103Law&Policy.pmd 32 17/05/2007, 1:20 PM “Business can acquire Session 2 sustainable competitiveness, Competition Regimes Across compete with, and the Region and Interface with win against foreign business Regulatory Regimes only through active Q Approaches and Challenges in Implementing Competition Law and Policy, Toshiyuki Nanbu, Director, International Affairs Division, Japan competition in a Fair Trade Commission, and Convenor, APEC Competition Policy and Deregulation Group domestic market.” Q Interface with Regulatory Regimes, Bernard J. Phillips, Head Competition Division OECD; and Sean Ennis, Senior Economist, Toshiyuki Nanbu Competition Division, OECD Director, International Q Competition Agencies and Their Interface with Regulatory Agencies, Affairs Division, Annetje Ottow, Associated Member and Advisor to the Commission of Japan Fair Trade Commission, and OPTA (Post and Telecommunications Authority), The Netherlands Convenor, Competition Policy and Deregulation Group

Approaches and Introduction Challenges in t is a great honor for me to have the Implementing opportunity to speak at Competition Law and Policy roundtable here in New Delhi, Competition Law India. We have observed a global trend of and Policy Iintroducing and developing competition laws over the past 10 years or so. This trend is the TOSHIYUKI NANBU result of the end of the Cold War between the Director, International Affairs Division, East and the West and the birth of many free Japan Fair Trade Commission, economies and nations. This also results from and Convenor , APEC Competition Policy the general progress of globalization, trade and Deregulation Group liberalization, and rapid economic growth. However, the levels of development at which different countries have adopted competition laws are different. Some economies

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07-0103Law&Policy.pmd 33 17/05/2007, 1:20 PM have rather long histories of implementing incompatible with Japanese society, which their competition laws. Others have only believed in harmonious cooperation. It was recently introduced comprehensive compe- also deemed incompatible with the tition laws. Some other economies are now government policy at that time, which focused planning to introduce a comprehensive com- on fostering and strengthening domestic petition law. industries to achieve economic recovery and Mr. Takeshima, Chairman of the Japan Fair independence. As a result, the AMA could not Trade Commission (JFTC), the Japanese easily take root in the Japanese society. competition authority, usually likes to say, “There is no growth without competition.” This (2) 1955–1970: High economic growth and means that business can acquire sustainable the Dark Age of AMA competitiveness, compete with, and win against foreign business only through active “Harmonization culture”—or the culture of competition in a domestic market. The harmonious cooperation among business- Organisation for Economic Co-operation and es—dominated the business community for Development (OECD), whose slogan is, many years, probably up to the 1970s.1 The “Competition brings prosperity,” espouses a result was considerable retrogression in similar philosophy. From these, you can see terms of both systems and implementation that the significance of competition policy is of competition policy. We call this period in universal. JFTC history as the “Dark Ages of the Anti- In this paper, I would like to discuss three monopoly Act.” things: First, how competition policy and law From 1955 to 1970, the Japanese were developed in Japan and what kind of economy achieved substantial growth and lessons learned are relevant to other enjoyed a yearly average growth of approxi- economies that are trying to develop their mately 10% over 15 years. This was an out- competition policy and law; second, how standing level of economic growth. It can competition policy and industrial/development be gleaned from the Japanese experience policy are interrelated, and what role during this period that active competition competition policy plays in structural reforms; between enterprises can take place even if and third, how competition policy and law competition law enforcement is dull, dur- developed in the Asia-Pacific Economic ing a period when economic growth invites Cooperation (APEC) region and how bilateral further growth. During this period of eco- and multilateral cooperation in the field of nomic growth, it was difficult for people to competition law and policy has been understand that: (1) the maintenance of developed in this region. competition in a market is essential for the sustainable growth of the economy; and Experience of Japanese (2) a policy of government interference and competition law and policy suppression of competition causes substantial harm. (1) 1945–1955: Introduction of brand-new When one looks back at competition policy of competition policy during these periods of high economic growth, it is interesting to note that the “Dark In 1947, the Antimonopoly Act of Japan (AMA) Ages of the AMA” corresponded with the time was enacted modeled after the antitrust laws when Japan enjoyed high economic growth. of the United States of America as a part of the occupational policy of the allied powers. At the (3) 1970s–1990s: Slowdown of the growth same time, JFTC was established as an rate and long-term stagnation independent commission whose idea was also taken from the Federal Trade Commission of After 1970, a significant slowdown in the the United States. However, when AMA was growth rate was observed. After it experienced enacted, Japanese society believed in the the effects of the bubble economy that existed primacy of harmonious cooperation among during the latter half of the 1980s, Japan businesses over competition. Therefore, the experienced long-term stagnation in the original AMA was deemed to have

incorporated too many ideal concepts in 1 The “harmonization culture” is explained in detail in section competition law and was likewise deemed (5) below.

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07-0103Law&Policy.pmd 34 17/05/2007, 1:20 PM 1990s. This period of serious economic stagnation, also called the “lost decade,” arose from long-term deflation. Western “Enterprises can acquire economies in the 1980s focused on implementing regulatory reforms and sustainable competitiveness economic policies based on free market only through market principles, and actively enforced their competition—competition will competition laws. On the other hand Japan Toshiyuki Nanbu took a long time escaping from excessive lead to economic growth.” Convenor, APEC Competition Policy governmental intervention and heavy and Deregulation Group regulation—the so-called “convoy fleet and Director, approach.” International Affairs Only after the bubble economy burst and Division, Japan Fair Trade Commission the effects of long-lasting economic stagnation were felt that general support for a mixed approach of deregulation and competition Companies, including listed ones, continue policy developed. The mixed approach, which to engage in repeated violations of AMA. aimed to activate market functions, was Due to JFTC’s recognition that potential understood to be the only way for Japan to offenders were not deterred by the sanctions achieve economic recovery. The strengthening under AMA, the law was amended to increase of the AMA enforcement system was also the rate of monetary surcharges against pushed forward rapidly in the 1990s. As well, violations. At the same time, the amended many exemption systems granted by individual law introduced a leniency program—a industrial laws were abolished. Likewise strategy that has been recognized abolished were the rationalization cartel and internationally for effectively encouraging recession cartel systems in the AMA. compliance. The amended act took effect on 4 January 2006. (4) The present conditions of AMA and challenges (5) Struggle against the harmonization culture Thereafter, the Japanese economy has been in the process of modest recovery and looks Japanese business culture gives great as if it has overcome the severe conditions that importance to Wa (harmony) and does not took place after the collapse of the bubble generally find it acceptable for only one economy. business or enterprise to prosper. This is the Although the long-functioning sector- basis for the so-called “harmonization culture” focused policy led Japan to be the second discussed in section (2) above. The largest economy in the world, globalization has “harmonization culture” was a factor that changed the economic environment constrained the establishment of competition drastically and some fundamentals of the policy in Japan. Japanese economy have lost their capability The Japanese Government had long to adapt to the rapidly changing global adopted the view that cartels could sometimes economy. To cope with such changes properly, be useful tools of industrial policy. During the businesses should depart from collusive period when harmonization culture dominated practices, make good use of market Japanese business thinking, there existed mechanisms, and gain efficiency by being extensive systems of cartel exemptions from subject to competitive pressure. JFTC should the application of AMA. As mentioned above, promote the competitive environment through not until Japan experienced a serious strict enforcement of AMA. economic downturn in the 1990s did the JFTC has advocated voluntary compliance Japanese business community at large start to with AMA, by persuading executives of private appreciate competition policy. The Japanese businesses that complying with AMA will result Government unequivocally abandoned the in profits in the long run. Fortunately, these so-called “convoy fleet system” in mid-1990 executives’ understanding of competition and since then has implemented drastic policy has improved and is now far better than reform measures in many sectors of the before. However, it is still not enough. Japanese economy.

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07-0103Law&Policy.pmd 35 17/05/2007, 1:20 PM Because of the huge economic problems the low growth period for such a long time that Japan faced at the time, many business after the period of high growth. In hindsight, people seemed to agree with the JFTC we know this is partly because the slogan, “No growth without competition.” competition policy did not match with the Almost all of them understood that our needs of the economy during the high economy faced huge structural problems growth period. and that what used to be effective in the past To summarize, sustained growth of the could no longer be so. Almost all of them economy is difficult to achieve without ef- accepted that the Japanese economy needed fective utilization of market mechanisms, and structural reforms based on free market a national economy cannot develop without principles. It made sense to support the competition. However, many pressures may enhancement of competition policy, to ensure interfere with or decrease competition in a that the Japanese market would perform well. market. For example: But 10 years later, competition culture has not yet taken root in the Japanese business • In Japan, the Government is expected to community. In some domestic sectors, the take various policy measures to alleviate influence exerted by harmonization culture is competitive pressures in a market still very strong. The memory of the Japanese because excessive competition is believed economy’s past success prevents many from to have a harmful influence on the national accepting competition culture. Most still economy. Therefore, as the economy harbor a strong belief that a business culture grows, many ask for the introduction of that favored harmonization among the new regulations that protect slow growing business community was what allowed the sectors and relax competitive pressure. Japanese economy to grow into the second Many likewise demand a transfer of largest in the world. resources from high growth sectors to low Unfortunately, a wall exists between growth sectors—but if taken to the society’s understanding of the structural extreme, this would obstruct the sound problems that beset our economy and its development of the economy, as it would acceptance of competition culture. This is protect non-efficient sectors, or those one of the factors that seem to have caused characterized by low productivity. much difficulty for JFTC to move forward • The clamor for recession cartels, which and enforce AMA. came from those who insisted that a recession would have harmful conse- (6) Lessons from the experience of JFTC quences on people’s jobs, was based on the idea that to temporarily halt competi- Lessons from JFTC’s experience, which may tion by allowing a cartel in a depressed be relevant to other economies trying to sector was justifiable. develop their competition policy and law • Sometimes, when there is popular sup- enforcement, are as follows: port for measures that decrease competitive pressure, such measures are a. The role of competition policy in a period pursued in the name of achieving other of high growth policy objectives (e.g., the balanced development of the regional economies or As previously mentioned, when the the needs to secure jobs). economy is in a cycle where growth invites further growth, it seems possible that the During the period of high growth, people economy can grow without serious found it difficult to understand that the above- enforcement of competition law by authorities. mentioned exceptions to competition caused However, this does not mean that competition substantial harm to the sustainable growth of authorities are unnecessary during this period. the economy in the long run. In Japan, competition policy remained Therefore, an important task for a com- dormant and competition law enforcement petition authority is to coordinate competition was weak during the period of rapid economic policy with other policy objectives in a way growth. Only after Japan entered into a low that puts a brake on those attempts that try growth period did competition policy to limit, relax, or provide an exception to enforcement grow stronger. Japan suffered competition (which are described above), or

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07-0103Law&Policy.pmd 36 17/05/2007, 1:20 PM to allow such attempts to succeed only at steady implementation of a competition law the lowest levels so that it does not hinder that the country had adopted or a the growth potential of the economy in the competition authority is created under the long run. auspices of a specific government ministry that oversees a certain industry or sector b. The importance of establishing an and this prevents the competition authority independent competition authority from exercising its duties independently. Sometimes, interference in a competition Fortunately, JFTC was established as a authority’s enforcement of competition competition authority that, since the beginning laws is justified in pursuit of other policy of AMA’s existence, was allowed to perform objectives (e.g. protection of sensitive independently and maintain a secretariat industries and security of tenure for whose staff consisted of individuals who were employees). It is important to remember permanently appointed thereto. These were that a sustainable and independent extremely important because the people’s competition authority is indispensable in understanding of competition policy was not promoting competition policy and the high during Japan’s early stages of economic effective implementation of competition development, the existence of a competition law. This does not mean that all competition authority that could independently pursue the authorities should be completely implementation of competition policy based independent in terms of its organizational on a long-term outlook was necessary. structure; it means that every competition Although JFTC has experienced ups and authority should endeavor to establish downs in the course of Japan’s economic mechanisms that would allow it to be free development, JFTC and its Secretariat carried from external pressures exerted by out their core role—establishing competition politicians, or necessitated by the pursuit policy in Japan—even during the Dark Age of of other state policies. It must take AMA. JFTC also contributed largely to building necessary measures to ensure that it can the capability of competition policy officials. implement competition policy and enforce Japan’s lifetime employment system allows competition law, regardless of its new graduates to enter each ministry or organizational structure and its place in the government agency, accumulate experience, overall organizational structure of and develop their skills through in-house government. training in the course of their career. JFTC has consistently played a key role in helping c. Increased importance of judicial Japanese society assimilate competitive proceedings practices, and this played a big role in building a core group of experts in competition policy, When appreciation for competition which was weak in Japan. A competition policy was low, it was customary for JFTC authority inevitably needs to build staff to avoid cases moving to the administrative competence and imbue its staff with a firm hearing stage, or from appealing cases to sense of mission. the Tokyo High Court. AMA violations were AMA clearly provides for the indepen- frequently remedied by JFTC’s dispensation dence of JFTC with regard to its perfor- of administrative guidance. It cannot be mance of duties. Therefore, government denied that the prevailing attitude brought agencies and politicians must not intervene about the unhappy result of making in JFTC’s enforcement of AMA. However, in- Japanese competition law enforcement tervention has not been avoidable due to less powerful. It delayed the accumulation the Government’s or politician’s pursuit of of relevant case law on competition. other state policies. JFTC has faced many Accumulation of case law through difficulties in coordinating competition frequently resorting to judicial proceedings policy with other policies. In drafting the lat- could bring about transparency and est bill to amend AMA, JFTC encountered objectivity in resolving competition issues. difficulties in coordinating with industries It is an important step to establish and politicians. competition policy firmly, and would In some economies, there may be no increase the number of lawyers and judges competition authority responsible for the who are familiar with competition law.

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07-0103Law&Policy.pmd 37 17/05/2007, 1:20 PM d. Importance of business sector’s viewed this negatively. More than half of the appreciation of competition law respondents thought that the competition authority should strengthen its enforcement Enhancement of the public’s of AMA against cartels and proponents of bid appreciation of competition policy (in rigging. If we conducted a similar survey particular, the appreciation of competition today, more people must assess competition law by business people) is indispensable policy positively. Competition policy proves from a long-term point of view. The Japanese to be effective only in the long run and it is experience suggests that a people’s important to continue the efforts to enhance understanding of competition policy cannot competition policy by helping people deepen without any effort to improve such understand this concept better. understanding. Business culture plays an important role, too. In economies with a Interrelation between competition business culture that favors the avoidance policy and industrial and of disputes and solving business troubles development policies, and the role through informal discussions, special effort of competition policy in structural is required to establish competition policy. reform Japanese businesses’ tendency to avoid judicial solutions of business troubles is said Today, it is widely accepted that competition to delay the establishment of competition policy in Japan conflicted with its industrial policy in Japan. Business culture is an policies. I would like to touch on the industrial important consideration when one is trying and development policies that the Japanese to establish competition policy. economy had adopted and present three Competition policy has two wheels—one lessons from Japan’s experience with the maintains or promotes competition in a mar- interaction between competition policy and ket through the enforcement of competition industrial and development policies. laws. The other promotes the business sector’s Thereafter, I would like to mention the role of compliance with competition laws by making competition policy in structural reform. them understand that competition would benefit business in the long run. The latter is (1) Industrial and development policies particularly important when promoting sustain- and their effects on competition policy able development of the economy. Competi- tion authorities should have a leading role in The government policy of Japan during the this endeavor. developing stage of its economy was mainly JFTC recognized from the very beginning focused on fostering and strengthening spe- that the public’s understanding of competition cific domestic industries like heavy industries, policy was very low. Thus, it has been engaging as this was expected to boost Japan’s foreign in public relation activities for many years to exchange reserves. The government and the enhance public understanding of competition private sector collaborated in rationalizing and policy. JFTC has engaged in activities such as developing targeted industries. In accordance holding a roundtable conference composed with those objectives, subsidies, favored loans, by well-informed persons from various fields and tax systems that accorded special treat- (after 1968); holding a seminar or conference ment to certain sectors were introduced. with well-informed persons in local districts These policy measures, which were applied (after 1972); appointing well-informed persons to promote target industries, were applied not as “anti-monopoly cooperation members” only to growing industries but also to stagger- (after 1999); and teaching classes on ing industries, and worse, to declining indus- competition policy at junior high schools (after tries that had lost their competitiveness to for- 2002). JFTC prepared and distributed many eign industries. pamphlets and videotapes to support these Enforcement of the original AMA was activities. largely relaxed, and a number of laws were In 2001, the Cabinet Office of Japan introduced in a wide range of industries, which conducted a public opinion poll on fair exempted certain types of collaborative competition. Seventy-three percent of the activities from the application of AMA. In respondents attached positive values to response to a strong demand from business competition in economic activities, while 15% circles, which believed that economic

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07-0103Law&Policy.pmd 38 17/05/2007, 1:20 PM depression would be harmful to from the application of AMA, and such employment, an exemption of recession measures were deemed emergency safety cartels and rationalization cartels was also nets to ward off economic depression and/ introduced to exempt these arrangements or to rationalize an industry. Even if there were from AMA application. Those were major legitimate reasons behind the introduction steps backward insofar as competition of these safety nets, their introduction was legislation was concerned. not beneficial in the long run. It proved to be In the field of enforcement, very difficult to abolish the exemption system administrative measures that induced afterwards. The system caused an industry’s anticompetitive business activities were business conduct to become averse to implemented in many industries, particularly competition. Companies in such industries those that exhibited inefficient performance tended to exercise collusive activities even if and low profit levels. These were such conduct did not meet the original policy implemented at every stage of the recession objectives for which the exemptions were under the guise of preventing excessive granted. Getting the competition authority competition, or stabilizing the market. involved in determining whether or not an The investigation activities themselves applicant for an exemption should be that JFTC undertook under AMA showed granted the exemption was found advisable. substantial stagnation. Even though JFTC If the introduction of an exemption is paid efforts to tackle timely issues (such as unavoidable, the application for the price hike cartels of consumer goods under exemption should at least be subject to the the restriction of budget and human re- approval of the competition authority. It may sources), it stopped short of curbing these also be useful to introduce time-bound anticompetitive administrative measures. exemptions (e.g., the exemption would be abolished automatically after a certain period, (2) Three lessons from the Japanese as provided in a sunset clause). experience Third, competition policy and industrial and development policies can and should be First, it is not possible that a country’s eco- compatible. Since business can acquire nomic growth will always be on the upswing. sustainable competitiveness only through Rather, economic growth is cyclical—a coun- active market competition, it is difficult to try may experience an early stage of develop- achieve sustainable economic development ment, transition into a high growth stage, and by suppressing competition and fostering then to a stage of economic depression. Also, specific enterprises. Further, when taking into it is not possible to achieve economic devel- account the current state of world trade— opment and maintain the balance of develop- markets have become more open—a policy ment among each domestic sector. The need to foster domestic industry by prohibiting to adopt industrial and development policies foreign entry into the domestic market cannot that are suitable to each stage of economic be maintained over a long period. Rather, development cannot be denied. However, as economic development can be accelerated by mentioned above, a sustainable growth of the opening the market and introducing foreign economy cannot materialize without active direct investment (FDI). market competition. At every stage of devel- Japan’s approach at the developing stage opment, competition policy should ensure was to delay opening the domestic market to active market competition by accommodating allow domestic industries mature quickly. This industrial and development policies that may approach was used in the development of the promote competition. Japanese automobile industry, among others. Second, the introduction of exemptions One key factor that facilitated the development from the application of competition law or of this industry was that the domestic market other policy measures that hinder effective size was big enough to ensure aggressive application of the competition law should be competition among domestic automobile minimized—even if these are introduced to manufacturers and increase competitiveness advance an industrial policy to develop even without foreign entrants at that early certain business activities,. In Japan, many stage. The phrase, “competing at home to legislative measures were employed to win abroad” is appropriate. Domestic exempt anticompetitive collective activities competition is vital in order that a country

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07-0103Law&Policy.pmd 39 17/05/2007, 1:20 PM may compete with and win against foreign security reform; reform of the relation competitors. There may be various types of between central and local governments; a industrial and development policies during restructuring program for the industry and the developing stages of an economy, but an financial sector; and the promotion of industrial policy that is not compatible with employment. competition policy will not bring sustainable economic growth. b. Role of competition policy

(3) The role of competition policy in Enhancement of competition policy is structural reform the core of Prime Minister Koizumi’s structural reform. Competition is the vital part The government under Prime Minister of an economic strategy that aims to achieve Junichiro Koizumi has been dedicated to a the sustainable recovery of the Japanese structural reform policy up to the present. economy through structural reforms. A Promotion of market competition is the core program integrating competition policy and of the structural reform. JFTC has also regulatory reform constitutes an essential dedicated itself to the structural reform and indispensable component of structural through the promotion of competition policy. reform. At JFTC, we use slogans such as, “No Reforming the social and economic system, growth without competition” or “No which is characterized by consensus-oriented innovation without competition” to persuade and regulation-driven management systems the business community of the importance that are widespread in the Japanese economy, of competition policy initiatives in Japan. is not an easy task. You may have heard recently that the Japanese economy is showing Development of competition policy signs of recovery from deflation and economic in the APEC region stagnation. Without regard to whether the current economic recovery is real one or not, The APEC Forum was established in 1989 to the need for structural reform persists. capitalize on the growing interdependence of the Asian and Pacific economies. By facilitating a. The necessity of structural reform economic growth, intensifying economic and technical cooperation, and enhancing a sense In the midst of socioeconomic of community, APEC aims to create greater transformations taking place on a global scale, prosperity in the region. the Japanese economy faced huge problems In the last 10 years or so, we have observed that did not result merely from the cyclical countries in the APEC region introduce changes expected in an economy. These competition laws. This is consistent with the problems were due to structural issues general progress of globalization, trade inherent in the economic system itself. The liberalization, and rapid economic growth in Japanese economy was suffering from long- this area. However, countries are at different term deflation and had lost its power to grow. levels in the development and enforcement of To overcome such huge economic competition laws. Some economies have a problems and to reestablish a Japanese rather long history of implementing their economy that is ready for steady competition laws. Others have only recently development (e.g., development that is not introduced comprehensive competition laws. measured by the level of government budget Some economies are planning to introduce a spending but is based on the creation of an comprehensive competition law. appropriate economic structure), Prime Economies planning to introduce Minister Koizumi has struggled with comprehensive competition laws face various implementing a bold structural reform obstacles in drafting and introducing the law program under the slogans of “No growth (e.g. lack of resources and political leadership without structural reform”; “Leave to the to introduce a new competition law, private sector what the private sector can insufficient understanding of stakeholders do”; and “Leave to the municipal government about competition policy, tensions between what the municipal government can do.” The regulatory authorities and competition structural reform involves, among other related authority, etc.) Even economies that things, regulatory reform; tax reform; social already have competition laws are still

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07-0103Law&Policy.pmd 40 17/05/2007, 1:20 PM struggling to enforce their laws effectively. In a. Resident advisor response to the above-mentioned situation, the number of technical assistance activities One type of technical assistance places on competition has grown remarkably. a resident advisor in the competition authority Although some technical assistance projects of a recipient economy. The resident advisor were launched in the early 1990s, many of the provides lectures and suggestions upon projects started around 2000. Canada, the demand. A resident advisor is a very effective United States, Japan, Australia, Korea, and technique of providing technical assistance Taipei,China are the main technical assistance to newly established competition authorities. donors in the APEC region. Establishing a It should be noted that dispatching an competition policy cooperation network appropriate advisor to a certain economy for within the APEC region has proven to be a short period is rather burdensome for the important and useful in building a competitive donor, from a budgetary and personnel/ environment in this region. administration point of view.

(1) Overview of Competition Laws in the b. Short-term mission APEC region A short-term mission dispatches The level of development of competition law competition policy experts to developing and policy in the APEC region is varied. economies for a specifically targeted mission Among 21 member economies, 16 for a short period of time. economies have introduced a comprehensive competition law and have established c. Regional conference or seminar competition authorities. Among these 16 economies, 4 economies are in the North and Regional conferences and seminars are the South America, 3 economies are in the held and will be held in various economies at Pacific; and the rest are in the Russian various occasions during the year. Organized Federation and East Asia. by various economies or organizations, these Five economies which have not conferences and seminars focus on various introduced a comprehensive competition law issues and are conducted in a variety of ways. are in East Asia. Among these five economies, three are in the process of drafting d. Internship comprehensive competition laws, while two economies have not yet decided to introduce Internship is a type of technical competition law and policy. Some reasons assistance activity that allows foreign they are not considering the introduction of personnel to join a competition authority of competition policy and law may be: (1) they donor economies for a certain period. It are prioritizing an aggressive development provides them the chance to learn how the policy; the existence of strong state-owned competition authorities should do their companies; and the openness and smallness work and how to implement competition of their economy, which enables them to enjoy law in practice. However, because of economic progress through free trade and confidentiality regulations in donor investment in its own market. countries, many documents, testimonies, interviews, and other sources of relevant (2) Technical assistance activities in the data are protected from disclosure to APEC region and promotion of its effi- persons other than the competition ciency and effectiveness authority’s staff. Therefore, the expected outcome—wide dissemination of To assist developing economies introduce knowledge—is not necessarily feasible. It comprehensive competition laws or ensure should be noted that internships are rather their effective enforcement, developed expensive because of travel and lodging economies have been involved in a number expenses, and per diem costs. Moreover, of technical assistance activities. Though the their effect may be limited unless the interns content of technical assistance programs disseminate what they learned to other staff that each donor provides may be different, after they go back to their own competition they usually take any of the following forms: authorities.

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07-0103Law&Policy.pmd 41 17/05/2007, 1:20 PM e. Study visit consider starting such strategies at the regional level. Regional action can be A study visit is a type of technical expected to be more feasible and yield assistance activity that entails the attendance probable success. of a group of foreign personnel at a lecture Last year, the Top Level Officials’ Meeting on competition policy and law. It is provided on Competition Policy, a forum for top-level by the staff of a donor country’s competition officials of competition and competition- authority and by other experts invited by the related authorities in East Asia, was donor economies. A study visit is also established. It initiated a discussion on the expensive and, in most cases, it is funded by efficiency and effectiveness of technical the donor country’s official development aid assistance activities. Therefore, the Top Level program. Officials’ Meeting will provide a good It should be noted that the effectiveness framework for discussing the establishment and efficiency of study visit are greatly of an efficient and effective technical dependent on the selection of the proper assistance regime in East Asia. The following trainees. Moreover, if the trainees’ level of issues should be discussed at subsequent knowledge, experience, and needs are more Top Level Officials’ Meeting: (1) exchange of or less the same, the study visit may be information among donors on their technical expected to be effective. assistance programs in the past and future and endeavor to coordinate their technical f. Fund donation assistance programs in East Asia region, and (2) cooperation among donors and A fund donation is a contribution to the recipients toward effective and efficient budget of newly established competition implementation of technical assistance authorities, which may be used for the activities in East Asia. competition authority’s self-initiated capacity- Since the globalization of business has building activities. highlighted the importance of competition issues, enhancement of the competitive g. Provision of information environment of the region has become one of APEC’s objectives. The Competition Policy and Provision of information refers to providing Deregulation Group (CPDG), a sub-forum of recipient economies with: (1) general the Committee on Trade and Investment, aims information that the donor considers useful,or to enhance the region’s competitive (2) specific information that the recipient environment and works toward the requested. development and understanding of regional Technical assistance activities are very competition laws and policies. It examines the important for the development of competition impact of competition on trade and law and policy. Since the number of investment flows and identifies areas for developing economies that have introduced a technical cooperation among member competition law has increased, the demand economies. I believe that the efficiency and for technical assistance from developing effectiveness of technical assistance in the economies has grown. However, developed APEC region should be one of the main issues economies’ budget and human resources for to be dealt with at the next CPDG meeting, technical assistance activities are limited. and the results of the discussions in East Asia Some technical assistance activities may should be presented for information and overlap because most technical assistance consideration at the CPDG meeting. activities are carried out without cooperation or coordination among the donors. (3) Promotion of international coopera- I believe that the time has come for donors tion and competition network and recipients to consider strategies for better cooperation and coordination. This would a. Trade liberalization and competition result in greater efficiency and effectiveness of technical assistance activities. While The World Trade Organization (WTO) cooperation and coordination on a global regime (multilateral) and free trade agree- scale are required, it may be useful to ments/economic partnership agreements

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07-0103Law&Policy.pmd 42 17/05/2007, 1:20 PM (FTAs/EPAs) (bilateral) have brought about i) notify the other of enforcement activities trade liberalization and the elimination of tar- which may affect the important interests iff and nontariff barriers. of that country; ii) coordinate enforcement activities with In this connection, APEC has formulated regard to related matters; its objectives thus: iii) provide the other competition authority • to promote sustainable economic growth; with any significant information in its • to develop and strengthen the possession about relevant anticompetitive multilateral trading system and; and activities, • to increase the interdependence and iv) request the other competition authority to prosperity of Member Economies. initiate appropriate enforcement activities within its territory when the important It is also committed to the “Bogor Goals”2 interest of the requesting country is of free and open trade in the region. As the harmed by foreign anticompetitive globalization of economies progresses, cross- activities (positive comity); and border anticompetitive activities such as inter- v) give careful consideration to the important national cartels have been observed to be on interests of the other country during the the rise. These may harm free and open trade. conduct of all enforcement activities to Thanks to the development of information avoid conflict in the application of technology, business can be easily conducted competition laws (negative comity). across borders, and communication relating to the international anticompetitive activities Such cooperation is expected to give rise may take place without difficulty. However, to the efficient enforcement of competition competition law enforcement cannot easily laws and is a powerful countermeasure cross borders because of problems posed by against international anticompetitive activities. sovereignty and jurisdiction. Therefore, cooperation among competition authorities as c. Cooperation in competition policy under regards enforcement of competition laws has EPAs and FTAs become important, and is essential in order to take necessary measures against anticompet- EPAs and FTAs seek liberalization and the itive activities. At the same time, cooperation facilitation of movement of natural persons, as helps avoid conflicts that may arise from the well as trade and investment, by eliminating extraterritorial application of law, among tariff and other trade barriers between specific other things. partner economies. EPAs seek to achieve the foregoing objectives not only by eliminating b. Bilateral cooperation agreements in tariff and other trade barriers but also by competition law enforcement harmonizing immigration regulation and economic systems. Japan has bilateral cooperation Competition policy is an inevitable agreements with the United States (1999) and element in the EPAs and FTAs, both of which Canada (2005). We have also started ensure the free flow of goods and services discussions on the conclusion of a similar resulting from the liberalization of trade and cooperation agreement with Australia. These investment. International anticompetitive agreements, particularly the Japan–United activities cannot be fully controlled by trade States agreement, set out the manner in which remedy tools such as antidumping measures. the competition authority of each party It is expected that the mutual assurance to take cooperates in the enforcement activities of the appropriate measures against anticompetitive other. Parties are obliged to: activities will lead to the promotion of trade and investment. Japan concluded bilateral EPAs that have 2 APEC adopted the “Bogor Goals” in 1994 at a summit held chapters stipulating cooperation between its in Bogor, West Java, Indonesia. The Bogor Goals are aimed competition authority and that of Singapore at establishing free and open trade and investments by and Mexico. The Japan–Mexico EPA was the reducing tariff barriers in the Asia-Pacific area to a level of zero to 5% for industrialized economies by 2010, and for first occasion when JFTC established an developing economies by 2020. enforcement cooperation mechanism

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07-0103Law&Policy.pmd 43 17/05/2007, 1:20 PM under the framework of an EPA. The substantial elements of the competition Interface with chapter of the Japan–Mexico EPA are similar to those in the Japan–US cooperation Regulatory Regimes agreement. BERNARD J. PHILLIPS In other EPAs between Japan and Head, Competition Division, OECD developing economies, enforcement 1 cooperation is more flexible and technical SEAN ENNIS assistance cooperation should be included Senior Economist, Competition Division, OECD considering the development levels of the latter’s competition law and policy. Three Introduction major elements that need to be incorporated in the competition chapter of EPAs are: • a declaration to take appropriate n the past, relationships between com measures that address anticompetitive petition authorities and sector regulators activities within a country’s applicable have at times involved disagreements laws and regulations; over regulatory approaches, with rela • a declaration to ensure consistency with tively poor mechanisms for ensuring that the core principles of nondiscrimination, both regulators’ and competition authorities’ transparency, and procedural fairness in I views are taken into account. On the one hand, implementing measures that address regulators have sometimes been felt to act anticompetitive activities; and more in the interests of the firm(s) they regu- • cooperation in the field of controlling late than in the interests of consumers or pro- anticompetitive activities as warranted moting competition. On the other hand, com- by the level of competition policy petition authorities have sometimes been felt development. to ignore broader social objectives apart from Conclusion increasing competition and to lack adequate technical knowledge about highly complex sectors. Competition policy is not necessarily a pana- Fractious relationships are not inevitable. cea for all economic problems but its impor- Competition authorities and sector regulators tance is universal. During the developing stage should be on the same side because: of their economies, some countries have • Economic growth is enhanced by pro- emphasized the importance of economic competitive regulation, as recent research development rather than competition. How- by the Organisation for Economic Co- ever, it would be good to remember that both operation and Development (OECD) and objectives are, and should be, compatible. others have suggested. In my presentation, I shared the experi- • Many of the objectives of competition ence of Japan as related to its introduction authorities and regulators are in fact very and enforcement of AMA. Japan struggled similar. For example, regulators often for a long time in enhancing AMA. Now that focus on preventing “excessive pricing”, we are in the era of economic globalization, ensuring access to essential facilities, and you need not take 50 years to strengthen your ensuring that barriers to entry are reduced. competition law. These objectives are shared by I believe that JFTC’s accumulated expe- competition authorities in most OECD riences on competition policy are relevant jurisdictions. to, and need to be shared with competition authorities of other economies. Enterprises 1 Mr. Phillips delivered a presentation at the Competition Law can acquire sustainable competitiveness and Policy Roundtable based on this note, which he only through market competition—compe- coauthored with Mr. Ennis. The note draws on the materials tition will lead to economic growth. JFTC is prepared for the 2005 meeting of the Global Forum on Competition. See www.oecd.org/document/ 55/ willing to strive with you in fostering a com- 0,2340,en_2649_37463_34255159_1_1_1_37463,00.html. The petition environment throughout the APEC contribution of Peter Ormosi to this note is gratefully region. I hope my presentation contributes acknowledged. Any remaining errors are those of the authors. The views presented herein are those of the to your understanding of competition law authors and not necessarily those of the OECD or any and policy. member government.

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07-0103Law&Policy.pmd 44 17/05/2007, 1:20 PM The ideal relationship between competition authorities and regulators is driven by a central government that promotes broad “Increasingly, policy-makers review of existing regulations with a pro-com- recognize that regulations petitive lens, ensuring that a “competition culture” encompasses both sector regulators should be designed to and competition authorities. minimize their harmful effects In practice, not many countries have yet on competition.” Bernard J. Phillips achieved this ideal. To the extent the ideal has Head, Competition Division, not been reached, there are nonetheless a OECD number of practical measures that governments can take to enhance pro- competitive regulation and improve the affects the cost and quality of many key relationship between competition authorities inputs of production, such as and sector regulators.2 This note outlines a telecommunications, energy, and transport. number of these approaches. Pro-competitive regulation enhances the ability of firms within a regulated sector to Key elements for increasing pro- adapt to changed technology, choose low- competitive regulation include: cost means of production, adapt to • The central government actively supports consumer preferences, and set prices that pro-competitive regulation. more closely reflect the variable costs of • The central government requires that production. As a result, governments can ministries and regulatory bodies review benefit their economies by encouraging pro- their laws and regulations for unnecessary competitive regulation. restraints of competition. Australia provides a good example of what • Both competition authorities and can happen when a government as a whole regulators implement instruments for seeks to promote competition and make cooperation. regulations more pro-competitive. Nearly 2 • Overall principles of competition law decades of economic stagnation and decline enforcement are common across different relative to other OECD economies led Australia sectors. to embark on an ambitious reform program, including reform of financial and labor markets Broad government efforts to and of competition policy. Since the mid-1990s, promote competition benefit the the implementation of the competition economy component, Australia’s ambitious and comprehensive National Competition Policy, The development of pro-competitive has made a substantial contribution to the regulation and the lowering of regulatory recent improvement in Australian labor and barriers are of vital economic importance both multifactor productivity and economic growth. for ensuring that the benefits of competition Australia’s Productivity Commission estimates will accrue to domestic consumers and for that Australian households’ annual incomes ensuring that domestic companies will have are on average around A$7,000 higher as a cost structures that enable them to succeed result of competition policy. Recent OECD in international trade. Sector regulation reviews of Australia show that the Australian economy is still benefiting from the program of widespread and deep reforms that started 2 OECD. 1999. Relationship between regulators and in the 1980s and was especially intensive in competition authorities. No. 22 in the series on Roundtables the 1990s. These reforms made it easier to set in Competition Policy, 1999. OECD: Paris. Available: macro policies in a stability-oriented medium- www.oecd.org/dataoecd/35/37/1920556.pdf.OECD: Paris. The relationships have been examined in many previous term framework. The combination resulted in competition law and policy peer reviews, such as OECD. a 13 year-long economic expansion period Mexico: Progress in Implementing Regulatory Reform. accompanied by low inflation, high resilience OECD: Paris including through the OECD Regulatory Reform Review program, as well as in recent reviews of Norway to external and domestic shocks, and very (OECD. 2003. Regulatory reform in Norway: Modernising healthy public finances. regulators and supervisory agencies. OECD: Paris) and Pro-competitive regulation has been Mexico (OECD. 2004. Competition law and policy in Mexico: an OECD peer review.) OECD: Paris. shown to enhance employment, increase

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07-0103Law&Policy.pmd 45 17/05/2007, 1:20 PM productivity growth, and promote suggest that deregulation leads to greater investment. investment in the long run,” and “[t]he • Employment. Nicoletti and Scarpetta find implications … are clear: regulatory that product-market regulation has an reforms, especially those that liberalize impact on employment.3 They estimate entry, are very likely to spur investment.”5 that pro-competition policy developments in New Zealand and the United Kingdom Primary government tasks in have added around 2.5 percentage points regulated sectors to their employment rate over 1978–1998. Countries with more modest reforms, The primary potential government tasks such as Greece, Italy, and Spain have only faced in regulated sectors are among those added between 0.5 and 1% to the below:6 employment rates through such reforms. • Technical regulation: setting and • Productivity growth. Nicoletti and monitoring standards, managing license, Scarpetta find that “reforms promoting and implementing sanctions to assure private governance (i.e., privatization) and compatibility and to address privacy, competition … tend to boost productivity. safety, reliability, financial stability and In manufacturing the gains to be expected environmental protection concerns; from lower entry barriers are greater the • Wholesale regulation: ensuring nondis- further a given country is from the criminatory access to necessary core fa- technology leader. Thus, regulation cilities, especially network infrastructure. limiting entry may hinder the adoption of By regulating the way in which natural existing technologies, possibly by reducing monopolists provide access to their facili- competitive pressures, technology ties, it is possible for governments to im- spillovers, or the entry of new high-tech prove economic welfare by promoting firms. At the same time, both privatization lower access prices and greater supply; and entry liberalization are estimated to • Retail regulation: measures to mitigate have a positive impact on productivity in monopoly pricing or behaviour at the retail all sectors…. These results … point to the level; potential benefits of regulatory reforms • Public service regulation: measures to and privatization, especially in those ensure that all consumers, regardless of countries with large technology gaps and social status, income or geographical strict regulatory settings that curb location, have access to goods that are incentives to adopt new technologies.”4 deemed of special social value, as with • Investment. Alesina, Ardagna, Nicoletti, universal service obligations; and Schiantarelli find that “tight regulation • Resolution of disputes: quasi-judicial of the product markets has had a large powers may result in faster resolution of negative effect on investment. The data for disputes than could be provided by a sectors that have experienced significant nonspecialized court; and changes in the regulatory environment • Competition oversight: controlling anticompetitive conduct and mergers. Com- petition regulation has a number of goals, 3 Nicoletti, G. and S.Scarpetta. 2001. Interactions between product and labor market regulations: do they affect one of the most important being employment? Evidence from OECD countries. OECD efficient operation of markets. It seeks to Economics department working papers. prevent abuses of market power that 4 Nicoletti, G. and S.Scarpetta. 2003. Regulation, Productivity, and Growth: OECD Evidence. World Bank Policy Research result in unduly high prices, less innova- Working Paper No. 2944. January 2003. tion, lower choice, and lower quality. 5 Alesina, A., S. Ardagna, G. Nicoletti, and F. Schiantarelli. 2003. National Bureau of Economic Research. Working Paper No. 9560: Regulation and Investment. Available: Increasingly, policy-makers recognize that www.nber.org/papers/w9560.pdf. 6 This note does not discuss the issue of broader structural regulations should be designed to minimize changes in governance, such as structural separation their harmful effects on competition. For between competitive and non-competitive businesses or privatization, as these changes often involve more parts of example, public service regulations designed government than competition authorities and sector to ensure universal access to services have regulators. Such changes are discussed in the note, “Bringing competition into regulated sectors.” OECD. 2005b. frequently overstepped their original purpose DAF/COMP/GF (2005): Bringing competition into regulated and have served as a basis for preventing sectors. 25 January. 1. Available: www.oecd.org/dataoecd/ 11/24/34339715.pdf. competition by protecting incumbents from

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07-0103Law&Policy.pmd 46 17/05/2007, 1:20 PM entry. These entry prohibitions ensured that be reason to involve competition authorities the incumbent would be able to cross in design and oversight of such regulations. subsidize from high profit products to low Historically, regulators have often been profit or money-losing products. In fact, such closely related to ministries that manage or restrictions on competition are often not managed incumbent firm(s). Perhaps as a necessary because universal service result, regulatory agencies are sometimes obligations can be met in the presence of perceived as taking actions that appear to competition.7 serve the interests of the firm(s) being regulated. Greater independence both from Competition authorities and political power and the regulated sector are regulators have different core crucial for avoiding these perceptions. In many competencies countries, regulatory institutions have indeed increased their levels of independence. Competition authorities and sector regulators Enforcement by sector regulators may be have different core competencies. These core better suited when: competencies influence the types of tasks best • Fast, definitive resolutions are needed; accomplished by each. • Ex post enforcement creates excessive uncertainty; (1) Sector regulators • Scientific and technical expertise is required to assess the merits of arguments; Sector regulators frequently oversee sectoral • The standards of proof required for regulation. Sector regulators typically have competition law cases would not be met extensive, ongoing knowledge of the technical for achieving the socially desired aspects of the products and services that are regulatory outcomes; and regulated. Sector regulators are likely better • Structurally similar situations are repeated suited to technical regulation than competition and consistent basic rules are desired. authorities. For example, in telecommunications, (2) Competition authorities when adjacent spectrum is operated by two entities, there is a technical possibility that Competition laws are frequently broadly signals of one entity may interfere with those overseen by competition authorities. The skills of the other. While some would suggest that a necessary for delineating relevant markets, common law system could resolve any assessing likelihood of harm to competition, disputes related to interference,8 policy makers assessing entry conditions, and assessing have generally preferred to create an significant market power are particularly well administrative body with oversight of suited to the expertise of competition interference issues. Sector regulators are well authorities. While regulators may have skills suited to setting rules that will reduce in these areas, competition authorities usually interference or for overseeing parties’ claims have a greater breadth of experience in of undue interference from neighboring competition law oversight and are adept at spectrum. At times, though, even technical applying the competition law to different regulations can affect the conditions of products and services. Competition authorities competition, so competition policy issues can are best suited to competition law oversight. arise even with technical regulation. For In applying competition laws in regulated example, rules on interference limit the sectors, competition authorities can often number of potential competitors within a benefit from the technical expertise of sector spectrum band. When technical regulations regulators and should seek to cooperate with impact conditions of competition, there may sector regulators to benefit from this expertise. Competition laws frequently include abuse of dominance provisions that apply to 7 OECD. 2004. Non-commercial service obligations and liberalisation. No. 45 in the series on Roundtables in “excessive” prices. In jurisdictions with such Competition Policy. OECD: Paris. Available: www.oecd.org/ laws, abuse of dominance may be construed dataoecd/43/35/33691140.pdf. to limit monopoly pricing, a topic also of 8 See, for example, Coase, R. 1959. The Federal Communi- 9 cations Commission. Journal of Law and Economics 2: concern to regulators. 1–40. Enforcement by competition authorities 9 See OECD. 2005a. DAF/COMP/GF (2005): Abuse of dominance in regulated sectors. 3. may be better suited when:

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07-0103Law&Policy.pmd 47 17/05/2007, 1:20 PM • Defining markets for regulatory product and service markets susceptible to purposes is necessary; ex ante regulation identifies 18 potentially • Ex ante regulatory enforcement risks regulated markets.11 The national regulatory distort market outcomes, stifle new authorities are responsible for determining products, and more generally create the geographic scope of these markets. The costly errors; national regulatory authorities are then • Markets will not require ongoing oversight; responsible for making determination of and operators considered to hold significant • Products of interest are subject to strategic market power or “dominance.” Findings of manipulation that cannot be foreseen significant market power will then be a through regulation. precondition for ex ante obligations, as defined in the Access Directive.12 The package would As for wholesale regulation, retail help focus regulation on products and services regulation, public service regulation, and that are not fully competitive. Unnecessary dispute resolution, the ideal role of regulations are expected to be reduced. The competition authorities and regulators is less national regulatory authority determinations clear. In certain countries, such as Australia are subject to review and comment by the and the Netherlands, competition authorities European Commission; both in the have more direct roles in some of these areas development of the package and in reviewing of regulation. In absence of sector regulators, determinations, the Competition Directorate- especially in non-OECD countries, competition General13 plays a significant role. laws are often invoked to govern unregulated sectors. Instruments of cooperation that merit consideration (3) Competition authorities can provide valuable input for those tasks for While broad government programs are not which they are not primary enforcers always possible, improved cooperation between competition authorities and sector Even when competition authorities are not the regulators is more easily implemented than best qualified institution to make determina- broad government programs and is valuable tions related to topics such as ongoing price, for ensuring both that regulatory agencies take revenue, technical or other regulation, com- appropriate account of competition concerns petition authorities do nonetheless have skills and that competition authorities take that are useful for some parts of regulation and appropriate account of technical and other that should be used as part of the regulatory regulatory concerns. At times, cooperation process in key economic sectors. For example, may occur naturally without any institutional many economic regulations are predicated on the idea that one or more firms in a product market have the ability to profitably raise 10 European Parliament and the Council (2002) Directive 2002/ prices. Regulators have not always made 21/EC of the European Parliament and of the Council on a common regulatory framework for electronic reasoned determinations of market power, communications networks and services (Framework while competition authorities are skilled in the Directive). 7 March 2002, 2002/21/EC. Available: http:// reasoning related to product market definition. europa.eu.int/eur-lex/pri/en/oj/dat/2002/l_108/ l_10820020424en00330050.pdf. In the European Union, a recent electronic 11 European Commission. 2003. Commission Recommenda- communications package was adopted in tion on relevant product and service markets within the electronic communications sector susceptible to ex ante February 2002, including Directive 2002/21/ regulation in accordance with Directive 2002/21/EC of the EC.10 This package identifies a three-step ap- European Parliament and of the Council on a common regulatory framework for electronic communication networks proach of: and services. 11 February. C (2003)497. Available: http:// • Identification of relevant markets; europa.eu.int/information_society/topics/telecoms/ regulatory/publiconsult/documents/relevant_markets/ • Determination of operators considered to l_11420030508en00450049.pdf. hold significant market power; and 12 Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on Access to and Interconnection • The possibility of imposing ex ante of Electronic Communications Networks and Associated obligations on specific operators Facilities (the “Access Directive”). 2002 O.J. (L 108) 7. Available: http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/ considered to be dominant within the pre- l_108/l_10820020424en00070020.pdf. defined markets. 13 Information about the Competition Directorate General is available: http://ec.europa.eu/comm/dgs/competition/ Recommendation C(2003)497 on relevant index_en.htm

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07-0103Law&Policy.pmd 48 17/05/2007, 1:20 PM support. Even so, cooperation can usually Competition Commission plays a role is in be enhanced to the benefit of regulatory making determinations to authorize decision making. A variety of instruments economic agents to participate in exist for encouraging cooperation between privatizations or in public auctions for competition authorities and sector concessions, licenses, and permits.14 regulators. No OECD country has in place all the options listed below. However, adopting (2) Competition authorities and regulators a mixture of some of these instruments can can be given concurrent powers of be valuable for improving the process and enforcement of the national competition outcomes of cooperation. These include: law

((1) Giving statutory powers to the com- One way to ensure that both technical petition agency for some aspects of expertise and competition law expertise can sector regulation express their views is to provide concurrent jurisdiction, in which both sector regulators At times, regulations may continue to apply to and a competition authority have the right to products and companies even after the need bring cases under the national competition for regulation has passed. However, for law. The United Kingdom (UK)’s Competition reasons of institutional inertia and survival, Act of 1998, for example, provides regulatory agencies may not relinquish concurrent powers for sector regulators in outdated regulatory powers or institute new electricity, gas, telecommunications, water powers in response to changed market and railways, among other areas. The conditions. A number of laws and regulations UK’s implementing regulation Statutory therefore predicate the applicability of Instrument 2000 No. 260 does not permit the regulation on the existence of substantial exercise of functions by an authority while market power. the same functions are being carried out by An example of this can be found in the another authority, avoiding double jeopardy. laws and regulations of Mexico. It requires that when one authority has or Determinations of substantial market power may have concurrent jurisdiction, that are made by the Competition Commission, authority shall notify other authorities with not the sector regulator, for sectors stated by jurisdiction in advance of taking action. The the Seaport Law of 1993; the Law on Roads, relevant authorities are then to decide among Bridges and Road Transport of 1993; the themselves who shall exercise powers in Navigation Law of 1994; the Railroad Services relation to a given case. In case agreement is Law of 1995; the Federal Communications not reached, the Director General of Fair Law of 1995; the Civil Aviation Law of 1995; Trading shall inform the Secretary of State in and the Airport Law of 1995; and the writing. Authorities may make Regulations of Natural Gas of 1995 and of representations to the Secretary of State and pension funds of 1996. The Mexican the Secretary of State determines which Competition Commission is responsible for authority shall exercise powers in relation to assessing whether entities, such as a given case. The Statutory Instrument also incumbent telecom operator Telmex, have permits the transfer of functions to another substantial market power over a product or authority from the one who initially exercises service. Such a finding is needed prior to functions and permits the staff of one regulation of the company’s product or authority to act as staff of the authority with service. The telecom regulator then has the decision power for a given case.15 ability to regulate operators declared to hold market power. However, should the competition authority in the future alter its 14 OECD. 1999. Relationship between regulators and ruling in response to changed market competition authorities. No. 22 in the series on Roundtables conditions and assess that a firm that in Competition Policy, 1999. OECD: Paris. 182. Available: formerly had substantial market power for a www.oecd.org/dataoecd/35/37/1920556.pdf; and OECD. 2004. Competition law and policy in Mexico: an OECD peer product no longer does, the regulator then review. OECD: Paris. 16–17. has no further right to regulate the firm in 15 Her Majesty’s Stationery Office (HMSO). 2000. The Competition Act 1998 Concurrency Regulations 2000 that product. Besides assessments of market Statutory Instrument 2000 No. 260. HMSO: London. power, a second area in which the Available: www.hmso.gov.uk/si/si2000/20000260.htm.

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07-0103Law&Policy.pmd 49 17/05/2007, 1:20 PM (3) Placing senior official of competition One way to enhance cooperation over the agency on oversight board for sector long-term is to establish formal cooperation regulator and vice versa agreements. The Competition Authority of Ireland has instituted such formal Placing senior officials from regulators in agreements in accordance with the board positions for a competition authority Competition Act of 2002, section 34(1). or senior competition authority officials in According to the Act, the purpose of enabling board positions can be an effective tool for such agreements is to facilitate cooperation, ensuring that institutions take account of avoid duplication of activities, and ensure each other’s interests. The Australian consistency between decisions related to Competition and Consumer Commission competition issues. The act requires that (ACCC) has associate commissioners in agreements contain: addition to the five permanent commissioners. • “a provision enabling each party to furnish Associate commissioners can include to another party information in its appointees from Commonwealth and State possession if the information is required regulatory agencies. For example, associate by that other party for the purpose of the commissioners have come from institutions, performance by it of any of its functions,” such as the Australian Broadcasting Authority, • “a provision enabling each party to forbear the New South Wales Independent Pricing to perform any of its functions in relation and Regulatory Tribunal, and the Victorian to a matter in circumstances where it is Office of the Regulator General. At the same satisfied that another party is performing time, certain members of the ACCC have the functions in relation to that matter,” been appointed associate members of the and Australian Communications Authority.16 • “a provision requiring each party to consult with any other party before performing any (4) Providing competition authorities with functions in circumstances where the the standing to submit public com- respective exercise by each party of the ments on the application of regula- functions concerned involves the tions that require written response by determination of issues of competition the regulator prior to final decisions between undertakings….”. (Competition Act 2002, Section 34(3)) Ensuring that competition authorities have an opportunity to air their views and that A number of cooperation agreements regulatory agencies must respond to these have been established in Ireland. The Com- views can provide an important avenue for petition Authority has agreements with the promoting competition. In Italy, most sectors Broadcasting Commission of Ireland,18 Com- are subject to the national competition law mission for Aviation Regulation,19 Commis- (Law No. 286 of 10 October 1990) as enforced sion for Communications Regulation,20 Com- by the Antitrust Authority (Autorità garante mission for Energy Regulation,21 and Office della concerrenza e del mercato). The exception is that in the banking sector, the sector regulator, the Bank of Italy, has the 16 OECD. 1999. Relationship between regulators and competition authorities. No. 22 in the series on Roundtables in Competition responsibility for enforcing the national Policy, 1999. OECD: Paris. 107. Available: www.oecd.org/ competition law for agreements, abuses of dataoecd/35/37/1920556.pdf. dominant position and mergers. The 17 OECD. 1999. Relationship between regulators and competition authorities. No. 22 in the series on Roundtables in Competition competition authority nonetheless has the Policy, 1999. OECD: Paris. 165. Available: www.oecd.org/ ability to submit its views on bank regulatory dataoecd/35/37/1920556.pdf. 18 The Competition Authority (TCA), Ireland. 2002. Cooperation matters. After such a submission, the bank agreement between the Competition Authority and the regulator must respond and cannot permit Broadcasting Commission of Ireland. 19 December. Available: www.tca.ie/ca_agreements/bci.pdf. anticompetitive actions unless there are special 19 TCA. 2002. Cooperation agreement between the Competition circumstances (notably, system stability is at Authority and the Commission for Aviation Regulation. 19 December. Available: www.tca.ie/ca_agreements/car.pdf. 17 risk) and the competition authority agrees. 20 TCA. 2002. Cooperation agreement between the Competition Authority and the Commission for Communications Regulation. 16 December. Available: www.comreg.ie/_fileupload/ (5) Establishing a written framework that publications/comreg0306.pdf. governs cooperation between sector 21 TCA. 2002. Cooperation agreement between the Competition Authority and the Commission for Energy Regulation. 13 regulators and competition authorities December. Available: ww.tca.ie/ca_agreements/cer.pdf.

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07-0103Law&Policy.pmd 50 17/05/2007, 1:20 PM of the Director of Consumer Affairs.22 These States, an exchange of economics staff cooperation agreements to ensure that the between the United States Department of protection of confidentiality provided by one Justice’s Antitrust Division and the FCC body are assured when that information is enhanced knowledge, communication, and shared with another body and that informa- understanding between economic staff of the tion cannot be used for any purpose besides institutions. that for which it has been shared. Even when an explicit, bilateral written (7) Exchanging information informally be- agreement does not exist, cooperation can be tween sector regulator and competition enabled by legislation. In France, the authority telecommunications law and the energy law enable cooperation between the regulators and When a competition agency seeks to competition authority. The telecommunications comment on the activities of a regulator, it can law enables consultation between the Autorité often be valuable to contact the regulator de Régulation de Télécommunications and the before making any official comments to find Conseil de la Concurrence. Similarly, the the right people to whom comments should energy law suggests that conduct related to be addressed and to better understand reasons abuse of dominance or restrictive agreements for regulations or proposed regulatory actions. will be referred by the energy regulator, the At times, informal comments may be more Commission de Régulation de l’Energie (CRE) effective than formal comments. to the Conseil de la Concurrence. The law also promotes consultation between the CRE and (8) Head of competition authority can be the Conseil de la Concurrence.23 given a cabinet level standing

(6) Encouraging personnel transfers or Giving the chairperson of a competition exchanges between sector regulator authority a high-level status within top and competition authority government hierarchy can be beneficial when independent regulators do not exist or when Staff transfers between a competition authority ministries retain many regulatory functions and and a regulator, whether unilateral or bilateral, maintain final decision powers. For example, can significantly improve the process of in Korea, the Chairman of the Korean Fair communication between a regulator and Trade Commission has cabinet level standing competition authorities. Staff transfers have in the government. Such standing can help occurred both at senior management level and ensure that the competition authority is able normal staff level. For example, in the United to appeal directly to high-level government for States, the Chief of Staff of the Antitrust internal government dispute resolution and Division of the United States Department of that competition authorities are not outranked Justice was appointed commissioner in the by sector regulators. telecommunications regulator, the Federal Communications Commission (FCC), and (9) Regulator and competition authority then became the chairperson of the FCC. In can be unified, ensuring internal con- Finland, staff from the competition authority sistency with respect to competition have found positions in regulators, such as the decisions telecommunications authority. The transfers described above have occurred at the senior One way to ensure consistency in the levels. But transfers or exchanges can also approach to competition law enforcement of happen at the staff level and can encourage a sector regulator and a competition authority improved communications at the staff level. is to merge the regulator with the competition Transfers or exchanges tend to work better authority. One example of merging a regulator when staff who are well-known in an with a competition authority occurs in the institution transfer to the other. In the United Netherlands, where the Government has created chambers in the National Competition Authority (NMa) for sector regulation. The 22 TCA. 2003. Cooperation agreement between the Competition energy regulator in the Netherlands, the Authority and the Director of Consumer Affairs. 11 April. Office of Energy Regulation (DTe), is placed Available: www.tca.ie/ca_agreements/odca.pdf. 23 OECD. 2004. Regulatory reform in France. OECD: Paris. under the oversight of the competition

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07-0103Law&Policy.pmd 51 17/05/2007, 1:20 PM authority, the NMa. DTe is responsible for the reviewed Antimonopoly Office decisions. In implementation and supervision of the 1997, it was given the power to hear appeals Electricity Act of 1998 and the Gas Act of 2000. from the new Energy Regulatory Authority. In 2004, the Office of Transport Regulation The telecoms regulator was added in 2000 was set up as another chamber in the NMa. and the railway regulator in 2001.”24 In The chamber model allows highly specialized France, the path of appellate review of knowledge related to sectors to exist within decision by the Conseil de la Concurrence the structure of a competition authority and both the telecom and energy regulators focused on broad issues of improving is through a common court, the Cour d’Appel competition. de Paris.

Ensuring consistency in the (2) Regulatory impact assessment should application of competition laws take into account competition objec- and policies tives, among other goals

Ensuring consistency in the application of Increasingly, central governments engage in competition law and policy across different regulatory impact assessments to ensure that sectors is an important goal. When new regulations are necessary and that their competition authorities are responsible for benefits exceed their costs, and that other competition law application in some areas and alternative regulations would not succeed sector regulators are responsible in others, equally well. One portion of these assessments ensuring such consistency can be difficult. should include the impact on competition. The Consistency at the national level can help United Kingdom has developed this approach ensure that international convergence of with a significant role held by the OFT. antitrust standards can occur, which is According to the Cabinet Office’s Regulatory particularly important for ensuring that Impact Unit, all regulatory impact assessments complex international transactions do not face “must include a competition assessment, a tangle of different rules that can weigh down except where the proposal solely affects the transactions with excessive remedies. The UK public services. The Cabinet Office describes has been one of the leading OECD jurisdictions a competition assessment as one to “provide in ensuring consistency. an assessment of the competition impacts for each option (talk to OFT).”25 The OFT has (1) Appeals route for competition deci- published its own “Guidelines for Competition sions should converge Assessment.26 Alternatively, the Cabinet Office releases a quick summary of key features of a One practical and highly desirable method for competition assessment. The test proceeds in ensuring such consistency is setting up a two stages: first, assessing whether there are common appeals path, so that one court has potentially significant competitive effects from ultimate oversight of competition law cases, a regulation, and second, if there are, whatever their origin. This is particularly performing an in depth analysis. With respect important in the UK, with concurrent to a detailed analysis, the Cabinet Office states jurisdiction between many sector regulators that “Carrying out this assessment can be and the Office of Fair Trading (OFT), but is also complex and requires an understanding of important where sector specific laws may have competition issues. You will need the help of competition impacts. In the UK, the your departmental economists and should Competition Appeals Tribunal is the common also consult the Regulatory Review Team at appellate body for decisions by the Competition Commission and by regulators

with respect to application of competition law. 24 OECD. 2002. Regulatory reform in Poland: The role of In Poland, the Court for Competition and competition policy in regulatory reform. Available: Consumer Protection has jurisdiction both over www.oecd.org/dataoecd/3/2/27067452.pdf. OECD: Paris. 26. 25 United Kingdom (UK) Cabinet Office. 2005. UK Checklist: competition authority cases and over appeals Regulatory Impact Assessment Checklist. Available: of regulation. “The broader jurisdiction www.cabinetoffice.gov.uk/regulation/ria-guidance/content/ ukchecklist/index.asp.27 January. promises to ensure that policies are applied 26 Office of Fair Trading (OFT). 2002. Guidelines for policy consistently in competition cases and in makers completing Regulatory Impact Assessments. London: OFT. Available: www.oft.gov.uk/NR/rdonlyres/ sectoral regulation. Originally, the Court only A7138977-6FE2-45DE-BE32-3AB6E767664A/0/oft355.pdf.

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07-0103Law&Policy.pmd 52 17/05/2007, 1:20 PM the OFT who will provide help with the Including pro-competitive competition analysis, as well as with drafting regulation as part of a sector the assessment.”27 regulator’s mandate; Better still, central governments should Requiring regulatory bodies require that all economically significant laws to review their laws and and regulations, whether existing or regulations for unnecessary proposed, should be reviewed for restraints of competition; unnecessary restraints on competition. The Appointing regulators with a OECD is currently preparing a methodology proven interest in that will enable officials in line ministries who competition; and are not competition experts to perform such Giving competition oversight reviews. The draft methodology should be functions to the competition published in early 2007 and field tested in agency, with technical 2007–2008. backup from the sector regulator. (3) Competition authorities should be given the right to intervene with respect to • Instruments of cooperation between sec- existing and proposed regulations that tor regulators and competition authorities are potentially harmful to competition should be adopted. These include: Giving statutory powers to the At the stage of preparing new regulations or competition agency for some reviewing existing regulations, giving the aspects of regulatory reviews; competition authority the right to intervene Placing senior official of helps promote pro-competitive regulation. In competition agency on the UK, the OFT can study both proposed and oversight board for sector existing regulations. It can then issue a public regulator and vice versa; and report stating its views about what problems Providing competition may exist in the regulation(s). Once this report authorities with the standing has been issued, the Government undertakes to submit public comments to respond publicly within 90 days. Note that that require written response this right to intervene is not the same as a by the regulator prior to final requirement that the competition authority decisions. submit opinions on all new regulations. Most competition authorities do not have the • Mechanisms for ensuring domestic resources to review all new regulations. consistency in competition rules should be applied. Conclusion To the extent that multiple agencies have competition One of the most powerful mechanisms for oversight functions, a achieving pro-competitive regulation is to common appeal route improve the cooperation and coordination should be created so that between sector regulators and competition competition cases are authorities. Central government support for governed by a common pro-competitive regulation is justified to standard; enhance growth and develop an economy Regulatory impact that is better able to resist economic shocks. assessment should take into account competition • Central government should encourage objectives, among other pro-competitive regulation, by taking goals; and actions such as: • Competition authorities should be given the right to intervene with respect to existing and proposed regulations that are 27 UK Cabinet Office. 2005. Competition assessment. January 27. Available: www.cabinetoffice.gov.uk/regulation/ria-guidance/ potentially harmful to content/competition/index.asp. competition.

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07-0103Law&Policy.pmd 53 17/05/2007, 1:20 PM closely monitors markets and the develop- Competition ments therein, and intervenes when necessary. A power of OPTA that is closely related to Agencies and competition law is its function of analyzing markets and imposing certain obligations on Their Interface a provider that holds an excessively strong market position (significant market power or with Regulatory SMP). OPTA takes action if competition issues occur in these markets, and can impose obli- Agencies gations on market parties to stimulate sustain- ANNETJE OTTOW able competition or protect the interests of end Associated Member and Advisor to the Commission users. OPTA always applies the premise of of OPTA (Post and Telecommunications Authority), “mild regulation where possible, and strict The Netherlands regulation where necessary.” Thus, OPTA focuses on deregulation, and emphasizes the principles of customization and mildness. About OPTA The European context

he Onafhankelijke Post en (1) European administrative stakeholders Telecommunicatie Autoriteit (OPTA) was established in 1997. As far as competition is concerned, the key Although it started out with only a administrative players in the electronic handful of people, 150 people communications market at the European nowT work for OPTA. Compared to other level are the European Commission (with the national regulatory authorities (NRAs) in Directorates General Information Society and Europe, and given OPTA’s workload, OPTA can Competition), the European Regulators be considered a lean and mean regulator. Group and the Independent Regulators The “O” in OPTA stands for the Dutch Group, and the NCAs and NRAs. word for “independent.” OPTA is an inde- The European Commission1 leads the pendent executive body that enforces the drafting of the regulatory package, which has laws and rules adopted by the legislators. to be adopted by the European Parliament and Political responsibility for OPTA resides with the Council before entering into force. Further, the Minister of Economic Affairs, but OPTA the European Commission should ensure makes its decisions independently and apart compliance of member states with European from political or business interests. The Min- law. Next to member states, the European Com- ister of Economic Affairs can give general mission should also ensure implementation of directions but he cannot intervene in indi- European law, as well as a common regulatory vidual cases. OPTA and the Dutch National approach. For the electronic communications Competition Authority (NCA) are separate sector, the most relevant directorates are the bodies. They cooperate where required, but Commission’s Directorates on General Infor- act independently. mation Society2 and on Competition.3 The other actors are the NRAs and the Tasks and activities NCAs. The NRAs are combining their powers in the European Regulators’ Group (ERG)4 and OPTA supervises compliance with legislation the Independent Regulators’ Group (IRG).5 and regulations in markets for post and electronic communications. Another important 1 responsibility of OPTA is to protect consum- For more information on the European Commission, please visit its website, http://europa.eu.int/comm/ index_en.htm. ers. In addition, OPTA has a number of other 2 For more information on the European Commission’s tasks, which include dispute resolution, regis- Directorate on General Information Society, please visit its website, http://europa.eu.int/pol/infso/index_en.htm. tration of providers of electronic communi- 3 For more information on the European Commission’s cation networks and/or services, and issuance Directorate on Competition, please visit its website. Available: http://europa.eu.int/comm/competition/index_en.html . of numbers. 4 For more information on the European Regulators’ Group, This paper focuses on OPTA’s activities in please visit its website, www.erg.eu.int/ index_en.htm. 5 For more information on the Independent Regulators’ Group, the field of electronic communications. OPTA please visit its website, http://irgis.icp.pt/ site/en/irg.asp.

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07-0103Law&Policy.pmd 54 17/05/2007, 1:20 PM Figure 1 European “Good coordination is Administrative key in the interface of Stakeholders competition law with

EUROPEAN REGULATORS regulatory regimes. ” GROUP (ERG) Annetje Ottow Associated Member NATIONAL REGULATORY AUTHORITIES (NRAs) and Advisor to the Commission of OPTA NATIONAL COMPETITION (Post and Telecommunications AUTORITIES (NCAs) Authority), The Netherlands

(2) Regulatory framework: sector specific sector-specific regulation that controls the regulation market power of dominant companies can and should be rolled back. In the European Union, sector-specific regula- Sector-specific regulations were tion aimed at the electronic communications introduced because telecommunications markets are in place. In 2002, the European markets were initially organized as Regulatory Framework (ERF) was adopted. monopolies. The Regulatory Package of 1998, This framework comprises a series of direc- which consists of a number of directives and tives and associated measures. Its goals are to which was the predecessor of the current ERF, encourage competition in the electronic com- was the last piece of a European liberalization munications markets, to improve the function- program that aimed to foster the emergence ing of the internal market, and to guarantee of a single European telecommunications basic user interests that would not be guaran- market. This regulatory package listed a teed by market forces…6 restricted number of markets, and indicated The ERF provides a set of rules that aim to that a provider with a market share of 25% had be simple, technology- neutral, and sufficiently SMP and would thus have to comply with a flexible to deal with fast-changing markets in number of remedies that were determined the electronic communications sector. As upfront in the regulatory package. regards the interface between competition As markets in the European Union moved authorities and regulatory agencies, the most toward a more competitive situation, a more important directives are the Framework flexible regulatory regime was required. Directive7 and the Access and Interconnection However, markets were not ready for a full Directive.8 Given the ERF’s objective of moving transition to competition law. There was still a toward truly competitive markets and need for ex ante obligations in certain enhanced cross-border competition, one of the circumstances to ensure the development of main principles that we should keep in mind is a competitive market. This stipulates the major that when markets become competitive and difference between sector-specific regulation such competitiveness becomes sustainable, and competition law. In the latter case, it would be determined ex post whether abuse of a dominant position has taken place; but sector- 6 Requiring a minimum level of availability and affordability specific regulation aimed to prevent such of basic electronic communications services and guaranteeing a set of basic rights for users and consumers behavior by imposing obligations in advance of electronic communications services. on dominant providers. It will come as no 7 Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a Common Regulatory surprise that given the influence of competition Framework for Electronic Communications Networks and law in the ERF, coordination between NRAs Services (the “Framework Directive”). 2002 O.J. (L 108) 33. Available: http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/ and NCAs became essential to ensure l_108/l_10820020424en00330050.pdf. consistent application of similar concepts. 8 Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on Access to and Interconnection The European Regulatory Framework of of Electronic Communications Networks and Associated 2002 integrates sector-specific regulation Facilities (the “Access Directive”). 2002 O.J. (L 108) 7. Available: http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/ with components of competition law. The l_108/l_10820020424en00070020.pdf. existence of SMP and the consequential

Competition Regimes Across the Region and Interface with Regulatory Regimes 55

07-0103Law&Policy.pmd 55 17/05/2007, 1:20 PM applicability of a standard set of remedies are compounded by the fact that the ERF is not a no longer listed upfront in the directives. strict set of rules, but leaves room for national Likewise, restricted markets are no longer interpretation. This can lead to disharmony listed in the directives. NRAs now need to and result in contrary interpretations. The analyze markets in accordance with European Commission has powers to ensure competition law. This means that NRAs need compliance with the EFF. It may do so with its to define relevant markets. NRAs need to standard powers as the guardian of the identify providers with SMP in the defined European Treaty, as well as with its new and markets. In connection with competition law, far-reaching powers under the ERF and its role the sector-specific term SMP is now as an antitrust authority. equivalent to the concept of dominance. If NRAs find that a provider has SMP, they have (4) Role of the European Commission to impose on the provider obligations that would remedy its potentially abusive To better understand the regulation of the elec- behavior. The obligations imposed by the tronic communications markets, it is impor- NRA must be appropriate and must not be tant to note that the European Commission is overbroad so as to create effects that go not a European communications regulator. beyond the objective behind the imposition of Member states were not willing to give full such obligations—that is, the stimulation of powers to the European Commission, and competition and protection of end-user this left the appreciation of national circum- interests where necessary. The premise is that stances uncertain. The fact that the European providers must have as much room and Commission is not a European regulator is freedom as possible to align with the market important to note, considering that, as regards dynamics and new technological possibilities. competition law, the European Commission The ERF obliges the European Commis- may intervene as an antitrust authority. It has sion to review the Framework in 2006. The competition law powers with which it can IRG/ERG, as well as numerous market parties, control telecom private and public operators has provided inputs for the review, in as well as member states. response to the Commission’s call for such Although it is not a European regulator, input. Issues that are related to the interface the European Commission assumes an between sector-specific regulation and gen- important role because it has far-reaching eral competition law are hot topics for the powers under the ERF particularly with review, especially in the light of certain discus- respect to SMPs. These powers include sions calling for the replacement of sector- suggesting the soft law to be drafted by the specific regulation with general competition Commission, directing market analysis in regulation when it is shown that market com- relation to NRAs’ obligation to define and petitiveness has become sustainable. assess SMP, overseeing the national regulatory measures by way of introducing (3) Control mechanisms notification, at both national and European levels, and vetoing draft measures. The European Union operates on the principle The soft law is embodied by the of the rule of law. This means that everything Recommendation on Relevant Products and that it does is derived from treaties that all Service Markets9 and the Guidelines on member states voluntarily and democratically Market Analysis and SMP Assessment.10 adopted. The European Union is not a state intended to replace existing states. Given the 9 Commission of the European Communities. 2003. Commission sovereignty of member states, in principle, Recommendation of 11 February 2003 on Relevant Product and European regulation first needs to be Service Markets within the Electronic Communications Sector implemented in national legislation—that is, Susceptible to Ex Ante Regulation in Accordance with Directive 2002/21/EC of the European Parliament and of the Council on a transposed into national law—before it Common Regulatory Framework for Electronic Communication becomes effective. This transposition by Networks and Services. 2003 O.J. (L 114) 45. Available: http:// individual member states leaves room for europa.eu.int/ information_society/topics/telecoms/regulatory/ maindocs/documents/recomen.pdf]. national interpretation of the regulation. This 10 Commission Guidelines on Market Analysis and the Assessment principle applies also to the ERF for the of Significant Market Power Under the Community Regulatory Framework for Electronic Communications Networks and electronic communications sector. The Services. 2002 O.J. (C 165) 03. Available: http://europa.eu.int/eur- complexity of the implementation process is lex/pri/en/oj/dat/2002/c_165/c_16520020711en00060031.pdf.

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07-0103Law&Policy.pmd 56 17/05/2007, 1:20 PM The Recommendation lists markets that The national consultation procedure are defined in accordance with the principles requires NRAs to consult the market about of competition law. By virtue of its power to regulatory measures they intend to take (e.g., issue the Recommendation, the European definition and analysis of relevant markets and Commission can influence the scope of actual the proposed imposition or removal of regulation and can focus the activities of the regulation on undertakings providing NRAs on the markets listed in the Recommen- electronic communications networks or dation. Ex ante regulation of these markets is services) prior to their adoption. justified by the European Commission’s selec- To ensure that decisions at the national tion. If NRAs would like to adopt markets that level do not have an adverse effect on the are not listed or if they would like to deviate single market or other European Union Treaty from the listed markets, NRAs need to pass objectives, NRAs should also notify the three criteria developed by the European Com- Commission and other NRAs of certain draft mission. In practice, this test has appeared to decisions to enable them to influence the be a giant hurdle. market analysis process and give them the The Guidelines set out the principles for opportunity to comment. It is appropriate for use by NRAs in their analysis of markets and NRAs to consult interested parties on all draft effective competition under the new regula- measures which have an effect on trade tory framework for electronic communica- between member states. Ultimately, the tions networks and services. These guidelines European Commission may require an NRA to are intended to guide NRAs in the exercise of withdraw a draft decision concerning the their new responsibilities of defining markets definition of relevant markets or the and assessing SMP. By virtue of the Guidelines, designation or non-designation of the Commission can direct market analysis. undertakings with SMP, } where such decision The ERF provides the European Commis- would create a barrier to the single market or sion powers to oversee national regulatory would be incompatible with Community law— measures by introducing notification at both which are the policy objectives that NRAs national and European levels, and introducing should follow. procedures that promote transparency. In cer- Harmonization can result in less attention tain cases, the European Commission has veto being given to national circumstances. powers that accompany these powers. Harmonization of the process is a legitimate Aside from these powers, the European objective but harmonization of the outcome Commission can ensure compliance with the is not desirable, given the diversity of services, ERF through the exercise of its standard current situations, and the pace of powers as the guardian of the European Treaty. development in the European Union. The The European Commission then exerts its European Commission should be aware that powers to member states. If a member state there is “no single jacket that fits all,” and that does not correctly implement the European specific attention should be drawn to national Regulatory Framework, the European circumstances. This point is explicitly Commission can open a formal infringement mentioned by NRAs in their response to the procedure, which can be compared to what European Commission’s call for input on the is known in marketing terms as a “push,” review of the ERF.11 against that member state. (6) Notification process in detail (5) Harmonization through notification The process starts with a draft decision of Bearing in mind the powers of the European the NRA. This draft decision is sent for Commission to defend the field of the SMP comment to both the European Commission regime, we are able to understand that har- and other NRAs. The notifying NRA shall take monization plays a key role. In implementing the ERF, NRAs must contribute to the development of the internal market by cooperating 11 European Regulators Group and Independent Regulators with each other and with the Commission in a Group Response to CALL FOR INPUT On the forthcoming transparent manner to ensure the consistent review of the EU regulatory Framework for electronic communications and services, including review of the application in all member states of the provi- Recommendation on relevant markets. Available: http:// sions of the ERF. www.erg.eu.int/doc/whatsnew/irgerg_call_for_input_final_pdf.

Competition Regimes Across the Region and Interface with Regulatory Regimes 57

07-0103Law&Policy.pmd 57 17/05/2007, 1:20 PM to be not very keen on deviating from its list of markets in the Recommendation. Initially, the European Commission argued that the three criteria were not fulfilled and therefore OPTA’s draft decision was incompatible with Community law. It appeared that the Euro- pean Commission did not agree with OPTA’s assessment that potential competition would emerge within the relevant time frame. The retail broadcasting market in the Netherlands is unique compared to other member states. In the Netherlands cable, networks constitute a very important transmission infrastructure, given the extremely high cable network coverage account of the comments. It becomes more (approximately 95%) and the fact that a very interesting if the European Commission high percentage of households (more than signals that a draft measure would create a 90%) are currently subscribers to cable barrier to the single market or would be networks. In its analysis, OPTA considered incompatible with Community law. In that potential competition from other infrastructure case, a 2-month period commences when platforms, in particular, satellites, analogue the European Commission and the NRA are terrestrial television, digital terrestrial television able to communicate and resolve the (hereafter: DVB-T), and Internet Protocol TV European Commission’s concerns. This (IP-TV). OPTA concluded that barriers period is called “Phase II.” During this period, restricting switching to these other platforms the draft decision is not executed. were in place. This conclusion was supported OPTA had some interesting experience by a number of facts. For example, in respect with the Phase II process. The experience in- of satellites, 30–40% of all households cannot volved a cable case. In 2005, OPTA defined a install a dish due to line of sight restrictions. retail broadcasting market. As the retail broad- Moreover, there are additional costs of casting market was not listed in the Recom- connecting an extra TV set which do not mendation, OPTA had to apply the three crite- accrue in the case of a cable television. DVB-T ria test developed by the European Commis- offers fewer channels than cable and an sion, following the Framework Directive and increase of channels is unlikely due to capacity the recitals of the Recommendation. If this test (spectrum) constraints. The extra TV set issue failed, no retail broadcasting market should also applies to DBV-T. Switching to analogue be identified by OPTA. The three criteria test terrestrial television will no longer be an option yielded the following findings: as the Dutch Parliament decided that analogue terrestrial television will be turned off this year. • The presence of high and non-transitory With respect to IP-TV, OPTA considered that entry barriers (criterion 1); there is no IP-TV product that is comparable • The structure of the market does not tend to cable RTV. Furthermore, the coverage of IP- toward effective competition within the TV will be limited to 60% of all households relevant time horizon (criterion 2); and within the relevant time frame. • The application of competition law alone Supported by a report of a number of other would not adequately address the market NRAs that independently reviewed OPTA’s failure (criterion 3). analysis, OPTA resubmitted its finding to the European Commission. The European OPTA reviewed these criteria and con- Commission no longer had any objections; the cluded in its decision that all three criteria three criteria were deemed to have been met. were fulfilled; therefore, OPTA could define OPTA was to reconsider the duration of the the retail broadcasting market. Following the proposed remedies and would no longer required formal procedures, OPTA notified impose retail tariff obligations. This demand the European Commission of its draft deci- of the European Commission is remarkable, sion, which it sent the Commission for com- as the European Commission had no veto ment. The European Commission appeared power in respect of remedies.

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07-0103Law&Policy.pmd 58 17/05/2007, 1:20 PM This Dutch cable case very well shows the together? How does the Dutch policy maker interface between ex ante and ex post regula- balance European law and national interests? tion, as sector-specific communications regulation and competition law appear to be (9) Interface with the Dutch policy maker: closely linked. It also indicates that the Rec- Ministry of Economic Affairs ommendation can be a straightjacket that does not leave much room for deviation. The Dutch policy maker is the Ministry of Eco- nomic Affairs. The Ministry of Economic Affairs (7) Interface with IRG/ERG drafts legislation for approval by the Dutch Par- liament. This legislation is based on the ERF To counterbalance the far-reaching powers of as this has been adapted to the Dutch situa- the European Commission and to cooperate tion. If the Dutch parliament approves new with the European Commission, NRAs have legislation, OPTA enforces the new legislation. combined their powers in two bodies. Since OPTA implements the legislation, OPTA The ERG for electronic communications also advises the Ministry of Economic Affairs networks and services has been set up by the with regard to policy. OPTA informs the Minis- Commission12 to provide a suitable mecha- try of Economic Affairs of its experiences with nism for encouraging cooperation and existing laws and developments in the elec- coordination between national regulatory tronic communications sector. OPTA meets on authorities and the Commission. The main a regular basis with representatives of the Min- mission of ERG is to promote the development istry of Economic Affairs. It does this in of the internal market for electronic commu- working-level meetings, as well as in meetings nications networks and services and to seek with the Minister. and achieve consistent application in all member states, of the provisions set out in the (10) Interface with the National Competi- Directives of the Regulatory Framework. Com- tion Authority: NMa posed of the heads of the relevant national authorities, ERG acts as an interface between At the national level, sector-specific regulation national authorities and the Commission. and competition law are linked. Like the The IRG is an initiative of NRAs. Other than European Commission, NMa, the Dutch ERG, there is no formal basis for the IRG in the Competition Authority, can use its competition ERF. The European Commission is not a mem- law powers in the electronic communications ber of IRG. Within the IRG, NRAs can exchange markets and control telecom private operators. views and ideas without intervention of the On the other hand, OPTA applies principles European Commission. The IRG have set up a originating from competition law under the number of working groups with different sector-specific electronic communications scopes, such as market analysis, roaming, and regulation. Coordination between OPTA and the review of the ERF. NMa is required to ensure consistent application of concepts. In the Netherlands, (8) Dutch administrative stakeholders this cooperation is formalized in a cooperation protocol between OPTA and NMa. The key administrative stakeholders in the Cooperation between OPTA and NMa in Dutch context are the Ministry of Economic exercising their powers strengthens both au- Affairs, the NRA OPTA, and the NCA NMa. thorities’ effective and efficient implementa- Two powers come together. First, tion and enforcement of the law. The protocol national and European laws—with the is intended to help OPTA and NMa coordinate Ministry of Economic Affairs being the Dutch the exercise of powers when making deci- policy maker; second, sector-specific and sions, to prevent forum shopping. It is also general competition laws—with OPTA and intended to help them apply the same inter- the NMa. What happens when these powers pretations of terms used in the law on com- come together? How do OPTA and NMa work petition and telecommunications and to establish consistent policy rules. 12 Commission Decision 2002/627/EC. 2002. Establishing the Given the interaction between ex post European Regulators Group for Electronic Communications finding of abuse of a dominant position and Networks and Services. 29 July O.J. (L 200) 38. Available: ex ante market analysis, it is important that http://europa.eu.int/eur lex/pri/en/oj/dat/ 2002/l_200/ l_20020020730en00380040.pdf. NRAs and NCAs consult when defining

Competition Regimes Across the Region and Interface with Regulatory Regimes 59

07-0103Law&Policy.pmd 59 17/05/2007, 1:20 PM relevant markets and analyzing effective If powers concur, in general, OPTA is in competition. This is recognized in the the lead. This means that NMa shall not apply Cooperation Protocol. A consequence competition law to conduct that may give arising from this obligation is that OPTA and rise to abuse of a dominant position in the NMa apply the concepts of SMP and telecommunications sector or a part thereof, dominance and the concept of effective provided that a number of conditions are met. competition in a consistent manner. These conditions relate to the adequacy and If an application is submitted to NMa for effectiveness of OPTA’s action. action against an abuse of a dominant position in the telecommunications sector, or if Concluding remarks there are grounds for ex officio action against abuse of a dominant position in the telecom- This paper gives an insight on the munications sector, the NMa shall notify complexity of the regulatory framework in OPTA accordingly. The same obligation ap- Europe. On the one hand, the framework plies to OPTA if it intends to use its powers in promotes harmonization within the European the electronic communications markets. Union as it requires coordination between If an application is submitted to both NRAs and the European Commission. On the NMa and OPTA and concurrence arises or other hand, the framework tries to move may arise, the authorities shall consult each toward the adoption of a general competition other with regard to the application and shall law, from ex ante to ex post, which requires coordinate the processing methods. If coordination between NRA, NCA, and the action by OPTA on the basis of its powers European Commission. Since these goals will have as a result that there will no longer interfere and sometimes conflict with each be abuse of a dominant position, OPTA’s other, good coordination is key in the interface actions will prevail. of competition law with regulatory regimes.

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07-0103Law&Policy.pmd 60 17/05/2007, 1:20 PM “Sound policy, Closing legal and regulatory frameworks Session are key to development.”

Eveline N. Fischer Deputy General Counsel, Asian Day 1 Development Bank

Q Summary of the Day, Eveline N. Fischer, Deputy General Counsel, Asian Development Bank* Q

n this last session of the day, I will briefly instances, we have provided assistance in reflect on some key points made today drafting laws and regulations; at other times and look ahead at tomorrow’s our focus is on training government agencies discussions. But first, let me say a few or judges, or on developing public awareness words about the Asian Development programs, and sometimes our assistance IBank (ADB) law and policy reform (LPR) covers all these aspects. program and how the subject of this ADB’s LPR program covers matters as roundtable fits into this program. diverse as anti-money laundering on the one I am not saying anything new when I state hand and the right of marginalized people to that sound policy, legal, and regulatory legal identity through birth registration on the frameworks are key to development. ADB is other hand. And yes, competition law and policy involved in a wide range of activities to assist is another area where our member countries its developing member countries in improving are asking for support. As Mr. Mitchell indicated their policy and legal frameworks. This is by this morning, we are currently supporting the no means limited to assistance in preparing People’s Republic of China in developing their laws; it also covers assistance to ensure that anti-monopoly law and amendments to the law the laws are supported by appropriate against unfair competition. This work, which implementing regulations, that the parties is undertaken in close cooperation with responsible for implementation are familiar Organisation for Economic Co-operation and with the rules and ready to implement them, and finally that the persons affected by the * In addition to the Summary of the Day presented by Eveline rules are aware of them and will both comply N. Fischer, Ms. Fischer and V.S. Rekha of the Asian Development Bank’s Office of the General Counsel (OGC) with the rules and insist on compliance by introduced, at this session, a Competition Law Toolkit being others. Whether ADB will assist in all these developed by OGC. A draft of the Toolkit was presented by areas, or pick just one or two, depends on the Professor Richard Whish on the second day of the Competition Law and Policy Roundtable. The Competition Law Toolkit is needs of our member countries and support available at: www.adb.org/Documents/Others/OGC-Toolkits/ that others are providing. And so, in some Competition-Law/default.asp

Closing Session, Day1. 61

07-0103Law&Policy.pmd 61 17/05/2007, 1:20 PM “one size fits all” approach does not work and “Perhaps one option to consider, that the “authorizing environment” is likely to differ not only between countries but also in when dealing with severe lack each country depending upon the stage of a of operating capacity in enforcing country’s economic development at a given point in time. competition law, is to build such As regards “operating capability,” this is capacity first at the regional Eveline N. Fischer almost by definition a problem for developing level.” Deputy General Counsel, countries. Professor Fels correctly pointed to Asian Development Bank the need for capacity building for regulatory institutions and the judiciary and the role for international technical assistance in this regard. Let me add to this that for a developing Development (OECD), entails several work- country at a low stage of development, it is not shops to discuss the pros and cons of the an easy choice where to apply its scarce human proposals through their respective iterations. In resources. Put more concretely, should a fact, a workshop is planned in China at the end country with a very limited arsenal of of this week where the final drafts will be educated judges use these judges to form a subjected to what is intended to be the final separate court division for competition round of comments by experts from inside and matters, or is it more important at that stage of outside the Government. development of a country that its judges hone And that brings me to the idea behind this their skills in application of general contract roundtable and the competition law and policy law or criminal law? This goes to the third toolkit that Professor Whish has developed and variable, that of public value. What is more will present tomorrow. The purpose of the valuable at a given time—enforcement of toolkit is to provide a practical guide to policy competition rules or providing justice to makers into the numerous issues to be individuals who seek resolution of a private considered when developing competition law dispute? These are difficult questions, to which and policy. I should immediately add here that, there is no clear and easy answer. Perhaps one given the complexity of the matter, there is no option to consider, when dealing with severe quick fix, and in that sense, the word “toolkit” lack of operating capacity in enforcing is perhaps a misnomer. However, the idea is competition law, is to build such capacity first to provide a starting point by briefly explaining at the regional level. At the very least, a the technical concepts and the advantages and capacity-building function should be disadvantages of possible approaches. established at the regional level. This will Numerous links to relevant websites included result in national systems being developed in the draft toolkit will enable those who want and implemented based on a mutual to know more to access quickly further sources understanding across the region. Mr. Nanbu of information. also stressed the importance of a regional At this point, let me turn to some points network to cooperate on competition policy. made in today’s presentations. Professor Fels’ His remark was made in the context of Competition Policy Strategy Model highlighted discussing the APEC region. For the South some very important issues that are often over- Asia region, SAARC would appear to be a looked in law and policy reform efforts. He put good forum for networking, as would it to us that misalignments in the three vari- Association of Southeast Asian Nations ables—public value, authorizing environment, (ASEAN) or the Greater Mekong Subregion and operating capability—will result in failure be for Southeast Asia. to bring about an effective competition policy Mr. Nanbu’s presentation gave a perfect il- that can be sustained in the long run. And lustration of the point that Professor Fels made indeed, this model illustrates the challenges on the need for an “authorizing environment” in law and policy reform in basically any sub- to ensure effective implementation of a com- ject matter. If there is insufficient buy-in from petition policy. As Mr. Nanbu mentioned, when an important lobby with access to the deci- the law was adopted in Japan in 1947, the sion makers, chances are that a policy or a law mindset in Japanese society was not ready for will not be vigorously implemented. In this con- the concept of competition and, therefore, the nection, Professor Fels also underlined that a Japan Fair Trade Commission (JFTC) had to

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07-0103Law&Policy.pmd 62 17/05/2007, 1:20 PM face an uphill battle. Mr. Nanbu’s presentation competition authorities and regulatory regimes also underlined how different economic cycles to avoid unnecessary conflict. It appears that may influence the Government’s willingness in the Netherlands there is a willingness on the to promote competition—thus, the experience side of both the competition authority and the in Japan showed that in times of economic sector regulator (for the telecommunications depression, business lobbies were able to sector in her case) to consult. I think an push for exemptions from certain prohibitions. important conclusion for today is that formal Mr. Bernard Phillips stressed the and informal systems should be considered importance of cooperation and coordination to ensure that the implementers of a between sector regulators and competition competition regime are aware of each other’s authorities to achieve pro-competitive role and support each other’s work. regulations. In this regard, he made a number Building upon today’s discussions, of practical suggestions for cooperation of tomorrow’s sessions will begin by focusing competition authorities and regulators. To on the impact of competition policy on soci- name just one, placement of senior officials ety, and how society can contribute to further- from a competition agency on the oversight ing enforcement of competition policy. This board for a sector regulator and vice versa or will be followed by a technical session on har- even exchanges at a lower level will lead to monization and convergence of competition informal exchanges of knowledge and rules. We will then proceed to discuss the improve mutual understanding. Competition Law Toolkit that ADB, together Finally, Ms. Annetje Ottow shared with us with Professor Richard Whish, is developing.1 the perspective of a sector regulator in a mature competition environment. She too

emphasized the importance of good 1 A summary of the session where the Toolkit was discussed coordination and interface between is found on pages xxii-xxv of this publication.

Closing Session, Day1. 63

07-0103Law&Policy.pmd 63 17/05/2007, 1:20 PM “Competition advocacy and competition law Session 3 enforcement are the two most Competition Law and Society important Q Competition Culture, Advocacy and Civil Society: Korea’s Experiences activities needed and Cases for Spreading Competition Culture, Dong-kyu Lee, Director General of Headquarters for Competition Policy, Korea Fair Trade to establish and Commission strengthen Q Address, T.K. Viswanathan, Law Secretary, Government of India competition

culture.” competitiveness and maximizing consumer Competition Culture, benefits) are achieved through market mechanisms, competition culture should be Dong-kyu Lee, Advocacy and firmly established in the mind of all market Director General of participants first. Headquarters for Civil Society: Competition advocacy and competition Competition Policy, law enforcement are the two most important Korea Fair Trade Korea’s Experiences activities needed to establish and strengthen Commission competition culture. Competition advocacy is and Cases for of primary importance to developing and transition countries with fledgling competition Spreading cultures. Aside from enforcing competition Q laws, competition authorities around the world Competition have promoted competition by helping market players understand the benefits that can be Culture derived from fair and free competition in the DONG-KYU LEE market. Director General of Headquarters This presentation introduces the Korea for Competition Policy, Fair Trade Commission (KFTC), its Korea Fair Trade Commission competition advocacy activities, and what it has achieved in this area. I hope it will give you ideas of how to spread competition culture across the world. ompetition culture refers to market participants’ attitudes or Prerequisites for success in ways of thinking, as well as the spreading competition culture manner in which they put into practice their understanding The recent diffusion of competition culture Cabout competition laws and polices and how around the world is mostly attributable to it operates in, and becomes useful to, their market participants’ belief that the benefits daily lives. Such attitudes and ways of thinking derived from competition and compliance serve as the foundation on which goals of with competition laws far outweigh their costs. competition policies can be achieved This belief is reinforced by efforts to strengthen efficiently. In order that the two major goals of competition law enforcement, as well as competition policies (enhancing companies’ competition advocacy.

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07-0103Law&Policy.pmd 64 17/05/2007, 1:20 PM Many national competition authorities (NCAs) have recently strengthened compe- “Compliance with tition law enforcement. As regards cartel competition laws is essential cases, the United States (US) has increased the ceiling on fines from $10 million to $100 in promoting the value and million, while Japan increased the surcharge competitiveness of rate from a maximum 6% of the relevant turn- over to 10%. companies.” Competition advocacy has been also Dong-kyu Lee pursued in varying forms and intensity in many Director General of Headquarters countries. What NCAs have in common as for Competition Policy, Korea Fair Trade Commission regards competition advocacy is their provision of opinions to other regulatory bodies or government agencies regarding their Today, they are considered an independent competition laws and regulations. discipline. Many universities and graduate In Korea, the business community has schools have opened competition law recently adopted competition compliance classes. Various forums and seminars on programs (CP). Some companies have set up competition laws are frequently held these compliance teams that have exclusive days. All these show that interest in responsibility to ensure their organizations’ competition laws in Korea has increased compliance with competition laws and ethical significantly. standards in corporate management. All these KFTC’s competition advocacy is largely changes were brought about by the responsible in spreading competition culture widespread perception that there is too much in Korean society. Its competition advocacy to lose when competition laws are violated, activities can be categorized into three types: and that compliance with competition laws is (1) Improving competition laws and essential in promoting the value and regulations by providing its opinions to or competitiveness of companies. As can be gleaned from the foregoing persuading other government agencies; discussion, competition culture cannot take (2) Creating a consensus among market root by competition authorities’ efforts only. It participants about benefits from competition requires companies’ voluntary compliance through education programs or public relations with competition laws and their top managers’ on competition laws and policies; and commitment to compliance, consumers and (3) Spreading competition culture across civil civil groups’ active monitoring of the market, society through various means. and courts and prosecutors’ aggressive activities to crack down on competition (1) Competition advocacy through read- restricting activities. Only when these activities justment of competition laws and are closely linked together and operated regulations complementarily each other, there can be synergy among them. a. Prior statute consultation system (Article Legal frameworks and other systems 63, Monopoly Regulation and Fair Trade should be in place to spread competition Act [MRFTA]) culture. Competition authorities should work to let the public know how and for what pur- Article 63 of the MRFTA obliges the head poses such frameworks and systems work. of each administrative body that is considering Furthermore, it is important to benchmark the establishment of laws or enforcement of other countries’ best practices and experi- policies that may have anticompetitive effects ences and then to tailor them to meet each to consult the KFTC prior to the establishment receiving country’s own needs and situations. and enforcement of such laws or policies. The government’s active role is indispensable Once enacted, it is difficult to make ex-post to ensure this endeavor’s success. facto modifications to such laws or policies. KFTC’s role is to check whether or not the Korea’s experiences and cases proposal will have the effect of restricting competition or frustrating competition in the In the past, competition laws and policies were market. It also examines fundamental issues, considered part of Korean economic laws. including the legitimacy of government

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07-0103Law&Policy.pmd 65 17/05/2007, 1:20 PM intervention, in certain cases. From 1991 to (2) Competition advocacy through educa- 2005, KFTC received 4,578 consultations. tion and public relations KFTC suggested the rejection or revision of regulations in 835 cases (18.2%). Of these, To promote free competition in the mar- 622 suggestions (74.5%) were accepted. ket, prevent competition law violation, and enhance the public’s awareness of com- b. Participation in cabinet meetings and vice- petition polices, the KFTC has continuous- ministers’ meetings ly provided businesses, consumers, and students with education programs and Cabinet meetings and vice-ministers’ public relations campaigns on competition meetings are where official government policies and the KFTC’s achievements. positions on various statutes and policies are In 2005, KFTC conducted 11 education decided. After KFTC became an independent programs on competition laws and policies. administrative institution in 1994, its chairman A total of 1,056 staff from 698 companies and vice-chairman were given the right to participated in them. Participants had the attend Cabinet meetings and vice-ministers’ opportunity to enhance their understanding meetings respectively. At these meetings, of competition laws and commit themselves KFTC was able to assert its opinions more to voluntarily comply with competition laws. effectively and have these opinions reflected Six hundred seventeen students from three in government-proposed statutes or policies. high schools were invited to education Thus, even if a government body does not programs that taught how a market adopt KFTC’s recommendation during the economy works and what attitude prior consultation stage, KFTC still has the reasonable consumers should have. opportunity to reopen the issue during the Public relations programs can be an cabinet and vice-minister meetings. effective vehicle in broadening the public’s awareness of the MRFTA and other c. Competition advocacy through regula- competition laws, and in helping society tory reform reach a consensus on competition issues. The KFTC has published its major policies Since its establishment, regulatory and achievements in newspapers or reform has formed an essential part of KFTC’s through television and radio spots, as well mission. KFTC was the first government as through other media. agency to emphasize the need for reducing Since April 2004, KFTC has been regulations. In 1999, the Omnibus Cartel operating the Policy Customer Relationship Repeal Act was passed. It abolished 20 Management (PRCM) system. PCRM cartels that 18 laws had previously allowed. subscribers receive via email KFTC The passage of that law changed the newsletters and information on competition perception that the formation and polices which are tailored to their respective maintenance of cartels were acceptable needs. The system is also used in collecting business practices. It also introduced the public’s opinions on competition policies competition in a genuine sense to the Korean and measuring the level of their satisfaction economy. with such policies. As of May 2006, the total In 1998, the Regulatory Reform number of the subscribers to the system Committee gained control over all exceeded 100,000. Five thousand individuals regulatory reforms. KFTC’s chairman served applied for a subscription through KFTC’s as ex-officio member of the Committee in website. Among its subscribers are major order that KFTC’s perspectives may be corporations, consumer associations, legal reflected in the regulatory reform process. experts, political parties, media companies, In 2004, KFTC identified 113 regulations other policy makers, stakeholders, and policy that were potentially anticompetitive. Of enforcement agencies. these, 56 regulations were abolished or amended. In 2005, KFTC identified 101 (3) Innovative methods of spreading com- regulations that restricted competition, and petition culture 51 regulations were either abolished or amended. a. Compliance program : In-house small fair trade commission

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07-0103Law&Policy.pmd 66 17/05/2007, 1:20 PM In January 2001, KFTC benchmarked prevent companies from abusing the advanced countries’ experience in program by enjoying its incentives without introducing a compliance program to the fulfilling their CP responsibilities. A CP private sector. The CP’s goal is to promote operation assessment team consisting of companies’ voluntary compliance with experts in competition policies, laws, competition laws. KFTC-crafted CPs involve accounting and business management, the declaration of the commitment by a among other things, is required. The team company’s executives; appointment of will assess and classify CP operating compliance officer; formulation and companies. Different incentives will be dissemination of a compliance manual; provided, with better-performing operation of education programs; companies enjoying more incentives. establishment of a monitoring system; providing sanctions to be meted to b. Business review system and mock court individuals who violate competition-related contest laws; and the establishment of document management system. In December 2004, KFTC adopted a CP was introduced because conventional Business Review System. Before one even ways of law enforcement meet with limited conducts business activities, he or she may success if the private sector does not request the KFTC to review the intended voluntarily comply with competition laws and activities to check whether they would violate regulations. Investigations require a huge competition laws. The KFTC delivers its amount of administrative resources. On the opinion within 30 days. Competition other hand, companies have to pay enormous authorities in the US, Canada, France, costs for being involved in investigations. Australia, Japan and other advanced Officers of these companies risk punishment countries have been engaged in similar for violations. Offending companies will be activities. If a business activity is judged to levied surcharges and will need to incur legal be legitimate, the activity will no longer be costs. There are also intangible consequences examined to determine whether it had such as a tarnished corporate image. Only violated competition laws or not. This when CP successfully takes root can an eliminates uncertainty in business activities environment where companies voluntarily and also prevents distraction to management abide by competition laws be created. Social attention. Small and medium-sized costs generated from law enforcement can businesses that can’t afford to spend for legal then be minimized. consultations find the BRS particularly useful. Companies that adopt CP have their own Use of BRS is likely to decrease violations that in-house team that monitors and regulates are committed because of ignorance of their activities to make sure that they comply competition laws. As companies utilizing this with competition laws. At first, only companies system naturally come to have more interest that wanted to avoid management risks in competition laws and strengthen their adopted the program. However, CP is now determination to keep these laws, fair considered as a vital factor in improving competition and transaction practices are ethical management. KFTC has also worked established by voluntary participation of to support such efforts and to encourage businesses themselves. As of the end of 2005, companies to place the program at the center 38 applications were made and of these, 35 of their management activities. To this end, the have been reviewed. KFTC has provided incentives, such as Since May 2002, university students have mitigation of or exemption from punishment been invited to participate in a “Mock Court to companies that have adopted CP. Contest for University Students.” Every year KFTC has tried to make CP more heated debates are waged on hypothetical effective. By the end of 2005, there were 257 cases of competition law violations. The companies with CP, but it was difficult to contest is designed to enhance students’ reasonably assess whether or not CP had understanding of competition laws and attained its objective. CP Assessment Models policies, encourages their interest in the were developed last year. A CP Grade subject, and helps them realize that Assessment System will be implemented competition laws and policies are actually within this year on a pilot basis. This is to part of daily life. Last year, 300 students from

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07-0103Law&Policy.pmd 67 17/05/2007, 1:20 PM 10 teams took part in the competition and submitted to the National Assembly in June tackled issues such as abuse of market 2006. The KFTPA will be carrying out tasks such dominance, cartels, and anticompetitive as: education on the MRFTA and other relevant mergers. laws and regulations; publishing materials on the law and relevant regulations; and waging c. Measures under consideration for public campaigns to promote competition adoption culture, CP, and business practices that foster competition in the market. KFTC is considering the passage of a law Lastly, KFTC is examining the draft revi- that would allow consumers or business sion of the Consumer Protection Act, which owners who had suffered damages from is currently being reviewed by the National competition law violations to file a claim for Assembly. Possible amendments include pro- damages. This right of private enforcement visions that would transfer the authority to sup- would constitute an exception to current civil port the Consumer Protection Board and law rules. KFTC is also currently considering a consumer groups to KFTC. Once the bill is revision to the MRFTA, the Korean antitrust law, passed and goes into effect, KFTC’s competi- which would grant the court the power to issue tion policies will be more closely linked to con- an injunction against violators of the MRFTA. sumer policies. This will help establish In a case involving a Korean internet service competition culture more efficiently. provider, Daum Communication, which had asked a court to ban Microsoft from tie-in sales Conclusion of Windows XP and Instant Messenger, the court ruled that, even as it recognized the Establishing and spreading competition culture Korean company’s entitlement to injunctive and competition is essential, but it is far from relief against the MRFTA violation complained being an easy task. Some government of, and even as many other jurisdictions agencies that monitor and regulate companies recognized such right, it could not grant or industries find competition policies injunctive relief, as the right is not recognized annoying and they sometimes oppose NCA’s in Korea, and there was no legal provision competition advocacy activities. authorizing the grant of such right. Competition authorities need to Some view the introduction of private en- continuously remind decision makers in the forcement negatively, and argue that this government agencies and business that would decrease the role of the competition anticompetitive laws or practices will have authority in competition-related matters. But more costs than benefits. Competition protects I personally believe that adopting and consumers and enhances corporate value, strengthening private enforcement is neces- companies’ competitiveness and ultimately sary. We need a paradigm shift in competi- the nation’s competitiveness. tion law enforcement. The competition In my experience, competition authorities authority should move away from its exclu- are lonely organizations. They have had to sive jurisdiction over competition cases and and will continue to perform their mission begin to work with the judiciary. Increasing in spite of criticisms from regulated private actions will definitely improve aware- companies or other government agencies ness about competition culture and compe- that want to modify or abolish competition tition laws among market participants laws and regulations. However, competition including consumers. Moreover, with private authorities are not alone in their mission. enforcement, competition authorities will be Civil society’s activities and their support for able to focus their law enforcement capacity competition authorities have contributed on major cases that have significant impact greatly to establishing competition culture. on consumers and markets. Fortunately, the public’s awareness for the In addition to the foregoing, KFTC is need for competition culture is higher than considering a revision to the MRFTA, which ever and is expanding to reach every corner would set up a public entity called the “Korea of the society. Fair Trade Promotion Agency (KFTPA).” The This April, the US Fair Trade Commission entity would promote competition culture and chairperson, Ms. Deborah Platt Majoras, implement competition laws and regulations delivered a speech at the KFTC. One of the more effectively The amendment will be lines in her speech made an impression on

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07-0103Law&Policy.pmd 68 17/05/2007, 1:20 PM me. She said: “Living with competition is about how the concept of law and legal hard. Living without competition would be scholarship has changed over the years: harder.” This line reminds us of the importance of competition. As competition In the beginning, there was only law, then requires changes and innovation, many came law and society, then law and history, companies find it vexing and make attempts then law and economics, and so on. These to avoid it. Even government agencies’ developments have transformed the vocation regulations can potentially harm competition. of the legal scholar from that of a priest to that However, there is no doubt about the fact that, of a theologian.1 without competition, there will be no development for companies, no increase in This statement emphasizes that the law consumer welfare, and no economic growth. today cannot be confined to Hans Kelsen’s Competition is wearisome, but inevitable. “pure law.”2 It is difficult to divorce the law Only when market participants thoroughly from other fields such as sociology and eco- understand the benefits from competition nomics. In fact, the interface between law and and a social consensus is formed on the need economics is one of the most fascinating fields for it, will competition culture be able to take of legal study today. Building upon Marxist root firmly throughout the society. theory, the Austrian jurist Karl Renner maintained in his book, Institutions of Private Law and their Social Function,3 that to expound on Address a legal concept, one has to penetrate its eco- T.K. VISWANATHAN nomic base. He believed that the social Law Secretary, Government of India function of legal concepts such as property and contract transform despite the stability of these concepts in statute books.4 Despite the useful- would like to begin by sharing some of ness of employing economic analysis to my insights into the drafting of India’s penetrate legal concepts, traditional legal con- Competition Act 2002. I was assigned the cepts remained in the statute books, and were responsibility of drafting the Competition interpreted by lawyers and jurists alike in a Bill when I was at the Law Commission manner free from any analysis (economic or asI Member Secretary. The draft bill underwent otherwise) other than legal. Consequently, law many changes as we were attempting to has been perennially criticized as failing to translate into law-specific competition keep up with social changes. This notwith- policies. After the bill had been drafted, it was standing, the economic analysis of legal posted on the Ministry of Company Affairs’ concepts has assumed greater importance. website, and comments from the public were solicited. In fact, the Competition Act is one of Globalization, knowledge economy, the few laws that had been adopted following and competition law an extensive public consultation process. Traditionally, the state made and enforced the Relevance of competition law law, and as such, was the dominant player in

I believe that competition law is more relevant 1 Sullivan, K. 2002. Foreword: Interdisciplinarity. 100 MICH. L. REV. today than it was at any other time in the history 1217. of mankind. As forces of liberalization set in, 2 In his Pure Theory of Law (1934), Kelsen theorized that all elements extraneous to law had to be split off, to leave only the the state, as an institution of governance, remnant of material that is essentially legal. started shedding its welfare role which it had 3 Renner, K. 1904. The Institutions of Private Law and their Social Functions. th th assumed during the 19 and 20 centuries, thus 4 An example of such a transformation is in one of the first exposing the citizens to the challenges which interdisciplinary study employing law and economics framework of analysis. The study, which was conducted by Adolf Berle and the state hitherto addressed. It is in this Gardiner Means in 1932, found that one peculiar feature resulting context that competition law acquires from the emergence of stock markets and shareholding was the divorce of ownership from control. While ownership of a importance. corporation would be spread among a large number of I am a law teacher and often reflect on, shareholders, control over the corporation itself was left to managers who owned little equity themselves. This caused a and ask my students to think about, the nature, fundamental change in the concept of legal ownership itself, as and role of law. Kathleen M. Sullivan, Dean of persons with less voting rights could nevertheless control a company’s major resources. See Berle, A, and G. Means. 1932. the Stanford Law School, said something The Modern Corporation and Private Property.

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07-0103Law&Policy.pmd 69 17/05/2007, 1:20 PM how to deal with firms’ behavior in the mar- “Competition law must fill up ket), and principles of contract law. We need to move away from conceiving of competi- the void created by the tion law—or any law for that matter—as in- decreased predominance of dependent from relevant nonlegal fields. The important role that competition laws state agencies whose actions will play in a global economy is the same as T.K. Viswanathan are subject to constitutional that identified by the United States Supreme Law Secretary, limitations.” Court in 1972, when it ruled that “Antitrust laws Government of India are the Magna Carta of free enterprise. They are so important to the preservation of economic freedom as our free enterprise our lives. Today, the state is withdrawing from system, as the bill of rights is to the protection the expanded role it had assumed. In this of our fundamental and personal freedoms.”8 globalizing world, the market is emerging as the dominant player. Globalization has Salient features of competition law increased the size of the market, and this, in turn, has led to increased competition. In Competition laws prohibit the deliberate addition to market expansion, the exploitation of a firm’s dominant market globalization of competition has been aided position. They generally prohibit any by the Internet—which broke down borders agreement, arrangement, or understanding and the distance between buyers and between enterprises that has the effect of sellers—and the telecommunications substantially lessening or limiting access to revolution, which allows consumers to explore the market. This prohibition applies not only new markets for better quality products to written agreements but also to oral and quickly and at little cost. A globalized economy informal agreements. Certain inherently is also a knowledge economy, and relations anticompetitive agreements are deemed “per in such an economy will be regulated by se” offenses that are always illegal, regardless contract rather than by public law. of the parties’ intent or their actual effect on In The World is Flat,5 Thomas Friedman competition. Examples of per se offenses uses the metaphor of a “flat world” to describe include price fixing, fixing of output by a cartel, the emergence of a global playing field where collusive tendering, and market sharing. On the billions of players have entered and started other hand, competition law sometimes competing with each other. According to provides exceptions to certain prohibited him, the 10 “flatteners”6 gave rise to a triple practices because such exceptions may convergence7 that has ultimately flattened the enhance economic efficiency. Competition world. In this world, business processes started authorities may also provide exemptions changing as participants increased. The after they have weighed the anticipated gain growing insignificance of governments and in efficiency vis-à-vis adverse effects on physical borders in the global playing field will competition. Exemptions can be provided on require competition law and competition a case-to-case basis or assume the form of a authorities to play a more predominant role. block exemption. Competition becomes a global phenom- enon in the global playing field. Capital flows 5 Friedman, T. 2004. The World is Flat. New York: Farrar, Straus and to that part of the globe where investments Giroux. 6 According to Friedman, the 10 flatteners are: a. The Fall of the will receive the best returns. When competi- Berlin Wall; b. Emergence of the internet as a new medium of communication; c. World-wide, real-time, flexible collaboration becomes global, laws that regulate com- tion that allows more horizontal ways to provide value; d. Open petition also need to converge. To sourcing; e. Outsourcing; f. Offshoring; g. Supply-chain management; h. Insourcing; i. Informing (through the proliferation understand the basics of competition law in of information sources generally accessible to the public such a global economy, we need to have a good as Google and Wikipedia); and k. Steroids digital convergence (i.e., the use of devices such as the I-pod and Blackberry) idea about the actors in the market, and how 7 The triple convergence that has accelerated change are: Convergence 1 – World-wide, real-time, flexible collaboration the market operates and affects our lives. that allows more horizontal ways to provide value; Convergence Lawyers cannot afford to ignore global com- 2 – Companies learning how to use the new technologies to create new types of organizations, services and structures; and petition law, an emerging discipline that re- Convergence 3 – the entry of several billion new people into quires knowledge of microeconomics (price global business competition . 8 See, e.g., United States v. Topco Associates, Inc., 405 US 596, 610 theory), industrial organization (specifically, (1972).

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07-0103Law&Policy.pmd 70 17/05/2007, 1:20 PM Unlawful monopolization is an As trade liberalization progresses and the important area that competition law state gradually withdraws from the expanded addresses. Unlawful monopolization is role it had assumed in the past, legal scholarship “We need to characterized by the following elements: (a) must shift away from its obsession with the possession of market power in the relevant constitutional doctrines of limitations of state move away market; and (b) willful acquisition or action and learn to apply legal limitations on maintenance of that power, as distinguished market forces, where such limitations are from conceiving from growth or development, as a warranted. Contract law, which was strictly consequence of a superior product, private law until the end of the 19th century, has of competition business acumen, or historic accident. How ceased to be purely private and between does one go about measuring market power individuals and may be said to have assumed law—or any law and determining the excessive use or abuse “constitutional” dimensions. Competition law of market power? Market power has been must fill up the void created by the decreased for that defined as the power to control prices or predominance of state agencies whose actions exclude competition. It has been said that in are subject to constitutional limitations. Just as matter—as measuring market power, market share is lawyers in India were quick to grapple with the the most important factor. As regards the principles of constitutional law when the independent willful acquisition or maintenance of market Constitution of India was adopted, lawyers power, courts have required proof of who evince interest in, and familiarize from relevant anticompetitive or predatory conduct— themselves with, the emerging field of efforts to exclude rivals on some basis other competition law will be rewarded abundantly. nonlegal fields.” than efficiency. Some examples of the foregoing include below-cost pricing, filing The lion and the gazelle baseless litigation against competitors, and T.K. Viswanathan, denial of access to an essential facility. I conclude with an anecdote cited by Law Secretary, Friedman, which symbolizes what competition Government of India Competition law – the means to human society in the modern world: administrative law of the market economy Every morning in Africa, a gazelle wakes up. It Q knows it must run faster than the fastest lion or it Over a hundred years ago, Justice Holmes9 will be killed. Every morning, a lion wakes up. It said that “for the rational study of the law, must outrun the slowest gazelle or it will starve the black letter man may be the man of the to death. It does not matter whether you are a gazelle or a lion, when the sun comes up, you present, but the man of the future is the man better start running.10 of statistics and the master of economics.” The development of competition laws in a globalized economy will enable us to test 9 Holmes, O. 1897. The Path of the Law. 10 Harv. L. Rev. 457. 10 Friedman, T. 2004. The World is Flat. New York: Farrar, Straus whether Justice Holmes was right. and Giroux. 114.

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07-0103Law&Policy.pmd 71 17/05/2007, 1:20 PM “Competition laws are crucial to ensuring the Session 4 successful Harmonization and creation of a free trade area.” Convergence of Competition

Philippe Brusick, Laws Across the Region Head, Competition and Consumer Policies Q Bilateral/ Multilateral Agreements and Competition Law, Philippe Branch, Division on International Trade, Brusick, Head, Competition & Consumer Policies Branch, Division on UNCTAD International Trade, UNCTAD

Q Factors promoting convergence of Convergence and competition laws

Harmonization of Around the world, countries have begun to feel the need to adopt competition laws and Competition Laws harmonize with the competition laws of other countries because of four Across the Region: phenomena: (1) the transition of centrally planned economies or economies that had Bilateral/ adopted national industrial policies, toward market-oriented economies, (2) Multilateral deregulation and privatization, (3) trade liberalization and the proliferation of regional Agreements and trade agreements (RTAs), and (4) foreign direct investment (FDI) liberalization. Competition Law Country-specific concerns also push countries PHILIPPE BRUSICK to adopt competition laws. Head, Competition and Consumer Policies Branch, Most countries in the region, as well as in Division on International Trade, UNCTAD the world, have undertaken the transition from centrally planned economies, or from economies that have employed national industrial policies, to market-oriented economies. Even s there harmonization and so-called market economies, such as the convergence of competition laws United States (US) and Europe, undertook fur- across the region? What forces are ther market-oriented reforms. Market oriented responsible for convergence and reforms involve price liberalization, deregula- divergence? What role do bilateral, tion, often privatization, and trade and FDI Iregional, and multilateral international liberalization. Centrally planned economies, agreements play in building convergence in which were based on major monopolies competition? These are the key questions that needed to introduce anti-monopoly—or will be explored in this presentation. competition—rules to avoid monopolies from increasing prices ad infinitum after price

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07-0103Law&Policy.pmd 72 17/05/2007, 1:20 PM liberalization. At the same time, it became necessary to open markets to competition “The text of competition to get rid of existing monopolies. For so-called natural monopolies, where utilities or other laws across all countries is network industries cannot operate other- broadly similar… It is in wise, the monopoly had to be controlled by the application of the laws a sectoral regulator, who would ensure that the monopoly did not abuse its dominant where most of the power to the detriment of users, individual divergence, instead of Philippe Brusick consumers, and the economy as a whole. In Head, Competition and Consumer market economies, deregulation took place convergence, occurs.” Policies Branch, Division on International Trade, UNCTAD to open previously regulated economies and monopolies to competitive forces. Deregulation takes place because a country would like to open a formerly trade within particular regions. The regulated sector to competition, so that European Community’s creation of a free consumers may benefit from lower prices trade area involved the most well known of and better services. This was the US’s these agreements. Subsequently, RTAs in objective, for example, when it deregulated North America were entered to create the its air transport industry in the 1980s. Today, North American Free Trade Area and the Asian the rest of the world seeks to obtain the Free Trade Area.Today, there is a proliferation benefits that the US derived from of RTAs. The creation of free trade areas is deregulating key industries. usually the first step toward deeper regional Competition policy likewise plays a key integration—for example, the adoption of role whenever privatization takes place, as it common tariffs. Creating a free trade area provides a framework that will prevent the sale entails trade liberalization among member of a state-owned enterprise (SOE) (which countries through the elimination of tariff or occupies a monopoly position) to an entity that other barriers. Competition laws are actually would only substitute the public monopoly with crucial to ensuring the successful creation a private one. In theory, public monopolies were of a free trade area. If competition issues are established to respond to a social welfare not addressed, enterprises within the objective. But when an SOE is sold to a private member countries will be able to continue entity, the private entity cannot be expected to distorting trade by creating market allocation continue responding to the social objective that cartels. The effect is that such enterprises can had previously concerned the state. Private eliminate competition between the member firms are motivated by the expectation of countries just when the latter are trying to profits. The state needs to ensure that the create a free trade market. Governments are private firm will not use the dominant position taking competition issues seriously because of its state-owned predecessor to deny other they recognize that, particularly in the context firms the chance to compete with them. This of trade liberalization and regional trade would result in a private monopoly, the effects agreements, it is in their interest to do so. RTAs of which would be detrimental to public also make the consideration of competition welfare. When privatization of SOEs takes issues a condition. place without the advice of a competition Competition is also important in FDI authority, the government office in charge of liberalization. A foreign investor who will be the privatization may be tempted to obtain the competing against local firms will ask about highest price for selling the SOE in exchange competition conditions. Are there local firms for conditions that would allow the buyer to that are in a cartel and can effectively block establish and maintain a private monopoly for the foreign investor from competing? Foreign many years. investors often check whether a country has As regards trade liberalization, the World a competition law. But a competition law can Trade Organization (WTO) is the biggest force benefit local enterprises as well. If a foreign at the multilateral level that is working against investor is very powerful and few smaller local all sorts of trade barriers—both tariffs and enterprises can compete with it, the foreign nontariff barriers. Regional Trade investor might wish to take over its local Agreements (RTAs) likewise seek to liberalize competitors to exclude them from the

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07-0103Law&Policy.pmd 73 17/05/2007, 1:20 PM market and create a monopoly. A not adopted provisions regarding merger competition law and a competition authority control. can prevent this from happening. Both will It is in the application of the laws where also protect the domestic market from most of the divergence, instead of conver- foreign investors rigging the market in a gence, occurs. Countries at different levels secret international cartel. Such a cartel can of development and with varied social needs penetrate the local market and adversely require different ways of enforcing competi- affect the country’s economy. tion policy. Another key area of difference in Countries have adopted competition competition laws is that of scope. For ex- laws in response to issues specific to them. ample, even as United Nations Conference Korea, Indonesia, India, and Pakistan have on Trade and Development (UNCTAD)’s been concerned with avoiding an excessive model law prescribes otherwise, some com- concentration of market power in the hands petition laws exclude SOEs from their of a few entities, and this has been identified application. Other laws exempt regulated as a key objective in their respective sectors from the law’s application. The Eu- competition laws. The People’s Republic of ropean Union (EU) exempts the agriculture China (PRC)’s 1993 Anti-monopoly Law sector—and this is often the focus of much appears to be a mixture of intellectual discussion. Certain divergence in practice property rights regulation and competition also occurs in the manner in which prohibi- regulation, probably because it was tions under the law are enforced. For concerned about protecting itself against example, even as hard-core cartels are con- unfair competition in the area of intellectual sidered per se prohibitions in most countries, property. There is reason to believe that some legislations accept that cartels may be countries such as Costa Rica and Singapore useful and provide a possibility of exempting enacted their respective competition laws a cartel from the application of the law pro- because of the desire to enter into RTAs with vided it meets certain conditions, such as countries that required the enactment of a providing a substantial part of these benefits competition law. Consumer protection to consumers. Countries also differ in the motivates many countries to adopt manner in which they sequence reforms that competition laws but sometimes, as in Sri introduce competition law and policy. Some Lanka, may lead to the repeal of old laws favor an immediate transition, arguing that that cover monopolies and mergers and the the enforcing authority must show that it enactment of legislation focusing more on means business; others, a more gradual ap- consumer protection than competition. proach, which begins with prohibitions Although there is nothing wrong with against cartels, then later address abuse of focusing on consumer protection, this may dominant position, anticompetitive mergers, be detrimental to consumers in the final and other anticompetitive practices. In some analysis if there are no regulations to countries, the emphasis is first on teaching control monopolies, prohibit companies and capacity building before the introduc- from abusing their dominant position or tion of fines and penalties to be imposed on from enter into mergers that would have violators. anticompetitive effects,. There is some variance regarding how competition laws are enforced. In many Convergence in the text of the law; countries, violations of competition laws are divergence in the law’s application enforced by resort to the competition authority, whose decision may be appealed The text of competition laws across all coun- to the courts. In other jurisdictions, such as tries is broadly similar. The laws generally the United States, the Fair Trade Commission prohibit cartels and collusive tendering or Department of Justice brings violations (which is called bid rigging), as well as the directly to the courts. While many countries abuse of a dominant position. In many coun- have accepted that a competition authority tries, market dominance by itself is not is necessary for the effective enforcement of prohibited. It is the abuse of such dominance competition law, there are differences in the that is prohibited. It is widely accepted that extent to which competition authorities are competition laws need to cover merger con- independent from the government, and to trol and establish a competition authority. whom the competition authority is However, some developing countries have answerable. In some jurisdictions, the

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07-0103Law&Policy.pmd 74 17/05/2007, 1:20 PM competition authority is directly under the between respective competition authorities supervision of the Ministry of Trade, and the (so-called “pure competition agreements”) minister may overrule the recommendation and by having provisions on competition in- “Around the of a competition authority, even as his or her cluded in free trade agreements. Coopera- decision may be appealed to the courts. tion agreements usually comprise notifica- world, countries tion procedure for enforcement; technical UNCTAD and capacity building in cooperation arrangements; arrangements have begun to competition law for periodic meetings and consultation procedures. Dispute settlement or conciliation feel the need to UNCTAD provides capacity building and procedures may also be included. Competi- technical assistance relating to competition tion provisions in RTAs usually contain a com- adopt competi- issues. We collaborate with countries, as well mitment for the parties to the agreement to as organizations such as Organisation for adopt and enforce competition legislation at tion laws and Economic Co-operation and Development the national level. Sometimes they provide (OECD), the World Bank, and the for technical assistance in competition. They harmonize with International Competition Network (ICN). also require exchange of information on com- UNCTAD consistently brings in competition petition issues, and can be very useful in case the competition experts both from developed and developing enforcement. Nevertheless, the extent of con- countries to provide technical assistance. fidential information sharing can be limited laws of other UNCTAD has also developed the UNCTAD by confidentiality rules. FTAs that incorporate Model Law on Competition. provisions on competition have been the sub- countries.” At present, UNCTAD is conducting ject of UNCTAD’s research. A book on the topic capacity-building workshops in many Asian was published last year by UNCTAD under the countries, including Viet Nam, Cambodia, title: Competition Provisions in RTAs: How to Philippe Brusick, Laos, and Bhutan. It is preparing joint meetings Assure Development Gains.1 Head, Competition with the Korea Fair Trade Commission, and is Some countries have entered into bilat- and Consumer gearing up for a seminar that will take place in eral cooperation agreements regarding com- Policies Branch, the next few months. It is also preparing for a petition law enforcement. Usually, these Division on joint KPPU/UNCTAD seminar for training agreements are between similar-sized trad- International Trade, judges in competition law. A regional ing partners such as the US and the EU, or UNCTAD workshop on competition law and policy to are between close neighbors such as Aus- be held in Malaysia is also being planned. tralia and New Zealand. Although rare, bilat- Every year, UNCTAD holds the meeting of eral cooperation agreements are being Q its Intergovernmental Group of Experts on entered between countries that do not share Competition Law and Policy. Some of the common characteristics. For example, subjects to be discussed at this year’s meeting Canada and Costa Rica have entered into include control of hard-core cartels, dispute such an agreement. However, such agree- settlement in regional trade agreements, and ments may be difficult to implement, be- trade subsidies. Tunisia has volunteered to cause the parties’ interests are not balanced. subject its competition policies to peer review. Bilateral cooperation agreements might not The UEMOA – West African Economic and work when one country has less interest in Monetary Union has likewise requested for a implementing the agreement than the other. voluntary peer review of how its regional Moreover, a country whose competition au- system functions. The review will study one thority has limited resources will find it diffi- member country which does not have a cult to respond to requests for information competition law and another that does. or assistance when they are already hard- pressed to perform their regular duties. International cooperation in RTAs usually contain a provision that a competition law enforcement partner country should adopt a domestic competition law that should be implemented International cooperation in enforcing compe- in a manner that is compatible to the other tition laws is essential. Globalization has party’s legislation. Such a provision can be caused many anticompetitive practices in one found in the agreement between the EU and jurisdiction to have effects in other jurisdictions. Countries have attempted to cooperate through direct cooperation agreements 1 UNCTAD/DITC/CLP/2005/1.

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07-0103Law&Policy.pmd 75 17/05/2007, 1:20 PM Mediterranean countries such as Egypt, national cartels. As regards cases of abuse of Tunisia, Israel, and Turkey, as well as between dominance and anticompetitive mergers the the EU and Eastern European countries. The effect of which are regional in scope, the adoption of this provision was largely regional competition authority usually has the responsible for the diffusion of EU power to deal with such cases. Following the competition principles to other parts of the principle of subsidiarity, decisions taken at the world. regional level supersede decisions of national Apart from entering into agreements that competition authorities. request one’s co-parties to adopt competition Harmonization and convergence of com- rules that are compatible to one’s own, a RTA petition laws and policies are being supported may decide the adoption of common regional by international organizations that have rules on competition. Aside from the EU, the adopted a number of nonbinding recommen- Common Market for Eastern and Southern dations for the consideration of countries. Africa (COMESA) in Africa has adopted OECD’s Hard Core Cartel Recommendations regional competition rules. I believe the is one example. Another is UNCTAD’s Set of Association of Southeast Asian Nations Multilaterally Agreed Equitable Principles and (ASEAN) is looking at the issue and is preparing Rules on Competition (adopted in 1980). such rules. Common regional rules that Harmonization of competition rules was currently exist prohibit cross-border cartels, or also discussed at the WTO. The WTO Working those that affect more than one member Group on Interaction between Trade and country. A national competition authority Competition Policy was very active a few usually deals with national cartels—those years ago, but since the Doha negotiations that affect only one member. Where no such were suspended, it is uncertain whether authority exists, the supranational regional competition will be taken up at further WTO authority may have some power to deal with rounds.

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07-0103Law&Policy.pmd 76 17/05/2007, 1:20 PM “Regardless of Closing the jurisdiction where they exist, competition- related problems Session appear to be very similar. “

Day 2 Arthur M. Mitchell, General Counsel, Asian Development Q The Road Ahead, Arthur M. Mitchell, General Counsel, Bank Asian Development Bank Q Valedictory Remarks, Anwarul Hoda, Member, Planning Commission, Government of India Q Q Vote of Thanks, V.S. Rekha, Senior Counsel, Asian Development Bank

that will better help the region fight poverty. The Road Ahead Competition law and policy reform is one of ARTHUR M. MITCHELL the areas that has been identified as General Counsel, Asian Development Bank important to sustainable economic development and poverty reduction by many Asian countries. former World Bank executive who Some people would be surprised that recently moved to a job with a competition laws and policies have something commercial bank was asked how to do with poverty reduction. But during the different his work in the private past 2 days, the link between competition Asector was from his work at the World Bank. policies and poverty reduction was continually He replied, “In the private sector, our discussed. Some of the most interesting objectives are very simple, but our instruments questions posed during the roundtable were are very complex. In the public sector—where whether basic principles in competition law the World Bank operates—our instruments were universally applicable to all countries, or were very simple, but our objectives, very are there other models of adopting and complex.” enforcing competition laws and policies that I thought that he might have been would be more suitable to developing speaking about the Asian Development Bank countries? Regardless of the jurisdiction where (ADB). ADB’s overarching objective is poverty they exist, competition-related problems reduction in the region. But poverty reduction appear to be very similar. However, we is no simple business. It needs to take the recognize that approaching these problems many concerns of its developing member may require different approaches that address countries into account when pursuing this variances in the local circumstances objective. Consequently, ADB has reached out surrounding these issues. to the community, both regionally and I myself found the roundtable particularly worldwide, to develop ways and instruments enlightening. Thirty-five years ago, when I was

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07-0103Law&Policy.pmd 77 17/05/2007, 1:20 PM from Australia and Korea, countries where “Competition law and policy competition law and policies have occupied a high place on the national agenda. Australia reform is one of the areas that is a country that has benefited considerably has been identified as from the adoption of right policies on competition. The importance attached by important to sustainable Korea to competition policy and law is Arthur M. Mitchell economic development and apparent from the fact that the chairperson of General Counsel, poverty reduction by many its competition commission has a seat in the Asian Development Bank Cabinet. I found interesting, and I am sure the Asian countries.” participants also found interesting, the description of the evolution of Japan’s postwar policies, which had a bearing on its competition policy, and the greater importance studying law, I took a class on antitrust. But I that the Government of Japan attached to find that in the past two days, I have learned competition matters. “No one has any more about competition law than I did then, On the presentations on competition thanks to the resource persons’ excellent regimes across the regions and their interface doubts about input and the high quality of the discussions. with regulatory regimes: The speaker from the If, like me, you have found useful and Organisation for Economic Co-operation the benefits of important the proceedings and other and Development (OECD) Secretariat competition-related initiatives that we have demonstrated that economic growth is competition. been doing, please let us know. We have to enhanced by pro-competitive regulation and respond to the needs of our clients; your that many objectives of competition authorities Indeed, feedback is important to us. and regulators are similar. These are points that Finally, all of you deal with the day-to-day I saw coming out from that presentation. liberalization problems of competition and regulation. I think Personally I feel that the debate in some you will find it useful to know what your developing countries (a lot of them have of the economy colleagues in developing and developed developed competition policies and laws) has countries are doing concerning competition. not been whether competition law and policy and If the roundtable has been particularly useful are important but on when is the right time to in obtaining such information, we may start seriously addressing the issue. In India too, privatization consider creating a network of regulators so for a long time after introduction of economic that this work can be continued on a regular reforms, the overriding preoccupation of policy are all aimed basis. We can use videoconferencing makers was with external and internal technology to stay in touch, exchange views, liberalization. They did not consider at unleashing and move our agenda forward. introducing a modern competition law Thank you for the participation of our straightaway. No one has any doubts about the competition.” resource speakers and the incisive suggestions benefits of competition. Indeed, liberalization that all of you have made to our toolkit. of the economy and privatization are all aimed at unleashing competition. The argument in favor of competition policy and law is that Anwarul Hoda, liberalization and privatization cannot be Member, Valedictory expected to contribute automatically to Planning economic growth if competition policy and the Commission, ANWARUL HODA institutional infrastructure for promoting Government of India Member, Planning Commission, Government of India competition are lacking in the absence of these institutions. This is what has been pointed out Thank you for inviting me to address you on also in the Asian Development Outlook 2005. Q the subject. I do not intend to deliver a very Commercial enterprises cannot resist the long address, only a few brief remarks. I have temptation to increase their profits by means glanced through some of the papers that have of anticompetitive practices. been presented, and I think the participants I think there is a dawning realization have been given a good exposure to the views among developing countries that competition on competition law and policy from various laws and policies must be introduced sooner perspectives. They have heard from speakers rather than later. If they opposed a multilateral

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07-0103Law&Policy.pmd 78 17/05/2007, 1:20 PM agreement on trade and competition during the Doha Round of multilateral trade “The argument in favor of negotiations, it was not because they were not convinced that some action is needed competition policy and law is that on this front but because of their assessment liberalization and privatization that competition policy as well as the other cannot be expected to contribute subject of investment had been introduced in the agenda of the negotiations by some automatically to economic growth developed economies only to blur the focus if competition policy and the Anwarul Hoda of negotiations from agriculture which they Member, Planning institutional infrastructure for Commission, Government wanted. This was the suspicion. International of India action is certainly possible on competition promoting competition are policy through cooperation at various levels. lacking.” Participants might have viewed the presentation of the UNCTAD representative in this light. We must only hope that the attempts by some developed economies to bring comprehensive law, but they have at least competition policy on the agenda in the regulations in certain sectors that address multilateral trade negotiations has not or competition-related issues. Most countries does not constitute a setback to the process have adopted competition laws, and others of promoting the adoption of competition lagging behind will also do so. But just adoption policy and law in those countries that do not of the law is not enough. The culture of have it yet. competition has to be spread; it has to seep in I would say that many countries—I know the sensibilities of the private sector. that Malaysia is one of them—do not have a Roundtables such as this one can prove to be very helpful in accomplishing this.

Secretary, Shri Viswanathan; member, Vote of Thanks Competition Commission of India, Shri Vinod V.S. REKHA Dhall; and Joint Secretary, Department of Senior Counsel, Asian Development Bank Economic Affairs, Ministry of Finance, Shri Arvind Mayaram, for being panelists during As the Roundtable draws to a close, I am the technical sessions; and finally, Shri pleased to have the opportunity to make Anwarul Hoda, member, Planning some closing remarks on behalf of the Asian Commission, for his insightful address in this Development Bank (ADB). closing session. ADB thanks the Government of India for I would also like to express my gratitude its active support in this endeavor in to our resource speakers, other panelists and particular the Department of Economic facilitators. None of the Roundtable Affairs in the Ministry of Finance, and the discussions would have taken off, had it not Ministry of Company Affairs. We are grateful been for the erudite contributions of to India not only for welcoming ADB and all Professors Allan Fels, AO, and Richard Whish; the resource persons and participants at this Messrs. Philippe Brusick, (UNCTAD), Roundtable, but also for being a proactive Toshiyuki Nanbu (APEC and JFTC), Bernard partner of ADB not only at the roundtable Phillips (OECD), Dong-kyu Lee (Korea), and deliberations but even during the early stages finally Ms. Annetje Ottow (Netherlands). Their of planning the roundtable. I wish to thank joining us at this gathering, notwithstanding the Honorable Minister for Company Affairs, their busy schedules, reflects their interest Shri Prem Chand Gupta; Chairman, National and dedication to competition matters. ADB Manufacturing Competitiveness Council, Dr. is honored by their presence and the wisdom Krishnamurthy; Secretary, Ministry of they have so generously shared during the Company Affairs, Shri Anurag Goel; and Roundtable. Additional Secretary, Department of We have hoped that the Roundtable Economic Affairs, Ministry of Finance Shri would enhance the understanding of issues Ashok Chawla for their address during the concerning competition laws and policies inaugural session. I also wish to thank Law among competition authorities’ and related

Closing Session, Day2. 79

07-0103Law&Policy.pmd 79 17/05/2007, 1:20 PM agencies, to facilitate competition authorities guidance and active support for this to further identify their own capacity roundtable. development needs; best practices and Finally, let me extend my sincere relevant ADB knowledge tools and support in appreciation to my team that put in long hours this regard. We are grateful to the participants in organizing this roundtable: Ms. Christine Lao, for their generosity during the discussions over Ms. Amabelle Asuncion, Ms. Mary Jane David last two days. from our headquarters; and Mr. C.T. Abraham, I would also like to thank Mr. Tadashi Ms. Meenu Lalit, Mr. Rupes Dalai, and Mr. Kondo, Country Director for India, for ADB, Sudhir Nair from our India Resident Mission and the India Resident Mission for fully office. I also thank the Taj Man Singh hotel staff supporting this endeavor. I also am grateful for working on all logistical arrangements. for the support of my seniors the General On behalf of ADB I thank you all again Counsel Mr. Arthur M. Mitchell, and Deputy for coming and we wish you all safe journeys General Counsel Ms. Eveline Fischer, for their back.

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07-0103Law&Policy.pmd 80 17/05/2007, 1:20 PM Appendices · Participants · Agenda

Participants

C. T. ABRAHAM M.K. CHAUDHARY India Resident Mission Additional Registrar, CCI, India Asian Development Bank SHARMILA CHAVALY ELVIN AFANDI Director (ADB) Senior Specialist, Center for Economic Reforms Ministry of Finance Ministry of Economic Development, Azerbaijan (Department of Economic Affairs) Government of India PONNIAH BASKARASINGAM Executive Director ASHOK CHAWLA Consumer Affairs Authority of Sri Lanka Additional Secretary Ministry of Finance PHILIP H.M.BEAUREGARD (Department of Economic Affairs) Senior Counsel, The World Bank, New Delhi Government of India

G.R. BHATIA RUPES KUMAR DALAI Additional Director General, CCI, India Asian Development Bank

PHILIP BRUSICK MR. ROBIN RATNAKAR DAVID Head, Competition and Consumer Dua Associates Law Firm, New Delhi Policies Branch, UNCTAD VINOD DHALL CAO HONGYING Member Deputy Division Director Competition Commission of India Fair Trade Bureau, State Administration for Industry and Commerce C.R. DUA People’s Republic of China Dua Associates Law Firm, New Delhi

SUBASH CHANDRA ALLAN FELS, AO Joint Director General Dean Ministry of Company Affairs, The Australia and New Zealand Government of India School of Government

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07-0103Law&Policy.pmd 81 17/05/2007, 1:20 PM EVELINE N. FISCHER JITESH KHOSLA Deputy General Counsel Joint Secretary Asian Development Bank Ministry of Company Affairs Government of India ABDUL GHAFFAR Member (Research & Investigation) TADASHI KONDO Monopoly Control Authority, Pakistan Country Director India Resident Mission MA. CORAZON GINES Asian Development Bank Director III Consumer Affairs Services, V. KRISHNAMURTHY Energy Regulatory Commission, Philippines Chairman National Manufacturing Competitiveness ANURAG GOEL Council Government of India Secretary Ministry of Company Affairs BAKHROM KUCHKAROV Government of India Head Department of Law MADHUMITA GUPTA Cabinet of Ministers, Uzbekistan USAID, New Delhi PRAVEEN KUMAR PREM CHAND GUPTA Director Minister of Company Affairs Ministry of Company Affairs Government of India Government of India

YONG-HO HAN MEENU LALIT Deputy Director Asian Development Bank Korea Fair Trade Commission CHRISTINE V. LAO ANWARUL HODA Law and Policy Reform Consultant Member, Planning Commission, Asian Development Bank Government of India ASHOK LAVASA ABDULLAH HUSSAIN Resident Commissioner Luthra & Luthra Law Offices, New Delhi Government of Haryana

R.C. JHAMTANI DONG-KYU LEE Adviser (Industry) Director General, Headquarters Planning Commission, Government of India for Competition Policy Korea Fair Trade Commission VYAS JI Secretary ONG BENG LEE Competition Commission of India Chief Executive Competition Commission of Singapore U.K. JINDAL Under Secretary MR. RAJIV LUTHRA Ministry of Company Affairs Luthra & Luthra Law Offices, New Delhi Government of India SYAMSUL MAARIF M. KANNAN Chairman Advisor (Economic) Commission for the Supervision Telecom Regulatory Authority of India (TRAI) of Business Competition Indonesia MA.K. KAPOOR Ministry of Company Affairs Government of India

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07-0103Law&Policy.pmd 82 17/05/2007, 1:20 PM S. MAJUMDAR Director (Projects) ANNETJE OTTOW Powergrid Corporation of India Ltd. Associated Member and Advisor to the Board of Directors of the Post ARVIND MANGLIK and Telecommunications Authority (OPTA) Powergrid Corporation of India Ltd. Netherlands

ARVIND MAYARAM ALICE PHAM Joint Secretary CUTS International Ministry of Finance (Department of Economic Affairs) TRAN LAN PHUONG Government of India Senior Officer Competition Administration Department PRADEEP S. MEHTA Ministry of Trade, Viet Nam CUTS International BERNARD J. PHILLIPS SUDHA MIDHA Head Ministry of Company Affairs, Competition Division, OECD Government of India AUGUSTINE PETER ARTHUR M. MITCHELL Ministry of Company Affairs General Counsel Government of India Asian Development Bank V.S. REKHA PUSHPA NAIR Senior Counsel Head Asian Development Bank Monitoring and Enforcement Division Malaysian Communications and A.K.SACHAN Multimedia Commission Secretary, Central Electricity Regulatory Commission, India SUDHIR NAIR Asian Development Bank B.S. SALUJA Secretary General TOSHIYUKI NANBU International Centre for Alternative Director Dispute Resolution (ICADR), New Delhi International Affairs Division Japan Fair Trade Commission; S.K. SARKAR Convenor, APEC Competition Policy Director, Telecom Regulatory Studies and Deregulation Group and Governance Division TERI AJAY NATH Director General (Investigation and Registration) HOSSAIN ALI SIKDER Ministry of Company Affairs Vice President Government of India Dhaka Chamber of Commerce & Industry

JOY EE KIA NG RAJENDRA SINGH Director (Economics) Secretary Competition Commission of Singapore Telecom Regulatory Authority of India (TRAI)

AMITABH KUMAR T.K. VISWANATHAN Director General, CCI, India Law Secretary, Government of India

SHRAWAN NIGAM RICHARD WHISH Adviser Professor (International Economics & Development Policy) King’s College London Planning Commission, Government of India

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07-0103Law&Policy.pmd 83 17/05/2007, 1:20 PM Agenda

ASIAN DEVELOPMENT BANK COMPETITION LAW AND POLICY ROUNDTABLE

16-17 May 2006 Taj Man Singh Hotel New Delhi, India

DAY ONE

REGISTRATION

(8:30-9:30)

INAUGURATION

(9.30 – 11.00)

• Welcome Address: Arthur M. Mitchell, General Counsel, ADB • Address: Ashok Chawla, Additional Secretary, Department of Economic Affairs, Ministry of Finance, Government of India • Address: Anurag Goel, Secretary, Ministry of Company Affairs, Government of India • Keynote Address: V. Krishnamurthy, Chairman, National Manufacturing Competitiveness Council, Government of India • Inauguration & Address: Prem Chand Gupta, Hon’ble Minister, Company Affairs, Government of India • Vote of Thanks:Tadashi Kondo, Country Director, India Resident Mission, ADB

TEA BREAK (11:00-11:30)

TECHNICAL SESSION I

Competition, Competitiveness and Sustainable Growth (Including impact of competition regimes on economic growth, foreign investments, trade) (11.30 – 1.45)

• Introduction, Richard Whish, Professor, King’s College London (Facilitator) • Panelists f Allan Fels, AO, Dean, Australian and New Zealand School of Government (formerly Chairman of the Australian Competition and Consumer Commission)

f Vinod Dhall, Member, Competition Commission of India

f Arvind Mayaram, Joint Secretary, Department of Economic Affairs, Ministry of Finance, Government of India • Discussions, conclusions (Facilitator)

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07-0103Law&Policy.pmd 84 17/05/2007, 1:20 PM LUNCH BREAK (1:45-2:30)

TECHNICAL SESSION II

Competition Regimes across the region and Interface with Regulatory Regimes (2.30 – 5:00)

• Introduction, V.S. Rekha, Senior Counsel, ADB (Facilitator) • Panelists:

PART A: APPROACHES AND CHALLENGES IN IMPLEMENTING COMPETITION LAW AND POLICY

f Toshiyuki Nanbu, Convenor, APEC/CPDG; Director, International Affairs Division, Japan Fair Trade Commission (Resource Speaker)

PART B: INTERFACE WITH REGULATORY REGIMES

f Bernard J. Phillips, Head, Competition Division, OECD (Resource Speaker)

f Annetje Ottow, Associated Member and Advisor to the Commission of OPTA (Post and Telecommunications Authority), The Netherlands (Resource Speaker) • Discussions, conclusions (Facilitator)

TEA BREAK (5:00 - 5:15)

CLOSING SESSION – DAY ONE

Summary of the Day and General introduction of ADB Toolkit (5:15 – 5:45)

Presenters f Eveline N. Fischer, Deputy General Counsel, ADB

f V.S. Rekha, Senior Counsel, ADB

DAY TWO

TECHNICAL SESSION III

Competition law and society (10:00 – 12:00)

• Introduction, Allan Fels, AO, Dean, Australian and New Zealand School of Government (formerly Chairman of the Australian Competition and Consumer Commission) (Facilitator)

• Panelists f Dong-kyu Lee, Director General of Headquarters for Competition Policy, Korea Fair Trade Commission (Resource Speaker)

f T.K. Viswanathan, Law Secretary, Government of India • Discussions, conclusions (Facilitator)

Appendices 85

07-0103Law&Policy.pmd 85 17/05/2007, 1:20 PM TEA BREAK (12:00-12:15)

TECHNICAL SESSION IV

Harmonization and Convergence of Competition Laws across the Region: Bilateral/ Multilateral Agreements and Competition Law (12:15 –1:15)

• Introduction, Bernard J. Phillips, Head, Competition Division, OECD (Facilitator)

f Speaker: Philippe Brusick, Head, Competition & Consumer Policies Branch, Division on International Trade, UNCTAD (Resource Speaker) • Discussions, conclusions (Facilitator)

LUNCH BREAK (1:15- 2:15)

TECHNICAL SESSION V

ADB’s Competition Law Toolkit (2.15 – 4.30)

• Presenter, Moderator: Richard Whish, Professor, King’s College London • Participants: Representatives, participating countries and international agencies

TEA BREAK (4:30-4:45)

CLOSING SESSION-DAY TWO

(4.45 Onwards)

• Road Ahead: Arthur M. Mitchell, General Counsel, ADB • Valedictory Remarks: Anwarul Hoda, Member, Planning Commission, Government of India • Vote of Thanks: V.S. Rekha, Senior Counsel, ADB

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