Transcript Competition Regime and Competition Policy in Bangladesh

Competition Policy:
Bangladesh Scenario
M. Abu Eusuf
Assistant Professor, Department of Development Studies, University of Dhaka
Unnayan Shamannay, 13 April 2006
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Competition Policy
Intervention by public authorities
for ensuring competition in the
markets.
for ensuring delivery of better quality
goods at better prices
Concerned with actual competition
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Objectives of Competition Policy
to promote competition by preventing
agreements between firms that lead to
anti-competitive behavior either through
explicit cartels or through tacit collusion.
to protect the consumers’ interest by
ensuring that they have greater choice in
terms of price, quality and service
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Objectives of Competition Policy…
to maintain a competitive environment so that
an efficient allocation of resources can take
place, which promotes economic growth.
to allure foreign direct investment
to remove obstacles to market entry for foreign
investors
to protect abuse of dominant position by multinational companies in the developing countries
market
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Objectives of Competition Policy…
to regulate monopoly of firms
to motivate competing players to increase
their efficiency with a view to retain their
superiority in the market.
to weed out inefficient operations
to enhance consumer welfare
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Need for a Competition Policy?
Out of 149 members of WTO, 80
have competition policy
Having competition policy for all
countries, still a matter of negotiations
at the international level.
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Competition Policy in Bangladesh
Bangladesh has no competition policy.
Monopolies and Restrictive Trade Practice (Control and
Prevention) Ordinance, 1970
Has not been implemented but still valid
Initiatives were taken to develop a competition policy after
discussions at the 1996 Ministerial Conference in Singapore
but abandoned after Doha Meet.
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Competition Policy in Bangladesh
At Doha in 2001, there were disagreements among WTO
members to adopt competition policy for developing
countries.
Consequently, Bangladesh has been giving least attention
for its competition policy.
Bangladesh considers it to be a dead issue.
That does not mean demand for a well-developed
competition policy has become irrelevant.
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Bangladesh Competition Policy! …
Consumers do want a competitive regime for their
benefits.
Consumers’ right protection law – 2004 was
approved in the cabinet. This was supposed to go to
the parliament for final legislation but never went.
This act has, of course, emphasized consumers’
right to have goods and services at competitive price
It has focused consumers’ right to have information
regarding quality, quantity, standard and value of the
goods and services.
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Presence of Inefficient State-Owned
Industries
A number of state-owned large enterprises have contributed
to anti-competitive behaviour in certain industries. Many of
them are making huge losses creating a lot of pressure on
government budget
Strong unionised labour and several other vested interest
groups do not facilitate exit of these enterprises
When exit is blocked, competition within the industry is
severely affected. Textile, jute and sugar are example of such
industries
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Most Prevalent Anti-Competitive Practices in
Bangladesh (BEI Findings)
50%
40%
30%
20%
10%
0%
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Anti-competitive Practices in Bangladesh
Natural monopolies (e.g. distribution of power
and gas, railways, telephone and other public
utility services)
Lack of legal provision (no legal entity to
oversee the trading practices of business firms)
Mergers (e.g. Standard Chartered Grindlays
Bank, visa fees of some foreign embassies need
to deposit particularly in this bank)
Lack of effective consumers’ association
(consumers are not organized and cannot play
any role in promoting their own interest)
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Anti-competitive Practices in
Bangladesh …
Price fixing (raising prices
through
collaboration
among
importers,
local
manufacturers, suppliers etc.)
Presence
of
state-owned
inefficient
industries (e.g. Textile, sugar, nationalized
commercial banks etc.)
Manipulation of supply (through collaboration
among
importers,
local
manufacturers,
suppliers etc)
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Anti-competitive Practices in Bangladesh…
Exclusive dealing and tying arrangements (e.g.
diagnostic services, educational inputs from
particular outlets)
Weak regulatory framework (judicial system cannot
guarantee property rights e.g. ETV)
Bid rigging (pre-arranged and threat driven)
Price discrimination (Dumping and charging
different prices for identical products)
Bribery and gifts (e.g. bribing tax officials to avoid
taxes)
Extortion (e.g. sellers extorted by a purchasing
agent)
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Lack of Legal Provision
There is no effective legal provision designed to protect the interest
of the consumers in Bangladesh. Besides, there is no legal entity to
oversee the trading practices of business firms. These tasks are
complicated. On the one hand, it needs to be ensured that
consumers are not cheated, and on the other hand special care
should be taken so that private firms and business do not feel
regulatory powers are excessive
Overseeing trading practices also requires knowledge about market
structure, product quality, and above all technical expertise
Some businesses may consider gaining unfair competitive edge by
misleading claims about their products’ value, quality, and place of
origin and ingredients in order to promote sells
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Lack of Effective Consumers’ Association
Civil society groups acting on behalf of the consumers are
almost non-existent in Bangladesh. The existing Consumers
Association of Bangladesh (CAB), has not been particularly
very effective in raising the concerns of the consumers
As a result, policy makers most often see strong lobbying in
favour of demands for protection, they hardly encounter with
popular public demands for not grating those protective
measures
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Natural Monopolies
In Bangladesh sectors such as railways, telephone, and other
public utility services have generated such anti-competitive
structures that not only inhibits modernisation of these services
but also hinder private investment into these sectors
In recent times private sector has entered into the business of
cellular phone, but competition has been restricted to a few
firms only. This allows the state owned BTTB (or Bangladesh
Telegraph and Telephone Board) to continue inefficiently
Though a regulatory commission has been set up for
the telephone sector. However, it is still in infancy and
yet to acquire any teeth
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Regulatory Framework

Overall policy framework of the country acts as hindrance to the
promotion of an efficient and competitive market mechanism in
Bangladesh

The regulatory framework in the country is yet to be developed (only
telephone sector though inefficient)

Absence of autonomous and independent effective and efficient
judicial system hampers to ensure a favourable business climate for
competition.

Currently the country’s legal system is burdened with more than half a
million cases. Such a slow and inefficient judicial system increases the
costs of litigation

There are other sectors (e.g., telecommunication, power generation
and air transport) which are gradually being opened up and some
participation of the private sector is taking place. However, it has been
alleged that these are being done in a non-transparent and
unpredictable policy environment resulting in increased business
transaction costs and widespread rent-seeking opportunities.
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Anti-competitive Behavior in the Banking Sector
Nationalised commercial banks (NCBs) are burdened with bad loans and
loan defaults. Largely because of these bad loans the spread between
lending and deposit rate is very high in Bangladesh.
When private Banks were allowed to operate it was hoped
that they would charge lower interest rates on lending as they
did not have to start with bad loans. It was found that private
banks’ price loans follow those of the NCBs, who act as the price leaders.
Such anticompetitive behaviour was responsible for allowing the NCBs to
become much bigger than the private banks and also more inefficient.
Access to government’s development fund has been restricted for the
private banks. Moreover, NCBs also operate in such activities where
private banking is absent (such as agriculture and rural development
projects). This also reduces the competition between the public and
private sector
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Anticompetitive Business Conduct in Bangladesh
 In Bangladesh, local manufacturing companies often appoint one
sole distributor, in a region of the country, allowing it to dictate or
manipulate prices in that region. Often, foreign manufacturing
companies even go so far as appointing one sole distributor or agent
for the entire country.
 This sole distributor or agent establishes a monopoly for that
product and charges prices according to their whims. They never
display company price lists, and may even refuse to show it if a
customer asks to see it. As an example, H.S. Enterprise has been the
sole distributor – in Bangladesh – of Honda Motor Company Limited,
Japan, for 20 years, and the firm declares its status as a sole
distributor in public. These types of practices are surely
anticompetitive.
 City Cell is a company involved in the mobile telecommunication
business. When a consumer takes a mobile phone connection from
City Cell, they have to pay for the particular mobile set supplied by
the company. In this case, the consumer is deprived of having the
option of another mobile set. This is surely a tying arrangement. So,
this practice may also be considered as anticompetitive.
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Towards Efficient Regime
Setting up of an effective regime in this regard will
remain a challenging task for Bangladesh, which would
require amongst others:
Legal and regulatory reforms
Implementation of rule of law
Development of civil society group protecting the
consumers’ interest
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Bangladesh Competition Policy!...
Competition Policy is not panacea for
competitiveness. This depends to a significant
extent on factors such as human capital,
institutional infrastructure, ethical business codes
and commitment to good governance. The civil
society too has a role to play in raising
consciousness regarding vices of anti-competitive
practices.
Education,
media
and
social
organizations have a role in mobilizing a society
for appropriate competitive regime.
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Caution !
There is also a danger of excessive competition, which
may have adverse socio-economic implication. There is,
therefore, a need for open public debate on these issues
and continuous monitoring of the impact of competition
on the weaker sections of the economy (particularly on
SMEs). Simultaneously, there is need for realistic
assessment of the extent to which MNCs are following
the disciplines of competition law
Indeed, participatory governance should also be at the
heart of any move to regulate competition. In fact, the
government should undertake measures to significantly
improve corporate (both local and multinational)
governance, increase corporate transparency, prevent
fraud and ensure corporate social responsibility
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Thank You
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