International Issues Related to UTPs

Research Project on Unfair Trade Practices in Select ASEAN Economies

First Policy DialogueHo Chi Minh City, 12th September 2012

Douglas H. Brooks Asian Development Bank

Outline

• UTPs from an international perspective • Multilateral Competition Law?• Competition Policy and the ASEAN

Economic Community

UTPs from an international perspective

Why an international approach to competition is needed…

• Increased international trade– Not only in goods,

but also in services• FDI and MNCs• Global production

networks • Further development of

competition policies in most countries

Note: Figures are average of exports and imports Source: World Development Indicators Online, accessed 23 August 2012

These trends are likely to continue and will lead to conflicts

• Extraterritoriality and Jurisdiction • Consistency of rules • Monitoring

Multilateral Competition Law?

Currently, only certain UTPs affecting international trade in goods are governed by multilateral agreements

• Agreement on Anti Dumping Measures Basically dumping occurs when: Pe<Pn

• Agreement on Subsidies and Countervailing Measures o Directly affecting competing industries in the

importing countryo Other suppliers are effectively crowded out of the

country providing subsidies to particular industrieso When subsidized goods prevent the entry of other

suppliers from accessing markets where subsidized goods are exported

A multilateral competition agreement was attempted (under the Singapore issues in 1996)1. A commitment to adhere to a set of core principles

(transparency, non-discrimination, procedural fairness) in the application of competition law

2. A commitment to enact and enforce a law against hard-core cartels

3. The development of modalities for voluntary coopertation on competition law and policy matters

4. A commitment to support the introduction and strengthening of competition laws and related institutions in developing countries

But this did not succeed…

Evenett (2007)

• Policy space• Wrong proponents • Single undertaking

Nontheless, efforts towards convergence continueEU and US convergence …

Convergence Substantive Differences

Objective of competition policy – benefit consumers; protect competition, not competitors

Abuse of dominance – excessive pricing prohibition (US intevene significantly less)

Cartels as most serious form anti-competitive behavior

Evidence – effects oriented in US vs category based assessment in EU

Horizontal mergers – high evidentiary standards that mergers will lead to anti-competitive effects

Vertical contractual restraints – rule of reason analysis in US vs per se condemnation in EU (ex. Minimum resale price)

State intervention – can lead to anti-competitive environment (but stronger legal platform in EU)

Definition of dominance – lower bound of 40% market share in EU; shares below 50% inadequate to establish market power in the US

Non-horizontal mergers – intervention in conglomerate and vertical transactions in the EU

Source: Kovacic (2008)

Convergence is also facilitated through other avenues

• International Competition Network (ICN)• Competition committee of the OECD • Regional collaborations – ASEAN, Andean

Pact, CARICOM, COMESA• Non-government networks, professional

associations, academic organizations • CUTS

Competition Policy and the ASEAN Economic Community

Competition policy is an important aspect towards the realization of the AEC

2nd part of the ASEAN economic blueprint aims for a competitive economic region “characterized by sound competition policy, consumer protection…”

1. Members introduce competition policy by 20152. Establish network of authorities for coordination and

discussions 3. Capacity building for members4. Regional guideline on competition

But coverage, scope and implementation of ASEAN countries of national competition policy & law vary

Competition Issue Indonesia Singapore Thailand Viet Nam

Exemptions from National Competition Law

Improving production or distribution X X X

Promoting technical or economic progress X X X

Promoting exports or competitiveness of domestic firms X X

Cooperatives X

Farmer cooperatives X X

State enterprises X X

IPR related X

International contracts ratified by government X X

Safeguard foreign trade and cooperation X X

Franchise contracts X

Source: Pupphavesa et al, in Plummer and Chia (2009)

Prohibited Horizontal Agreements in National Competition Policy and Law

Competition Issue Indonesia Singapore Thailand Viet Nam

Prohibited Agreement/Conduct

Price Fixing X X X X

Production restriction X X X X

Sale restriction X X X X

Bid rigging X X X

Exclusive geographic areas X X X X

Quality reduction X

Exclusive dealership X

Market control X X X

Technical development restriction X X

Investment restriction X X

Dissimilar conditions to different parties X X

Obligation irrelevant to contract subject X X X

Boycotting X X

Source: Pupphavesa et al, in Plummer and Chia (2009)

Prohibited Misuse of Market Power in National Competition Policy and Laws

Competition Issue Indonesia Singapore Thailand Viet Nam

Prohibited Conduct

Predatory pricing X X X

Price fixing X

Production restriction X X X

Market restriction X X X X

Distribution restriction X X

Technical development restriction X X X

Dissimilar conditions to different parties X X

Obligation irrelevant to contract subject X X

Preventing entry X X

Source: Pupphavesa et al, in Plummer and Chia (2009)

Competition policies are relatively recent developments for most ASEAN countries

… and governments have had rudimentary and limited experience in handling competition issues, especially of cross boundary nature

…as an organization, ASEAN has yet to have an institutionalized arrangement for cooperative work on competition policies and laws (Pupphavesa et al. 2009)

Established practice and policies are still at initial stages

• Jurisprudence • Consolidation • American vs European model• Challenging, but late comer advantage

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ASEAN countries, individually and collectively must strive to answer some key questions…

• Which types of anti-competitive practices should be included in national /regional competition law?

• Is there a case for a phased introduction over time of measures against different types of potentially anti-competitive practice ?

• The pros and cons of giving the agency in charge of enforcing measures against potentially anti-competitive practices responsibilities for:

(i) undertaking competition advocacy, (ii) enforcing consumer protection law, (iii) enforcing laws against economic concentrations, and (iv) other economic laws.

• What are the criteria in determining which corporate or state practices should be overseen by competition law.

Possible suggestion: potential for anti-competitive impact, prevalence, and pre-requisites for effective enforcement

The gains from an effective and harmonized ASEAN competition policy are considerable

• Efficiency gains • Boost international trade and investments• Consumer protection • Institutional reform• Growth (Pupphavesa et al 2009; Dutz & Hayri 2000)

Summary

• Competition policies must be developed and implemented with international developments in mind

• Convergence of national competition policies are needed if the growth benefits of trade are to be sustained

• ASEAN countries are beginning to consolidate their competition policies

• The region has less experience with implemention but has a late comer advantage

• Considerable gains are to be had from improved competition environment in the region

Thank youdbrooks@adb.org