learning to trust - cuts ccier · they also include the principles of positive and negative ......

Learning to Trust

REGULETTERRA Quarterly Newsletter of the CUTS Centre for International Trade, Economics & Environment

covering developments relating to competition policy and economic regulations.

The disagreement between the US and the EU on theGE-Honeywell merger is all the evidence one needsthat competition policy is both intensely important

and can be highly controversial. Now that the EU has blockedthe merger, which the US regulators had passed, eyes will beon the two to see if the flickering dispute catches light.

In the GE-Honeywell case, the Commission is trying toapply the doctrine that a company may exercise unfair marketpower because of its size and diversity. This is very difficultto prove, and a clear area of difference with the US, especiallyin industries which are sensitive politically.

However, in general, the competition authorities of the USand EU do co-operate on competition issues reasonably well.Since 1995, an agreement has been in force with provisions onnotification, sharing of information, etc. Cases like GE-Honeywell and Boeing-McDonnell Douglas in 1997 stand outbecause of their rarity. But, when the two sides disagree, deepnational interests are at stake.

One argument which appears to dominate the newthinking in the US is that big may not necessarily be bad,either for the economy or the consumers. Further, in anincreasingly global market, there is an atavistic desire topromote national champions.

Recently, in New Zealand, two large dairies were allowedto merge, even though the combined venture would capture90 percent of the domestic market. The argument was that thenew enterprise would be export competitive. Similarly, a fewyears ago, three large breweries in Brazil were allowed tomerge to protect the market from import competition, eventhough the alliance created a monopoly in the domesticmarket. Of course, imported beer is freely allowed withoutprohibitive tariffs.

In India, where a new competition law is currently beingdebated, one major consideration is that national championsneed to be promoted. Policy-makers were lobbied to considera discriminatory provision in the law to regulate mergersunder which the subsidiaries of foreign companies would haveto seek pre-merger clearance, while domestic firms would not.

If co-operation between the US and the EU can breakdown so dramatically when national champions are involved,what would the prospects be for a developing country tryingto investigate a merger or cartel in the US or EU? Would an

international competition agreement along the lines of the onecurrently being floated by the EU be strong enough tosafeguard the interests of developing countries and help themovercome their capacity constraints?

The small economies of many developing countries arerocked by the mergers of vast foreign companies much morethan the big economies where those companies are based.These are just the circumstances in which assistance betweencompetition authorities is needed the most, but managingco-operation when their economic context is so different is atangle of thorny issues.

The current proposals on the table on competition at theWTO incorporate the following elements:· notification when one party’s enforcement activities may

have an effect on the other party;· consultation;· surveillance of international anti-competitive practices; and· sharing of non-confidential information.

They also include the principles of positive and negativecomity. ‘Comity’ means that countries recognise the judicialacts of other nations as those of co-equal sovereign states. Inthe competition context, this would mean respecting thedecisions of other national regulators even when they affectdomestic firms.

The stronger principle of positive comity means that acountry can request action by another nation when anti-competitive behaviour in the latter is affecting its interests.

If this proposal gathers steam at the WTO, there could bereal benefits for developing country competition authorities.Positive comity would enable them to call on the US or theEU anti-trust bodies to take action in the face of internationalmergers and cartels, which is exactly when the resourcedeficiencies of the authorities are at their most stark.

The question remains, however, of whether this would beenough. Confidentiality concerns mean that authorities arehighly unlikely to share sensitive information, particularlywith a newly formed body. And, it is this confidentialinformation, which is crucial in tackling abuse of marketpower.

No.1 June 2001

CUTS Centre for InternationalTrade, Economics &EnvironmentEmail: [email protected]: www.cuts.org

Published withthe support ofDFID, UK

Subscription: $15/Rs.50 p.a

Contents

Software M&A

BankConsolidationPlans 16

3Power Gamesin EU

19

5

Italy May CurbInvestment

Competition Regimein Tanzania:The Stateof the Art

22

7

US EU Conflict

9Rating theRegulators

24

3�Healthy� Pharma

Pradeep S Mehta, Editor

2 REGULETTERNo.3 June, 2001

Major DevelopmentsIn the third quarter, the project took a

few more steps forward. The fieldwork ofthe project was completed to a large extent,Phase-I country reports were drafted bythe country researchers and the NationalReference Groups, comprising of variousstakeholders of the project, were formed inthese selected countries.

Field SurveyDuring this period, primarily, the

fieldwork of the project was completed.The field survey was based on acomprehensive questionnaire, which wasprepared after a detailed deliberation on thesubject by the partners, project advisorsand other various experts. Since Phase-I ofthe project deals primarily with theinstitutional framework for enforcingcompetition laws in the project countries,the questionnaire mainly focused on theinstitutional aspect of the CompetitionRegime. It was then sent to the countrypartners for collecting information from theconcerned persons. This stage involvedfrequent visits to the CompetitionAuthority. Detailed notes were also requiredto be appended with the questionnaire togive explanation in respect of theinformation collected. The partners wereable to get the questionnaire filled from thecompetition authority and collect therelevant data. The data was used by theresearchers to prepare the draft Phase-ICountry Reports.

Phase-I ReportBased on the above field survey and

survey of the existing legislation, thecountry researchers prepared the draftPhase-I Country Report. The reportcompiles all the data and informationcollected from the Competition. In order toachieve uniformity in the reports prepared,Prof. Rakesh Basant, the core-researcherof the Project, had suggested a specialisedformat for the researchers. As per theformat, the report would be divided intotwo parts: the first part analysingsubstantive aspects of competition policyand the second part focusing on its

administrative dimensions. The draft reportwould be sent to Prof. Basant for hiscomments and finalised after incorporatinghis comments therein. This final draft ofthe report would then be discussed at theNational Reference Group Meeting to beorganised in each of these countries by themain partner.

National Reference GroupOne of the most important activities

completed during this period was theformation of the National Reference Group(NRG) by the project partners. Almost allthe partner countries finalised the membersof their NRG and decided the date of theirmeeting. The partners sent the final list ofthe members of their NRG along with theircomplete communication co-ordinates. Thelist comprises of representatives of thefollowing categories of organisations/persons:· Consumer organisations;· Other civil society organisations with

demonstrated interest in economicissues;

· Research institutions, academia, experts(economists and lawyers);

· Chambers of commerce;· Media;· Competition Authorities;· External Trade Departments;· Internal Trade and/or Consumer Affairs

Departments;· Politicians and/or Parliamentarians; and· Regulatory Authorities.

These members have been put on theCUTS postal and electronic mailing lists sothat the entire project related publicationscould be sent to them. The list is a richdatabase to reach out to an influential set ofpeople who have a stake in the process ofeconomic reforms.

NRG MeetingsPartners have finalised the dates for

their NRG meetings. Almost all meetingswould be held in June and would beattended by CUTS representatives.Representatives from DFID, UK and theircountry offices might also attend thesemeetings. The draft Phase-I Country

Report would be presented at the meetingand comments and suggestions that wouldsurface there would be taken intoconsideration while revising the draft Phase-I country report. The NRG woulddeliberate on the inputs prepared in eachcountry and create a base that would beused for launching advocacy forstrengthening the competition culture intheir respective countries.

The core researcher would thereafter,compile and collate the revised countryreports and prepare the draft Phase-Ireport, which would be finalised afterincorporating the comments of the membersof the Project Advisory Committee.

Plan for the Next QuarterThe next quarter would be the last

quarter of the first phase of the project andwith this would end the first year of theProject. We would enter into the secondphase as well as the second year of theProject after this period.

During the next quarter, one of the mostimportant activities of the Phase-I of theproject would be completed. NationalReference Group meetings would beorganised in all the project countries andthe results of the fieldwork done by thecountry researchers would be tested at thesemeetings.

After the NRG meetings, final draft ofthe Phase-I report would be prepared by thecountry researchers. This final draft wouldtake into consideration the suggestionsreceived at the NRG meeting. The draft wouldbe sent to the members of the ProjectAdvisory Committee for comments and,thereafter, the partners would prepare thefinal version of the report.

The final version of Phase-I reportsreceived from the partners would then becompiled and collated by Prof. RakeshBasant, the core researcher of the Projectto prepare the draft Phase-I report. ThisPhase-I report would be finalised afterincorporating the comments received fromthe members of the advisory committee ofthe Project and would be deliberated at thePhase-I culmination meeting of the projectto be held in September 2001.

The CUTS Centre for International Trade, Economics & Environment (CITEE) is implementinga two-year research project entitled “The 7-Up Project”. This project involves a comparative studyof the competition regimes of seven developing countries in the Commonwealth with the aim ofstrengthening their competition laws. This initiative is supported by the Department for InternationalDevelopment, UK. The countries selected for the project are: India, Pakistan, Sri Lanka, Kenya,South Africa, Tanzania and Zambia. The project was launched on September 1, 2000 and hasprogressed considerably since then. “Shaping Competition Culture in Developing Countries” hasbeen defined as the mission statement, while the vision statement reads as: “Towards a HealthyGlobal Competition Culture”.

THE 7-UP PROJECT: SHAPING COMPETITION CULTURE

3REGULETTERNo.3 June, 2001

Review After the FactThe future of Distell, the newly merged

liquor group, which includes StellenboschFarmers’ Winery (SFW) and DistillersCorporation, could be in the balance afterthe Competition Tribunal of South Africaruled that it has jurisdiction over the deal,overturning an earlier ruling by theCompetition Commission.

The parties will now have to notify thecommission of the merger, which waseffected late last year after the Commissiondecided, on the basis of the evidencepresented, that the merger did not requirethe consent of the authorities. The tribunalupheld arguments by Seagrams andBulmers, Distell’s competitors, whichchallenged the commission’s ruling arguingthat the deal amounted to a change of controlof the two groups.

The Commission would have 60 daysto evaluate the deal before it goes to thetribunal for a decision. The tribunal wouldhave the right to order divestiture, if it findsthe merger would substantially lessen orprevent competition. The order ofnotification would be suspended if theparties lodged an appeal to the CompetitionAppeal Court. (BD, 25.04.01)

ASML-SVG Merger ClearedThe Committee on Foreign Investment

in the US ruled that Dutch semi-conductorequipment maker ASM Lithography NVand California’s Silicon Valley Group maymerge, with certain restrictions, relievingUS President, the George WBush, fromhaving to make a decision on the politicallysensitive deal.

Bush had been due to rule after thecommittee deadlocked between defencehawks, who believed it could pose a threatto US security, and pro-business members,who saw the deal as crucial to the health ofthe US semi-conductor industry.

The restrictions imposed include therequirement to sell Tinsley, which is a smallunit owned by SVG, appointment of a UScitizen to its supervisory board andmaintaining of an unspecified amount ofresearch and development in the US for aperiod of between five to 10 years. Atcurrent share prices, SVG is valued around$1.2bn. (WSJ, 04.05.01)

Online M&AsHu Consultancy, a Mumbai-based

consultancy firm, has launchedMergersindia.com, which is a B2B venturethat aims to be a marketplace for companieslooking for mergers or acquisitions. Thecompany has invested about Rs 4 millionin the sites so far and plans to bring instrategic investors in the course of time.

The basic features of the portal willinclude a legal corner, checklists for CEOs,a database of facilitators of M & A deals, a

buy and sell centre which will feature theavailable business offers and onlinesoftware solutions.

The company plans to approachmerchant banks, leading consultants andventure capitalists to list as serviceproviders on the site. Its key revenuestreams constitute consultancy fee,membership fees from professionals,commissions on deals and sale of software.

(FE,21.03.01)

Expanding CommunicationsMobitel and Internet provider

CyberTwiga Ltd, two leadingtelecommunications firms in Tanzania,merged to create a service that enablesmobile phone users to send and receive web-based e-mail text messages for as little as$1. The general manager of Mobitel, JimBell, said that the merger was done to forma “unique company that expands thecommunications horizon for both cellularphone holders and those hooked to Internetservices.”

The joint venture has introduced the“everyday.com” brand, an Internet portal

currently used by 14 European countries.Under the terms of the agreement,CyberTwiga Ltd implements the Internetconnectivity and back-end systems neededfor the ‘everyday.com’ brand, whileMobitel provides the telephony.

(The East African, 18.03.01)

Demerger of SCI ConsideredThe Department of Disinvestment

(DoD) and the Shipping Ministry isconsidering the demerger of the ShippingCorporation of India (SCI) before itsprivatisation due in this fiscal. The DoDand the Ministry are working on a proposalfor strategic sale of SCI, the Governmentdivesting 40 percent stake in favour ofstrategic buyers.

The erstwhile DisinvestmentCommission had recommended that 30percent of the equity of SCI may be offeredto IOC, HPCL, CRL and MRL inproportion to their net profits and 10percent could be offered to the privatesector and joint sector refineries. However,the response of companies to takeover stakein SCI has been lukewarm.

Many officials view that restructuringof SCI would unnecessarily delay theprivatisation of SCI and may bring downaccrual to the public exchequer byway of SCI sell off since at present theshipping sector is on the upswing.

(FE, 06.05.01)

RESTRUCTURING

Software M&As

SAP, Europe’s largest software group, and International BusinessMachines, the US computer giant, are in talks about an e-business

systems alliance. The alliance would see IBM’s system integration divisionchoose SAP as the preferred provider of e-business solutions to its customers and,in return, IBM would receive a share of the revenue generated and as well asadditional business from SAP.

If successful, a transatlantic rapprochement between the two IT giants would bewelcomed by analysts as the groups have been drifting apart and acting more likecompetitors over the past 18 months.

IBM last year formed an alliance with i2 and Ariba of the US to provide customerswith an integrated solution to implement online marketplaces. Yet, the alliance hasfoundered as i2 and Ariba have introduced increasingly overlapping products and IBMhas privately voiced disappointment at the revenue generated by Ariba.

SAP has also unveiled a new US subsidiary and a partnership with Yahoo, theworld’s largest Internet portal. The subsidiary, SAP Portals, will be based in Californiaand incorporate Top Tier, a portal company SAP acquired last month. A joint enterpriseportal would be set up that allows access to SAP and non-SAP applications, which bothwill market through their own sales channels.

Further, Microsoft Corp. and EBay Inc. plan to announce a broad alliance to supporteach others’ internet technologies and services. It represents one of the biggest endorsementsto date for Microsoft’s broad new Internet initiative dubbed .NET. EBay is also buyingsome high-end computer servers running Microsoft’s Windows 2000 software.

However, the number of software M&As has been reported to have droppeddrastically from last year. The ones that do occur take longer because getting to handlea company’s value is difficult and the values are far less than they were last year. As pera research firm Thomson Financial Securities, the number of software mergers andacquisitions fell 38 percent to 453 from 730 in the first quarter of 2000. The value ofdeals plunged 91 percent to $6.1bn from $67.45bn.

(FT, 23.05.01 & 05.04.01; WSJ, 13.03.01 & BL, 14.05.01)

Financial T

imes


RESTRUCTURING

The Soured DealAlcatel SA’s attempt to acquire Lucent

Technologies Inc. for $22.8bn in stock gotunraveled, with Lucent worried that whathad been billed as a merger of equalsincreasingly was looking like a takeover. Thetwo sides had made a significant progressand had planned to announce thetransaction.

The collapse of the deal is a suddenturn of events for the two communications-equipment companies, which had beennegotiating for more than a month.

Lucent Technologies Inc.’s ChiefExecutive, Henry Sachacht, declined toexplain why the merger talks fell apart,people familiar with the discussions saidthe deal was looking more like an acquisitionby Alcatel than the merger of equals thatSachacht had wanted. Many of the financialterms had agreed upon, but Lucent wantedboth companies to have equal representationon the board, while Alcatel wanted toappoint the majority of the board members.

(FE, 31.05.01 & 01.06.01)

Allianz Extends its TentacleAllianz AG prepared to become one of

the world’s largest financial groups whenDresdner Bank AG gave the German insurera green light for its takeover. Allianz andDrsedner Bank will bundle their forces and,in future, focus on three core areas,insurance, asset management and banking.

The new financial giant will have amarket capitalisation of 109.6bn euros,second in Europe only to HSBC HoldingsPLC, which has a market value of 122.8

Furthering the trend of airline mergers,Australian Competition and ConsumerCommission (ACCC) approved QantasAirways Ltd’s takeover of financiallytroubled Impulse Airlines Ltd, despitestrong objections from rival carriers. Rivals,Ansett Australia, a unit of Air New ZealandLtd, and Virgin Blue, a unit of Virgin Group,vehemently opposed the deal, claiming itwould reduce local competition and driveup fares. Qantas gave an undertaking onscarce take-off and landing slots at Sydneyairport, general access and price agreements.

(WSJ, 22.05.01)

UAL, the parent of United Airlines, hasoffered $4.3bn to buy US Airways, but thetransaction has been subjected to strictscrutiny from US regulators who see themerger hurting consumers, as it reducescompetition in the carrier market. Themerger would make United Airlines by farthe largest provider of domestic air travel.

(FT, 09.03.01)

On the other hand, the Malaysia’sGovernment is studying the viability ofsplitting the operations of Malaysia

Airlines (MAS) into domestic andinternational services to better regulate airfares and improve efficiency at theunprofitable national carrier. The marriagebetween MAS and the Maharajah for theIndia-US sector may be on the rocks evenbefore the knot is formally tied. Taiwanand Japan are likely to trigger a mid-aircrisis for the daily MAS-Air India code-share flight to Los Angeles by refusingpermission for the alliance.

(Dow Jones Newswires, 06.04.01 & ET, 14.03.01)

Six Chinese Airlines form an alliance,called the China Sky Aviation EnterprisesGroup, to compete against rival giants after

a sector overhaul. This alliance follows anannouncement by the Civil AviationAdministration of China that the 10 airlinesunder its regulatory jurisdiction had agreedto form three groups under unlisted AirChina, China Eastern Airlines and ChinaSouthern. (WSJ, 01.05.01)

The Scandinavian Airlines System isalso keen to buy small airlines in the Balticregion, but has ruled out a full-blown mergerwith another European group. In anothermove, British Airways has applied to theEuropean Commission for anti-trustimmunity for a planned joint venture withFinnair and has also started talks withBrussels about deepening its alliance withIberia, the Spanish flag carrier. (FT, 14.05.01)

Further, the Kenya Airways intends toacquire 100 percent shareholding of its maincompetitor in ground aircraft and cargohandling at Jomo Kenyatta InternationalAirport (JKIA) in Nairobi. Negotiations arecurrently underway between KenyaAirways and the Kshs. 1.7bn venture,African Cargo handling Ltd (ACHL).

(The East African, 27.05.01)

Airline Briefs

billion euros. It would be fourth in the worldbehind Citigroup Inc., AmericanInternational Group and HSBC.

Allianz, which owns 21.4 percent ofDresdner, will end up with more than 45percent of the shares if the exchange goesahead. It is planning to offer the remainingshareholders a mix of cash and shares worthEuro 53 a share – a 25 percent premiumto the closing price.

(FT, 30.03.01 & WSJ, 02.04.01)

Steel AllianceAmid the wave of mergers and alliances

among global steelmakers, Baosteel, WuhanIron & Steel and Shougang Iron & Steel,China’s major steel mills, have reportedlyformed a strategic alliance to cut costs inimportant areas like raw materialspurchasing, technology transfer, pricingstrategies, distribution and transportationof materials. NKK and Kawasaki Steel,Japan’s second and third largest steelmakers,plan to merge to secure a position amongthe world’s three top steelmakers

A few months ago, France’s Usinormerged with Luxembourg’s Arbed andSpain’s Aceralia to create the world’s biggeststeelmaker. The Czech Government isconsidering merging the country’s three bigsteel companies to give the industry achance of survival after joining the EuropeanUnion.

This national level co-operation to cutcost emanates precisely because of theglobal character of the steel market. If thereis a good world-market to sell, such nationallevel co-operation is a bonus. In the

domestic market, the major players maybring in some stability, if not an order.Capitalist competition is changing its nature.

(FE, 07.04.01 & FT, 14.04.01)

World�s No.2 Mining GiantAustralia’s largest resources group,

BHP Ltd., has announced a $28bn mergerwith London listed Billiton Plc to createthe world’s second biggest minerals andmetals giant. Under the deal, the companieswill combine in a so-called dual listedcompany to be known as BHP Billiton,whose shares would be traded in Londonand Australia.

The transaction has been approved byshareholders of both companies and nowrequires approval from antitrust andregulatory authorities in Australia andEurope, none of which is expected to blockthe deal.

Australian trade unions have protestedagainst the merger complaining about thelack of an independent report on the merger,undervaluing of BHP assets, massive bonuspackages for top management, inadequateboard accountability, etc. However, BHPhas dismissed the campaign, stating the dealas the best opportunity for the BHPemployees. Alcan, the world’s secondlargest aluminium group, is consideringmaking a counter offer for Billiton. AngloAmerican and Rio Tinto have both beensuggested as possible bidders for Billiton.Alcan may face scrutiny from thecompetition authorities if it attemptsfurther to expand its aluminium interests.

(BL, 09.05.01, WSJ, 16.05.01 & FT, 20.03.01)

Financial T

imes


Musical MergersVivendi Universal, the world’s second

largest media group, is to pay $372mn forMP3.com, a leading online music platformat the centre of disputes over distributingcopyrighted material over the internet.

In February, Vivendi and Sonyannounced plans to create Duet, an onlinemusic subscription service to rival Napster,which has formed an alliance with Germanmedia group Bertelsmann. The discussionsabout a possible merger of EMI Group PLCwith the Music Group unit of BertelsmannAG ended because the EU opined that themerger would reduce the number of leadingmusic companies to four from five.

This was also the key factor behind theEU’s refusal last year to approve a proposedmerger between EMI and the Warner MusicGroup unit of AOL Time Warner Inc. Onthe other hand, Yahoo, the world’s leadingweb, has announced to link up with VivendiUniversal and Japan’s Sony to deliver musicover the Internet. Starting this summer,Duet, Sony and Vivendi’s online jointventure will be given preferentialpositioning on Yahoo.

(FT, 21.05.01 & WSJ, 02.05.01)

Bolstering Hair-Care BusinessThe US consumer products giant,

Procter & Gamble, in its biggest acquisitionever, has agreed to acquire Clairol fromBristol-Myers Squibb Co. for $4.95bn tobolster its hair-care business.

The deal is ambitious for P&G as it isin the midst of shedding big food brandsand cutting 17,400 employees, or about 16percent of its 110,000-person work force.P&G would have to overcome theregulatory hurdles also given its presencein the shampoo market. The main prize forP&G is not Clairol’s shampoo assets, butits hair-colouring business, which competeswith L’Oreal of France.

In another deal, P&G has boughtpatents and rights to MoistMates fromprivately-held MoistMates LLC. Thiswould allow P&G to challenge rivalKimberly-Clark Corp’s line of pre-moistened toilet paper.

(WSJ, 21.05.01 & BL, 08.05.01)

Split up PlanVerizon Communications Inc. is fighting

a plan off Pennsylvania regulators toencourage local-phone competition bysplitting Verizon into two companies. Theplan envisions a retail unit to serve theconsumers and businesses and a unit thatwill sell wholesale to other carriers, as wellas to the Verizon retail arm.

Supporters say forcing Verizon to treatitself in the same way that it does otherlocal carriers would quickly produce fairerwholesale prices, better systems forhandling orders and more competition.

Verizon contends that creating twoentirely separate companies in Pennsylvaniawould cost $1bn without creating any

advantages for the customers. Its onlybenefit would be to competitors such asAT&T, argued Verizon spokesman EricRabe.

The fight over the measure has thelobbying and public-relations engines atboth AT&T and Verizon in overdrive andany decision the commission makes islikely to spark more lawsuits. (WSJ, 20.03.01)

Telecom Orgy:BT�s WayBritish Telecommunications has agreed

to sell its hard-won foothold in Japan inthe second high profile sacrifice stemmingfrom its £3bn ($43bn) debt problem. BTwas expected to announce a deal to sell its20 percent stakes in Japan telecom and J-phone to arch-rival Vodafone for more than£3bn.

BT’s withdrawal comes just two weeksafter it negotiated options to buy 5 percentstakes in J-Phone’s operating subsidiariesfrom Japan Telecom. The sale comes justtwo years after BT invested £1.2bn inJapan Telecom, together with AT&T, andgained a foothold into Japan’s advancedmobile market.

As a result of BT’s sell-off, Vodafonewill now raise its stake in Japan Telecomfrom 25 percent to 45 percent and its 26percent holding in holding in J-Phone to 46percent. Vodafone will also acquire BT’s 5percent stakes in the three regional mobilephone operating companies making up theJ-Phone group. (FT, 30.04.01)

Swiss drugs groupNovartis AG

bought a 20 percentstake in rival, RocheHolding AG, in adeal that is expectedto open strategicoptions. Novartis,which is notproposing mergerwith Roche for thetime being, is notopposed in principle,to introduce a unifiedshare at the rivalhealth group but hasnoted that this would dilute Novartis’s 20percent voting rights in Roche.

Roche’s board would discussrestructuring of its troubled pharmaceuticalsbusiness that will involve the Swiss companyshedding several thousand jobs on both sidesof the Atlantic. It would also mull strategicoptions. (FT, 08.05.01)

In Canada, Shire Pharmaceuticals$5.7bn merger with BioChem pharma hasbeen approved by the Canadian authorities.Shire has promised the Industry Ministerto continue BioChem’s extensive researchprogramme in vaccines and anti-retroviralsand would not close its headquarters andcommercial operations in Montreal. Shirehas agreed to abide by the TechnologyPartnerships Canada programme under

which the government would provide$52mn towards a C$600mn investment inrecombinant vaccines expected to create450 skilled jobs. (FT, 10.05.01)

On the Indian front, there is a strongwave of consolidation in the pharmaceuticalindustry which is predicted to reduce themarket share of mid-size companies from20 percent in 1999 to 10 percent by 2010.In the largest ever mergers and acquisitionsin the Indian pharma sector, Zydus Cadila,the sixth largest pharma company in Indiaacquired 27.7 percent stake in GermanRemedies. It has also entered into anagreement with Asta Medica to acquire,through a subsidiary, perpetual rights tofive brands for a total consideration of Rs52.60 crore. (TH, 11.04.01)

The boards haveapproved the merger ofRhone Poulenc IndiaLtd. with NicholasPiramal India Ltd.(NPIL) capitulatingthe pharma majorNPIL into the top slot.Being a 100 percentsubsidiary, there wouldbe no fresh issue ofshares by NPIL forthis merger.

ICI India isexploring thepossibility of roping in

a strategic partner for its pharma businessand the American multinational Pharmaciaand the Mumbai, India-based USV areamong those in the fray for acquisition.USV, active in M&As, had acquired theAngispan and Amlopine brands from Lykalabs in 1999 and had bought over NeoPharma. A year later it acquired Glaxobrands Anovate and Deborin. (FE, 23.05.01)

Further, Ranbaxy, a pharma major, mayacquire biotechnology firms in India andabroad, in a bid to become a billion-dollarturnover company by 2001. It is believedto be eyeing acquisitions in France andGermany, while exploring a joint venture inBrazil. It also plans to introduce a healthcareproduct in China and foray into ‘brandedbusiness’ in the UK. (BL, 13.03.01)

RESTRUCTURING

�Healthy� PharmaToo 10 pharmaceutical companiesBy market capitatisation $bn

Pizer 274.38Novartis/Roche* 178.98Merck 175.87GlaxoSmithKline 170.92Johnson & Johnson 136.67Bristol Myers Squibb 108.76Eli Lilly 96.99AstraZeneca 81.05American Home Products75.86Amgen 65.21

*Pro forma

Share prices

1 3 0

1 2 0

1 1 0

1 0 0

9 0

8 0

7 0

6 0

May 2000 2001

...Roche bearer sharesRoche certificatesNovartis

Big pharma Franz HumerRoche chief executive

Danlel Vasella,Novartis chairmanand chief executive

Source:Thomson FinancialDatastream

Financial T

imes


RESTRUCTURING

M&A activity in the world, as a whole,fell to its lowest level in three years in thefirst quarter of 2001 but consolidationcontinued apace in certain sectors andregions and mega mergers are still on thecards. In India, merger activity has beenfrenetic, with 124 deals worth Rs. 1,568 crore(US$ 33.36 crore) clinched in April alone. InEurope, private equity investors are set toinject life into the European M&A marketby playing an increasing role in deal flow.

In the communications business, biggermay still be better in the weak economy.Interpublic Group will buy rival TrueNorth Communications creating what islikely to be the ad industry’s largest player.EchoStar Communications Corp. isfinalising a proposal to acquire its muchbigger satellite television broadcasting rival,Hughes Electronics Corp. The world’slargest sports rights agency has been createdin Europe from a merger of Vivendi,Bertelsmann and Jean-Claude Darmonsubsidiaries.

Northrop Grumman has completed itsacquisition of Litton Industries, creating a$15bn defence company. The Russiananti-trust authorities approved the foundingof the world’s second-biggest aluminumproducer, Russian Aluminum.

In the US, there has been a burst ofmerger activity in the natural gas sector,driven by the US’s growing need for powergeneration. Kerr-McGee is set to buy HSResources and Shell has bid for Barrett.Anti-trust enforcers have askedAmericSource Health and Bruswig formore information about their proposedmerger, which would create a giant drug-distribution company worth nearly $35bnin annual revenue. Theregulators have firmly rejectedan effort by US freightdelivery companies to blockDeutsche Post’s expansion inthe US market.

In Pakistan, there hasbeen further consolidation inthe pharmaceutical sector,with Parke Davis & Co.proposing to amalgamatewith Pfizer Inc.

In Japan, Hitachi andKawasaki are forming a broadalliance as a general contractorfor overseas railway businessin the light of increasingconsolidation in the global

railways market. After facing a sizeable andviolent obstacle by the labour unions,General Motors Corp. has begunnegotiations for the South Korea’s secondlargest automobile maker, Daewoo MotorCompany.

In Kenya, Scanad Marketing Ltd. islikely to link up with an international firm,Lowe Lintas & Partners worldwide. South

Africa will refer the local leg of theUnilever’s takeover of Bestfoods to theCompetition Tribunal. Worldwide, thetakeover has already led to the closure ofmore than 30 factories and the loss of 8,000jobs.

In Europe, the Commission has allowedBombardier’s acquisition of DaimlerChrysler’s rail business division to go aheadunder the condition that they license outpart of their German business. They havealso cleared the purchase of Seagram’sworldwide spirits business by PernodRicard of France but the companies willhave to divide up the management of 50 orso strategic brands.

Meanwhile, in France, a Paris courtannulled decisions by French marketregulators to approve Schneider Electric’stakeover of Legrand, another electricalequipment maker. The Commission is alsoinvestigating this case. In the UK, theproposed acquisition of Harcourt Generalby Reid Elsevier has been referred to thecompetition commission for restrictingcompetition in the technical and scientificjournals sector, as has the proposedtakeover by Lloyds TSB’s of rival bankAbbey National.

Eon, Germany’s second-largest utilityis poised to launch a takeover of PowerGen,Britain’s second largest generator, despitepotential regulatory problems in the UScaused by PowrGen’s ownership of aKentucky utility, LG&E. The deal betweendebit-card service providers, Switch CardServices and Europay, may come up againstcompetition scrutiny. Vodafone’s sale ofItalian telecom group Infostrada to Enel,the power giant, may be derailed by anItalian regulatory probe.

The world is set for even moreconcentration in cement with Lafarge, theFrench building materials group, planningto build on its takeover of BlueCircle andextend its presence in emerging markets. Ithas already made acquisitions in Thailand,India and Japan. The privatisation ofCimpor, Portugal’s dominant cement group,will set the scene for a battle betweenHolcim of Switzerland and Lafarge and theirPortuguese subsidiaries for control of thecompany.

In Japan, Sony has backed away froma sales alliance with subsidiaryAiwa because of anti-trustconcerns.

The Hong Kong stockexchange has been cleared of chargesthat it unfairly favoured PacificCentury Cyberworks when itsecretly altered rules toaccommodate the company after itbought Cable & Wireless HKT inthe largest takeover in Asia outsideJapan.

The merger of PMP Ltd andIndependent Print Media Groupwas abandoned after Australia’scompetition watchdog expressedits opposition to the deal.

The US Federal Communications Commission (FCC) wasexpected to approve Deutsche Telekom AS’s acquisition of

Voice Stream Wireless Corp. with only a few, if any at all,significant changes. The two Republican FCC commissioners,including chairman Michael Powell, are believed to have giventheir assent to the merger.

Deutsche Telekom encountered some opposition from thelawmakers because it is still controlled by the GermanGovernment, which holds about 58 percent of the company. TheGovernment stake will decline to about 45 percent after theVoiceStream deal closes.

In its Telecom-Voice Stream ruling, the FCC found thewording calling for an outright ban applies only if a foreignGovernment itself tries to acquire a license – a highly unlikelyscenario that, for all intents and purposes, makes the clause moot.

(WSJ,06.04.01 & FT, 04.04.01)

Deutsche Telekom�Voice Stream Deal

NEWS ROUND-UP

The E

conomic T

imes


MACRO ISSUES

COPRA to be ChangedTo facilitate quicker disposal of cases

by the Consumer Disputes RedressalAgencies popularly known as ConsumerCourts, the Indian Government hasintroduced Consumer Protection(Amendment) Bill 1986. The majoramendments proposed in the ConsumerProtection Act (COPRA), 1986 are:· Enhancing the pecuniary limits of

jurisdiction of the consumer disputesredressal agencies;

· Enabling provision for charging of fee inrespect of complaints filed;

· Extending the provisions of the Act toservice providers indulging in unfairpractices;

· Bringing sale of spurious goods orservices within the meaning of unfair tradepractices;

· Provision for recovery of amountsordered to be paid as arrears of landrevenue; and

· Provision for issue of interim orders incases where it is considered necessary.

Trans-Atlantic Aviation Rules

In a sign that European Union (EU)officials are serious about liberalising airtravel between the member-nations and theU.S., the European Commission (EC) hasasked outside consultants to study thepotential of the idea.

It’s a small step, but it indicates Brussels

is committed to lobbying for a radicalrelaxation of restrictions that put limits onwhich airlines can land in which countries.

The EC wants to negotiate air treatieson behalf of the EU, treating all 15 countriesas one market. If it gets authority to dothis, possible elements of a treaty with theUS would include:· the US and the EU airlines could fly

freely between the two markets;· the EU and the US airlines could fly on

to third countries from each other’smarkets;

· Foreign ownership limits could be lifted;· the EU and the US regulations on safety,

competition, environment and passengerrights could be standardised; and

· The agreement could be extended toinclude other countries and blocs.

(FE, 06.02.01)

Inhibiting ExportsNew research from the World Bank

(WB) shows that shipping cartels and traderestrictions on port services inhibit exportsto the US from some countries more thanthe US tariffs do.

A paper from the WB’s developmentresearch group estimates that breaking upcarrier agreements among shipping lineswould reduce transport costs by 25 percentand liberalising port services would cutcosts by a further nine percent.

Translated into cash figures, theremoval of the US port restrictions wouldlead to a savings of up to $80mn a year andthe breaking up of private shipping cartelsinvolved in trade with the US would bringan additional saving of up to $2bn, thepaper estimates. (FT, 01.03.01)

New Consumer LawThe new Consumer Protection

Authority Bill of Sri Lanka would providefor the establishment of consumer

protection authorities and consumerprotection councils to regulate the pricesof goods and services to protect theconsumer, a top economist said.

Dr. Saman Kelegama, ExecutiveDirector of the Institute of Policy Studies(IPS) said, with the entry of the proposedlegislation, the Fair Trading CommissionAct and the Consumer Protection Actwould be amalgamated into the new law.

Kelegama said that the functions of theproposed Authority would be to controlor eliminate restrictive agreements orarrangements among enterprises with regardto prices and acquisitions.

It would also be empowered toinvestigate or inquire into monopolies,mergers and anti-competitive practices andabuse of dominant positions and promoteeffective competition. (ST, 25.03.01)

Controlling Drug PricesLooking for ways to control rapidly

escalating prescription-drug costs thatthreaten to swamp health-insurancebudgets, various US states are consideringforming a multi-state drug-purchasing pool.

The states hope to assemble more thana million state employees, retirees and theirfamilies under a single pharmaceuticalbenefits manager and use the combinedleverage to demand steep rebates from drugcompanies. If successful, this would be thefirst pool of employees from different statesand a potential threat to drug companies’bottom lines.

This multi-state co-operation is a signalof how serious the pricing situation hasbecome. Amanda McCloskey, health-policy director for Families, USA, aconsumer advocacy group in Washingtonsaid, “It tells you just how desperate theyfeel and how much of a crisis this issue is.”

(WSJ, 26.03.01)

COMESA Works on CPThe Common Market for East and

Southern Africa (COMESA) is working onthe formulation of a COMESA competitionpolicy (CP) and payment system to suitthe environment of the member states bythe end of the year 2001. COMESASecretary-General, Erastus Mwencha, saidthis when he opened a workshop onsafeguards and remedial measures on effectsof Free Trade Agreement recently at theMulungushi conference centre.

Mwencha said that the need for aregional approach to competition isreinforced by globalisation of businessesand a large number of the member stateshave already adopted competition laws. Hesaid COMESA is also designing a regionalpayment system that will suit the changedenvironment of the Comesa member states.

(TOZ, 23.03.01)

Italy may seek to impose tough curbs onforeign investment in Italian companies

after Electricite de France (EdF) admittedthat it had bought 20.1 percent ofMontedison, the Italian industrial holdinggroup.

Italian Government officials are expectedto propose a law banning the acquisition ofsignificant stakes in Italian groups bycompanies from foreign countries, which donot allow reciprocal access to their markets.The move comes as Italian business leadersstepped up their calls for intervention in thecontroversy and the Government reacted withanger to EdF’s admission.

Any move by Italy to limit foreigninvestment could bring the Government intoconflict with the European Commission (EC)over possible breaches of the single market.

Italy May Curb Investment

The EC has said it would investigatewhether EdF had taken effective control ofMontedison and whether its entry into Italycould restrict competition there.

(FT, 24.05.01)

Italy - Montedison 20%

ISE 30%

UK - London Electricity 100%

Spain - Elcogas 29%

Portugal - Tejo Energia 10%

Germany - EnBW 25%

Sweden - Graninge 36%

Switzerland - ATEL 13%

Austria - Estag 20%

Poland - ECK 58%, ZECW 35%

Kegeneracja n.a.

Hungary - Demasz 50%+1share

BERt 89%, Edasz 27%

Power Hungry EdFStakes in European power companies

Business W

eek


MACRO ISSUES

New Takeover CodeGermany has backed out of an

agreement to establish a European Unioncorporate takeover code, fearing it wouldbecome too easy for foreign predators tosnap up German companies. The codewould outlaw the use by targetedcompanies without first gaining theirshareholders approval of “poison pills”.

The poison pill is a financialarrangement such as conditional sale of acore asset at cheap prices that would reducethe value of the target company in the eventof a successful hostile bid.

Government is drawing up its owntakeover code broadly in line with theproposed EU rules. The code aims toprotect minority shareholders.

The Commission warned that the EU’sdrive to improve competitiveness could behampered if the takeover code founders. Aformal process of conciliation aimed atachieving a compromise has also beenlaunched. (FT, 03.05.01 & 05.04.01)

Levi-Tesco: New TurnThe European Court of Justice’s

opinion on Tesco V/S Levi Strauss highlightsa struggle between manufacturers andretailers over who controls the prices. Thecase centres on attempts by trademarkowners to prevent “parallel imports” fromoutside Europe.

The court’s opinion concerned threecases – two involve Levi’s jeans and thethird the sale of Davidoff perfume importedfrom Singapore.

The principal way lawyers advisebrand-owners to try to frustrate parallelimports to state explicitly in supply agree-ments that they do not consent to suchimports. There are countries where suchprovisions are illegal, since they breachcompetition law.

Sweden and UK have done aninternational price comparison study thatshows consumers in those countries arepaying higher prices for a number of brandedgoods and plan to press for a change in theEU’s trademark regime.

The European Commission is against achange in regime as it believes that allowingparallel imports would have little impacton prices. (FT, 06.04.01 & FT, 27.04.01)

SACC Blasted by BoydLeslie Boyd, the vice-chairman of Anglo

American, blasted the country’scompetition authorities, accusing them ofstifling the development of world-classindustries locally. He warned that theapplication of competition legislation inSouth Africa had made it difficult to buildup “globally sized and globally competitivebusinesses, other than our miningbusinesses”.

Boyd attacked two competitiondecisions involving Anglo subsidiaries – theproposed sale of AECI to Sasol and theintended takeover by Tongaat-Hulett ofTSB, a Highveld sugar producer. However,David Lewis, the Chairman of theCompetition Tribunal, responded that thereneeded to be a balance between the effecton efficiency of creating larger companiesand the effect on domestic competition.

“There is very little evidence that youneed to dominate your domestic market tocompete successfully internationally –quite the contrary,” Lewis said. (BR, 18.04.01)

Provisions in Free Trade DealCanada and Costa Rica have signed a

free trade agreement that includescompetition policy provisions. It alsoincludes two parallel accords onenvironmental and labour cooperation. Aspart of the trade agreement, Costa Rica isexpected to remove immediately 67 percentof its tariffs on goods imported fromCanada. In return, Canada will eliminate 86percent of its tariffs on goods from CostaRica, phasing out the rest over eight years.

The pact was signed in Ottawa on 23April by Canadian trade Minister PierrePettigrew and Costa Rican Trade andIndustry Minister, Tomas Duenas.

The officials said the trade pact includes“a precedent setting framework forcompetition policy” that could serve as amodel for the Latin American region. Thecompetition policy provisions “willpromote greater transparency and certaintyin both markets and enhance theeffectiveness of enforcement activities byCanadian and Costa Rican anti-trustauthorities,” trade officials said.

(Dow Jones, 23.04.01)

Company Merger WorriesThe European Commission met

criticism from companies about thedifficulties of defending themselves againstantitrust and merger decisions. The hearing

Streamlining Hostile Takeovers

The Pakistan Government has decided to streamline hostiletakeovers of listed companies and acquisition of their

substantial shares to provide a level playing field to general investors.The major provisions of the proposed law are:· No person shall acquire (i) voting shares, which would entitle

such person to more than 15 percent voting shares in a listedcompany, or (ii) control of a listed company, unless such personmakes a public announcement of offer in this regard;

· Any acquirer who crosses 10 percent voting shares in a listedcompany shall disclose the status of his shareholding to thatcompany and the stock exchange; and

· The board of directors of the target company shall not, duringthe offer period, sell, transfer, dispose-off or enter into anagreement for sale and transfer of assets or subsidiaries, orencumber, issue any right or bonus voting shares and will notappoint a new director on board. (Dawn, 03.05.01)

officer is responsible for organising theforum in which companies respond to thecommission’s objection to their merger,cartel or anti-competitive businesspractices.

Companies say that in merger cases, anappeal to court is notional because decisiontakes at least two years by which time it isvirtually impossible to resume merger talks.

(FT, 24.05.01)

Tougher Penalties on Cartel OffencesDirectors of companies that are found

guilty of cartel and other serious anti-competitive behaviour should be liable fordisqualification. The UK competition regime,which gives the Office of Fair Trading thepower to fine companies, only contrasts withthe markedly tougher US approach. In theUS, directors have been jailed for cartel-typebehaviour by their companies.

Denise Kingsmill, deputy Chairman ofthe Competition Commission, said that thethreat of disqualification would be moreeffective than fines. (FT, 16.02.01)

Changes in Banking ActDraft amendments to Sri Lanka’s

Banking Act now being studied by thebanking community provides for easieramalgamations or synergies betweenspecialised banks and commercial banks.Banks have been listed under the categoryof Licensed Specialised Banks (LSB) andLicensed Commercial Banks (LCB). LSBsinclude development banks, savings banksand mortgage banks.

The 1988 laws do not formally allowamalgamations between LSBs and LCBs.The amendments are, however, silent onmergers or consolidations betweencommercial banks. A merger betweencommercial banks, if not mutuallynegotiated and hostile, could fail to add valuefor the stakeholders and hampercompetition. These were the main reasonswhy amalgamations between commercialbanks were left out in the old law. (ST, 04.03.01)


MACRO ISSUES

Hitting out ResistanceA review document issued by the

European Commission states the failure ofthe member-states to agree on postalliberalisation, a community-wide patentsystem or further reform of energy andtransport – all of which were designed toimprove the continent’s competitiveness.The document also deplores the backlog ofimplementing in national parliamentlegislation agreed by EU.

The EU leaders signalled their eagernessto end the fragmentation of markets in areassuch as energy, transport, financial servicesand telecommunication in order tomake Europe the world’s high-technologyeconomy by 2010. But, it failed to givepolitical impetus to a number of liberalisingmeasures.

The commission criticised the deadlockbetween the states on approving thelegislation for postal liberalisation andEurope-wide patent system. (FT, 17.04.01)

Restrictions on ChaebolsThe South Korean Government’s

move to consider amending some of theregulations put in place after its 1997financial crisis fueled concerns insideSeoul’s financial community that fears thebusiness groups, known as Chaebols,could return to the expensive businesspractices that led South Korea into its debtcrisis.

However, the Government has alsobeen facing criticism that these inflexiblepolicies curtail companies’ investment andcould possibly trigger a long-term recession.The Government decided to review ifthere’s over regulations of industry.

(WSJ, 18.05.01)

Powell Criticises Past PoliciesMichael Powell, head of the US Federal

Communications Commission (FCC),asked the Congress for authority to levymuch larger fines against regional phonecompanies that engage in anti-competitivebehaviour aimed at keeping control of localphone service.

Powell has launched an attack on FCCrules designed to prevent the cable andbroadcasting companies from growing toolarge or owning newspapers in the marketsin which they operate.

At issue is the FCC’s ability to punishphone companies for failing to open theirnetworks to smaller rivals. The agency ischarged with implementing the1996 Telecommunications Act, whichallows companies such as VerizonCommunications Corp. to sell long-distanceservice if they open their local markets tocompetition. (WSJ, 09.05.01)

OPEC to Change Prices PolicyThe Organisation of Petroleum

Exporting Countries (OPEC) could embarkon a policy of sustained low world oil pricesto secure the group’s market share, theOPEC Secretary-General, Ali Rodriguez,has said.

Non-OPEC oil producers are increasingproduction and exploration activities on theback of sustained high oil prices, posing athreat to OPEC’s 40 percent share in theworld market.

In a related development, a Senior USDistrict Judge ruled that OPEC had violatedthe US anti-trust laws by controllingproduction to fix oil prices. However,doubts have been raised whether the judge’sorder is enforceable and if a US court hasthe power to tell OPEC what to do.

(BL, 05.04.01 & ET, 20.03.01)

Merger Rules to be DelayedThe Financial Accounting Standards

Board (FASB) is planning to scrap “poolingof interests”, an accounting treatment whichallows all share acquisition to be madewithout having to worry about goodwill,(the often huge sums paid by acquirers abovethe book value of the companies they arebuying). “Pooling of interest” is used inmajority of deals in merger boom. Some

FASB feel it would be unfair to pushthrough a change without final version ofthe new rules.

Companies contemplating mergersnow have to announce a delay before theyqualify for “pooling interests ”. (FT, 16.05.01)

TV License Issued and FrozenThe Singapore Broadcasting Authority

issued a broadcast license to SPH MediaWorks, a subsidiary of Singapore PressHoldings, which publishes a dozennewspapers in Singapore. Under the license,SPH media will open two channels,Channel U, which will broadcast a varietyof shows in Mandarin, while TV Workswill broadcast in English.

However the Russian Governmentplans to stop the rapid proliferation oftelevision channels, radio stations andnewspapers by freezing the number ofavailable licences. According to VladimirGrigoriev, the Deputy Minister for media,Russia’s advertising market is too small tosupport everyone.

Media and advertising executivesexpressed concern at the Government’sintention to intervene stating that Russia’smedia market needed to mature andconsolidate. (WSJ, 27.04.01 & FT, 17.02.01)

EUUS

The rebirth of anti-trust has been one of the most dramatic business stories in years.In the present scenario, George W. Bush, the US President, is nominating Charles

A. James and Timothy J. Muris—two conservatives who are expected to toss outmany of their predecessors’ pet legal theories and restore an era of anti-trust minimalism.But, aggressive trust-busting is still alive and well in, of all the places, Europe, whereprice-fixing was an accepted business practice until just a few years ago. Now, inEurope, secret cartels are being discovered in many industries and key competitionlaws are brand new.

The world’s most feared trust-buster is now Mario Monti, the chiefof the European Union’s competitionoffice. He is taking a hard look atmergers, even those solely involvingU.S. companies. One of the mergers isGeneral Electric Co.’s (GE) union withHoneywell International Inc., whichMonti has the right to review becausethe merged company sells more than$225mn annually in Europe. Despitea personal plea from the GE Chairman,John F. Welch, who flew to Brussels to meet with him, the EU bureaucrat is forcing thedeal to go through a second stage review. That could postpone the merger by up to fourmonths, an embarrassment for America’s most admired CEO, who originally predictedthat the deal would sail through. Slowly, but surely, US companies are realising thatBrussels may be an even better place to derail their rival’s deals than Washington.

The cerebral, unflappable Monti is no pushover. In fact, in some respects, Montihas more power than his US counterparts. He can stop a merger without even going tocourt. Under a concept note known as “collective dominance”, the EU trust-busterscan stop a merger that would cause an industry with five players to shrink to four, acompetitive scenario that US anti-trust law generally tolerates. Importantly, theEuropeans are learning to be comfortable with anti-trust law and are becoming confidentabout enforcing it. (FT, 19.04.01)

US-EU Conflict F

inancial Tim

es


MICRO ISSUES

J&J Catches Cold over ColdarinThe Monopolies and Restrictive Trade

Practices Commission (MRTPC) hasissued a notice to Johnson & Johnson (J&J)to respond to a complaint that has allegedthat the company has violated thestipulations of the Drug (Price Control)Order (DPCO), 1995, and, thereby,indulged in restrictive trade practice.

As Coldarin is a scheduled formulationunder the DPCO, prior sanction of theGovernment is required for its revision ofprice and formulation. However,exemptions are allowed in small-scale unitsin this regard, provided it is the holder ofthe trademark, handles the marketing of theproduct and is an independent unit not asubsidiary operation of any largepharmaceutical company.

The complaint alleged that J&J India,along with its US-based parent companyand another company NR Jet Enterprises,has entered into an illegal transaction in abid to avail the exemptions so as to sellColdarin at a higher price.

J&J, which had acquired Coldarin fromKnoll AG in 1997-98, assigned the brandto NR Jet, a small-scale unit, to claim theexception under DPCO. J&J holdssubstantial stake in NR Jet through fourdifferent entities, which are its whollyowned subsidiaries.

It has been further alleged that NR Jetmanufactured the formulation and then soldthe product for Rs 80 to Rs 90 per shippingunit to J&J, which in turn sold anddistributed it to its stockists for Rs.150 toRs.190 per shipping unit. Thus, it is theconsumer who ended up paying thedifference. (BL, 21.04.01)

TV Channels TargettedThe MRTPC issued notices to leading

channels for allegedly practising restrictive

trade by hiking subscription fees frequentlyand arbitrarily. These include Star, Sony,Discovery, ESPN, etc. The MRTPC hasreceived four complaints against these TVnetworks in India for adopting restrictivetrade practices, resulting in manipulationof prices.

It has been alleged that trade practicesadopted by the companies have the effectof preventing, distorting and restrictingcompetition and indulging in unfairpractices. (HT, 05.05.01)

Godrej Plea RejectedThe MRTPC, India, has rejected

Godrej’s application for and injunctionagainst Hygienic Research Institute’s SuperVasmol 33 advertisement which, Godrejsaid was “misleading” and “disparaging” toits hair-dye brand.

Godrej had complaint that the Vasmoltelevision commercial opens with thepicture of a lady dying her hair with instanthair dye from two cylindrical bottles labelledas ‘sadharan’ (ordinary). The picture thenwidens to show the anguish of the lady withfalling hair. Godrej argued that the impugnedadvertisement clearly identifies with GodrejHair Dye and by labelling it as ‘sadharan’ itfurther projects the Godrej product asinferior, having no special merit in it.

Rejecting Godrej’s argument, theCommission observed “while in order topromote its product, one has a right toproject its goods to be one of the best in theworld, he can also say that his goods arebetter than the competitors and while doingso he can compare advantages of his goodsover the goods of others. He cannot,however, say that the competitor’s goodsare bad by making false and misleadingstatement.” Furthermore, there was noevidence of a single consumer being misledby the said advertisement and havingcomplaint of harmful effects as stated inthe advertisement. (FE, 04.06.01)

Ekcco Pulled upThe MRTPC has directed Ekcco Herbs

to restrain itself from adopting unfair tradepractice (UTP) of using identical shape,colour and size of container of its toothpowder ‘Primo Vajardanti’ as that of ‘ViccoVajradanti’, a Vicco product.

On a complaint by Vicco Laboratories,the Commission noted that such similarityhad an element of misleading and deceivingthe consumer into buying the product ofEkcco in the belief that it was that of Vicco.

(BL, 27.03.01)

Aircel Charged with UTPThe Jaipur-based cellular service

provider, Aircel Digilink India Ltd. has beencharged with UTPs by the MRTPC fordisconnecting the mobile telephoneconnection of a customer before the expiryof the due date of payment of bill.

“Disconnection of telephone prior tothe date and before the expiry of the duedate was tantamount to deficiencies inservice and constituted an UTP adoptedby the Aircel”, observed the Commission.

(BL,17.03.01)

MRTPC News Briefs

The Supreme Court of India, while dealing with the case ofCadila Healthcare Ltd. Vs Cadila Pharmaceuticals Ltd., has

laid down following guidelines for the courts dealing with cases ofgoods being passed on deceptively by a new entrant in the market,encashing on the goodwill of another company:· The action of passing-off of one’s goods as goods of others is a

kind of Unfair Trade Practice (UTP);· An action can be taken under the common law for causing

deception by attempting to gain economic benefit out of thereputation established by the other party by adopting similarname and overall similarity in features with a view tomisrepresenting the product;

· The nature of the marks on the goods is to be considered –whether the marks are words or label marks or composite marks,i.e. both words and label works are similar or not;

SC Lays Guidelines on UTPs· The degree of resemblance between the marks, phonetic similarity

and similarity of idea;· The nature of the goods in respect of which they are used as trade

marks;· The similarity in the nature, character and performance of the

goods of the rival traders;· The class of purchasers who are likely to buy the goods bearing

the trade mark depending on their education and intelligence anda degree of care they are likely to exercise in purchasing and usingthe goods;

· The mode of purchasing the goods or placing orders for the goods;and

· Any surrounding circumstances which may be relevantThe Court said that weightage should be given to each of the saidfactors, depending on the facts of each case. (BL, 07.05.01)

MRTPC

The F

inancial Tim

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MICRO ISSUES

Egypt in the late 1980s and early 1990s.In an another development, ABB has

been forced to set aside a reserve ofUS$430mn to cover its mounting exposureto asbestos-related insurance claims whichit inherited with its 1990 acquisition ofCombustion Engineering. (FT, 05.04.01)

French ConnectionThe UK Advertising Standards

Authority has ruled against FrenchConnection’s latest outdoor postercampaign to promote its Website as it usesa bold logo – FCUK – that could “causeserious and widespread offence”. The logo,which stands for French Connection UK,has been a matter of contention since 1997.

As a result of the ruling, the Companywon’t be allowed to put up any newadvertising posters for two years withoutgetting prior approval. Authorities in UKcan require the vetting of posters in advanceunder binding rules that the advertisingindustry agreed to two-and-a-half years ago.French Connection is the 18th company tohave been affected by the pre-vetting ruling.

(WSJ, 06.04.01)

Unit of Roche to Halt AdThe US Food and Drug Administration

(FDA) told a unit of Roche Group to stoprunning a TV commercial that promotes itsweight-loss drug Xenical but “lacks fairbalance” information such as listing of theside-effects.

Under the FDA guidelines, “help-seeking” ads, which focus on a disease butdon’t specify a drug, need not list side-effects. But, a full-length ad for a specificdrug must spell out risks as well as benefits.In the present case, the ad effectivelypromoted Xenical without using the drug’sname. It alerted viewers to personalisedsupport programme for weight loss calledXeniCare. While Xenical was the onlyweight loss product with a supportprogramme, Xenicare. (WSJ, 21.05.01)

The Bar versus SA Competition Commission

It all began when the South African Competition Commission (SACC)decided not to exempt certain rules of the General Council of the

Bar (GCB) from the provisions of the Competition Act, 1998. Thedecision followed an investigation into the GCB by the Commissionand an application by the GCB for an exemption from CompetitionAct.

Among the GCB rules that the Commission refused to exemptwere those with respect to the arrangements regarding contingencyfees that must be approved by the Bar; the prohibition on advocatesaccepting briefs directly from clients; the concerted boycott action inthe matter of overdue fee; and the prohibition on advertising.

The GCB moved to the High Court (HC) challenging theCommission’s decision. The issue before the Court was ‘whether ornot the Commission has the competency and jurisdiction to decide onwhether or not the rules of the GCB are anti-competitive.’ Read betweenthe lines, while the Commission’s action relating to the GCB representanother attempt to restructure what some believe is an outdated system,the GCB response is seen as another attempt of the HC to challengethe authority of the Competition Act.

The HC finally ruled in favour of the GCB and criticised theCommission for being ‘biased and incompetent.’ The Court grantedan order exempting the impugned Bar’s rules.

(BD, 23.03.01, 27.03.01 & Citizen, 25.04.01)

SACC Rules Against IHD

The South African Competition Commission found thatthe operation of the International Health Distributors

(IHD) lessened competition, fixed trading conditions and pricesand abused its dominant position.

The Commission recommended that the IHD, the directdistribution vehicle for pharmaceutical products, should makeits products available to all the potential customers on thesame commercial basis. It also recommended a fine, whichcould be up to 10 percent of the turnover. The matter has beenreferred to the Competition Tribunal, which has the power tolevel a fine or impose a remedy such as divestiture.

The rationale in establishing the IHD, which has 11shareholders and two non-shareholder clients and allpharmaceutical multinationals, was to curb trade in the greymarket goods to ensure the products are distributed accordingto good practices and gain information about the products.

On the other side, the wholesalers who have access to theIHD products say that it is not on the same discounted basisas previously, when wholesalers received a 17.5 percentdiscount on all products. They further allege that they do nothave competitive access to about 60 percent of thepharmaceutical market and do not compete on equal terms forretail business. (BR, 19.03.01)

Kmart Left SmartingRetailing giant Kmart has been forced to

apologise and offer its customers refunds afteradmitting to selling about 9000 mock “leather”belts over a two-year period. The customerwho raised the issue with the CommerceCommission, when approached Kmart earlier,was greeted with a negative attitude.

An inquiry revealed that Kmart NewZealand and supplier Atlas Imports hadmade misleading claims that six styles ofmen’s belts were either leather or genuineleather. Four of the belt styles were labelledleather but contained no hide and, instead,was made up of 18 to 37 percentreconstituted leather – scraps ground upand mixed with glue.

Kmart acknowledged in the apology thatthe labels were misleading and breached thefair Trading Act. Consumers who bought thebelts between July 1998 and July 2000 canget a full refund from Kmart stores.

Atlas’ parent company, A Royale &Co., which supplied many chain stores inAustralia, was also being investigatedregarding the same labelling issue by theAustralian Competition and ConsumerCommission. (The Dominion, 11.04.01)

Violations to Cost ABB $63mnABB is close to an agreement with the

US Department of Justice (DoJ) that wouldsee the Swiss-Swedish engineering groupplead guilty to violating anti-trust rules andpay fines and claims totalling US$63mn.

The settlement would be the latest stepin a long-running investigation by the DoJof alleged collusion by contractors biddingfor the US-funded construction project in

Work Contracts Rendered Void

I n a legal victory for hundred ofthousands of foreign high-tech workers

in the US on H-1B visas, anIndian computerprogrammer hassuccessfully sued his SiliconValley recruitment firm toescape a work contract that levied steepfines for leaving early. The Court ruledthat such contracts were “void andunenforceable” because it violated thestate unfair competition statutes.

Dipen Joshi left India on a H-1B visafor the California-based recruitment firmCompubahn, where he signed a contractrequiring him to remain with the firm for18 months or pay stiff penalties.Consequently, when Joshi tried to leavefor a full-time job at the software giant,Oracle, before the said time period,Compubahn handed him a bill for someUS$77,000 in fees and penalties.

Joshi, in turn, sued for fraud,misrepresentation and violations of the statelaw against unfair competition which voidsany contract that restrain, trade and freemovement of employees. The judge,eventually, ruled that the contract was toostrict and ordered the firm to stop using it.

(ET, 03.05.01)


MICRO ISSUES

Deutsche Post Fined by ECDeutsche Post (DP), the German postal

company, is to pay a Euro 24mn fine andrestructure its operations after theEuropean Commission (EC) ruled that ithad illegally cross-subsidised the services.

The Commission found that, between1990 and 1995, the rates charged by thecompany’s business parcel services did notcover the cost of operations – let alone theuse of the rest of the DP infrastructure,making competition difficult. It also ruledthat the company had “foreclosedcompetition” with a scheme from 1974 to2000 that gave big discounts to heavy usersof its mail-order parcel services. TheCommission said that DP broke Europeantreaties by abusing its dominant position.

The decision establishes clear rules onthe issue of cross-subsidies that postalmonopolies, who are also engaged inactivities open to competition, mustrespect,” said Mario Monti, the ECCompetition Commissioner. (FT, 21.03.01)

Intel under InvestigationThe EC is investigating the world’s

largest microchip maker, Intel, to seewhether its marketing practices flout theEU Competition Law.

Proceeding on complaints from VIATechnologies, a Taiwanese chip-maker, andAdvanced Micro Devices, a chip-maker based in California, theCommission is investigatingprecisely the offer of loyalty rebatesby Intel to the EU customers andexclusive purchasing obligations tothe PC manufacturers and retailersin the EU.

The case marks the thirdpublic investigation into Intel. Inthe earlier two investigations bythe US government in 1991 and1997, no violations were found.

(FT, 07.04.01)

Price Fixing AbolishedUK’s Restrictive Practice

Court has recently abolishedprice-fixing on over-the-countermedicines, over-turning 30 yearsof restrictive practice under theresale price maintenance rule. Withthe decision, supermarketsimmediately moved to slash priceson a range of branded medicines,such as pain killers, vitamins, etc.,by as much as 50 percent.According to one estimate, thechange would save consumers$425mn a year.

National PharmaceuticalAssociation warns that thedecision could crowd out many

independent pharmacists out of business,restricting consumer access to medicines,especially those in the rural areas and amongthe elderly and infirm. On the other hand,delighted with the decision the Office ofFair Trading, which brought the court case,said, “We felt that like every other product,there ought to be competition.” (FT, 16.05.01)

Germany to Repeal Retail LawsSome of the laws that the Nazi

Government had enacted in 1930s as a partof the campaign against consumer-ownedco-operatives condemned as “leftovers ofMarxist economic model”, are still enforcedaggressively. These laws sharply restrictdiscounts, rebates and freebies in Germanretailing. The Discount Law limits discountsto 3 percent of the list price and the FreeGift Act bans giving away anything buttrinkets.

By virtue of these laws, a drugstorewas stopped from giving away freeshopping bags on its birthday; a big Germanretailer lost a court fight to advertise that itwould contribute a small sum to fight againstAIDS; and a US mail-order house lost alegal battle to advertise its unconditionalguarantee “You can return anything, at anytime, for any reason.”

These laws persist not only becausethey shield established retailers from

up-starts, but also because of a misguidedpaternalism that has treated consumers aschildren who need to be protected fromcompetition. However, finally, Germany isrepealing the said laws because ofthe changed economic scenario. (WSJ, 06.04.01)

DGCA to Free PricingThe Director General of Civil Aviation

(DGCA), India, has recently proposedamending the Aircraft Rules, 1937, to allowfreedom to international air carriers in fixingfares. Carriers fear ‘predatory pricing’ andsay that a number of bilateral agreementson pricing will be violated, if the proposalgoes through.

At present, only the designated nationalcarriers of the two concerned countries filefares. For instance, British Airways (BA)and Air-India are the only two airlines thatcan file fares to London. Other internationalcarriers flying to London from India cannotfix price lower than that of BA or AI. Withthe DGCA proposal, this is bound tochange and lead to frantic price-cutting.

AI director says, “This is an ideal wayto eliminate competition. Only airlines withdeep pockets will survive while smallplayers will be pushed out of business”.On the other hand, Indian travellers willhave much to cheer about with moretransparency in pricing and probably

reduction in the price. (TOI, 29.05.01)

SAA may Lose AltitudeOn a complaint lodged by

airline Nationwide, which claimedthat South African Airways (SAA)was trying to push the smallerairline out of the market, the SouthAfrica Competition Commission’sfindings has established abuse ofdominance on the part of the SAA.The matter is now sub judice beforethe SA Competition Tribunal.

The impugned practice relatesto SAA’s offer to large travelagencies of an incentive rangingfrom three to 15 percent over andabove the industry norm of a sevenpercent commission on the basicfare ticket. The Commission said,“There is overwhelming evidenceto suggest that travel agentoverriding incentives, whenpracticed by a dominant firm,should not be permitted”.

One travel agent said that thesystem not only helped SAAremain dominant, but also ensuredlarge agencies enjoyed a substantialadvantage over the smaller travelagents. (BR, 21.03.01)

China to Free Car Pricing

China has decided to free prices of domesticallyproduced cars, allowing producers to set the

prices based on market conditions, instead ofGovernment. The move is expected to encouragecompetition and spur sales of cars and make theindustry more competitive.

The step has been taken in view of the fact thatChina has pledged to gradually cut tariffs on importedcars to 25 percent from the current 80 percent-100percent after entering into theWorld Trade Organisation,which would bring a wave ofcompetition from foreignautomobiles. (WSJ, 22.05.01)

Mitsubishi Sued

Japanese prosecutors have filed a criminal lawsuitagainst Mitsubishi Corp. and four of its top

executives for allegedly covering up customercomplaints about defective vehicles.

The Tokyo District Public Prosecutors Office saidthat it is seeking fines of 400,000 yen ($3,280) from thecompany and 200,000 yen from each of the executivesfor failing to disclose to the Government the full scopeof complaints filed by the consumers. (WSJ, 27.04.01)


MICRO ISSUES

Plea on Basmati RejectedThe US Fair Trading Commission (FTC) has

rejected a petition filed jointly by the ResearchFoundation for Science, Technology and Ecology,the Centre for Food Safety and the InternationalCentre for Food Assessment. The petition soughtthe FTC to commence a proceeding for a traderegulation rule to prevent US-grown rice frombeing advertised or represented using the words‘Basmati’ and ‘Jasmine’.

The Commission said it found no reason tobelieve that significant consumer injury was likelyto arise from current rice marketing. Under theUS Department of Agriculture regulations,basmati and jasmine rice are included as examplesof ‘aromatic rough rice’ and are not limited torice grown in any particular country. TheCommission further said it had no evidence tosuggest that US-grown rice was beingmisrepresented as rice from other parts of theworld.

In addition, the Commission pointed outthat, based on a review of rice packaging by theCommission staff, the American basmati andjasmine rice products were labelled as US-grownwith clear description such as ‘the Americanbasmati rice’. (BL, 25.05.01)

Pharma Co. FinedThe Office of Fair Trading

(OFT) fined Napp Pharmaceuticals£3.21mn for abusing dominantmarket position. This is the firstfinancial penalty set by the OFTunder competition law. Napp wasfound to have supplied sustainedrelease morphine (MST) to thepatients in the community atexcessively high prices, whilesupplying hospitals at discountlevels that blocked competitors.

Napp’s discounting policy tohospitals has impeded competitionin the MST market by anti-competitively targeting rivalproducts. Discounts of well over90 percent were offered in tenderingfor hospital contracts where Nappfaced rivals. Napp could not onlywin hospital contracts, but alsoretain high profitability bymaintaining a high share of muchlarger community- market becausegeneral practitioner’s prescriptionsare strongly influenced by thebrands used in hospitals.

In addition to the fine, the OFThas asked Napp to immediatelyreduce the price of MST tablets tothe community and limit thedegrees to which community pricescan exceed hospital prices.

(Office of Fair Trading, 30.03.01)

Outlaw Online Drug SalesThe United Nations drug control

agency, International Narcotics ControlBoard (INCB), in its latest report,requests all the governments to outlawonline drug sales that breach internationaland local drug control and safetyregulations, noting that the UN treatiesforbid advertisements and salespromoting illicit access to controlledsubstances.

Condemning the “pill-poppingculture” prevalent in the West, the reportnotes a huge disparity in the use ofpsychotropic (mood-altering) drugs inrich nations unrelated to medical needs.While consumption of amphetamine-based drugs, used mainly to treat obesityand hyperactivity, is about 10 timeshigher in the US than in Europe,Europeans swallow three times as manytranquillisers and sleeping pills as theirAmerican counterparts. The INCBwarns against excessive consumption ofpsychotropic drugs, which can havevery dangerous side-effects.

The report highlights the growingproblem of internet pharmacies thatillegally sell medicines without therequired prescription. Very fewcountries have laws to tackle illegalonline sales, and those that have them,find it very difficult to shut down sitesbecause pharmacies operate fromcountries with no controls. (FT, 21.02.01)

Aventis Sued for ConspiracyAmid intensifying scrutiny by the states of

prescription-drug costs, 15 state attorneys-general fileda federal lawsuit recently against French-owned AventisPharmaceuticals Inc., claiming the firm paid Andrx Corp.in an effort to delay generic competition to the popularheart drug Cardizem CD.

The states, which are seeking at least US$100mnin restitution, claim that the arrangement between thepharmaceuticals companies led tohigher prescription costs in state-run medical programs.

According to the suit, in 1996,Hoechst Marion Roussel, whichlater on merged into Aventis SA,filed a patent-infringement suitagainst Andrx, manufacturer ofheart drug Cartia XT, with apurpose of delaying the marketing of Cartia XT, thegeneric competitor. In 1997, they engaged in anotherdelaying tactical arrangement, under which Andrxreceived quarterly US$10mn payments.

Furthermore, in March 2000, when the FTCcharged the two companies with anti-competitivepractices, the two companies agreed not to enter intocomparable arrangements in future.

This is not the only case where drug-makersallegedly conspired with generic-drug providers to keeptheir cheaper product off the market and maintain abrand-name monopoly. For instance, the FTC hascharged Schering-Plough Corp. with making US$90mnin pay-offs to generic drug manufacturers as part of ascheme to prevent cheaper alternatives to a popularprescription-drug from coming in to the market.

(WSJ, 03.04.01 & FE, 16.05.01)

Suit Against AA DismissedA US federal judge dismissed the DOJ’s

anti-trust lawsuit against American Airlines(AA) accusing the carrier of monopolising air-travel routes at the Dallars-Fort WorthInternational Airport and engaged in predatorypricing against small competitors.

AA was repeatedly trying to drive small,startup airlines out of the airport by saturatingtheir routes with additional flights and cuttingfares. After the competitors withdrew ordrastically reduced their services, AA re-established high fares and reduced its service.

AA never disputed the facts in the case,but vehemently denied anything it did wasillegal. It said that it had every right to matchlow fares offered by new entrants and withfares lower. It was justified in adding moreplanes to meet the increased demand. AA alsoinsisted that it did not price the seats below its“average variable cost,” because other, high-priced seats kept companies average costs abovethe legal standard for predatory pricing. It saidwhat they did was to meet the competition.

On the other hand, the DOJ officials haveshown disappointment over the court’s ruling.

(WSJ, 30.04.01 & 01.05.01)

ABC taken to ACCCIndependent film-makers

have asked the AustralianCompetition and ConsumerCommission (ACCC) toinvestigate the AustralianBroadcasting Corporation’s(ABC) dealing with them, claimingit has been abusing its marketpower.

The Screen Producers’Association of Australia haswritten to ACCC, saying that theABC has become so aggressive andunreasonable in negotiations thatit is now jeopardising the financialsurvival of those who deal with it.Further, they alleged that theABC’s new commissioningprocess was confusing, inflexibleon contract terms and painfullyslow in signing contracts.

The Association has asked theACCC to investigate whether theABC’s behaviour breached theTrade Practices Act.

(Sydney Morning Herald, 17.04.01)

The E

conomic T

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FINANCIAL SECTOR

Clearing and SettlementThe European Commission is looking

into the possible abuse of the EuropeanUnion competition rules by companiesrunning European securities clearing andsettlement systems.

The move follows a request fromAlexandre Lamfalussy, who recentlyheaded a group of “wise men” to report onthe EU financial markets and had asked theCommission to ensure that competitionpolicy was being respected in clearing andsettlement.

Several banks have called for a moreefficient system for clearing and settlementin the EU. These systems complete the“back-office” paperwork of matchingtrades – buy and sell orders. But, costs canbe 10 times those of the US, a big drawbackto a pan-EU capital market.

The Lamfalussy report highlighted themost important issues as being the“excessive” costs of cross-border clearingand settlement compared with the US andcompetition issues such as open and non-discriminatory access.

The report also pointed whethertechnical linkages between systems weresound and whether common Europeanstandards should be set for clearing andsettlement organisations. (FT, 06.04.01)

Banks Deny AllegationsArgentine company balance sheets

today generally bear testimony to thealmost three years of recession. But, thecountry’s banking sector appears to haveemerged from the carnage completelyunscathed.

Despite a slowdown in theconsumption and deterioration in theircredit portfolios, the leading banksregistered record profits last year, rangingfrom 60 percent to 89 percent.

Such performance pleases theshareholders, but it is causing increasingdiscontent among the clients, including theGovernment.

Mark Turner, an analyst at BuenosAires Trust Company, believes the banksare helping prolong the recession bykeeping rates high, feeding doubts aboutthe Government’s ability to meet its debt-payments and starving the local companiesof affordable credit.

However, the bank representativesargue that the rates are largely a result ofhigher financing costs faced by banks dueto Argentina’s country risk.

But, it is not just the Government thatis skeptical. With the local banks chargingas much as 25 percent interest on personalloans and paying interest on deposits thatscarcely covers account maintenance fees,many consumers are equally disgruntled.

(FT, 21.05.01)

Turkey to Reform Banking SectorThe Turkish Government is considering

a new banking law that will be submitted tothe Parliament. The law will aim torestructure the ailing banks which are at theheart of the country’s deep financial crisis.

The new Economy Minister, KemalDervis, was in the US recently where hesought financial support for a revised reformprogramme. Western officials say thattangible progress on bank restructuring is apre-condition for even consideringadditional bilateral assistance or an increasein IMF loans for Turkey, so far totalling$11.4bn.

Unresolved banking weaknesses forcedAnkara into a devastating 30 percentdevaluation in February, two months afterthe country secured a $7.5bn bail-out fromthe IMF to stave off a previous crisis.

The new law will pave the way forenforceable limits on banks’ ability to lendmoney to other businesses controlled bytheir owners.

The Government is also expected tofinalise the appointment of a professionalboard to rationalise the three state-ownedbanks which have accumulated losses of atleast $20bn. (FT, 30.03.01)

Opening Insurance MarketSri Lanka’s new Insurance Board

(IBSL), the country’s insurance regulator,is reviewing the tariff structure for generaland life policies and also aiming to expandthe market with new players.

“There is a need to change tariffs andexpand the life insurance market,particularly as a savings mechanism andpensions scheme at a time when the countrypopulation is aging,” says Dr. DayanathJayasuriya, acting Director General of theIBSL.

Among the critical areas that the IBSLis looking into is the need for reforms ofexchange laws since money is being remittedout for technical and other services.

The insurance market has nine insurersand 38 brokers, while the IBSL has received

one inquiry from abroad from an insurerinterested in investing in Sri Lanka.

The IBSL, created under the newInsurance Act that became law in August2000, has wide powers of registering andor refusing licenses, investigatemalpractices, examine the books ofinsurance companies, settle disputes andadvise the Government on marketdevelopment. (ST, 25.03.01)

Code on Mortgage CostsEU homebuyers will be able to compare

the cost of borrowing from banks andmortgage lenders in different countries onthe basis of new information code that wasrecently endorsed in Brussels.

The code, agreed to by the leading EUmortgage lenders and consumer groups,should improve the information availableto homebuyers. It is based on new rulesintroduced in the UK that aim to alert theborrowers to any hidden costs in theirmortgage.

Under the new code, all borrowers willreceive an information sheet from lendersspecifying the interest rate along with anyadditional costs. They will be given figuresfor the exact amounts to be paid over thefull time-span of the loan as well as anypossibility and conditions for earlyrepayment.

Brussels will also monitor theimplementation of the new code and, if theydo not have enough mortgage lenders signup to it, the Commission may considerproposing binding obligation. (FT, 07.03.01)

Harmonised Fund RegulationThe European Union recently took a

further step towards the planned EU-widemarket for financial services when memberstates’ representatives in Brussels reachedan agreement on new regulations forcompanies managing harmonisedinvestment funds, which can be soldthroughout the EU.

The draft directive, agreed through aqualified majority with the abstention ofDenmark and the opposition ofLuxembourg, still needs approval from theEuropean Parliament.

The directive aims to introduce a“European Passport” that would give theEU management companies the right tocarry out activities in other member statesthat have already been authorised in theirhome country.

The EU member-states also agreed to astandard formula for the information to bemade available to investors in the funds,known as “Ucits”, or undertakings forcollective investment in transferablesecurities. (FT, 02.03.01)

Financial T

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FINANCIAL SECTOR

Chinese Crackdown on BanksChinese regulators have punished 538

state bank officials for issuing falsified creditstatements and guarantee letters.

In the latest crackdown on bankingirregularities, 173 officials were expelledfrom state commercial banks, 69 wereremoved from their posts and the othersdemoted or warned, the Financial Newsreported.

The central bank had ordered the BigFour banks – Industrial and CommercialBank of China, China Construction Bank,Bank of China and Agricultural Bank ofChina – to launch internal investigations.

State banks should “draw a lesson” fromthe case and strengthen internal supervisionto curb financial risks, the newspaper said.

(WSJ, 23.03.01)

Institutions with KSD Link PenalisedJapan’s Financial Services Agency

(FSA) has penalised 393 financialinstitutions, small banks, for inappropriateties with the scandal-tainted small-businessmutual insurer, KSD.

The watchdog said 289 financialinstitutions received fees from KSD inreturn for helping the insurer increase itsmembership. It said 92 of those were moreactive in helping KSD to increase itsmembership – which the FSA called“inappropriate business operations.”

The other 104 financial institutionshanded out KSD pamphlets at theirbranches and are receiving administrativeguidance from the FSA to improve their in-house regulations.

Many of the institutions were creditassociations and regional banks that hadstrong business ties with the small andmedium-sized companies that KSDtargeted. (WSJ, 30.03.01)

Rules For Financial ServicesThe Monetary Authority of Singapore

released for public consultation drafts oftwo proposed laws on securities and futurestrading and financial-advisory activities onthe island.

The proposed Securities and FuturesAct is billed as an omnibus legislationseeking to “consolidate and rationalise” theexisting Security Industry Act and theFutures Trading Act.

The second proposed item oflegislation, called the Financial AdvisersAct, “will govern financial-advisoryactivities in respect of a range of investmentproducts, and the distribution and marketingof life insurance policies and unit trusts,”the authority said.

The proposed Securities and FuturesAct follows the introduction of structuralpolicy reforms in the supervision ofSingapore’s capital markets. (WSJ, 23.03.01)

Financial Portals ProbedUS federal regulators recently took a

closer look at financial websites andpromised to issue a report withrecommendations on whether the sitesshould be treated as brokerages.

“What we tried to do today is lay thegroundwork” before making any decision,Laura Unger, the acting Securities andExchange Commission (SEC) chairman, saidat the conclusion of a discussion of financialportals.

Portals such as Yahoo! Finance,America Online, MSN Investor andQuicken.com provide financial news andonline tools that guide investment decisionsand include links to online brokerages thatcan execute stock trades.

The SEC has a “pretty consistentphilosophy that if you are getting paid on atransaction basis by a broker-dealer or refersomeone to that broker-dealer territorytoo,” said Joe McLaughlin, a New Yorksecurities lawyer. (FE, 24.05.01 & FT, 25.05.01)

Inquiry into Insurer�s FailureThe Australian Prime Minister, John

Howard, bowed to intense pressure overthe collapse of HIH Insurance Ltd., callinga royal commission into the company’sfailure and setting aside more than A$500mn(US$265mn) to help victims of the collapse.

The Government’s move followsstrong criticism from the main oppositionparty, state governments and affectedcustomers.

A royal commission is independent ofthe Government and has wide-rangingjudicial and investigative powers. Theinquiry will include a review of thecountry’s prudential regulator and its rolein the company’s demise, which could leaveliabilities of more than A$3bn.

Provisional liquidator of HIH, KPMG’sTony McGrath said, creditors of HIH willreceive 50 Australian cents or less on thedollar in returns. He said concerns aboutHIH emerged in August and September andthe company, in looking for market share,may have “overly aggressively” priced itsproducts. HIH’s principal areas ofoperation were in the UK, the US andAustralia. (WSJ, 22.05.01)

Towards a Unified Financial Regulator

A number of countries are considering having a unified financial regulation regime. Australia is to bring its insurance, pensions and securities industries under one

licensing and disclosure regime and to require companies involved in takeovers totape telephone conversations with shareholders, under the legislation unveiled recently.

Joe Hockey, the Financial Services Minister, said the Bill would replace thecurrent fragmented regulation with a harmonised regime. The new system would alsocut compliance costs and remove regulatory barriers to the use of e-commerce, headded.

The Bill is a response to the structural changes in the financial services sectorthat have seen banks, insurance and pension providers either merging or movingbeyond their traditional area of activity into other parts of the sector.

In a similar move, the German government is also planning to integrate financialmarket supervision under a unified new agency which could strengthen Frankfurt asa financial centre and be a model for Europe.

Hans Eichel, the Finance Minister, argued the need for a supervisory body builton the existing banking, securities and insurance watchdogs had been demonstratedby Allianz’s take-over bid for Dresdner Bank, creating a single financial servicesgroup combining banking and insurance.

Even in Sri Lanka, the Government is looking into the possibilities of appointinga single regulator to oversee the operations of the financial sector. “This followscomplaints made by corporates that there are too many regulators in the country,which has resulted in the market being killed,” said Government sources.

A similar move has already been made in Ireland where the central bank hasoutlined the guidelines reducing the bank’s regulatory powers by creating asingle regulator responsible to the Finance Minister.

It may be noted here that the UK already has such a unified regulatory agency forthe finance sector. It established the Financial Services Authority in 1997.

(FT, 27.02.01, 06.04.01 & WSJ, 12.04.01)

Asian W

all Street Journal


FINANCIAL SECTOR

Enlisting UK AidThe Financial Services Authority

(FSA), the UK banking regulator, is helpingthe Yugoslav Government trace the moneystolen from the country under the regimeof Slobodan Milosevic, the formerPresident who was toppled by a popularuprising in October.

Most of the money is thought to haveleft the country through Cyprus, Greece,Israel and Switzerland, where aboutSfr45mn ($26mn) has been frozen by theSwiss authorities.

However, Mladjan Dinkic, theGovernor of the Yugoslav National Bank,believes UK-based banks handled moneytaken out of Yugoslavia followingPrivatisation of Serbia’s statetelecommunication monopoly in 1997.

The UK financial regulator has madepreliminary inquiries to see if funds linkedto the former regime are held in Londonbanks. So far it has found no such evidence.

The FSA recently published thefindings of an investigation into the role ofthe UK-based banks in handling more than$1bn looted from Nigeria during the rule ofGeneral Sani Abacha. (FT, 24.03.01)

Shrivelling Credit LinesAfter years of mergers, the US banks

now boast they are big enough to helpconduct just about any financial transaction– selling stock to underwriting bonds,hedging risk to swapping interest rates.However, getting a simple line of credit hasbecome harder than before.

A slowing economy and rising defaultare, of course, to be blamed, but another bigreason is fewer banks.

The merger boom has resulted in ashortage of lenders big enough to join insyndicated loans to large borrowers,according to corporate finance executives.This is reducing the supply of a crucialservice for corporate America.

A range of companies from Coca-Colato Masco Corp. have been forced to scaleback or change financing arrangements, inpart because of the smaller number of banks.Less credit-worthy borrowers are being hiteven harder.

Companies are coping by borrowingless, raising more in bonds or giving banksmore non-loan business in return for loans.But these strategies also have limits. Theupshot is that companies will probably endup paying more for credit lines.(WSJ, 15.03.01)

Prudential-AIG MergePrudential PLC said it launched legal

action against the American InternationalGroup Inc. (AIG) over the allegedinterference with Prudential’s merger pactwith American General Corp. The AIGmade an offer to buy the fellow US-basedinsurance company at $24.6bn. The Britishinsurer accused AIG of illegal “gun jumping”by offering shares without filing thenecessary registration statement under theUS law.

Prudential’s lawsuit accuses AIG ofmaking “false and misleading” statementsin relation to its counterbid for AmericanGeneral and says AIG has not adequatelyexplained the conditions of its offer or theoffer value.

Prudential’s suit, which has been filedin Texas State District Court in HarrisCounty, seeks a temporary restraining orderand a temporary and permanent injunctionagainst AIG for interfering with its mergercontract with American General. Prudentialalso seeks actual and exemplary damagesagainst AIG. A damages amount was notspecified. (WSJ, 11.04.01)

Role for CentralBanks Demanded

The European Central Bank (ECB) putitself at odds with the German Governmentby insisting that central banks in the euro-zone should play a strong role in bankingsupervision.

The ECB argues in a paper that theintroduction of euro weakened the case forcreating an independent agency to regulatefinancial markets, as the GermanGovernment wants to do this year.

“Thus far, the operational experience,not only in the euro area but in the US,indicates that central banks are carrying outsupervisory tasks in an effective way.”

Referring to the UK’s establishment ofFinancial Services Authority (FSA) in 1997,it added: “At the same time, little experiencehas thus far been gained with theperformance of the FSA-type single agencymodel.”

The ECB suggested, however, that acompromise might be possible by observingthat “solutions other than outrightattribution of responsibilities to nationalcentral banks (NCB) might prove effective,provided that NCBs were granted a wide-ranging operational involvement inprudential supervision.”

In such an outcome, the ECBrecommended that NCBs should work withother agencies through joint decision-makingbodies and pooling of resources.

(FT, 23.03.01)

Japanese Banks to Join Forces

The Japanese financial industry’s 10-year re-alignment kicked into high gearas 11 big banks coalesce into four megabanks. The lenders aim to rationalise and

re-invigorate their operations, but whether they emerge as a sumo-wrestler-likefinancials titans or as giant weaklings weighed down by mammoth bad loans dependson how quickly and innovatively they recognise.

In addition to the Mizuho Financial groupformed by the three banks in September, eightremaining major banks will fold themselves intothree new banking groups:Sumitomo MitsuiBanking Corp., Mitsubishi Tokyo FinancialGroup and UFJ Group.

According to the regulators, they would spend72 billion yen ($583.6 mn) to bail out two morebanks, while a Government agency disclosed thatland prices fell for a 10th straight year in 2000.

(WSJ, 23.03.01)

Bank Consolidation Plans

The Indonesian Bank Restructuring Agency(IBRA) said it plans to create up to four core

banks out of 11 under its control to helpstrengthen the country’s troubled banking sector. The 11 banks under the IBRA’scontrol are Bank Central Asia, Bank International Indonesia, Bank Danamon, LippoBank, Bank Niaga, Bank Universal, Bank bail and four others.

Indonesia has set a July deadline for the sale of a 40 percent stake in BankCentral Asia, one of its largest banks, after several delays that cost a rift with theInternational Monetary Fund (IMF). The IBRA which holds a 70.3 percent stakein Bank Central Asia, said that the sale would take place between July 4 and July 6.

The IBRA plans to sell the stake as part of a wide-ranging programme of assetsales mandated by the IMF to raise Rp27,000bn (US$2.4bn) to finance the budgetdeficit. Indonesia, which is still struggling to emerge from the financial crisis of1997-98, is leading an $80bn bank recapitalisation necessary.

(WSJ, 17.05.01 & FT, 23.05.01)

Financial T

imes


CORPORATE GOVERNANCE

Investigating Share Trust FormulaTrans Asia question marks hanging over

the circumstances under which Trans AsiaHotels Ltd., operating the only profitablefive-star hotel property in Sri Lanka, setup an Employees Share Trust, which onfunds advanced by the company, bought astrategic block of shares tilting control infavour of the incumbent management, willbe investigated by the Securities andExchange Commission, SEC Chairman KenBalendra said.

The SEC decision to investigate is noton the basis of any specific complaintalthough Balendra admitted that there hadbeen phone calls and enquiries about recenthappenings in the company, which had theflavour of a business thriller. Business circlesare keenly watching the further unfoldingof this drama. (The Island, 23.04.0)

Toughened Insider TradingThe New Zealand Government is to

toughen up its insider trading regime withmeasures that include giving new powersto the Securities Commission to police sharedealings. Trevor Mallard, the actingCommerce Minister, said this was essentialto deal with a perception among theoverseas investors that New Zealanderswho acted on inside information about acompany’s affair went unpunished.

Cor Boonstra, the outgoing Presidentof Philips, the Dutch electronics group, isat the centre of an insider tradinginvestigation over his purchase of shares inEndemol Entertainment, the Dutchtelevision production company. The STE,Amsterdam’s stock exchange regulator, hasfiled a report with the Dutch publicprosecutor about share purchases, whichwere made by Boonstra in March last year.

(FT, 29.03.01 & 11.04.01)

Corporate Governance in IndiaThe Finance Minister of India,

Yashwant Sinha, came down heavily onIndian business for its lethargy inimplementing good corporate governancepractices during the post liberalisation era.He appealed for a clean-up of the financialsector to help salvage a stalled reformprogramme.

“If high ethical standards are not kept,then we might as well write-off economicreforms,” he said. His comments were areference to the two months of turmoil inthe domestic financial markets that haveobscured one of the most reformist budgetsin recent years.

It may be noted in this regard that 33percent out of the 141 A-group companieslisted on the Bombay Stock Exchange (BSE)and a handful of those that are listed on theNational Stock Exchange have failed to keep

their date with the April 1, 2001, deadlineof complying with the Securities andExchange Board of India code of corporategovernance.

However, investors can take heart fromthe fact that more than 75 percent of the A-group companies listed on the BSE and theS & P CNX Nifty companies have compliedwith the requirements of the code ofcorporate governance.

(BL, 03.05.01 & ET, 24.05.01)

China Places a New Market RuleThirty executives at China’s top fund

management companies have been sackedor disciplined following an investigation bythe country’s stock market regulator intoshare price manipulation. The ChinaSecurities Regulatory Commission said thatit was also considering legal charges againstexecutives of a firm, Boshi FundManagement.

China’s securities regulators haveproposed a detailed set of new rules toreduce corruption and increase transparencyin the country’s growing, but scandal-stained, stock markets. Laura Cha, the ViceChairman of the China SecuritiesRegulatory Commission, told a conferencein Beijing that the measures would includemandatory appointment of independentdirectors and a possible requirement forlisted companies to report improvedcorporate governance.

Other measures include new guidelinesfor shareholders’ meetings, rules outliningthe rights of shareholders in variouscorporate actions and rules for fundmanagement companies.

(FT, 26.03.01 & 19.04.01)

US Security ScamThe US securities regulators announced

the fifth in a series of internet fraud“sweeps”, bringing 11 new enforcementactions against 23 companies andindividuals. Investigators alleged theperpetrators used a range of fraudulentonline techniques to raise funds for privateventures or boost the value of less regulated“penny” stocks in the over-the-countermarket.

In total, the activities charged raised themarket values of stocks by more than$300mn and $2.5mn in proceeds from U.S.and overseas investors.

The US securities regulators issued theirfirst formal definition of which onlinebusiness practices would constitute stockrecommendations by financial firms.Lawyers said the guidelines could be criticalin determining when online firms, especiallystock brokerages, could be held liable forthe stock and investing advice they providethe customers.

Laura Unger, acting Chairman of theSecurities and Exchange Commission (SEC),said she would consider adding a “safeharbour” provision to the SEC’s six-month-old Regulation Fair Disclosure (Reg FD)rule to ease concerns raised by companiesabout meeting the new regulations. Theregulation requires companies to releasemarket sensitive information, such asearnings figures to the public at the sametime it releases to brokerage analysts andlarge investors. (FT, 02.03.01 & 25.04.01)

Facing Investor�s WrathGermany’s equity culture may be just

five years old, but shareholders have wastedno time in launching legal challenges thatcould help raise the standards of corporategovernance in Europe’s largest economy.

In the past few months, a number ofhigh technology outlets listed on the NeuerMarkt, Frankfurt’s market for growthstocks, have come under the scrutiny oflawyers for practices ranging from therelease of misleading information to outrightfraud.

Responding to the shareholdercomplaints, public prosecutors in severalcities have opened criminal investigationsinto the managers of several businesses,while other companies are facing civil suitsin Germany and the U.S. (FT, 16.03.01)

Urge for Change in RulesThe US Federal Deposit Insurance

Corp. (FDIC) has recommended US to theCongress that all banks should pay fordeposit insurance according to their risk offailure and the $100,000 limit on accountcoverage should be pegged to inflation. TheFDIC Chairwoman, Donna Tanoue, said thechanges are needed to protect the safety ofthe U.S. banking industry and keep creditflowing to Americans.

“If we do not begin now to change someof the rules that govern our deposit-insurance system, it is likely to take a tollon the safety and soundness of the bankingindustry,” she said at a news conference.

(WSJ, 09.04.01)


CORPORATE GOVERNANCE

Outcry Erupts at SamsungSamsung Electronics Co., appointed its

Chairman’s 32-year-old son, Lee Jae Yong,to a key management position,underscoring the resistance of some ofSouth Korea’s giant family-run businesses,or chaebols, to shareholder activism.

Investor groups charge that thechaebols’ opaque management style, whichrelied on mountains of debt and focused onsales growth over profitability, led thecountry into its 1997 financial crisis.

Samsung Electronics announced thatLee was promoted to Vice President in itsstrategic planning office. In his newposition, the company said, Lee will focuson corporate governance and transparencyissues and “strategies to enhanceshareholder value.” (WSJ, 12.03.01)

Deutsche Telekom SuedA group of Deutsche Telekom

shareholders filed a suit against Europe’slargest telecommunications company,claiming it misled investors, lawyers said.

Shareholder representatives, Tilp &Kaelberer, maintain that, besides providinginsufficient information in the prospectusconnected to the issue of a third tranche ofshares, Deutsche Telekom gave falseinformation about the value of its real-estateholdings. If the claims are successful,Deutsche Telekom may have to pay theshareholders more than one billion euros($886.7 million), the law firm said.

At the end of March, DeutscheTelekom rejected the law firm’s efforts toreach an out-of-court settlement.

(WSJ, 18.04.01)

Stomil FinedMinority investors in the Polish

tyremaker, Stomil Olsztyn, have scored avictory over Michelin, Stomil’s majorityowner, following a Polish court ruling thatthe French company had illegally blockedtheir access to information.

A regional court in Olsztyn fined Benoitde la Breteche, Stomil’s Chairman, 10,000zlotys ($2,400) for refusing to giveinformation about the company requestedby the minorities’ supervisory boardrepresentative. Pension and other funds,representing 26 percent of Stomil’s shareswant better access to Stomil’s books tosupport their allegations that the Frenchcompany, which holds 59 percent, isunfairly transferring a portion of the Polishconcern’s profits abroad.

Michelin, which denies the accusations,is suing the funds for libel and has askedPoland’s Securities Commission toinvestigate charges of manipulation ofStomil’s stock. (FT, 19.03.01)

SEC Orders ClosureThe Philippine Securities and Exchange

Commission (SEC) has ordered the closureof 18 Manila-based financial servicescompanies allegedly involved in swindlingforeign investors. The AustralianGovernment’s Securities and InvestmentCommission (ASIC) welcomed the move,adding that Australian investors had lost“millions of dollars” to such companies inManila and elsewhere in recent years.

Ten of the Manila companies wereinvolved in high-pressure telephone salesof shares in companies allegedly listed onthe stock exchanges in the US andelsewhere, said Jose Tomas Syquia,Assistant Director in the SEC’s complianceand enforcement department. The otherswere involved in foreign exchange trading,selling investment contracts and otherservices. (FT, 10.05.01)

RBI Nominees DisapprovedThe advisory group of the Reserve

Bank of India (RBI) on corporategovernance wants the central bank todiscontinue the practice of appointing itsnominees on the boards of public sectorbanks. The group’s report, which is part ofthe RBI’s package on internationalstandards and codes, has come downheavily on the standard of corporategovernance in the country.

The group felt that the RBI’s practiceof appointing nominees on bank’s boardscreates a conflict of interest in its role as aregulator of the financial sector. The reportseeks significant changes in the practice ofcorporate governance adopted by banks andother financial intermediaries. (ET, 05.04.01)

NASD Settles ChargesBank One Corp.’s investment-banking

subsidiary and the regulatory arm of theU.S. National Association of Securities

Dealers (NASD) reached an agreement forthe bank unit to pay a $1.8 mn fine to settlecharges that it violated federal securitieslaws.

An NASD investigation found thatBanc One Capital Markets operatedwithout a reliable accounting system fromFebruary 1999 to August 1999.

Federal securities laws require currentand reliable bookkeeping. The NASDcensured and fined the unit for inadequatenet capital, insufficient customer reservesand inaccurate books and records.

(WSJ, 09.04.01)

ConAgra ProbedConAgra, the US agri-business and food

products group, said it would have torestate its figures because of accountingirregularities which are being probed by theUS Securities & Exchange Commission.

The problems relate to the United AgriProducts Companies unit, one of the threebusinesses that make up the Omaha-basedgroup’s agricultural products division. Thesubsidiary, which distributes seed, fertiliserand agricultural chemicals, has accountedfor about 13 percent of group sales andnine percent of operating profit in recentyears. (FT, 25.05.01)

Incentive Scheme AttackedTwo of Billiton’s biggest shareholder

groups have joined the attack on thedeliberate move by the UK listed mininggroup to trigger its £48mn share incentivescheme, following its proposed merger withBHP, the Australian miner.

Shareholders are unhappy that there isno special vote on the incentive scheme atBilliton’s extraordinary meeting on May 15.It is being bundled together with the voteon the merger with BHP. (FT, 04.05.01)

Forced to QuitThe British Telecommunications Plc

(BT) Chairman, Iain Vallance, bowed to theshareholders pressure and stepped down,heightening expectations that the companywill make a record-breaking rights issue totackle a debt the crisis. BT said ChristopherBland, head of the state broadcaster, theBBC, would replace Vallance. Vallance willstay on as president emeritus until July2002, when he was originally supposed toretire as the chairman.

Industry sources said Bland’s first jobcould be to seek a replacement for the ChiefExecutive Peter Bonfield, who has alsofaced calls for his resignation over the recentdismal performance of BT’s share price.

But, according to Bland, Bonfield wasthe right man for the job. BT shares were

5.2 percent higher in pre-market trade.(ET, 27.04.01)

The E

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UTILITIES

High Power-Tariffs to EndKenyans are stuck with high electricity

bills until July. The fuel costs introducedduring power rationing which have inflatedconsumers’ bills will continue to be chargedbecause of the uncertainty over the waterlevels at one hydro-power dam.

It arises from adecision by the powersector stakeholders toextend the contract for a75MW emergencypower plant at Embakasiby a month. Accordingto the Energy Minister,Masakhalia, stakeholders feel that thewater-level at Masinga dam is too low forlong-term power-generation. Electricityusers will continue paying a fuel surchargeof Sh 2.50 per KWH until the plant stopsoperating in July. (DN, 17.05.01)

Facing Legal ActionCalifornia’s energy monitors plan legal

action against an alleged cartel of theelectricity companies, which, they claim,shut down plant needlessly to drive up thepower prices.

Loretta Lynch, the assertive Presidentof the Public Utilities Commission, said itwas no accident that the cost of powersoared to almost $2000 a megawatt hour atone point in May, compared with $200 inDecember. “I would argue that in fact, it’sthe co-ordinated behaviour the cartel”, shetold the Los Angeles Times. Her chargeswere likely to heighten tensions betweenthe State Administration and the powerindustry, which was rattled by suggestionsthat Gray Davis, the California Governor,might use his powers to seize generatingstations and run them as State operations.

Lynch blamed the imposition of theconsumer rate increases of up to 50 percenton federal regulators, who had repeatedlyrefused to help the state through its yearold crisis by capping wholesale prices.

(FT, 19.05.01)

Deregulating PowerAlberta is proving that deregulating

power can be a disaster even in a regionloaded with energy. On January 1, staunchlypro-business Alberta became the firstCanadian province to fully deregulate itselectricity market, completing a complexprocess it began six years back.

For years, industrial-power consumershad clamoured for an open market that theythought would bring increased competitionand lower rates. But now, consumers arecommonly paying nearly twice as much forpower as a year ago. Many businesses arebegging Alberta’s Government to turn the

clock back. To placate the angry citizens,the Alberta Government has had to pledgebillions of dollars in energy subsidies andtax rebates.

Electricity prices would have risensomewhat even without deregulation. But,critics say, poor planning for deregulationsignificantly exacerbated Alberta’s problemby increasing its reliance on increasinglycostly natural gas. (WSJ, 25.04.01)

From One to SixThe South Korean Government split

Korea Electric Power Corp.’s powergeneration operation into six companies,implementing the first major step in its planto restructure and privatise the state-runpower monopoly.

The operations were divided into fivenon-nuclear generation companies and onehydro and nuclear power-generationcompany. The Government plans toprivatise the five non-nuclear units startingearly 2002, while maintaining control of thenuclear-generation unit because of securityreasons.

The Government has yet to determinehow these five units will be spun-off andexpects to finalise a privatisation plan byyear-end. One possible approach would beto sell one of the units in an auction. Underthe Government’s privatisation plans,

overseas investors would be given the rightto manage two of the five non-nuclearpower generation companies, a move thateffectively would give foreign investorscontrol over 30 percent of Korea’selectricity generation capacity. However,the Government will retain ownership ofKepco’s transmission operations.

(WSJ, 03.04.01)

Enel Seeks Price CutItaly’s state-run electricity group, Enel,

would seek a Euro 3bn reduction in the priceit paid Britain’s Vodafone fortelecommunications group Infostrada aftera ruling on the deal made by the Italiancompetition authority. Following ajudgement from Italy’s anti-trust authoritythat has angered Enel’s top management,the electricity group is to start re-negotiatingthe euro 11bn price paid for Infostrada withVodafone.

The Italian competition authority ruledthat Enel must reduce its stake in thecountry’s electricity-generation market bya further 5,500MW if the purchase ofInfostrada is to go ahead, or else thepurchase would reinforce its dominantposition in the Italian market by allowing itto offer customers loyalty-deals involvingelectricity and phone services. (FT, 02.03.01)

Power Games in EU

While talking of liberalising streak, the European Union (EU) leaders collectivelysingled out the energy sector for special attention. The European Commission (EC)

had put forward a draft legislation to speed up energy liberalisation and weld the EU’s 15separate markets into one. The proposal wouldbring forward the following:

· Choice of supplier to all electricity and gasconsumers by 2005;

· Right to energy companies to buy electricity onthe basis of published prices supervised by anindependent national regulator; end

· Stop vertically integrated companies keepingrivals’ energy out of their grids and pipelines.

But the EU’s goal to create a single marketsuffered a setback when the EU leaders failed toagree on concrete dates for fully opening the gasand electricity markets to competition. The EUheads of Government agreed that EC could usecompetition law to put pressure on countries toliberalise their markets and stop monopolysuppliers competing unfairly in open markets inthe other EU countries.

The problems facing the EC’s drive were thrown into sharp relief when France madeclear that it was unwilling to consider an energy liberalisation measure until next year,while Germany spoke out against one of its key provisions. France said it was prematureto decide on a date for full liberalisation – although other member states argue that withouta firm date, commitments to liberalise are meaningless. (FT, 26.03.01 & 15.05.01)

Financial T

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UTILITIES

ATAF ScrappedThe Energy Regulation Board (ERB)

of Zambia has ruled that the AutomaticTariff Adjustment Formula (ATAF), beingunfavourable to consumers, to beeliminated. The ATAF is a method whichZambia Electric Supply Company(ZESCO) had been using over the past threeyears to determine retail electricity price.

The Board noted that serious concernswere raised of undue advantage by ZESCOof adjusting, the electricity prices followingthe fluctuation of the value of the Kwachaof the US dollar. It was noted that otherplayers in the economy, equally affectedby the depreciation of the local currency,do not adjust their prices using the ATAFand, therefore, ZESCO had an unfairadvantage over other players in theeconomy, including the consumers.

The Board ruled the entire electricitypricing formula be reviewed, making itsuitable to the current economicenvironment by ensuring that it is fair toboth the customers and the utility. An all-party settlement initiative to bespearheaded by the Board will beconstituted to look at the new avenues ofelectricity retail pricing in Zambia.

Iran Internet Cafes ClosedPolice in Tehran

have shut downseveral hundredinternet cafes in acrackdown believedto be driven byconcerns of the statetelecommunicationsmonopoly that it is losing business to thenewly emerging private sector.

Hambastegi, a pro-reform newspaper,reported that the police department, tosupervise public places, had closed over400 internet cafes on the grounds that theyhad no permits, although no such permitsyet exist.

In a related development, about 100privately owned internet service providersin Iran have launched a campaign to counterwhat they see as unfair competition fromthe Telecommunications Ministry intendedto preserve internet business as a statemonopoly. (FT,14.05.01)

NorthPoint to ContinueNorthPoint Communications Group

Inc. can not shut off its high-speed internetservice without giving at least a 30 days’notice to customers, said Californiaregulators in an emergency injunction againstthe shutdown.

The California Public UtilitiesCommission’s order applies only inCalifornia, where NorthPoint, which isbased in San Francisco, has about 40

percent of its total of about 100,000customers. It remains unclear how theprovider of swift digital-subscriber-lineinternet connections can comply with thecommission’s order.

Northpoint, which sought bankruptcyprotection in January, has said it has nomoney to keep its service running. Acoalition of Internet service providers raisedabout $27mn to try to keep the service goinglong enough to let customers findalternatives. However, the group’s effortsto negotiate a temporary solution withNorthPoint’s creditors failed. (WSJ, 03.04.01)

Gas Probe in EUThe European Commission (EC),

under pressure to boost competition inEuropean energy markets, is challenging gassupply contracts between Gazprom, theRussian energy supplier and three Italianutilities, Snam, Enel and Edison. The ECbelieves exclusivity clauses in the contractscould be contrary to EU law. The contractscontain clauses that stop the Italian utilitiesselling on gas to other EU markets. Theyforbid Gazprom from selling to othercompanies in Italy.

The Commission was determined toapply competition rules to energy and itsopening salvo will be to send a statementof objections to the companies, includingGazprom. If the contracts contravene EUlaw, the EC could force the companies toremove the clauses. It has the power to finethem up to 10 percent of their globalrevenues.

Last month’s Stockholm summit calledon the EC to ensure that competition inenergy was not distorted by enforcingcompetition rules. EC plans to take Franceto court over its failure to introducelegislation to liberalise its gas markets, onlydays after assuring Brussels that it woulddo so. Although Electricite de France hasrecently proved one of the most acquisitivecompanies in Europe, France is deeplyunenthusiastic about the liberalisation ofits own energy sector. (FT, 27.03.01 & 04.05.01)

Seoul Plans Third Big PlayerSouth Korea is proposing the creation

of a third big telecoms operator that wouldchallenge the dominance of SK Telecom andstate-run Korea Telecom, while absorbingother struggling telecom companies. Therestructuring plan announced by theMinistry of Information andCommunications is meant to promotemergers and acquisitions and end “excessivecompetition” in the sector that has left manyoperators with large losses.

Korea’s telecom sector is fragmented,with Korea Telecom, the only fullyintegrated operator with both fixed-line andmobile phone services. The number of

mobile phone operators has already beenreduced from five to three. Mounting lossesamong seven operators in the high-speedinternet sector are also likely to lead tomergers.

Companies that could be merged intothe new telecom group include LG Telecom,fixed-line operators Dacom and Onse, andinternet broadband providers such asHanaro or Thrunet, according to analysts.

(FT, 21.02.01)

SADC Launches ERBThe Southern African Development

Community (SADC) has launched theRegional Electricity Regulatory Associationthat will set standards for crossborderelectricity trade.

Energy Regulation Boards (ERB)technical advisor, Sylvester Hibajene, saidin Lusaka that it had become necessary toform such an association because of theincreasing number of inter-connectorsbetween and among SADC member statesand a greater need for harmonisedregulations. Since electricity regulation is arelatively new concept in member-states,there was a need for the SADC countries toshare experiences.

Hibajene said through harmonisedregulatory system, electricity projectsopened up for private sector participationwould become easier and cheaper to processfor both the investor and the SADCGovernments. (TOZ, 05.06.01)

Malaysia Sells Postal ServiceMalaysia’s richest listed company

announced it has struck a deal with theGovernment to buy the national postalservice Company for 800mn ringgit($210mn). In a statement issued to theKuala Lumpur Stock Exchange, PhileoAllied Bhd said it has signed a conditionalsale and purchase agreement with theMinistry of Finance Inc. to buy PosMalaysia Bhd.

The acquisition will provide Phileowith a new core business that will contributefollowing the sale of its bank andstockbroking concerns. Phileo Allied soldits entire stake in Phileo Allied SecuritiesSdn Bhd to Malaysian Banking Bhd, thecountry’s largest bank, for 1.3 bn ringgit($342mn) cash earlier this year. Thecompany has earmarked about 1.18 billionringgit ($310mn) of the proceeds for newinvestments.

Phileo has paid a deposit of 40 millionringgit ($105mn) and will pay another 510million ringgit ($134mn) in cash. Theremaining 250 million ringgit ($65.8mn) willbe a convertible loan from the FinanceMinistry to Phileo, at 5 percent interest.

(BL, 26.05.01)

The E

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Rates SlashedTelecom Malaysia announced reduced

rates of up to 50 percent for its domesticand international digital leased-line services.The price reductions vary according to thetype of service, including the speed of theconnection, location and the destination forinternational services. Telekom MalaysiaBhd. said a substantial drop in rates forleased-line services will affect earnings onlyslightly because the company expects thedecline to be offset by an increase in thenumber of customers.

Idris Ibrahim, the chief operating officerof the company’s telecommunications unit,said the revenue decline from the rate-cutinitially will be 200 million ringgit annually,but Telekom Malaysia expects to recoverthat within 18 months from cost reductionsand new customers.

In another development, TelekomMalaysia Bhd. said it dropped plans to buyJaring, the country’s second-largestinternet-service provider because ofconcerns about unfair competition.

(WSJ, 03.05.01 & 16.05.01)

Japanese Telecom ReformThe Japanese cabinet approved

changes to legislation that are likely todisappoint Japan’s trading partners andbusiness leaders seeking greater competitionin the telecommunications market. Thereform proposals, which will be submittedto the Diet during the current session, fallsignificantly short of the recommendationsby a Government panel, aimed atstimulating further competition in themarket.

Under the changes approved by thecabinet, NTT’s regional operators wouldbe allowed to enter new businesses, suchas internet services, on the condition thatthere are no obstacles to fair competition.Japan’s telecom regulators had approved ahighly controversial internet service plannedby the regional NTT operators, whichallowed the dominant carrier to venturebeyond its legally designated businessterritory but have issued a warning to NTTthat it must end practices that hampercompetition in the high-speed datacommunications market.

The warning is an embarrassment forNTT, coming as it does after complaintsby eAccess, a rival provider of DSL digitalservices, that NTT uses its dominance inthe domestic market to obstruct growth incompetitors’ businesses. (FT, 26.04.01)

Telekom�s Monopoly DemandedThe monopolistic status of Telkom

Kenya should be done away with as it hascontributed to inefficient and ineffectiveservices, the secretary-general of theTelephone Users Association of Kenya(TUAK), Francis Wanyange, has said. Healso said that the telephone tariffs remainextremely high largely because the company

has been complacent for decades. He saidthat the tariffs being charged currently arenot based on any rational criteria but on themonopolistic nature of the market.

Wanyange said that Telkom Kenyaneeds competition so that it can begin tooperate more efficiently and deliverservices. “We should license other operatorsto compete countrywide with Telkom. Weshould not be thinking about selling a staketo foreigners but just let those who cancompete with Telkom to get into themarket”, Wanyange said.

The Communications Commission ofKenya has licensed the regionaltelecommunications operators forcountrywide operations, apart fromNairobi. But, they have not commencedwork. (The People Daily, 30.05.01)

Caribbean Telecom DealsAfter months of contentious

negotiations and public quarrels, Cableand Wireless (C&W), the UKtelecommunications, company with aregional monopoly and five easternCaribbean Governments have agreed to atime-table for liberalisation. Several regionaland international companies have alreadyindicated an interest in entering the region’stelecom business, according to Governmentofficials.

The five Governments – Dominica,Grenada, St Kitts, St Lucia and St Vincentand C&W have agreed that after atransitional period ending on April 1 nextyear, C&W’s dominance will end andtelecom services will be opened tocompetition.

The regional Governments opine thatthe company’s exclusive licences arehindering economic development, stiflingcompetition and are inconsistent with theWorld Trade Organisation agreements.

(FT, 19.04.01)

Entering Mexican MarketTelfonica, the Spanish

telecommunications company, is in talkswith several Mexican wireless operators,including Pegaso, in a bid to expand its toe-hold into one of the world’s fastest-growingcellular markets.

Pegaso, controlled by Alejandro Burillo,the Mexican billionaire and 26 percent

owned by US carrier Sprint PCS, is one ofthe three operators with a nationwidespectrum. Pegaso acknowledged it is intalks with Telefonica, but said they havebeen “centred on a roaming agreement”.

In addition to the sheer size of themarket, the newcomers are up againstTelcel, the largest cellular provider in LatinAmerica. The analysts predict Telcel’smarket share will be whittled down to 55percent in the coming years as the marketconsolidates around three national carriers,likely players being Telcel, Telefonica andIusacell, the number two carrier in LatinAmerica. (FT, 16.05.01)

Phone Groups WarnsEurope’s Competition Commissioner,

Mario Monti gave notice to the mobilephone industry that he thought markets for“roaming” services showed “an almostcomplete absence of competition” and inmany cases could be ripe for Commissionaction.

Brussels has expressed its concern inthe past over the high cost of roaming, thesystem by which a handset from onecountry or network can use anothernetwork. In July 1999, it began aninvestigation that plans to pronounce oncompetition in the sector by the end ofthis year. But, Monti’s comments appearedto signify that his patience was running low.

Talking to the industry committee ofthe European Parliament, the Commissionerexpressed his displeasure with “high andrigid prices” that clustered around the euro1 a minute rate and indicated that Brusselswas far from happy with the currentarrangements to standardise charges.

(FT, 25.04.01)

UTILITIES

Water RegulatorSet-Up

Cabinet approval is awaited for theestablishment of the water services

regulatory commission and the directingof the legal draftsman to prepare the draftlegislation to establish the regulatorycommission for water supply andsewerage services in Sri Lanka.

At a seminar titled ‘Competitionpolicy and utility regulation’, ShanthaFernando of National Water Supply andDrainage Board (NWSDB) said that aregulatory framework is necessary toovercome market failures, promoteefficiency, encourage competition andachieve objectives set for the sector.

The financing of the regulator wouldbe either through a surcharge on themonthly water bill or a volume relatedcharge so as to maintain his independencewithout having to be dependent on agovernment grant. (The Island, 20.03.01)

Telecom Special

Financial T

imes


ABOUT A COMPETITION LAW

Ujamaa PoliciesDuring Tanzania’s pre-independence period, the economy was

entirely under the control of the colonialists. The native Tanzaniansplayed the part of labourers and the exploited class. With theindependence in 1961, the Government of Tanganyika had a taskof restructuring the economy so that every native Tanzanian couldbenefit. This aspiration gave birth to the Arusha declaration in1967, which led to the nationalisation of all major means ofproduction and exchange and placed them under the control of thecentral Government.

With the Arusha declaration and Government control of themajor means of production and consumption, the manipulation ofprices was common. One of the frequently quoted reasons forhaving price control was to check on monopolies. The Government’sprice control system was introduced by the Regulation of PricesAct, 1973, to be administered by the National Price Commission(NPC). At a certain period of time, nearly all products were pricecontrolled. For example in 1978 there were 3000 controlled items2.

Over time, however, the failures of Ujamaa policies becameapparent as the economy stagnated and suffered significantsetbacks. Social and economic gains that were made during the firsttwo decades after independence were not maintained due to, amongother things, poor involvement of the people themselves at differentstages of planning. This resulted into unsustainability of mostprojects and lack of capital and skills for most of the people. Theeconomic difficulties experienced in the 1970s due to adverseweather conditions, world oil crises, the war with Uganda andadverse terms of trade with Tanzania’s trade partners exacerbatedthe situation.

Economic ReformsSince 1985, Tanzania implemented a series of economic reforms,

in particular Economic Recovery Program (ERP), supported bythe International Monetary Fund, the World Bank and otherinternational institutions and donors. ERP included many measuresfor liberalisation of trade and sought to encourage private investmentin various sectors of the economy. Since the mid-1990s, the paceof reform has accelerated and Tanzania has focused on macro-economic stabilisation and fiscal reforms whose impact has begun toshow up in some macro-economic indicators, i.e. higher GDP growthrates, maintaining inflation rates down to single digits and reinstatinggovernment financial discipline. More specifically, the reforms haveincluded price deregulation, trade liberalisation, re-examination of theroles of co-operatives and marketing boards, promulgation of aninvestment policy and examination of the country’s financial system.To stimulate interest in both domestic and foreign investment, theGovernment passed the necessary legislation, the National Investment(Promotion and Protection) Act 1997, that outlines clear provisionsfor investment in areas of national priority and provides for attractiveinvestment incentives and guarantees.

All these economic changes, measures and commitments madeit utterly important for the Tanzanian economy to have in place acompetition law. Also, it was crucial that a regulatory frameworkwas in place to address the conflicts of interests in the emergingmarket economy.

Nature and ScopeThe Trade Practices Act was enacted in 1994. The Act followed

heavily on the Australian competition model. Competition lawand policy is the generic specification of economic activities coveredin Tanzania under the Fair Trade Practices Act (no 4) of 1994. Themain objective of the 1994 Act is “…to encourage competition inthe economy by prohibiting restrictive trade practices, regulatingmonopolies, concentration of economic power and prices, to protectthe consumer and to provide for other related matters.”

The operative area of economic theory is that of economicefficiency. The issues are even more important in Tanzania givenits past economic management and the current changes that havebeen, and are still, taking place. Enacting of this Law plays asignificant role in enforcing competition in Tanzania.

The Act combines three aspects, which many otherjurisdictions do not usually lump together. These aspects include:l The competition aspect a regime which protects or encourages

competition in the economy and interferes only when thecompetition rules are being broken. This regime deals with hardcore cartels, vertical restraints, abuse of dominant position andmerger control;

l Monopoly regulation aspects a regime which accepts that in aneconomy there could be monopolies by virtue of statutory,historical or natural growth and that such monopolies should beregulated so that they price and provide quality services asthough they were many and competing; and

l Consumer protection aspect a regime to ensure that producersor providers of services as a group do not rally against consumersor rather, providing a platform where a consumer interest canbe addressed.These three aspects, taken together make it appear quite tough

for one organisation to deal with. However, this was done, giventhe associated high cost relative to Tanzania’s economy. In addition,all three aspects, at the end of the day aimed at protecting or givingthe consumer a fair deal. Therefore they were not contradictory. Itis important to note that competition bodies are arbiters betweengovernment, producers and consumers. They do not, and shouldnot always stand on the side of the consumer alone; they also haveto allow the producers to operate at profit because, in the long run,it may be in the interest of the consumers. It is the “rule of reason”which should prevail when a decision is to be made.

Levels of OperationThe institutional framework of Fair Trade Practices Act consists

of two levels of implementation. These are the Commission andthe Tribunal. The Commissioner for trade practices has the role ofdaily implementation of the Act. The overall responsibility of theCommissioner for trade practices is to control, manage and monitoran efficient functioning of the Act. The Commissioner acts as aninvestigator, prosecutor, administrator and also deals withestablishment, advocating and, sometimes, resolving, interveningadministratively on competition law breaching without evenimposing fines. The other level of implementation is the Tribunal,which is made up of the Chairman of the Tribunal as well as other2-4 members from business community. The Tribunal takes careof cases brought in by the person or persons who feel unsatisfiedby the Commissioner’s ruling.3

COMPETITION REGIME IN TANZANIA: THE STATE-OF-THE-ART1

Preamble...

From the mid-1960s, Tanzania plunged itself into �Ujamaa� (socialism) policies, which suppressed the developmentof the private sector in favour of �public good� � the public sector. It was only from the mid-1980s, and more so from

1995, that the Government of Tanzania concentrated on intensive and directed economic liberalisation policies; movingfrom inward-looking policies to outward-looking policies (the policies that put the private sector at the centre of economicdevelopment). The globalisation and information highway of world economy, whereby the world becomes a globalvillage, was the major mover for Tanzania�s economic policy U-turn. Indeed, Tanzania�s socio-economic developmentswere now, among others, dependent on developments attained elsewhere in the world. So, to control market failuresassociated with open market it was imperative to put in place a competition policy, competition law in particular.


Competition Policy – a World OutlookThe design of trade laws and institutions is important not only

to ensure that trade liberalisation is not offset by other policies,but also to reduce the likelihood that a trading partner can cut offmarket access through anti-dumping or similar actions. Competitionauthorities can act as the ‘conscience’ of the government, recognisingand publicising the costs to consumers of government policies andactions that restrict competition4 .

The general need for government intervention in the economyusing the competition policy hinges on areas that are prone tomarket failures. Some of these areas include the environment,restrictive business practices and consumer protection.

Hoekman (1998)5 distinguishes competition policies in generalfrom anti-trust or competition law. Anti-trust law is a subset ofcompetition policy and involves instruments that control or regulatethe permissible behavior of private firms or natural persons. Thenatural instinct of a firm is to maximise its market position and togain dominant share of a market. To counter this tendency, rulesand regulations need to be developed to ensure that competition ismaintained (CUTS Briefing Paper, May 1996). On the other hand,competition policy spans the much broader set of measures andinstruments that may be pursued by governments to enhance thecontestability of markets, including privatising state-ownedenterprises, deregulating activities, cut firm-specific subsidyprograms and reduce the extent of the policies that discriminateagainst foreign products or producers.

Competition policy has emerged as a major issue on the globalagenda due to the pressure by some of the developed countrieswho consider that in an increasingly liberalised world economy theissue of competition should be addressed at the international level6 .

The rapid changes in the developing countries that were undercontrol have special need for competition policies and laws.Tanzania has been, and is still, going through changes, namely:trade liberalisation, privatisation, and deregulation. These measureshave made it absolutely important for the economy to have aregulatory framework in place to address the conflicts of interestsin the emerging market economy.

In the process of privatisation, evidence affirms that thechanging of hands from public ownership to private ownershipdoes not necessarily remove monopolistic tendencies, especiallyin the short run, but, rather, transforms the public monopolies intoprivate monopolies. In that situation, prices will not be loweredby the change of ownership, but, rather, they might get even higheras the motivation of the public and private owners might be different.Over time, the monopolistic situation might change as new investorsemerge, but in the short run to medium run regulation is crucial.

The Daunting Progress on the ImplementationThe Tanzanian economy has marked large strikes on building

the foundation for private sector development evidenced, forexample, by the significant hallmarks of policy towards outward-orientation e.g. trade and exchange rate liberalisation;macroeconomic reforms; and increased market incentives. But,competition policy has not been fully operational, though the FairTrade Practices Act – the corner stone for the competition policy– was put in place seven years ago.

Reasons for the DelayCompetition Law in Tanzania came about from a push from

the Tanzanian Parliamentarians who saw the need for thegovernment to conduct a search and propose new mechanisms ofhow market economies were regulated in view of the then seeminglychaos of the markets in Tanzania. Being not initially conceived bythe Government, the enactment of the Law was not, in the short-term, a priority for the government. Funding was a crucial part insecuring that the Competition Law pre-requisites were in place.On the other hand, market competition and, more so, competitionregime is new in Tanzania. Therefore, like any other least developedcountry, it is likely to take time before the Competition Law isdeeply rooted in Tanzania’s economy due to limited financial,institutional and human resources. Another reason for the delay isthat a number of monopoly running bureaucrats, who know therole of competition and regulatory agencies, would not be interestedin the operationalisation of such laws.

However, it is worth noting that effective implementation ofthe Competition Law largely requires co-operation from the restof the stakeholders in the economy, in particular Governmentcommitment, especially in terms of funding and putting in placerequired regulations and institutions to support the Law.

The concept is still new in developing countries, includingTanzania, and it assumes that the principles of good governanceprevail in the society, which in many cases is inadequate in manyof these countries7 . It is evident that competition policy and lawhas to be sold and emphasised just as political pluralism and properethics. If this does not happen, there is a possibility, in certainsocieties, for market economy being equated with chaos or injusticeas a result of the likelihood of turning public monopolies intoprivate monopolies, with no apparent redress mechanism whenthings turn down.

Way ForwardFor effective operation of the competition law, it is important

that the requisite institutions are put in place. For example, althoughthe Law was enacted seven years ago, the structure of theCommission and Tribunal have yet to be accepted and implemented.Also, the general public has little, or no knowledge, of what istaking place in the Commission.

It is important that the competition policy authority worksindependently to eliminate chances of political interference(currently, the authority functions under the Ministry of Industryand Commerce). Further, enough funding and remuneration ofauthority staffs will, to a great extent, increase work-efficiencyand reduce the possibilities of corruption. On the other hand, thepolicy needs to be supported by strong laws and regulations andheaded by a person of high caliber and great integrity in order tomake rational decisions and with confidence.

Tanzania needs to tap experiences from other developingcountries where such Law and policy exist. Competition policyand law basically deals with conflict of interest in the economy, forinstance, between producers of goods and services, consumers andgovernment institutions. Therefore, formulation of laws, rules andinstitutions, together with competition law officials, has to bedone with the interest of those groups in mind.

ABOUT A COMPETITION LAW

1. This article was written by Flora Musonda and Wilfred Mbowe who are working at Economic and Social Research Foundation (ESRF).2. Flora Musonda, “Competition Policy in Tanzania”, A paper prepared for EAC Workshop on Competition Policies, Kampala, Uganda, May 2000.3. If a person does not comply with the ruling of the Tribunal or Commissioner, such person is committing an offence and will be liable to a fine not exceeding

one million shillings or imprisonment for a term not exceeding two years or both such fine and imprisonment.4. See, World Bank Discussion Papers No. 282.5. See, Hoekman Bernard, “Competition Policy and Preferential Trade Agreements”, Economic Development Institute of the World Bank, EDI Working Papers,

IBRD, Washington, 19986. Singh Ajit and Rahul Dhumale, “Competition Policy, Development and Developing Countries”, ICRIER, Nov. 26, 1999.7. Mkocha Godfrey, “Regulatory Framework for Tanzania”, A conceptual paper prepared for the Commonwealth Working Group Meeting on Trade, Competition

Policy and Law, Malborough House, London, July 25, 2000.


SERIAL PAPER

Austrian Kartellgericht

The Kartellgericht’s results are patchy. The court earns itshighest scores for consistency of decision-making and its ability tohandle legal issues. There are also satisfactory results for speed ofmerger handling, leadership and its informal guidance. Respondentsexpress their greatest dissatisfaction with the court’s transparencyand its ability to handle economic analysis. Scores for non-mergerhandling, lines of questioning and ease of access to informal guidanceare also low.

The Kartellgericht, with its three judges and tiny staff, isprobably the smallest authority covered by this survey. Much ofthe influence over Austrian competition law and policy has beenvested in other bodies.

Background: The principal source of Austrian competitionlaw and enforcement is the 1998 Cartel Act, which was lastamended in 1999. The law is mainly administered by theKartellgericht, and includes a six-member advisory committee anda small team of support staff. Appeals are decided by a division ofthe Austrian Supreme Court.

Belgian Competition Council

Respondents have little faith in the Competition Council’sability to handle legal and economic issues or to ask the right kindsof questions. They also give the Council extremely low marks for

non-merger handling. In addition, they show dissatisfaction withthe Council’s record of consistency and transparency. Satisfactionwith the Council’s independence means that its otherwise troubledratings gain a small boost.

Since last year’s change in the law there have been importantreforms. These include new procedures and the revampedinstitutions, in particular improvements to the 20-member Council.Formerly a part-time body, it now has two magistrates and twoexperts as full-time members. But there is a widespread sense thatBelgian competition enforcement remains in a bureaucratic quagmire.

Background: The Competition Act of 1991 regulates the lawin Belgium. The regulatory bodies are now known as the Departmentof Prices and Competition, the Competition Council and theCompetition Commission. The Department, with a staff of 20, ispart of the Ministry of Economic Affairs, and it draws on a bodyof rapporteurs to direct examination of cases. The Council is madeup of 20 experts in competition issues. It issues decisions andenforces competition rules.

Brazilian Economic Defence AdministrativeCouncil

The Economic Defence Administration Council (CADE)’sleadership is warmly endorsed and its other scores are mostlysatisfactory. The availability of informal advice is highlyappreciated, as is ease of access to third party complainants, butthe advice itself is seen as less than satisfactory. Independenceregisters the greatest dissatisfaction with consistency of decision-making and security of information close behind.

CADE has, perhaps, the highest profile, both nationally andinternationally, of all Latin American competition regulators. Thisis due, in no small part, to the efforts of President Gesner JoséOliveira Filho, who has made antitrust advocacy a central part ofhis work.

Rating the Regulators

In this second installment of our featured paper, the Global Competition Review survey, �Rating theRegulators,� we take a look at six more competition authorities from around the world. Thesurvey appraises the abilities and assesses the efficiency of some of the most important national and

supra-national agencies shaping the business environment of the 21st century, the first global in-depthsurvey of its kind.

The research was based around a 14-point questionnaire, sent to thousands of consumers of competitionservices working in all of the world�s principal jurisdictions, supplemented by interviews with practitioners.The survey was conducted during 1999 and the results collated in 2000.

The proliferation of competition policy regimes across the globe has not meant uniformity of rules orinstitutional approaches. If anything, it has ensured that there will be vigorous debate over the best modelto follow.

Merger handling ***1/2

Non-merger handling *1/2

Technical expertise **1/2

Procedure ***

Independence **

Leadership ***1/2

Merger handling ***

Non-merger handling ***

Technical expertise ***

Procedure ***

Independence *1\2

Leadership *****

Merger handling ***1\2

Non-merger handling *

Technical expertise *

Procedure **1/2

Independence ****

Leadership **


SERIAL PAPER

Background: The Economic Defence and AdministrativeCouncil, or CADE, was created in 1963 and given independentstatus under a law passed in 1994. CADE consists of a President,six Commissioners, an Attorney General and about 100 membersof staff. It has an annual budget of around US$5.5 million. Abouthalf the Commissioners are economists, while the other half arelawyers.

CADE has the ultimate authority to rule on merger notifications.It also has power to fashion remedies where it holds that the lawhas been violated. Those decisions in both merger and non-mergercases are subject to judicial review in instances where the partytakes court action. Only mergers around the US$200 millionthreshold or involving more than 20 percent of a relevant marketare subject to notification to CADE.

German Bundeskartellamt

Twin high scores for speed of merger and non-merger casehandling is unusual and this gives the Bundeskartellamt’s rating abig boost. There is little difficulty in gaining useful, informalguidance from the authority, while third-party complainants findit fairly easy to access officials. Respondents also have a highdegree of confidence in the security of the information they give toofficials, whom they regard as being very independent.

Transparency of decision-making was, until recently, somethingof a problem, but changes in the law have led to improvements.The Bundeskartellamt must now disclose the reasoning behindmore of its decisions.

Background: The Bundeskartellamt or Federal Cartel Office,oversees merger control and cases involving cartels, resale pricemaintenance and restrictive agreements. The Federal Ministry ofEconomics may grant exemptions in certain cases, but it does nototherwise instruct the Bundeskartellamt. The 10 operationaldivisions of the Bonn-based Budeskartellamt have quasi-judicialstatus. Half its staff of about 250 have degrees in law or economics.

The Bundeskartellamt’s decisions can be challenged at the Courtof Appeals in Düsseldorf and by further appeal, purely on pointsof law, to the German Federal Supreme Court.

Japanese Fair Trade Commission

Respondents show their greatest frustration with the FTC’stransparency. They also indicate that it is extremely difficult toaccess the Commission as a third-party complainant. Scores formerger and non-merger handling are both low, as are scores fortechnical expertise and independence. Brighter spots include a goodscore for consistency.

While there is some praise for the Commission’s adherence totight merger control time-tables, the overall picture is not a brightone. This is due, in part, to the legacy of a heavily monopolisedeconomy. State-sanctioned cartels, which peaked at over 1,000 inthe 1960s, continued to flourish until recently under a complexsystem of exemption clauses. It is only in the last two years thatsteps have been taken to dismantle that system in its entirety.

Another factor in the authority’s low rating is mutual mistrust.Japanese lawyers complain that the JFTC releases very littleinformation about its activities and investigations. Another keyproblem is the uneven quality of the five-person leadership.

Background: The Japanese Fair Trade Commission (JFTC)is an independent body within the Prime Minister’s office. Itconsists of a chairman and four commissioners, appointed by thePrime Minister. The JFTC, with a staff of 558 and a budget ofabout $52 million, is a quasi-legislative, quasi-judicial organisation,i.e., it can establish rules with respect to hearing procedures whilealso having the authority to issue decisions.

The JFTC may issue cease-and-desist orders and imposesurcharges to recover unlawful gains. If violations of the Act arevery serious or repeated by a firm, the Commission may report theviolation to the Public Prosecutor General for criminal charges.JFTC decisions may be appealed before the Tokyo High Court.

Swedish Konkurrensverket

An unusually high score for merger handling gives theKonkurrensverket’s rating a big boost. There is also a high degreeof satisfaction with the availability of informal guidance, ease ofaccess for third-party complainants, security of information andindependence. Dissatisfaction with the Konkurrensverket isfocused on staff’s abilities. On the positive side, the authorityapproves most mergers in under three weeks.

Background: The Swedish Competition Authority, theKonkurrensverket, was established in 1992. A new CompetitionAct entered into force a year later. The Authority’s 116-personstaff handles complaints and applications for negative clearanceand exemptions. It also controls mergers and acquisitions abovecertain turnover thresholds.

The Authority’s decisions concerning exemptions, negativeclearance and obligations may be appealed to the Market Court, aspecialised court of final appeal. Infringements of the Act canresult in penalty payments and administrative fines of up to 10per cent of the company’s turnover.

Merger handling **1/2

Non-merger handling **


Procedure **1/2

Independence **1/2

Leadership **1/2

Merger handling *****

Non-merger handling **1/2


Procedure ***1/2

Independence ****1/2

Leadership ***1/2

Merger handling *****

Non-merger handling ***1/2

Technical expertise ***1/2

Procedure ****

Independence ****1/2

Leadership ***


VIEWS

Does the GE-Honeywell Case Reveal A Real‘Schism’ in EU and US Competition Policy?

The recently proposed merger between GE and Honeywell was cleared by the competition agencies in Canada and the United Statesbut not by the Competition Directorate of the European Union. As a result, the US$42 billion deal became unravelled and Jack Welch,

the much admired Dean of American Business, confessed that even at his age (65) he could still “get surprised”. Although GE andHoneywell are US firms, their business operations tend to be global and, as such, required regulatory clearance by competition authoritiesin several jurisdictions.

The popular business press has attributed the failure of the GE-Honeywell transaction to differences between the EU and UScompetition policy. There are differences in competition laws between the two jurisdictions but this in and of itself not the issue, nor thelikely cause of the proposed merger being prevented. International or mega-merger transactions that span several jurisdictions can beapproved by one competition agency and be rejected by another even if the laws, policies and analytical methods used to evaluate suchcases are identical!

This is because the competitive effects of any merger need to be assessed in the context of the ‘relevant market’. While a merger canbe international in nature, the relevant market the firms sell their products and services can be regional or local. Markets, even in the faceof increased globalisation, de-regulation and reduced investment and trade barriers can remain segmented by such factors as transportationcosts, cultural differences, business strategies of firms as they relate to pricing, sourcing inputs, seller-customer contractual and distributionarrangements. Although in terms of demand the market may be global, supply conditions can be importantly determined by local factors.

A large vertically and horizontally integrated global firm can potentially foreclose opportunities for local customers and suppliers indifferent geographic or product market segments from having competitive access to the purchase or sale of goods and services throughpractices such as tied-selling, bundling of products and the like. Moreover, even if a proposed merger is motivated by efficiencyconsiderations, the gains in efficiency can arise in one jurisdiction and the lessening of competition could occur in another jurisdiction—and have differential impacts on consumers in different areas.

Some of these factors were, no doubt, among the considerations that led the EU competition authorities to view the GE-Honeywellmatter from a different perspective. Having said this, it is still useful to look at some of the differences in competition policy between theEU and the United States, as it relates to mergers. It has implications for countries seeking to adopt new or strengthen existingcompetition legislation.

Some Differences Between the EUand United States

The EU merger regulations (which are derived from Articles 85-86 of the Treaty of Rome, now Article 82 of the EC Treaty)

place significant emphasis on market share or concentration indetermining whether a merged firm will create or strengthen existingmarket dominance. Some observers state that, in substance, this isnot different from the “substantial lessening of competition” testapplied in the United States (and several other jurisdictions) as theCompetition Directorate takes into consideration market forcessuch as buyer-power and potential competition.

Although arguments regarding efficiencies arising from themerger will be considered in EU investigations, they are not materialif ‘market dominance’ has been determined. That is, once dominancehas been established, it is unlikely that a merger will be allowed toproceed even there is overwhelming evidence of economicefficiencies arising from the transaction. Indeed, in some past cases,arguments have been advanced that the efficiencies resulting froma merger could strengthen dominance because it can give significantcost advantages to the merged entity over its competitors!

To alleviate competition concerns, preference is for ‘structural’remedies such as divestiture of assets. This may, in part, be due tothe fact that it is difficult and requires more administrative resourcesto monitor ‘business conduct’ measure, and also because EUcompetition policy does not have provisions for private actions,whereby competitors can be vigilant as to whether or not theundertakings by the merged firm are being honored.

In contrast, the U.S. approach tends to be more flexible andtakes into consideration not only the competitive dynamics, butalso places more emphasis on the business conduct of firms than

on market share or industry concentration. In addition, importanceis attached to efficiencies arising from a merger and the extent towhich they are likely to offset some of the competition concerns.Also, the US competition authorities are less concerned aboutvertical or conglomerate mergers than their European counterparts.US laws also permit private actions in competition matters, andsuch suits are vigorously pursued by competitors and customers.

Notwithstanding some of these differences (or, moreappropriate, differences in emphasis), there is increasing convergencebetween the EU and US approaches in the implementation of theirrespective competition policies. This is evident when one comparesthe methods and approaches described in the EU MergerRegulations and the US Merger Guidelines and also, the co-operationin enforcement matters and the stringent approach adopted byboth jurisdictions towards international price-fixing cartels.

Moreover, there exists a formal Memorandum ofUnderstanding (MOU) between the two jurisdictions that fostersco-operation on various policy and enforcement matters. Theofficials in the respective competition offices are in frequent contactwith each other as well. Nonetheless, there remains room for furtherstrengthening these ties and streamlining procedures regardingnotification, filing of information and time periods for the mergerreview process, which were, in some ways, highlighted by the GE-Honeywell case.

Implications for Developing Economies

In trans-national merger transactions such as GE-Honeywell,where the major part of the business is conducted in

industrialized countries, the interests and concerns of developingnations, who are also customers of these firms, are likely to be

The E

conomic T

imes


VIEWS

Antitrust Enforcement and Market Effects Sir, Your two editorial page articles “GE and Brussels” and

“Going home, alone” (June 18) are right in emphasising that theseaerospace cases (General Electric-Honeywell and Boeing-McDonnell Douglas) are fairly rare exceptions to a broad patternof US-European Union anti-trust co-operation leading to commonor complementary results in most cases. What you did not address,however, is the idea fairly broadly held in US business and politicalcommunities that it is somehow illegitimate or protectionist forany other jurisdiction to have a tougher anti-trust policy than theUS. This is understandable in the sense that the US has from longhad the toughest anti-trust rules and enforcement in almost everyarea ? and hence it was practical for US enterprises (or, indeed,multinational companies) to proceed thinking almost only aboutUS anti-trust risks.

It simply is no longer true in a world with many global markets.There is clear room for serious debate as to exactly what anti-trustrules should be applied to mergers, joint ventures or cartels. Hereis also room for serious differences about efficiencies and marketimplications in a merger or joint venture case.

Finally, the same big merger may generate quite differentconcerns in the EU and the US: thus in AOL-Time Warner, theEuropean Commission was concerned about excessive control ofcertain content, while the US Federal Trade Commission wasprimarily concerned about assuring reasonable access to TimeWarner’s cable systems for AOL’s ISP competitors. If the factualsituation had been reversed (i.e. the main cable systems were in theEU rather than the US), the EU would have sought the same kindsof remedies as the FTC but the US political and businesscommunities would have shouted noisily about “protectionism”and “populism”.

What realists on both sides of the Atlantic have to get to gripswith is that it is market effects, not the nationality of the mergingparties, that should control anti-trust analysis. Different anti-trust policies without being irrational or wrong and global enterprisessuch as GE and Honeywell have to expect to comply with them.Merger planning teams on Wall Street and Pennsylvania Avenueshould have to take into account the EU’s serious commitment tomerger enforcement and the fact that it may be different in a fewareas and close cases.

In the US, we should also remember that in the cartel area, theUS indicts and tries to send to jail individual conspirators from

countries that do not regard cartels as a crime (for exampleSwitzerland) or punish individuals at all (for example the UK),when the conspiratorial conduct occurs entirely outside the US. Itis where the market effects are felt that is critical in modern antitrustenforcement.

(Donald I. Baker, Partner, Baker & Miller, Washington, 21.06.01)

Differences over �Bundling� Rooted inBusiness Philosophy

Sir, Andrew Hill’s and Kevin Done’s analyses, and your editorial(June 18), helpfully explained the US and European Union anti-trust enforcers’ differing attitudes to “bundling”, which underlinethe US’s approval of and the EU’s objection, as it stands to theGeneral Electric-Honeywell merger. As you wrote, “the EUregulators believe in the theory; their US counterparts don’t”.

It is more than theory. The different opinions result fromfundamentally different business philosophies and practices in theUS and in the Europe, at least on the continent. From the bankingsector across most of the European industry, there is a pervasivepractice of cross-selling and cross-subsidisation. Loss leaders aretolerated to promote high margin products in an environment inwhich established business relationships are still often moreimportant than creating shareholder value.

By contrast, GE and most US companies emphasise globalproduct line profitability.

Individual business (divisional) leaders in GE are personallyaccountable for their divisions’ profitability; no credit is given forcross-selling, cross-subsidising or “bundling”.

Meeting the quarterly earnings target is the mantra; there is noroom for fuzzy, relationship-based excuses.

Having spent five years at GE, but being in no way associatedtoday, I cannot believe Mario Monti, the EU competitioncommissioner, has done his homework. The concept of bundling isanathema to the business ethics of Jack Welch, GE’s chairman.More important still, bundling would not work at GE; it could notco-exist with the fierce divisional rivalry, the total fixation on eachdivision’s quarterly results and the financially based individualreward systems. I fear Mr. Monti has applied European businesspractices to a global leader that long ago outgrew the cross-subsidisation game. Very last century, Mr. Monti.

(Christopher Mackenzie, President and Chief Executive,TrizecHahn Corp, Canada, 21.06.01)

Readers’ Views to Financial Times on “GReaders’ Views to Financial Times on “GReaders’ Views to Financial Times on “GReaders’ Views to Financial Times on “GReaders’ Views to Financial Times on “G E-E-E-E-E- Honeywel l ”-----------------------------------------------Honeywel l ”-----------------------------------------------Honeywel l ”-----------------------------------------------Honeywel l ”-----------------------------------------------Honeywel l ”-----------------------------------------------

marginalised. There has to be a fair amount of trade and investmentactivity before multinational firms are going to be receptive to suchconcerns. Even if competition in developing countries’ marketsmay be adversely affected by transactions such as GE-Honeywell,Boeing-McDonald-Douglas and the like, it is doubtful if suchtransactions can be significantly changed by actions taken by localcompetition authorities. However, through forums such as theGlobal Competition Initiative or The Global Forum forCompetition Policy recently proposed by the EU and US, theremay be opportunities for developing countries to at least ‘air’ theirconcerns.

Publicity is a very important instrument available to allauthorities and, in competition related matters, developing countriescan publicly demand multinational firms to follow (for like

transactions) pricing and other business policies in their marketsthat are identical to those in industrialised countries.

For example, recently several European, US, and Japanesefirms have been convicted of illegal price-fixing activities spanningthe markets for such products as vitamins, food additives andgraphite rods. Since these firms also operate in developing countries,the authorities should at least publicly demand the CEOs of thesecompanies to ‘certify’ in writing that they will cease or are notcontinuing such practices in the developing country markets. Theunwillingness or failure to do so should be widely publicised andprelude more fuller investigations. Business executives areparticularly sensitive about their personal reputations and standingin society—even at the expense of the company!

- R.Shyam Khemani, Director,

Economics & Finance, LECG-Europe

CUTS Centre for International Trade, Economics & EnvironmentD-217, Bhaskar Marg, Bani Park, Jaipur-302 016, IndiaPhone: 91.141.207482, Fax: 91.141.207486/203998

Email: [email protected], Website: www.cuts.org

ET: The Economic Times BS: Business StandardTH: The Hindu FT: Financial TimesWSJ: Wall Street Journal FE: The Financial ExpressBL: Business Line BR: Business ReportDN: Daily Nation TOZ: Times of ZambiaBD: Business Day ST: Sunday TimesS

OURCES

Pub

lishe

d by

Briefing Papers

Trade, Competition & Multilateral Competition PolicyNo. 9/2000

As the title suggests, this paper clarifies the areas of interaction between trade andcompetition through case studies. It further points out the provisions in various agreementsof the WTO acquis, which have elements of competition. Most importantly, the paperbrings forward the debate vis-a-vis multilateral competition policy that is currently takingplace at various fora. It analytically points out the hindrances in such a policy andhighlights the need for a multilateral competition policy with the advice that the agendamust come from the South.

Selected CUTS PublicationsMonographs

All About International

Investment

Agreements

This briefing kit for the

general reader provides an

overview of recent trends in

the proliferating number of

bilateral and regional

investment agreements. The

kit highlights the key issues

in these agreements and

considers past initiatives and

prospects at the multilateral

level.(64pp #0102, Rs.20/$5).

Globalisation,Competition Policy

and International

Trade Negotiations

This paper maps out the

issues concerning

multi lateral competit ion

policy from a southern

perspective. It concludes

that there is a need for a

realistic assessment of the

extent to which developing

countries would be able to

control MNCs under the

disciplines of competition

law.(32pp #2003, Rs.20/$5).

All About CompetitionPolicy & LawThis monograph, meant forthe advanced learner, dealswith various elements ofcompetition law and policyin a comprehensive manner.It describes various restrictivebusiness practices (RBPs) inthe market place. It furtherdraws out interface ofcompetition policy witheconomic development andforeign investment. Finally, itdescribes the genesis ofcompetition law/policy andthe direction it is moving in.(70pp #0006, Rs.20/$5).

Consumer Protectionin the GlobalEconomyThis monograph outlines thegoals of a consumerprotection policy and alsospeaks about the interactionbetween consumerprotection laws andcompetition laws. It alsohighlights the newdimensions about deliveringconsumer redress in aglobalising world economy,which raises jurisdictionalissues and the sheer size ofthe market.

(38pp #0101, Rs.20/$5).

Contours of a National Competition Policy:A Development Perspective

No. 2/2001

Countries at different levels of development and with dif-ferent economic structures have different needs in terms oftheir competition policy. This briefing paper covers the con-stitutional elements of national competition policy andanalyses the development considerations of different as-pects of the policy.

learning to trust - cuts ccier · they also include the principles of positive and negative ......

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