Presented by:

Dr. Atiur Rahman

Bangkok, 27 June 2006

Competition Policy and Pro-Poor Development in a Least-Developed Economy - The Case of Bangladesh

Issues will be covered:

Competition policy and law

Competition policy in Bangladesh

Need for competition policy and law in a least-

developed economy like Bangladesh

Effects on the poor as consumers as well as

producers and/or suppliers of goods and

services

Towards having an effective competition policy for

pro-poor development in Bangladesh

Competition Policy/Law?

In market economy, competition is a process whereby firms fight against each other for securing consumers for their products

Competition policy => government measures directly affecting both Firm Behavior and Industrial structure.

A competition policy should include both:

i) Economic policies adopted by Government, that enhance competition in local and national markets, and

ii) Competition law designed to stop anti-competitive business practices.

Producing quality goods Becoming cost-efficient Optimizing the use of resources Adopting the best available technology Investing in research and development, etc.

Fair Competition

Bangladesh has no competition policy.Monopolies and Restrictive Trade Practice (Control and Prevention) Ordinance, 1970Has not been implemented but still validInitiatives were taken to develop a competition policy after discussions at the 1996 Ministerial Conference in Singapore but abandoned after Doha Meet.

Competition Policy in Bangladesh

At Doha in 2001, there were disagreements among WTO members to adopt competition policy for developing countries. Consequently, Bangladesh has been giving least attention towards competition policy. Bangladesh considers it to be a dead issue.That does not mean demand for a well-developed competition policy has become irrelevant, particularly if consumers’ interests are considered.

Competition Policy in Bangladesh

Consumers do certainly want a competitive regime for their benefits.Consumers’ right protection law – 2004 was approved in the cabinet. This was supposed to go to the parliament for final legislation but never saw the day light.This draft act has, of course, emphasized consumers’ right to have goods and services at competitive priceIt has focused on consumers’ right to have information regarding quality, quantity, standard and value of the goods and services.

Competition Policy in Bangladesh

0%10%20%30%40%50%

Most Prevalent Anti-Competitive Practices in Bangladesh (BEI Findings)

Natural monopolies (e.g. distribution of power and gas, railways, telephone and other public utility services. Natural monopolies not only inhibits modernisation of these services but also hinder private investment into these sectors)Lack of legal provision (no legal entity to oversee the trading practices of business firms.) Absence of autonomous and independent effective and efficient judicial system fails to ensure a favourable business climate for competition.

Anti-competitive Practices in Bangladesh

Price fixing (raising prices through collaboration among importers, local manufacturers, suppliers etc.)Presence of state-owned inefficient industries (e.g. Textile, sugar, nationalized commercial banks etc.)Manipulation of supply (through collaboration among importers, local manufacturers, suppliers etc)

Anti-competitive Practices in Bangladesh

Exclusive dealing and tying arrangements (e.g. diagnostic services, educational inputs from particular outlets) This type of unfair arrangement increases the cost of diagnosis/education, which is borne by the consumers. Weak regulatory framework (judicial system cannot guarantee property rights e.g. ETV)Bid rigging (pre-arranged and threat driven)Price discrimination (Dumping and charging different prices for identical products)Bribery and gifts (e.g. bribing tax officials to avoid taxes)Extortion (e.g. sellers extorted by a purchasing agent)

Anti-competitive Practices in Bangladesh

An increase in transport fare prior to religious festivals is a common phenomenon in Bangladesh, and Government has no control over this price increasePrice hikes are artificial and are caused by a group of traders through collusion Pharmaceutical companies often persuade doctors through bribing to prescribe medicine produced by the companies themselves. Low entry and exit barriers are an important feature in maintaining a competitive environment in Bangladesh

Anti-competitive Practices in Bangladesh

City Cell is a company involved in the mobile telecommunication business. When a consumer takes a mobile phone connection from City Cell, they have to pay for the particular mobile set supplied by the company. In this case, the consumer is deprived of having the option of another mobile set. This is surely a tying arrangement. So, this practice may be considered as anticompetitive.

In early 1990s there was only one company (City Cell) in the market. Price per connection was around 50 to 100 thousand Taka

Now four companies operate in the market and price has come down to round 1000 Tk. due to greater competition and taking various liberalization policy.

Anti-competitive Practices in Bangladesh

Ghoten Gas Agency, a Kolhapur based gas supplier in India, was forcing the buyers to buy hot plates at the time of releasing fresh gas connection.

The Competition Authority held such a practice.

The Authority directed that wherever a customer purchased a hot plate simultaneously with a fresh gas connection, the gas agency should make it clear on the invoice that the hot plates were purchased voluntarily.

Further a notice board should be prominently displayed in the agency’s premises that the customers were free to purchase hot plate either from Ghoten Gas agency or from any other source.

Source: CUTS “Competition Policy and Law Made Easy”

The Indian Case Study

Monopoly in CNG Auto Rickshaw (Four Stroke Engine) business

Only one company is allowed to import (Uttara Motors is the sole distributor of Bajaj)

In India, Price is Tk. 150, 000.00 In Bangladesh 400,000.00Passengers have to bear the additional cost

(Daily Prothom Alo 30 March 2006)Therefore, we need competition policy to monitor, prevent and

control anti-competitive practices.

Anti-competitive Business Conduct in Bangladesh

Existing situation

17011100 (raw cane sugar)

CD SD DS VAT Market price

Tk. 75/kg

30% 30% 4% 15%

US price: $0.46/Kg 0.59 0.77 0.80 0.93 Tk.60

Monopoly in sugar business (only three/four importers)

In India price is Rs25 to 30

Recent Sugar Price Hike (April 2006)

Four Sugar producers in Spain were engaged in market allocation agreement (apart from price fixing, sales quota agreements) that restricted sugar supply to the level at which maximum monopoly profits could be earned.

As a result. Spanish sugar prices, for many years, were 5 to 9 percent higher than those in the rest of Europe.

The Spanish Service for the Defence of Competition uncovered the cartel and slapped 8.7 million euros fine on the four producers.

Source: CUTS “Competition Policy and Law Made Easy”

The Spanish Case Study

Hence, we need a Competition Policy

A fair deal in the market place with:

The best possible choice of quality

The lowest possible prices, and

Adequate supplies of commodities.

Benefits to Consumers

A safeguard against practices that could drive companies

out of business.

Lower entry barriers to promote entrepreneurship and

growth of SMEs.

Efficient allocation and utilization of resources ensures

more output and employment.

Control of international unfair competition and

restrictive business practices, such as international cartels

Benefits to Efficient Producers

On the whole, a competition policy maintains and promotes the competitive spirit and culture in the

market and stimulate development.

Four critical factors are important:Political willExpertiseEfficiencyResourcesRight to information

How can national competition policy be formulated for pro-poor development?

Role of governmentRole of political partiesRole of international organisationsRole of consumer associationsRole of media

How can national competition policy be formulated for pro-poor development?

There are varieties of anti-competitive practices and consumer abuses, so the regulatory authority should be innovative in nature.

For least developing countries, resource constraint is one of the major problem in establishing competition authority.

Knowledge gap regarding how a competition authority can be made functional is also quite in LDCs

Lack of effective consumers’ association (consumers are not organized and cannot play any role in promoting their own interest)

Concluding Remarks

Educating consumers and consumer activists in a sustained manner;

Need testing and informing the people about the quality of various goods;

It is very important that the reports on anti-competitive practices be published in the media to raise the awareness of the consumers.

Need effective pressure group for getting the consumer law formulated and enacted, and strengthening it from time to time. 

Concluding Remarks

Thank You.