Singapore Issue: Singapore Issue: Government Procurement Government Procurement

and Competition Policyand Competition Policy

Singapore Issue: Singapore Issue: Government Procurement Government Procurement

and Competition Policyand Competition Policy

Lecture 5Lecture 5

Why ‘1996’ for raising Singapore Issues?

• Direct application of Government measures: Kodak-Fuji case (1996)

• Anti-competitive practices: Anti-Dumping cases at WTO

• EU worries: Boeing - McDonnell Douglas merger and the concerns for Airbus

• Increasing trade and investment linkages: MNC Operations

• Skirmishes over investment regimes: Automobile Industry in India

• Eying the Government Money at various levels: Procurement Provisions

Government Procurement• Covers purchase of goods and services by national,

provincial or municipal governments and its various agencies out of their budgetary resources.

• Conflict with Trade Liberalization: often intend to promote efficiency-related, social, national and sustainable development (e.g. – wealth distribution) objectives.

• Account for around 9-20 percent of GDP in developing countries.

• In EU and US – GP is around 16 and 3.4 percent of its GDP.

• In developed countries service sector is a major candidate of Government Procurement.

• WTO wants to ensure ‘Transparency’ in Government Procurement, NOT abolish it.

What defines Transparency??

• The terms upon which the procurement process is to be conducted and the criteria upon which any decisions are to be made, are properly documented and made widely available.

• The eventual procurement award decision, and wherever appropriate, intermediate decisions, are made publicly available and the reasons behind the decisions are effectively explained.

• It is possible to verify the actual application of the specified criteria.

• Challenges can be made in Court of Law and if procedure is not properly followed compensations can be sought.

How to Improve Transparency??

• Use of web-based information technology to publish announcements on procurement invitations and award of contracts.

• Harmonization of procurement process, procedures and methods within a country.

• Standardization of procurement documentation.

• Standardization of challenge procedure.

Various procurement systems

Approach Operation

Centralized approach Central tender boards / equivalent bodies oversee the process, evaluate tenders and award contracts.

Prescriptive approach

The legislations details procedures to be followed in a decentralized manner.

Financial instructions Minimum criteria on expenditure and auditing, without explicit specific instructions. Institutions undertake their procurement decisions accordingly.

Framework approach The legislation establishes high level requirements and leaves it to the institutions to provide the detail.

The GP activities are: “Centralized in Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, and the Slovak Republic; semi-centralized in Austria, France, Germany, Ireland, Italy, Luxembourg, Slovenia, Sweden, and the United Kingdom; and decentralized in Finland and Portugal.”

Various procurement systems ..

Procedure Description

Negotiated procedure Proposal solicited from single tenderer

Nominated procedure Tenderers satisfying the criteria are included in e-database and are encouraged to submit bids.

Open procedure Tenders submitted on the basis of advertisement.

Qualified procedure After advertisement, only tenderers expressing interest and satisfying objective criteria are invited to submit bids.

Quotation procedure Quotation sought from no less than 3 players, in a fair, transparent and cost-effective manner.

Proposal procedure (two-envelope system)

Technical and financial proposals are submitted in two envelopes. Financial proposal is checked only if technical proposal is viable.

Shopping procedure Written or verbal offer sought from three sources. Final purchase decision from the lowest quotation source, once confirmed in writing.

WTO Discussion on Government Procurement

• Principles of nondiscrimination have only been accepted on a voluntary, plurilateral basis – signed by 37 countries, mostly developed (Canada, EU (25), Israel, Japan, South Korea, Norway, US etc.).

• Discussion in Singapore Ministerial (1996).• Developing countries, especially fast growing ones, have

been subject to substantial pressure to agree to multilateral disciplines limiting their ability to discriminate in favor of domestic firms when allocating state contracts.

• Discussion in Cancun Ministerial (2003).• Several developing countries believe that first the

implementation issues need to be sorted out.• Not part of main negotiating agenda currently.

Annex D of Cancun Ministerial

• Negotiations shall be limited to the transparency aspects and therefore will not restrict the scope for countries to give preferences to domestic supplies and suppliers.

• Any coverage of the agreement beyond goods and central government entities is not prejudged. Only procurements above certain value thresholds, to be negotiated, will be covered.

• SDT: include transitional periods for the implementation of the agreement and higher thresholds for developing countries, with additional periods and higher figures applicable to least-developed countries.

US Policies• Federal government agencies are required to publish

notices of proposed procurement opportunities in excess of threshold limits.

• Notices of proposed procurement must be published at least 15 days before a request for bids; prospective suppliers have at least 30 days from that date to submit bids.

• When procurement falls within the scope of the GPA or a free-trade agreement, a period of not less than 40 days must be granted, unless an annual forecast has been published, in which case this may be reduced to 10 days.

• State governments covered by the GPA are required to publish invitations to tender in their own publications and must conform to GPA deadlines.

• The list of Federal Supply Schedule Contractors is available to the public. Interested suppliers can apply for inclusion on the schedules at any time.

US Policies …• U.S. policy with respect to market access for government

procurement is based on reciprocity. • For the GPA, the thresholds are set at US $194,000 for

goods and services included in Annex 1; US $528,000 for Annex 2; US $595,000 for Annex 3; and US $7,443,000 for construction services.

• Each U.S. State has its own procurement access conditions.

• 37 States participate in the GPA; among those that do not, some restrict foreign participation in biddings, others offer preferences to in-state suppliers, or apply domestic purchase requirements.

• Only North Carolina, Oklahoma, Rhode Island, and Wisconsin do not grant any form of preference.

• Concern Area: The U.S. Administration adopted a new reciprocity approach to sub-federal procurement in three FTAs (Colombia, Panama, and Peru).

And NAFTA GP ..• Covers virtually all federal government agencies in the three

countries .• State and provincial government entities are not subject to

Provisions. • The U.S. government encourages states to adopt NAFTA

procurement disciplines, but the final decision rests with individual states.

• The Mexican and Canadian governments are currently working with their state and provincial governments to seek their voluntary, reciprocal participation.

• The threshold limits for Federal Departments and Agencies are: Goods and services contracts ($56,190); Construction services contracts ($7,304,733)

• The threshold limits for Government-controlled Enterprises are: Goods and services contracts ($280,951); Construction services contracts ($8,990,862).

• A special threshold of $25,000, which is not subject to revision, applies to procurement of goods by federal departments and agencies in the United States and Canada. The benefits of this threshold do not extend to Mexican suppliers.

US State-Specific Policies

State

Margin of preference / Scope of preference and conditions Margin of preference / Scope of preference and conditions

Alabama 5%

The awarding authority may award a contract to a "preferred vendor", as defined by State law, who is a responsible bidder, and offers a price not more than 5% greater than the lowest responsible bid.

Alaska

5%Alaska Bidder Preference: when evaluating bids, the bid price of an Alaska bidder is reduced by 5%.

10%

Disabilities preference: Bidder that qualifies for the Alaska bidder Preference, and is a partnership or corporation where all the partners or owners have disabilities, or employs a staff that is made up of 50% or more people with disabilities.

5%Bids and proposals that meet recycled content requirements in procurement specifications.

California

5%Small businesses up to US$ $50,000 per bid, when price range is between 5-10% of lowest bidder.

5% + 1-4%

Economic Zone Act (EZA). Goods and IT. Same as for TACPA except applies to worksites in enterprises benefiting from EZA and hiring persons living in targeted employment area.

Colorado None Low tie bids require an in-state award of contract.Connecticut None 25% of state funded procurements are set-aside for small businesses.

Georgia None

Reciprocal preferences for Georgia bidders that are the same as those granted by the State of residence of other bidders for evaluation purposes. In road building, agencies must give preference to the use of compost and mulch made in Georgia.

EU Experience

Title Steel Local Content Requirements

Measure Government Procurement

Third Country

United States of America

Description • Steel is subject to the imposition of local content requirements or preferences given in works and other government procurement contracts for bids which include locally produced steel.

• This practice is notably common at the sub-federal level. • Many States (such as Connecticut, Louisiana, Maine,

Michigan, Illinois, Maryland, New York, Pennsylvania, Rhode Island and West Virginia) have such requirements that also apply to private contractors and subcontractors.

Barrier id 960100

Barrier Status

Ongoing

EU Experience Title

Transport-Related Buy America Provisions (Services – Construction)

Measure Government Procurement

Third Country

United States of America

Description • One of the most obvious areas of Buy America is federal aid administered by the Department of Transportation (DoT) under several different acts, including the Highway Administration Act, the Urban Mass Transit Act, and the Airports Improvement Act.

• In accordance with these acts, the DoT provides aid to the State and local governments for various transportation related procurements.

• The State or local government at some level must match that money. Specifically, the Federal government may fund 40% to 80% of the project (depending on the nature of the grant), while the State or local government must fund the remaining share.

• All purchases of goods and services related to these projects must meet various Buy America provisions, usually domestic content requirements of 60% and, failing that, a price penalty of up to 25%.

Barrier id 960058

Barrier Status

Ongoing

EU Experience Title Small Business Act

Measure Government Procurement

Third Country United States of America

Description • The Small Business Act of 1953 (SBA), as amended, requires executive agencies to place a fair proportion of their purchases with small businesses. This "set-aside" scheme is specifically exempted from application of the WTO Government Procurement Agreement (GPA) under General Note 1 to the US Appendix I.

• Under the SBA, any contract for the purchase of goods or services with an estimated award value greater than US$ 3,000 but not exceeding US$ 100,000 will be automatically set-aside for (US) small business unless fewer than two small businesses submit competitive bids for that procurement. Small business set-asides can occur in procurements above US$ 100,000 on a discretionary basis.

• In addition to meeting certain size criteria, a business is eligible for small business status, for procurement purposes, only if it maintains a place of business in the US and makes a significant contribution to the US economy through payment of taxes and/or use of US products, materials, and/or labour.

• The size criteria vary depending on the product or service being procured. The standard size criteria for eligibility as a small business for goods producing industries is 500 employees or fewer.

• However, for some industries (i.e. pulp, paper boxes, packaging; glass containers; transformers, switchgear and apparatus; relays and industrial controls; miscellaneous communications equipment; search, detection, navigation guidance systems and instruments) the employee limit is 750 and for some others (i.e. chemicals and allied products; tyres and inner tubes, flat glass, gypsum and generators; telephone and telegraph apparatus) it is 1,000.

• For services industries, depending on the sector, firms with total annual revenues of less than US$2.5 million to 17 million are considered to be small businesses.

State of PlayIt is estimated that in States like Texas such policies effectively exclude foreign firms from around 20% of procurement opportunities. In Kentucky, as much as 70% is set aside for small businesses.

Barrier id 960300

Barrier Status Ongoing

EU Experience Title Berry Amendment to the 1941 Defence Appropriations Act

Measure Government Procurement

Third Country United States of America

Description • The concept of national security was originally used in the 1941 Defence Appropriation Act to restrict procurement by the DoD to US sourcing. Now known as the Berry Amendment, its scope has been extended to secure protection for a wide range of products only tangentially related to national security concerns (fuel cells for helicopters, certain fabric etc.).

• An audit report by Office of Inspector General concluded that for certain DoD procurements during 1996-97, about half of the solicitations and contracts examined had not incorporated or enforced the relevant domestic sourcing requirements. In response, DoD's procurement director has taken steps to ensure that contracts at or above the simplified acquisition threshold (presently US$ 100,000) are domestically sourced. To comply with the Buy America provisions, contracting officers must generally add 50% to the price when evaluating offers with non-qualifying country end products against offers with domestic end products.

• The FY2006 Defense Authorization Act (Section 833) contains changes to the Berry Amendment that expand the coverage of this amendment's Buy American provisions. The new provisions expand the coverage of the Berry Amendment by requiring that components of textiles and apparel are also made in the US.

• The FY2007 Defense Authorization Act contains some Buy American/Berry Amendment provisions, including the one establishing a Strategic Materials Protection Board that would identify items critical to US national security and a related provision that instructs the Defense Department to work cooperatively toward complying with the "Berry Amendment" (specialty metals).

• In this context, working cooperatively means that the bill prohibits the purchase of non-domestically melted or produced specialty metals but allows for certain exceptions like exemption for electronic components containing small amounts of specialty metals. Exception is made also for procurement outside the US and for cases when there is no domestically available specialty metal of satisfactory quality.

State of Play Ongoing Discussions

Barrier id 960055

Barrier Status Ongoing

Global GP Scenario ..Country Practice

Brazil Nondiscriminatory treatment regardless of the origin is preached, but simultaneously some non-price factors are considered, giving preferences to certain goods produced in Brazil and stipulating local content requirements for eligibility for fiscal benefits.

Canada Part of GPA, but some Canadian provinces maintain "Buy Canada" price preferences and other discriminatory procurement policies that favor Canadian suppliers over foreign suppliers. This is possible because Canada does not cover its provinces in its GPA commitment.

EU Part of GPA and foreign firms are allowed to participate in bids, but statistics on public procurements conducted in EU Member States is not made available, and actual market assess is difficult to understand.

UAE UAE grants a 10 percent price preference for local firms in government procurement. It also requires companies to register with the government before they can participate in government procurements, but to be eligible for registration a company must have at least 51 percent UAE ownership.

US For U.S. Food Aid purchases and transportation at least 75% of tonnage is transported on vessels carrying the U.S. flag. "Buy American" restrictions are imposed for ball and roller bearings, on electrical and electronic equipment and are the legal basis of local content requirements for steel in public procurement cases. Lack of transparency related to sub-federal procurement opportunities is another problem.

EU Experience Title Preference for national goods in public procurement

Measure Government Procurement

Third Country

Argentina

Description • For public procurement at central level, preference is given to goods of domestic origin when, under identical or similar supply conditions, their price is equal to or below that of bids involving goods that are not of domestic origin, plus 7 per cent when such bids are made by enterprises classified as SMEs or plus 5 per cent in bids submitted by other enterprises.

• A good is considered as "domestic" when it is produced or extracted in Argentina, provided the cost of the raw materials, imports or nationalized imported materials do not exceed 40 per cent of the gross production value.

• In the case of procurement for inputs, materials, raw materials or capital goods to be used in the production of goods or the provision of services, domestic preference will be given when, in otherwise similar bids, the prices are equal to or below those of foreign goods.

• When a bid involving goods of foreign origin is accompanied by a payment or financing plan of some kind, bidders offering goods of domestic origin may request funding from the Bank for Investment and External Trade (BICE) to put them on an equal financial footing.

• Similar legislation is being applied by provincial governments.

State of Play The issue is being discussed bilaterally.

Barrier id 05317

Barrier Status

Ongoing

EU Experience Title Australia- Government Procurement

Measure Government Procurement

Third Country Australia

Description • Australia is the only major industrialised country which has not joined the WTO plurilateral agreement on Government Procurement.

• The relevant amendment to the Commonwealth Procurement Guidelines requires "all potential suppliers to be treated equitably based on abilities and not on their degree of foreign ownership, location or size". An important exception to this is procurement carried out by small to medium enterprises (defined to mean companies employing less than 100 persons), which are responsible for about 25% of procurement activity at the Commonwealth level.

• Australia has bilateral agreements with three countries that accord national treatment to suppliers from those countries.

• Some states, such as South Australia, continue to impose surcharges on goods with a certain proportion of imported content, which works to the advantage of Australian and NZ suppliers. Government agencies, when comparing bids, apply a 20% price preference to the portion of a bid that comprises a good, service or items that have been sourced from overseas, excluding New Zealand.

• Discriminatory practices in the form of price preferences or local content requirements have recently being reinforced at state-level (Victoria, New South Wales).

State of PlayDiscriminatory practices in the area of government procurement are regularly raised in the EU-AUS trade dialogues.

Barrier id 095278

Barrier Status Ongoing

EU Experience

Title Government Procurement in Brazil

Measure Government Procurement

Third Country

Brazil

Description• Law No 8666 of 21 June 1993 regulates the Government procurement of

goods and services at the federal, state and municipal levels as well as for public agencies.

• Foreign companies can participate in international tenders, however the law maintains a preference for goods and services produced in Brazil when bids are equivalent in terms of price, quality and delivery time.

• Given the significant influence of the state-controlled sector due to its large size, discriminatory government procurement policies are, in relative terms, a substantial barrier to EU exports.

State of Play

Brazil did not sign the multilateral Agreement on Government Procurement.

Barrier id 095278

Barrier Status

Ongoing

EU Experience

TitlePublic Procurement - "Buy Chinese" policy and discrimination against Foreign Invested Enterprises (FIEs)

Measure Government Procurement

Third Country China

Description • As part of China's WTO accession China committed to join the GPA "as soon as possible". China became observer to the GPA in February 2002 and committed on April 11, 2006 to submit its Appendix I GPA offer by no later than December 2007. China submitted its replies to the "Checklist of Issues for Provision of Information Relating to Accession to the GPA" on 15 September 2008 and is still studying initial requests sent by other parties.

• In January 2003 a law on Government Procurement entered into force in China. The GPL institutionalised in its Article 10 a "Buy Chinese" clause which gives preference to national goods, works and services, except (i) when those cannot be obtained in China or cannot be obtained in China under reasonable business conditions or (ii) are to be used out of China.

• The NDRC (Chinese National Development and Reform Commission) issued in 2009 a notice 2009/1361 jointly with seven other Ministries (Ministry of Industry and Information Technology, Ministry of Water Resources, MOFCOM, Ministry of Railways, Ministry of Transport, Ministry of Supervision, Ministry of Housing and Urban-Rural Construction) reminding all authorities to strictly apply the "Buy Chinese" rules in all procurement financed by the stimulus package.

• In particular, article 2.1 asks to eliminate any possible discrimination against domestic manufactured equipment; article 2.2 reminds that "Buy Chinese" is the guiding principle in procurement in China and the procurement of foreign goods and services is only allowed under the exceptions foreseen in the GPL (i.e. article 10 of the GPL); article 2.2 also imposes new sanctions and penalties against officials setting up rules or criteria that exclude domestic bidders or favour foreigners.

State of PlayOn the "Buy Chinese" rules, several bilateral meetings took place in June 2009 with the Ministry of Finance in the margin of the Partnership and Cooperation Agreement negotiations to get clarifications on the legal framework surrounding government procurements issues.

Barrier id 095278

Barrier Status Ongoing

Government Procurement and Tanzania

• Tanzania is neither an observer nor a signatory to the Plurilateral GPA.

• New law on Government Procurement (Public Procurement Act No. 21/2004) enacted on 8 February 2005.

• Every ministry in Tanzania has established its tender board with certain thresholds.

• Review process of public procurement regime for curbing corruption, unethical behaviour and abuse of power is currently on.

• Should there be participation in the Multilateral Negotiation?

Competition Policy• Presence of Cartels: Price / Quantity competition.• Important because a major proportion of world trade is between

companies (parent and subsidiaries).• M & A activities – closer links between investment and

competition. • Export cartels, which are generally out side the realm of domestic

competition law, and often actively promoted by governments.• IPR: licensing agreements limiting the manufacture or distribution

of medicines in a particular country could be a global competition concern.

• Partly responded through GATS: tackling the problems of monopoly service providers – e.g. Telecom sector.

• Since negotiation is not continuing the WTO Working Group on Competition Policy is currently inactive.

• However the Secretariat keeps responding to requirement of technical assistance of various Members.

ITO - Havana Charter 1948

• Initially competition policy and investment was part of the ITO package.

• “Each Member shall take appropriate measures and shall co-operate with the Organization to prevent, on the part of private or public commercial enterprises, business practices affecting international trade which restrain competition, limit access to markets, or foster monopolistic control, whenever such practices have harmful effects on the expansion of production or trade and interfere with the achievement of any of the other objectives set forth in Article 1.”

• US Objections• 1958 – formation of Group of Experts to review the

procedure – limited success

How ‘New’ Competition Discussions would be at WTO?

• GATS (Article VIII): conduct involving monopoly and exclusive service suppliers

• GATS (Article IX): anti-competitive business practices that restrain competition and thereby restrict trade in Services

• TRIPS (Articles 8 and 40): Members permitted to take measures to deal with anti-competitive licensing practices / other abuses

• Safeguards (Article 11:3): Members not to encourage non-governmental measures equivalent to prohibited measures 11:1 (e.g., voluntary export restraints)

• Reference Paper on Regulatory Principles in Telecom Sector: commitment to action against anti-competitive practices by major suppliers in the telecom sector

So What caused the shift in attitude??

Why the Stress on Competition?

• Less than adequate reform in the area of GATS, marked by entry barriers etc. which can only be cured through Competition Policy Measures

• Investment generally come to developing countries with imperfectly competitive markets

• Is it possible to link Anti-Dumping and Competition Policy??

• Potential Trade war

Problem Areas .. • US argued for many years that Japanese corporate groups

(Keiretsu) undermine market access for foreign suppliers by buying predominantly from each other and retaining close vertical linkages between manufacturers, wholesalers and retailers.

• In the 1990s, both the EU and the US investigated a number of cartels in industries such as vitamins, steel, and animal feeds.

• It is observed that developing countries imported US $36.4 billion of goods from a set of 10 industries that had witnessed price-fixing cartels throughout the 1990s.

• Other cartel-type arrangements that have serious detrimental effects on developing countries include international air and maritime transport cartels. Such cartels have been found to raise prices significantly for developing country shippers and consumers.

• It is estimated that restrictive trade and anti-competitive practices raise maritime liner transport costs by up to $3 billion on goods carried to the US.

Kodak-Fuji Case• The dispute was fought over “violation” of Article XXIII of the GATT. This allows

members to challenge government measures that “nullify or impair” trade liberalization commitments even though the measures themselves are not subject to WTO rules.

• US alleged that informal administrative guidance, industrial policy tools applied by Japanese firms themselves, and guidelines on what constituted fair and unfair competition allegedly deprived Kodak of marketing tools that were of special importance to it as an outsider.

• US claimed that because Fuji controlled the distribution system, this allowed it to exclude Kodak from access to film wholesaling networks, obliging it to sell directly to retailers, a much less efficient method of market penetration.

• The key allegation was thus of an anti-competitive vertical relationship between Fuji and its primary distributors.

• Japan responded that the control by Fuji of wholesale networks was irrelevant since most of the retailers they served also bought imported film and that Kodak’s own distribution system amounted to the creation of a wholesale system of its own, the exclusion from the Fuji system, such as it was, therefore being irrelevant.

• WTO ruled that US did not demonstrate that Japanese measures nullify the benefits for US players.

Boeing-McDonnell Douglas Merger

• Discussion in 90s, serious thought in 1996.• The merger was approved in the US by The Federal Trade

Commission on July 1, 1997.• EU reviewed the merger closely to determine what effect it

will have on competitiveness in the commercial aircraft market. It noted that Boeing already has signed exclusive 20-year deals with American Airlines, Delta Airlines and Continental Airlines. It argued that these deals threaten the business of Airbus.

• As compromise package, Boeing agreed to maintain McDonnell Douglas' commercial aircraft business in a separate legal entity for 10 years and to submit an annual report to the EC on the business activities of such commercial aircraft business. 

• They also agreed to supply for a period of 10 years an annual report to the EC on its current unexpired patents arising from government-funding contracts and on its non-classified government-funded aeronautics research and development projects.

Microsoft Case• Complaints from RealNetworks and SUN Microsystems

that MS is refusing to supply it certain inter-operability communication codes.

• 2004: Ruling in EC court – Microsoft has abused its dominance in computer operating systems – asked it to market a version of Windows without a media player – Court also imposed US $ 689.4 million fine.

• 2005 – Windows XP 2005 N launched without media player – but inter-operability is still an issue.

• 2006 – complaint from the rivals on VISTA OS as well.• A later tribunal in 2007 upheld the finding.• Now open source developers would be able to access

and use inter-operability information – one-off royalties of 10000 euros to be paid for that.

Why the case was fought in EC??

Competition Policy in EC• Member States are required to adopt economic policies "in

accordance with the principle of an open market economy with free competition". In general, competition policy in the EC seeks to enforce regulations on anti-competitive practices, enhance competitiveness throughout the EC, and address anti‑competitive problems in liberalized sectors.

• In particular, enforcement is focused on eliminating cartels and abuses of dominant position.

• In 2006, the Commission adopted new guidelines on the method used to set fines. Under these guidelines, fines are based on a percentage of up to 30% of the yearly sales of the product concerned in the relevant market. The Commission may increase the fine up to 100% for repeat offenders.

• DEVELOPMENT or DETERIORATION?? In 2008, the Commission introduced a simplified settlement procedure to settle cartel cases, under which parties may choose to acknowledge their involvement in a cartel and their liability; in return the Commission could reduce the fine imposed on the liable parties.

Competition Policy in EC ..• On 10 January 2007, the EC report on the electricity and

gas markets enquiry was adopted. • It concluded that many energy markets: (i) remain too

highly concentrated; (ii) are characterized by a high degree of vertical integration, notably there is insufficient unbundling of network and supply activities; (iii) lack cross-border integration and cross-border competition; and (iv) lack transparency. As a result of theses findings, the Commission put forward, in September 2007, a proposal for a electricity and gas liberalization package.

• The Commission has also focused on collusion (market sharing) cases in the electricity and gas markets.

• During the last few years, the Commission has taken further steps to sanction abuses of dominance and significant hard-core cartels, focusing on network industries.

• For example, the Spanish incumbent telecoms operator Telefónica was fined €151.9 million for abuse of its dominant position during 2001-06.

Competition Policy in EC ..

• The EC's regulation on merger control seeks to avoid a situation in which competition is significantly impeded, in particular by the creation or strengthening of a dominant position, as a result of mergers and acquisitions.

• Under the Merger Regulation, the Commission assesses proposed concentrations on the basis of whether a dominant position is created or strengthened, or more generally whether they significantly impede competition.

• In general, the Commission only examines mergers where the parties have a combined worldwide turnover of €5 billion and each party has a Community-wide turnover of €250 million.

• However, it will also examine mergers where the combined worldwide turnover is €2.5 billion and where the following three conditions are fulfilled: (i) the parties' combined turnover exceeds €100 million in at least three EC Member States; (ii) each party has a turnover of €25 million in the same three EC Member States; and (iii) the individual Community-wide turnover of each party exceeds €100 million.

• Transactions that fulfil either of these two tests are exempt from review by the Commission if each party to the transaction realises more than two thirds of its turnover in a single EC Member State.

Mergers must be approved by the Commission before they are put into effect.

Competition Policy in Japan• Amendment to the Anti‑Monopoly Act (AMA) in January 2006 –

strengthened legal framework• Surcharge rate increased to 10% of sales (from 6%) for large

companies and to 4% (from 3%) for small and medium-sized firms.

• To provide an incentive to withdraw from cartels, a leniency programme was introduced (reduction in surcharge payments for enterprises that meet certain conditions).

• Compulsory criminal investigations by the Japan Fair Trade Commission (JFTC) have been introduced.

• Penalties against corporations not following JFTC orders increased from not more than ¥3 million to not more than ¥300 million.

• Penalties against interference with the JFTC’s activities, including inspection, increased to a fine of up to ¥3 million (previously a fine of up to ¥200,000), or either imprisonment of up to one year.

• JFTC continues to monitor 29 highly oligopolistic markets, and may order measures to restore competition in the event of "monopolistic situation".

The 29 industries are: chewing gum; beer; whisky; cigarettes; polypropylene; plastic bottles for beverages; gypsum board and its products; pig gold; boilers; vending machines for beverages; incandescent lamp fixture for automobiles; electric lighting fixtures; lead storage batteries; central processing units; ink-jet printers; finance terminal units; radiators; shock absorbers; air-conditioners for transportation machines; cassettes for games; fixed telecommunications services; mobile telecommunications services; operating software; railway freight; scheduled domestic passenger flights; wholesale of books and journals; dust control; medical office work services; and administration of music copyright.

Competition Policy in Japan ..

• All planned mergers and acquisitions exceeding specified thresholds must be notified to the JFTC 30 days before the event.

• Thresholds for mergers: ¥10 billion for the sum of the total assets of one company in the transaction concerned.

• In case of mergers involving foreign companies, total assets refers to "sales in Japan".

• "Sales in Japan" are calculated by adding: (1) the sales of the foreign company's business offices in Japan; and (2) the sales of companies in which the foreign company holds majority voting rights.

• For acquisitions, the thresholds are: ¥10 billion for the sum of total assets of an acquiring company; ¥1 billion for the total assets of an acquired business (from a domestic company); and ¥1 billion for sales in Japan for an entire or substantial part of business (from a foreign company).

What would be the potential implication in India’s RTA Partner markets?

The Indonesian Case • Anti-Monopoly and Unfair Competition Law (1999) –

restricts monopolistic practices and mergers or acquisitions that increase market concentration as well as prohibiting exploitation by firms with market control.

• An independent regulatory agency, the Commission for The Supervision of Business Competition plays the key role.

• The law prohibits any individual company from holding more than a 50% share of the domestic market.

• It also prohibits two or three companies from holding 75% of the market between them if such control could result in monopolistic practices and/or unfair business competition.

• The law prohibits vertical restrictions on competition and any deals or contracts allowing for monopolies, oligopolies, price fixing, cartels, trusts, and geographical designations of markets between suppliers.

• Companies breaking the law are subject to maximum fines of Rp 100 billion.

So does everything go fine??

The Indonesian Case ..• There are cartels for cement, plywood, paper and

fertilizer, and price controls on sugar, rice, and cement, as well as exclusive licensing for clove marketing and wheat flour milling.

• Indonesia's law on competition is silent on the continued existence of these restrictions on competition and there are no stipulations to prevent the Government from creating new monopolies or other barriers to competition.

• For example, with the devolution of power to the provinces and local authorities, local governments may put up barriers to competition and trade by introducing preferential government procurement practices or by requiring local content for the production of some products.

Case of Thailand • Trade Competition Act (1999) – implemented by

the Department of Internal Trade (DIT), Ministry of Commerce

• Regular monitoring of the price and business practices of select product categories

• The DIT orders involve suspension, cessation or correction of unfair business practices.

• Failure to abide by the provisions of the Act may result in jail terms of one to three years, and/or fines of up to B 6 million.

• Recent cases: (1) alleged excessive pricing by a cable television monopoly and (2) alleged tie-in sales of beer with whisky. No penalties were imposed in either case.

Case of Chile • Competition Law (2005) is the regulatory guideline –

maintained by Tribunal de Defensa de la Libre Competencia (TDLC).

• The investigations are undertaken by Fiscalía Nacional Económica (FNE).

• Market concentration is not considered an anti-competitive practice in itself, so mergers do not require prior notification and no limits are set on market share.

• Parties wishing to merge always consult TDLC in advance.

• Recently several investigations into mergers and buy-outs, particularly in the transport, telecommunications, retail trade, electricity, financial services and health sectors has been undertaken.

Limitation of National Competition Framework??

• Potentially prone to misuse in a strategic sense owing to national interest

• Sort the credibility problem of the national authorities

• Presence of MNCs in global trade, where anti-competitive activities may not be limited to one country

Where to use the Proposed Multilateral Rule??

• Applicable in case of cartelization (written agreement between parties) and NOT collusion.

• Offenses: to fix prices, to allocate market shares or sales quotas, or to engage in bid-rigging in one or more market.

• Problems: Initial focus is NOT on cartels that involve State enterprises (as in the case of OPEC).

• Difference in perspective: EU more interested; Japan and Korea want to go beyond Competition Policy, however, US is not willing to link anti-dumping with Competition Policy.

• Many members remain skeptical about the benefits of a possible Competition Agreement and are afraid that it may simply be used as a market-opening tool by developed countries.

WTO Principles ..• Not concerned with the creation of an international

Competition Agency / Uniform Competition Law• Setting up a National Competition Law• Enhancing transparency, non-discrimination and

procedural fairness• Provisions on checking hardcore cartels• Modalities for voluntary cooperation• Support for progressive reinforcement of competition

institutions in developing countries through capacity building

Exemptions ..• The specific ways to implement competition policy and

institutional design are left to the decision of each member to fit its own specific needs, but the WTO principle of national treatment, non-discrimination and transparency will be applied.

• Members will be free to establish exemptions from the competition policy for particular sectors of concern, as long as these exemptions are transparent.

• Small economies could adhere to a regional competition policy and need not set up their own competition law or enforcement institutions.

• The needs of developing countries should be recognized through commitment to technical assistance, provision of transition periods and other special and differential treatment.

Current Scenario ..• Presence of export cartels in Developed Countries is

an example of a national antitrust law which benefit local firms at the expense of consumers in importing countries.

• In principle, national competition authorities could invoke domestic antitrust law against foreign export cartels. However, many developing countries have limited ability as well as legal inadequacy to follow this course of action (Supreme Court ruling on ANSAC).

• Problems – e.g. of GCC countries, the anti-competitive investigations are not always transparent, but since it is not a part of WTO multilateral negotiations, no member can always take it to DSB.

• It does not mean that the current framework is inefficient - The Microsoft case.

Learning through Trading – Postal Service and US

• NAFTA model: no set of trilateral competition rules or a formal framework for cooperation, rather devotes time to define restrictions on state-designated monopolies (whether public or private) and state enterprises .

• Later US courier company UPS sued Government of Canada for US $160 million in damages, arguing that the Crown corporation is subsidizing its express delivery service through its regular letter infrastructure, thereby obstructing UPS's investments in Canada.

• Wiser, the later US-Chile FTA incorporated stronger and transparent Competition Laws, including a provision on pre-emptive strike against postal service monopolies.

Competition Policy for Tanzania

• Fair Competition Act (2003), replacing the Fair Trade Practices Act (1994).

• FCA (2003) prohibits the abuse of dominant position (dominant position per se, i.e. one third of market share, is not prohibited), anti-competitive agreements, misuse of market power, and mergers and acquisition that create or strengthen a position of dominance in a market.

• Establishment of Fair Competition Commission (FCC) - a five-person collegiate body to promote and protect effective competition in trade and commerce, and protect consumers from unfair and misleading market conduct.

• EAC Protocol - legal basis for competition policy within the region.

• What should be the Multilateral Strategy??

RTA Route??• Looks into notification, cooperation, coordination, request

for enforcement, and consideration of the other party’s important interests.

• EU: Active is restraining anti-competitive practices, intervened in disputes relating to cartels and price fixing charges, abuse of dominance.

• NAFTA: Integrated the partners.• Japan-Centric RTAs: FTAs with Singapore, Mexico, and

Malaysia • Chile-Centric RTAs: Competition Agreement included in

arrangements with MERCOSUR, Canada, Mexico, the EU, the US, EFTA, the Republic of Korea, Japan, Australia, Peru etc.

• FTAA: will be interesting to watch, as several Latin American countries are not having effective Competition Rules at present.