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	Table of Contents
p. 75 of 77 BACK | NEXT Foreword, Acknowledgments, Acronyms and Abbreviations, Definitions I. Developing Asia and the world II. Economic trends and prospects in developing Asia III. Promoting competition for long-term development Introduction Benefits of competition Competition policy regimes Consistency with other development objectives Competition policy in the context of regional and global integration Issues for implementation Effects on government finances Toward a competitive future Summary and conclusions Endnotes and references Statistical appendix

Asian Development Outlook 2005 : III. Promoting competition for long-term development

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Summary and conclusions

From reviewing the experiences of six diverse Asian countries in regard to competition policy, lessons emerge that may benefit other developing countries. Countries with different initial conditions of competition and at different stages of reforms or integration with global trade and investment flows may follow different paths to reaping the gains from competition. However, the globalizing economic environment imposes a form of discipline on domestic economic activity, creating pressure for promoting the sort of efficiency improvements that competition can bring.

Greater competition in product markets can lead to lower prices, greater choice, and increased production efficiency, ultimately contributing to a country's growth and development. Restrictions to competition must generally therefore be removed to enable markets to deliver the benefits of competition to consumers and to support sustainable economic growth. At the same time, the greatest degree of competition possible may not be optimal, and increasing economic growth requires a policy mix promoting both cooperation and competition, balancing short-term (static) efficiency improvements with long-term, dynamic efficiency and development.

We have seen that competition policy is concerned with both private anticompetitive practices and government measures or instruments that affect the state of competition in markets. Competition policy is usually aimed at enhancing consumers' freedom of choice and firms' freedom to trade and access markets. There are some instances where consumers will prefer that a smaller number of goods (and possibly a single good) be available in the marketplace. There are also some instances where production may be most efficiently pursued by a small number of producers (possibly just one). Competition policy must be applied in ways that take account of the technological characteristics of such markets.

Most of the countries studied have envisaged their competition laws as supportive of their national development objectives. The prevalence of competition is consequently viewed as contributory to the countries' economic development. Tension between the objectives of competition policy and industrial policy is more apparent than real. To the extent that creating national champions substantially increases concentration in a domestic market, there may actually be a stronger case for implementing competition policy than otherwise. Japan itself has argued that intrafirm rivalry has previously played and continues to play an essential role in its development.

Most measures to protect domestic industries or firms create barriers to entry and can lead to high concentration in affected sectors. At the subnational level, local protectionism leads to market fragmentation and thus to low regional specialization. Competition law can reinforce the effectiveness of cuts in trade barriers on growth-enhancing imports. The trend toward greater openness and globalization is likely to continue, with competition playing a key role in enhancing the international competitiveness of a country's firms. In turn, growing firms will contribute to the country's growth and employment. Thus, participating in international organizations such as WTO or OECD is an effective way to bring the pressures of international competition to bear on promoting competition in domestic markets.

During economic transition or reforms, the benefits of an open market economy cannot be fully realized unless restrictions on competition are removed. This has been reflected recently in India (where competition policy has been revised and expanded), Viet Nam (where a new competition policy was adopted in late 2004), and the PRC (which has firm plans to develop and implement a new competition policy). Opening markets is not enough by itself for countries to begin reaping the benefits of competition. Firms will still find incentives to engage in anticompetitive practices. Thus, the intended benefits of trade reform may not be realized without active enforcement of competition law. The Korean case illustrates that trade liberalization does not automatically lead to a more competitive domestic market, and that the best outcomes are achieved when liberalization is accompanied by measures to increase competition in the domestic market. This experience highlights the importance of having faith in the benefits of competition from an early stage of economic growth and of incorporating competition policy into the broader economic policy framework.

In recent years all of the six countries studied have generally been open to FDI. This has been true longer in Malaysia and Thailand in particular. It has not always resulted in increased competition in their domestic markets. However, for foreign investors the existence of a competition policy indicates some commitment by the government to ensure a level playing field among domestic and foreign investors. And relaxing foreign participation requirements can be generally expected to contribute to increasing competition in the domestic economy.

Competition policy is affordable. In most countries it will more than pay for itself. The saving on government purchases, which results from less bid rigging alone, is likely to easily offset any additional outlays needed to rigorously enforce national cartel laws. Even greater may be the increase in tax revenues resulting from greater competition-induced growth. At the same time, implementation of competition policy serves to reinforce consumer rights and the competition culture that help ensure that the benefits of competition are realized.

Development of a "competition culture" can, in turn, ensure that competition is strengthened. In most developing countries, the interests of consumers are poorly represented and are much weaker than those of producers. Organizing and promoting consumers' rights create a potent force for ensuring the promotion of competition. In this regard, it can be crucial that the authority charged with promoting and enforcing competition has independence from ministries or other agencies representing producers or producer groups.

Competition can help create a prosperous future. Preserving the ability of innovative firms to enter a market may well be contingent on the appropriate enforcement of competition laws. IPRs generally strengthen competition in an economy over the long run by providing incentives for the development of new products and production processes. Such technological progress will likely contribute at least as much to social welfare in the long run as the elimination of allocative inefficiencies resulting from noncompetitive prices will in the short run.

With regional and global integration accelerating, the pressures of international competition and their context have become increasingly palpable. However, as we have seen, competition policy is important in its own right for domestic reasons, and does not have to be considered jointly with the rest of the Doha round's Singapore issues. Regardless of whether multilateral rules on competition policy are negotiated under WTO, each country should strive to develop and implement its own competition policy.

Drawing on lessons from the experience of Japan and Korea, developing countries in the Asia-Pacific region should start early and take a long-term view in implementing competition policy. Most have completed their first round (macroeconomic) reforms, which play a key role in setting a framework for greater competition. Late reformers, such as Viet Nam, still face challenges from the first round of reforms but are acting to ensure that restraints to competition will pose minimal hindrance to future development. The benefits of competition will flow more freely from the strengthening of property rights, development of a credible legal and judicial system, trade and FDI liberalization (informed by competition policy), and infrastructure expansion.

The complementarity of competition and competition policy with industrial, trade, and FDI policies highlights the need for active competition advocacy. Too often, the advocacy functions of competition authorities are neglected at the expense of enforcement of competition law, only to create the need for even greater enforcement as other legislation is enacted without consideration of the implications for competition.

The general conclusion is that competition confers net benefits on an economy. Productivity rises, choice expands, and some (generally the bulk) of the increased benefits are appropriated by domestic consumers and factors of production. These benefits appear to be especially important in connecting the country to the global economy and ensuring the international competitiveness of its firms as the country develops. At the same time, the discipline of participating in a globalizing economy reinforces the importance of competition. Of particular relevance is the fact that, while many countries are moving to implement or strengthen their competition policies, none appears to be moving toward repealing them.

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