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Competition Law Toolkit

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VIII. Competition Law and Policy in Emerging Economies

Competition laws have been in place for many years in some of the world's most developed economies. The US enacted the Sherman Act in 1890, and the EU competition rules were adopted in 1957.

A reasonable question is whether laws that might be suitable for the US, the EU, and for other large, developed economies are necessary or appropriate for small countries, or for those whose economies are in an early stage of development. An effective system of competition law requires a substantial commitment of financial and intellectual resources, and a cost-benefit analysis might suggest that the advantages of competition law in a particular country might be outweighed by various possible detriments. Seen this way, competition law could be considered to be a first world luxury. Furthermore, competition law may be seen as something that is imposed on small countries by larger, more developed ones, partly as a consequence of the WTO agenda.

Even if competition law is not a first world luxury, and even if it can be seen to be independent of the WTO, it may be that competition laws of the kind to be found in the US, the EU and other developed economies may require some adaptation when introduced in developing economies with their own specific problems. It would be wrong to assume that all systems of competition law should be identical: convergence of competition law is not an end in itself, and local circumstances may result in some country-specific rules. Ajit Singh tackles this in Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions [ PDF ], a discussion paper produced under the auspices of UNCTAD. Following is the key conclusion of his paper:

• Contrary to conventional wisdom, many different kinds of evidence suggest that the intensity of competition in leading emerging markets is certainly no less, if not greater, than that observed in advanced countries.
• Analysis and evidence indicates that maximum competition is not necessarily optimal in terms of dynamic efficiency, i.e. maximization of an economy's long-term productivity growth.
• Even if it was not required in the past, developing countries need a competition policy today because of the huge international merger movement as well as privatization and deregulation in these economies themselves.
• There is little evidence to indicate that the current international merger wave will enhance global economic efficiency. Giant cross-border mergers, as well as those occurring between large firms within advanced countries could, however, adversely affect competition and contestability in developing countries and the world economy. Even with competition policies, developing countries may not be able to restrain anti-competitive behavior by large multinationals.
• The current competition policies in the US and the EU are unsuitable for developing countries. Countries at different levels of development and governance capacities require different types of competition policies. A good model for many emerging countries with effective governance structures is that of the Japanese competition policy during 1950-1973. The Japanese used both competition and cooperation to promote rapid industrialization.

It can also be argued that trade liberalization, and the consequent exposure of local markets to the process of international competition, should be sufficient in itself to make markets competitive without the need for every country to adopt its own system of competition law.

While acknowledging the argument that the adoption of competition law might strain the resources of some small or developing countries, there are nevertheless a number of persuasive reasons for all countries, whatever their stage of development, to do so.

This section considers various arguments in favor of the adoption of competition laws, even in small countries or countries in an early stage of development. It also refers to some important issues that need to be taken into account, such as the need to provide competition authorities with adequate resources to carry out the tasks assigned to them, the need to empower consumers, and to provide education on the benefits that competition can bring.

1. Does Everyone Benefit From Competitive Markets?
2. All Economies Suffer from Anti-Competitive Practices
3. Competition Policy, Competitiveness and Productivity
4. Competition Advocacy: Effective Tool Against Special Pleading
5. Need for Merger Control
6. Importance of Granting Resources to Competition Authorities
7. Consumers' Empowerment
8. Education
9. Regional Solutions
10. UN Conference, November 2005

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