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Competition Law Toolkit
ADB Resources and Projects
Asian Development Outlook 2005
The annual Asian Development Outlook provides a comprehensive economic analysis of 42 economies in developing Asia and the Pacific. On the basis of the Asian Development Bank's knowledge of the region, this 17th edition examines
- trends and medium-term prospects of developing Asia and the Pacific in the context of a baseline global economic outlook;
- recent economic developments and prospects for the region from a subregional perspective; and
- competition policy, highlighting the importance of microeconomic reforms to increase productivity, improve competitiveness, and enhance growth potential in Asia.
The main findings of the 2005 annual outlook are
- the region's developing economies achieved their strongest performance in 2004 since the Asian financial crisis of 1997-98;
- aggregate gross domestic product for the region expanded by a remarkable 7.3%;
- growth was underpinned by a combination of sustained external demand and generally buoyant domestic demand;
- spurred by a robust expansion in major industrial countries, continued strong growth in the People's Republic of China and deepening regional integration, exports from regional countries surged;
- in spite of some moderation of growth among the major industrial countries over the forecast period 2005-2007, the baseline projection is for a continued robust economic performance;
- widening growth gaps among these economies cast a shadow on the medium-term sustainability of the current expansion by exacerbating global economic imbalances;
- a jump in interest rates, instability in currency markets, high oil prices, and the outbreak of epidemics remain significant risks to the region;
- restrictions to competition should be removed to enable markets to deliver the benefits of competition both to consumers and to sustainable economic growth;
- competition must, however, sometimes be accompanied by regulation to inhibit firms' use of anticompetitive practices;
- competition also complements intellectual property protection as both seek to promote innovation and enhance consumer welfare; and
- government policy should promote competition to ensure efficient resource allocation while preserving incentives for innovation.
Liberalization and integration, both with the rest of the region and with the rest of the world, are having strong effects on Asia's firms and their ability to contribute to national development objectives. As competitive forces become stronger, so do some incentives for anti-competitive behavior. Competition policy can both help markets deliver the benefits of competition to consumers and support sustainable economic growth. However, there may be tensions between what is good for short-term allocative efficiency and what is good for long-term dynamic efficiency. Countries in developing Asia are exploring ways to balance competing concerns, as competition policy moves up the reform agenda in the region.
This chapter discusses
- benefits of competition,
- competition policy regimes,
- consistency with development objectives,
- issues for implementation,
- effect on government finances, and
- toward a competitive future.
It also outlines the competition policy regimes in Asia and the history of each.
Policy Brief
The Role of Competition Policy in Asia
D. Brooks/Asian Development Bank (2005)
This policy brief describes the role of competition policy, and uses Asian experiences to highlight some aspects of its design, implementation, and place in the broader policy pattern.
Observations of the brief include the following:
- Effective competition policy depends on active and fair enforcement; therefore, clear property rights and a sound legal system are prerequisites.
- For countries in transition or at early stages of market development, first-generation reforms that lay the basis for macroeconomic stability and development of institutional infrastructure must be top priority.
- Even late reformers such as Viet Nam, which still face challenges from the first round of reforms, are already acting to ensure that restraints to competition will not hinder future development.
- Considering competition policy issues at an early stage helps to ensure that they incorporate well with other policies.
- For countries with more developed market systems and macroeconomic policy framework, the challenge in second-generation reforms is to promote a competition culture in the general population, and to ensure the relative independence of a competition agency with adequate resources and a clear mandate.
- Cooperation between competition agencies in different countries is becoming increasingly important in the globalisation process, and can be an important source of knowledge exchange and skills development.
- In implementing competition policy, developing countries in the Asian and Pacific region should draw on lessons from the experience of Japan and Korea. They should start early, and look at policy implementation in the long term.
- While many countries are moving to implement or strengthen their competition policies, it is notable that none appear to be moving toward repealing them.
Papers
- Post Doha Related Issue : Interaction between Trade and Competition Policy
A country issues paper presented by a representative from Indonesia at the Trade Policy Issues Workshop sponsored by the ADB on 25 February - 1 March 2002, Singapore.
- Competitiveness, Income Distribution, and Growth in the Philippines: What Does the Long-Run Evidence Show?
ADB ERD WPS/53, June 2004 , 48 p. (J. Felipe, G. Sipin)
This paper documents and discusses competitiveness in the Philippines measured in terms of unit labor costs (ULCs) over the long run, from 1980 to 2002. In doing this, the paper unveils the direct connection between ULCs and the functional distribution of income (i.e., the distribution of income between the wage bill and total profits) and, as an implication, with the underlying variables that determine long-run capacity and growth: profit rate, capital-output ratio, capital-labor ratio, and labor productivity. By explicitly considering the functional distribution of income and its implications for growth, the discussion has a certain classical flavor.
- Competitiveness, Income Distribution and Growth in Thailand: What Does the Long-Run Evidence Show?
The paper addresses three fundamental issues under a long-run perspective: (i) growth and productivity, (ii) competitiveness, and (iii) income distribution. ULCs and unit capital cost (UKCs) are calculated as the indicators of competitiveness in Thailand. Both series explain that Thailand did not gain in competitiveness during its boom period. However, during the 1997 financial crisis, when the baht depreciated, both series dropped significantly.
The paper also discusses the dynamics of labor share and capital share in national income as well as the functional distribution of income. Some major features of Thailand's long-run economy are the following:
- Increasing average wage rates,
- Stabilizing profit rates (slightly increasing during the boom decade after having dropped sharply during the 1997 crisis),
- Substantially increasing capital-labor ratio,
- Decreasing capital productivity and increasing capitaloutput ratio,
- Increasing labor productivity, and
- Increasing mark-up.
Functional income distribution can be determined during the periods studied. The gains in labor were greater than that of capital in the Thai economy, especially during the period of crisis when profit rates dropped substantially.
The paper also investigates income per capita by using a range of labor market indicators. Labor productivity is observed as the only factor contributing to per capita output. Overall, to achieve the medium to long-term growth potential projected by the National Economic and Social Development Board, Thailand needs to improve capital productivity and increase its capital stock.
Programs, Loans and Technical Assistance on Competition
- TA 4529-PRC: Competition Policies and Laws
The technical assistance (TA) will assist the government in establishing the legal and regulatory framework for formulating and implementing competition policy by preparing the Anti-Monopoly Law and amending the Law against Unfair Competition. The major outputs of the TA will be the Anti-Monopoly Law and the amendment to the Law against Unfair Competition.
- Loan-1738 INO: Industrial Competitiveness and Small and Medium Enterprise Development Program
Support to the government for its Industrial Competitiveness and Small and Medium Enterprise (SME) Development Program through a program loan of $200 million, and TA grants of $1.5 million for Promoting Deregulation and Competition, and $2.0 million for SME Development.
The program's objective is to support economic recovery and sustained growth by encouraging a more diversified and efficient industrial structure through deregulation and adoption of policies that promote competition, and provide a level playing field for all enterprises, including SMEs. This is to be achieved by (i) strengthening competition, (ii) promoting investment and facilitating trade, and (iii) rationalizing assistance to SMEs. The industrial deregulation and liberalization will promote industrial development consistent with Indonesia's comparative advantage and competitive edge; this will help revive economic growth. A dynamic SME sector will generate employment and reduce poverty. The resulting impetus to structural change is expected to lead to a reduction of the concentrated structure of industry in Indonesia with concomitant benefits in terms of a more even size distribution of firms and market power and increased consumer welfare. The reforms will improve governance by reducing the opportunities for rent seeking and corruption.
A technical assistance that is piggybacked to this program is TA-3416 INO: Promoting Deregulation and Competition. The advisory TA of $1.5 million will support a deregulation and competition task force that will help the Commission for Competition Supervision simplify the policy framework, promote competition policy according to best practice, and to develop capacity to review commercial laws and regulations that impede competition, with a view to eliminating those that cannot be justified in terms of net public benefits.
- TA-4147 UZB: Institutional Strengthening of the State Committee on Demonopolization and Competition Development
The TA will help promote private sector growth by creating a better enabling environment to promote the development of a more competitive and healthy enterprise sector that better protects consumers. To achieve this goal, the TA will (i) help the government develop a comprehensive strategy for promoting competition, (ii) support incorporation of behavior-based regulation into the legal and regulatory framework and enhance the ability of CDCD to evaluate anticompetitive behavior and proposed mergers, and (iii) develop recommendations for regulating natural monopolies.
- TA-4126 AZE: Development of a Competition Policy Framework
The TA aims to strengthen the institutional capacity of the Department of Antimonoly Policy and create a legal and regulatory framework for supporting a healthy policy environment for competition in all sectors. A well-designed policy framework and an effective competition authority will be instrumental in fostering an environment conducive to economic efficiency, consumer welfare, and investment and business activities in Azerbaijan. In line with government's request, special attention will be paid to the regulation of natural monopolies and to the prevention of cartels. The TA is in line with the strategic objective of ADB's assistance to promote good governance in Azerbaijan.
- TA-3820 PHI: Competition Policy for the Electricity Sector
The main objective was to create an environment that would encourage efficiency and reliability in production of electricity without unjustifiable price increases and quality reductions. Based on assessment of the prevailing policies and strategies of the government on electricity sector reforms, the TA would recommend policies and strategies that may be needed for promoting competition in electricity generation and electricity retailing. As a consequence, customers will be protected against anti-competitive, misleading, and deceptive conduct once they are aware of their basic rights and obligations.
To achieve these objectives, the TA consultant was required to review and assess competition policy and the framework covered by the EPIRA and related regulations, research worldwide experience in the areas of anti-competitive behavior, review and assess the alternative forms of international accepted rate setting methodologies for transmission and distribution regulation and pricing, and formulate and design appropriate rules and regulations on competition policy and consumer protection.
- RETA-6303: Competition Law and Policy Roundtable
The impact envisaged by the TA is Asian competition authorities that implement competition laws and policies more effectively. The outcome of the TA is competition authorities' increased understanding of Asian competition laws and policies and their identification of (i) capacity development needs, (ii) competition law enforcement-related problems, (iii) regional best practices that offer possible solutions, and (iv) relevant Asian Development Bank knowledge tools and support.
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