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p. 76 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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Endnotes

¹ For a review of his evidence in support of this claim, see Table 1.1 and Section IV.1 of Ahn (2002).

² The countries were selected for the variety of their conditions and experiences with competition and competition policy. Country studies were prepared by Ping Lin (Lingnan University); S. Chakravarthy; Seung-Wha Chang (Seoul National University) and Youngjin Jung (Woo, Yoon, Kang, Jeong & Han); Cassey Lee (University of Malaya); Deunden Nikomborirak (Thailand Development Research Institute); and Vu Quoc Huy (Institute of Economics). They were studied in greater detail as part of an Asian Development Bank regional technical assistance study (Brooks and Evenett 2005, forthcoming).

³ The concept of efficiency has both static and dynamic aspects. Static efficiency refers to maximization of the benefits of voluntary exchange at a given point in time; that is, maximizing the sum of producer and consumer surpluses in a given market at a point in time. Dynamic efficiency refers to the maximization of the sum of such surpluses over time. The latter takes account, in particular, of the impact of technical progress, innovation, and investments of various types.

⁴ As Vickers (2003) notes, "questions about the desirability of competition - whether it directs incentives positively - should not be confused with questions about its inevitability. There is no inconsistency in regarding competition as beneficial but vulnerable to being undermined - for example by cartel activity. … in short, being pro-competition is by no means the same as being pro-laissez faire. … Hence the importance of public policies to safeguard and promote competitive incentives. In a sense, the competition policy is judicious regulation to bring out the best in laissez faire. A competitive market is generally a far better regulator than any regulator can hope to be" (p. 3).

⁵ This rather theoretical discussion is based on some rather strong assumptions. In the context of a developing country, these assumptions may well not hold and the same actions which increase efficiency and welfare in an optimal situation may be inferior to "second-best" solutions. However, since second-best solutions require a level of detailed analysis beyond the capabilities of many developing countries (and possibly many industrial countries as well), promoting competition will generally be preferable to alternatives.

⁶ Cartels figure prominently in relation to bid rigging in government procurement processes, and thus their deterrence can also improve the efficiency of government.

⁷ See White (2000), for an accessible economic analysis of such externalities and the implications for regulatory and competition policy.

⁸ Article 1, 1993 Anti-Unfair Competition Law, available: http://www.globalcompetitionforum.org/regions/asia/China/ch_unf1.pdf.

⁹ The Competition Act, 2002 (No. 12 of 2003), available: http://dca.nic.in/competition_act2002.pdf.

¹⁰ Article 1, Monopoly Regulation and Fair Trade Act, available: http://ftc.go.kr/data/hwp/monopoly.doc.

¹¹ Competition Act 1999, available: http://www.globalcompetitionforum.org/regions/asia/Bangkok/Bankok%20Act.pdf.

¹² Amsden and Singh (1994) cite Okimoto (1990) in support of this claim.

¹³ Strategic trade policy involves setting up national trade policies--such as tariffs--to enable a domestic sector to reap greater economies of scale from the protected home market or to enable the sector to expand output and lower costs through learning-by-doing effects. Both of these result in lower production costs enabling a nation's exports to, in theory, expand export sales. In addition to expanding the output of the domestic industry, proponents of strategic trade policy note that it can result in profits being effectively "shifted" from foreign firms to domestic firms.

¹⁴ A survey of 150 textile and garment enterprises conducted by the Institute of Economics shows that, although the sector relies heavily on imported inputs, its import tax commitments are very low (Institute of Economics 2000). In 1999, imported materials accounted for 66% of total materials purchased. By 2000 this share had increased to 77%. However, 58% of these imports were totally exempt from tax in 1999, and the rest were subject to low tax commitments. As a whole, the tax rate for the sample was barely 1%.

¹⁵ Watson et al. (1989) cite the "wool war" and the "silk war" of the mid-1980s as examples of local governments trying to keep raw materials within their locality to favor local manufacturers.

¹⁶ These arguments are developed, for example, in UNCTAD 1997 and in other references cited therein.

¹⁷ For a more complete discussion of FDI in developing Asia, see ADB (2004), Part 3 "Foreign Direct Investment in Developing Asia" or Brooks and Hill (2004).

¹⁸ Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, available: http://www.helplinelaw.com/law/china/merger-acquisition/index.php.

¹⁹ A "foreigner" refers to a natural person who is not of Thai nationality or a juristic entity, (i) which is established under foreign law, (ii) in which half or more of its capital is owned by foreigners even if the company is incorporated under Thai law, or (iii) in which half or more of the value of the total capital is being invested by foreigners even if more than half the capital is owned by Thai nationals. (The third requirement is effectively a bar on the use of Thai nationals as nominees.)

²⁰ See Clarke and Evenett (2003) and Evenett (2003, part III) for a more general discussion of the costs and benefits of enforcing national anticartel laws. The available empirical estimates suggest that the reduction in overcharges incurred in jurisdictions with active cartel enforcement regimes from only one major international cartel in the 1990s would have gone a long way to pay for the entire state outlays of Brazil, Mexico, and several European Union member states on their respective competition law enforcement regimes.

²¹ The $10 million figure is almost certainly larger than the outlays necessary to implement a cartel law in a small or middle-sized developing economy.

²² This subsection draws heavily on Tom (1998).

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