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Competition Policy:

Bangladesh Scenario

M. Abu EusufAssistant Professor, Department of

Development Studies, University of Dhaka

Unnayan Shamannay, 13 April 2006

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Competition Policy Competition Policy

Intervention by public authorities for ensuring competition in the markets.for ensuring delivery of better quality goods at better pricesConcerned with actual competition

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Objectives of Competition Policy Objectives of Competition Policy

to promote competition by preventing agreements between firms that lead to anti-competitive behavior either through explicit cartels or through tacit collusion.to protect the consumers’ interest by ensuring that they have greater choice in terms of price, quality and service

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Objectives of Competition Policy…

Objectives of Competition Policy…

to maintain a competitive environment so that an efficient allocation of resources can take place, which promotes economic growth. to allure foreign direct investmentto remove obstacles to market entry for foreign investorsto protect abuse of dominant position by multi-national companies in the developing countries market

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Objectives of Competition Policy…Objectives of Competition Policy…

to regulate monopoly of firmsto motivate competing players to increase their efficiency with a view to retain their superiority in the market.to weed out inefficient operationsto enhance consumer welfare

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Need for a Competition Policy? Need for a Competition Policy?

Out of 149 members of WTO, 80 have competition policyHaving competition policy for all countries, still a matter of negotiations at the international level.

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Competition Policy in BangladeshCompetition Policy in Bangladesh

Bangladesh has no competition policy.Monopolies and Restrictive Trade Practice (Control and

Prevention) Ordinance, 1970Has not been implemented but still validInitiatives were taken to develop a competition policy after discussions at the 1996 Ministerial Conference in Singapore but abandoned after Doha Meet.

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Competition Policy in BangladeshCompetition Policy in Bangladesh

At Doha in 2001, there were disagreements among WTO members to adopt competition policy for developing countries. Consequently, Bangladesh has been giving least attention for its competition policy. Bangladesh considers it to be a dead issue.That does not mean demand for a well-developed competition policy has become irrelevant.

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Bangladesh Competition Policy! …Bangladesh Competition Policy! …Consumers do want a competitive regime for their benefits.Consumers’ right protection law – 2004 was approved in the cabinet. This was supposed to go to the parliament for final legislation but never went.This act has, of course, emphasized consumers’ right to have goods and services at competitive priceIt has focused consumers’ right to have information regarding quality, quantity, standard and value of the goods and services.

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Presence of Inefficient State-Owned Industries

A number of state-owned large enterprises have contributed to anti-competitive behaviour in certain industries. Many of them are making huge losses creating a lot of pressure on government budget

Strong unionised labour and several other vested interest groups do not facilitate exit of these enterprises

When exit is blocked, competition within the industry is severely affected. Textile, jute and sugar are example of such industries

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Most Prevalent Anti-Competitive Practices in Bangladesh (BEI Findings)

0%10%20%30%40%50%

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Anti-competitive Practices in BangladeshAnti-competitive Practices in BangladeshNatural monopolies (e.g. distribution of power and gas, railways, telephone and other public utility services)Lack of legal provision (no legal entity to oversee the trading practices of business firms)Mergers (e.g. Standard Chartered Grindlays Bank, visa fees of some foreign embassies need to deposit particularly in this bank)Lack of effective consumers’ association (consumers are not organized and cannot play any role in promoting their own interest)

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Anti-competitive Practices in Bangladesh …

Anti-competitive Practices in Bangladesh …

Price fixing (raising prices through collaboration among importers, local manufacturers, suppliers etc.)Presence of state-owned inefficient industries (e.g. Textile, sugar, nationalized commercial banks etc.)Manipulation of supply (through collaboration among importers, local manufacturers, suppliers etc)

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Anti-competitive Practices in Bangladesh…Anti-competitive Practices in Bangladesh…

Exclusive dealing and tying arrangements (e.g. diagnostic services, educational inputs from particular outlets)Weak regulatory framework (judicial system cannot guarantee property rights e.g. ETV)Bid rigging (pre-arranged and threat driven)Price discrimination (Dumping and charging different prices for identical products)Bribery and gifts (e.g. bribing tax officials to avoid taxes)Extortion (e.g. sellers extorted by a purchasing agent)

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Lack of Legal ProvisionThere is no effective legal provision designed to protect the interest of the consumers in Bangladesh. Besides, there is no legal entity to oversee the trading practices of business firms. These tasks are complicated. On the one hand, it needs to be ensured that consumers are not cheated, and on the other hand special care should be taken so that private firms and business do not feel regulatory powers are excessive

Overseeing trading practices also requires knowledge about market structure, product quality, and above all technical expertise

Some businesses may consider gaining unfair competitive edge by misleading claims about their products’ value, quality, and place of origin and ingredients in order to promote sells

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Lack of Effective Consumers’ Association

Civil society groups acting on behalf of the consumers are almost non-existent in Bangladesh. The existing Consumers Association of Bangladesh (CAB), has not been particularly very effective in raising the concerns of the consumers

As a result, policy makers most often see strong lobbying in favour of demands for protection, they hardly encounter with popular public demands for not grating those protective measures

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Natural Monopolies

In Bangladesh sectors such as railways, telephone, and other public utility services have generated such anti-competitive structures that not only inhibits modernisation of these services but also hinder private investment into these sectors

In recent times private sector has entered into the business of cellular phone, but competition has been restricted to a few firms only. This allows the state owned BTTB (or Bangladesh Telegraph and Telephone Board) to continue inefficiently

Though a regulatory commission has been set up for the telephone sector. However, it is still in infancy and yet to acquire any teeth

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Regulatory Framework Overall policy framework of the country acts as hindrance to the

promotion of an efficient and competitive market mechanism in Bangladesh

The regulatory framework in the country is yet to be developed (only telephone sector though inefficient)

Absence of autonomous and independent effective and efficient judicial system hampers to ensure a favourable business climate for competition.

Currently the country’s legal system is burdened with more than half a million cases. Such a slow and inefficient judicial system increases the costs of litigation

There are other sectors (e.g., telecommunication, power generation and air transport) which are gradually being opened up and some participation of the private sector is taking place. However, it has been alleged that these are being done in a non-transparent and unpredictable policy environment resulting in increased business transaction costs and widespread rent-seeking opportunities.

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Anti-competitive Behavior in the Banking SectorNationalised commercial banks (NCBs) are burdened with bad loans and loan defaults. Largely because of these bad loans the spread between lending and deposit rate is very high in Bangladesh.

When private Banks were allowed to operate it was hoped that they would charge lower interest rates on lending as they did not have to start with bad loans. It was found that private banks’ price loans follow those of the NCBs, who act as the price leaders. Such anticompetitive behaviour was responsible for allowing the NCBs to become much bigger than the private banks and also more inefficient.

Access to government’s development fund has been restricted for the private banks. Moreover, NCBs also operate in such activities where private banking is absent (such as agriculture and rural development projects). This also reduces the competition between the public and private sector

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Anticompetitive Business Conduct in Bangladesh

In Bangladesh, local manufacturing companies often appoint one sole distributor, in a region of the country, allowing it to dictate or manipulate prices in that region. Often, foreign manufacturing companies even go so far as appointing one sole distributor or agent for the entire country.

This sole distributor or agent establishes a monopoly for that product and charges prices according to their whims. They never display company price lists, and may even refuse to show it if a customer asks to see it. As an example, H.S. Enterprise has been the sole distributor – in Bangladesh – of Honda Motor Company Limited, Japan, for 20 years, and the firm declares its status as a sole distributor in public. These types of practices are surely anticompetitive.

City Cell is a company involved in the mobile telecommunication business. When a consumer takes a mobile phone connection from City Cell, they have to pay for the particular mobile set supplied by the company. In this case, the consumer is deprived of having the option of another mobile set. This is surely a tying arrangement. So, this practice may also be considered as anticompetitive.

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Towards Efficient Regime

Setting up of an effective regime in this regard will remain a challenging task for Bangladesh, which would require amongst others:

Legal and regulatory reforms

Implementation of rule of law

Development of civil society group protecting the consumers’ interest

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Bangladesh Competition Policy!... Bangladesh Competition Policy!...

Competition Policy is not panacea for competitiveness. This depends to a significant extent on factors such as human capital, institutional infrastructure, ethical business codes and commitment to good governance. The civil society too has a role to play in raising consciousness regarding vices of anti-competitive practices. Education, media and social organizations have a role in mobilizing a society for appropriate competitive regime.

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Caution !There is also a danger of excessive competition, which may have adverse socio-economic implication. There is, therefore, a need for open public debate on these issues and continuous monitoring of the impact of competition on the weaker sections of the economy (particularly on SMEs). Simultaneously, there is need for realistic assessment of the extent to which MNCs are following the disciplines of competition law

Indeed, participatory governance should also be at the heart of any move to regulate competition. In fact, the government should undertake measures to significantly improve corporate (both local and multinational) governance, increase corporate transparency, prevent fraud and ensure corporate social responsibility

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Thank You