Competition Policy: Bangladesh Scenario

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Competition Policy Bangladesh Scenario

• M. Abu Eusuf
• Assistant Professor, Department of Development
  Studies, University of Dhaka
• Unnayan Shamannay, 13 April 2006

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Competition Policy

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

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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

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

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Objectives of Competition Policy

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

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Need for a Competition Policy?

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

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Competition Policy in Bangladesh

• Bangladesh has no competition policy.
• Monopolies and Restrictive Trade Practice
  (Control and
• Prevention) Ordinance, 1970
• Has not been implemented but still valid
• Initiatives 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 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!

• 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
  price
• It 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)
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Anti-competitive Practices in Bangladesh

• Natural 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

• 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

• 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 Provision

• There 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 countrys 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 Sector

• Nationalised 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 governments 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!...
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