Competition Policy and Pro-Poor Development in Bangladesh

1. Competition Policy and Pro-Poor Development in a Least-Developed Economy - The Case of Bangladesh Presented by: Dr. Atiur Rahman Bangkok, 27 June 2006

2. Issues will be covered: • Competition policy and law • Competition policy in Bangladesh • Need for competition policy and law in a least-developed economy like Bangladesh • Effects on the poor as consumers as well as producers and/or suppliers of goods and services • Towards having an effective competition policy for pro-poor development in Bangladesh

3. Competition Policy/Law? • In market economy, competition is a process whereby firms fight against each other for securing consumers for their products • Competition policy => government measures directly affecting both Firm Behavior and Industrial structure. • A competition policy should include both: • i) Economic policies adopted by Government, that enhance competition in local and national markets, and • ii) Competition law designed to stop anti-competitive business practices.

4. Fair Competition

5. 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.

6. 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 towards competition policy. • Bangladesh considers it to be a dead issue. • That does not mean demand for a well-developed competition policy has become irrelevant, particularly if consumers’ interests are considered.

7. Competition Policy in Bangladesh • Consumers do certainly 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 saw the day light. • This draft act has, of course, emphasized consumers’ right to have goods and services at competitive price • It has focused on consumers’ right to have information regarding quality, quantity, standard and value of the goods and services.

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

9. Anti-competitive Practices in Bangladesh • Natural monopolies (e.g. distribution of power and gas, railways, telephone and other public utility services. Natural monopolies not only inhibits modernisation of these services but also hinder private investment into these sectors) • Lack of legal provision (no legal entity to oversee the trading practices of business firms.) Absence of autonomous and independent effective and efficient judicial system fails to ensure a favourable business climate for competition.

10. 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)

11. Anti-competitive Practices in Bangladesh • Exclusive dealing and tying arrangements (e.g. diagnostic services, educational inputs from particular outlets) This type of unfair arrangement increases the cost of diagnosis/education, which is borne by the consumers. • 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)

12. Anti-competitive Practices in Bangladesh • An increase in transport fare prior to religious festivals is a common phenomenon in Bangladesh, and Government has no control over this price increase • Price hikes are artificial and are caused by a group of traders through collusion • Pharmaceutical companies often persuade doctors through bribing to prescribe medicine produced by the companies themselves. • Low entry and exit barriers are an important feature in maintaining a competitive environment in Bangladesh

13. Anti-competitive Practices in Bangladesh • 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 be considered as anticompetitive. • In early 1990s there was only one company (City Cell) in the market. Price per connection was around 50 to 100 thousand Taka • Now four companies operate in the market and price has come down to round 1000 Tk. due to greater competition and taking various liberalization policy.

14. The Indian Case Study • Ghoten Gas Agency, a Kolhapur based gas supplier in India, was forcing the buyers to buy hot plates at the time of releasing fresh gas connection. • The Competition Authority held such a practice. • The Authority directed that wherever a customer purchased a hot plate simultaneously with a fresh gas connection, the gas agency should make it clear on the invoice that the hot plates were purchased voluntarily. • Further a notice board should be prominently displayed in the agency’s premises that the customers were free to purchase hot plate either from Ghoten Gas agency or from any other source. Source: CUTS “Competition Policy and Law Made Easy”

15. Anti-competitive Business Conduct in Bangladesh • Monopoly in CNG Auto Rickshaw (Four Stroke Engine) business • Only one company is allowed to import (Uttara Motors is the sole distributor of Bajaj) • In India, Price is Tk. 150, 000.00 • In Bangladesh 400,000.00 • Passengers have to bear the additional cost (Daily Prothom Alo 30 March 2006) Therefore, we need competition policy to monitor, prevent and control anti-competitive practices.

16. Recent Sugar Price Hike (April 2006) • Monopoly in sugar business (only three/four importers) • In India price is Rs25to 30

17. The Spanish Case Study • Four Sugar producers in Spain were engaged in market allocation agreement (apart from price fixing, sales quota agreements) that restricted sugar supply to the level at which maximum monopoly profits could be earned. • As a result. Spanish sugar prices, for many years, were 5 to 9 percent higher than those in the rest of Europe. • The Spanish Service for the Defence of Competition uncovered the cartel and slapped 8.7 million euros fine on the four producers. Source: CUTS “Competition Policy and Law Made Easy”

18. Hence, we need a Competition Policy Benefits to Consumers • A fair deal in the market place with: • The best possible choice of quality • The lowest possible prices, and • Adequate supplies of commodities.

19. Benefits to Efficient Producers • A safeguard against practices that could drive companies out of business. • Lower entry barriers to promote entrepreneurship and growth of SMEs. • Efficient allocation and utilization of resources ensures more output and employment. • Control of international unfair competition and restrictive business practices, such as international cartels

20. On the whole, a competition policy maintains and promotes the competitive spirit and culture in the market and stimulate development.

21. How can national competition policy be formulated for pro-poor development? Four critical factors are important: • Political will • Expertise • Efficiency • Resources • Right to information

22. How can national competition policy be formulated for pro-poor development? • Role of government • Role of political parties • Role of international organisations • Role of consumer associations • Role of media

23. Concluding Remarks • There are varieties of anti-competitive practices and consumer abuses, so the regulatory authority should be innovative in nature. • For least developing countries, resource constraint is one of the major problem in establishing competition authority. • Knowledge gap regarding how a competition authority can be made functional is also quite in LDCs • Lack of effective consumers’ association (consumers are not organized and cannot play any role in promoting their own interest)

24. Concluding Remarks • Educating consumers and consumer activists in a sustained manner; • Need testing and informing the people about the quality of various goods; • It is very important that the reports on anti-competitive practices be published in the media to raise the awareness of the consumers. • Need effective pressure group for getting the consumer law formulated and enacted, and strengthening it from time to time. 

25. Thank You.