Competition Policy Issues in Regional Cooperation Arrangements The Case of SAARC

1. Competition Policy Issues in Regional Cooperation ArrangementsThe Case of SAARC Malathy Knight-John, Institute of Policy Studies & Ratnakar Adhikari, UNDP Asia Pacific Regional Centre

2. State of economies in the SAARC region • Seven countries: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka. Eighth country (Afghanistan in the process of membership) • Relatively closed economies until the end of 80s (except for Sri Lanka) • Since early 1990s started policy of economic reform • Deregulation • Privatisation • Financial sector reform • External sector reform • Reduction in tariffs and QRs • Removal of regulations on foreign investment

3. Regional trading agreements – within SAARC Framework • Preferential trading arrangement (SAPTA) entered into force in December 1995; proven a non-starter due to “positive list” approach for the liberalization of tariffs • Free trade agreement (SAFTA), to enter into force from July 2006 • Shallow integration arrangement with a commitment to fully liberalize trade in goods by 2016 • Talks on services and investment yet to begin • Lengthy sensitive lists (upto 1,335 items at six digit level) mean that protectionist tendency is widely prevalent • Trade liberalization under SAFTA unlikely to promote competition

4. Regional trade agreements – outside SAARC Framework • Trade agreement with Thailand and Myanmar • Five countries of the region (except Maldives and Pakistan) are part of a trans-regional trade agreement called Bay of Bengal Multi Sectoral Technical and Economic Cooperation (BIMSTEC) • Shallow integration arrangements with a commitment to liberalize goods, services and investment by 2017 • Bilateral trade agreements • e.g., India-Sri Lanka; India-Nepal; Pakistan-Sri Lanka • Shallow agreements with liberalization of goods only • India and Sri Lanka moving into a relatively deeper integration arrangement through Comprehensive Economic Partnership Agreement

5. Country-wise status of competition policy • No well defined competition policy • Competition laws – limited experience • India, Pakistan and Sri Lanka • Some experience with the implementation of competition laws • New laws are in the various stage of preparation/ implementation • Bangladesh prepared a draft but has not move far enough • Nepal made a “voluntary” commitment to enact a competition law at the time of its accession to the WTO, but missed the deadline; draft ready • Bhutan is mulling over a combination of competition and consumer protection law • Maldives is not making any plans

6. Competition concerns within the Region • Cross cutting • Cartel • Bid-rigging • Price discrimination • Exclusive dealing • Country specific • Public monopoly transforming into private monopoly – (e.g., Sri Lanka, Nepal) • Syndicate (e.g., Nepal and India – trucks and public transportation) • Tied selling (e.g., Nepal and India – school uniform) • Predatory pricing (e.g., Nepal – airlines, newspapers)

7. Cross border competition concerns • International/regional cartels (like infamous vitamin, heavy electrical equipment and graphite electrodes cartels) • Export cartels (which provides immunity in many jurisdictions including India and Pakistan) • Cross-border mergers and acquisitions • Spill-over effects (mainly due to huge informal trade) • Dumping (alleged dumping of battery and FMCGs) • Abuse of market power by foreign investors (e.g, Unilever in Bhutan)

8. Regional approachesSouth Asia at crossroads – I • Regional competition policy helps… • International/regional competition abuses require regional solutions due to limited capacity to prosecute them, acting individually • Rapid learning possibility • Cooperation possible either through sharing of information or positive comity • Cost effective – pooling of resources and expertise • “Direct effect” – access to regional law to challenge domestic competition abuses (e.g., UEMOA and Andean) – as an interim solution, for example, in South Asian LDCs not having domestic laws

9. Regional approachesSouth Asia at crossroads – II • …However, there are problems too • Shallow regional integration means that regional competition policy appear neither necessary nor feasible (like the EU) • Limited national capacity (like CARICOM, COMESA) • National laws either non-existent or evolving • Issue of sovereignty • Development dimension is a matter of concern particularly for LDCs • Critical constituency for regional competition framework non-existent

10. The way forward – I • Feasibility study on regional competition law taking into account • Cost-benefit analysis of models ranging from “best endeavour clauses” to binding supra-national enforcement and dispute settlement mechanism • Inclusion of special and differential treatment provisions such as transition period, technical assistance, training and capacity building • Incorporation of “development dimension” – such as exemption to energy, agricultural sector and SMEs for a limited period • Focusing on cooperation and sharing of information and expertise

11. The way forward – II • In the interim • Enactment of national competition laws • Incorporating competition provisions in bilateral trade agreements • Allowing smaller countries to have access to competition authority of a bigger neighbour (e.g., Nepal and Bhutan using Indian competition authority) • Gradual learning process • Cooperation on training and capacity building • Creating critical constituency in favour competition issues