Competition Policy in Southeast Asia and German Technical Cooperation

Transcription

1 Competition Policy in Southeast Asia and German Technical Cooperation Frank Tibitanzl This contribution will focus on competition policy as an element of economic policy advisory services. It comprises a short description of the importance of competition policy in developing and transition countries and its relevance for the social market economy (Section 1). After that, a case study (implementing the competition law in Indonesia) is presented in order to describe the GTZ approach to technical cooperation in this area (Section 2). The contribution will close with an outlook on the potential for additional German technical cooperation in the area of competition policy and related subjects in Southeast Asia (Section 3). 1. Competition Policy and its Relevance for the Model of the Social and Ecological Market Economy Functioning competition is an essential prerequisite for growth and employment in a market economy. Competition promotes innovation, an efficient allocation of resources, and consumer sovereignty; it limits economic power and also produces positive social results. Competition in free and open markets makes markets work much better and is the basis of the social market economy. However, private companies always have an incentive to maximize their profits by squeezing their competitors out of the market and increasing their market share and power. In a market economy, there is always the risk of concentration and monopolization, which often lead to inefficiencies (for example, high prices and low product quality). Furthermore, especially in developing countries, heavy state intervention in the market also hampers competition, for example, through privileged state enterprises with high levels of market power, protectionist measures (subsidies, etc.) to selected private enterprises (national champions), or long-term market entry barriers to protect new (foreign) investment. 258 Part 4 Practitioners Perspectives

2 Another threat to functioning competition are unfair business practices. In order to ensure fair competition, certain business activities (for example, misleading information to consumers, disparagement of competitors, psychological obligation to buy, etc.) are prohibited in many countries. Competition policy is an element of economic policy. 1 Using a broad definition, it can be described as all rules and interventions that are designed to prevent all restraints on market competition that have negative impacts on economic welfare. Hence, competition policy comprises all activities of the government to ensure fair competition as a fundamental element of the social market economy. Coherent and consistent competition policy benefits consumers through wider choice and better product quality at a lower price, but also it helps promote innovation and entrepreneurship. In a globalized world with growing international trade and investment, competition policy becomes even more important. Anti-competitive behavior in a market of one country may cause negative effects on the markets of other countries through international trade and investment. In many countries, the legal framework for competition policy consists of unfair competition law (dealing with the unfair business practices mentioned above) and antitrust law (often called simply competition law ). The protection of competition is regarded as one of the key regulatory policy objectives of the social market economy in Germany. One antitrust law is the Act against Restraints of Competition (ARC), 2 which came into effect in 1958 and assigns antitrust enforcement to the Bundeskartellamt (Federal Cartel Office) and to the Landeskartellämter (State Cartel Offices). The relevant areas regulated by the ARC are: (1) the ban on cartels, hence agreements between companies on prices and quantities are prohibited in principle; (2) prevention of the abuse of a dominant market position by single companies, for example, the fixing of extraordinarily high prices or unjustified limitations against competitors; (3) control of mergers in order to prevent an unhealthy concentration of market power in certain markets. Another important act dealing with competition policy is the Law Against Unfair Competition, 3 which aims to protect competitors, consumers, and other market participants against unfair competition (excluding cartels and mergers, which are governed by the ARC), and to protect the interests of the general public in undistorted competition. 1 In Germany, competition policy is regarded as an essential part of the so-called Ordnungspolitik, which is a special German term signifying the need for the state to guarantee the legal framework of the economy (for example, property rights, enforcement of contracts) and for state intervention to avoid anti-social outcomes. 2 Gesetz gegen Wettbewerbsbeschränkungen (GWB). The GWB was regarded by its founders as the constitution of the social market economy. 3 Gesetz gegen unlauteren Wettbewerb (UWG). Frank Tibitanzl 259

3 On the European Union (EU) level, competition policy was set out already in the Treaty of Rome (1957), which gave the EU wide-ranging powers to oversee and prevent activities that restrict competition between firms. The EU Commission (Directorate General for Competition) is empowered to investigate price fixing, the abuse of market power, and agreements that fix market share, limit production, or prevent technical development. Furthermore, the EU is allowed to intervene against governments who attempt to provide state aid to uncompetitive companies. If several EU member states are affected by a competition case, the European Commission will be responsible, whereas the national cartel offices focus on the investigation of cases with merely national scope. Another example are mergers that extend beyond the national borders of a member state. These are investigated at the European level. In the development policy context, a sound and effective competition policy (antitrust policy) is highly important for economies in transition to a market economy, where the role of the state has to be redefined. In the early 1990s, many Eastern European countries and countries of the former Soviet Union privatized their state-owned companies very quickly, assuming that competition would develop automatically if former state-owned companies were privately owned. However, in many of these countries, this strategy failed as the privatization process did not lead to more efficient economic structures, but often resulted in private monopolies with few incentives to improve their services or decrease prices. The lessons learnt here are that a privatization strategy always has to be accompanied by improvements in the institutional framework that make it conducive to competition. Hence, powerful competition policy together with market regulation (in case of natural monopolies like electricity, railways, telecommunications) are needed to really encourage functioning competition. In developing countries, competition policy has to ultimately address the needs of consumers. This is because poverty reduction is the major objective on the development agenda (Millennium Development Goal 1). Thus, competition policy has to show clear evidence that it can contribute not only to economic development but also to poverty reduction. Developing countries increasingly recognize the importance of competition policy. At the beginning of 1990, there were only about 30 countries that had introduced a competition law, while currently the number exceeds 100. GTZ has been engaged in technical cooperation in the area of competition policy for many years in countries like Albania, Croatia, and Morocco. A prominent example of this engagement is its long-term cooperation with the Government of Indonesia, helping it set up and implement the competition law (or antitrust law) which will be described in the next section. 260 Part 4 Practitioners Perspectives

4 2. The Reform of Competition Policy in Indonesia During the last decades of the twentieth century, the Indonesian economy was dominated by highly concentrated industries, large state-owned sectors, and inefficient firms operating behind various kinds of barriers to entry. Due to very strong ties between business and the political elite, a few huge conglomerates controlled a large market share in several sectors, creating disadvantages for other enterprises that did not have the same opportunities and for consumers, who paid high prices but often got low product quality. The development of private business during that period was characterized by all kinds of inefficient government policies that caused market distortions. This kind of crony capitalism and lack of competition had its origin in the interest of the Indonesian Government during that time to maintain political control over the business sector and was also regarded as one of the factors facilitating the Asian Financial Crisis in Dismantling restrictions on competition was, therefore, an important condition of the support provided by international institutions to overcome the crisis. The new government under Jusuf Habibie (President of Indonesia from ) realized that Indonesia urgently needed a competition law and a strong implementing agency to systematically deal with unfair business competition; it asked the German Government to provide technical assistance through GTZ. The cooperation started in 1998 with a high-level dialogue, facilitated by GTZ, between representatives of the Indonesian government and parliament and Prof. Wolfgang Kartte (a former president of the Bundeskartellamt) and his team. The talks led to a common understanding about the philosophy and principles of the new competition law: It was agreed that under the new competition law all national and international enterprises should be treated equally; hence, no discrimination against single enterprises or groups of enterprises would be allowed. It was also agreed that the Indonesian competition law would be drafted according to a Model Law for Competition provided by UNCTAD 4 to make sure that widely accepted international standards were met. Many developing countries, including Indonesia, are members of UNCTAD. The German team s contribution was to provide comments on the draft law written by Indonesian experts. The Indonesian Competition Law was finally introduced in March 1999 and incorporates three key principles of competition policy that are part of German Competition Law, as well: (1) the existence of market power is not a violation of the competition law, but its abuse is; (2) the 4 United Nations Conference on Trade and Development. Frank Tibitanzl 261

5 creation of an independent competition authority (KPPU 5 ) enforcing the law; and (3) no discrimination against any enterprises or persons is allowed. In June 1999, a GTZ-supported project was launched to intensify the cooperation, focusing mostly on capacity development in order to establish the new KPPU as quickly as possible. The main activities were: (1) drafting a legal commentary on the new competition law (in Indonesian as well as in English), (2) training KPPU staff (in Jakarta as well as at the Bundeskartellamt in Germany), and (3) consultancy services for KPPU staff to help them handle their first cases. Furthermore, training for members of civil society (entrepreneurs, lawyers, NGOs, etc.) on the legal framework of a market economy in general was provided. During that period, considerable technical assistance was also provided by other development partners, especially the World Bank, JICA/JFTC, 6 US FTC, 7 ELIPS/USAID, 8 and the EU. - 5 Komisi Pengawas Persaingan Usaha. 6 Japan International Cooperation Agency/Japan Fair Trade Commission. 7 US Fair Trade Commission. 8 Economics Law, Institutional, and Professional Strengthening/United States Agency for International Development. 262 Part 4 Practitioners Perspectives

6 Despite this initial success, it became clear that to effectively implement competition law the assistance could not be restricted to KPPU, but had to involve the courts in charge of dealing with competition cases. Therefore, the Governments of Indonesia and Germany agreed to continue their development cooperation in the field of competition policy. In December 2005, the Government of Indonesia and GTZ began a new project to assist in implementing the existing competition law credibly and effectively (project objective) for five years. The following results chain describes the output and impact of the project. The new GTZ-supported project has two Indonesian partner institutions: in addition to KPPU, the Indonesian Supreme Court (Mahkamah Agung) also joined the project. Furthermore, the project cooperates with selected district courts responsible for competition cases. The activities also address lawyers, representatives of the police, the public prosecutor, and law faculties at universities. Civil society is targeted through public hearings and intensified public relations work. Support from the Bundeskartellamt has been continued during implementation. In addition, cooperation between the Bundesgerichtshof (BGH German Federal Court of Justice) and the Indonesian Supreme Court has been started. In May 2007, the presidents of both institutions signed an agreement at the BGH in Karlsruhe (Germany) to intensify their cooperation. Other partners of the GTZ-supported project are the Friedrich Naumann Foundation (FNS) and the German Academic Exchange Service (DAAD). There is also close coordination and cooperation with other development partners, for example with UNCTAD and the Asian Competition Forum (ACF). Until now, long-term German development cooperation (together with the support of other development partners who joined at a later stage) was highly effective and had great impact: During the first years of implementation, a competition law was endorsed and the KPPU was established as an independent authority for implementing this law. Whereas in many other developing countries, the commission authority (if there is any) is more or less a toothless tiger, the rulings of the new KPPU became, after initial reputation problems, more and more accepted by the responsible ministries and courts. Since its establishment, the KPPU has identified or received over 300 cases and has ruled on 33. The first rulings, which were not accepted by the corporations and were therefore appealed to the Supreme Court, were all refused by the Supreme Court, often due to procedural violations. However, the KPPU and the Supreme Court have improved their ability to handle the competition law, and today the Supreme Court now affirms more than 75% of the KPPU rulings. Better enforcement of the law Frank Tibitanzl 263

7 has already helped improve business competition in shipping and airline services, benefiting the public with cheaper fares. The decisions and recommendations of KPPU have also had an impact on consumer prices (reduction of prices for flight tickets) through increasing competition (rising number of airlines). For the success of German technical cooperation in the area of competition policy, several factors are highly important: High-level dialogue in the beginning to create a common understanding about the principles of competition policy. Here an explicit link to elements of the model of the social and ecological market economy was made and accepted by the Government of Indonesia. This high-level dialogue has continued throughout the project implementation and is now being continued by Prof. Bornkamm, the leading judge of the Cartel Senate of the BGH. Long-term technical cooperation mobilizing all relevant stakeholders provided a holistic approach with a clear priority on appropriate advocacy and adequate sustainable capacity development to enable the relevant Indonesian partner institutions to design, draft, and implement the new competition law. Many partner institutions and other stakeholders have been involved in this project: policy makers (for concept development), executive bodies (competition authorities, relevant line ministries), the judiciary (judges and lawyers), the media (to generate awareness and support among the wider public), private business (to ensure their compliance with the law), and academia (universities and research institutes). Involvement of high-level experts and practitioners of German institutions in charge of competition policy, the Bundeskartellamt, Bundesgerichtshof, and recently also the Bundesnetzagentur (Federal Network Agency). Hence, the long-term, trusting, and effective institutional cooperation between the two countries is still ongoing. Assisting the KPPU in regional activities: This contributed to greater ownership of competition policy by the Indonesian Government, as Indonesia took on a leadership role among the ASEAN countries 9 by organizing the first regional conferences on competition policy. These success factors are essential elements of the holistic approach that GTZ advocates. Furthermore, a cost-efficient mix of resources has been used. The project not only had a remarkable impact; it was also cost-efficient. Until now, the project has not employed long-term international experts, but only 9 Association of Southeast Asian Nations. 264 Part 4 Practitioners Perspectives

8 local advisers, for project management. To reduce expensive travel, cross-country video conferences were organized, during which KPPU staff were able to discuss with experts from the Bundeskartellamt and the BGH. However, a lesson learnt is also that for such a politically charged and controversial issue like competition policy, progress is not a linear process. There are always periods of frustration without any steps forward. 3. Future Options for German Technical Cooperation German technical cooperation in the area of competition policy in Indonesia will phase out in Therefore, the next steps in the ongoing project will concentrate on sustainability, including improvement of the interplay between the relevant institutions (especially KPPU and the Supreme Court) and improvement of the methodology (market definition, measurement of the impact of competition policy on social welfare, etc.) to improve the reputation of all institutions in charge of competition policy. All competition authorities share the problem of legitimacy, as the impact of improved competition on social welfare is not easy to demonstrate. The benefits are widespread and distributed among many companies and consumers. Furthermore, big companies always have an interest in a less powerful competition law and try to lobby against competition policy. Even in Germany, it took the Bundeskartellamt more than 10 years after its establishment in 1957 to become an effective and widely accepted institution. Thus, the importance of functioning competition for the development process in Indonesia must be continually emphasized. There has to be a broad consensus in the society that the success achieved so far must be protected against the interests of a few powerful companies. The successful methodical approach of German technical cooperation in strengthening competition policy in Indonesia should be repeated in other countries of the region: So far, only four (out of 10) ASEAN member countries have introduced a competition law (Indonesia, Singapore, Thailand, and Vietnam). Indonesia is the only ASEAN member that has a really independent competition authority and has started to restructure its judicial system to competently handle competition cases. However, implementing an effective competition policy is an important issue for all countries of Southeast Asia. Apart from Laos, which is still in the accession process, all ASEAN countries are already members of the World Trade Organization (WTO), which recommends the implementation of competition policy and law for each member country. Frank Tibitanzl 265

9 GTZ has sufficient knowledge and experience for technical cooperation in competition policy, especially through its collaboration with German practitioners from GTZ s strategic partners (Bundeskartellamt, Bundesgerichtshof, and Bundesnetzagentur). More support in competition policy and related areas like consumer protection policy could easily be provided to other ASEAN countries and to the ASEAN secretariat within an integrated approach. Especially the ASEAN secretariat should be strengthened in its role of advocating and harmonizing competition policy within member countries in the framework of the ongoing economic integration. This is the lesson learnt from the process of European Integration: From the beginning, the European Union has dealt extensively with antitrust and unfair competition. Article 85 of the 1957 Treaty of Rome sets out the basic parameters; these basic parameters of competition policy are still missing in ASEAN. 266 Part 4 Practitioners Perspectives