Competition Policy, Consumers’ Rights
and
International Trade
Presented by:
Dr M. A. Razzaque
16 April 2006
Here we will discuss:
• What is competition?
• What is Competition Policy?
• Competition policy and law acting for consumer welfare
• Consumerism and Consumer rights
• International Trade and consumer rights
 International trade and trade liberalisation
Trade liberalisation and competition policy
 Does competition policy restrict international trade?
or, does it promote trade competitiveness?
 WTO and competition policy
 Competition policy under trading blocs
What is competition?
Competition
Literary meaning: a contestable situation where
people fight for superiority.
In market economy, competition is a process
whereby firms fight against each other for
securing consumers for their products
Fair and Unfair Competition
Fair Competition
• Producing quality goods
• Becoming cost-efficient
• Optimizing the use of
resources
• Adopting the best
available technology
• Investing in research and
development, etc.
Unfair Competition
• Fixing prices with the
rivals
• Setting a price which is
lower than cost in order to
throw out competitors from
the market
• Advertising that belittles
others’ product, etc.
Types of competition
Price Competition
Competition among suppliers
to win customers by offering
lower price. May not be an
appropriate strategy for those
loyal to a particular brand.
Non-price Competition
Competition
to
win
customers not by lowering
price but by advertising,
offering after-sales-service,
using sales-promotion tools,
etc.
Forms of Market Competition
Models of
Competition
Number of
buyers
Number of
sellers
Nature of
products
Barriers to
entry and
exit
Perfect
competition
Very large
Very large
Identical
products
None
One
Single
product
Very large
Monopolistic
Very large
competition
Large
Minimum
differences
None
Oligopoly
Very few
Large
differences
Large
Monopoly
Very large
Very large
For detailed information please consult
• Competition Policy and Law Made Easy:
Monographs on Investment and Competition
Policy, #8 ;CUTS (Pages 1-4)
Oligopoly Market : Competition Among the Few
Key Features:
• Interdependence between firms in performance and strategy
• Aggressive action followed by defensive reaction
• Price competition and price war
(Recent packages offered by Mobile Phone companies)
• Intense non-price (promotional publicity) competition, which
may result in wasteful expenditures.
Detail on Oligopolistic market structure
• Making Sense of Competition Policy, by Frank Fishwick
(1993) (Pages 47-62)
Competition Policy /Law


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.
Components of competition policy
Competition Policy
Government Policies
Competition Law
Private Actions
Deregulation
and
Privatization
Trade Policy
Industrial
Policy
Consumer
Policy
Regulations Governing
Capital and FDI
Other
Policies
Competition Law (National)
Anti-Competitive
Agreements Between
Firms
( Collusion)
•Import cartels
•Price fixing
•Market sharing
•Bid rigging
•Limiting production
•Refusal to buy or
supply
•Tie-in arrangements
•Exclusive-dealing
•Resale price
maintenance
•Territorial allocation
Abuse of a
Dominant
Market Position
• Predatory pricing
• Price
discrimination
• Excessive pricing
• Abuse of
intellectual property
monopoly
Regulation of Mergers to
Prevent Tactics to Gain
Excessive Dominance in a
Market
Applies to:
•Total unification
of the companies
involved
•Buying of
sufficient shares in
a company so as to
have a say in
policy formulation
The three stages of provisions that a
competition law constitutes are:
•
The behavior and structure of firms in the market
•
Institutional and enforcement design with a competition
authority, and
•
Competition advocacy.
For details on competition policy and law:
• Competition Policy and Law Made Easy: Monographs on Investment
and Competition Policy, #8 ;CUTS (Pages 23-26)
• UNTCAD: Trade and development Board: Intergovernmental Group
of Experts on Competition Law and Policy; sixth session, Geneva, 8-
10 November 2004 : Communication Submitted by the People’s
Republic of Bangladesh (Pages 2-4)
Consumerism and Consumer Rights
• The idea of consumerism was initiated in the Western world during
the 1960s.
• American President John F. Kennedy formed a committee with US
congress members and announced four rights of consumers in 1962 :
1. The Right to Safety
2. The Right to Choose
3. The Right to Information
4. The Right to be Heard
Consumerism and Consumer Rights (Continued…)
• The Consumers International (CI), former International Organization
of Consumer Unions (IOCU), the umbrella body, for 240
organizations in over 100 countries, expanded the charter of
consumers rights contained in the US Bill to eight:
1. Basic Needs
2. Safety
3. Information
4. Choice
5. Representation
6. Redress
7. Consumer Education and
8. Healthy Environment.
• On this basis, the United Nations, in April 1985, adopted its
Guidelines for Consumer Protection, that all citizens, regardless of
their incomes or social standing, have basic rights as consumers.
Scope of Consumerism
According to World Congress Statement,
Consumerism should ensure:








Effective Consumer Policy
Sustainable Consumption
Food Security and Food Safety
Access to Healthcare
Trade and Economics
Consumer Education
International Rules and Standards
Product testing
• For further information, please see
CI 16 World Congress Statement (pages 9-14)
Duties of a Consumer
•According to United Nations, five duties of a consumer are:
1. To be aware about the quality of Products and services
2. To bargain for right product
3. To consider the rights of other consumers so that they are
not harmed by his conducts
4. To be aware of maintaining the sustainable environment
5. To be active and united for consumer protection.
Need for 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.
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
On the whole, a competition policy maintains and
promotes the competitive spirit and culture in the
market.
Globalization and the need for Competition Policy
Globalization and Competition
Outcome of
threat to
Concentration of Market Power
Therefore, we need competition policy to monitor, prevent
and control anti-competitive practices.
For details on globalization and competition:
• UNTCAD: Trade and development Board:
Intergovernmental Group of Experts on Competition
Law and Policy; forth session, Geneva, 3-5 July 2002 :
The relationship between competition, competitiveness
and development. (Pages 3-6)
Arguments Against Competition
• Preventing formation of large firms may reduce efficiency. The
situation arises when there exists significant economies of scale:
Examples : Natural Monopolies, like,
Infrastructure, Power and Railway .
• An obsession with competition might be counterproductive
leading to inefficiency especially when goods and services tend to
be homogenous.
• Policy actions against highly profitable firms could work against the
development of dynamic and thriving firms.
• Over-regulation could increase firms’ cost of operations and
generates inefficiencies.
International trade and trade liberalisation
International trade – Exchange of goods and services amongst
countries
Trade Liberalisation?
 Undertaking liberal policies for imports
 Having liberal policies for exchange transactions
Trade Policy and Instruments
 Policy => sets out objectives and means to attain
them
 Instruments => a set of tools through which policy
objectives are to be materialised.
Trade Policy Instruments to Control Imports
 Import bans
 Quota – quantitative restrictions
 Tariffs (customs duty, supplementary duty, VAT, Dev surcharge)
 Tariff rate quotas
 Foreign Exchange restrictions
 Import Licensing
Trade Liberalisation would imply:
• Relaxation/removal of import bans
•Relaxation/removal of quantitative restrictions
• Reduction/removal of tariffs
• Relaxation of foreign exchange restrictions
• Simplifying the import licensing procedure
How trade measures are recorded:
• Use of certain classification system (such as HS and
SITC)
• Use of codes to reflect disaggregation of commodities
 Consider the Code:
HS 02
HS 0202
HS 0202200
_ Meat and Edible Meat Offal
_ Meat of Bovine Animal Frozen
_ Meat Bovine Cut w/Bone Frozen
Operative Tariff Schedule
 OTS of Bangladesh 2003-04
Excel Sheet showing Bangladesh’s OTS
Calculate the impact of tariffs
87032113
(luxury
vehicle)
$100
CD
22%
SD
250%
DS
4%
AIT
3%
VAT
15%
$122
$305
$317
$327
$375
On-going Trade liberalisation in Bangladesh
 Significant changes in terms of abolition of import quotas,
simplification of import licensing procedures, reduction in import
tariffs, harmonisation of tariffs, reduction in the number of tariff
slabs.
Bangladesh: Removal of QRs at the 4-digit HS Classification Level
Year
1985-86
1987-88
1988-89
1990-91
1991-92
1992-93
1993-94
1995-97
1997-02
2003-06
Total
478
529
433
239
193
93
109
120
122
63
Restricted for trade reasons
Banned
Restricted
Mixed
275
257
165
93
78
13
7
5
5
5
138
133
89
47
34
12
19
6
6
8
16
79
101
39
25
14
14
16
16
10
Restricted for
non-trade
reasons
49
60
78
60
56
54
69
93
95
40
5.0
2003-2006
1997-2002
1.9%
2.2%
2.2%
1.9%
1994-95
1995-97
3.2%
0.0
1993-94
3.2%
10.0
1992-93
11.1%
15.0
1991-92
14.5%
20.0
1990-91
20.5%
25.0
1989-90
30.0
28.7%
35.0
1988-89
1987-88
1986-87
40.0
38.0%
39.6%
34.7%
45.0
1985-86
per cent
Trade-Related Restrictions as Proportion of Total HS 4digit Import Lines
Bangladesh: Un-weighted Average Duty Rates
License
Fiscal Year
CD
SD
VAT
IDSC
Fee
Total
1991-92
57.23
0.73
14.03
2.22
82.29
1992-93
47.14
1.44
12.17
2.19
69.57
1993-94
1994-95
1995-96
1996-97
35.83
25.95
22.46
21.87
1.67
0.61
0.82
0.97
11.63
10.4
10.58
10.68
-
2.15
1.95
1.98
1.99
56.3
42.43
38.95
38.57
1997-98
1998-99
1999-00
21.1
20.52
17.12
1.11
1.49
2.04
10.66
10.63
10.36
2.27
2.26
1.99
1.99
1.99
2
40.61
40.49
36.86
2000-01
2001-02
17.2
17.13
3.22
3.22
10.81
10.83
2.07
2.07
2.08
2.08
39.38
40.15
2002-03
16.5
1.96
10.94
2.92
-
35.51
Are all these liberalisation good for competition?
 Certainly, liberalisation tends to promote competition
We can work out the competitive effects from the impact of
tariffs.
CD
SD+DS+AIT
BD price
World $100
30%
50%
$195
World $100
30%
0
$130
 Domestic producers have to compete with
international firms
 Liberalisation could be an effective means for dealing
with monopoly and oligopolistic market structures.
 Liberalisation can ensure ‘love for variety’ and quality
Liberalisation however may not work, if:
 Importers form cartel and/or are involved in tacit collusion
 Foreign firms can manage to ‘avoid’ competition
 Import of goods is restricted due to such factors as foreign
exchange scarcity/import licensing procedure/political unrest
leading to disrupted transportation and communication system,
international crises leading to supply shortfall.
In the first place, liberalisation may not be possible, if:
 If there is a strong pressure from the domestic industry groups
(vis-à-vis given the isolation paradox and free rider problem
amongst the consumers)
 Political economy of protection – the connection between
domestic producer groups and policy makers.
 Infant industry argument (but what if the infants are never
grown up?)
 Employment argument (but who does the bear the costs?)
Sugar Price Hike
17011100 (raw
cane sugar)
US price $0.46/Kg
($462/mt:)
CD
30%
SD
30%
DS VAT
4% 15%
1$ =
TK.70
0.59
0.77 0.80 0.93
Tk.65
Alternative
Price: $0.46/Kg
0.59
X
X
X
Tk. 41.3
Alternative
Price: $0.46/Kg
X
X
X
0.53
Tk. 37
Shipment and insurance costs have not been considered here, which would
be around 10 percent
For sugar price:
http://www.sugartech.co.za/sugarprice/index.php
 BUT, Note that alternative scenarios might result in loss of
government revenue.
 Flexible trade policy will require flexible revenue raising
capacities.
 The basic point is: on many occasions one can rely on
international trade to tackle the anti-competitive practices.
Does competition policy restrict international trade?
or, does it promote trade competitiveness?
 Evidence for restricting international trade is unknown.
 However, strong possibility of raising the competitiveness of
domestic industry and thus expansion of exports.
 The strategy of providing some protection to begin with and
then setting industries free may be effective, if the right industries
are selected.
WTO and competition policy
• Still not an agreement under WTO
• First proposed in Singapore 1996 but without
any success
• Many developing countries opposed the idea of
bringing in competition policy in WTO – why?
• Having competition policy is not WTOinconsistent as long as the principle of nondiscrimination is maintained.
• In fact, it may be required to have CP to deal
with unfair practices of international suppliers.
Competition policy under trading blocs
• Consider SAFTA
• Suppose, BD and India are to exchange 0 for 0 tariffs under
SAFTA while the tariffs on rest of the world remains the same.
• Let’s get back to our sugar example
Existing situation CD SD DS
17011100 (raw
30% 30% 4%
cane sugar)
US price: $0.46/Kg 0.59 0.77 0.80
India: 0.40/kg
0 tariff under
bilateral FTA
VAT
15%
0.93
0.46
1$ =
TK.70
Tk.65
Tk. 32
(Tk. 60)
Pro-consumer
10% 0% 0% 15%
tariffs
US Price:$0.46/Kg 0.50 0.50 0.50 0.58 Tk. 40.7
Concluding Observations
• Trade is usually good for competition.
• Loss of revenue can however be a concern.
• Trade and competition can promote
competitiveness of the domestic sectors.
• Trade and competition policy does not rule out
the need for providing protection to local
industry.
• Bangladesh has made some significant
progress on trade liberalisation.
• But, there are further scopes for supporting
consumers.
• Well-thought out and flexible use of trade instruments
can serve the purpose of consumers and domestic
industry.
• Regional trading arrangements will have to be
carefully handled to protect consumers.
• Behaviour of the importers need to be carefully
monitored.
Thank You.