Competition Policy and Transnational
Investment: Issues and Developments
in Asia and the Pacific
Marc Proksch, UNESCAP
Determinants of national competitiveness
(Porter)
Competition vs. Competitiveness

A high level of competition (rivalry) is a strong determinant of national
competitiveness as it optimizes the efficient allocation of capital;
triggers innovation and quality improvements, guarantees market
prices, and maximizes consumer welfare

Individual businesses traditionally seek to avoid competition but
industries and consumers (and the economy as a whole) thrive in a
competitive environment

It can therefore be argued that a competition policy is required to
ensure that adequate levels of competition are maintained
Five competitive forces which determine intensity of competition in a
given industry (Porter)
FDI affects all five forces and can
positively affect competition

Bargaining power of suppliers or customers can be enhanced (when it
is low) or reduced (when it is high) with TNC entry as supplier (e.g.
automobile components) or customer (e.g. large retailer)

Role of TNC as supplier or customer is enhanced through backward
and forward linkages

TNCs are new entrants and have power to lower barriers to entry:
TNCs can provide substitutes through their high marketing and R&D
capabilities

TNCs can directly add to competition/rivalry in the industry by
increasing the number of players

Contribution is particularly positive when TNCs are SMEs
Possible negative impacts of TNCs on
competition

When TNCs are large and powerful, they may monopolize the local
industry and raise entry barriers. I.e. through their superior
knowledge, management and marketing expertise and technological
edge they can crowd out domestic enterprises

They have the power to engage in anti-competitive behaviour (e.g.
predatory pricing, dumping, cartels)

They can monopolize intellectual property rights

They can take over monopoly public enterprises through privatization

They can take over weak domestic enterprises (e.g. Asian 1997 crisis)
and as a result they can rapidly become dominant player which may
lead to abuse
TNCs affect competition in developing countries through
their dominant role in international trade

They are involved in 2/3 of all international trade; 1/3 is intra-firm
trade (UNCTAD, 2002)

They often get special privileges when they are export oriented

They are more likely to engage in dumping

They are major holders of IPR which may restrict trade

Domestic market-oriented TNCs will often call for trade protection
TNCs view of competition

TNCs, like all businesses, tend to avoid competition

However, they are attracted to high growth economies which operate
on market economic principles, including competition

Therefore, economies which demonstrate national competitiveness in a
given industry (including competition) are better able to attract FDI in
that industry

However, once attracted, TNCs may strive to reduce competition
through their superior assets

The contribution of TNCs to national development is therefore
enhanced through the implementation and enforcement of an adequate
competition policy/law in addition to an adequate investment
policy/law
Investment policy vs. competition
policy

Goal of investment policy is to attract FDI. Improving competition may be
part of that policy. In turn, FDI may enhance competition (like increased
imports)

Goal of competition policy is to maximize efficient utilization and allocation of
resources and/or consumer welfare through the establishment of a level
playing field; FDI attraction can be part of that policy; competition policy
ensures that TNCs cannot exploit their often superior assets

Investment laws tend to have competition provisions while competition laws
have implications for FDI

Investment laws tend to discriminate among foreign and domestic companies;
competition law is non-discriminatory and therefore attracts FDI

Sometimes both policies are incompatible, e.g. incentives to attract FDI give
TNCs an unfair competitive edge; attracting more FDI may negatively affect
the level of competition

Therefore investment and competition policies should be mutually consistent
and coherent
Experiences in Asia Pacific

Investment policy and laws have become norm; however their implementation
and enforcement have a mixed track record; institutional framework also
tends to be weak

In many countries, investment policies tend to focus on attracting FDI through
incentives rather than on the basis of competitiveness factors

In many countries competition is restrained as a result of market
concentration and government intervention, including public enterprise
monopolies. However, privatization policies have been and/or are currently
being implemented in virtually all Asian countries

Competition policy and laws are relatively new concept and still lacking in
many countries though awareness is growing, especially after the Asian 1997
crisis

Often trade and investment laws and liberalization policies are quoted in the
context of competition policy. However, while such laws/policies may promote
competition they do by themselves not regulate competition and prevent
monopolies.
Examples in the region

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
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Republic of Korea: until crisis no effective pro-FDI and competition regime
despite 1980 competition law; Even now, chaebols continue to dominate
India, Pakistan, Sri Lanka: competition regime/laws in place but their effective
implementation/enforcement is often lacking; India is slowly liberalizing FDI
and enacted new competition law in 2002; Sri Lanka has liberal investment
regime
Hong Kong, China; Singapore: very liberal investment regimes; competition
promoted but no consolidated competition policy or law (currently in process);
sectoral approach; market knows best
Economies in transition in Central Asia: competition law enacted in early
1990s; enforcement/implementation issue; main modality: privatization
China, Viet Nam: main FDI destinations but investment regime does not meet
international standards; competition policies and legislation are fragmented
and not effective. In China, adoption of an anti-monopoly law is currently in
process; Viet Nam adopted competition law in 2004.
ASEAN: Competition law in Thailand strengthened, in Indonesia formulated
only in response to crisis (implementation?); Malaysia and Philippines have
competition policy but no specific competition law
LDCs like Bangladesh, Cambodia, Lao PDR and Nepal: investment policies
and laws in place and are very liberal by international standards, but poor
enforcement due to lack of resources; no competition policy, law
Some conclusions

For some countries it was possible to develop rapidly despite restrictive
FDI and competition regimes

However, the region faced a reality check in 1997

In the current era of globalization and liberalization it is doubtful that
successful development can be achieved without a strong supporting
investment and competition regime

The issue is not whether you have excellent investment and
competition laws: relevance, implementation and enforcement are
crucial

Need for consistency and coherence between industrial, trade,
investment, competition and IPR regimes
Proper policy responses

Trade liberalization should be combined with conducive industrial,
investment and competition policies;

Industrial policy should strive towards forging strong backward and
forward linkages between TNCs and domestic enterprises where
feasible

Establishment of proper investment and competition (and related) laws
and institutions;

Such laws need to be realistic and duly implemented and enforced and
applicable to public enterprises

Enforcement institutions need proper expertise, mandate and
resources;

Coordination among institutions and consistency among laws and
regulations are essential: sometimes consolidations may be useful
Proper policy response, cont.

Privatization of government enterprises, especially monopolies. Successful
privatization process requires healthy environment of competition. With
regard to public goods and services, government monopolies may be more
desirable

IPR regime needs to balance investment promotion objectives with
competition objectives

For small countries, regional cooperation is essential, but even for bigger ones
it is highly recommended

For FTAs to be effective, investment and competition provisions could be
included (e.g. ASEAN/AFTA has common frameworks for investment and IPR
but not for competition)
Some questions arising from Asian
experience

Is competition a necessary condition for competitiveness?

How can competition be maximized: through the market
or through the government? I.e. is a competition policy/law
necessary to ensure competition?

How does the need for competition be reconciled with the
need to create economies of scale for global
competitiveness? Are “national champions” compatible
with competition objectives?