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Competition law & policy, economic growth & development: Australia & Indonesia. A Brief Discussion Rafaelita M. Aldaba, PIDS 15 November 2011 Bali, Indonesia. Australia & Indonesia: competition gains. Very different countries: stage of development, institutions, history, culture

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competition law policy economic growth development australia indonesia

Competition law & policy, economic growth & development: Australia & Indonesia

A Brief Discussion

Rafaelita M. Aldaba, PIDS

15 November 2011

Bali, Indonesia

australia indonesia competition gains
Australia & Indonesia: competition gains
  • Very different countries: stage of development, institutions, history, culture
  • ACCC: relatively long history of competition law; KPPUin its nascent stage; objective is to enhance national welfare & efficiency
  • Benefits from competition law & policy esp. reduced prices for utilities & basic commodities
  • Australia: efficiency gains: 2.5% of GDP or $20B/year
  • Indonesia: consumer savings from reduced prices of basic commodities & mobile telecommunications
  • Australia: evolving nature of competition law & policy in response to business behavior & economy
debate on merits of competition law continues main arguments
Debate on merits of competition law continues: main arguments
  • Missing markets: financial markets, investments can only be financed by retained profits, eroded by unfettered competition
  • Achieve a certain size to compete in world markets: implications for conduct of reviews of mergers
  • No need for government to promote rivalry in markets where innovation is principal source of competition; monopoly profits are incentives for firms to innovate
  • Maximizing rivalry leads to inefficient outcomes in natural monopolies & some network industries
  • Philippines, no comprehensive competition law, same arguments raised by skeptics
philippines a study in contrast
Philippines: a study in contrast
  • Shallow, hollow, & lagging growth; failed to create jobs
  • Gross domestic investment has been low & declining from 25% in ‘97 to 14% in ‘09
  • Phils 16.5% (average) lagged behind Indonesia 25%, Malaysia 22%, Thailand 26% VN 36%
  • Phils 1.4% & Indonesia 0.52% lagging, Malaysia & Thailand 3%, Cambodia 4.7%, Viet Nam 5.5%
why has the philippines lagged in attracting investment
Why has the Philippines lagged in attracting investment?
  • Weak institutional & regulatory mechanisms
  • Poor infrastructure
  • Weak competition
  • Weak competitiveness of Philippine industries, low productivity, & low trade gains (exports as % of GDP rose 82% in ‘90s to 97% in ‘00s; imports 44% to 50%; unfavorable trade balance )
competition issues in vital industries rising prices high cost low quality services
Competition issues in vital industries: rising prices, high cost & low quality services
  • First country in Asia to enact competition law (1925); not effectively implemented; since 1980s attempts to legislate
  • Cement cartel: controlled by the world’s big 3, prices continued to rise even during the GFC, government eliminated tariffs in ‘08-’09 but to no avail
  • Interconnection issues
  • Merger took place, duopoly
  • Strengthened incumbent’s market dominance
  • High entry barriers: congressional franchise, 40% foreign equity limit
  • Merger can endanger competition & welfare improvement arising from the deal
other competition problems major lessons from australia indonesia
Other competition problems & major lessons from Australia & Indonesia
  • Shipping cartel & inefficient ports: lack of regulatory independence & credibility; uses its power to protect its own ports against competition from privately-owned ports (conflict of interest)
  • Low quality of service, high logistics & shipping costs affecting competitiveness: one of the longest duration & high cost for port & terminal handling in Asia (exports: 3 days/$270; Indonesia: 2 days/$165 )
  • Australia & Indonesia: greater competition leads to welfare gains & benefits
  • Philippines: weak competition has led to poor economic performance, lack of investments, low competitiveness
  • Done quite a lot of liberalization but not efficient institutions/regulatory
  • Liberalization & shift to more open economy requires changes in legislations & policies, building efficient institutions & good infrastructure to support reforms, generate supply side responses & reap gains in terms of employment & growth
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