The Need and Rationale for Competition Law and Policy in CambodiaTraining Workshop on Competition Policy and Law Implementation for CambodiaPhnom Penh10 March 2006 Deunden Nikomborirak Thailand Development Research Institute
Presentation Outline • The Idea and Principle of Economic Competition • Definition of Competition Policy and Law • The Need to have Competition Policy • The Need for competition Law • Conclusion
1.Idea and Principles of Economic Competition • Economics: Perfect competition will yield most efficient allocation of resources and outcome • Business: Michael Porter– A Firm’s Competitiveness depends on the level of Competition in the market. But competition in the market may be limitedi.e. “market failure”. Hence, this requires economics of regulation and competition.
Economic Competition “Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics” George Reisman
2. Definition of Competition Policy Policy to promote free and fair competition in the market.
Competition in a Market Imported products Locally made products Foreign SOE Trade Policy Domestic Investment Policy Privatization Policy
Competition Policy & Law Competition policy Privatization Policy Trade & investment policy Competition law Regulatory policy Competition Advocacy
How to ensure “Free and Fair” Competition ? • Competition Advocacy (government rules and regulations) • The Competition Authority • Business Associations • NGOs • Academics • Competition Law (private practices) • Competition Authority
Competition Advocacy • Ensuring that state laws and regulations do not restrict or distort competition in the market -- i.e., investment incentives, industrial standards, quota allocations, exclusive concessions etc.
Competition Law • Ensuring that businesses – both private and state owned – compete fairly in a market • The law prohibits • Exploitation of monopoly or market power • Collusive practices • Mergers that lead to market power • Unfair trade practices resulting from unequal bargaining power between buyer and seller of a product or service
Competition Law in ASEAN • Thailand 1999 • Indonesia 1999 (effective 2000) • Vietnam (2005) • Singapore (2005) • Lao PDR(Competition Decree - effective August 2004)
3. Why does Cambodia need competition Policy ? • The country is undergoing privatization of SOEs • Regulatory regimes are not well developed. • The country is implementing many new rules and regulations that have import implications for the competitive environment in many industries.
4. Why does Cambodia need a competition law ? High risk of monopolization and collusion because 4.1 Limited size of domestic market implies potentially concentrated markets. 4.2 Lack of transport infrastructure implies that markets are geographically “segmented” 4.3 proliferation of “exclusive” private concessions in order to mobilize private investment 4.4 A large agricultural sector where farmers will be exposed to competition from vertically integrated food MNCs. 4.5 Foreign acquisition of local businesses or business consolidation (mergers) may lead to monopolies/duopolies
4.3 Competition Problems between farmers and MNCsin Agriculture FARMERS MNCs COST Chicken breeding Chicken feed Chicken farming Chicken farming Margin squeeze PRICE Chicken eggs Chicken eggs
4. Why does Cambodia need a competition law ? High risk of “unfair trade practice”, resulting from 4.4 Proliferation of SOEs with regulatory and monopoly power 4.5 Unequal bargaining power between buyer and seller – i.e., retail business or franchise business
5. Conclude • Competition Policy = Competition Advocacy + Competition Law is important to ensure the competitiveness of the economy as well as the growth of local SMEs and entrepreneurs.