E-Newsletter Vol. 10

CUTS Centre for Competition, Investment &
Economic Regulation (C-CIER)

Advocacy and Capacity Building on Competition Policy and Law in Asia

CUTS Centre for Competition, Investment & Economic Regulation (C-CIER) is implementing a two-year project entitled ‘Advocacy and Capacity Building on Competition Policy and Law in Asia’ (7Up2), supported by the State Secretariat for Economic Affairs, Switzerland (SECO), the Swiss Competition Commission (COMCO) and the Department for International Development (DFID), UK. The project endeavours to accelerate the process towards a functional competition policy and law for selected countries (Cambodia, Lao PDR, and Vietnam in Southeast Asia, and Bangladesh, Nepal, and India in South Asia), and advance an enabling environment for the law and policy to be better enforced.

The project is undertaken in partnership with renowned institutions in each of the project countries. Details of the project are available at http://www.cuts-international.org/7up2.htm

Project News

TRAINING WORKSHOP ON COMPETITION POLICY AND LAW IMPLEMENTATION FOR LAO COMPETITION AUTHORITY OFFICIALS
A training workshop on generic issues related to competition policy and law implementation for Laotian competition authority officials was organised in Vientiane, Lao PDR, during 7-8 March 2006. A total of 50 participants, which included several officials from the Ministry of Commerce, the Committee for Planning and Investment, and representatives of the academia and the business community in Lao PDR attended the workshop.

Designed as a blend of theoretical analysis and hypothetical case study, the training workshop drew on the rich and varied experiences of several competition experts from India, Thailand, and Taiwan, to help formulate an applicable and effective approach for establishing a competition regime in Lao PDR vis-à-vis the country’s new competition statute, the Prime Minister’s Decree on Trade Competition No. 15/PMO, which was adopted in early 2004 and is yet to be implemented.

The workshop was inaugurated by Dr. Lienthi Keo, Vice President of the Committee for Planning and Investment (CPI) of Lao PDR, and was reported by the Vientiane Times, Lao PDR’s most popular English newspaper on the March 9, as an excellent initiative to help boost fair business competition in Lao toward better economic development.

TRAINING WORKSHOP ON COMPETITION POLICY AND LAW FOR CAMBODIAN LAW AND ECONOMICS STUDENTS
As a sequence to the training workshop in Lao PDR, a training workshop on generic issues related to competition policy and law was also organised for Cambodian students from the Royal University of Law and Economics, Phnom Penh, Cambodia, on March 10, 2006. More than 100 students and professors attended the same and interacted pro-actively with renowned competition experts from India, Taiwan, Thailand, and Canada.

Cambodia is in the process of drafting a national competition law, in order to fulfil its commitments for accession to the World Trade Organisation (WTO). Towards an effective competition regime and a healthy competition culture in the future, human resources development will be a focal point, in which the academia and students in interdisciplinary areas, such as that of law and economics, will have top priority. This workshop was perceived to have contributed greatly towards building up and enhancing awareness and the knowledge base on competition issues, in Cambodia.

NATIONAL CONFERENCE ON COMPETITION AND CONSUMER PROTECTION IN VIETNAM
CUTS Centre for Competition Investment & Economic Regulation (C-CIER) collaborated with the Competition Administration Department, Ministry of Trade of Vietnam, and the Vietnam Standards and Consumer Association (VINASTAS), to organise a national conference on competition and consumer protection issues in Hanoi, Vietnam, on March 20, 2006, against the background of March 15 – the World Consumer Rights’ Day.

The meeting was inaugurated by the Vice Minister of Trade of Vietnam, Dr. Le Danh Vinh, and drew the participation of more than 100 delegates, from various government agencies (in charge of standards, measurement, quality, food safety, hygiene, and market administration), consumer associations, civil society organisations, and the media, from cities and provinces across Vietnam. Extensive print media and television coverage was also undertaken to help raise the awareness of the wider public in the country.

Further details of all the above-mentioned events, along with the presentations, will soon be made available from the Project web page at http://www.cuts-international.org/7up2.htm

News Briefs from Project Countries

Bangladesh

Privatisation of 16 SOEs in Six Months
The Privatisation Commission in Bangladesh sees no major hindrance in the privatisation process of 16 more state-owned enterprises (SOEs). These enterprises would soon be handed over to the private sector in the remaining six months of this fiscal year.

In the year 2005, six industrial units were already turned into the hands of the private sector. During the past four years, a total of 26 SOEs have been sold out.

It has been reported that the performance of the SOEs divested during the year 2005 was “very good”. Hence, it is expected that the ongoing privatisation process will keep pace in 2006 as well.

Privatisation Commission Chairman, Enam Ahmed Chowdhury stated: “We’ve done a good job during the outgoing year and are expecting another good year in 2006″.

According to Chowdhury, even the political unrest before the next general election would not hinder the privatisation process, as both the ruling Bangladesh National Party (BNP) and the main opposition Awami League are “very much eager” about the privatisation of the SOEs.

The SOEs enlisted to be privatised this fiscal year include the Particle Board Veneering Plant, Chittagong, Bangladesh Can Company Limited, Chittagong, Standard Asiatic Oil Company Limited, Rupali Bank Limited, Arco Industries Limited, Chittagong, Tiger Wire Products Limited, Farashganj Road, Dhaka, SAF Industries Limited, Noapara, Jessore, and Dhaka Match Factory Limited, Shyampur, Dhaka.

(The Daily Star, 30.12.05)

The Bitter Fruits of Sugar Cane Harvest

A clash between the police and the sugarcane farmers ensued over the seizure of illegal sugarcane in South Bhurkapara, Bangladesh, in December 2005.

Low prices, mismanagement, and the corruption of the officials have always been the pressing anxieties of sugar cane farmers, and hence they have always been reluctant to sell sugar cane to the Kushtia Sugar Mill.

The prevalent circumstances forced farmers to produce molasses using homemade crushers, which had been declared ‘illegal’ by the government. The government restricted usage of the crushers in the mill zones of Kushtia district and some parts of Chuadanga, Jhenidah, Meherpur, and Rajbari.

Farmers alleged that if they sold their product to the mill in November, they would receive their dues only by January and March. While some others questioned as to why they should supply sugar cane to the mill, when they knew that the prices of sugarcane fixed by the mill was much less than what they got by making molasses.

On the other hand, sources have stated that sometimes, even when sugarcane sales ensured profit , farmers did not sell sugar cane to the mill. The sources added that due to lack of a supply of sugar canes, the mill had suffered losses in the last two seasons. As against the demand of 1.3 lakh and 1.4 lakh tonnes during the year 2003 and 2004, sugar cane supply to the mill was only 74,000 and 82,000 tonnes.

In an effort to improve the situation, the local government constituted a mobile court, which aimed at taking action against the use of crushers. During its month-long operation, it had to face strong opposition and agitation from sugar cane farmers. This was the second time the court was attacked by agitating farmers over the seizure of crushers.

As of the present, the situation in the mill zone area is reported to be under control. Farmers have expressed shock and have demanded their right of supply for their product. Likewise, mill officials have claimed that the atmosphere at the mill is now much more pleasant. In a break from the past, farmers were being paid cash, with several special packages being introduced for them.

(The Daily Star, 30.12.05)

Cambodia

Hun Sen Warns Against Possible ‘Farmers’ Revolution’
Addressing government officials and lawmakers at the National Conference on the Management of Natural Resources to Reduce Poverty held recently, Prime Minister Hun Sen warned that if illegal land seizure was not stopped in time, it could, in all possibility, result in a ‘farmers’ revolution’, against the government. He said that the government would not allow land seizure to result in a revolution and further added that action would be taken against all cases of forest and land grabbing.

According to the forestry administration department, the government has always aimed at preserving 61 percent of Cambodia’s land area as natural forest, which constitutes about 11 million hectares. The forestry department also indicated that between 1979 and 2002, about 250,000 hectares of forestland had been grabbed by the affluent in the army, and by the rich.

The Societe General de Surveillance (SGS) – the government appointed forestry monitor – in its Third Quarter Progress Report for 2005 laid that, in comparing satellite images taken in 2002, 2004, and 2005, it had been determined that Cambodia lost 74,000 hectares of forest between 2002 and 2005 in the northeast, 18,000 hectares in the central region, and about 30,000 hectares in the west.

The report said: “Losses have occurred in concession areas, forested areas, and protected areas”.

Several experts have raised grave concerns over the massive destruction of natural resources in the state and the immediate need for their effective management, preservation, and protection.

The natural resources of a country are vital not only for its economy, but also for maintaining quality life for its citizens. The Cambodian government realises that in order to ensure food security, income generation, and well being of the people, legislators have an important role to play in strengthening the laws to protect the major productive ecosystems of the country.

(Phnom Penh Post, December 16 – 29, 2005)

Cambodia to Build Two More Special Economic Zones

Two more special economic zones would be built in Phnom Penh and Takeo province, as reported by the local media in Cambodia recently.

The Attwood import-export company has planned to invest US$60mn in a special economic zone, on 353 hectares of land, in the outskirts of Phnom Penh. The zone would house garment, footwear, and electric appliance producers, the Cambodian Press Review reported.

The Doung Chhiv Development Company would implement a 70-million-US dollar project to construct a zone on 57 hectares of land, in Takeo ‘s Kirivong district, which plans to attract factories processing agriculture products, such as fish and wine. The company would make an initial investment of US$28mn.

The two firms would start their commercial activities by the end of 2006, according to government spokesman Khieu Kanharith.

Prime Minister Hun Sen said recently that he had approved two economic zones. He also called on all relevant government officials to help ease procedures for the companies to bring their plans into fruition.

The latest economic zone-related government approval brought the number of Cambodia’s economic zones to nine; some of them located in the Sihanoukville, Koh Kong, Svang Rieng, and Banteay Meanchey provinces.

Government services are available onsite in special economic zones, into which no tax is imposed on imported raw materials. And all paperwork would be approved there so that investors do not need to come to the relevant ministries.

(People’s Daily Online, 16.02.06)

India

Jet Flies Away with Sahara – Raising Monopoly Fears

By acquiring Air Sahara for Rs 2,200 crore in the biggest-ever deal in India’s civil aviation history, Jet Airways will not only get additional aircraft, pilots, technical staff, cabin crew, and parking slots, but also, more significantly, emerge as the dominant private airline with a 53 percent market share, with only a government-owned Indian to compete with. This is a worrying development.

Signed after days of media speculation and hard bargaining, the Jet-Sahara deal has raised fears about the emergence of a cartel or a monopoly situation, where airfares and routes can be manipulated and barriers can be raised against the entry of new players to shut out competition.

Controlling one-third of the air traffic, Indian Airlines, lately renamed as Indian, has considerably improved its performance over the years, but it still carries the government baggage and is not aggressive enough to meet the emerging situation. Although there are eight domestic airlines and six more are waiting to take off, Jet Airways has landed itself in a position of advantage.

Lack of competition is bound to hurt travellers. It is because of competition that air travel has come within the reach of the middle class and sparked a boom in the aviation sector. Telecommunications is another area where mobile telephony has spread far and wide due to competition and falling rates. In the given scenario, it becomes a duty of the government to prevent the formation of cartels.

Unlike the US and Europe where anti-trust laws are strict, India is still trying to put in place a legal framework to prevent monopolies from dictating the market. A competition commission has been set up, but doubts are already being raised about its role and effectiveness. There are too many limiting clauses and the coming Budget session may witness amendments to the recently enacted competition law.

If civil aviation has not yet grown the way the telecom sector has, it is partly because of the absence of a regulator like the Telecom Regulatory Authority of India (TRAI) for the sector. The government will have to act fast to calm the fears arising from the Jet-Sahara merger.

(The Tribune, Chandigarh, India, 20.01.06)

Jet-Sahara Merger Plan May Face Roadblocks

Jet Airways’ mega merger plan with Air Sahara could face roadblocks due to the growing resentment within the aviation industry and subtle lobbying by rival airline companies.

Significantly, the complaint lodged with Finance Minister P Chidambaram by Revolutionary Socialist Party (RSP) leader Abani Roy has come at an unsuitable time for Jet, due to the suspicion arising from the fake demat accounts scam covering the 2005 IPO of the country’s largest airline too.

Another MP, also from the Left, has expressed similar apprehensions to the Finance Ministry and the Prime Minister’s Office (PMO). While both sides are going ahead with negotiations and efforts are on to conclude the deal quickly, an unsigned note is doing the rounds in newspaper offices saying that US firms would not fund Jet’s acquisition of Sahara, since the Naresh Goyal-owned airline has not been given permission to operate flights to the US.

The industry is also abuzz with plans by a rival airline to organise a public interest litigation (PIL) to seek investigation into the deal, which will be the biggest in Indian aviation sector so far.

It is understood that legal experts representing Jet and Sahara are sorting out various issues at Mumbai. Since Jet has said that its board will meet on January 21 to consider fund raising, the clock appears to be ticking now. Both also need to decide on the future of the Air Sahara brand, and the role of Sahara Group in the merged entity.

The ‘complaints’ against the deal are primarily from Jet’s rivals. On their part, officials of Jet are exploring if any of these issues needs to be clarified prior to the deal. The primary grouse of rival airlines seems to be the ‘monopoly’ that the merged entity would enjoy in various segments, with a market share of over 50 percent.

Since the aviation sector does not have an independent regulator, it is not clear which arm of the government can throw more light on the debate. Roy’s letter, for instance, has been sent, apart from the Finance Minister, to Securities and Exchange Board of India (SEBI), National Stock of India (NSE), and the Bombay Stock Exchange (BSE). . The RSP MP has raised concerns over stock market regulations, consumer interest, and investor protection issues, which the government cannot ignore.

Rival airlines are concerned, since the Jet-Sahara merger would lead to formation of the country’s largest airline, which could simultaneously take on Indian (formerly Indian Airlines) in the domestic market and Air-India on the outbound sector. Smaller airlines feel that they would get trampled in the race between the bigger players.

GoAir’s Jeh Wadia is the only one to talk openly about ‘monopoly’ of the merged entity, but other players are also expressing similar apprehensions in private. Kingfisher, being in the full-service segment, would be the first to face the heat while Air Deccan, SpiceJet, and Paramount would also have to contend with increased competition after the merger. (http://sify.com/finance/equity/fullstory.php?id=14120794)

Lao PDR

Laotian Motorbikes Set to Go in Brazilian Market
Ever since Laos opened its market to the world, Laotian economy has not remained the same. The Kolao Group is an example of successful foreign investment in Laos. Koloa is one of the leading foreign investment groups in Laos doing business in construction, information technology, and farm and vehicle assembly.

The Koloa Group’s motorcycle produced in Laos is expected to hit the Brazilian Market soon within the next four years.

According to Koloa Group’s President Sei-Young Oh, an agreement had been signed recently in Brazil. The deal initially provides for the export of 5,000 Koloa Motorbikes in the year 2006. Oh is hopeful at gaining 20 percent of the Brazilian market in the future, which equates to 400,000 motorbikes per year.

Oh said that investing in Laos is much more simple and profitable. Since Laotian economy has just opened itself to foreign business, there is little competition and the business policy for foreign investors at present is “very easy”.

The Koloa president is of the view that countries with higher population have many investors in the same business, so competition level is high resulting in lower income level. Laos with a population of just six million may not attract many foreign investors, but due to low level of competition, a meticulously executed plan could help in generating a higher level of income.

(Vientiane Times, 30.12.05)

Economic Growth Demands Business Competition Law

Rivalry between businesses would be improved if Laos invoked further its competition law, according to a senior economic researcher on March 7, 2006.

The law would ensure that there is healthy competition between businesses, helping to raise the quality and quantity of production.

Acting Director General of the National Economic Research Institute (NERI), Dr. Leeber Leebouapao said at a training workshop on Business Competition Policy and Law in Laos on March 7, in Vientiane, that neighbouring countries already had such laws.

Dr. Leeber said that Laos did not have any direct legislation in relation to the business competition law, but it did have some regulations with regard to competition law.

He said that when there is high competition, it ensures products marketed are of good quality and low price; consequently, the benefits will go to local consumers. In addition, there will be benefits for producers with only minimal time and investment needed to make the necessary improvements.

Competition law will also help small producers grow, in addition to quality and modern production machinery. They will then be able to compete with foreign products.

Dr. Leeber said, “The competition law will help economic growth”.

Currently, many consumer goods produced locally by small producers have not increased their market share, as they cannot compete with larger investors. Big investors have currently gained a monopoly in their sector, allowing them to keep prices low. They also try to block other newcomers who want to invest in the same fields as them.

“This is why we are promoting business competition policy and law, in order to help ensure equality between businesses and to eliminate unfair trade practices”, Dr. Leeber added.

Vice President of the Committee for Planning and Investment, Dr. Lien Thikeo, said that business competition policy and law are very important for Lao economic development. Currently development is based on a market economy, and to ensure it continues so, there should be fair and equal business competition.

“Recently the government has issued trade competition decree to make business competition in Laos stronger. To make the decree effective, it has now been assigned to the Ministry of Commerce to be implemented in the business community”. Dr. Lien Thikeo said.

The two-day training workshop was held to build understanding of the meaning, role and importance of business competition for socio-economic development. In particular they emphasised how it could improve economic efficiency and the welfare of consumers.

It gave the participants the opportunity to review and make recommendations on research papers relating to business competition policy and law in Laos, drafted by NERI and Consumer Unity and Trust Society (CUTS) International.

The training was organised by NERI, supported by CUTS-International and business enterprises. This was the third training workshop scheduled, following two previous workshops last year.

(Vientiane Times, 09.03.06)

Nepal

Excise Stickers – A Sticky Affair
In order to stop leakages in excise duty collections by mid-November 2005, the Nepal government’s budget statement in Mid-July 2005 had proposed pasting excise stickers on each and every bottle of alcohol and packet of cigarette. Accordingly, it also asked businessmen to make the necessary arrangements. Likewise, an Indonesian printing company Peruri agreed to supply the 13 different types of stickers by October.

As of December 2005, the government’s attempts to label alcohol bottles and cigarette packets with excise stickers met with failure, when the stickers failed to arrive on time. The speculation then was that the authorities were in the process of breaking the agreement with Peruri.

It is still not known as to why there was a delay in the arrival of the stickers. A source of the Inland Revenue Department (IRD) said that the delay was on the part of the printing firm. Another IRD source added further that the stickers will be put on at any cost, but is unsure as to the point in time when the same can take place.

Whoever is to be blamed for the delay, it has been, needless to say, a relief for the manufacturers of alcohol and cigarettes. Presently, excise stickers are labelled on the cartons of alcohol bottles and cigarette packets. These stickers are printed in Nepal itself.

(New Business Age, December 2005)

New Corporate Laws
Four new corporate laws have been promulgated after four years of diligent effort in drafting them, in Nepal. The more one explores the corporate governance laws promulgated recently, the more noticeable are the substantial changes, in the existing system.

Odds Against
It has been argued that the time chosen to promulgate the new laws was not appropriate. The parties concerned were not given sufficient time to grasp the new provisions, and prepare themselves to the changed legal environment. Even the government was not prepared to take the immediate steps needed to implement these new laws.

Although the law came into effect two months ago, there were a number of important regulatory structures required for the implementation of the provisions set forth that were not in place. For instance, the new provisions assigned the Company Registrar a new role with many of the tasks now shifted to the Commercial Bench of the court. But this bench is still not formed.

It has been further contended that it will be very difficult to find appropriately qualified judges to head the commercial benches. There may be problems in speedy dispensation of the cases referred to in such courts, as such judges may need extra time to study and grasp the issue involved.

The new law requires that a person cannot be a company secretary in more than one company; hence, a massive shortage of qualified human resource is predicted.

Odds in Favour
It has been claimed, that the new law has an edge over the earlier ones. It has been formulated in a manner that investors from developed countries would feel more comfortable when they see what the law is all about. It will thus encourage foreign investment.

According to the law, a company no longer requires the permission of its registrar to decide the amount of capital to be raised and how to raise it. The law further lays down that a company’s directors, auditors, secretaries, and chief executive officers are personally liable for anything that goes wrong in a company. This is said to ensure good governance. Another provision allows foreign companies to operate as branches, in Nepal.

The concept of a company that does not distribute profit among the shareholders is a new introduction. Such organisations can now register as a company and carry out their voluntary activities, enjoying the freedom from the many restrictions imposed on other companies.

Overview of the New Company Law
The promulgation of the new Ordinance has been made with a view to further liberalise the economy and enhancing investment in industry.

The law provides that a public company may issue shares at premium, provided that it has paid dividends continuously in the previous three years and has a positive net worth.

Preference shares with varying rights could be issued. Such shares could be redeemable or unredeemable and convertible or non-convertible and dividend could be cumulative or non-cumulative. The ordinance also provides for second mortgage.

A company has been permitted to buy back its own shares if the following conditions are met:

A company is prohibited from granting loan or any other financial assistance for buying or creating any kind of lien on its won shares or the shares of the parent company.

The quorum for the annual general meeting of a public company has been reduced. The requirement of sending a detailed financial statement to a shareholder has been simplified. A summarised statement may be published in the newspaper.

Each public company is required to appoint independent director(s) on its board. A person may not be considered the director if the following holds true:

A director shall vacate his office if:

Besides, the authority of the directors has been subject to several limitations.

Each company needs to maintain an account in accordance with the prevailing Nepal Accounting Standards. An auditor of a public limited company has to be rotated every three years and may be subject to multiple penalty for any misdemeanour.

Last but not the least, a listed company with more than Rs. 30 million paid up capital is required to constitute an audit committee comprising of three directors.

(NepalNews, December 2005)

Vietnam

Raise Prices to Avoid Tax

It has been reported that the Honda retailers are selling Honda Vietnam’s Wave Alpha and Wave RS motorbikes at VND1mil per unit, in Hanoi; higher than the manufacturer’s recommended price. Honda Vietnam had previously set the sales price for Wave Alpha at VND12, 900,000 and for Wave RS at VND14, 900,000. The Honda retailers in Hanoi, on the other hand, are charging customers VND13, 800,000 for Wave Alpha and VND15, 800,000 for Wave RS.

It has also been reported that Future Neo, another Honda product is being sold within VND300, 000 to VND500, 000, a unit lower than the manufacturer’s set price. Likewise, prices for Yamaha, SYM and Suzuki are also lower than the listed price.

Hanoi retailers have said that the demand for Wave Alpha and Wave RS is very high in in the city and the corresponding supply is limited. Each agent in Hanoi receives only 50 to 100 units a month, which is not sufficient to meet the demand.

Even when there are many motorbikes on sale at lower prices, customers are willing to pay higher prices for Wave Alpha and Wave RS models.

If the retailers sell the models at the listed price they receive VND500, 000 commission per unit, but at the elevated prices they receive VND1 million to VND1.4 million for each unit. Upon selling 50 units of each type the retailers would make profit of VND100million of which VND50 million is not taxed. In an attempt to avoid taxes, the agents have raised the sales price spontaneously, and Honda Vietnam is aware of the same.

(VietNamNet , 25.01.06)

Competitive Index Fostering Provincial Growth & Development

The Vietnam Chamber of Commerce and Industry (VCCI) released the 2005 Provincial Competitive Index (PCI) in May 2005. The index was prepared based on a survey of 16,200 enterprises in 42 provinces and cities, which together contribute about 89 percent of the national gross domestic product.

The heavily industrialised southern province of Binh Duong topped the index with 76.82 points, while the northern Ha Tay province was placed at the end with 38.81 points.

At a seminar held to review the 2005 PCI results, the Director of VCCI’s Legal Department, Tran Huu Huynh, said that the poorly rated provinces in the index have been showing active signs of improvement. Huynh further added that the provincial leaders of these provinces took the index seriously and have positively responded to the index. These leaders are making all efforts to address shortcomings in their business environment and are in constant consultation with PCI officials. Huynh is hopeful that the 2006 PCI would reflect the outcome of these efforts.

Entry costs, initiative of local leadership, regulatory transparency and responsibility, priority given to SOEs, sound policies on developing economic sectors, land access, inspection times, unofficial costs, and the implementation of government policies were analysed during the survey.

The 2006 survey is expected to cover all the 64 provinces and cities and about 30,000 enterprises. Two more indices will be added to the 2006 survey – conflict resolution and legal institutions, added Huynh.

(Viet Nam News, 16.01.06)