DOHA ASSESSMENTS-III: India has no reason to be afraid of Competition

Financial Express, November 28, 2001

By Pradeep S Mehta

In the context of a multilateral competition policy, the Doha Ministerial Declaration notes: “Recognising the case for a multilateral framework to enhance the contribution of competition policy to international trade and development.. we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations”.

The government of India is mistaken if it believes that negotiations will require an explicit consensus, only the modalities will require a common understanding. Besides, we have agreed to the need for a multilateral competition policy (MCP) in any case.

What does “modalities” mean? It would mean what will be the core principles and the methodology of negotiations for a MCP. But why is India opposing an MCP to be incorporated into the multilateral trading system under the WTO? Basically, there are three reasons: a) the URA problems still have to be resolved; b) developing countries cannot take on more burden, and c) we still need to develop our own competition laws, before entering into any multilateral arrangement.

The first argument, although may have some justification, has lost its significance now. Competition is no longer a new issue at the WTO. To start with the EU was a strong proponent of an MCP, supported by Japan and Hong Kong. The US was vehemently opposed to it, but relented for several reasons. Is an MCP so harmful to the developing countries that they have to fight tooth and nail to block it? No, on the contrary, if properly negotiated, an MCP can bring significant gains to the developing countries.

There is a long history of cartels in which multinational companies carve up the world into areas of control. As a consequence of greater global concentration of ownership, there has been a sharp increase in the extent of global cartel activity. A World Bank study has shown that in 1997, developing countries imported $81.1 billion of goods from industries in which price-fixing conspiracies have been discovered during the 1990s. These imports represented 6.7 per cent of imports and 1.2 per cent of GDP in developing countries. They represented an even larger fraction of trade for the poorest developing countries, for whom these products represent 8.8 percent of imports.

There might have been several other price-fixing conspiracies which remained undiscovered. Moreover, all these cartels are made up of producers, mostly from industrialised countries. Recent international enforcement action has resulted in million dollar fines against vitamin companies, food additive makers and steel manufacturers. To date only a handful of countries have taken action to penalise transgressing companies or to recover compensation. Moreover, although many of these cartels have been detected and penalised in developed countries, they are still operating in developing countries.

Developing countries are doubly harmed due to these international cartels. Not only that cartelisation leads to higher prices, reduced supply and reduced choice for consumers, these cartels can maintain their position with high barriers to entry for other producers, which again is a serious cause for concern for developing country producers who are, in general, relatively new to international trading. To detect, control, break and punish international cartels, merely having a jurisdiction in competition law is not enough. Countries have to co-operate with each other.

With increasing interaction between firms and economies at the global level, anti-competitive conduct by firms is also globalising. In fact, such anti-competitive practices have been on the rise as a result of increased concentration in the global market. In 1980, the world food and beverage market was dominated by about 180 companies, but today, about half of these companies retain roughly the same market power. In the early 1980s, the top 20 pharmaceutical companies held about 5 per cent of the world prescription drug market, today, the top 10 companies control 40 per cent of the market.

The argument that the EU is pushing for an MCP only to get market access in ‘developing countries’ seems to be ludicrous. It’s true that one of the objectives of having such agreement is to remove private barriers and ensure better market access. But is it not a fact that the corporations based in the developed countries create market barriers for developing countries? Are the companies of the developing countries powerful enough to raise effective entry barriers for the TNCs?

If market access is in the EU agenda, then their eyes are on the US market, rather than the developing countries market. Precisely that is one of the reasons that the US had been opposing a multilateral competition agreement. In fact, if the private barriers are removed effectively, the developing countries will be in a better position to export their products into the developed markets.

A strong domestic competition regime, although necessary, is not sufficient to deal with globalised competition abuses. Hence the need for an MCP can hardly be overstated, be it within the WTO framework or some other forum. But since it is already under active consideration under the WTO, it does not make any sense to oppose it. Given the present situation there are several reasons for having an agreement on competition within the WTO. First, it will bring some balance in the WTO approach, which is heavily biased in favour of the producers, especially the TNCs and does not address the consumer concerns. The spirit of binding commitment within the WTO will make such agreement more effective than a freestanding one or within some other forum. Considering the past experiences in this regard it will not be easy to have a binding competition agreement in some other forum.

Although, in all likelihood, the developing countries have more to gain from an MCP compared to the developed countries, their poor performance in the Uruguay Round has made them defensive, so much so that they are not even willing to think about any new issue at the WTO. Of course, most of them do not have any experience with competition policy even at domestic level. Hence for them it is probably ‘ignorance is bliss’.

However, the same is not true for India, which has a long history of competition law. It is also on the verge of scrapping its old version and enacting a state-of-the-art competition law for the country. Obviously, there cannot be ‘ignorance is bliss’ situation in India as there is no such ignorance. If at all it is there, it is restricted to only a few who, although powerful, are not willing to see the writing on the wall.

Hence, India has no reason to oppose an MCP under the WTO, and needs to stop using‘’ignorance’ as the weapon to block it. Rather, India should take a proactive approach in this regard. It should engage in research and study to develop a model agreement on competition that will address the concerns of the developing countries. It must also build the capacity of its negotiators on the issue. It should also mobilise support of other developing countries to push forward its agenda which will benefit all of them during the negotiations that will take place on competition. If India continues to remain adamant and immune to reasons in its efforts to block any agreement on competition, it will do so at its own peril!